Introduction

Inventory management remains one of the vital areas of operation management. It provides a possibility to attain the reported demand at the desired level and to avoid any surplus production and deficit through the monitoring of inventory and prediction. While discussing the issues related with the inventory management apart from the aspect linked to the demand and logistics, it is imperative to understand the financial element that is linked to the necessity for the maintenance of the inventory ad the generation of cost. The maintenance of inventory attracts from the different premises that are diversified resting upon the type of inventory. The proper maintenance of raw material followed by the inventory requires the proper blend of production and the major benefits of the scale of production and supplies with reduced risk that is linked to the supplies uncertainty and the time of delivery (Ahmad, & Mohamed Zabri 2018). Till the extent the finished products is concerned, the main premise is to ensure the continuity of sales and the deficiency leads to the reduction of the profit from sales thereby leading to low reputation of the company and in result have a negative influence on the competitive scenario of the company. On the other hand, the maintenance of the inventory leads to various costs. The significant ones are the warehousing cost, transport, insurance, and cost coming from the inventory losses, cost of loss from the volume discount and cost of capital that comes from the freezing capital in inventory. The high rank of the issue of effective inventory management even appears from the share in the structure of the assets. 

However, maintaining inventory involves different costs. The most important of these are: costs of warehousing, loading and transport, insurances, costs resulting from inventory losses, costs of loss of order volume discounts, stock out costs and capital costs (lost benefits) resulting from freezing capital in inventory (Ahmad, & Mohamed Zabri 2018). The share in the asset structure leads to the problem in the inventory management. In many enterprises leaving apart the financial and the service sector, inventory can be treated as a considerable element for both the current asset and the total asset. The main example of the same is in retail where the link ranks the highest. The issue of inventory management in the food industry is vital for different reason that comes from the non-food industry branches. In the food industry enterprise it is important to store the raw materials required in the process of production for a longer time frame. The raw materials are needed to be stored in the environment in a manner that prevents it from losses happening from different chemicals, physical or other factors. It happens majorly from the fact that the agricultural production seasonality needs accumulation of the substantial amount of inventory required for the continuity of the production in the shorter time frame. Moreover, the materials required in the food production technology contain limited shelf life that is a relevant factor impacting the cost of production and the technological value.

Literature Review

The efficiency of working capital management was determined by S.K.Ghosh and S.G.Maji of the Indian companies considering a sample of 20 large companies located in India for the time period 1992-93 till 2001-2002. It was observed that the performance of the Indian Cement Industry was below the average in this time span. The industry average for the efficiency index was more than one in 6 years out of the 10 years study period. Moreover, it was concluded that in the pace of attaining the target level of efficiency by the firms, Dalmia and Associated cement was ranked the most successful. As per the value of attained by b it can be commented that it is unwise to conclude that the firms under the evaluation must ensure proper steps for the improvement of the efficiency.

As per Kesseven Padachi (2006) return on assets was being used as a measurement for ascertaining profitability and the link between the working capital management and the company’s profitabilitythat was investigated considering sample of 58 small manufacturing firms using the data for the period 1998-2003. The regression result of the study depicts that the high investment in inventories and receivables is linked to lower profitability. The key variables utilized in the evaluation are the inventory days, accounts payables and the cash conversion cycle. The study even reveals that the major relationship between working capital management and the profitability has been traced in the empirical work. An assessment of the liquidity, profitability and operational efficiency of the 5 industries that projects major changes has been depicted. The finding even projects that an increment has been witnessed in the short-term element of the working capital financing.

Further, discussed by Ranjith Appuhami (2008) the aim of the research is to conduct an analysis into the influence of the firm capital expenses based on the working capital management. The study comprised of Shulman and Cox’s (1985) data with Net Liquidity balance and requirement of working capital as a proxy for the measurement of the working capital and development of multiple model of regression. The empirical research denotes that the firms capital expenses has a major role to play when it comes to working capital management. The study even projects that the firms operating cash flow that was considered as a control variable has a major link with the management of the working capital that is regular with the findings of the previous researches. The findings provide a clear stance that the knowledge composition of the working capital management will enable the companies in the management of the working capital in an efficient manner and helps in growing with the situation.

Conclusion

Hence, it is clear and imperative from the discussion that the viability of any business is associated with the ability to manage the receivables, inventory and payables in an effective manner. This is beneficial from the liquidity and the profitability point of view. A poor management of the working capital might lead to blockage of funds. Hence, this lessens the company’s liquidity and the company will fail to be in a situation where proper investment can be done in productive assets such as plant and machinery. Moreover, this will have an impact on the company’s profitability. It has been noted that in many cases, the unnecessary funds are locked up in inventories that is the major aspect of the current asset. Thereby it is imperative that the inventories should be managed in an effective manner and unwanted investment should be avoided. A firm that neglects the inventories management will face an uphill task in terms of long term profitability and will fail to survive. With the presence of a strong inventory management, a firm will be in a place to reduce the inventories level to a major extent.

References

Kesseven, P. (2006). Trends in working capital management and its impact on firms‟ performance: An analysis of Mauritius small manufacturing firms.” International Review of business research papers, 2(2), 45-58.

Appuhami B & Rajnith, A. (2008). The impact of firms capital expenditure on working capital management: an empirical studies across industries in Malaysia. International management review, 4(1)

Kamilah Ahmad, S.,Mohamed Zabri. (2018). The mediating effect of knowledge of inventory management in the relationship between inventory management practices and performance: The case of micro retailing enterprises. Journal of Business and Retail Management Research, 12(2) Retrieved from https://www.proquest.com/scholarly-journals/mediating-effect-knowledge-inventory-management/docview/1990480329/se-2?accountid=30552