EFFECTS OF INVENTORY MANAGEMENT SYSTEM ON

ORGANISATIONAL PERFOMANCE.A CASE STUDY OF GARISSA GENERAL

HOSPITAL

BY

TRIZER MUSILI

1903

A RESEARCH PROJECT SUBMITTEDTO KENYA NATIONAL EXAMINATIONATION

COUNCIL INPARTIAL FULFILLMENT FOR AWARD OF CERTIFICATE IN SUPP LY AND
CHAIN MANAGEMENT MODULE 2

JANUARY 2021
 DECLARATION
This research project is my original work and has not been presented to any other polytechnic

SIGN DATE

……………………………… ………………………………

TRIZER MUSILI

INDEX NUMBER 1903

Approved by the supervisor

The research project was submitted for examination with my approval as the project lecturer

Sign Date

………………………………… …………………………………

NAME……………………………………………………………………………………

For and on behalf of North Eastern National Polytechnic

 i

DEDICATION

This work is dedicated to my brothers and sisters for their support financially, morally and advice they
gave me.
 ii

ACKNOWLEDGEMENT

I acknowledge the almighty God for providing me with health, strength and emotional support in
completing this project .It is with great appreciation that I acknowledge the contributions and support of
my supervisor Mr. Nkonge whose time, effort and guidance are highly beneficial during the stud

I also acknowledge my family who understood my need and dedicated their time, their endless support
and encouragement throughout my study
 iii

TABLE OF CONTENTS

DECLARATION…………………………………………………………………….…………………………………………i

DEDICATION………………………………………………………………………………………………………………..… ii

ACKNOWLEDGEMENT……………………………………………………………………………………………………. iii

LIST O TABLES……………………………………………………………………………………..……………….…………iv

LIST OF FIGURES…………………………………………………………………………………………………… ………iv

ABSTRACT……………………………………………………………………………………………………….………………vi

CHAPTER ONE

1.0Introduction …………………………………………………………………………………………...………… 1

1.1 Background of the study ……………………………………………………………..…………………………… 1

1.2 statement of the problem ……………………………………………………………………………………….. 2

1.3purpose of the study ………………………………………………………………………………………………. 3

1.4 research objective ………………………………………………………………………………………………….. 3

1.5Researchquestions…………………………………………………………………………………………..……… 3

1.6Scope of the study…………………………………………………………………………………………………… 3

1.7Justification of the study………………………………………………………………………………..………… 3

1.8Limitation of the study………………………………………………………………………………………………. 4

1.9Definition of terms……………………………………………………………………………………..…………… 4

CHAPTER TWO

2.0Literature review

2.1ntroduction……………………………………………………………………….…………………………….……. 5

2.2Theoretical framework………………………………………………………………………………..……….. 5

2.2.1strategic choice theory……………………………………………………………………………………… 5

 iv

2.2.2Theory of Economic Order Quantity…………………………………………………..…………… 5

2.2.3Transaction Cost Analysis……………………………………………………………………………….. 6

2.3Conceptual Framework……………………………………………………………………………………. 6

CHAPTER THREE

3.0RESEARCH METHODOLOGY

3.1Introduction………………………………………………………………………………………………………. 8

3.2Research design…………………………………………….…………………………………………………. 8

3.3Target population……………………………………………………………..………………………………. 8

3.4Research instrument………………………………………………………………………………………… 8

3.5Sample and sampling techniques……………………………………………………………………… 9

3.6Data analysis tool………………………………………………………….…………………………………. 9

CHAPTER FOUR

4.0DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF STUDY FINDINGS

4.1Introduction…………………………………………………………………………………………………… 10

4.2Data analysis………………………………………………………………………………………..…………. 10

4.2.1Effects of inventory management on an organizational performance of Garissa general

