Effects of Operational Efficiency on Financial Performance of Cut-Flower Farms in Nakuru County, Kenya

Abstract

Cut-flowers and potted plants have an almost 80 percent share of the world trade among ornamental plants. The main aim of the study was to determine effect of operational efficiency on financial performance of cut-flower farms in Nakuru County, Kenya. Specifically, the study established the effect of inventory management efficiency and production efficiency on Return on Equity and Return on Asset as measures of financial performance. This study was guided by Conventional Economic theory, Efficient Market Hypothesis theory and the theory on Constraints. The study adopted descriptive research design. The target population of the study was the 41 managers who are Production/Operations Managers from the 41 cut flower farms in Nakuru County. The study used structured questionnaire as the main data collection tool to collect data from the 41 Managers. A pilot study was conducted in among the 5 cut-flower farms in Laikipia County. The reliability of the research instruments was determined by use of Cronbach's alpha coefficient which was 0.893. The study was conducted in Nakuru County in the months of January and February 2018. The findings showed that inventory management efficiency has significant effect on financial performance of cut-flower farms in Nakuru County, Kenya. The study concluded that in the inventory management efficiency, there is adequate stock handling equipment and the inventory management system is in place. The packaged stem flowers are stocked just for few hours before dispatched to the airport and the stock re-order level is strictly followed. In addition, the stock level is updated immediately and the stock is stored just for short period before being used. In terms of production efficiency, the farm production efficiency is very high and the inbound stock is matched with production requirement as the farm uses little input to achieve high production. There is an existing production plan which is strictly followed by all the flower farms on the study.

The study recommends that the flower farm management should maintain adequate stock handling equipment and efficient and effective inventory management system. The farms should also have a production plan that is strictly followed to meet the demand for specified contracted market.  Since the farm's operation efficiency matches with customer satisfaction, the management should maintain the clarity and accuracy of customer service procedures and the online documentation and information relevant to the customer services. The study also recommends that the operation efficiency should be put in place so as to reduce the expenditure and increase the revenue. It also helps in managing the equity and long term debts, improving the operating expense to operating revenue ratio. Finally, the assets are optimally utilized when operation efficiency in place