INVENTORY MANAGEMENT PRACTICES AND PROJECT PERFORMANCE

OF SELECTED CONSTRUCTION COMPANIESIN NAIROBI CITY COUNTY,

KENYA

ORECHI GESARE ROSE

D53/CTY/PT/32979/2015

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS,

ECONOMICS AND TOURISM IN PARTIAL FULFILLMENT FOR THE
AWARD OF DEGREE IN MASTER OF BUSINESS ADMINISTRATION
(PROJECT MANAGEMENT OPTION) OF KENYATTA UNIVERSITY

NOVEMBER, 2022

i
 DECLARATION

This research project is my original work and has not been presented for the award of
a degree in this or any other university

Signature _________________________ Date________________________

Orechi Gesare Rose

Reg No. D53/CTY/PT/32979/15

Declaration by Supervisor

I confirm that this project was done by the candidate under my supervision

Signature _________________________ Date________________________

Dr. Alfayos Ondara

Lecturer, Management Science Department,

School of Business,

Kenyatta University

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 DEDICATION

I dedicate this proposal to my mother, Rodah Orechi, for being the main pillar during
my academic journey. I have much gratitude to my siblings, Duke, James, and Elvine.
They have always been there for me and believed in my dreams.

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 ACKNOWLEDGEMENT

I am indebted to God for making it possible for me to reach this far. Much
appreciation goes to my supervisor Dr. Alfayos Ondara for always guiding me and
responding on time whenever I need help with the proposal. My gratitude also goes to
Kenyatta University lecturers who have contributed positively to my studies. My
classmates have played a significant role in motivating and supporting me; I
appreciate them so much.

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 TABLE OF CONTENTS
DECLARATION..........................................................................................................ii

DEDICATION............................................................................................................ iii

ACKNOWLEDGEMENT .......................................................................................... iv

LIST OF TABLES ...................................................................................................... ix

LIST OF FIGURES ..................................................................................................... x

OPERATIONAL DEFINITION OF TERMS .......................................................... xi

ABBREVIATION AND ACRONYMS .................................................................. xiii

ABSTRACT ............................................................................................................... xiv

CHAPTER ONE .......................................................................................................... 1

INTRODUCTION........................................................................................................ 1

1.1 Background to the study ..........................................................................................1

1.1.1 Project performance ...................................................................................... 2

1.1.2 Inventory Management Practices .................................................................. 3

1.1.3 Construction Companies in Nairobi.............................................................. 4

1.2 Statement of the problem .........................................................................................5

1.3. Objectives of the study ............................................................................................7

1.3.1 General objective .......................................................................................... 7

1.3.2 Specific objectives of the study .................................................................... 7

1.4 Research questions ...................................................................................................7

1.5 Significance of the study ..........................................................................................7

1.6 Scope of the study ....................................................................................................8

1.7 Limitation of the study .............................................................................................8

1.8 Organisation of the study .........................................................................................8

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CHAPTER TWO……………………………………………………………………8

LITERATURE REVIEW ...........................................................................................9

2.1 Introduction ..............................................................................................................9

2.2 Theoretical review ...................................................................................................9

2.2.1 Theory of Constraints (TOC) ........................................................................ 9

2.2.2 Transaction Cost Economic Theory............................................................ 10

2.2.3. Lean Theory ............................................................................................... 10

2.2.4. Theory of Organisational performance ...................................................... 11

2.3 Empirical review ....................................................................................................12

2.3.1 Inventory Management Controls and Organisational Performance............ 12

2.3.2 Inventory Management Costs and Project Performance ............................. 14

2.3.3 Inventory Management Systems and Organisational Performance ............ 16

2.4 Summary of Literature Review and Research gaps ...............................................17

2.5 Conceptual Framework ..........................................................................................22

CHAPTER THREE ................................................................................................... 24

RESEARCH METHODOLOGY ............................................................................. 24

3.1 Introduction ............................................................................................................24

3.2 Research Design.....................................................................................................24

3.3 Empirical model .....................................................................................................24

3.3.1. Operationalisation and measurement of variables ..................................... 25

3.4 TargetPopulation ....................................................................................................27

3.5 Sampling Design ....................................................................................................27

3.6 Data Collection Instrument ....................................................................................28

3.7. Data Collection Procedure ....................................................................................29

3.8 Pilot Study..............................................................................................................29

3.8.1 Validity ....................................................................................................... 29

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 3.8.2 Reliability.................................................................................................... 30

3.9 Data Analysis and presentation..............................................................................30

3.10 Ethical considerations ..........................................................................................30

CHAPTER FOUR...................................................................................................... 31

RESEARCH FINDINGS AND DISCUSSION........................................................ 31

4.1 Introduction ............................................................................................................31

4.2 Analysis of Response Rate and Descriptive Statistics ...........................................31

4.2.1 Respondents’ Background Information ...................................................... 32

4.2.1.1 Gender of the participants ........................................................................ 32

4.2.1.2. Education of the participants .................................................................. 32

4.2.1.3. Years of Service of the participants ........................................................ 33

4.3 Descriptive Statistics..............................................................................................34

4.3.1. Inventory Management Controls ............................................................... 34

4.3.2. Inventory Management Costs .................................................................... 37

4.3.4. Project Performance ................................................................................... 41

4.4 Correlation Test Results.........................................................................................42

4.5 Inferential Statistics ...............................................................................................43

4.5.1. Model Summary......................................................................................... 43

4.5.2. Analysis of Variance (ANOVA) ................................................................ 43

4.5.3. Regression analysis Results ....................................................................... 44

CHAPTER FIVE ....................................................................................................... 48

SUMMARY, CONCLUSION AND RECOMMENDATIONS.............................. 48

5.1 Introduction ............................................................................................................48

5.2 Summary of Findings.............................................................................................48

5.2.1 Inventory Management Controls and Organisational Performance............ 48

5.2.2 Inventory Management Costs and Project Performance ............................. 48

5.2.3 Inventory Management Systems and Organisational Performance ............ 48

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5.3 Conclusion of the study .........................................................................................49

5.3.2 Inventory Management Costs and Project Performance ............................. 49

5.3.3 Inventory Management Systems and Organisational Performance ............ 49

5.4 Recommendations of the Study .............................................................................49

5.5. Suggestion for further Research............................................................................50

REFERENCES........................................................................................................... 51

APPENDICES ............................................................................................................ 57

Appendix I: Introduction Letter ...................................................................................57

Appendix II: Research Questionnaire ..........................................................................58

Appendix III: Research Permit ....................................................................................63

Appendix IV: Letter of Approval from University ......................................................64

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 LIST OF TABLES

Table 2:1: Summary of Literature Review and Research Gaps ...................................18

Table 3:1: Operationalisation and Measurement of Variables ....................................26
Table 3:2: Target Population .......................................................................................27
Table 3:3: Sample Size ................................................................................................28
Table 4.1. Descriptive Statistics on Inventory Management Controls ........................35

Table 4.2. Descriptive Statistics on Inventory Management Costs .............................37

Table 4.3. Descriptive Statistics on Inventory Management Systems. ........................39

Table 4.4. Descriptive Statistics on Project Performance ............................................41

Table 4.5. Correlation Test Results..............................................................................42

Table 4.6. Model Summary .........................................................................................43

Table 4.7. Analysis of Variance ...................................................................................44

Table 4.8. Regression Output.......................................................................................45

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 LIST OF FIGURES

Figure 2:1: Conceptual Framework .............................................................................23

Figure 4.1. Rate of Response .......................................................................................31

Figure 4.2. Gender Distribution ...................................................................................32

Figure 4.3. Respondent’s Education ............................................................................33

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 OPERATIONAL DEFINITION OF TERMS

Deterioration: It is change in material quality resulting from the

long time it has existed. It is also caused by
caused by the environmental degradation

Economic Order Quality: It refers to the set standard of inventory ordered at

any given time.

Holding Costs: They are costs that result from capital costs,
handling of inventory, its storage, obsolescence,
shrinkage and also deterioration

Inventory Management Controls: These are controls put in place to ensure that
there is neither excess nor shortage of inventories.
These controls include; control of materials,
warehouse security, stock taking, inventory
budgets, inspection, accounting controls and
purchase procedures.

Inventory Management Costs: It is an inventory management practice aimed at

providing the required inventories to sustain the
operations at minimum costs. The costs include;
purchase costs, holding costs, stock-out costs,
transport costs and deterioration costs.

Inventory Management practices: It is the supervision of those assets that are not
capitalized and it includes stock assets.

Inventory Management systems: These are systems that ensure that there is
valuable use of inventory. They include Pareto
systems, vendor-managed inventories, just-in-time
and economic order.

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Obsolescence: It refers to the risk of an item losing its value
specification changes, shrinkage or decrease over
time.

Order Costs: These are expenses incurred in making

requisitions, making an analysis of the available
alternatives and writing of the orders to be
purchased, reception, checking and keeping of
records.

Performance of organisation: This entails customer satisfaction, profit

maximisation and reduction of wastages in an
organisation.

Purchase Costs: refers to the price of buying a commodity from an

external source and it is inclusive of the
transportation costs.

Stock Taking: It is a process of verifying the physical quantities

of materials at a given time.

