LEMERY COLLEGES, INC.

A. Bonifacio St., Bagong Sikat, Lemery Batangas

COLLEGE DEPARTMENT

INVENTORY MANAGEMENT PRACTICES AND BUDGETING

PERFORMANCE FOR SMALL-SCALE ENTERPRISES
IN LEMERY, BATANGAS

A Thesis
Presented to the Faculty of
School of Business Management
Lemery, Colleges
Lemery, Batangas

In Partial Fulfillment
of the Requirement for the Degree
Bachelor of Science in Business Administration
Major in Financial Management

By:

Baral, Cherry Ann V.

Bituin, John Harry G.
Ong, Sherly-Mae M.
Quiniones, Christine G.

October 2024

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

CHAPTER 1

INTRODUCTION

Small-scale businesses (SSEs) are becoming more widely acknowledged in the

context of global trade for their vital role in local economies, especially in developing
nations like the Philippines. Hardware stores, which supply necessary tools and
materials to serve a variety of sectors, including construction, manufacturing, and
home improvement, are a prime example of the vitality and durability of SSEs in
Lemery, Batangas. Even yet, a lot of these businesses have struggle managing their
inventories effectively, which can have a big impact on how well they operate as a
whole.

In recent years, small-scale enterprises (SSEs) in the hardware sector of

Lemery, Batangas, have faced a myriad of challenges during the time of COVID-19
that significantly impact their inventory management practices and overall business
performance. Small hardware businesses often struggle to maintain consistent
inventory levels due to delays in procurement and increased lead times from
suppliers. Despite the potential benefits of technology in inventory management,
many small hardware enterprises rely on manual processes. This reliance can lead to
inaccuracies in inventory tracking, difficulty in forecasting demand, and ultimately,
poor decision-making. Larger hardware retailers often benefit from economies of
scale, allowing them to offer lower prices and a wider range of products. Small
enterprises may find it challenging to compete, especially when their inventory

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
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management practices are not optimized for efficiency. Many small business owners
lack formal training in inventory management principles. This knowledge gap can lead
to suboptimal practices that hinder business growth and performance. In light of
these challenges, this study aims to explore the inventory management practices of
small-scale hardware enterprises in Lemery, Batangas, and their impact on business
performance.

Inventory management is not just a logistical matter but a strategic function that
has a direct impact on customer satisfaction, operational effectiveness, and
profitability. Gaining control over these procedures can help small hardware
businesses make better decisions and allocate resources more effectively—two critical
skills for overcoming the obstacles of a changing market. Additionally, SSEs have
never-before-seen opportunity to improve their inventory tactics and use data-driven
insights for ongoing improvement because to the emergence of digital tools and
technology.

The relationship between these inventory management practices and business

performance is critical for small hardware enterprises. Business performance can be
evaluated through various metrics, including growth in sales, growth in market share,
product and service quality, and the overall image of the enterprise in the market.
Effective inventory management can lead to increased sales by ensuring that popular
products are readily available, which in turn can enhance market share as satisfied
customers are likely to return and recommend the business to others. Moreover,
maintaining high product quality and a positive business image is essential for long-
term success in a competitive marketplace.

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

Therefore this study was conducted to investigate the complex relationship

that exists between the performance of small-scale hardware businesses in Lemery,
Batangas, and their inventory management techniques. Through an examination of
the relationship between efficient inventory management and increased sales,
market share, product quality, and overall company reputation, this study will offer
significant insights to local business owners and policy-makers.

This study is to present a thorough analysis of the ways in which Lemery

hardware stores benefit from improved business performance as a result of using
good inventory management strategies. This research will provide important
information that will help both present business owners and aspiring entrepreneurs
optimize their inventory systems by evaluating the procedures currently used by these
companies and their perceived efficacy. The study's ultimate goal is to add to the
larger conversation on sustainable business practices in local economies by
highlighting the critical role inventory management plays in ensuring small businesses
remain viable and successful over the long run.

BACKGROUND OF THE STUDY

Inventory management plays a vital role in the operations of businesses,

especially for small-scale enterprises (SSEs). Implementing effective inventory
management practices can greatly impact the overall performance and sustainability
of these businesses. SSEs often encounter specific challenges, such as limited
resources, varying demand, and competition from larger companies. These challenges
make it essential to adopt efficient inventory management strategies to enhance
performance and maintain operational efficiency (Chong et al., 2017).

