Linking Inventory Efficiency, Productivity and Responsiveness to Firm Performance in Pakistan

Abstract

Inventory is one of the most important current assets of any company, therefore, efficient usage and management of inventory are necessary for the long-term success of any business. This research links three main components of inventory management i.e. efficiency, productivity, and responsiveness to superior firm performance in terms of both operational and financial performance within the chemical sector of Pakistan. For this purpose, ten years of data from 2011-2020 was collected from the annual financial statements of 21 companies within the chemical sector to develop and examine a panel data model. The regression analysis provides strong evidence that both the inventory productivity and responsiveness measures positively and significantly result in firm outperformance. However, the correlation test suggests that there is a weak negative relationship between inventory efficiency and firm performance while inventory productivity has a strong positive correlation and inventory responsiveness has a weak positive correlation with firm performance. The research adds to the existing literature on inventory management by utilizing new inventory control measures in the context of a developing economy such as Pakistan.