IJAMS

International Journal of Advanced Manufacturing Systems

INVENTORY MANAGEMENT PERFORMANC IN

MSMES: INFLUENCING FACTORS FOR AGILE
READINESS?
Puneet Mangla 1, Subrata Das 1, Ashish Agarwal 2, Pulak M Pandey 3
1

Hindustan College of Science & Technology (HCST), Mathura, UP, India, INDIA

puneet.mangla@hcst.co.in, skdass@rediffmail.com
Department of Mechanical Engineering, IGNOU, New Delhi, INDIA
ashsih@ignou.org
3
Mechanical Department, Indian Institute of Technology, Delhi 110001, INDIA
pmpandey@mech.iitd.ac.in
2

Abstract: Micro, small, medium enterprises (MSMEs) are important contributors to national economy. Consequently, MSMEs are
considerably vulnerable, exposed to intense competition and lacks commensurate knowledge. In an era of liberalization MSMEs
should be more competitive in context of quality, service and cost. However, MSMEs faces constraints in several key areas such as
SCM, agile manufacturing, technology, and human resources. Therefore, it is felt in inventory intensive manufacturing units,
inventory management practices (IMP) and competency for agile readiness is perhaps pivotal for attaining competitive advantage. We
focused on medium entrepreneurs and probed inventory related practices. We probed which factors influence IMP and how they are
adapted and applied. Insights perhaps facilitate researchers and practitioners to work-out framework to provoke agile readiness
thereby sustainability. This study is based on MSMEs located in North India. We explored what are the IM practices adopted by these
units? What crucial aspects do influence IMP and the inventory cost? We addressed and audited IMP, and sought parameters needed
to be changed in the context of agile readiness. The paper aims to contribute to knowledge by developing a deeper understanding into
IM practices via articulating influenced factors/activities within the process.
Keywords: Inventor management, Supply chain, Manufacturing enterprises, SME, MSME.

Volume 15 Issue 1
2014 IJAMS

1. Introduction
Micro, Small and Medium Enterprises (MSMEs)
plays important role of engine to stimulate the
economic growth. For developing economies,
MSMEs are pivotal, as economic status largely
depends on health of MSMEs. The 4 th Census
statistics of Ministry of MSME Sector (2010),
estimated 26.1 million enterprising units exists
that employees 59.7 millions, nearly four times
that of large corporate. In that matter, the Annual
Report 2012-13, Ministry of MSME, Government
of India, figure out numbers of MSMEs
approximately 30 million and in the next three
years perhaps provide employment to around 12
millions. It is meritorious that 67.10% registered
MSME enterprises are engaged in manufacturing.
Henceforth, sustainability of manufacturing
MSMEs is pivotal for economy as well as for
employment. Moreover, in recent times,
developed economies witnessed relative increase
in several MSMEs being a major source for
employment. However, MSMEs are vulnerable,
and their failure rate is higher, as grapple with
many problems, such as domain expertise,
technology access, low production capacity,
ineffective manufacturing process, strategy and
poor supply chain management. The tough
competitive scenario because of globalization has
put enormous pressure on MSMEs never seen and
experienced before (Huin, 2004). Researchers
argue that MSMEs must redefine themselves for
achieving competitive advantage over others
through optimal use of limited resources
(Ricklavely, 1996). Therefore, in context of
inventory intensive MSME units, it is felt that
inventory management performance and agile
readiness are perhaps key for sustainability of
MSME and also for reviving sick units. According
to report of Institute of small enterprises and
development (ISED), 2012, key strategic
challenges faced by MSMEs are, lack of access to
global market, methodological approach to
knowledge creation, development trend not well
appreciated, unable to tap benefits of new
economic opportunities and threat from cheaper
substitutes from imports. The lack of sensitivity
and inability to identify strategic business process
is observed as key constraints by ISDE.
Henceforth, we strongly emphasized that MEMEs
need to assert through scientific advocacy
initiatives. In present open economic scenario,

multinational & large firm drives the market.

