RIFT VALLEY UNIVERSITY

SHASHEMENE CAMPUS

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF INVENTORY HANDLING AND CONTROLLING

SYSTEM OF TEXTILE FACTORY (CASE STUDY ON HAWASSA HELA
CLOTHING)

A RESEARCH PAPER SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR BACHELOR OF ART (B.A) DEGREE IN
ACCOUNTING AND FINANCE
PREPARED BY: ID NO

1. ABAYNESH SISAY……………………….401/17
2. ASTER TIGISTU ……………………...410/17
3. KOKEBE GEMECHU…………………….452/17
4. HAWI SHIMELIS…………………….917/17

ADVISOR: -Mr. YARED ETANA (BA)

JUNE, 2020
SHASHEMENE, ETHIOPIA
ACKNOWLEDGEMENT
First and for most, we would like to thanks the almightily “God” who help us by every direction.
Secondly we would like to reward our deepest gratitude to our advisor [Link] who has provided
his wise and intellectual’s advice, guidance and directive to make this paper. Third our
appreciation goes to Rift Valley University, Business and Economics for giving me this chance to
prepare a paper on Accounting for the graduation research.
Finally we thank our family and friends for their support in all matters from the start to the end of
the program.

I
 ABSTRACT

This research paper is prepared to assessment of inventory handling and controlling system of
textile factory. The objectives of the study is to assess whether the organization under
consideration is using the inventory handling and controlling systems in its management in
accordance with the standards and theories of inventory and to investigate un over view of
inventory handling and controlling practices. To reach this objective, data were collected from the
factory. Here, for primary data, the researcher used interview and for secondary source of data
collection records and other documents related to inventory were used.
The research was descriptive in nature. Sampling technique used for the judgmental sampling
method.
The result and discussion part of this research was analyzed based on the data collected through
interview and with some supporting documentary evidences such as past years accounting
recording, manual and periodically document. Based on this the study intended to suggest possible
solution to the problem identified.
The study is expected to mare manufacturing companies aware of importance of including
inventory handling and controlling system in their operations for manufacturing purpose.
 II

Table of contents
Page No
Contents
Acknowledgment……………………………………………………….….….I
Abstract……………………………………………...…………………………II
Table of Contents …………………….……………………………………….III
CHAPTER ONE
1. INTRODUCTION ……………………………………………………….........1
1.1 Background of the study ...................................................................................................1
1.2 Background of the organization ……..…………………………………...………….....2
1.3 Statement of the problem …………………………………………………..........…….3
1.4 Research Questions ……………………………………………………..……….….....3
1.5 Objective of the study ………………………………………………………..………..4
1.5.1 General objectives ……………………………………………………….…..……….4
1.5.2 Specific objectives…………...………………………………………..............…….....4
1.6 Significance of the study……………………………………….……………….……...4
1.7 Scope of the study………………………...…………………………..…………………4
1.8 Limitation of the study………………….…………………………..…………...............5
1.9 organization of the study ……………………………………………………...…………5
CHAPTER TWO

2. LITRATURE REVIEW……………………….……………….……………………........6
2.1 Definition of inventory…………………………………………………………...…….. 6
2.2 motives for holding inventory………………………………………………………7
2.3 Types of inventory…………………………………………………...…………………7
2.4 inventory cost …………………………...……………………………………………...7
2.5 Inventory handling and controlling system………………………………………8
2.5.1 Inventory handling………………………………………………………...…………..8
2.5.2 Inventory controlling-………………………………………………………………….8
2.6 Techniques for managing inventory………………..………………………………10
2.6.1 ABC Approach……………………………………………...………………………...10
 2.6.2 Economic order quantity (EOQ) mode…………………………………………………11
III

2.6.3 Materials requirements planning (MRP) system………………………………………..11

2.6.4 Just- in time inventory(JIT)……………………....……………………………………...….12
2.7 Inventory classification-……………………………………………………………..…….…13
2.7.1 Anticipation inventory……………………………………………..……………………….13
2.7.2 Fluctuation inventory……………………………………………………………………….13
2.7.3 Lot-size inventory-………..……………………………………………...……….…...........13
2.7.4 Transportation inventory….………...…………………………………….……………...14
2.7.5 Hedge inventory…………..….…………………………………………………….………14
2.7.6 Maintenance, repair and operating supplies(MROS)………………………………..……...14
2.8 Accounting for inventory……….……………….………………………….......…….……...14
CHAPTER THREE
3. RESEARCH METHODOLOG AND DESIGN…………………………..……………………16
3.1 Research design…………………………………………………………………………16
3.2 Source of data …………………………………………………………………………..16
3.3 Target population ……………………………………………………….………………16
3.4 Method of sampling …………………………………………………………………….16
3.5 Data collection techniques ……………………………………………………………..16
3.6 Method of data analysis ………………………………………………………………...17
4. CHAPTER FOUR
4. DATA ANALYSIS AND INTERPRETATION ………………………….............…....18
4.1 personal background of respondents………………….……………………………….18
4.1.1 Sex distribution of respondents..……….………………..……………………………18
4.1.2 Age distribution of respondents……..…….………………………..………………...18
4.1.3 Work experience of respondents in organization.....................................................…...19
4.1.4 Educational background of respondents………...…………………….…...………….19
4.1.5 Current job category of respondents………...……………………….……………..…..20
4.2 Types of inventory hold by organization ………………………...……………………...20
4.3 Inventory handling equipments……………………………………….……………………..21
4.4 Techniques of inventory management……………………….…...…………………………..21
4.5 Inventory handling and controlling system………………….………………………….……22
4.6 Problems associated with inventory handling and controlling…………..…………………....23
4.7 Ordering and receiving inventory…………………...…………………...……………………24
IV
4.8 Inventory manager’s role in handling and controlling………………...………………………25
4.9 managing overstocking and under stocking …………………………………………………..26
4.10 summary of findings………………………………………………...……………………….27
CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION ……………..…………………………….28
5.1 conclusion …………………………...…………….…………..………………….…...….28
5.2 recommendation…………………………………….………………………………...…29
Reference……………………………………………………………………………………....30
Appendix………………………………………………………………………………………31
 V