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

The International Labor Organization (2010) estimates that two-thirds of the

enterprises generate incomes equal to or below the minimum wage, a sobering
finding that must temper one’s enthusiasm for the growth of SSE’s as a solution to the
country’s poverty and employment problems. Inventory constitutes much of the
working capital held by SSEs and poor working capital management has been
identified as one of the major causes of SSE failures. The study suggests that
owners/managers of SSEs embrace effective inventory management practices as a
tactic to further their business performance.

However, the studies show that inadequate inventory management can result
in excess stock, higher holding costs, and lost sales due to stockouts, which can
ultimately harm profitability and customer satisfaction (Guan & Zhao, 2016). On the
other hand, effective inventory management strategies allow SSEs to streamline their
operations, cut costs, and improve service levels (Kumar & Singh, 2019). Therefore,
grasping the connection between inventory management practices and business
performance is vital for the success of small-scale enterprises.

The significance of inventory management practices has been underscored by

various researchers who stress the importance of customized approaches that take
into account the specific circumstances of SSEs. For example, Nguyen et al. (2020)
propose that implementing just-in-time inventory systems can help small businesses
reduce waste and enhance cash flow. Furthermore, utilizing technology, such as
inventory management software, can improve visibility and control over stock levels,
leading to better decision-making processes (Bai et al., 2019).

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

Even with the acknowledged importance of inventory management, many

small-scale enterprises continue to face challenges in applying effective practices. This
gap in understanding highlights the necessity for practical recommendations that can
guide SSEs in creating strong inventory management strategies tailored to their
unique operational contexts (Alhassan et al., 2021).

Therefore, the purpose of this study is to investigate the inventory

management practices currently used by small-scale enterprises and how they affect
the overall performance of the company. This study aims to provide insightful
information that can improve inventory management plans designed especially for
small-scale enterprises by identifying best practices and making practical suggestions.

RESEARCH AIM

This study aims to know what is the level of practice inventory management in
terms of inventory budgeting, inventory level management and, management of
shelf-space. Define and measure business performance metrics (growth in sales,
growth in market share,product/service quality and, SSEs image compared to
competitors) within these enterprises. Also to examine and explore the relationships
between different inventory management practices and various aspects of business
performance to understand how inventory strategies impact overall business success.
To propose actionable recommendations for small-scale hardware enterprises based
on our findings to enhance their inventory management practices and improve their
business performance.

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

STATEMENT OF THE PROBLEM

1. What is the level of practice inventory management of hardware in terms of:

1.1 Inventory Budgeting
1.2 Inventory Levels Management
1.3 Management of Shelf-Space

2. How may business erformance of hardware be described in terms of:

2.1 Growth in Sales
2.2 Growth in Market Share
2.3 Product/Service Quality
2.4 SSEs Image compared to competitors

3. Is there a significant difference between the level of practice in inventory

management and business performance?

4. Based on the findings. What recommendations may be proposed?

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

THEORETICAL FRAMEWORK

Inventory budgeting practices BUSINESS PERFORMANCE

(Bp)

Inventory levels management • Growth in sales

• Growth in market share
• Product/service quality
Management of shelf-space • SSE’s compared to
competitors

FIGURE 1
Theories serve as analytical tools that help us understand, explain, and predict
various subjects. They can be articulated mathematically, symbolically, or in everyday
language, but they typically adhere to principles of rational thought and logic
(Dempsey, 2013). This study was informed by several theoris identifying the key
concepts of inventory management and business performance, including the
Economic Order Quantity (EOQ),Just-In-Time (JIT) models, ABC Analysis and Reorder
Point Theory.

Economic Order Quantity (EOQ)

Effective inventory management must be organized logically so that an

organization can determine when and how much to order. This is achieved through
the Economic Order Quantity (EOQ) calculation. The EOQ model helps companies
identify the optimal order quantity, where the costs of holding inventory and ordering
are minimized. By utilizing this model, businesses can reduce the expenses related to
ordering and inventory storage (Bachetti, Plebani, Saccani & Syntetos, 2010). The
formula was developed by Ford W. Harris in 1913, while R. H. Wilson is recognized for
his application and detailed analysis of the model (Edward, 2010). The EOQ model
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calculates the ideal quantity to purchase or produce, aiming to minimize both carrying
costs and the costs associated with processing purchase orders or production setups
(Edward, 2010). Ordering in larger quantities decreases the frequency of orders,
which lowers the monthly ordering costs, but it also necessitates holding a larger
average inventory, leading to increased storage costs each month. The EOQ model
assists organizations in minimizing inventory management costs by lowering the
expenses associated with ordering and storing stock. This study utilized this theory to
examine how inventory management practices impact the performance of retail
outlets by determining the optimal inventory levels that organizations should
maintain.