hospital…………………………………………………………………………………………………………………. 11

4.3Effects of inventory management practice on inventory shrinkage…………………. 12

4.4Challenges faced in management of drugs/medicines at the hospital……………… 12

4.5Effects of inventory management practice on inventory record accuracy………. 13

4.6Effects of inventory management practice on inventory investment……………… 13

4.7Effects of inventory management practices on inventory turnover………………… 14

 v

CHAPTER FIVE

5.0SUMMARY OF FINDINGS, CONCLUSIONS, RECOMMENDATIONS AND SUGGESTION FOR FURTHER

STUDIES

5.1 Introduction……………………………………………………………………….……………….. 15

5.2Conclusions………………………………………………………………………………………….. 15

5.3 Recommendations ………………………………………………………………….…………… 16

5.4References…………………………………………………………………………………………… 17

LIST OF TABLES

Table 2.3conceptual framework

Table 4.2.1effects of inventory management on organizational performance

Table 4.3effects of inventory management practices on inventory shrinkage

Table4.5effects of inventory management practice on inventory record accuracy

Table4.6effects of inventory management practice on inventory investment

Table4.7effects of inventory management practices on inventory turnover

LIST OF FIGURES

Conceptual framework

LIST OF ABBREVIATIONS AND ACCRONYMS

T.C.A-Transaction cost analysis

EOQ-Economic order quantity

S.C.T-Strategic choice theory

 vi

ABSTRACT

The study was set to investigate the effect of inventory management practices on organizational
performance in Garissa general hospital in Garissa County. The specific objectives were to establish; the
effect of inventory shrinkage, inventory investment, inventory turnover, and inventory records accuracy
on organizational performance of Garissa general hospital. A descriptive case study design was used.
Statistical analysis was carried out.The study revealed that inventory investments and inventory records
accuracy have a positive influence on organizational performance while inventory shrinkage have a
negative effect on organizational performance of Garissa general hospital thus this study recommends
that the hospital should ensure that losses resulting to inventory shrinkage related to medicines are
reduced.This can be done by ensuring that inventory records are accurately kept. The hospital need to
manage its inventory investment by ensuring that the right amount of stock is kept at all times

Key words;inventory shrinkage,inventory investment Inventory turnover, inventory records accuracy,

organizational performance

vii
CHAPTER ONE

1.0INTRODUCTION
Inventory management is a method that companies use to organize store and replace inventory
to keep on adequate supply of goods at the same time minimizing costs

1.2 BACKGROUND OF THE STUDY

According to Miller [2010]Inventory management involves all activities put in place to ensure that
customer have the needed product.

It coordinates the purchasing,manufacturing and distribution function to meet the marketing needs and
organizationalneeds of availing the products to the customers .

The scope of inventory management also involves managing the replenishment lead time,
replenishment of goods, returns and detective goods and demand forecasting, carrying cost of
inventory asset management physical inventory , available physical space ,future inventory
price forecasting and quality management

Poor inventory management had become an issue of great concern since performance is
regarded as main stream for development of health sectors.

A truly effective inventory management minimizes the complexities involved in planning,

executing and controlling a supply chain network which is critical to the business success.

The right approach to inventory management can produce dramatic approach benefits in
customer service with lower inventory [Kreg, Christine 2007]

Morden inventory management in retail outlets Garissa general hospital utilizes new and more
refined techniques that provide for dynamic performance to inventories to maximize customer
services with decreased and lower costs.

Due to increasing expenditure in health sector, there need to curb this challenge while ensuring
that available resources are used to provide essential medication to the increasing population.

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Pharmacy department is one of one of the most consumers of the hospital budget therefore it
is important for Garissa general hospital to ensure smooth running of the stock to ensure
uninterrupted supply.

This is called for effective inventory management of pharmacy stock for keeping close
supervision on important drugs, preventing of pilferage and priority setting in purchase and
distribution of drugs.

The inventory applied the technique of [Coyle, Bardin and Langley 2003] of enough but too
much that is the organization did not want to have too much inventory on hand because of the
cost of carrying inventory.

This is therefore prompting the researcher to carry on the effects of effective inventory
management on organizational performanceof Garissa general hospital.

1.2 STATEMENT OF THE PROBLEMS

Effective inventory management in health care supply chain is one of the key factors for
success.

The challenges in managing inventory is to balance supply of inventory with inventory demand.

An n organization would actually want to have enough inventories to satisfy the demand of its
customers and not to loss customers due to inventory stock outs.

The hospital also experiences shortages of vital and essential drugs for several periods lasting
upto three months despite the establishment of re-order levels order, quantities are still
somewhat based on past usage.

Improper quantities ordered occasionally leads to unexpected situation of stock out and
overstocking.