MSME are forced to work as ancillary as
protection has been withdrawn by Government
and several MSME has to face low margin, high
working capital, and delays in payments etc.
Further, ever growing and changing competitors,
dynamic customers behaviors and complex
structures implies that competitive functions are
not totally foreseeable. Thus growing dynamism
confronts the field of supply chain in particular
inventory management with exponentially
growing new challenges (Shnits et.al., 2004).
Dynamics in market intrinsically coupled to the
corresponding information exchange of all players
in the logistics domain: e.g. suppliers,
manufacturers, transport companies and most vital
customer. MSMEs are required to connect with
real world fronts and sources to widen the
relevance of IM performance for enhancing
competitive advantage. To that placer MSMEs
have to evaluate critical links affecting IM
performance and why often suffer from longer
deliver time, logistics communication and
information exchange problem, and also required
to learn new methodologies and market trends.
Therefore to achieve and sustain desired effects
iterative and interactive process is considerably
needed.
IM performance issue normally concerned with
avoidance of excess inventory and shortage of
materials .On this background our study attempts
to identify factors that influence the inventory
management performance in the context of North
Indian MSMEs. Further, agile manufacturing units
have the proficiency to rapidly respond to changes
in customer demand, i.e. deal with dynamic
components of customer and market, henceforth,
and enhance competitiveness (Goldman et al.,
1995). Moreover an agility component delivers
value to customers; remains prepared for to
changes, value human knowledge and skills and
develop partnerships. Thus it is crucial to link IM
performance with agility. Therefore, it is felt that
exploratory analysis of inventory management
practices perhaps provides optimal solution for
eliminating few strategic problems. It is important
to understand grounded IM practices rather
theoretical conceptualizations (Ritchie and Lam,
2005). The literature highlights the reactions of
MSMEs who often intimidated and prefer to
operate in the usual manner and mindset. If

The effect of die shape on evolution of strain in Equal Channel Angular Pressing of Al Alloy

MSMEs keep on doing the same thing and

envisage a different result, then it is never going to
happen. In a scenario of no change attitude,
progressive and different results cannot be
expected.
This study aims to group MSMEs into the
category of lean manufacturing, if positive, then
virtual partnerships component to enhance IM
performances probably make them agile
manufacturer.
Apparently
literature
lacks
appropriate
IM
performance
solutions.
Henceforth, we audited out existing standpoint in
North Indian MSMEs to identify what needs to be
changed in the context of IM, to make MSMEs as
agile manufacturer. Hence we aims to bridge IM
performance factors gap in the context of
MSMEs. This paper is organized within six
sections. First section, briefly introduces the
significance of inventory management and
concerns in the context of MSMEs, followed by a
literature review in section two. The objectives,
scope and methodology are covered under section
three. Further, critical analysis is done to evaluate
critical links affecting IM performance in forth
section. Thereafter, Section five enlists set of
recommendations and inferences. Finally in sixth
section conclusions is elaborated in the context of
IM performance and agile readiness.

2. Literature Review
Many organizations value supply chain
improvements as a prime concern, because of low
supply chain efficiency. Scholars have analyzed
several IM practices and performance thereby
literature amassed exhaustive knowledge in
context of IM and IM performance. Inventory acts
as a buffer in the Supply Chain where benefits are
coping with supply-demand time mismatch,
variability (supply, demand, forecast error),
economic (costs, discounts), main trade-off,
service level, keeping inventory cost to a
minimum. IM practice is concerned with leadtime issues, rapidly configure or reconfigure
assets and operations of the manufacturing
systems to react to consumer trends. Literature
clearly mentions that appropriately suitable
Inventory Management (IM) practices provide
path to have competitive advantage. Henceforth,

