Effect of Industry Type on Inventory Investments and Structure: The Egyptian Case

Abstract

Both inventory investments and structure in a sample of 44 manufacturing companies representing five industry groups in Egypt are investigated. The study reveals that the type of industry is a determinant factor of both the inventory‐to‐total‐assets ratio (AIR) and the inventory structure at the firm level. AIR indicates significant positive correlation with the materials cost ratio (MCR), the finished product inventory ratio (FPR), and the “others” inventory ratio (OTR), but a negative correlation with the raw materials inventory ratio (RMR). The study shows that raw materials and purchased components deserve the most attention in Egyptian industry. The study also shows a negative correlation between RMR and the company′s value added (VAD). With more vertical integration a firm can reduce its RMR. The study confirms the effect of the type of production‐inventory system on the company′s work‐in‐process inventory Requirements (WPR). WPR was relatively low in both the engineering and food groups.