THE EFFECTIVENESS OF INVENTORY AND STORES MANAGEMENT ON TURNOVER PERFORMANCE OF NATIONAL MEDICAL STORES

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Senior managements concern is managing inventory levels because the impact of changing the inventory management procedures on turnover is reflected in turnover growth. There is a lot of research that has been done in this area by developed countries however, for resource poor settings there is hardly any documentation Wawera et al; 2004. There is therefore need for study using company in a resource limited setting as a case study to establish how inventory management practices affect turnover of an organization.

National medical stores (NMS) has the responsibility of delivering pharmaceuticals and medical supplies to over 70 district health offices and hospitals spread throughout the nation. Mountainous terrain throughout the country, the fact that some health facilities are located on islands and the poor condition of roads all serve to complicate the distribution operation. Add to this the disproportionately high cost of fuel and the limited resources of the governments health budget and the need for efficient transport management becomes clear. Transaid were invited by National Medical Stores of Uganda to undertake an assessment of their transport and distribution function in order to provide a series of recommendations as to how they could reduce costs, increase efficiency and improve service delivery.

The result of the operational assessment was the development of a report detailing recommendations for improvement of the existing NMS distribution operation. The recommendations include suggestions for an appropriate policy and system implementation, resolution of organizational process issues, which had been adversely affecting the transport operation, and the subsequent execution of an outsourcing study to determine an effective solution for ongoing expansion of the delivery network. With the adoption of these recommendations NMS will be expected to benefit from reduced transport costs, increased vehicle utilization allowing a reduction in fleet size, improved vehicle availability allowing a faster response to vehicle demand, and overall improved vehicle service delivery. At present the tasks of managing the day to day transport operation are taking considerable time with the implementation of appropriate processes and systems this work will be greatly reduced freeing the transport and logistics officer to concentrate on upcoming projects to increase the distribution network which NMS services.

Comparison of the audited accounts for 1999/2000, 2000/2001 and 2001/2002 with the five year corporate plan of National Medical Stores indicated that the implementation of the objectives both for its set up and those of corporate plan was done inefficiently. The exact figures for turnover were 7,189,877,006, 6,188,066,486 and 7,449,418,322 respectively. This meant  that National Medical Stores had a shortfall from the targeted sales were 9,528,408,399,718,172,041 and 11,970,611,208 respectively. This meant that National Medical Stores had a decline in the targeted sales of 24.5 percent, 42.3 percent, 37.8 percent representing an average shortfall 34.8 percent.

Rutaagi 2001 attributes the decline in sales turnover to how customer services levels high costs of sales, uncertainty of customer demand and inaccurate procurement needs estimation all of which are inventory management practice aspects. Given the inventory turnover cycle of 1.33 and 2 for the same period compared to 1.05, 1.15, in the corporate plan (NMS 1999) respectively. It is apparent that decline in sales had negative effect on inventory turnover. This strongly suggests that inventory and stores management is not effective on the turnover performance in the analyzed period. This study therefore intends to investigate the effectiveness of inventory and stores management on turnover performance and recommend interventions to mitigate the situation.

1.2 PROBLEM STATEMENT 

National Medical stores (NMS) reveals Operational Constraints in areas of operations management, fleet management, management information, human resource and aspects which include how customer service levels, high costs of sales, uncertainty of customer demands, Long supplier Leads times, inaccurate procurement needs estimation. This study intends to undertake analysis on the effectiveness of inventory and stores management practices on turnover performance of National Medical Stores and under take a series of recommendations as to how these variables could reduce costs, increase efficiency and effectiveness and improve service delivery of National Medical Stores.

1.3OBJECTIVES OF THE STUDY

To evaluate the impact of the modulating factors that is to say information monitoring and information management practices to turnover performance.

1.4 RESEARCH QUESTIONS 

(i) What effect do inventory monitoring and information management have on National Medical

Stores?

(ii) What is the effectiveness of demand forecasting on National Medical Stores turnover

performance?

(iii) What effects do inventory information management have on demand forecasting of National

Medical Stores?

1.5 SIGNIFICANCE OF THE STUDY

To understand the effectiveness of inventory and stores managed practices stretches out study turnover growth. However many companies tend to neglect this practices which slackens turnover growth. This study intends to highlight the key inventory monitoring and inventory information management indicators to ensure turnover growth. These therefore can be used by companies in resource limited settings to carry out interventions as proposed by this study to ensure effectiveness of inventory and stores management practices.

1.6 SCOPE OF THE STUDY 

The study will include customer employees and managers where the study will include 50 of the personnel of (NMS). 50 personnel out of the population of (NMS) in the functional areas are relevant to the study across the organization from various functional areas, departments, positions of respondents, duration of staff in the organization from various functional areas, department, positions of respondents and the duration of the staff in the organization.

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