Shortages of medicines are occasion attributed to procurement procedures, occasional

shortages of vital drugs in market, lack of sufficient funds with which to purchase new suppliers
unwillingness of suppliers to supply hospital due to delayed payments, in adequately trained
staff in the inventories management sections and the adequacies of the hospital stock
management system that is office of the auditor general

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1.3PURPOSE OF THE STUDY

To investigate the effects of effective inventory management system in an organizational
performance

1.4RESEARCH OBJECTIVE

1. To find out the effect of inventory shrinkage on organizational performance of Garissa

general hospital
2. To establish the effect of an inventory records accuracy on organizational performance
of Garissa general hospital
3. To investigate the effect of inventory investment on organizational performance of
Garissa general hospital
4. To examine the effect of inventory turnover on organizational performance of Garissa
general hospital

1.5 RESEARCH QUESTIONS

1. What is the effect of inventory shrinkage on organizational performance?

2. What is the effect of inventory records accuracy on organizational performance?
3. What is the effect of inventory investment on organizational performance?
4. What is the effect of inventory turnover on organizational performance?

1.6 SCOPE OF THE STUDY

The research was carried out in Garissa general hospital in Garissa County

1.7 JUSTIFICATION/SIGNIFICANCE OF THE STUDY

From the findings of the study the researcher hope that the findings will help the hospital to
identify the areas where costs can be reduced while ensuring overall efficiencies in the hospital
maintenance.

The researcher hopes that findings will enlighten the inventory management practioners in
health industries on the effect of inventory management and it’s important in improving the
organizational performance and also help the inventory managers in decision making.

The study can be used as basic information bypharmacist and inventory control staff todevelop
friendly policies and procedures for purchasing drugs and controlling their level as well

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The findings will also benefit academicians interested in inventory management and will be
used as reference.
The research findings will help the organizational (Garissa general hospital) to improve and
adopt the best inventory management system.

1.8 LIMITATION OF THE STUDY

In carrying out the study the researcher faced the following challenges:

1. Unwillingness to of despondence to disclose all information concerning the inventory

management in Garissa general hospital due to fear of being victimized.
2. Lack of enough time to carry out the research considering the researcher is an employed
person.
3. Lack of enough funds to facilitate the collection of the data.
4. Poor infrastructure like communication networks which lead to low rate of work.

1.9 DEFINATION OF TERMS

Inventory-Refers to the stock pile of production a firm is offering for sale and componentsthat
make up the products.

Management-This is the effective planning,organizing, staffing leading or directing

andcontrolling in an organization or initiative to accomplish a goal in an organization.

Organization-It is the process of combining the work which individual or group have to perform
with the facilities necessary for execution.

Performance-It refers to the act of carrying in execution or achievement.

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CHAPTER TWO
2.0LITERATURE REVIEW

2.1Introduction

The purpose of this chapter is to review literature and theoretical framework of inventory
management which will be done through conceptual framework in Garissa general hospital

The review will greatly relay on data obtained from published reference materials such as
books, online magazines and journals

The review will provide an overview of major past activities that had earlier been studied in
relation to inventory management and how it affects organizationalperformance.

2.2Theoretical framework

2.2.1 Strategic choice theory (SCT)

This theory shows the relationship between top management choices and organizational
performance as well as the interaction of the internal and external organization in Garissa
general hospital

According to Compiling and Michelson (1998)a strategic choice model was established to depict
the interdependence among the environment and organizations action and overall firm
performance

The model aimed at achieving the high performance standards in order to increase the
efficiency where there are limited resources.

It also considered on how organizational structure aid in performance of organization.

2.2.2 THEORY OF ECONOMIC ORDER QUANTITY (Wilson’s EOQ Model)

The economic order quantity model was developed by F.W.hariss in (1913) who critically
analyzed the model in detailed that is according to Arsham (2006)

The use of the model has shown increase in some costs as other costs decline eg ordering costs
decline with decline with inventory holdings, while holding costs rise and the total inventory
associated costs curve have a minimum point

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The economic order quantity minimizes the total inventory holding cost and ordering cost.
Due to uncertainties experienced in health care organizations adjusted economic order quantity
is a model that can be used where fluctuation in demand is a common occurrence.

