Inventory Control and Financial Performance of Listed Conglomerate Firms in Nigeria

Abstract

Inventory constitutes the substantial portion of the cost of production of firms. Conglomerate firms faced a challenge pf dwindling return due to the huge cost of production of which inventory constitute the larger portion. Studies have shown that effective inventory management which entails forecasting, acquisition, transportation, inspection, material handling, storing, warehousing, suppliers’ management and inventory security are germane in reducing the cost of production to the barest minimum and enhance the returns. This study examined the effect of inventory control (inventory procurement control, inventory security control and inventory usage control) on the financial performance of listed conglomerate firms in Nigeria. The study adopted both field and empirical survey research design. The population of the study constitutes the entire six (6) listed conglomerates as at 31^st December, 2018. The target population represent 108 staff of the finance and store sections out of which seventy-two were selected using quota sampling techniques for the administration of structure questionnaire, while total enumeration technique was used for the secondary data. The research instrument was validated by checking the constructs of the questions in the questionnaire using content validity. Cronbach Alpha reliability test was carried out and the result showed that the research instrument is reliable with an overall value of 0.988 which is greater than 0.70-0.80 threshold. 68 out of 72 administered structured questionnaire were retrieved representing 94.4% retrieved and used for the analysis. Secondary data extracted from the audited annual reports and accounts for a period of twenty-two (22) years yielding 110 unbalanced firm year observations were used. Descriptive and inferential statistics were employed for testing the hypotheses. The findings revealed that: inventory control significantly affects financial performance of listed conglomerate firms in Nigeria (Adj.R²= 0.873, F_(3,65)=10.19, p< 0.1); inventory procurement control has significant positive effect on financial performance (β= .628, R²= 0.565, t₍₆₇₎= 3.494, p <0.1); inventory security control exerts significant positive effect on financial performance (β= .535, R²= 0.706, t₍₆₇₎= 2.684, p< 0.1); and inventory usage control significantly and positively influence financial performance (β= .531, R²= 0.492, t₍₆₇₎= 2.844, p <0.1). Also, inventory turnover period exerted insignificant positive effect on financial performance (β= 4.64, R²= 0.006, t₍₁₀₈₎= 0.83, p> 0.1). The study concluded that inventory control significantly influence financial performance of listed conglomerate firms in Nigeria. The study recommended that management of the firm should improve on suppliers’ strategic relationship and provides adequate automated security for monitoring the movements of inventory in the firm.