Effect Of Inventory Management On Customer Satisfaction

1.1 Background Information to the Study

Manufacturing sectors continue to contribute significantly to economic developments of both developed (KPMG, 2016; Trading Economics, 2018) and developing economies (Mukopi & Iravo, 2015; Modgil & Sharma, 2017). The manufacturing sector’s core mandate is to convert inventories comprising raw materials, components or parts and work-in-progress into end products to satisfy end users’ needs (Sitienei & Memba, 2015). Arguably, manufacturing firms can never operate without relying on inventories which constitute about 70 percent of total current assets (Sitienei & Memba, 2015; Takim, 2014). This is a clear indication of the immense importance of inventories to achieving the performance and competitiveness goals of manufacturing firms. Studies by (Panigrahi, 2013; John, Etim and Ime, 2015), revealed that the increasingly competitive and dynamic nature of manufacturing environments have called on firms to adopt comprehensive and innovative ways to manage their inventories. Thus, manufacturing firms in developing economies can only survive unhealthy competitions while continuously meeting fluctuating customer demands by ensuring proper inventory management (Raheman, Afza, Qayyum & Bodla, 2010; Kontuš, 2014).

Inventory management is a term employed by firms to monitor and evaluate their investments in inventory (Stevenson, 2010).Inventory management involves methods used for organizing, holding and replenishing stock (Ain 2014). Odiri (2015), agreeing with Ain (2014), argue that inventory management is the application of management tools to ensure that the needed quality and quantity of stock is available at the right time, place and at the lowest cost possible. Inventory management is the systematic procedure of planning, organizing, monitoring and controlling inventory levels to ensure adequate stock replenishment and meet customers’ demands (Priniotakis & Argyropoulos, 2019). Inventory management is regarded as a fundamental component to the logistics system which helps to secure coherent supply of products to customers and achieve organizational objectives. Inventory plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline. Prudent management of inventory reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). Inventory management is critical to an organization’s success in today’s competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. High levels of inventory held in stock affect adversely the procurement performance out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality (Koin, Cheruiyot & Mwangangi, 2014). In a strong competitive environment, it ensures that customers are retained and satisfied. It ensures that stock is available in the right quantity, the right quality, at the right time and sold out to the final consumers at the lowest possible cost. Minimizing inventory costs while maintaining and improving product/service quality to enhance customer satisfaction and loyalty is the essence of inventory management (Solvaxis, 2015).

However, customer satisfaction is the customer’s assessment of products and services to ascertain whether the market offering(s) meets his/her needs and expectations (Valarie, Zeithaml, Bitner & Gremler, 2006). Kotler and Armstrong (2013), indicated that customer satisfaction is a product’s perceived performance relative to customers’ expectations. Eckert (2007), explained that customer satisfaction could be ascertained by the number of customers in terms of the size of the customer pool, its quality and the loyalty they have toward the organization. Customer satisfaction is the way the customer thinks about the company and deals with the meeting or exceeding of expectation over the lifetime of the products and/or services. A company’s loyalty and product repurchase comes from achieving customer satisfaction. In other words, when the product’s perceived performance is below customers’ expectations, the customer   is dissatisfied. The given context is therefore pertinent to how business organizations respond to dynamic customers’ demands by harnessing appropriate market orientation. Customer sophistication has made the effective application of inventory management practices and market orientation in organizations inevitable (Alexander, Emelia & Ireen, 2016). Thus, this study tends to examine the effect of inventory management on customer satisfaction in Dangote Cement Plant, Ibese, Ogun State.