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 ABBREVIATION AND ACRONYMS

ABC Activity Based Costing

EOQ Economic Order Quantity

JIT Just in Time

MRP Materials Requirements Planning

TCE Transaction Cost Economic theory

TOC Theory of Constraint

USD United States Dollar

xiii
 ABSTRACT
Proper inventory management has a significant effect on project performance.
Construction companies play a major role in setting up and completing projects that
contribute to the overall growth of an economy. Over the past years, the construction
companies in Nairobi have been experiencing performance-related challenges in their
projects. At times, inventory costs run beyond the estimates, which eventually results
in losses for the firms. Some of the large construction companies have many projects
with fixed prices based on the contracts, and they sometimes bear the risk of cost
overruns. The companies sometimes experience interrupted operations because the
inventory runs out of stock. However, most of them have insufficient inventory
management approaches. It leads to a delay in finishing projects, and they incur more
costs than their estimates during budgeting. The study's primary goal was to analyse
Nairobi's performance and inventory management in selected construction firms. The
study had three objectives, and they include; to determine the relationship between the
inventory management controls and the performance of selected construction
companies in Nairobi, Kenya, to establish the effect of inventory management costs
incurred on the project performance of selected construction companies in Nairobi,
Kenya and to analyse the effect of inventory management systems on project
performance of selected construction companies in Nairobi, Kenya. It is hinged on
four theories and they include Lean theory, transaction cost economic theory, and
theory of constraints and the theory of organizational performance. The study utilized
a descriptive research design. The target population included three construction
companies in Nairobi; Seyani Bros Ltd, Intex Ltd and Epco Builders Ltd. 686
employees were drawn from Seyani Bros Ltd, Intex Ltd and Epco Builders Ltd
specifically working in procurement, finance and warehouse departments. A sample
size of 206 was obtained through stratified random sampling technique. Using self-
administered questionnaires, primary data was obtained and used to establish the
sample size. Tables' graphs and also charts were used in the analysis based on the data
collected. From the findings, the objectives had a positive and significant effect on the
project performance of selected construction companies. The increase is significant
given that the p-value is .046. This implies that inventory management controls have a
significant and positive effect on the project performance of construction companies.
On inventory management cost it had 0.00 p value which means a unit increase in
inventory cost management results in an improvement in performance holding other
factors constant. The increase is significant given that the p value is .026. This means
that inventory management systems have significant and positive effect on project
performance. The recommendations are based on the research outcomes and that
construction companies should direct their efforts and this will help the companies in
Improving their profit margins.

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Project performance is a significant challenge that construction companies grapple
with as they strive to meet the needs of their clients (Rivera, Nguyen &Kashiwagi,
2017). Projects are reported to have become more prominent and complex, making
them difficult to manage (Soni, Pitroda, &Bhavshar, 2016). Establishing a proper
balance between inventory management and the completion of projects is quite
difficult (Osuzugbo, 2019). It is estimated that between 60 to 70 percent of the overall
funds of a business entity, especially within manufacturing and construction, are held
up in current assets, with inventory accounting for the biggest portion (Mulandi&
Ismail, 2019).

Construction companies across the world suffer from poor performance in the projects
that they undertake (Mowery, 2016). According to CMS International Construction
Survey (2017), the performance of construction projects in UK as at 2016 show a
decline in profitability from 7 percent in 2014 to 5 percent in 2016. Further the
projects that were completed in time and according to the budget were 45 percent. In
the USA, it was reported that most construction companies had a failure and
bankruptcy rate of 75 percent meaning that few of them succeed. A study by
Kashiwagi (2013) identified the management of inventory as the biggest source of
projects failure. Further the previous research show that 38 percent of the players
within the construction sector see the issue of poor records on materials used as the
main problem. A global construction survey (2015) indicated that globally, only 50
percent of the construction companies use a project management system with 32
percent of those using it having failed to integrate it with other systems starting from
procurement systems, inventory management system and accounting systems.

In Malaysia, construction companies have existed for over 10 years, and all have the
objective of profit maximization (Gitau, 2016). The companies do not focus on the
amount of every item that the firms should hold in their stocks (Seboru, Mulwa,
Kyalo, & Rambo, 2016).It has greatly affected the production, sales, and reduction of
the project performance(Mowery, 2016). The companies are mandated to have a

1
highly organized inventory management system due to the rapid change in the
environment of projects. A rapid increase in competition affects the performance of
projects (Robert, Lyria&Mbogo, 2019).

In Africa, the construction sector has not been without challenges just like in other
countries of the world (Bamgbade, Mohammed & Nawi, 2016). The problems facing
the construction companies are significant and more complex. In South Africa, the
construction sector has been struggling with challenges and problems such as poor
performance of projects (Sibiya, Aigbavboa &Thwala, 2014). Scarce resources and
lack of transparency in systems of procurement and labor are some of the challenges
(Construction Industry and Development Board, 2015). The construction sector in
Nigeria comprises 22 percent foreign companies and 78 percent local companies, and
while construction companies like Costain West Africa plc and Reynolds construction
company, most of them are not able to operate on a large scale as they face the
challenge of poor management of inventory and other resources (Osuzugbo, 2019).
This often leads to poor performance.

In Kenya, inventory is estimated to contribute up to 56 percent of the sales and

turnover of a firm per year; hence it plays a significant role (Robert, Lyria&Mbogo,
2019). With the surge in competition among the firms in Kenya, stakeholders have
come up with the best techniques for measuring and managing the available scarce
resources so that wastes can be eliminated (Mulandi& Ismail, 2019). Gitau (2016)
states that firms with a high capability of managing inventory properly have a good
chance of becoming competitive and ultimately improving their project performance.

1.1.1 Project performance

It is determined by proper management of inventory (Gitau, 2016). Over the years,

many international construction companies have received attention from project
management practitioners and scholars because of the problems that are associated
with proper management of inventory (Mowery, 2016). According to Lakshmi &
Ranganath (2016), the inventory costs that are incurred in the procurement process
have been a major setback to the performance of the projects in the companies. In
most cases when the companies procure the goods before the construction process
begins, and they end ordering for more, which in most cases is wastage of the

2
resources (Robert, Lyria & Mbogo, 2016). At times the inventory ordered becomes
inadequate and the management is forced to budget for more materials so as to finish
up the project (Soni, Pitroda, &Bhavshar, 2016). Use of just in time approach to
procure the inventory required has in most cases proved to be impractical because the
companies work with fixed budgets and they are forced to do all the planning at the
beginning of the project (Seboru, Mulwa, Kyalo, & Rambo, 2016).
The companies do not have adequate inventory management approaches (Mowery,
2016). Efficient control of inventory leads to profit maximization and efficiency is
something that the companies are yet to achieve (Bamgbade, Mohammed &Nawi,
2016). The companies have not established efficient annual stocking policies. The
policies enable the management to be aware of both the maximum and also minimum
stock levels that should be kept by the companies across their networks. The
optimization of the reorder levers, safety stock levels, and average inventory levels is
insufficient to ensure that costs are successfully contained (Ondari & Gekara, 2013).

According to Kairu (2015), companies have not been able to maintain a perpetual
inventory system, which will enable them to keep a constant track of both the value
and quantity as well of every other item that is stocked. Soni, Pitroda, &Bhavshar,
(2016) asserts that Inventory turnover is not watched closely for every other item that
is in the warehouse. The companies are yet to establish effective purchasing
procedures so as to ensure that the inventory is under control that is totally adequate
(Mowery, 2016). The managements are yet to adopt some purchasing procedures that
align with the actual sales, demand pattern data and history. In some cases, they end
up having obsolete stocks. The approaches that are applied by the construction
companies have a very huge impact on their performance (Gitau, 2016).

1.1.2 Inventory Management Practices

They involve control and overseeing of the ordering, storage and also the use of items
that are linked to production function of an organisation either in a direct or indirect
way (Lakshmi &Ranganath, 2016). It is also inclusive of the direction of all the
activities that have the main purpose of getting inventory in the right quantity and
time (Ondari&Gekara, 2013). The inventory management system a company uses has
a direct or indirect effect on the profits (Mowery, 2016). Good inventory management

3
is broad and covers the areas of finance, procurement along with selling hence for it to
be effective the three areas must be harmonized (Balcik, Bozkir & Kundakciglu,
2016).

Inventories are all the goods that a company holds so as to enhance its process of
production. (Pandey, 2017). If an organisation does not manage its inventory
properly, then it will not achieve its targeted profits and the customers will not be
satisfied (Muller, 2019). Inventory management has major goals of providing
inventories that are required to sustain various operations at a minimum cost (Gallino,
Moreno & Stamatopoulos, 2017).

In the recent past, the construction industry has faced numerous challenges as the
stakeholders strive to manage inventory and it has greatly affected the performance of
most of the construction companies (Ondari&Gekara, 2013). There have been
incidences of overstocking materials that have expired or even outdated, stock taking
theft, under stocking, and even experiencing delays in delivery (Kimani, 2016).

The inventory of raw materials is kept as cushion so as to avoid the possibility of

running out of stock whenever they were needed, in the traditional settings (Kairu,
2015). However, it is not a convenient approach as the larger buffer of inventories
consumes a lot of important resources and as a result hidden costs are generated. Due
to that some companies in South Africa decided to change the approach that they used
for inventory management and production (Robert, Lyria & Mbogo, 2019).

Companies usually incur some significant costs in the maintaining and also procuring
inventories, and they become the largest proportion of the production expenditures
(Jagongo & Makori, 2015). Inventory costs are inclusive of the carrying costs and
they are: insurance and storage; ordering costs that include transportation and the
placement of stores; and the stock out costs that include loss of sales and redundancy
as well (Kotabo, 2012).

1.1.3 Construction Companies in Nairobi.

The study’s focal point was on construction firms based in Nairobi namely; Intex
construction, Epco Builders and Seyani bros Ltd. Intex construction is a Kenyan
construction company that was established in June 1982. It is based in Westland

4
Nairobi and it opened its offices in Kampala Uganda in 1995. It has engaged in
several projects in real estate, road construction and civil engineering. According to
the information available from its website, it has constructed over 1,000 kilometres of
roads. It was also involved in constructing the High rise flats in Kibera, Nairobi.

EpcoBulders Ltd is a Kenyan construction company was founded in 1978 with its
headquarters being in Industrial Area in Nairobi. It currently has a turnover of Kshs. 5
billion with a capacity to handle projects worth 12 billion (Epco Builders, 2021).
Epco Builders has contributed to major housing projects like KiberaHighrise, Langata
housing scheme, Kenya Railways, KCB housing scheme in Embakasi and Flametree
apartments in Thika.

Seyani Bros Ltd is also one of the largest construction companies found in Parklands
area Nairobi, Kenya. It was founded in 1978 by two brothers. It has undertaken many
constructions including the construction of schools, construction of apartments and
construction of office fits. In addition, the company has opened the steel fabrication
workshop, carpentry workshop and stone cutting section in a bid to improve its
operations. Projects are mainly characterized by items that are of a totally different
nature, they overlap degree of changes and construction as well. Kotabo (2012)
exposed some of the shortcomings of the traditional clerical oriented and also the
focus on price as an approach in management of materials. Inadequate availability of
the items that are needed on the site is the most common cause of project delays
(Ghalayini et al., 2011). Chen et al. (2015) claims that firms that have peculiarlyhigh
inventories have poor stock returns, and those ones that are abnormally low have
stock returns that are just ordinary.