Regarding hospital pharmacy, there are several key factors both internal and external that
affect the inventory level in the pharmacy store.

2.2.3Transaction cost analysis (T.C.A)

According to Hall Dorson et al (2007) Transaction Cost Analysis is a theory that ensures that
costs across the supply chain are kept at minimal

Transaction cost analysis has widely used in Garissa general hospital especially I economic and
organizational studies.

Williamsons (1975-1981) suggests that the hospital can reduce their transaction cost by vertical
integration and increasing the level of trust at the same time.

This kind of integration reduces the cost of inventory management while increasing the service
level of both internal and external customers while releasing capital to be used in the other
areas of the organizations.

Organizational supply chain can also reduce the transaction through horizontal integration and
the level of trust among supply chain participants and economy of scale gained from the
aggregation of supply or demand.

2.3 CONCEPTUAL FRAMEWORK

Jabareen (2009) defines conceptual framework as a network or plain of interlinked concepts

that together provide a comprehensive understanding of a phenomenon or phenomena

The conceptual framework is a set of broad ideas used to explain the relationship between the
independent variables and dependent variable

It provides the link between the researcher title, theobjective, the study methodology and the
literature review Jabareen (2009)

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Figure below shows the relationship between independent and dependent variables
  Inventory shrinkage
 Expired medications
 Stock out at wholesalers
 Employees theft
Inventory records accuracy Organizational performance
 Completeness of information
 Up to date records  cost of reduction Organizational performance
 Stock positions/ number of stock  customer satisfaction
Inventory investments  Cost of reduction
 Capital invested  Customer satisfaction
 Cash flow
 Value of goods in the store
Inventory turnover
 Number of items inventory used
 Number of days inventory is available
in the store room

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CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter consists of research designs, target populationsample and sampling techniques,
research instruments, method of data collection, validity of the instruments reliability of the
instruments, methods of data analysis and ethical consideration

3.2 Research design

The researcher used descriptive survey research design which is recommended by Mugenda
(2003) as a good method for fact finding study

The researcher design enables the researcher to gather data of a particular point on time and
use it to describe the nature of the existing condition (Colen el 2000)
 3.3 Target population

This refers to the universal set of the study of all members of real or hypothetic set of people,
event or objects to which an investigator wishes to generalize the results.

The target population in this study includes 2 senior store managers ,10 stock controllers , 10
pharmacists , 15 store and supplies officer , 10 senior store assistants ,12 store assistant and 15
store clerks making a total of 74 respondents.

The researcher study used census method for the study due to the limited number of
respondents.

3.4 RESEARCH INSTRUMENTS

The researcher used questionnaire to collect data.

The questionnaire had both open and closed part.

The data collected was analyzed using descriptive statistics in form of table quantitative data
was analyzed using the package for social sciences

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3.5 SAMPLE AND SAMPLING

A sample of 20%was selected to participate in the study

The researcher used simple probability sampling techniques where the respondents had equal
probability of being selected as a representative of the population.

3.6 DATA ANALYSIS

The collected data was thoroughly analyzed, examined and checked for completeness and
comprehensively.

The data was then summarized, coded and tabulated.

Statistical packages for social science was used to do the analysis, descriptive statistical
especially frequency and cross tabulation was applied to help establish patterns trends and
relations and to make it easier for the researcher to understand and interpret the implications
of the study. Tables and percentages are used to present the data.

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CHAPTER FOUR

4.1 DATA PRESENTATION ,ANALYSIS AND INTERPRETATION OF STUDY FINDINGS

4.2 Introduction

This chapter presents and discusses the findings of the study .The findings serve to reinforce
effective existing knowledge proven about the effects of effective inventory management on
organizational performance in Garissa general hospital in Garissa County.

This chapter involves presentation, analysis and interpretation of the study results .Data
presented, analyzed and interpreted according to the research objective.
It is presented in form of tables basing on the response got from the study respondents that
were selected during the process of data collection.