Just-In-Time (JIT)

Just-In-Time (JIT) is a management approach focused on cutting waste and

boosting efficiency by receiving goods only when they are needed in the production
process. The main aim of JIT is to lower inventory levels and decrease carrying costs,
which ultimately improves operational performance. In a JIT system, materials arrive
just in time for production, leading to lower storage costs and reducing the risk of
excess inventory becoming outdated (Taj et al., 2018). JIT, which originated from
Toyota's production system in the 1970s, emphasizes the importance of receiving the
right amount of materials precisely when needed, thereby promoting a lean
manufacturing environment (Heizer & Render, 2014). Nevertheless, JIT comes with its
own set of challenges. One significant risk is the possibility of disruptions in the supply
chain; if suppliers do not deliver on schedule, it can halt production, resulting in
delays and a loss of revenue (Chopra & Meindl, 2016). To successfully implement JIT,
companies need to work closely with suppliers, engage in accurate forecasting, and
adopt continuous improvement practices.
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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

ABC Analysis

ABC Analysis is a method used to categorize inventory into three groups: A, B,

and C, based on their significance and worth. Category A includes the most valuable
items that have a major impact on the total inventory value, though they are
relatively few in number. They may account for approximately 70% of inventory value
while representing only 10-20% of total items (Waters, 2011). Category B contains
items of moderate value, They often represent about 20% of the inventory value and
30% of the items (Waters, 2011) while Category C is made up of the least valuable
items (Fitzsimmons & Fitzsimmons, 2013). They usually require minimal management
attention and may represent about 10% of the value while accounting for 50-70% of
the items (Waters, 2011). This approach helps businesses to focus their inventory
management efforts more effectively, allocating more resources to high-value items
in Category A, while handling lower-value items in Category C with less intensity. ABC
Analysis helps companies focus their inventory management efforts, making sure that
high-value items get the necessary attention to reduce stockouts and prevent
overstock situations.

Reorder Point Theory (ROP)

Reorder Point (ROP) theory plays a vital role in inventory management by

identifying the precise inventory level at which a new order should be placed to
restock before running out. The ROP is determined by considering lead time demand,
which includes the average usage rate and the time required to receive new stock
(Harrison & van Hoek, 2011). Utilizing ROP helps businesses prevent stockouts and
maintain sufficient inventory levels, ensuring that production and customer service
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COLLEGE DEPARTMENT

remain uninterrupted. This approach is particularly effective when combined with JIT
and ABC Analysis, as it enhances inventory management strategies to better match
supply with demand (Krajewski et al., 2019). Reorder Point (ROP) Theory is an
essential inventory management tool that identifies the ideal level at which new stock
should be ordered. This helps prevent stockouts while also minimizing excess
inventory. The ROP is determined by calculating the lead time demand, which is the
quantity of inventory consumed during the time it takes to receive a new order. The
formula for calculating the reorder point is:
\[ \text{ROP} = \text{Lead Time Demand} \]. Where Lead Time Demand is calculated
as follows:
\[ \text{Lead Time Demand} = \text{Average Daily Usage} \times \text{Lead Time} \].

Combining these models offers a well-rounded strategy for managing

inventory. Companies can utilize EOQ to find the best order quantities, adopt JIT for
greater efficiency, use ABC Analysis to focus on inventory priorities, and implement
ROP to guarantee prompt restocking. When used together, these methods can boost
operational efficiency, enhance cash flow, and better match inventory levels with
customer needs.

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

CONCEPTUAL FRAMEWORK
The conceptual framework of the study guides the researchers on its
development. The figure shows the input, process and output respectively illustrating
the flow of the conduct of the study.
INPUT PROCESS OUTPUT

• INVENTORY
MANAGEMENT

- Inventory • Quantitative
Budgeting Research
Practices • Collection of Data
- Inventory through
Levels Questionnaire
Management - Demographi
- Management c
of Shelf- - Inventory • Proposed Action
Space management Plan for Small-
- Business Scale Hardware
• BUSINESS performance Enterprises in
PERFORMANCE Lemery, Batangas
• Gathering of Data
- Growth in through Cross-
Sales Sectional Survey
- Growth in
Market • Statistical
Share Analysis and
- Product/ Interpretation of
Service Data
Quality
- SSE’s Image
Comapre to
Competitors

FIGURE 2

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

The input box shows the inventory management indicators such as the inventory
budgeting, inventory levels management and management of shelf-space. It also
includes their business performance base from their growth in sales, growth in market
share, product/service quality and SSE’s image compared to competitors.