1.2 Statement of the problem

Construction companies in Nairobi have been characterised by poor project
performance with up to 40 percent of the projects being rendered incomplete. The key
challenges arise from poor inventory management practices for instance shortage of
materials used in construction, high costs arising mostly from poor budgeting and
poor management of the projects. Construction Companies in Nairobi just like many
construction companies have grappled with inventory management challenges like
wastages and huge costs. The backdrop guided the researcher to seek to ascertain the

5
relationship that exists between practices in inventory management and project
performance.

Construction companies in Nairobi experience so many challenges, as they manage

their inventories (Kairu, 2015). At times the costs of inventory run beyond the
estimates and this eventually results in losses for the firms. Some of the large
construction companies have many projects that have fixed prices based on the
contracts, and they at times bear the risk of cost overruns. At times the companies
experience interrupted operations because the inventory runs out of stock
(Jagongo&Makori, 2015). Kairu (2015) found out that, they are forced to budget for
more stock, and as a result the project takes longer than the estimated time. It
definitely necessitates the management to incur more costs.

Gitau (2016) asserts that the major aim of the construction companies is to maximize
profits. The financial performance of the companies is very crucial in determining
whether it is able to meet its goals. The construction companies seem to focus more
on acquiring more projects, since the industry is becoming more competitive, and they
concentrate less on coming up with proper inventory management procedures
(Bamgbade, Mohammed & Nawi, 2016). It is because of inadequate systems in place
that there is a lot of inventory theft and this affects the overall performance of
companies. Kimani, (2016) claims that the management is forced to procure more
items for completion of a project.

There are a lot of shortcomings in the inventory control management that are
employed by the construction companies (Jagongo&Makori, 2015). Ondari and
Gekara (2013), claim that the companies are yet to lay the procedures to ensure that
they maximize the profits of the organisation. The management needs to ensure that
the approach they decide to employ suits the organisations, failure to do it, the profit
margins will definitely decrease continually.

6
1.3. Objectives of the study
1.3.1 General objective

The main objective of the study was to determine how inventory management
procedures and project performance of particular construction companies in Nairobi
County relate to one another.

1.3.2 Specific objectives of the study

i. To determine the effect of inventory management controls on the project

performance of selected Construction Companies in Nairobi.
ii. To establish the effect of inventory management costs incurred on the project
performance of selected Construction Companies in Nairobi.
iii. To evaluate the effect of inventory management systems on the project
performance of selected Construction Companies in Nairobi.

1.4 Research questions

i. What is the effect of inventory management controls on the project
performance of the selected Construction Companies in Nairobi?
ii. What is the effect of inventory management costs on the project performance
of selected Construction Companies in Nairobi?
iii. What is the effect of inventory management systems on the project
performance of selected Construction Companies in Nairobi?

1.5 Significance of the study

The study would be helpful to stakeholders of the construction companies to have a
clear understanding on inventory management practices and the project performance.
They will also effectively employ better strategies in control of the materials and
eventually meet their business goals.

The study would also help the policy makers within the construction sector in
developing adequate management approaches on inventory. They will be able to
develop annual stocking polices that will bring efficient management of inventory.
This will guide them on the adequate optimization of the reorder levels, the safety
stock levels, and average levels of inventory so as to ensure that there is effective
containing of costs

7
The study would be useful to the already available literature as it will increase
knowledge on inventory management and improve the performance of the
construction companies. Better decisions will be made by the companies and they will
employ the best available methods so that they can enhance the performance of the
projects.

1.6 Scope of the study

The study was centred on Inventory practices and the project performance of selected
Construction Companies based in Nairobi. The companies are Seyani Bros, Epco
Builders and Intex Construction Ltd. The period of study is from March to July 2021.

1.7 Limitation of the study

The degree of willingness that the interviewees had in divulging information
concerning inventory management in the organisation is one of the limitations that
was encountered in the study. Getting information from all the construction
companies was not feasible and therefore the data that was collected from the top
construction companies within Nairobi County. To ensure a more accurate response
and representation of the entire sector, key employees drawn from procurement,
finance and warehouse departments were relied on in getting information as they are
more conversant with the aspects of inventory management practices. The researcher
however guaranteed confidentiality and ensured that there was no victimization for
sharing information deemed private, the researcher will use the NACOSTI certificate
and university introduction letter to help the respondents clarity that the information
was only to be utilized for the purpose for which it was intended and even had their
identities hidden as a way of ensuring confidentiality.

1.8 Organisation of the study

Chapter one is inclusive of; background, problem statement, research objectives,

significance of the study, scope of the study, and the limitations encountered in the
study. Chapter two has the relevant literature, where the relationship between
inventory management with performance of the companies was discussed intensively.
Chapter three has the research methodology. Chapter four presents the research
findings while chapter five presents the summary, conclusion and study’s
recommendations.
8
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction
This section presents the theoretical review, empirical review, research gaps and the
conceptual framework. The theoretical review involves theories that the study was
anchored on and include; Theory of constraints, transactions economic theory, lean
theory and theory of organisational performance. The empirical review presents an
evaluation of the preceding studies. The conceptual framework is a diagram that
shows the connection between project performance and inventory management
procedures.

2.2 Theoretical review

2.2.1 Theory of Constraints (TOC)

Goldrat was the brains behind its development in 1991. It is a concept that views the
systems in an organization as being Ltd in attaining its goals due to some constraints
(Cyplik, Hadas & Domansk, 2009). The theory of constraint (TOC) employs a
focusing process in identifying the constraint and restructuring the organization
around it. The idea here is that an organization is vulnerable because a single
constraint can permanently affect the rest of the processes and ultimately affect the
project's performance.

The theory of constraints can help firms in inventory management. The scarcity of
resources always constrains organizations. These resources can be resources that are
used in the production processes. Among the resources is inventory; how much
inventory is available and whether it can sustain the existing demand. For this reason,
in terms of inventory management, organizations must come up with inventory
controls and procedures, for instance, the safety of stocks, inventory budgeting, and
inspection, among other things.

The theory of constraint will be useful to this study in ascertaining the link between
inventory managing practises and project performance within the construction sector
in Nairobi City County. Inventory controls help address some constraints that can

9
occur in terms of availability of materials, purchase procedures and proper use of
materials and inventory.
2.2.2 Transaction Cost Economic Theory

Ronald Coase developed the concept in 1937. The ultimate aim of this theory was to
ensure that the costs incurred in the supply chain are minimal (Halldorsson, 2007).
The theory has been widely used in organizational studies and economics. It is
defined as a theory that explains how the costs incurred in engaging in a specific
action affect an organization's performance. The costs are inclusive of those that are
incurred in the management of personnel, procurement of resources, and management
of inventory. Opportunism and bounded rationality are the basic assumptions that the
theory is usually founded on (Potts, 2016).

According to the theory organisations can strive to reduce the costs of transactions
through vertical integration while increasing trust levels. In the area of inventory
management, this integration can help in the reducing inventory costs and thus service
to clients is increased. TCE theory informs the study since management of inventory
is highly dependent on the firm’s exposure to transaction, economic and also
accounting (Potts 2016). To enhance the performance of an organisation, appropriate
transaction cost measures have to be put in place (Hecker, 2017). Therefore,
strategies that mitigate unnecessary costs especially in carrying out costs are very
important. Successful management of inventory ensures that the project performs well
in the market.The theory was useful to inform the link between inventory practices
and project performance of the selected construction companies. It will help among
other things in bringing a comprehension on how the specific aspects of the theory
like keeping cost at minimum can be applied in the area of inventory costs
management so that a business entity can be able to maximize on its performance in
terms of the profits.

2.2.3. Lean Theory

It was advanced in 1988 by John Krafcik and further explained by James Womack
and Jones Daniel in 1996 through the concept of lean thinking. It first originated from
the Toyota production system in Japan and initially applied to the manufacturing
sector. Across the years however, the lean concept has been embraced in other sectors

10
including the construction industry. The goal of the lean theory and concept is to
ensure the processes in an organisation are both effective and efficient with an
ultimate aim of improving the project performance.

The theory was of great significance to the current study in comprehending the
connection between practises in inventory managing and the project performance of
selected Construction companies in Nairobi. Some of the inventory managing systems
that the current study examine will include; JIT, MRP and the EOQ. By examining
how the application of these systems can help in improving the project performance,
lean theory will provide a greater understanding on how these systems can be
employed effectively to improve on the project performance.

2.2.4. Theory of Organisational performance

It was developed by Rober Carton (1996) and seeks to provide a detailed explanation
of project performance from other perspectives. The performance of an organization
is traced to personal and individual performance. It is also largely dependent on
organizational behavior theory, which explains the culture and the environment under
which a company operates. For instance, as an executive advances his performance
level, he can organize people and resources in an effective way to achieve good
results for the organisation (Elger, 2014).

The theory examines the performance of an organisation from seven key areas:
quality improvement, decrease in costs, increase in capability, increased capacity,
increase in knowledge, increase in skills and motivation and identity. In increase in
quality implies that the products are effective in meeting the demands and
expectations of clients. Cost reduction means that the amount of financial resources to
produce an output goes down while capability entails the ability to deal with more
challenging projects. When the capacity increases, it implies that an entity can
generate more products. Increased skills entail setting goals and maintaining a good
organisational outlook. More inspiration and identity indicates that individuals within
an organisation are aware of the importance of their contributions and roles within an
organisation.The theory has a lot of relevance the current study as it links the
inventory management practices with performance within the construction industry.
In examining the aspects of performance like profitability, customer satisfaction and
11
warehouse security, the theory of performance will provide an understanding of the
best practises in inventory management.

2.3 Empirical review

Researchers have discovered the connection between inventory practises and project
performance. Because of the value that is usually given to proper management of
inventory, then the organisation is tasked with two very important decisions to make;
the quantity that is needed to be bought at a particular time and when to buy or even
manufacture. Inventory management practices that will be explored in this study
include; inventory management controls, inventory management cost and inventory
management systems.

