Abstract
This paper examined the effect of working capital management practices on the operational performance of selected supermarkets with the national network in Kenya focusing on inventory and creditors’ management as well as receivables and liquidity practices. The paper was pegged on Agency Theory, Iceberg Theory of Money Management and Cash Management Theory. Guided by descriptive research design, 52 branch managers were sampled from four major supermarkets using both the stratified and random sampling methods. Data were analyzed using both descriptive and inferential statistical analysis. Findings revealed that inventory and creditors management practices had a very low effect on the operational performance of supermarkets in Kenya. The study, therefore, recommends that supermarkets should introduce a system where managers are fully equipped with working capital management skills. This should be done continuously to prevent the occurrence of severe liquidity challenges which have witnessed in the past.
Highlights
Working capital management is the management of a firm’s current assets and current liabilities, which are usually liquidated in one years’ time or less
As far as inventory management is concerned, the study noted that supermarkets did put in place enough measures to manage lead time for products, reorder levels were managed continuously, overstocking is a common problem leading to too many unmanageable items, and the supermarkets are experiencing increase in cost of holding stock due to unskilled personnel charged with management of inventory
The study revealed that almost all of the supermarkets surveyed did maintain solid accounts payable policy. They always maintained account payables below 50 percent of all debts owed at the end of every month, the supermarkets management tracks number of invoices received and processed daily, the management ensures that average time to approve is favorable to business operations and they ensure payment arrangements have low risk for the organization
Summary
Working capital management is the management of a firm’s current assets and current liabilities, which are usually liquidated in one years’ time or less. It is important for firm’s daily running. This is the money that is required by the firm in order to finance its day-to-day activities that generate revenue. Efficient working capital management is one of the major sources of raising capital. It helps in ensuring a firm continues operating, satisfies maturing short-term debt and emerging operating expenses. One cannot manage working capital without involving short-term assets and short term liabilities relationship
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