CHAPTER ONE
1. INTRODACTION
1.1 BACKGROUND OF THE STUDY
This study deals with the assessment of inventory handling and controlling system of Hela
Indochina. Before defining the inventory handling and controlling system it is better to understand
the definition of inventory. The term inventory designates goods held for sale in normal course of
business and in the case of manufactures, goods in production or to be placed in production.
Further more, inventory represents one of the most active elements in business operation, being
continuously acquired or produced and resold. A large part of a company’s resources is frequently
invested in goods purchased or manufactured (Smith 1995, P.340).
As the researcher browser from the website, inventory handling and controlling is usually framed
as cost minimization. Inventory handling is the function dealing with the preparation, placing and
positioning of inventory to facilitate their movement or storage (Gopalakrishnan 1997, P.190).
Inventory control means keeping the overall costs associated with having inventory as low as
possible without creating problems. Inventory control is delicate balance at all times between
having too much and too little in order to maximize profits.
As per Holder (1995, PP.309-310), the objective of inventory control is to maintain an adequate
supply of goods while minimizing the investment in inventory and carrying costs. If a company
has too much inventory, it incurs unnecessary costs. If it has too little, however, the company may
suffer costly production delays and lost sales.
However, as the researcher browsers from the website, in actual practice the vast majority of
manufacturing and distribution companies suffer from lower customer service, higher costs and
excessive inventories than are necessary. Inventory handle and control problem are usually the
result of using poor processes, practices and antiquated support systems. The inventory
management process is much more complex than the un initiated understand. In fact, in many
companies the inventory control department is perceived as little more than a clerical function.
DuPont equation illustrates than poor inventory control and excessive build up of inventory will
lead to low profitability (Dickerson 1996, P.360).
For various reasons, management is vitally interested in inventory planning and control. Whether a
company manufactures or merchandise good, it needs an accurate accounting system with up-to-
date records. Further, companies must monitor inventory level to limit the financing cost of
carrying large amount of inventory (Kieso 2007, P.370).
According to Dickerson (1995, P.360), the financial manager of a firm will not normally have
primary control over inventory management. Instead, other functional areas such as: purchasing,
production, and marketing will usually share decision making authority regarding inventory.
However, the financial manager is still vitally concerned with inventory levels because, he or she
has the responsibility both for tracking factors which affects the overall profitability of the firm
and for raising the capital needed to finance inventory.
In general, a well managed operation will have procedures and equipment in place to maximize
efficiency, reduce injuries and mitigate loss or damage. And also having reliable inventory
handling and controlling system in place allows companies to save time and energy without wasted
efforts (Arnold, 2008 and Dickerson, 1996).
The study has been investigated the problem associated with inventory handling and controlling
system of the factory and also assessed how inventory are handled and controlled in the factory.
Finally, the study has been suggested the possible solution for the problem that were identified in
the assessment so as to encourage the inventory handling and controlling of the factory
. 1.2 BACKGROUND OF THE ORGANIZATION
The HIPDC took its name from the town in which it is located. Hawassa (also spelled as Hawassa)
is the capital city of SNNPR. The city is located on the shore of the Hawassa lake in the great Rift
valley as well as in the sidama zone 270 km from south of Addis Ababa via Debrezeit, 130 km east
of Sodo, 75km north of Dilla and 1125km north of Nairobi. The city lies on the Trans-African
highway from Adis Ababa town, with attitude and longitude of 37 03’N38028’E-Coordinates and
elevation of 1708 meter. The city has many tourist attraction sites such as Hawassa Lake, Amor
Gadel and is the most beautiful city in Ethiopia. Hwassa enjoys a warm temperate climate
(Magazine, South tourism office).
Modern textile industry was introduced in Ethiopia recently. The establishment of modern textile
industry in Ethiopia increased a singly played an important role in promoting the demand for
modern textile products.
Hawassa Hela Factory company was formally established in 2008, E.C with a 112 million birr
capital on over 371000 hectares of land of the town industrial zone. The factory mainly used cotton
as main input and produces apparels and garments. The state textile has 300 machineries and 819
workers with a capacity to produce 18000 meters of textile per day (Magazine prepared by the
factory).
The main objectives of the company are to produce various types of garments from different kinds
of fabrics for personal and house hold use, to sell its product locally and abroad, to engage
generally in any other trade or business conducive to the attainments of its objective. The business
mission of the company is to produce quality textile to be competitive in the market place
1.3 STATEMENT OF THE PROBLEM
According to Kieso (2007,P.368), inventory are current assets, which a company holds for sale in
the ordinary course of business, or a goods that it will use or consume in the production of good to
be sold. Inventories represent a significant investment especially for merchandising and
manufacturing firms.
Inventory handling and controlling refers to a system used to control or discourage the opportunity
to obsolescence, shortage, cost aspect and the problems associated with inventory in general.
Inventory controlling is a goal of business practice as well as waste reduction techniques and
reduces the cost of storing and purchasing raw material and the volume of hazardous waste
required disposal (Gopalakrishnan, 1977 and Dickerson, 2007).
As per Dickerson (2007, P. 360), inventory are necessary for sale and sales are necessary for
profit. So, the goal of inventory handling and controlling becomes finding the right level of
inventory for the given firm. Proper balance between the cost associated with having too much
inventory and those incurred when the firm has too little inventory should be maintained. Poor
inventory control and excessive build up of inventory will lead to low profitability.
However, in actual practice the vast majority of manufacturing and Distribution Company suffer
from lower customer service, higher costs and excessive inventories than are necessary. So,
improper inventory handling and controlling lead the enterprise to hazardous problem as of the
researcher browser from website.
1.4 RESEARCH QUESTIONS
This study was assessed the inventory handling and controlling system of textile factory in case of
Hela textile factory. So, the enter effort of the research was to answer the following basic research
questions related to the inventory handling and controlling system of the factory.
1. How inventories are handled and controlled by the factory?
. 2. What method was suitable for materials handling and controlling system?
3. Does the factory maintain accurate inventory record?
4. What are the problems associated with inventory handling and controlling?
5. What the duty of inventory management department is and its performance toward
Inventory handling and controlling?
1.5 OBJECTIVE OF THE STUDY
The general and specific objectives of the study explained as follows:
1.5.1 GENERAL OBJECTIVE OF THE STUDY
The general objective of this study was to assess the inventory handling and controlling system of
Hela textile factory in way that it related to its manufacturing activity.
1.5.2 SPECIFIC OBJECTIVES OF THE STUDY
1. To identify how inventories can be handled and controlled.
2. To investigate the problem associated with inventory handling and controlling.
3. To study the general method of inventory recording system.
4. To assess the duty of inventory management department and its performance toward
inventory handing and controlling
5. To assess and identify the most suitable method for inventory handling and controlling
system.
1.6 SIGNIFICANCE OF THE STUDY
The study has been conducted to assess the Hawassa Hela factory weakness and strength in its
inventory handling and controlling system. The study have the following significance helps the
factory to solve the problem that were identified by researcher, it helps inventory manager and
employees how to handle and control inventory and it also helps to suggest possible procedures
that make inventory handling and controlling effective. Finally, it may also used as a reference to