In connection with the process, the researchers used self-made questionnaires

to analyze the data which describes the business performance based on inventory
management of small-scale enterprises. It also includes the construction and
administration of gathering of data through cross-sectional surveys when it is grouped
according to demographic profile.

The process indicates the use of a survey questionnaires and analyzes it

through statistical treatment of data. The researchers were the one who would make
their questionnaire and the statistician would help them in using statistical treatment
of data. Through this process, the researchers would be able to obtain and determine
the inventory management and business performance of the respondents.

In relation of process to output, after accomplishing the specified process the

researchers would draw their conclusions and recommendations and propose
information that would guide the beneficiaries of this study.

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

HYPOTHESIS OF THE STUDY

The study tested the hypothesis given below:

Ha: There is a significant relationship between inventory management and business

performance among small-scale hardware enterprises at Lemery, Batangas.

SIGNIFICANCE OF THE STUDY

The results of this study will benefit the following:

Government - The government would gain benefit from the results of this study as
estimation of tax liabilities across all businesses is made on closing stock value at each
income year and opening stock inventory position for following year. Additionally, the
company tax of any business is very much linked to inventory management.

Hardware Management Entities - This study will work as an evaluation tool of the
inventory management they apply. This allows them to emphasize in the
effectiveness of their current inventory method. The findings will make them aware of
whatever problem, possible solutions, and recommendations to further enhance the
factors that bring out achieving proper inventories management for their
commodities.

Hardware Owners - This study with help the owner to provide recommendations to
improve inventory management practices with the goal to keep the right amount of

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stock on hand to meet customer and reducing lead times to ensure timely delivery to
the customers and enhancing operational effiiciency.

Future Investors - This study aims to offer valuable insights for future managers and
owners interested in the hardware merchandising business. It will help them improve
inventory management, enabling hardware owners to effectively run their own
merchandising operations and demonstrate efficiency with their selected hardware
entities.

Researchers - To open a new doors to exciting opportunities for innovation, problem-

solving, and contributing to the advancement of the field especially in this buiness.

Future Researchers - This study will provide a foundation for advancing the field and
tackling emerging challenges in the ever-evolving business landscape.

SCOPE AND LIMITATIONS

This study focuses on the inventory management practices of small-scale

hardware enterprises n Lemery, Batangas, over the academic year 2024-2025. It aims
to investigate specific methods such as stock control, reordering processes, and
inventory tracking systems to understand their effects on key business performance
indicators, including growth in sales, growth in market share, product/service quality
and SSE’s image compared to competitors. Data will be collected from (#) of
respondents from hardware store owners, managers, and employees through
interviews, surveys and questionnaires, providing a comprehensive understanding of
current practices and their contributions to overall business success.

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However, the study has several limitations. It is confined to small-scale

hardware stores in Lemery, Batangas which may limit the applicability of the findings
to larger enterprises or businesses in different regions. The reliance on self-reported
data from store owners, managers, and employees may introduce biases or
inaccuracies in the information provided. Additionally, since the study only spans only
academic year 2024-2025, it may not capture long-term trends or seasonal variations
in inventory management practices. Other sources of information used in this study
were obtained from books and other publications the researchers also utilized the use
of the internet in obtaining online article related to this study. Furthermore, some
participants may be hesitant to share detailed financial information, which could
restrict the depth of insights into the relationship between inventory management
and overall business performance.

DEFINITION OF TERMS

For a better clarification and understanding of the terms related to this study,
the following are defined conceptually and operationally:

Inventory – It refers to the goods, materials, and products a business holds for resale
or production, with efficient management crucial to balancing stock levels and
avoiding shortages or excess (Adam Hayes 2024). In this study, inventory refers to
the collection of tools, materials, and equipment that a business maintains for sale or
production, and effective inventory management is crucial for ensuring that necessary
items are readily available to meet customer demand while minimizing excess stock
and related costs.

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COLLEGE DEPARTMENT

Inventory Management – It refers to the process of ordering, storing, using, and

selling a company's inventory (Adam's Hayes 2024).Inventory management in this
study is used to track and control the stock of tools, materials, and parts.

Budgeting – It is the process of planning and managing financial resources by

estimating income and expenses to meet financial goals ( True Tamplin 2023). In this
study, budgeting involves planning and allocating financial resources to manage costs
related to tools and materials, ensuring effective operations while allowing for future
investments and maintaining profitability.