2.3.1 Inventory Management Controls and Organisational Performance.

Inventory management controls in the current study will be examined on the basis of
control of materials, warehouse security, stock taking, inventory budgets, and
inspection of materials, purchase procedures and accounting controls. Shortage of
inventory results in less productivity and hence the demands of the clients will not be
met, on the other hand excess inventory could increase holding costs and even
insurance costs which affect the overall performance of an entity (Barrow
&Kuerentzes, 2016). A company can only achieve some outstanding performance
only if it has efficient and also proper control of the materials (Lakshmi &Ranganath,
2016). Laugero (2018) found out that material management is involved in purchasing,
storing, and using materials systematically to ensure that the flows are maintained in
an even manner.

The management of inventory is usually concerned with the material property and
also physical property (Van 2017). Nyanga (2019) asserts that Control of materials is
one of the policies that is used in inventory management they include; period,
continuous, spot control. All these controls ensure that materials are managed in a
manner that is effective. Kotabo (2019) suggested that Increasing security of the
warehouses and limiting access to them minimizes theft of inventory.

Jagongo and Makori (2015) asserts that inventory control can be achieved if
companies introduce measures that will curb losses that are unnecessary in various

12
departments. Stock taking can be done at the end of every other month so as to keep
up to date records of the stocks that are available. Obollah, Waiganjo and Wachiuri
(2015) made an assessment on practises in inventory managing and project
performance of health institutions focusing on Kenyatta National Hospital. The
approaches management of inventory that were examined were inclusive of; inventory
shrinkage, inventory turnover, accuracy of inventory records as well as the inventory
investments. A descriptive study was utilized and regression as a tool for analysing.
The outcome revealed that ensuring the accuracy of inventory records and inventory
investment had an affirmative influence whereas inventory shrinkage had a contrary
link with performance. The study will examine planning, inventory budgeting,
inspection of materials upon receipt and proper purchase procedures.

Bawa, Asamoh and Kisi (2018) while analysing how inventory management
techniques affect the outcomes of programs focused on Ghana's manufacturing
companies, secondary data was utilized and focused on 14 listed firms through the
period 2007 to 2016. Operating cash flows and profitability were utilized as the main
measures of performance of the firms. Inventory management practices examined
included; inventory budgets, inventory period, management efficiency and inventory
conversion period. Findings depicted an inverse connection between inventory
managing practises and project performance of the manufacturing companies in
Ghana. The results however were contrary to that of most studies done hence the
current study established the nexus between inventory practices and project
performance. Additionally, the inventory management procedures that was examined
was broader as it entails planning, inspections and security of the inventory.

Robert, Lyria, and Mbogo, (2019) assert that to avoid loss of materials through theft
can be avoided by ensuring there is supervision at the sites. It may involve hiring or
outsourcing security to ensure the materials are well protected. It also involves
periodic inspection and stock taking to ensure that the stock is in god condition. In
another study, Gitaau (2016) assessed the impact of inventory management practices
and the warehouse firms' project performance within Mombasa Kenya. The findings
showed that there was a major correlation between the inventory management
practices and project performance. This study covered on the inventory management
practices such as materials inspection, supplier partnerships and Information

13
Technology which the study examined; it does correlate them with project
performance. The current study examined performance based on customer satisfaction
and profitability. Additionally, the study focused on warehousing firms whose
institutional and background differs from construction companies.

Maalim (2017) assessed the relationship between effectual inventory practices and the
performance of business outlets in Mandera, Kenya. Inventory practices identified
were; online delivery, proper staff skills and effective documentation systems. A
descriptive research design was employed and descriptive statistics were used to
evaluate the link between effective inventory management and performance. On the
documentation issue, 77 percent of the participants agreed that effective
documentation was an effective practice of inventory management. Further, 93
percent of the participants affirmed that improvement on the management of
inventory leads to customer satisfaction. The study, however, identified online
delivery and adequate documentation as the only inventory management practice;
hence, the current study will look at other inventory management procedures like;
inspection, security, and documentation.

2.3.2 Inventory Management Costs and Project Performance

Kumarr and Bahll (2014) determined the influence of inventory managing practises
on the project performance of Amtek Auto Ltd, India. In examining this relationship,
the study focused on the cost management techniques such as variance analysis and
ABC (Activity Based Costing). The outcome found that there is a connection between
the cost management and project performance of the company. They were able to
observe that efficient management of inventory is imperative as it helps in the
avoidance of the costs of sub-contracting, purchasing costs, costs arising from
overtime, costs arising from the change in the production rates along with back order
penalties that can occur during the period of peak demand. While this study will be
helpful to the current study, some of the cost elements that needs effective
management were not examined for instance; warehousing costs, handling and
transport costs which the current study will examine.

Musau, Namusonge, Makoha and Ng’eno (2017) assessed on impact of inventory

management on the project performance among the 15 textile manufacturing

14
companies in Nairobi Kenya. Specifically, the study examined how managing various
inventory costs helps improve performance, which was assessed based on profitability
and reliability. The results showed that inventory cost management positively
influences the manufacturing firms' project performance. However, the study had a
major limitation as it examined costs from a general perspective. The current study
identified specific costs like the purchase, damage, warehouse, handling, and transport
costs and how the management thereof can influence the performance within the
construction industry.

Stock out cost is a cost that mostly occurs in a condition where the firm is not able to
meet both the internal and external demands for inventory (Ziukov, 2015). This is
where a firm is does not have adequate stock or inventory. This is a significant cost in
that a firm is likely to lose it’s on its revenue as it loses its customers to the
competitors who are able to meet their stock demands. Akankwatsa (2019) examined
the nexus between inventory management and the performance of construction
companies in Uganda. The study was done on Roko Construction Ltd. Some of the
inventory control systems examined included; inspection of goods upon receipt,
fixing the stock levels to avoid inadequate stocks and cost controls. The results from
descriptive statistics analysis the analysis revealed inadequate stock control
mechanisms for instance lack of inspection of goods upon receipt and lack of the
stock levels. This resulted in poor performance. Further, the results of the correlation
study revealed a strong association between project success and inventory control
strategies. The study focused on the construction industry hence will be valuable to
the current study. Nevertheless, most aspects of inventory cost controls were not
covered for instance; handling costs, warehousing costs, transport costs, purchase
costs and wear and tear cost which the current study will seek to examine.

Subramani, Bhaskaran, Ghouse, and Kumar (2017) assessed the inventory

management in the construction industry in India. Activity-based costing (ABC)
analysis was examined as one of the inventory management techniques. The study
reveals for costs of deterioration to be effectively managed, proper handling of
materials and proper storage of the construction materials is imperative. The study
revealed that construction materials constitute up to 50 percent of the total cost.

15
Nevertheless, the study did not establish the link between inventory cost management
and the performance that the current study will seek to establish.

2.3.3 Inventory Management Systems and Organisational Performance

Inventory management systems will encompass ABC model, JIT, MRP, EOQ and
VMI. Mwachiru and Owuor (2015) investigated on the effect that inventory
management practice has on the project performance with a specific focus on the
Grain Bulk Handlers Ltd. The inventory control, cost and accountability were the
predictor variables examined. The outcome showed that the system of inventory
practices was significantly and positively related to the project performance. The
major limitation from this study however, is that it did not examine the specific
inventory management systems that are widely used in most organisations like the
JIT, MRP and EOQ. The current study will thus assess the specific inventory
management systems and with the perspective of the construction sector.

Ouma and Mwangangi (2018) did an assessment on inventory management systems

and how they influence on the performance of the soft drinks manufacturing firms in
Kenya. It determined the influence of ABC models, JIT and VMI on the firm’s
performance. The outcomes of the regression study showed that the performance of
the All ABC Model, one of the inventory management systems, was positively
impacted. The study’s main focus was on the manufacturing firms whose contextual
background is different from that of the construction sector.

Atnafu and Assefu (2018) in another study analyzed the influence of practises of
inventory management on the competitiveness of firms and project performance. The
study centred on the 188micro and small business enterprises in Ethiopia. The
outcome showed that as the levels of inventory management systems increases, the
competitive advantage and project performance is enhanced. JIT was found to have a
great effect on the competitiveness of a firm in the market. The main focus of the
study on the MSEs while the centre of the current study was on the construction
industry.

Ngugi, Kimutai, and Kibet (2019) assessed the nexus between the inventory
management systems (IMS) and the performance of the manufacturing companies

16
based in Eldoret, Kenya. Materials requirement planning (MRP), distribution resource
planning (DRP), vendor-managed inventory systems (VMI), and just-in-time (JIT)
were among the predictive variables evaluated (JIT). At the same time, performance
was the dependent variable. The study outcome revealed that materials resource
planning (MRP) significantly and positively affected the performance of the
manufacturing companies in Eldoret. However, even if the study will provide some
valuable insights into the current study, there are contextual differences in that the
study was focused on manufacturing companies. In contrast, the current study will
focus on the construction sector, whose mode of IMS differs from that of
manufacturing. Additionally, the current study examined other IMS, like the models
of management as well as stock control systems.

Onikoyi, Babafemi, Ojo and Aje (2017) studied the connection between
LarfageWapco Plc, Nigeria's IMS and project performance. The study period was
from 2005 to 2013. The analysis's findings revealed a strong correlation between the
IMS and the project performance of LarfageWapco Plc, a Nigerian company. The
current study will focus on the construction sector as opposed to the manufacturing
sector which the study examined. The inventory management systems between the
manufacturing and the construction in that whereas the manufacturing aims at
converting raw materials to finished goods for sale, construction simply aims at
coming up with buildings and structures.

Alsaadi, Almaktoom and Krishnan (2016) found out that Companies have come up
with ways to manage inventory and they are; computerised systems and manual ones.
Almaktoom, (2017) asserts that Computerized inventory management programs are
made to keep track of and record stock levels. Some of the old practices have been
considered time consuming, and erroneous. The computerized inventory systems can
be easily synchronized with scanners, tablets, and smartphones among some other
hand held devices. The systems use barcodes or quick response codes (Latosiíiski &
Bartoszewicz, 2017).

2.4 Summary of Literature Review and Research gaps

According to the literature review done on the study, there are many studies that have
been done on inventory control and management both at the local and also

17
international level. It stipulates some of the approaches that have been used in
management of inventory. In the foregoing literature review, inventory control and
financial performance is reviewed in detail, the control approaches and cost is looked
into in a detailed manner.

There is a lot of information in various publications on inventory control. The studies

have revealed the most effective strategies for dealing with inventory. This study
aimed to identify how inventory management affects project performance in selected
construction companies. This area has been underexplored as so much concentration
has been put on effective ways to acquire inventory, profitability, and proper
warehouse management; most of the studies were done at a time when the operating
environment has become as dynamic as now. The study seeks to determine the
inventory control and performance of the selected construction companies.