those individuals who are interested to undertake further study.
1.7 SCOPE OF THE STUDY
The study was conducted on the inventory handling and controlling system of Hela textile factory.
It was assessed the duty of inventory management purchasing, store and financial department
toward inventory controlling and handling. In addition to those, it assessed the factors that cause
loss on inventory and record keeping of the factory.
1.8 LIMITATION OF THE STUDY
Strict bureaucracy of the organization which mean that without receiving letter from top manager
they do not provide any information. To solve this limitation the researcher corporate with top
manager secretary to duplicate the letter and to distribute to selected department.
1.9 ORGANIZATION OF THE STUDY
The organization of the study has cover five chapters. The first chapter consists of the background
of the study, statement of the problem, Research question, objective of the study, and significance
of the study scope, limitation of the study and organization of the study. The second chapter
focuses on review of literature while the third chapter deals with research design and methodology.
The fourth chapter presents analyzation part and the final fifth chapter focuses on conclusion and
recommendation.
 CHAPTER TWO
2. LITERATURE OF REVIEW
2.1 REVIEW OF LITERATURE
This study has been conducted to assess the inventory handling and controlling system of the
textile factory particularly on Hela Clothing factory. The study was aimed at assessing and
identifying the most suitable method for inventory handling and controlling system of the factory.
And also aimed at investigating the problem associated with inventory handling and controlling. In
addition, to identify how inventories can be handled and controlled by the factory.
In this chapter an attempt is made to give some highlights on the theoretical background and
empirical experience in the area of inventory handling and controlling system. Topic related to
inventory handling and controlling such as; definition of inventory, motives for holding inventory,
types of inventory, inventory cost, definition of inventory handling and controlling, techniques for
managing inventory, and inventory classification and accounting for inventory was presented
briefly. Let us discuss each point one by one
. 2.1 DEFINITION OF INVENTORY
According to Mosich (1989, P.397), inventories consist of goods held for sale to customers,
partially completed goods, and material to be used in production. Inventory items are acquired and
sold continuously by a merchandising enterprise, or acquired, placed in production, contented to a
finished product, and sold by a manufacturing enterprise.
Further more, Arnold (2008, P.254) define inventory as a material that a business carries either for
sale or to provide input to the production process. From a financial point of view, inventory is an
asset and represents money that is tied up and cannot be used for other purpose. Also inventory is
needed to support manufacturing and often to supply customers.
Additionally, inventory, or good hand, is a necessary current asset that permits the production-sale
process to operate with a minimum of disturbance. Inventory is an investment in the sense that it
requires that the firm tie up its money, there by foregoing certain other reaming opportunities. For
the average manufacturer, it account for about 42 percent of current assets and about 18 percent of
total assets (Gitman 1997, PP. 795-796).
 2.2 MOTIVES FOR HOLDING INVENTORY
Firms hold inventory primarily for the following motives. The first motive is transaction
motive. This means the firms require to hold certain amount of finished products
perpetually in stock for display or demonstration purpose. They may also hold inventories
to meet a sudden demand, thus reducing the delivery lags. The second motive is
precautionary motive, which is the firm may hold inventories for fear of stock out and
losing its good will. A manufacturing firm may carry inventories of both input materials
and finished products to ensure smooth production in the face of fluctuating sales. Storage
of input materials also acts as hedge against future price rises. The third and final motive is
speculative motive that is a firm may also hoard both raw materials and finished products
when it expects a price rise in future, there by realizing a stock profit (Bhattacharya 2001,
PP. 140-141).
2.3 TYPES OF INVENTORY
For a manufacturer, inventory is normally classified into one of three categories. The first category
is raw material. This is whatever the firm uses as a starting point in its production process. Raw
material inventories may consist of manufactured items that have been purchased from another
company or from another division of the same firm. The second type of inventory is work-in-
process, which is just what the name suggests. UN finished product or currently in production. The
third and final type of inventory is finished good, that is, products ready to Ship or sell (Ross 1998,
P.618).
2.4 INVENTORY COST
Excluding the actual cost of the merchandise, the cost associated with inventory can be divided
into three broad groups such as: order costs, carrying costs, and total cost order cost include the
fixed clerical cost of placing and receiving an order the cost of writing a purchase order, of
processing the resulting paper work, and of receiving an order and checking it against the invoice.
On the other hand, carrying costs are the variable costs per unit of holding an item in inventory for
a specified time period. Carrying cost include storage costs, insurance costs, the cost of
deterioration and obsolescence, and most important, the opportunity, or financial cost of tying up
funds in inventory. Finally, the total costs are cost associated with holding inventory are the sun of
the ordering costs and carrying costs (Gitman 1997, P. 799).
 2.5 INVENTORY HANDLING AND CONTROLLING SYSTEM
As per Gopalakrishnan (1977,P.190), inventory handling and controlling refers to a system used to
control or discourage the opportunity to obsolescence, shortage, cost aspect, and the problems
associated with inventory in general. In this section, the researcher tries to define what is inventory
handling and controlling.
2.5.1 INVENTORY HANDLING
Inventory handling can be defined as the function dealing with the preparation, placing, and
positioning of inventory to facilitate their movement or storage. In many cases, the handling is also
included as an integral part of the process. Through scientific inventory handling considerable
reduction in the cost as well as in the production cycle time can be achieved (Gopalakrishnan
1977, P.190).
In addition, inventory handling equipments can be classified into two categories, namely, fixed
path equipment and variable path equipment. Fixed path equipments are that equipment which
moves in a fixed path. Conveyors, manorial devices, chutes, and pulley drive equipments belong to
this category. Also over head cranes have very good range items of hauling tonnage and are used
for handling bulky raw materials, stacking and at times palletizing. Where as, variable path
equipments have no restrictions on the direction of movement although their size is a factor to be
given due consideration. Trucks, fork lifts, mobile cranes and industrial tractors belong to this
category (Gopabkrishnan 1977, P191).
2.5.2 INVENTORY CONTROLLING
As the researcher brewers from website, inventory control is the delicate balance of the costs
versus profits associated with having stock on hand. It means keeping the overall costs associated
with having inventory as low as possible without creating problems. This also some times called
stock control. Thus, correctly managing inventory control is a delicate balance at all times between
having too much and too little in order to maximize profits. In addition, the costs associated with
having stock, running out of stock, and placing orders must all be looked at and compared in order
to find the right formula for a particular business organizations. Additionally, inventory control can
break a business if it is executed poorly, because either expense will be too high or customers will
get tired of dealing with shortages and find another place to spend their money.
According to Tersine (1994), the goals associated with inventory control are not mono litchis of
even easily delineated. The major goals of inventory control are to minimize investment, maximize
customer service, and assure efficient (low cost) plant operation. Some of the common sub goals
are low unit cost, high inventory turnover, consistency of quality, favorable supplies relation, and
continues of supply. Also an inventory manager is interested in the economy, efficiency and
effectiveness of the inventory system. Economy, refers to the low cost operation of the inventory
system, where as, efficiency refers to how well the inventory system performs in relation to some
