International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online) Vol. 7, Issue 2, pp: (383-392), Month: October 2019 - March 2020, Available at: www.researchpublish.com
THE EFFECT OF INVENTORY MANAGEMENT ON FIRM PERFORMANCE: CONTROLLING FOR KEY CONFOUNDING VARIABLES Ofori-Nyarko Ernest1, Boison David King2, Asiedu Esther3, Afrifah Michelle4 Methodist University College1 - Ghana, Ghana Technology University College 2,3,4
Abstract: This study examined the effect of inventory management on firm performance and controlled for key covariate, namely company size, capital size, and industry. A quantitative research technique and a cross-sectional survey were employed to gather data for testing hypotheses. Data was collected on 165 Accra-based firms that met the selection criteria. A self-reported questionnaire was used to collect data. Pearson’s correlation test and Confirmatory Factor Analysis (CFA) were used for analysis of the data. Results revealed that, inventory management had a positive effect on operational and marketing performance but not on financial performance. Company and capital size have a positive effect on inventory management. It is concluded that improving inventory management can cause an increase in firm performance in terms of operational and marketing performance, especially in the light of a marginal increase of resources. Keywords: Inventory management, firm performance, company size, capital size, industry affiliation.
I. INTRODUCTION It is in the interest of all businesses to maximize revenue and profitability over time, but achieving sustained growth in any business is not without effort, especially in competitive markets. Manufacturing companies, in particular, face numerous challenges and would have to be successful in overcoming these challenges to achieve short- and long-term goals. Supply Service's delivery and product development in many organisations depend on inventory. Similarly, every organization uses inventory, to some extent, and requires proper inventory management to be successful in its operation. These viewpoints provide the explanation for the evidence that inventory management predicts firm or organizational performance in both the services [1]; [2] and manufacturing [3]; [4]; [5] industries. Interestingly, this evidence has been provided in various countries, including Ghana [6]; [2], Kenya [3]; [7], Nigeria [8]; [5]; [4], and other non-African countries [9]. This widespread evidence suggests that companies can maximize their performance by increasing inventory management over time. It is argued in this study that some companies can be better leverage inventory management to grow as they depend much more on inventory and more strongly require success in inventory management to deliver services or products. For instance, manufacturing companies use two categories of inventory. The first is inventory made up of administrative supplies, e.g. computers, printers, stationery, and other resources needed for administrative functioning. The second and possibly the largest inventory constitutes the one deployed in manufacturing as raw and supplementary materials. Inventory management would be more important in manufacturing firms because management of both categories is essential. On the other hand, services companies such as banks depend on inventory needed only at the administrative level and therefore, depend less on inventory management to succeed. Based on some studies therefore [3]; [4]; [5], the urgency of inventory management and its contribution to firm performance can be stronger in manufacturing firms. If so,
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