Table 2.1 presents a summary of the literature reviewed and the gaps in the preceding
studies.

Table 2:1: Summary of Literature Review and Research Gaps

Author/s Research Research Research Current

Topic Findings Gaps Study focus

Kumar &Bahl Effect of Significant The study was cost

(2014) inventory correlation carried out in elements
management between the cost India and this that need
on the project management and brings effective
performance of project contextual gap management
Amtek Auto performance of for the current were
Ltd in India. the company study is in examined
Nairobi. for instance;
warehousing
costs,
handling
and
transport

18
 costs

Obollah, Effect that Ensuring the The study was Examined

Waiganjo&W inventory accuracy of carried out in planning,
achiuri (2015) management inventory records health sector inventory
practices has and inventory and this brings budgeting,
on the project investment had a contextual gap inspection
performance of positive influence for the current of materials
public health on the project study is in upon receipt
institutions performance construction and proper
whereas industry. purchase
inventory procedures
shrinkage had an
inverse
relationship with
organizational
performance

Mwachiru&O Effect of Inventory The study was Examined

wuor (2015) inventory management was carried out in specific
management significantly and grain bulk inventory
system on the positively related handlers Ltd management
project to the and this brings systems like
performance organizational contextual gap JIT, EOQ
with a specific performance for the current and MRP
focus on the study is in
Grain Bulk construction
Handlers Ltd industry.

Gitau (2016) Effect of significant The study was Organisatio

inventory correlation carried out in nal
practices on the between the warehousing performance
project inventory firms and this as measured
performance of management brings using

19
 warehousing practices and contextual gap customer
firms project for the current satisfaction
performance study is in and
construction profitability
industry. were be
examined

Musau, Effect of Inventory cost The study was Identified

Namusonge, inventory management carried out in specific
Makoka management positively warehousing costs like
&Ng’eno on the project influence the firms and this the purchase
(2017) performance project brings costs,
among the 15 performance of contextual gap damage
textile the manufacturing for the current costs,
manufacturing firms study is in warehouse
firms in construction costs,
Nairobi Kenya. industry. handling
costs and
transport
costs

Orga&Mbah How inventory inventory The study was Examined

(2017) management management carried out in the
practices affect practices has a Nigeria and inventory
the project positive effect on this brings management
performance of the performance contextual gap procedures
departmental of departmental for the current including;
stores in South stores of an study is in planning,
East of Nigeria organisation Nairobi. preparation
of inventory
budgets,
purchase
procedures,

20
 inspection
of materials
and security
of inventory

Subramani, Inventory Cost of The study was Established

Bhaskaran, management in construction carried out in the link
Ghouse& construction materials Nigeria and between the
Kumar (2017 industry in constitute up to this brings inventory
India 50 percent of the contextual gap cost
total cost for the current management
study is in and the
Nairobi. performance

Bawa, Impact of Inverse The study was Inventory

Asamoh&Kiss inventory connection carried out in management
i (2018) management between Ghana and this practices
on the inventory brings examined
performance of management and contextual gap were
the firms performance of for the current broader and
centered on the the manufacturing study is in entailed
listed firms in Ghana. Nairobi. planning,
manufacturing budgeting,
firms in Ghana inspection
and security

Akankwatsa Inventory Inadequate stock The study was Examined

(2019) control and the control carried out in various
performance of mechanisms for Ugand and this costs
construction instance lack of brings including
companies in inspection of contextual gap handling,
Uganda goods upon for the current transport,
receipt and lack study is in wear and
of the stock levels Nairobi. tear costs

21
 resulted in poor and how
performance they can be
managed to
bring good
performance

Ng’ugi, Nexus between MRP, VMI and The study was Examined
Kimtai&Kibet the inventory JIT significantly carried out in the
(2019) systems and and positively Eldoret and construction
performance of affected the this brings sector.
the performance contextual gap
manufacturing for the current
companies study is in
based in Nairobi.
Eldoret, Kenya

2.5 Conceptual Framework

The conceptual framework diagrammatically shows the expected relationship between
the independent and dependent variables. The independent variable is inventory
management practices which comprises; inventory management controls, inventory
management costs and inventory management systems. The dependent variable is the
performance of the selected construction companies in Nairobi. Figure 2.1 shows the
conceptual framework.

22
Independent Variable Dependent Variable

Inventory Management Practices

Inventory management Controls

 Control of materials
 Warehouse security
 Stock taking
 Inventory budgets
 Inspection
 Purchase procedures
 Accounting controls

Inventory management costs

Performance of construction
 Purchase costs
companies
 Holding costs
 Stock-out costs  Customer satisfaction
 Transport costs  Profit maximization
 Deterioration Costs  Reduction of wastages

Inventory management systems

 Activity Based Costing

 JIT
 Material Requirement
Planning
 EOQ
 VMI

Figure 2:1: Conceptual Framework

Source: Researcher (2022)

23
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction
The chapter entails the research methodology utilized in achieving objectives of the
study. The data collection procedures, measurement and also analysis of data were
explained fully.

3.2 Research Design

According to Creswell (2019), it is a plan used to identify the answers to specified

research problems. This study utilized a descriptive research design that determined
inventory management practices and the performance of construction companies in
Nairobi. Bryman and Bell (2017) state that a descriptive design determines the
relationship between variables. It is the most appropriate for this study since it gathered
the information for variable identification. Polit and beck (2018) assert that, in a
descriptive research design, the researcher has a duty of classifying, observing, counting,
delineating, and classifying. Since most of the descriptive research designs are cross-
sectional, it is much more appropriate because it involves collecting data at some point
(Babbie & Mouton 2017). A cross-sectional design lets the researcher quickly identify the
moderators and assess the relationship between the variables (Kothari, 2014). A
descriptive cross-sectional survey is comprehensive as it allows the researcher to collect
extensive and diverse data within a short time frame, thus giving credible results
(Ravinder & Misra, 2014).

3.3 Empirical model

Multiple regression analysis was the most suitable for inferential data analysis. It was
crucial for the researcher to effectively ascertain the link between the variables and in
this case it the dependent and independent one. Its tools are the most effective in the
prediction of a dependent variable (Lynch, 2016). Multiple regression analysis was
useful in analysing the collected data so as to measure the effects of inventory
management practices on the project performance of selected Construction
Companies in Nairobi. The attempts of multiple regression analysis determine

24
whether variables determine a dependent variable. Since this study has three
dependent variables the model assumed the following equation;

Y= β0 + β1IMCS1 + β2IMCT2 + β3IMSS3 + ε

Where: -
Y= Project performance of the selected Construction companies
β0=constant
β1, β2, and β3 = Beta coefficients
IMCS1= inventory management controls
IMCT2= inventory management costs
IMSS3= inventory management systems
ε = Error term

3.3.1. Operationalisation and measurement of variables

The operationalisation and measurement of variables is shown in Table 3.1.

25
Table 3:1: Operationalisation and Measurement of Variables

Variable Type Operationalisation Measurement

Project Performance Dependent Customer Scale of 1-5
satisfaction, profit
maximization and
reduction of
wastages in an
organisation
Inventory Independent Control of materials, Scale of 1-5
management control warehouse security,
stock taking,
inventory budgets,
inspection,
accounting controls
and purchase
procedures.

Inventory Independent Purchase costs, Scale of 1-5

management costs holding costs, stock-
out costs, transport
costs and
deterioration costs.
Inventory Independent EOQ, JIT, VMI and Scale of 1-5
management ABC system
systems

Source: Researcher 2022

26
3.4 TargetPopulation
It is the entire group that a researcher has an interest in carrying out a research and a
doing an analysis (Musyoka, 2012). The studies that are based on a particular
population have an equivalent chance of inclusion in the final sample because in most
cases they are more representatives (Mugenda & Mugenda, 2013).

The target population was obtained from the three construction companies in Nairobi;
Seyani Bros, Intex Company Ltd and Epco Builders Ltd. From the companies, 686
staff from the procurement department, finance department and staff working at the
warehouse of three construction companies based in Nairobi which were examined in
the study. The three construction companies include Intex, Epco Builders and Seyani
Bros. Seyani Bros construction company has 285 staff working in the procurement,
finance and warehouse departments, Intex company Ltd has 178 while Epco Builders
Ltd has 223. Table 3.1 shows a summary of the population.

Table 3:2: Target Population

Company Total Number Percentage

Seyani Bros 285 41.5

Intex Company Ltd 178 25.9
Epco Builders Ltd 223 32.6
Total 686 10.0
Source (Selected Construction Companies in Nairobi, 2021)

3.5 Sampling Design

From the identified population, a certain number was selected to make the whole
process of sampling easier. Sampling refers to choosing a certain number of people
who will give information that the researcher will use in concluding. They also
represent the population of the selected departments (Jankowicz, 2010). The sample
size was determined using a stratified random sampling technique. The main reason
for using the stratified random sampling technique is that it is highly representative of
the population and gives an equal chance to select each unit within a stratum. The
stratum in the current study is the three companies under study; Seyani Bros, Intex
Company, and Epco Builders Ltd.

27
Stratified random sampling is the most suitable for this study as it is unbiased and
ensures the population is represented well. The technique enables the researcher to get
results desired from the subgroups that represent the entire population. According to
Kothari 2014, the method has been able to give satisfactory results as it divides the
population into relevant strata, thus there are more representatives to participate in the
study. It was appropriate for this study because it is having a high probability of
ensuring everyone in the sample possesses an opportunity of being among the
participants of the study.

A sample size of 206 was suitable, and represents 30 percent of the target population.
As stated by Mugenda and Mugenda (2013) where the population is relatively small,
the sample size can range between 30-50 percent of the target population. Table 3.2.
Presents the sample size

Table 3:3:Sample Size

Department Population Sample (%) Sample

Seyani Bros 285 .30 86
Intex Company Ltd 178 .30 53
Epco Builders Ltd 223 .30 67
Total 686 206
Source: (Selected Construction Companies in Nairobi, 2021)

3.6 Data Collection Instrument

The instrument for collecting data from the respondent was questionnaires. Self-
administered questionnaires are the most effective for the collection of primary data. The
questionnaire had closed ended questions to cover all the issues associated with the
performance of the selected construction companies.. According to Saunders (2012), the
questionnaires are effective in time and money conservation and, at the same, enable a
more straightforward analysis of the data that is collected.