standard (such as turnover), and effectiveness refers to how well the inventory system serves the
goals of the organization. Thus the overall performance might be measured in terms of cost of
operation, historical performance standards, and ability to meet customer’s demands.
Further more, Dickerson (1995,PP360-361) define inventory management as a balancing of a set
of cost that increase with larger inventory holdings with a set of cost that decrease with larger
order size. The goal of inventory management is to provide the required to sustain operations at the
minimum cost. Inventory management focuses on three basic questions. The first question is how
many units of each inventory item should the firm hold in stock? The second question is how many
units be ordered or produced at a given time? The Final and third question is at what point
inventory should be ordered or produced.
Inventory control deals with managing inventory according to their classification (raw material,
work – in – process, and finished goods) and the function they perform rather than at the individual
item level. It is financially oriented and is concerned with the cost and benefit of carrying the
different classification of inventories. In batch manufacturing, the basic purpose of inventories is to
decouple supply and demand. In addition, inventory serve as a buffer between supply and demand,
customer demand and finished goods, finished goods and component availability, the requirements
for an operation and out put from the preceding operation, and parts and materials to begin
production and the supplies of materials (Arnold 2008, PP. 255-257).
2.6 TECHNIQUES FOR MANAGING INVENTORY
As described earlier, the goal of inventory handling and controlling is usually framed as cost
minimization. In this section, the researcher tries to explain the techniques that commonly used in
managing inventory such as: ABC approach, Economic order quantity (EOQ), material
requirement planning (MRP) and just in-time (JIT) approach.
2.6.1 ABC APPROACH
According to Gitman (1997, P. 798), ABC system is inventory management techniques that
divides inventory in to three categories of descending importance based on the dollar investment in
each. A firm using the ABC system divides it inventory into three groups: A,B, and C. The ‘A’
group includes those items that require the largest dollar investment. The ‘B’ group consists of the
items accounting for the next largest investment. The ‘C’ group typically consists of a large
number of items accounting for a relatively small dollar investments. For example, this situation
would exist for a manufacturer that uses some relatively expensive, high-tech components and
some relatively inexpensive basic materials in producing its products.
Additionally, most companies carry a large number of items in stock to have better control at a
reasonable cost; it is helpful to classify the items according to their importance. The ABC principle
is based on the observation that a small number of items often dominate the results achieved in any
situation. This observation was first made by an Italian economist, Vilfredo Pareto, and is called
Pareto’s law. As applied to inventories, it is usually found that the relationship between percentage
of items and the percentage of annual dollar usage follow a pattern in which three groups can be
defined: Group ‘A’, about 20 percent of items account for about 80 percent of the dollar usage
where as, Group ‘B’, about 30 percent of items account for about 15 percent of the dollar usage,
and Group ‘C’, about 50 percent of the items account for about 5 percent of the dollar usage.
However, the percentages are approximate and should not be taken as absolute. This type of
distribution can be used to help inventory control (Arnold 2008, PP.270-271).
Dividing its inventory into ‘A’, ‘B’ and ‘C’ items allows the firms to determine the level and types
of inventory control procedures needed. Control of the ‘A’ items should be most intensive because
of the high dollar investment involved; the use of perpetual inventory record keeping that allows
daily monitoring of these inventory levels is
 appropriate ‘B’ items are frequently controlled through periodic checking-possibly weekly- of
their levels. ‘C’ items could be controlled by using unsophisticated procedures such as a red-line
method, in which a reorder is placed when enough inventory has been removed from a bin
containing the inventory item to expose a red-line that has been drawn around the inside of the bin
(Gitman 1997, PP.798-799).
In general, the degree and characteristics of control to be exercised by the management should
depend upon the necessity of control, the relative necessity of the material to be placed under
control, and the particular characteristics of the materials. Controls applied selectively contribute
to a better management (Arnold 2008, P. 270).
2.6.2 ECONOMIC ORDER QUANTITY (EOQ) MODEL
Economic order Quantity Model is the best-known approach for explicitly establishing an optimal
inventory level. It is inventory management technique for determining an item’s optimal order
quantity, which the one that minimize the total of its order and carrying costs. It takes into account
various operating and financial costs and determines the order of quantity that minimizes total
inventory cost. Two extension of economic order quantity such as: safety stocks and Reorder
points (Ross 1998, PP.620-625).
Safety stock is the minimum level of inventory that a firm keeps on hand inventories are reordered
whenever the level of inventory falls to the safety stock level. It provides a short-term protection to
the production department and marketing organization against uncertainties of customer demand,
which is a general phenomenon cutting a cross all in industries and trade whether it is seasonal or
not.
Whereas, Reorder points are the times at which the firm will actually place its inventory orders.
Once the firm has calculated it EOQ (economic order quantity), it must determine when to place
orders. A reorder point is required that considers the lead time needed to place and receive orders.
2.6.3 MATERIALS REQUIREMENTS PLANNING (MRP) SYSTEM
MRP is inventory management system that uses economic order quantity (EOQ) concepts and a
computer to compare production needs to available inventory balance and determine when orders
should be placed for various items on a product’s bill of materials. Association for operations
management (APICS) defines a bill of material as “a listing of all the sub assemblies,
intermediates, parts, and raw materials that go into making the parent assembly (Arnold 2008,
P81).As per Gitman (1997, P.802), many companies use a MRP system to determine what-to
order, when to order, and what priorities to assign to ordering materials. The bill material structure
simply refers to every part or material that goes into making the finished product. The advantage of
MRP system is that it forces the firm to more thoughtfully consider its inventory needs and plan
accordingly. The objective is to lower the firm’s inventory investment without impairing
production.
MRP has been grown rapidly and experienced level of acceptance since 1970. This growth partly
attributed of “MRP crusade” carried out by APICS, effort to promote the utility of MRP. The list
of firms using MRP has grown rapidly from 150 in 1971 to 700 by 1975, and over 2000 in 1982,
and indications are that list has growth continued. But once functioning smoothly, the MRP system
offers really significant advantage to weigh against the costs (Arnold, 2008 and Gitman 1997).
2.6.4 JUST-IN-TIME INVENTORY (JITI)
The JIT system is used to minimize inventory investment. The philosophy is that materials should
arrive at exactly the time they are needed for production. Ideally, the firm would have only work-
in-process. Because its object is to minimize inventory investment, a JIT system uses no, or very
little, safety stocks. So, an extensive coordination must exist between the firm, its suppliers, and
shipping companies to ensure that material input arrive on time. Moreover, the goal of the JIT
system is manufacturing efficiency. It uses inventory as tool for attaining efficiency by emplaning
quality in terms of both the materials used and their timely delivery. When JIT is working
properly, it forces process in efficiencies to surface and be resolved. Therefore, employee must
encourage competitive excellence, continuous improvement, and 100 percent quality items
(Gitman 1997, PP. 802-803).
JIT is a modern approach to managing dependent inventories-demand for some inventory types is
derived from or dependent on other inventory needs. The goal of JIT is essentially to minimize
such inventories, there by maximizing turnover. The approach began in Japan, and it is a
fundamental part of much of Japanese manufacturing philosophy. As the name suggest, the basic
goal of JIT is to have only enough inventory on hand to meet immediate production needs. The
result of the JIT system is that inventories are reordered and restocked frequently. Japanese