Business Performance – It is the assessment of a company's ability to effectively

utilize its resources to achieve its objectives, often measured through various
financial, operational, and qualitative indicators such as profitability and customer
satisfaction (Vaidya 2024). In this study, business performance is the measure of how
effectively a company uses its resources to achieve financial and operational goals,
evaluated through metrics like sales growth, profitability, and customer satisfaction,
which helps identify areas for improvement and enhance competitiveness.

Market Share – It is the percentage of total sales in a market that a company controls,
reflecting its competitive position relative to other firms in the industry and calculated
by comparing the company's sales to the overall industry sales over a specific
period(attributed to the CFI Team, 2023). Market share in this study, refers to the
percentage of total sales that a specific hardware company controls within the
market, indicating its competitiveness and position relative to other companies in the
sector.

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A. Bonifacio St., Bagong Sikat, Lemery Batangas
COLLEGE DEPARTMENT

Product Quality – It refers to the extent to which a product meets customer needs
and expectations, including attributes like performance, reliability, and durability,
which ultimately determine its value and success in the market (Garvin 2017). In this
study, product quality refers to the degree to which tools, materials, and equipment
meet customer expectations for performance, durability, and reliability, ultimately
influencing customer satisfaction and brand loyalty.

Sales – It is the exchange of goods or services for money, encompassing all

transactions that generate revenue for a business( Kotler and Keller, 2021). Sales in
this study refers to the transactions where tools, materials, and equipment are sold to
customers, driving revenue for the business while reflecting market demand and
customer preferences.

Service Quality – It is defined as the degree to which a service meets customer

expectations, incorporating elements such as reliability, responsiveness, and
assurance, which contribute to overall customer satisfaction and loyalty
(Parasuraman, Zeithaml, and Berry 2021). In study, service quality refers to the
extent to which a company meets customer expectations through reliable and
responsive support, ensuring that products are delivered as promised and that
customer inquiries or issues are addressed effectively to enhance overall satisfaction
and loyalty.

Shelf-Space – It refers to the physical area allocated for displaying products in a retail
environment, which is crucial for maximizing visibility and sales potential for retailers
and manufacturers alike (Trax Technology Solutions, 2024). In the study, shelf space
refers to the designated area in stores where tools, materials, and equipment are

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displayed, and managing this space effectively is essential for maximizing product
visibility, encouraging customer purchases, and ensuring optimal inventory turnover.

Small Scale Enterprises – It refers to a business that typically has a limited number of
employees and generates relatively modest revenue, often characterized by owner-
managed operations and minimal market dominance (European Commission, 2015).
Small-scale enterprise in the hardware industry refers to a business that typically
operates with a limited workforce and focuses on selling tools, materials, and
equipment, often emphasizing personalized customer service and local market
engagement to compete against larger firms.

CHAPTER 2

RESEARCH LITERATURE

The researchers gathered the research literature from different researchers of

the thesis and other resources that are relevant to the present study.

Inventory Management

Research over the past five years has addressed inventory

challenges specific to perishables and multi-channel supply chains,
emphasizing cooperation in supply chain management (2023).

Conducted a study on Effect of Inventory Management on profitability, the

study concluded that Gross profit margin is negatively correlated with the inventory
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conversion period, Increase in sales, which denotes the firm size enriches the firm’s
inventory levels, which pushes profits upwards due to optimal inventory levels. It is
also noted that firms inventory systems must maintain an appropriate inventory
levels to enhance profitability and reduce the inventory costs associated with holding
exces- sive stock in warehouses. (Edwin Sitienei and Florence Memba, 2015).

The study recognized that the NGOs studied were eager to embrace inventory
management techniques since that had operated for more than ten years. It was
evident that there was significant relationship between inventory management
techniques and supply chain performance represented by R 2 value of 0.732 which
translates to 73.2% variance explained by the independent variables of EOQ, JIT and
ABC analysis. Also, it was evident that close partnership with customers or partners,
prequalification of suppliers, holding safety stock, lack of inventory management
techniques, e-procurement tools, JIT, stringent grant agreements and knowledge in
inventory management techniques should be encouraged to attain high supply chain
performances. (University of Nairobi, 2013).

Made an in depth study of practices followed in regard to inventory

management, the adequate and timely flow of inventory determines the success of
an industry. She concluded that size of inventory enhanced marginally over the period
as compared to a hike in current assets and net working capital. Inventories
constituted half of the working capital which was due to over- stocking of inventory as
a result of low inventory turnover especially for finished goods. Rise in sales and
favourable market conditions lead to a rise in inventory levels. It was also inferred
that sales increased more as compared to inventory.( Soni, 2012).

