Inventory Management and SMEs Profitability. A Study of Furniture Manufacturing, Wholesale and Eatery Industry in Delta State, Nigeria

Abstract

Inventory constitutes bulk of current assets small and medium scale enterprises (SMEs) such as bakeries, fast food/eateries, chain stores and furniture making firms. SMEs need to understand the true costs associated with inventory management and poor inventory productivity so as to be able to review the benefits of alternative approaches. The objective of the study was to examine the effect of inventory management on profitability of SMEs in Nigeria. The study used a descriptive research design. The population consists of all SMEs operating in Delta State. The study used stratified random sampling. 10 SMEs were randomly selected from each stratum making a total of 30 firms for the study. Data for the study were obtained through the administration of a self-designed questionnaire to managers or accountants of the sampled firms. The questionnaire was structured to elicit information about the trading and financial activities for the last two accounting years. A multiple regression analysis was conducted to test the model established for the study. Findings of the study reveal that inventory turnover has a significant positive relationship with financial performance of SMEs. The study also reveals that there is a negative relationship between inventory conversion period and profitability; and no significant positive relationship between inventory leanness and profitability. The study concludes that inventory management has a great role to play in corporate financial performance of firms hence firms' inventory systems must maintain an appropriate inventory levels to enhance profitability and reduce the inventory costs associated with holding excessive stock in the warehouses. In line with the findings of the study, it is recommended that firms should embrace modern production technology that will enhance faster production to shorten inventory conversion period which will in turn improve inventory turnover and profitability.

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