manufacturers often have a relatively small, tightly integrated group of suppliers with whom they
work closely to achieve the needed coordination (Ross 1998, P. 627).
The Kanban is an integral part of a JIT inventory system, and JIT system are sometimes called
Kanban systems. The literal meaning of Kanban is “card” or “sign”, but, broadly speaking, a
Kanban is a signal to a supplier to send more inventories. For example, a Kanban can literally be a
card attached to a bin of parts. When a worker pulls that bin, the card is detached and routed back
to the supplier, who then supplies a replacement bin (Ross 1998, P.627).
 2.7 INVENTORY CLASSIFICATION
This section discusses the Arnold (2008, PP. 257-258) classification of inventory according to the
function they perform such as: Anticipation inventory, fluctuation-inventory, lot-size inventory,
Transportation inventory, Hedge inventory, and MROs.
2.7.1 ANTICIPATION INVENTORY
Anticipation inventory are built up in anticipation of future demand. They are built up to help high
level production and to reduce the cost of changing production rates. For example, they are created
a head of a peak selling season, a promotion program, vacation shutdown, or possibly the threat of
a strike.
2.7.2 FLUCTUATION INVENTORY (SAFETY STOCK)
Fluctuation inventory is held to cover random unpredictable fluctuation in supply and demand or
lead time. If demand or lead time is greater than forecast, a stock out will occur. Safety stock is
carried to protect against this possibility. Its purpose is to prevent disruptions in manufacturing or
deliveries to customers.
2.7.3 LOT-SIZE INVENTORY
Items purchased or manufactured in quantities greater than needed immediately create lot-size
inventories. Lot-size inventory is sometimes called cycle stock. So, it is the portion of inventory
that depletes gradually as customer’s orders come in and is replenished cyclically when suppliers’
orders are relieved. In general, this is to take advantage of quantity discounts; to reduce shipping,
clerical, and setup costs; and in case where it is impossible to make or purchase items at the same
rate that they will be used or sold.
2.7.4 TRANSPORTATION INVENTORY
Exists because of the time needed to move goods from one location to another such as from a plant
to a distribution center or a customer. They are some times called pipeline or movement
inventories.
2.7.5 HEDGE INVENTORY
If buyers expect prices to rise, they can purchase hedge inventory when prices are low. Most
companies use this types of inventory to take advantage of price discounts and to save their capital
investment on inventory.
2.7.6 MAINTENANCE, REPAIR AND OPERATING SUPPLIES (MROs)
MROs are items used to support general operation and maintenance but that do not become
directly part of a product. In general, the literatures reviewed so far emphasized the proper
inventory handling and controlling system. And also techniques listed above are the main tools or
techniques of inventory handling and controlling methods adopted by many companies in order to
utilize their inventory effectively and efficiently. Therefore, this study will assess the inventory
handling and controlling system of Hawassa Hela factory.
2.8 ACCOUNTING FOR INVENTORY
Inventory records may be maintained on either a periodic or a perpetual basis.
A periodic inventory system requires a physical inventory i.e., counting, measuring, or weighing of
goods, at the end of the accounting period to determines the quantities on hand values are then
assigned to the quantities to determine the portion of the recorded costs to be carried forward on
the balance sheet as inventory. The perpetual inventory system requires the maintenance of records
that provide a continuous summary of inventory items on hand. Individual accounts are kept for
each class of grads. Inventory increases and decreases are recorded in the individual accounts, the
resulting balances representing the amount on hand perpetual records may be kept in terms of
quantities only or in terms of both quantities and cost (Smith 1995, P. 342).
In general, the literatures reviewed so far emphasized the proper inventory handling and
controlling system. Inventory is an antecessor current asset that permits the production sale process
to operate with a minimum of disturbance. For manufacturer, inventory is normally classified in to
three categories such row material, work in process and finished good inventory.
The objective of inventory control is to maintain an adequate supply of gross while minimizing the
investment in inventory and carrying costs. The techniques that commonly used in managing
inventory includes, ABC approach, economic order quantity (EOQ), material requirement planning
(MRP) and just-in-time approach (JIT). Inventory records may be maintained on either a periodic
or perpetual basis. Therefore, the next chapter of this research paper to assess the inventory
handling and controlling system of Hawassa Hela Factory.
 CHAPTER THREE
3. RESEARCH METHODOLOGY AND DESIGN
This section of the study will show details of the research design, the sampling method, source of
data as well as the manner in which the data was collected and analyzed for the study.
3.1 RESEARCH DESIGN
The type of research that was employed for the purpose of this study was descriptive in nature,
because, the researcher has no control or effect on the variable (inventory handling and
controlling) of the study. It was intended only to describe the inventory handling and controlling
system of the factory and the problem associated with it
. 3.2 SOURCE OF DATA
The researcher was used two types of data source. These are primary and secondary. The primary
data was directly received from the manager and employees of target population: Whereas, the
secondary data obtained from accounting records, manual, and periodical document.
3.3 TARGET POPULATION
The population from which the representative sample was taken is the finance department,
inventory management department, purchasing department, and were house (store) management.
3.4 METHOD OF SAMPLING
The sampling techniques used for the study was judgment sampling method. Because only
department concerned with inventory control and handling was assessed. From the four
departments the numbers of worker were 25 and the questionnaires were distributed to all. So the
sample size was 100 percent.
3.5 DATA COLLECTION TECHNIQUES
Data was collected through both primary and secondary methods. The primary data was collected
through structured interview and questionnaire distributed to selected sample respondents. The
questionnaire consists of both closed and open ended questions.
Closed ended questions are quicker and easier both for respondents and researcher. Closed ended
question are designed as ‘yes’ or ‘no’ and multiple choice questions. Whereas, open ended
questions allows respondents to offer an answer that the researcher didn’t include in the questions.
Secondary data was also collected from different documents prepared by the factory such as
accounting records, periodical documents and manuals.
3.6 METHOD OF DATA ANALYSIS AND PRESENTING THE OUTCOME
The data collected has been verified and analyzed into meaningful document using the descriptive
analysis approach. Because the researcher only report what has happened or what is happening.
The data that was collected through the above mentioned methods were analyzed using tabulation,
percentage,. Finally, the data was summarized and presented by means of tabulation and necessary
explanation was given.
 CHAPTER FOUR
4. DATA ANALYSIS AND INTERPRETATION
The study was conducted in Hawassa Hela Company to assess the inventory handling and
controlling system of the factory in away that it relates to its manufacturing activities. This chapter
deals with the analysis and interpretation of finding. The data and information collected from the
factory employees and management is believed to be relevant with the objective of the study. The
researcher analyzed data in terms of tables and percentage. Accordingly, the analysis and finding
of this study are based on questionnaires collected from respondents and interview conducted with
head finance department, store department and inventory management department.
4.1 PERSONAL BACKGROUND OF RESPONDENTS
The study was undertaken by distributing 25 questionnaires among four department worker. From
which 23(92%) was collected and 2(8%) was not collected due to absence from his/her office at
the time of collecting questionnaires. The respondent sex, age, work experience, educational
background and their job category discussed as follow.
4.1.1 SEX DISTRIBUTION OF RESPONDENTS
Sex Number of respondent Percentage
Male 16 69.6
Female 7 30.4
Total 23 100%
Table 4.1, Sex distribution of respondents
Source (Primary data)
As shown from table 4.1 above, among 23 numbers of respondents 69.6% were males and the rest
30.4% were females. This implies the majority of workers are male.
4.1.2 AGE DISTRIBUTION OF RESPONDENTS