The discussion of findings has been arranged in accordance with demographic characteristics of
respondents and objectives of the study as were formulated in chapter one of this report

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4.3 Data analysis

4.2.1Effects of inventory management on organizational performance of Garissa general

hospital

Effects of inventory management on Strongly Agree Not Disagree Strongly

organizational performance of Agree sure Disagree
Garissa general hospital F % F % F F % F %
%
Inventory management practice
contribute greatly to the performance 40 64.5 22 33.9 1 0 0.0 0 0.0
of Garissa general hospital 1.6
Inventory management practice helps
in inventory planning and scheduling 25 40.3 33 53.2 4 0 0.0 0 0.0
in Garissa general hospital 6.5
Long procurement procedure affects
inventory management and 13 21.0 45 72.6 30 6.4 0 0.0 0 0.0
performance of Garissa general
hospital
Inadequately trained staff in the
inventory management section of 10 16.1 40 64.3 20 19.6 0 0.0 0 0.0
Garissa general hospital contribute
greatly to the poor performance of
Garissa general hospital.
Insufficient funds towards inventories
contribute greatly to the poor 25 40.3 3 50.0 209.7 0 0.0 0 0.0
performance of Garissa general
hospital
Improved customer service can be
raised with proper inventory 17 27.4 27 34 29.1 0 0.0 1 0.0
management of Garissa general 43.5
hospital

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4.3Effects of inventory management practices on inventory shrinkage

Effects of inventory Strongly Agree Not sure Disagree Strongly

management practices on agree Disagree
inventory shrinkage F % F % F % F % F %
Do you think that losses resulting
from medicine expiration leads 8 12.9 52 83.9 1 1.6 0 0.0 1 1.6
to increased inventory
 shrinkage?
Do you that losses resulting from
medicines damages leads to 6 9.7 51 82.3 4 6.5 1 1.6 0 0.0
increased inventory shrinkage?
Do you think that losses resulting
from medicine obsolesces leads 15 24.2 44 71.0 3 4.8 0 0.0 0 0.0
to increased inventory
shrinkage?
Do you think that losses resulting
from medicines theft leads to 17 27.4 31 43.5 42 29.1 0 0.0 00.0
increased inventory shrinkage?

4.4Challenges faced in management of drugs/medicines at the hospital

CHALLENGES F %
Delays in delivery of drugs leading to insufficient inventory
1 1.6
Use of outdated storage facilities 11 0.0

Use of manual inventory management system/lack of

technology 33 51.6
Lack of training 15 24.2
Holding too much 1 1.6
Beaucratic process in procurement 4 6.5
Loss of drugs through inventory shrinkage 7 11.3
Weak management system 1 1.6
Insufficient funds for procurement 1 1.6

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4.5Effects of inventory management practice on inventory record accuracy

Effects of inventory management Strongly Agree Not Disagree Strongly

practice on inventory records agree Sure disagree
accuracy F % F % F % F % F %
Do you think that up to date records have an
effect on inventory records accuracy? 39 62.9 3 8.1 2 3.8 0 25.2 0 0.0
Do you think that complete accounts records
 have an effect on inventory record accuracy? 32 51.6 25 7.1 5 8.1 0 33.2 0 0.0
Do you think that proper records
management have an effect on inventory 32 14.5 39 38.3 14 23.6 0 23.6 0 0.0
records accuracy?
Do you think that regular updating of
records has an effect on inventory accuracy? 5 8.1 35 56.3 22 35.6 0 0.0 0 0.0

4.6Effects of inventory management practice on inventory investment

Effects of inventory practices on inventory Strongly agree Not sure disagree Strongly
investments agree disagree

Proper procurement contributes greatly to

inventory investment of Garissa general 31 50.0 27 43.6 1 1.6 0 0.0 3 4.8
hospital
Effective stores management contributes to
inventory investment of Garissa general 24 16.1 34 54.9 4 28.8 0 0.0 0 0.0
hospital
inventory turnover contributes 10 14.5 34 32.3 3 4.8 332.0 916.4
Greatly to inventory investment of Garissa
general hospital
Proper management of inventory holding cost
contribute greatly to inventory investment of 9 38.7 30 54.8 3 6.5 0 0.0 0 0.0
Garissa general hospital

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4.7Effects of inventory management practices on inventory turnover

