Evaluating effect of Inventory controls on financial performance of Small and Medium Enterprises in Eldoret Town, Kenya

Abstract

Inventory management is essential for maintaining optimal stock levels and minimizing costs, which ultimately affects a firm's overall financial performance. This study focuses on the impact of inventory controls on the financial performance of small and medium enterprises (SMEs) in Eldoret town. Inventory controls are measured through various dimensions, such as inventory levels, inspection, auditing, and management systems. Previous research has shown that effective inventory management can increase a firm's profitability by reducing unnecessary stock holding costs and avoiding stockouts. To investigate this further, a descriptive research design was employed, and data was collected from 171 SME owners/managers through self-administered questionnaires. Descriptive statistics and regression analysis were used to analyze the data. The results revealed a significant positive relationship between inventory controls and the financial performance of SMEs. Specifically, the inventory controls explained 11.5% of the variance in financial performance. These findings suggest that SMEs that implement efficient inventory management practices tend to experience better financial outcomes. Therefore, it can be concluded that effective inventory control mechanisms are crucial for enhancing the competitiveness and growth of SMEs. Consequently, this study recommends that SME owners implement robust inventory control systems to maximize their financial performance.