28
3.7. Data Collection Procedure
Two hundred six questionnaires were distributed to 86 staff within Seyani Bros Ltd, 53 to
staff in Intex Builders Ltd, and 67 to staff in Epco Builders Ltd. The staff is drawn
explicitly from procurement, finance, and warehouse departments since they mainly deal
with an inventory. The researcher took up the task of dropping the questionnaires at the
company and collecting them later after one week. This was to let the participants enough
time to go through the questionnaires and give the desired responses.

The researcher used some assistants who helped drop the questionnaire and pick them up.
The collected data sets were checked, questionnaires not fully completed and errors were
eliminated before the compilation of the data to facilitate analysis.

3.8 Pilot Study

As stated by Creswell (2019), the study is very useful in establish the research validity
and reliability. The study was conducted by questionnaires on 21 staff from Landmark
Holding. The three companies under study were excluded from the pilot phase hence the
choice of Landmark Holding which is also a big construction company in Nairobi. As
stated by Mugenda and Mugenda (2013), a pilot test is done on 10 percent of the
population that bears the same characteristics as the one in the study. Under the current
study, the sample size was 206 staff hence 21 respondents were picked for the pilot study.
The participants were selected randomly.

In pretesting of the questionnaire, the contents of the question, sequence, wording and
instructions will be closely monitored. It is crucial as it enabled the researcher to correct
some errors on the questionnaire based on the responses. According to Sekaran and
Bougie (2017) the pre-tests are supposed to be done through one on one interview so as to
have a clear picture of the attitudes and also reactions of the participants. Before data
analysis is done, a test was done on the research instrument to determine whether it is
valid and reliable.

3.8.1 Validity

Validity refers to the both the meaningfulness and also accuracy of inferences according
to the results gathered from a research Golafshani (2011). Through a pilot study, the
researcher is able to know whether the questionnaire is valid enough to produce the

29
desired results. Freudenheim (2018) asserts that content is said to be valid only when the
sample population is represented well. Thus the content of a questionnaire should cover
all the aspects of information that is required so as to produce the desired results.

3.8.2 Reliability

A research instrument is deemed reliable if it can give results that are similar on
occasions that are totally different but the conditions are the same. It also simply
means the level consistency in the results that are produced (Horning, 2019). The
results of the study should be in a way that they can be repeated easily. The pre-test
results was assessed for internal consistency and the study interest cronbach’s alpha
was used in the cases to measure the reliable.

3.9 Data Analysis and presentation

Analysis was achieved through application of SPSS Version 24. Tables, graphs and
pie charts were used in information presentation. The researcher applied descriptive
statistics and inferential analysis in explaining the distribution of various
measurements or even scores in a manner that is meaningful. The data that was
collected from the research was thematically organized, and summarized in an
organized manner so as to draw conclusions based on the concept.

3.10 Ethical considerations

The researcher ensured confidentiality of the participants in the research was upheld.
The information disclosed was insensitive and could ruin participants' right to
privacy. The participants were assured that the information was strictly required for
the study. Thus the researcher was required to explain to them the nature of the study
so they could fully understand. To give the participants further assurance, the
researcher attached a letter from the university that allowed them to collect data from
the participants.

30
 CHAPTER FOUR

RESEARCH FINDINGS AND DISCUSSION

4.1 Introduction
This chapter is broken down into subsections based on the study’s objectives, presents the
study’s findings. These sections included; response rate, information about the
respondents, descriptive analysis findings, and inferential statistics findings.

4.2 Analysis of Response Rate and Descriptive Statistics

The questionnaires distributed during the study were 206. The rate of response is as
exhibited in Figure 4.1.

Figure 4.1. Rate of Response

Source: Research Data (2021)

From the results in Figure 4.1, out of a total of 206 questionnaires, 141 were duly
filled and returned. It represents 68% of the targeted respondents. The non-response
was 32%. According to the threshold established by Mugenda and Mugenda (2013), a
60% or more response rate is sufficient for conducting an analysis. Therefore, from
the results in Figure 4.1, the response rate was sufficient for analysis.

31
4.2.1 Respondents’ Background Information

The participants’ background features specifically gender, education and years of

service in the construction companies are herein discussed.

4.2.1.1 Gender of the participants

The distribution in terms of male and female respondents is shown in Figure 4.2.

Figure 4.2. Gender Distribution

Source: Research Data (2021)

From the findings in Figure 4.2, the male respondents were the majority with 59% of
the total number of respondents while the female respondents were 41%. Based on the
findings, it is clear that there was proper representation of both genders.

4.2.1.2. Education of the participants

The distribution in terms of education is shown in Figure 4.3.

32
Figure 4.3. Respondent’s Education
Source: Research Data (2021)

The findings in Figure 4.3 depicts that most participants drawn from the finance,
procurement, and warehouse departments had university degrees. Most of these
respondents hold management and supervisory positions in these departments. The
second largest category of respondents had a Diploma (33), followed by secondary
(27), certificate (25), primary (12), and master's (6). Most participants with primary,
secondary, and certificates are primarily in charge of handling warehouse materials,
as observed by the researcher. It was apparent that the participants had some level of
education and an understanding of the duties they handle and hence could give
adequate responses.

4.2.1.3. Years of Service of the participants

The distribution in terms of years of service is shown in Figure 4.4.

33
Figure 4.4. Years of service

Source: Research Data (2021)

From the findings in Figure 4.4, the participants who had served in their particular
construction companies for below five years were 23, 5-10 years were 41, while 10-
15 years were 44, and above 15 years were 33. From the findings, it is apparent that
most participants had served in their respective departments for more than five years
and hence had adequate experience and understanding of their duties.

4.3 Descriptive Statistics

They are presented in this section on the basis of the study variables; inventory
management controls, inventory management costs, inventory management systems
and project performance.

4.3.1. Inventory Management Controls

The descriptive statistics on inventory management controls are discussed in Table

4.1.

34
Table 4.1. Descriptive Statistics on Inventory Management Controls
Std.
Deviation
Statement Mean (SD)
There is adequate control of materials in the company
4.2179 .47393
There are adequate warehouse security measures put in
place 4.1154 .42582
The company minimizes the double handling of
materials in the warehouse 4.0256 .42562
Stock taking is undertaken periodically to check the
quantity of inventory and materials to be used 4.0128 .37774
There is a continuous comparisons between the actual
cost of inventory and the budgeted cost of inventory to
avoid wastages 3.9359 .40579
Materials are inspected by an inspection officer upon
receipt at the warehouse 3.8590 .50257
There are clear controls on the way purchase of raw
materials are done including ensuring the requisition
forms are filled as well as the local purchase orders 3.7179 .64259
There are adequate accounting controls that ensure that
the inventory expenses incurred are expensed in
accordance with the accounting standards 3.9615 .52080
Average Scores 3.9808 .4719
Source: Research Data (2021)

The findings in Table 4.1 shows that Most participants agreed that there were
adequate inventory management controls in their respective companies, as shown by
the mean of 4.2179 and SD of .47393. Most participants also agreed that adequate
warehouse security measures were put in place based on the mean of 4.1154 and SD
of .42582. Further, the participants stated that their respective construction companies
minimize the double handling of materials in the warehouse, as shown by the mean of
4.0256 and SD of .42562. As part of the inventory management controls, Most
participants stated that stock-taking is undertaken periodically to check the quantity of
35
inventory and materials used. This is indicated by the mean of 4.0128 and SD of
.37774.

The participants also indicated that as part of inventory management controls, there is
a continuous comparison between the actual cost of inventory and the budgeted cost
of inventory to avoid wastages. This is clearly indicated by the mean of 3.9359 and
SD of .40579. It was also indicated by the participants that the materials are inspected
by an inspection officer upon receipt at the warehouse as shown by the mean of
3.8590 and SD of .50257. moreover, most participants stated that their respective
construction companies had clear controls on the way purchase of raw materials are
done including ensuring that the requisition forms are filled as well as the local
purchase orders. This is shown by the mean of 3.7170 and SD of .64259. Finally, the
participants stated that there were adequate accountings controls that ensure that the
inventory expenses incurred are expensed in accordance with the accounting
standards. This is shown by the mean of 3.9615 with SD of .5208.

The average mean of responses on various aspects of inventory management controls

was found to be 3.9808, with an SD of .4719. The mean clearly shows that Most
participants agreed on various components of inventory management controls,
including; inspection, warehouse security measures, controls on the purchase of
materials, stock taking, budgeting, and accounting controls. The SD is below 1, which
shows that there were fewer variations in terms of the responses given. Previous
studies have also established the importance of inventory management controls in
project performance. Lakshmi and Ranganath (2016) observed that a company could
achieve some outstanding performance only if it has efficient storage of materials.
Laugero (2018) also stated that inventory Storage is fundamental; hence the
warehouse security should be enhanced by the firm to avert damages to materials
while ensuring proper storage pending their usage.

On the issue of stock taking, Jagongo and Makori (2015) observed that inventory
control can be done through the introduction of measures that will prevent companies
from incurring losses that are unnecessary in various departments hence Stock taking
can be done at the end of every other month so as to keep up to date records of the
stocks that are available. Bawa, Asamoah and Kissi (2018) while examining the

36
impact of inventory management on the performance of the firms centred on the listed
manufacturing firms in Ghana established that inventory budgets help in inventory
management and helps in enhancing performance. Orga and Mbah (2017) sought to
determine how inventory management practices affect the organisational performance
of departmental stores in South East of Nigeria. The findings established that
materials inspection is a significant and effective inventory management practice and
has a bearing on the organisational performance in the long run by way of eliminating
wastages.

4.3.2. Inventory Management Costs

The descriptive statistics on inventory management costs are discussed in Table 4.2.