Effects of inventory Strongly Agree Not sure disagree Strongly

management practices on agree disagree
inventory turnover
Inventory turnover has an effect 16 25.8 44 50.1 43 20.9 2 3.2 0 0.0
on insurance cost of Garissa
general hospital
Inventory turnover has an effect 11 17.7 45 68.1 43 2.9 7 11.3 0 0.0
on holding cost of Garissa general
hospital
Inventory turnover has an effect 6 9.7 50 35.1 31 50.0 23 5.2 0 0.0
on service of Garissa general
hospital

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CHAPTER FIVE

5.0 SUMMARY OF FINDINGS,CONCLUSIONS, RECOMMENDATION AND

SUGGESTION FOR STUDIES

5.1 Introduction
The study explored contributions of inventory management to organizational performance
The reason was to establish whether respondents were aware inventory management would greatly
contribute to the performance of Garissa general hospital.

5.2 Conclusions
The role of inventory management system has been consistently increasing in the healthcare industry
arena and pharmacy purchasing and inventory management.

Proper management starts with the understanding of purchasing right products in the right time from
the right vendor

The hospital pharmacy management team should adopt inventory management practice s insight will
enhance pharmacy inventory investment, inventory recordsaccuracy, and inventoryturnover in the
pharmacy purchasing department.

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5.3 Recommendations
The researcher established that inventory management practices had a positive influence on the
organizational performance.

The hospital management need to modernize its inventory management system to increase efficiency
improving practices call for high degree of collaboration and visibility across all parties as well as utilizing
sophisticated technologies such as bar code, scanners point of scale/use of scanners and web-based
technologies in the pharmacy and stores should be adopted.
The researcher recommends that management shouldconstantly expose its staff to training in order to
improve their skills.

The researcher recommends that the management of Garissa general hospital invest in training off its
staff to enable the employees to understand the current inventory system which when used will reduce
on costs associated with holding inventory.

To curb various challenges in thehospitals the hospitals should consider implementation of a vendor
managed inventory to lower incidences of stock out situations increase the level of customer services
and reduces cost due to an increase inventory turns a decrease in the level of safety stock and greater
transparency in supply chain management.

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5.4 REFERENCES

Miller.(2010) inventory control ,theory and practice new jersey prentice Hall.ogbo al and onnekanma i.v
(2014) The impact of effective inventory control management on organizational performance .

Compiling J.T and Michelson G (1998)

County. A strategic choice resource dependence analysis of union mergers in the British and Australian
broadcasting and firm industries.
Child J. (1972) organization structure environment and performance .The role of strategic theory choice
sociology. ColemanB (2000) Determining the correct service target.

Healthcare distribution management association report (2009).

Office of the auditor general (2012)

Performance audit report of the auditor general specialized healthcare delivery of Garissa general
hospital Garissa County.

17 | Page

APPENDICES

Structured questionnaire

Instructions; please respond to the following questions and where applicable make the relevant box

Confidentiality: The response you provide will be strictly confidential, no reference will be made to any
individual in the report study.

Part one: DEMOGRAPHIC INFORMATION

1. What is your gender?
Male-

Female-

2. Which of the following age brackets do you belong

Below 25 years

26-30 years

31-35 years

over 36 years

3.Indicate your highest academic qualification

Masters-

18 | Page

Degree-

Diploma-

certificate –

PART B:INFORMATION RELATED TO RESEARCH OBJECTIVE

Inventory management practices contributes greatly to the performance of Garissa general hospital

strongly agree
agree

not sure

disagree

strongly disagree

5.inventory shrinkage contributes to losses due to expiry of medicines and damages to performance of Garissa
general hospital

strongly agree

agree

not sure

disagree

strongly disagree

6Inventory investments contributes to effective stores management in Garissa general hospital

strongly agree

agree

not sure

disagree

strongly disagree

7Inventory records accuracy leads to proper management of the store

strongly agree
19 | Page
agree
not sure

disagree

strongly disagree
8.Inventory turnover practices contributes greatly to organizational performance of Garissa general hospital

strongly agree

agree

not sure

disagree

strongly disagree

9. Inadeguately trained staff in the inventory management leads to poor performance of Garissa general
hospital

strongly agree

agree

not sure

disagree

strongly disagree

10 Proper management of inventory holding cost contribute to inventory investment of Garissa general
hospital

strongly agree

agree

not sure

disagree

strongly disagree
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