Effect of inventory management on profitability: evidence from the Polish food industry: Case study

Abstract

The main purpose of this study is to verify the causative link between inventory performance and profitability of food companies. This was done using the panel data methodology at the level of Polish food industry sub-sectors. The study takes account of the inventory mix, which includes the stocks of raw and other materials, work-in-progress, finished products and commodities. As shown by the analysis, the 2005–2017 period witnessed a decline in the share of inventories in total assets and in current assets. That trend was accompanied by an improvement in inventory management efficiency. The study also found that the days sales of inventory for total stocks clearly tends to become shorter due to a reduction in the days in inventory ratio for materials and finished products. Based on panel regression models, this study demonstrated that an improvement in inventory management efficiency is positively correlated with financial performance, measured as the return on operating assets.