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Empirically analysed the relationship between inventory management and

firm performance along with capital intensity. Using the regression and correlation
analysis methods, they deduced that inventory management is positively correlated
with firm performance. In addition, the results indicate that there is a positive link
between inventory management and capital intensity. (Sahari and Kadri, 2012)

Inventory Budgeting

Inventory Levels Management

According to Alin Costantin Radasanu (2016) There are many studies that
emphasize as a first objective of inventory management to minimize the value
invested in inventory because it has a direct impact on return on assets. This
approach is not fully correct. The actual objective is to determine the value and the
mix of inventory that support a high service level for customers and that maximizing
the companies’ financial performance. Many companies look at their own demand
fluctuations and assume that there are too many variables to predict demand
variability. Service level is used ininventory management to measure the performance
of inventory policies and represents the probability of not being stock-out and not
losing sales. Safety stock is inventory that is carried to prevent stock outs. Safety stock
determinations are not intended to eliminate all stock outs, just majority of them.
Companies choose to keep safety stock level high as a buffer against demand
variability resulting in inefficiencies and high working capital requirements. Safety
stock optimization enables companies to achieve savings and increase inventory
turns.

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According to Lwiki et al (2013) A survey conducted on all the eight (8) sugar
manufacturing firms in Kenya established that there is generally positive correlation
between each of inventory management practices. Specific performance indicators
were proved to depend on the level of inventory management practices. They
established that Return on Equity had a strong correlation with lean inventory
systemand strategic supplier partnerships. As such, they concluded that the
performance of sugar firms could therefore be stated as being a function of their
inventory management practices.

Madishetti and Kibona (2013) found that a well designed and executed
inventory management contributes positively to a small-scale enterprises profitability.
They studied the association between inventory conversion period and profitability
and the impact of inventory management on SSE’s profitability. They took a sample of
26 Tanzanian SSE’s, and used the data from financial statements for the period 2006–
2011. Regression analysis was adopted to determine the impact of inventory
conversion period over gross operating profit. The results cleared out that significant
negative linear relationship occurred between inventory conversion period and
profitability.

Nyabwanga and Ojera (2012) highlighted the association between inventory

management practices and business performance of smallscale enterprises (SSEs), in
Kisii Municipality, Kisii County, Kenya. The study inferred that inventory comprised
the maximum portion of working capital, and improper management of working
capital was one of the major reasons of SSE failures. The empirical results disclosed
that a positive significant relationship existed between business performance and
inventory management practices with inventory budgeting having the maximum
influence on business performance ensued by shelf-space management. The study
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suggested that by following effective inventory management practices business

performance can be enhanced.

According to Miller (2010), inventory control is the activity which organizes

the availability of item to the customers. It coordinates the purchasing, manufacturing
and distribution functions to meet the marketing needs. This role include the supply
of current sales items, new product, consumables, spare parts, obsolescent items and
all other supplies. Inventory enables a company to support the customer’s services,
logistics or manufacturing activities in situation where purchasing or manufacturing of
the items is not able to satisfy the demand. Inventory plays an unnegligible row in the
growth and survival of an organization in the sense that failure to an effective and
efficient management of inventory, will mean that the organization will lose
customers and sales will decline. In other to attain its organizational objectives, a
business is to meet customer’s needs.

Management of Shelf-Space

According to (Alexander Hübner & Heinrich Kuhn, 2024) study,

efficiently managing retail space is critical as the increase in product variety is
in conflict with limited shelf space and instore replenishment constraints. This
paper develops a general framework for retail space management and
presents a decision support model with the related problems within the
framework of optimizing assortment, shelf space assignment and
replenishment. An integrative approach to these planning problems becomes
particularly relevant for fast-moving consumer goods and groceries, where
stores are regularly replenished from distribution centers. The planning
problem at hand is a multi-product shelf space allocation problem where

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demand is a composite function of the shelf space allocated and assortment-

related demand substitution, and actual replenishment practices from retail are
incorporated. The model developed extends existing models of shelf space
management by jointly considering space-elastic demand and assortment-
based substitution and integrating restocking constraints. For the latter, they
consider real-world replenishment processes of retailers that distinguish
between period-based and ad-hoc replenishment from the backroom. They
develop three solution approaches that are based on efficient pre-processing
and a nonlinear binary integer programming formulation of the problem. The
computation tests based on retail data show the efficiency of the solution
approaches in terms of computation time and solution quality. They reveal the
improvement in profit levels that can be achieved from integrating assortments,
shelf space planning and replenishment where challenges arise in obtaining
feasible solutions with limited shelf space and replenishment constraints. They
also use sensitivity analyses to demonstrate the high impact of replenishment
constraints on profits and solution structures.

