Does Inventory Management Improve Profitability? Empirical Evidence from Polish Manufacturing Industries

Abstract

Purpose: The main purpose of this article is to investigate the relationship between inventory management and industrial processing companies' financial performance. In analyzing these relationships, the study took account of total inventories (INV) and their components, i.e., materials and raw materials (RMI), intermediates and work-in-progress (WIP), finished products (FGI), and commodities (GI). Approach/Methodology/Design: Descriptive statistics and dynamic panel regression were used in analyzing the causative links between the efficiency of inventory management and profitability. The analysis was carried out on a 2013-2019 database for the Polish industrial processing sector, taking into account the size classes of enterprises. Findings: The article proves the existence of statistically significant relationships between the efficiency of total inventories and inventory components (except for finished products), on one side, and business profitability, on the other. The estimated panel regression parameters showed that the days in inventory ratios for intermediates and work-in-progress (WIPC) and raw and other materials (RMI) have the strongest correlation with profitability. Increasing the inventory days for these components had the strongest and negative impact on the return on total assets in the population surveyed and in enterprise size classes identified in this study. Practical implications: The study provides evidence for financial benefits derived from inventory performance. Also, it indicates which inventory components have the greatest impact on financial results. Originality/value: The article extends knowledge on causative links between the management of inventories and inventory components and enterprises' financial performance. It also analyzes the results of inventory management by industrial processing sub-sector and by enterprise size. The results confirm that it is advisable to adjust the volume and mix of inventories because rational inventory management practices are also a factor that empowers industrial company owners to add more value.

Impact of inventory control on the financial outcome of PZ Cussons Nigeria

“…Inventory management aims to have the appropriate items in the right place at the right time. To do this, you must be able to view your inventory and know what, when, and how much to order (Gołas, 2020). The following are some essential steps in inventory management:…”

“…The inventory turnover ratio is a 􀅫inancial metric that shows how frequently a company's inventory is sold and replaced over time. The inventory turnover formula and the number of days in the period can then be used to calculate the number of days required to sell the available inventory (Gołas, 2020).…”