Age (years) Number of respondents Percentage

20-25 5 21.7
26-30 7 30.4
31-35 8 34.8
36-40 3 13
41 and above 0 0
Total 23 100%
Table 4.2 Age distribution of respondents
Source (Primary data)
As shown in the above table 4.2, the age structure of respondent shows that 21.7% were between
20-25 years, 26-30 account for 30.5%, 31-35 were account for 34.8% and 36-40 account for 13%.
The majority of workers were between 31-35 years.
4.1.3 WORK EXPERIENCE OF RESPONDENTS IN ORGANIZATION
As expressed in table 4.3 below, from the total respondents 34.8% are serving in the factory for
more than 5 years. This indicates they know about the factory and its working conditions more.
Work experience Number of respondents Percentage
Less than 1 year 0 0
1-2 years 6 26.1
2.4 years 2 8.7
4-5 years 7 30.4
Above 5 years 8 34.8
Total 23 100%
Table 4.3 Work experience of respondents
Source (Primary data)
The respondents 30.4% has work experience between 4-5 years, 26.1% between 1-2 years and
8.7% years between 2-4 years.
 4.1.4 EDUCATIONAL BACKGROUND OF RESPONDENTS
Educational background Number of respondents Percentage
Certificate 1 4.4
Diploma 10 43.4
First degree 12 52.2
Master degree 0 0
PhD 0 0
Total 23 100%
Table 4.4 Educational background of respondent
Source (Primary data)

From the total number of respondents 52.2% are degree graduate, 43.4% are diploma graduate and
4.4% are certificate holders. There is no respondent with master degree and PhD graduate. From
this survey most of them are degree graduate followed by diploma graduate.
4.1.5 CURRENT JOB CATEGORY OF RESPONDENTS
Job category Number of respondents Percentage
Inventory 6 26.1
Purchaser 3 13
Store worker 5 21.7
Accountant 8 34.8
Internal auditor 1 4.4
Total 23 100%

Table 4.5 Current job category of respondents

Source (Primary data)
Based on the above table 4.5 the majority of respondents are accountant that means (8) 34.8% of
the respondents. (6)26.1% are working in inventory management department as inventory
controller, purchasing department worker were (3)13% and store worker were 21.7% the
respondent. The rest 4.4 %( 1) is internal auditor employed in the factory. According to this survey
most of worker work in finance department in different field of accounting.
4.2 TYPES OF INVENTORY HOLD BY ORGANIZATION
Every business enterprise needs inventory for smooth running of its activities. It serves as a link
between production and distribution and permits the production sale process of the factory.
Inventory consists of raw material, work-in-process, finished goods, supplies, retail and wholesale
finished goods (Dickerson 1995, PP360-361).
According to the information acquired from the respondents the inventory of Hawassa Hela
clothing factory is classified as raw material, work-in-process finished good, supplies and spare
parts. Its raw material consists of manufactured items that have been purchased from the market. It
includes cotton, polyester, chemical, color, sizing chemical and Dyestuff. Polyester purchased
from a broad (out side of country) and the other are purchased from the market (in the country and
outside the country). Work-in-process (WIP) consists of unfinished product or currently in
production such as thread. It can be sold and used in production of Pants. Finished good consists
product produced by factory it self such as textile. Some times thread also considered as finished
good but it is not the objective of the factory to sale thread as finished good unless thread used to
produce Pants. Spare parts consists of tier, different machineries, industrial truck, packaging ,
lubricant, medicine, computer & computer spare parts, furniture and different vouchers. Spare
parts and supplies acquired from market (in the country or outside the country) (primary data).
4.3 INVENTORY HANDLING EQUIPMENTS
Inventory handling equipment is equipment used to handle bulky raw material and load bulky
finished good on truck. Inventory handling equipment can be classified into two categories,
namely fixed path equipment and variable path equipment. Fixed path equipment which move in a
fixed path such as conveyors, manorial devices, chutes and pulley drive equipments where as,
variable path equipments have no restrictions on the direction of movement such as trucks,
forklifts, mobile cranes and industrial tractors (Gopalakrishnan 1977,PP.190-191).
According to information obtained from the respondents, inventory handling equipment used by
the factory is variable path equipment. It includes industrial truck, mobile cranes, forklifts and
trucks. The other equipment used by the factory is containers, which is used to keep inventory in it.