Table 4.2. Descriptive Statistics on Inventory Management Costs

Statement Mean Std. Deviation

The purchasing process is centralized to the
procurement department to ensure that the cost of
inventory is minimized 3.9615 .33968
The organisation consolidates small orders from
different projects to get discounts on the purchase
costs 3.9744 .39393
Holding costs are minimized by ensuring that there
are no excess inventory held at any given time 3.9359 .40579
Stock out costs are minimized by ensuring that there
is a good reorder level 3.9615 .37598
In a bid to minimize the deterioration costs, the
company ensures that upon receipt, damaged
materials are returned to the manufacturer and
replaced with materials in good condition 3.9513 .39238
The cost of transporting materials to the site is
minimized through strategic partnerships with the
supplier to ensure they deliver the materials
themselves to the site of construction 3.9744 .39393

37
Effective inventory management of costs results in
improved organisational performance. 4.0128 .37774
Average Scores 3.9674 .3828
Source: Research Data (2021)

The findings in Table 4.2 shows that Most participants agreed that the purchasing
process was centralised to the procurement department to ensure that the cost of
inventory is minimised as shown by the mean of 3.9615 and SD of .33968. From the
mean of 3.9744 and SD of .39393, Most participants agreed that as part of inventory
cost management, their distinct construction firms combine minor orders from various
projects to receive rebates on the cost of the purchases. With regard to the holding
costs, the participants stated that holding costs are minimised by ensuring that there is
no excess inventory held at a given time. This is indicated by the mean obtained of
3.9359 and SD of .40579.

The participants also agreed that stock out costs are minimised within their respective
construction companies by ensuring that there is a good reorder level. This is shown
by the mean of 3.9615 and SD of .37598. Furthermore, in a bid to minimize the
deterioration costs, the companies ensure that upon receipt, damaged materials are
returned to the manufacturer and replaced with materials in good condition. This is
indicated by the mean of 3.9513 and SD of .39238. The majority of the participants
also agreed as shown by the mean of 3.9744 and SD of .39393 that the cost of
transporting materials to the site is usually minimised through strategic partnerships
with the supplier to ensure that they deliver the materials themselves to the site of
construction.

Finally, as shown by the mean of 4.0128 and SD of .37774, the participants agreed
that effective inventory management costs results in improved organisational
performance. The average mean score of 3.9674 implies that Most participants agreed
that inventory cost management practices were being enforced within their
organisations. The SD is below 1 therefore the responses were not so much varied. A
scrutiny of the past studies reveals that inventory cost management has a significant
effect on performance. Kumar and Bahl (2014) intended to ascertain how inventory
management affected Amtek Auto Ltd. of India's organizational performance.

38
According to the study's findings, there is a strong link between the company's
organizational success and cost management. The study further observes that efficient
management of inventory is imperative as it helps in the avoidance of the costs of
sub-contracting, purchasing costs, costs arising from overtime, costs arising from the
change in the production rates along with back order penalties that can occur during
the period of peak demand.

4.3.3 Inventory Management Systems

The descriptive statistics on inventory management systems are discussed in Table

4.3.

Table 4.3. Descriptive Statistics on Inventory Management Systems

Statement Mean Std. Deviation

The company applies the Activity Based Costing
system to ensure that only the inventory whose value
is high are held 3.9872 .32980
The company uses the Just in Time (JIT) technique
ensures that inventory is available at the right time, at
the right place and at the right quantity. 4.0245 .35959
The material Requirement Planning system has been
put in place to ensure proper tracking of the materials
and adequate materials 3.8729 .82204
There is a set level through which inventory can be
reordered to ensure uninterrupted flow of the
construction processes 3.8345 .82300
The company applies the vendor managed Inventory
systems 3.9987 .72343
There has been a significant drop in the level of
wastages due to the application of the inventory
management systems 3.8986 .82564
Average Scores 3.9361 .6472
Source: Research Data (2021)

39
The findings in Table 4.3, reveal that majority of the participants agreed that their
respective construction companies applied the Activity Based Costing system to
ensure that only the inventory whose value is high are held. This is shown by the
mean of 3.9872 and SD of .3298. From the results it is also apparent that construction
companies use just in time (JIT) techniques to ensure that inventory is available at the
right time, right place and at the right quantity as indicated by the mean of 4.0245 and
SD of .35959. Most participants also stated that the material requirement planning
system had been put in place in their companies to ensure proper tracking of materials
and adequate materials. This is indicated by the mean of 3.8729 and SD of .82204.

Furthermore, the participants agreed that there is a set level through which inventory
can be reordered to ensure uninterrupted flow of the construction processes as
indicated by the mean of 3.8345 and SD of .8230. The construction companies also
apply the vendor managed inventory systems (VMI) as shown by the mean of 3.9987
and SD of .72343. Lastly Most participants agreed that there had been a significant
drop in the level of wastages due to the application of the inventory management
systems as indicated by the mean of 3.8986 and SD of .82564.

The average mean score of 3.9361 indicates that the participants agreed that their
respective construction companies had implemented various inventory management
systems, including ABC, JIT, VMI, and MRPs. The SD of .6472 indicates that there
were fewer variations in responses given. A review of past studies indicates that
inventory management systems are essential in enhancing performance. Mwachiru
and Owuor (2015) investigated how an inventory management system affects
organizational performance with a specific focus on Grain Bulk Handlers Ltd. The
findings revealed that inventory management systems significantly and positively
affected performance. Ouma and Mwangangi (2018) assessed inventory management
systems and how they influence the performance of the soft drinks manufacturing
firms in Kenya. Specifically, the study assessed the influence of ABC models, JIT,
and vendor-managed inventory on the firm’s performance. The results from the
regression analysis revealed that ABC, JIT, and VMI as inventory management
systems had a positive effect on the performance of the firms.

40
4.3.4. Project Performance

The descriptive statistics on project performance are discussed in Table 4.4.

Table 4.4. Descriptive Statistics on Project Performance

Std.
Statement Mean Deviation
An effective application of inventory management
systems results in improved organisational
performance 3.9467 .39910
With the application of the effective inventory
management there has been an improved customer
satisfaction 3.9733 .40180
The inventory management techniques put in place
has help in improving the profitability of the
company 4.0133 .38532
With the efficient application of inventory
management, wastages in the warehouse has been
reduced 4.0133 .30727
There has been a tremendous reduction in the holding
costs, purchase costs, deterioration costs and cost of
damages due to the inventory management techniques 4.0267 .36663
Average Scores 3.9947 .3720
Source: Research Data (2021)

The outcome in Table 4.4 show that an effective application of inventory management
system results in improved organisational performance. This is indicated by the mean
of 3.9467 and SD of .3991. The findings are consistent with the findings by Laugero,
(2018) which established that inventory management practices have a significant and
positive relationship with organisational performance. The findings are however not
consistent with the findings by Bawa, Asamoah and Kissi (2018) who while
examining the impact of inventory management on the performance of the firms
centred on the listed manufacturing firms in Ghana established that there was an

41
inverse relationship between inventory management and performance of the
manufacturing firms in Ghana.

4.4 Correlation Test Results

The Pearson’s correlation test was used in testing for correlation. The results are as
shown in Table 4.5

Table 4.5. Correlation Test Results

Inventory Inventory Inventory
Project Management Management Management
Performance Controls Costs Systems
Pearson
Correlation 1
Project Sig. (2-
Performance tailed)
Pearson
Inventory Correlation .356** 1
Management Sig. (2-
Controls tailed) .002
Pearson
Inventory Correlation .691** .201 1
Management Sig. (2-
Costs tailed) .000 .084
Pearson
Inventory Correlation .405** .325** .255* 1
Management Sig. (2-
Systems tailed) .000 .004 .027
**. Correlation is significant at the .01 level (2-tailed).
*. Correlation is significant at the .05 level (2-tailed).
Source: Research Data (2021)

According to Chris (2008), a correlation test helps in showing the nature of

correlation between the independent and the dependent variables. A correlation
coefficient of .8 or -.8 which is equal to 64 percent in terms of the coefficient of

42
determination shows a strong correlation. From the findings in Table 4.7, none of the
variables were highly correlated.

4.5 Inferential Statistics

The inferential statistics presented the model summary, Analysis of variance and
regression output.

4.5.1. Model Summary

The model summary is exhibited in Table 4.6.

Table 4.6. Model Summary

Model R R Square Adjusted R Square Sig. F Change

1 .748a .559 .540 .000

A. Predictors: (Constant), Inventory Management Systems, Inventory Management
Costs, Inventory Management Controls

Source: Research Data (2021)

The findings in Table 4.6 show that the correlation coefficient (R) is .748. Before
adjustment the coefficient of determination (R2) is .559 which becomes .540 after
adjustment. Based on the findings it can be inferred that 54% of the changes in project
performance are explained by inventory management practices used i.e; inventory
management controls, inventory cost management and inventory management
systems.

4.5.2. Analysis of Variance (ANOVA)

The Analysis of variance is exhibited in Table 4.7.

43
Table 4.7. Analysis of Variance

Model Sum of Squares df Mean Square F Sig.

1 Regression 2.619 3 .873 29.997 .000b
Residual 2.067 137 .029
Total 4.686 140
a. Dependent Variable: Project Performance
b. Predictors: (Constant), Inventory Management Systems, Inventory Management
Costs, Inventory Management Controls
Source: Research Data (2021)

ANOVA analyzes the differences in statistics of the mean in various groups that make
up a population. The results in Table 4.7 illustrate that the p value is .000 an indicator
that the inventory management practices; inventory management controls, inventory
cost management and inventory management systems had a significant effect on the
project performance of construction companies in Nairobi.

4.5.3. Regression analysis Results

The regression analysis aimed at assessing the connection between inventory

management practices and project performance. The results are as shown in Table 4.8.

44
Table 4.8. Regression Output
95.0%
Unstandardized Standardized Confidence
Coefficients Coefficients Interval for B
Std. Lower Upper
Model B Error Beta T Sig. Bound Bound
(Constant) 1.058 .349 3.032 .003 .362 1.754
Inventory
management
controls .126 .062 .171 2.034 .046 .003 .250
Inventory
management
costs .426 .058 .607 7.386 .000 .311 .541
Inventory
management
1 systems .174 .076 .194 2.280 .026 .022 .326
a. Dependent Variable: Project Performance
Source: Research Data (2021)

The model used in the study was;

Y= β0 + β1X1 + β2X2 + β3X3 + ε

Where: -
Y= Project performance of the selected Construction companies
β0=constant
β1, β2, and β3 = Beta coefficients
IMCS1= inventory management controls
IMCT2= inventory management costs
IMSS3= inventory management systems
ε = Error term

From the findings in Table 4.11, the model becomes;

Y= 1.058+ .126IMCS1 + .426IMCT2 + .174IMSS3 + ε

45
The first objective was to determine the effect of inventory management controls on
the project performance of selected construction companies in Nairobi. From the
findings in Table 4.11, a unit increase in inventory management controls improves the
project's performance by .126 times, holding other factors constant. The increase is
significant given that the p-value is .046. This implies that inventory management
controls have a significant and positive effect on the project performance of
construction companies. The findings are consistent with the findings reviewed in past
studies. A study by Lakshmi and Ranganath (2016) established that inventory
management controls significantly affect performance. Nyanga (2019) asserts that
control of materials is one of the policy procedures that is used in managing materials,
and they include; period, continuous, spot, and any other control reinforced by the
management to carry out all those activities that are aimed at ensuring that there is an
effective way of managing materials. Kotabo (2019) suggested that Increasing the
security of the warehouses and limiting access to them minimizes inventory theft.

