Effect of inventory management on the profitability of SMEs in Zimbabwe. A case study of Bindura Town

Author

Tavakotsa Ignatious

Title

Effect of inventory management on the profitability of SMEs in Zimbabwe. A case study of Bindura Town

Abstract

Inventory constitutes bulk of current assets small and medium scale enterprises (SMEs) in the wholesaling business. 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 Zimbabwe. The study used a descriptive research design. The population consists of all wholesaling SMEs operating in Bindura Town. The study used simple random sampling. 80 respondents were randomly selected but 66 responded. Data for the study were obtained through the administration of a self-designed questionnaire to accountants of the sampled firms. 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 positive relationship between inventory conversion period and profitability; and also 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 SMEs 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 inventory management and production technology that will enhance faster production to shorten inventory conversion period which will in turn improve inventory turnover and profitability.

Date

2023

Publisher

BUSE

Keywords

Inventory

Profitability

Economic Order Quantity

Supervisor

N/A