4.4 TECHNIQUES OF INVENTORY MANAGEMENT

As described in chapter 2, the goal of inventory handling and controlling is usually framed as cost
minimization. The techniques that commonly used in managing inventory such as ABC approach,
Economic order quantity (EOQ), Material requirement planning (MRP) and Just-in-time (JIT)
approach.
 Techniques Number of respondents Percentage
Economic order quantity 4 17.4
Material planning requirement 3 13
ABC approach 1 4.4
Just in time 13 56.5
All of them 2 8.7
Total 23 100%
Table 4.6 Inventory controlling techniques
Source (Primary data)
As shown in the above table 4.6, the majority of the respondents 13(56.5%) respond that the
factory using just-in-time inventory management techniques.
The philosophy with just-in-time is that materials should arrive exactly at the time they are needed
for production.
Finished product reach to the customer within just-in-time
Reaches Number of respondents Percentage
Yes 15 65.2
No 8 34.8
Total 23 100%
Table 4.7 Finished product reach to the customer
Source (Primary data)
The previous table, table 4.6 discovered that the factory is using just-in-time inventory
management techniques. Because of this, in table 4.7, 65.2% of the respondent said that finished
product reaches to customer with in just-in-time after production. The factory produce its textile
based on order received from different customers such as retailer, wholesaler and enterprise. These
reduce inventory carrying cost, insurance costs and over investment in inventory.
4.5 INVENTORY HANDLING AND CONTROLLING SYSTEM
According to Gopalakrishnan (1977, P. 190), inventory handling and controlling refers to a system
used to control or discourage the opportunity to obsolescence, shortage, cost aspect and the
problems associated with inventory in general.
As per Dickerson (1995, P. 360), the financial manager of a firm will not normally have primary
control over inventory management. Instead, of the functional areas such as purchasing,
production, and marketing will usually share decision making authority regarding inventory. The
constant flow of material in store and then it production and out gain make inventory control joint
responsibility of many departments. According in assessing the inventory handling and controlling
system of Hawassa Hela clothing share company, department concerned with inventory control
were assessed. As the respondents responded and secondary data obtained the role and
responsibility of these department discussed below. Purchasing department emphasis on what,
when, where, how much and at what price to purchase, to maintain continuity of supply so as to
support production program. The responsibility of his department has been avoiding duplication of
purchase, wastes, obsolescence and costly delays.
Inventory controlling is a planned method where by investment inventories is maintained in such
away that it insure proper and smooth flow of material needed for production and sales, while
keeping maintenance cost of inventories at minimum. These departments also perform weekly
supervision of inventory, keeping inventory record when it received and sold to customers,
preparing material budget and taking care of documentation etc.
Store department involves receiving materials, checking them for of quality and quantity,
preparing goods receiving notes, storing materials in respective location such as raw material in
raw material store and finished goods in finished good store, day-to-day supervision over
inventory, keeping storage plan in proper order and observing all safety measures and security,
storing materials in such away that it ensure proper smooth flow of material needed for production
and sales and storing in a place which ensure less explosion to obsolescence and wastage (source
interview with store manager and questionnaires).
Based on the interview with finance manager inventory controlling performed in away all
inventory are controlled in equal manner. The factor is using periodic inventory system in which
physical checking of inventory or counting of inventory conducted. When inventory are purchased
recorded in GRN (Good receiving note and recorded in SIV) (store issue voucher) to distribute to
different departments.
4.6 PROBLEMS ASSOCIATED WITH INVENTORY HANDLING AND
CONTROLLING
In actual practice the vast majority of manufacturing and Distribution Company suffer from lower
customer service, higher costs and excessive inventories than are necessary. Poor inventory control
and excessive build up of inventory will lead to low profitability. So, the goal of inventory
handling and controlling becomes finding the right level of inventory for the given firm (Dickerson
2004, P. 360).
As the information obtain from the respondents the major problem associated with inventory
handling and controlling include higher cost of ordering inventory, lack of sufficient skill of
inventory handling and controlling, obsolescence of inventory and higher cost of handling and
controlling inventory.
Lack of efficient inventory handling and controlling system affect the product and production
process.
Affect Number of respondents Percentage
Yes 16 69.6
No 7 30.4
Total 23 100%
Table 4.8 The effect of lack of efficient inventory handling and controlling
Source Primary data From the above table, the researcher conclude that lack of efficient inventory
handling and controlling system can affects both product it self and production process. 69.6% of
the respondents confirm this conclusion. It can affect in way that more inventory may be
obsolescent which make to decline in production, it create excessive inventory, hinder production
process, create inventory shortage by making products worthless, reduce number of customer and
by reducing the efficiency and effectiveness of the factory.
4.7 ORDERING AND RECEIVING INVENTORY
As the information obtain from the respondents and interview with manager ordering of inventory
is placed only when the inventory level drops to minimal whose total inventory and ordering costs
minimum. Finance department write memo to purchasing department depending on the request of
production department, then purchasing department make a purchase based on testing the quality
of the products. After purchase is made transporting of inventory is performed. Receiving of
inventory is performed only when inventory reaches to the factory and then inventory is recorded
in good receiving notes (GRN) ledger.
Are the factory face Number of respondent Percentage
shortage
Yes 6 26.1
No 17 73.9
Total 23 100%
Table 4.9 the factory face shortage to meet market demand
Source Primary data
As shown in the above table 4.9, about 73.9 percentage of respondent said that the factory not face
shortage of product to meet the market demand. Because, the raw material department (store)
determine that how much raw material are available for the production to avoid unavailability of
raw material, supplies and spare parts. The production department produce textile based order from
customers on time it required. As well as the purchasing department purchase raw material,
supplies and spare part in advance when inventory level reach to minimum (interview).
4.8 INVENTORY MANAGERS’ ROLE IN HANDLING AND
CONTROLLING
A well managed inventory provide for low cost operation and managing of inventory. The
following are the major role of inventory manager’s such as managing inventory in proper manner
to increase the production, voucher recording, coding inventory, follow up in-flow and out-flow of
inventory are recorded in proper account at the proper amount, receiving produced and purchased
inventory and preparing inventory report. The manager of inventory controlling department also
share this idea by suggesting the following taking a corrective measure for deviation and
obsolescence of in checking for quality and quantity of purchased inventory and supervision of
inventory exist in store (interview, questionnaires and secondary data).
Do you prepare Number of respondents Percentage
inventory report?
Yes 17 73.9
No 6 26.1
Total 23 100%
Table 4.10 Preparation of inventory report
Source: Primary data
As shown in the above table 4.10, the majority of the respondent said that the factory prepare
inventory report. It is important to how much inventory used in this operation year, to determine
how much inventory needed for the next year production, to improve use of inventory by
employees.
How often it Number of respondents say Percentage of who say
prepared yes yes
Per week 1 5.9
Per month 0 0
Semi annually 1 5.9
Annually 15 88.2
Total (yes) 17 100%
Table 4.11 how often inventory report prepared
Source: Primary data
From the above table 4.11 the researcher conclude that the factory prepare inventory report
annually. About (15 of 17) 88.2 percent of respondent respond this. The factory uses periodic
inventory system, in which annual counting of inventory exist in the store and checking inventory
record produced and purchased for preparation of financial statement.
4.9 MANAGING OVERSTOCKING AND UNDER STOCKING
Inventory level of business organization is mostly subject to over stocking and under stocking of
inventory. Over stocking and under stocking refers to over investment and under investment in
inventories respectively (Dickerson, 1996, P. 560). According to the response obtain from
respondents, the following mechanism are used to avoid these problem such as by producing just
right product to fulfill the demand of the customer, producing based on an order and smooth
agreement with raw material, supplies and spare parts supplier, buying inventory as per the need
only and studying market demand. The manager of finance department agrees with these ideas
additionally suggesting Government support as the other mechanism.
The government support in such away compensating increase in price of raw materials and
creating market opportunity in the country and out side the country.
As of interview with managers and questionnaires, the finance department is using Peachtree
accounting system in connection with store department. This system has the following advantage
such as minimize process of record keeping, save time, reduce redundancy record, facilitate
smooth flow of inventory from store to production and strengthen record keeping system.
Further more; it is useful to update record at any time in a sense when inventory is distributed to
departments and purchase of raw material, supplies and spare parts.
4.10 SUMMARY OF FINDINGS
In general, this chapter discussed the analyzation of questionnaires an interview conducted on the
title inventory handling and controlling system particularly on Hawassa Hela clothing company. In
this section the researcher summarize the analyzation part.