The second objective was aimed at evaluating the effect of inventory management
costs on project performance on the selected construction companies in Nairobi
County. Based on the findings in Table 4.11, a unit increase in inventory cost
management results in an improvement in performance by .426 times holding other
factors constant. This therefore means that inventory cost management practices have
a positive and significant effect on project performance. A review of the past studies
reveals that inventory cost management has a significant effect on performance.
Kumar and Bahl (2014) sought to determine the effect of inventory management on
the organisational performance of Amtek Auto Ltd in India. The outcome from the
study found a significant correlation between the cost management and organisational
performance of the company. The study further observes that efficient management of
inventory is imperative as it helps in the avoidance of the costs of sub-contracting,
purchasing costs, costs arising from overtime, costs arising from the change in the
production rates along with back order penalties that can occur during the period of
peak demand.

The third objective was aimed at examining the effect of inventory management
systems on project performance of selected construction companies in Nairobi. From
the results in Table 4.11, a unit increase in the application of the inventory

46
management systems results in improved project performance by .174 times holding
other variables constant. The increase is significant given that the p value is .026. This
means that inventory management systems has significant and positive effect on
project performance. A review of past studies indicates that inventory management
systems are essential in enhancing performance. Mwachiru and Owuor (2015)
investigated on the effect that inventory management system has on the organisational
performance with a specific focus on the Grain Bulk Handlers Ltd. The findings
exposed that inventory management systems had a significant and positive effect on
performance. Ouma and Mwangangi (2018) did an assessment on inventory
management systems and how they influence on the performance of the soft drinks
manufacturing firms in Kenya. Specifically, the study assessed the influence of ABC
models, JIT and vendor managed inventory on the firm’s performance. The results
from the regression analysis revealed that ABC, JIT and VMI as inventory
management systems had a positive effect on the performance of the firms.

47
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
The foregoing chapter entails the summary, conclusion and policy recommendations from
the study as guided by the results from study.

5.2 Summary of Findings

5.2.1 Inventory Management Controls and Organisational Performance.

The first objective was aimed at determining the effect of inventory management
controls on project performance of selected construction companies in Nairobi. From
the findings a unit increase in the use of inventory management controls improves the
performance of project by holding other factors constant. This implies that inventory
managing controls has a significant and positive effect on the project performance of
the construction companies.

5.2.2 Inventory Management Costs and Project Performance

The second objective was aimed at evaluating the effect of inventory management
costs on project performance on the selected construction companies in Nairobi
County. Based on the findings, a unit increase in inventory cost management results
in an improvement in performance holding other factors constant. This therefore
means that inventory cost management have a positive and significant effect on
project performance.

5.2.3 Inventory Management Systems and Organisational Performance

The third objective was aimed at examining the effect of inventory management
systems on project performance of selected construction companies in Nairobi. From
the results a unit increase in the application of the inventory systems results in
improved project performance holding other variables constant. This indicates that
inventory management systems have a considerable and advantageous impact on the
success of projects with a positive significant on p value.

48
5.3 Conclusion of the study
The main research objective was to determine the effect of inventory management
practices on the project performance of selected construction companies in Nairobi.
5.3.1 Inventory Management Controls and Organisational Performance.

The first objective was to determine the effect of inventory managing controls on the
project performance of selected construction companies in Nairobi. It was concluded
that inventory management controls significantly and positively impact the project
performance of the selected construction companies in Nairobi County.

5.3.2 Inventory Management Costs and Project Performance

The second objective was to evaluate the effect of inventory cost management on the
project performance of the selected construction companies in Nairobi County. The
study concludes that inventory cost management practices have a positive and
significant effect on the project performance of selected construction companies.

5.3.3 Inventory Management Systems and Organisational Performance

The third research objective was to examine the effect of inventory management
systems on the project performance of selected construction companies in Nairobi.
From the results, it is established that inventory management systems significantly
and positively affect the project performance of the selected construction companies
in Nairobi.

5.4 Recommendations of the Study

The recommendations are based on the research outcomes. The researcher
recommends that the construction companies should embrace inventory management
controls specifically; warehouse security measures, minimal double handling of
materials, stock taking, inspection of materials and accounting controls. A proper
management of these inventory control processes can help in eliminating wastages
and stock shortages hence ensuring that projects are completed in a timely manner.

Secondly, the researcher recommends that construction companies should direct their
efforts in inventory cost management practices like centralising the procurement
processes, minimising holding costs by ensuring that no excess inventory is

49
maintained, consolidating small orders from different projects to get discounts, and
outsourcing of transportation of materials to minimise transport costs. This will help
the companies in improving their profit margins.

Finally, the researcher recommends that construction companies should invest more
emphasis on inventory management systems like the JIT, ABC, VMI and MRP as it
will enhance tracking of materials, eliminate wastages and help in saving costs hence
improving project performance.

5.5. Suggestion for further Research

The researcher recommends that research in future can explore the application of the
inventory management practices in construction companies outside Nairobi and also
examine other related sectors like manufacturing.

50
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 APPENDICES

Appendix I: Introduction Letter

Rose GesareOrechi

Kenyatta University

P. O box

NA1ROBI.

RE: REQUEST FOR INFORMATION

Dear Respondent,

I am an MBA student at Kenyatta University, specializing in Project management and

currently undertaking research on the effect of Inventory management practices on
project performance. The research is intended purely for academic purposes and will
not be provided to a third party.

You have been selected to fill out the questionnaire to help get information on the
stated area of research. As a result of this, you are requested to provide objective and
honest responses. Your participation is greatly appreciated.

Thank you.

Yours faithfully,

Rose Gesare Orechi

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 Appendix II: Research Questionnaire
This questionnaire has been specifically designed to gather data that will be helpful in
evaluating project performance. The study will look at Inventory
Management Practices and the project performance of selected construction
companies in Nairobi city county, Kenya. The information collected will be very
confidential. Kindly tick appropriately.

SECTION A: GENERAL INFORMATION (Please tick (√) appropriate answer)

1) Kindly indicate your gender:

Female [ ] Male [ ]

2) Please indicate your highest level of education

Primary level [ ] Secondary level [ ] Certificate [ ] Diploma [ ]
Degree [ ] Masters [ ]

3) 3) How long have you been employed by the construction firm? (Tick as
applicable)
a) Below 5 years ()
b) 5 – 10 years ( )
c) 10 – 15 years ( )
d) Over 15 years ( )
SECTION B: INVENTORY MANAGEMENT CONTROLS

Please tick the appropriate opinion/response with the scale below.

(1) Strongly Disagree
(2) Disagree
(3) Neutral
(4) Agree
(5) Strongly Agree

This section aims at assessing the effect of Inventory management controls and
project Performance in Construction Companies

58
Statement 1 2 3 4 5

There is adequate control of materials in the company

There are adequate warehouse security measures put in place

The company minimizes the double handling of materials in the

warehouse
Stock taking is undertaken periodically to check the quantity of
inventory and materials to be used
There is a continuous comparisons between the actual cost of
inventory and the budgeted cost of inventory to avoid wastages
Materials are inspected by an inspection officer upon receipt at the
warehouse
There are clear controls on the way purchase of raw materials are
done including ensuring the requisition forms are filled as well as
the local purchase orders
There are adequate accounting controls that ensure that the
inventory expenses incurred are expensed in accordance with the
accounting standards

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SECTION B: INVENTORY MANAGEMENT COSTS
This section aims at assessing the relationship between the inventory management
costs and the project performance of Construction Companies in Nairobi

Statement 1 2 3 4 5

The purchasing process is centralized to the procurement

department to ensure that the cost of inventory is
minimized
The organization consolidates small orders from different
projects to get discounts on the purchase costs

Holding costs are minimized by ensuring that there are no

excess inventory held at any given time

Stock out costs are minimized by ensuring that there is a

good reorder level

In a bid to minimize the deterioration costs, the company

ensures that upon receipt, damaged materials are returned
to the manufacturer and replaced with materials in good
condition
The cost of transporting materials to the site is minimized
through strategic partnerships with the supplier to ensure
they deliver the materials themselves to the site of
construction
Effective inventory management of costs result in
improved organisational performance.

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SECTION C: INVENTORY MANAGEMENT SYSTEMS
This section aims at assessing the effect of Inventory management systems and
project performance of Construction Companies in Nairobi

Statement 1 2 3 4 5

The company applies the Activity Based Costing system

to ensure that only the inventory whose value is high are
held
The company using the Just in Time (JIT) technique
ensures that inventory is available at the right time, at
the right place and at the right quantity.
The material Requirement Planning system has been put
in place to ensure proper tracking of the materials and
adequate materials

There is a set level through which inventory can be

reordered to ensure uninterrupted flow of the
construction processes

The company applies the vendor managed Inventory

systems

There has been a significant drop in the level of

wastages due to the application of the inventory
management systems
An effective application of inventory management
systems results in improved organisational performance

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SECTION D: PROJECT PERFORMANCE
This section aims at assessing the level of project performance
Statement 1 2 3 4 5

With the application of the effective inventory

management there has been an improved customer
satisfaction

The inventory management techniques put in place has

help in improving the profitability of the company

With the efficient application of inventory

management, wastages in the warehouse has been
reduced

There has been a tremendous reduction in the holding

costs, purchase costs, deterioration costs and cost of
damages due to the inventory management techniques

THANK YOU.

62
Appendix III: Research Permit

63
Appendix IV: Letter of Approval from University

64