Abstract: Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm. Given the milestone contribution of the Cement manufacturing firms to the economy of Kenya, this research is necessary to evaluate the effects of inventory management on the profitability of the Cement manufacturing firms in Kenya. A cross sectional data from 1999 to 2014 was gathered for the analysis of the annual reports for the three sampled firms listed at Nairobi Securities Exchange (NSE). The ordinary least squares (OLS) stated in the form of a multiple regression model was applied in the data analysis to establish the relationship between inventory management and firm’s profitability. The variables used include inventory turnover, inventory conversion period, Inventory levels, storage cost, size of firm, gross profit margin, Return on assets and growth of firm. The results provide a negative relationship between inventory turnover, inventory conversion period and storage cost with profitability of the company. In addition, inventory level was found to be directly related to firm’s size and storage cost. The study recommends that the Cement-manufacturing firms in Kenya should strive to ensure that the right stock is kept in their warehouses to hedge against excessive holding cost and stock-outs.
Keywords: Inventory Management on Profitability of Cement Manufacturing Companies, Inventory Conversion Period and Storage Cost With Profitability.
Title: The Effect of Inventory Management on Profitability of Cement Manufacturing Companies in Kenya: A Case Study of Listed Cement Manufacturing Companies in Kenya
Author: Edwin Sitienei, Florence Memba
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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