According to (Teresa Bianchi-Aguiar, Alexander Hübner, et. al,2021), The retail

shelf space planning problem has long been addressed by Marketing and Operations
Research (OR) professionals and researchers, with the first empirical studies tracing
back to the 1960s and the first modelling approaches back to the 1970s. Due to this
long history, this field presents a wide range of different mathematical modelling
approaches that deal with the decisions surrounding a set of products and not only
define their space assignment and related quantity, but also their vertical and
horizontal positioning within a retail shelf. These decisions affect customer demand,
namely in the form of space- and position-dependent demand and replenishment
requirements. Despite the recent progress seen in this research area, no work has yet
systematised published research with a clear focus on shelf space planning. As a
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result, there is neither any up-to-date structured literature nor a unique model
approach, and no benchmark sets are available.

The study of (Marina Karampatsa, Evangelos Grigoroudis, et. al, 2017) in Retail
Category Management addresses a series of questions and demands decisions for
category managers on critical issues such as product assortment and shelf-space
planning. Product assortment planning involves listing decisions based on consumer
behavior and substitution effects. Shelf space allocation involves facing and
replenishment decisions based on space elasticity effects and constraints of limited
shelf space and restocking capacity. The complexity of these questions has grown
significantly in recent years due to product proliferation and various consumer choice
effects in the retail environment. It is an increasingly difficult task for category
managers to find an effective assortment due to consumer preferences instability and
the extremely large number of possible assortments.

Managing shelf space is critical for retailers to attract customers and optimize
profits. This study by (Jens Irion, Jye-Chyi Lu, et.al, 2012) develops a shelf-space
allocation optimization model that explicitly incorporates essential in-store costs and
considers space- and cross-elasticities. A piecewise linearization technique is used to
approximate the complicated nonlinear space-allocation model. The approximation
reformulates the non-convex optimization problem into a linear mixed integer
programming (MIP) problem. The MIP solution not only generates near-optimal
solutions for large scale optimization problems, but also provides an error bound to
evaluate the solution quality. Consequently, the proposed approach can solve single
category-shelf space management problems with as many products as are typically
encountered in practice and with more complicated cost and profit structures than
currently possible by existing methods. Numerical experiments show the competitive
accuracy of the proposed method compared with the mixed integer nonlinear
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programming shelf-space model. Several extensions of the main model are discussed
to illustrate the flexibility of the proposed methodology.
(Opher Baron, Oded Berman, et.al, 2011) found out that there are two factors
that their influence on the demand has been investigated in many papers are (i) the
shelf space allocated to a product and to its complement or supplement products and
(ii) the instantaneous inventory level seen by customers. Here we analyze the joint
shelf space allocation and inventory decisions for multiple items with demand that
depends on both factors. The traditional approach to solve inventory models with a
state‐dependent demand rate uses a time domain approach. However, this approach
often does not lead to closed‐form expressions for the profit rate with both
dependencies. They analyze the problem in the inventory domain via level crossing
theory. This approach leads to closed‐form expressions for a large set of demand rate
functions exhibiting both dependencies. These closed‐form expressions substantially
simplify the search for optimal solutions; thus they use them to solve the joint
inventory control and shelf space allocation problem. They consider examples with
two products to investigate the significance of capturing both demand dependencies.
They show that in some settings it is important to capture both dependencies. They
consider two heuristics, each one of them ignores one of the two dependencies.
Using these heuristics it seems that ignoring the dependency on the shelf space might
be less harmful than ignoring the dependency on the inventory level, which, based on
computational results, can lead to profit losses of more than 6%. We demonstrate
that retailers should use their operational control, e.g., reorder point, to promote
higher demand products.