The inventories of the factory are classified as raw material, work-in process, finished goods,
supplies and spare parts. Finished goods consist of textile which is the objective of the factory and
also thread may some times consider as finished good. The inventory handling equipment used by
the factory is variable path equipment such as industrial truck, mobile cranes, forklift and trucks.
The factory use just-in time inventory controlling techniques. In addition, finished goods reaches
to customer with in just-in time after production.
In handling and controlling inventory different functional departments are responsible mainly
departments such as purchasing, inventory management department, store department and finance
department. Each department has its own objective and role and responsibilities in controlling
inventory. Accordingly, in the factory all inventories are controlled in equal manner. The factory
uses periodic inventory system and also the factories prepare inventory report annually. Ordering
of inventory is placed only when the inventory level drops to minimal. At the same time, receiving
of inventory is performed only when inventory reaches to the factory compound and then
inventory’s recorded in good receiving notes (GRN) ledger.
The major problems associated with inventory handling and controlling faced by the factory
include higher costs of ordering inventory, lack of sufficient skill of handling and controlling,
obsolescence of inventory and higher cost of handling and controlling inventory. Additionally,
lack of efficient inventory handling and controlling system affect the product and production
process.
Inventory manager’s role in handling and controlling of inventory is the critical. The factory use
different mechanism to maintain between over stoking and under stocking. Further more, the
government support is the other mechanism in such away compensating raw material increase
price and creating market opportunity.
Finally, finance department uses Peachtree accounting system in connection with store department.
 CHAPTER FIVE:
5. CONCLUSION AND RECOMMENDATION
Based on the researcher finding the following conclusion and recommendation are reached.
5.1 CONCLUSION
Inventory handling and controlling system are essential because, it facilitate the production process
and enhance the industrial progress. It provides the opportunity to reduce obsolescence, create
inventory shortage, create excessive inventory and reduce number of customers.
The inventory of the factory is classified as raw material, work-in process, finished goods, supplies
and spare parts. Inventory is handled in the factory by using variable path equipment such as
industrial tock, mobile crane, forklift and trucks. In the factory all inventory are controlled in equal
manner.
Each department has it shown role and responsibility in controlling inventory. Particularly,
inventory management department is primarily concerned with inventory management. It ensure
investment in inventory is maintained in such a way that ensure proper and smooth flow of
material needed for productions and sales while keeping inventory cost at minimum.
The method used by the factory in managing inventory is just-in time inventory management
techniques. With just-in time raw material should arrive at exact time as it needed for production.
And finished goods also should arrive at exact time to the customer’s.
Inventory recording system employed by the factory is periodic inventory system in which
physical checking or counting of inventory is made. The factory prepares inventory report
annually. Further more; the finance department uses Peachtree accounting system in connection
with store department.
The major problem associated with inventory and controlling include higher cost of ordering
inventory, lack of sufficient skill of employee in handling and controlling, obsolescence of
inventory and higher cost of handling and controlling inventory.
Generally, lack of efficient inventory handling and controlling system affect the efficiency and
effectiveness of the factory.
5.2 RECOMMENDATION
One of the most effective ways to introduced corporate planning processes to an enterprise is to
initiate a comprehensive inventory handling and controlling diagnosis of company’s activities.
Based on the research findings and conclusions drawn, the following recommendations are
forwarded.
1. In the factory all inventory are controlled in equal manner which is appreciable. But, it is
advisable for the company to give primary concern to raw material and finished goods.
2. Improvement in inventory handling and controlling system to bring about efficient product
and production process, which minimize inventory handling and controlling cost, minimize
cost of ordering and which also reduce obsolescence of inventory.
3. Inventory handlers and controllers must be trained periodically. Concerning how to handle
and control inventory to avoid the problem of insufficient skill of employee in handling and
controlling.
4. The factory needs to familiarize with new technology to be sufficient in inventory handling
and controlling system to minimize the costs of inventory handling and controlling.
5. Preparing inventory report annually is not sufficient by itself. So, the factories need to
prepare inventory report monthly or quarterly at a minimum cost.
 REFERENCE
A.N. Mosich (1989), Intermediate Accounting, 6th edition, McGraw Hill, New York.
Bodil Dickerson B.J. Campsey, Eugene [Link] (1995), Introduction to Financial
Management, 4th edition-Dryden press, USA.

Donald E. Kieso, Jerry J. Wergandt Terry. D. War Field (2007), Intermediate

Accounting, 12th edition, volume 1, John Wiley and Sons. Inc.

Gopalakrishnan, P. and M. Sundaresan (1977), Material management: An Intergrated

Approach, Prentice-Hall India.
Jan [Link], K.G. Stanga, Williams. W Holder (1995), Intermediate Accounting,
5th edition, the Dryden Press, USA.
J.R Tony Arnold, Stephen N. Chapman and L Loyd M. CLive (2008), Introduction to
material management, 6th edition, Pearson education Inc.
Lewerence J. Gitman (1997) Principle of managerial finance, 8th edition-Addison
Wesley New York.
Ross, Westerfield, and Jordan (1998), Fundamental of corporate finance, 4th edition,
McGraw-Hill-Irwin, USA.
Smith, Skourson, Stice and Stice (1995), Intermediate Accounting, 12th edition,
South-western college publishing.
 APPENDIX
RIFT VALLEY UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
Dear respondents,
This questionnaire is designed to collect data on assessment of inventory handling and controlling
in case of Hawassa Hela factory. The outcome of the study will help to suggest possible solution
for problems observed. Any information you provide is helpful to the researcher. Therefore, your
cooperation in filling out this questionnaire genuinely is crucial to the success of this research.
Instruction: Please indicate your answer to each question by making “” on your choice
I. Personal information
1. Sex: Male  Female 
2. Age: 20-25  26-30  31-35  36-40 
41and above 
3. Work experience
Less than 1 year  1-2 years  2-4 years 
4-5 years  above 5 year 
4. Educational Backgrounds
Diploma  Certificate  First degree 
Master degree  PH.D 
5. Your current job category
Financial manager  Inventory controller 
Operational worker  other please, specify ____________
II. Questionnaires
1. What types of inventories hold by the organization?
Finished product  Work-in-process
Raw material  other specify __________________
2. What types of inventory handling system that the factory uses? Which is
appropriate?
Conveyors  Industrial trucks 
Monorails cranes  Containers  other specify_______
3. What are the techniques of inventory management used by the factory? Which are
appropriate techniques? ABC analysis 
Economic order quantity  Just-in-time
 Material planning requirements  other specify______________
4. What are the problems associated with inventory handling and controlling?
___________________________________________________________________
___________________________________________________________________
______________________________________________
5. Finished product reach to the customer with in just-in-time after production?
Yes  No
6. If you say no in the above question, why not?
___________________________________________________________________
___________________________________________________________________
______________________________________________
7. How inventories are handled and controlled in the factory?
___________________________________________________________________
___________________________________________________________________
______________________________________________
8. How and when inventory received and recorded?
___________________________________________________________________
_____________________________________________________
9. What is the inventory managers’ role in handling and controlling?
___________________________________________________________________
___________________________________________________________________
______________________________________________

10. Do you prepare inventory report? Yes  No 

11. If you say yes in the above question, how often it prepared?
Per week  per month Semi annually 
Annually  Other specify ________________________
12. How inventory will be ordered?
___________________________________________________________________
_____________________________________________________
13. Lack of efficient inventory handling and controlling system affect the product and
production process? Yes No 
14. If you say yes in the above question, how it affect?
 ___________________________________________________________________
_____________________________________________________
15. Are the factory face shortages of products to meet the market demand?
Yes  No 
16. If you say yes, what was the cause?
___________________________________________________________________
___________________________________________________________________
______________________________________________
17. What kind of mechanisms will be used to avoid or minimize over stocking and
under stocking?
___________________________________________________________________
___________________________________________________________________
______________________________________________
18. How inventory in the store room (ware house) can be controlled and categorized?
___________________________________________________________________
___________________________________________________________________
______________________________________________
19. Is there any mechanized or automation system that the Hawassa Hela factory used
or intended to use?
___________________________________________________________________
___________________________________________________________________
______________________________________________
20. Does using the above (question number 11) system have any significance? How?
___________________________________________________________________
___________________________________________________________________
_________________________________________
 Interview Questions
1. How inventory are handled and controlled in the factory?
2. What are the main problems associated with inventory handling and controlling?
3 .How the factories solve this problem (question number 2)?
4. What type of mechanisms will be used to avoid over stocking and under stocking?
5 .What methods were suitable for inventory handling and controlling system?
6. How the factory control or maintain accurate inventory record?