The Relationship between Inventory Management and the Financial Performance of Manufacturing Companies in Kenya

Full Article - PDF

Published: 2022-02-24

Page: 102-113

Ndung'u Stephen *

ST. Paul's University, Kenya.

*Author to whom correspondence should be addressed.


The purpose of this paper is to examine the relationship between inventory management and the financial performance of manufacturing entities focusing on total inventory and its constituent components of raw materials, work in progress and finished goods inventories. The paper focused on the relationship between inventory management and the financial performance of manufacturing entities in Kenya. The research is grounded on the theory of storage which highlights the benefits of holding optimal inventories of commodities as a way of enhancing financial performance. The paper adopted an analytical research design in order to get a better understanding of the relationship between the independent variables and the dependent variable. The target population consists of five hundred and two  manufacturing companies in Kenya from which a representative sample of two hundred and eighteen companies was selected through stratified and random sampling from the key sectors as classified by the Kenya Association of Manufacturers (KAM). Panel data for a ten year period was collected and analysed using short run and dynamic models. Appropriate specification tests were conducted to ensure integrity of the results. The researcher came to the conclusion that raw materials, work in progress and total inventory have a negative effect on the financial performance of manufacturing entities while finished goods inventory effect is positive. The null hypothesis that inventory management does not have a significant relation with the financial performance of manufacturing companies in Kenya was rejected in favour of the alternative hypothesis that inventory management influence the financial performance of manufacturing companies in Kenya but this is dependent on the type of inventory. The researcher recommends that manufacturing entities in Kenya should pay special attention to inventory management in order to enhance their financial performance.

Keywords: Inventories, raw materials, work in progress, inventory management, manufacturing entities, financial performance

How to Cite

Stephen, N. (2022). The Relationship between Inventory Management and the Financial Performance of Manufacturing Companies in Kenya. Asian Journal of Economics, Finance and Management, 4(1), 102–113. Retrieved from


Download data is not yet available.


Capkun V, Hameri A, Weiss L. On the relationship between inventory and financial performance in manufacturing companies. International Journal of Operations & Production Management. 2009;29(8):789-806.

Kontuš E. Management of inventory in a company. ECONVIEWS. 2014;27(2):245-256.

Panigrahi D. Relationship between inventory management and profitability: An empirical analysis of Indian cement companies. Asia Pacific Journal of Marketing & Management Review. 2013; 2(7):107 – 120.

Hofer C, Eroglu C, Hofer A. The effect of lean production on financial performance: The mediating role of inventory leanness. International Journal of Production Economics, Elsevier. 2012;13(8):242 – 253.

Shardeo V. Impact of inventory management on the financial performance of the firm. Journal of Business and Management. 2015;17(4):1-12.

John E, Etim J, Ime U. Inventory management practices and operational performance of flour milling firms in Lagos, Nigeria. International Journal of Supply and Operations Management. 2015; 1(4):392-406.

Nwakaego A, Ikechukwu O, Okechukwu A. Inventory positioning and firm performance in engineering companies. Evidence from Nigeria. World Engineering & Applied Sciences Journal. 2014;5(3):85-91.

Ondiek G. Assessment of materials management in the Kenyan manufacturing firms-exploratory survey of manufacturing firms based in Nairobi. Journal of Social Sciences. 2010;3(3):40-49.

Sobhani M, Malarvizhi CA, Al-Mamun A, Jeyashree S. Strategic procurement and financial performance of Iranian manufacturing companies. Asian Social Science. 2014;10(1):250-256.

Mohamad S, Nadia N, Rahman N, Sakinahis S. A study on relationship between inventory management and company performance: A case study of textile chain store. Journal of Advanced Management Science. 2016;4(4):299-304.

Cannon AR. Inventory improvement and financial performance. International Journal of Production Economics. 2008; 115(2):581-593.

Kouvelis P, Li R, Ding Q. Managing storable commodity risks: role of inventories and financial hedges. The Handbook of Integrated Risk Management in Global Supply Chains, Hoboken, NJ, USA: John Wiley & Sons, Inc.; 2011.

Larry C, Giunipero R, Aly E. Securing the upstream supply chain: A risk management approach. International Journal of Physical Distribution & Logistics Management. 2004;34(9):698 – 713.

Olaniyi CO, Simon-Oke OO, Obembe OB, Bolarinwa ST. Re-examining firm size-profitability nexus: Empirical evidence from non-financial listed firms in Nigeria. Global Business Review. 2017;18(3):543- 558.

Mukopi C, Iravo M. An analysis of the effects of inventory management on the performance of the procurement function of sugar manufacturing companies in the western Kenya sugar belt. International Journal of Scientific and Research Publications. 2015;5(5):1-14.

Lwiki T, Ojera P, Mugenda N, Wachira V. The impact of inventory management practices on financial performance of sugar manufacturing firms in Kenya. International Journal of Business, Humanities and Technology. 2013;3(5):75-85.

Ondiek G, Odera O. Assessment of materials management in Kenyan Manufacturing Firms. Journal of Business Studies Quarterly. 2012;3(3):40-49.

Ondimu JO, Rotich G, Kipkirui P. Effect of inventory management on financial performance of listed manufacturing firms in Kenya. The Strategic Journal of Business & Change Management. 2018;5(2):1615 – 1622.

Ali A, Fatih M, Yunus K. The relationship between inventory and financial performance: An analysis of a sector. Conference proceedings of the International Conference on Economic and Social Studies (ICESoS` 13): Economic Crises and European Union; 2013.

Shin S, Ennis L, Spurlin W. Effect of inventory management Efficiency on profitability: Current evidence From the U.S. manufacturing industry. Journal of Economics and Economic Education. 2015;16(1):98-106.

Daud W, Salamudin N, Ahmad I. Corporate diversification and performance.

International Business Education Journal. 2009;2(1):1-18.

Elsayed K, Wahba H. Reexamining the relationship between inventory

management and firm performance: An organizational life cycle perspective.

Future Business Journal. 2016;2:65–80.

Tabachnick BG, Fidell LS. Using Multivariate Statistics (6th ed,). New Jersey: Pearson Education Inc. 2013;1–983.

Folinas D, Shen C. Exploring links among inventory and financial performance in

the agricultural machinery industry. International Journal of Food and Agricultural Economics. 2014;2(4): 1-12.

Obermaier R, Donhauser A. Disaggregate and aggregate inventory to sales ratios

overtime: The case of German corporations 1993– 2005. Logistics Research. 2009;1(2):95–111.