Business Performance

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Growth in Sales
According to (Sumy State University, 2024) Intellectual capital
components’ meta system has exploded in the past decade following the four
decades of intellectual capital research evolution, followed by wide discussions
on definitions, measurements, reporting, impact analysis, etc. The evolution of
IC research has been divided into four stages, although the borders between
them are fluid and the exchange of ideas has grown in all directions at
tremendous speed since the end of the 1990s. The intellectual capital theory
has evolved from the resourcebased view, competence-based view, and
knowledge-based view. Intellectual capital, a new term, appeared in the 1990s
and, in essence, coincided with the concept of intangible assets. In particular,
researchers agree that the terms "intangible assets", "trademark", "good
repute", and "intellectual property" in accounting and valuation activities do not
cover everything that should be included in the new concept. It is about using
intangible assets as a management object to increase the value of the
company by involving previously unused reserves such as knowledge,
information technology, customer satisfaction, etc. There is no unified
definition; therefore, there is flexibility in using the term. Owing to its
significance in the new sustainable reality, intellectual capital has become
crucial for growing economies and has been recognized as a fundamental
discipline that is thoroughly supported by practitioners and government
structures worldwide. The findings confirm that relational capital, measured as
marketing and sales components with proxies for assets, sales revenue and
value added, is significant in the case of ROA, ROE, ROS and RBS, which
have positive impacts and do not affect the price‒earnings ratio of listed
companies in Baltics. The exploratory longitudinal analysis confirms the data
regarding the existence of a total of six factors in the pilot study that have an

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impact on the business performance indicators while showing different levels of

significance, directions of impact and time scales, which highlights the unique
findings of the current extended research on intellectual capital and is the first
time that it has been applied in Baltic countries. Testing for the different proxies
and moderate and control variables introduces new aspects to the analysis of
the impact of resource deployment on business performance overall.
Simultaneously, simplifying the model using composite aggregate ratios on
both sides of the equation has created a precondition for optimizing impact
models worldwide.

While the direct influence of growth intention on small business growth

has been examined in entrepreneurship literature, little research distinguishes
the different forms of growth and how they are interrelated. The article draws
upon growth intention to examine whether firm size growth is the channel
through which growth intention influences sales growth. Results from the
analysis of a dataset of 20,472 French new ventures reveal that: 1) growth
intention has a positive impact on sales growth; 2) firm size growth has a
positive impact on sales growth; 3) firm size growth mediates the effect of
growth intention on sales growth. These findings show that firm size growth is
a means to achieve sales growth and not only a finality per se. (Beate
Cesinger, Katherine Gundol, 2018)

(John Wiley & Sons, 2016) found out that the challenges facing today's
sales executives and their organizations continue to grow, but so do the
expectations that they will find ways to overcome them and drive consistent
sales growth. There are no simple solutions to this situation, but in this
thoroughly updated Second Edition of Sales Growth, experts from McKinsey &
Company build on their practical blueprint for achieving this goal and explore
what world-class sales executives are doing right now to find growth and
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capture it—as well as how they are creating the capabilities to keep growing in
the future. Based on discussions with more than 200 of today's most
successful global sales leaders from a wide array of organizations and
industries, Sales Growth puts the experiences of these professionals in
perspective and offers real-life examples of how they've overcome the
challenges encountered in the quest for growth.

According to (ONDŘEJ Machek&MARTIN Machek,2014), The growth is an

important stage of lifecycle for all for-profit organizations. The sources of business
growth have been subject to a considerable academic attention. At the same time,
growth of sales is a normal aspect of the phenomenal growth of a company. They
previously created model of business growth which has been based on the analysis of
two terms: the average bill and the frequency of visits, and their impact on the overall
sales growth. They identified fourkey factors affecting growth of sales over time: labor
productivity (sales-per-worker), labor intensity (workers-per-assets), capital intensity
(assets-percustomer) and frequency of visits (customers per time unit). Since these
factors are in a multiplicative form, they also proposeda logarithmic decomposition of
business growth into a sum of partial factors in order to examine the contribution of
the individual factors to the total sales growth. The model is straightforward and
suitable for management of small and medium sized companies and can be used in
the education of entrepreneurs as well.

According to (Mohd Fazli Mohd Sam&Yasuo Hoshino,2013) The world has

witnessed remarkable growth and diffusion in information and communication
technologies (ICT) system in this decade. The further development of the ICT industry
will become a major factor for economic growth. This empirical research which aimed
to investigate the performance by analysing sales growth ratio and profitability ratio

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in ICT industry between Japan and three ASEAN countries. Data from Orbis Database
(OVBD) were analysed; 24 ICT companies in ASEAN region which consist of Thailand,
Malaysia, and Philippines; and 69 ICT companies in Japan by using t test technique.
The findings revealed that Japan and ASEAN had no significant difference with each
other in their sales growth performance. Meanwhile, ASEAN shows better
performance in profitability when comparing with Japan in ICT industry. The analysis
also support The Global Information Technology Report publish by INSTEAD and
World Economic Forum, OECD report and previous literature studies. It also has
practical implications for business leaders and owner managers in ICT sector.

Growth in Market Share

Product/Service Quality

SSEs Image compared to Competitors

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