to survive in dynamic economy, MSMEs must

adopt modern IM practices (Inventory theory and
models) for optimal utilization to achieve
competitive product range. The major functions of
inventory are: (1) provision of required inputs for
production; and (2) prevention against machine
breakdown, volatile market (Zeng and Hayya,
1999). We perceive that ordering cost refereed as
inventory cost and inventory turnover are
significant aspects to consummate IM strategy of
particular MSMEs. IM has been a crucial aspect
of the inventory rich manufacturing industry, as
IM enable firm to minimize inventory cost and
also avoid the consequence of material shortage.
The inventory cost is often believed to be
efficacious for making inventory decisions
(Ballou, 2000), where inventory carrying costs
vary within a specified range of inventory costs.
However, proper selection of IM practice is
pivotal
to improve
inventory affiliated
performance (Palmer and Dean, 2000). The IM
and competitive advantages links previously
discussed by many relational to large corporate. In
whatever way limited study exists in the context
of MSMEs. We perceive by supplementing value
addition relational to inventory management
perhaps enhance competitiveness. It results in
reduced inventory cost, offer advantages because
of maintaining limited time in the system. As a
measure of inventory effectiveness, lead-time is
critical (Martin and Philip, 2003), an important
inventory
element
(Rugtusanatham
and
Rabinovitch, 2006). The longer lead-time and
high usage demand higher re-order stock levels
and vice-versa (Partington and Sculli, 1993).
Therefore, to reduce safety stock, reduction in the
inventory replenishment lead-time is required for
improved customer service (Chandra and Grabis,
2005). Small purchase lots require more efforts by
purchase department. Thus, Toelle and Tersine
(1989) is of view that excess inventory level is
expressed as operational liability and eventually
results in increased inventory costs. The frequency
of raw material ordering is another distinguished
measure and an prime element that contributes
towards increased inventory cost, because of
frequent small order. This is much more relevant
to MSMEs, as often restricted to avail benefits of
quantity discounts, as requirement probably much
less. Flores et al., (2003), developed a scheme for
optimizing inventory costs. A supply chain is
indispensable to all forms of business. However,

supply chain, in particular, inventory management

(IM) is imperative that is often overlooked in the
boardroom. Consequently, businesses with
excellent IM support results in considerable
customer satisfaction. Chase et al. (2000) is of
view that in new global paradigm organizations
are forced to locate alternative and flexible ways
to satisfy customer demand. Compelling supply
chains improve businesss performance. To
enhance effectiveness IM performance perhaps is
the optimal solution. It ensures blend of elements
in the supply chain is in tune with the business
requirements. IM sensitivities have been assessed
and investigated the changing pattern
of the
business i.e. future is getting more uncertain and
there is a need for the flexibility (Gill, 2013).
Many organizations have serious concerns
relational to supply chain improvements, because
of low supply chain efficiency. From the academic
and practitioners viewpoint, it is advantageous to
identify gaps in theory as well as in practice.
Often areas of focus are cost, carbon reduction
and delivering savings to the bottom line. A more
important angle is that excellent IM performance
increase sales, through better shelf availability,
improving a products speed to market and
marketplace innovation. Supply Chain Strategy
(SCS).SCS, is emerging field, constitutes
approaches that range from strategic to tactical,
where main focus is on operational or tactical
levels of planning and decision making. For
sustaining competitive advantage exhaustive
exploration of IM practices and performance
parameters is perhaps pivotal necessity (Katz et
al., 2003). Inventory management is emerging
research area of SCM, needs consolidation in
context of constructs, characteristics and
application
methods.
Literature
attributes
alignment of inventory management with business
strategies is essential, ultimately results in
achievement of overall business goals. IM
maintain high degree of delivery reliability and
high delivery flexibility is often hallmark of
business. Organizations often experience major
gaps among business, strategies and supply chain
strategy. Incorporating appropriate IM models,
results in success of the business. Mitra (2010)
suggested that a highly responsive strategy is
required to address uncertain demand and supply
scenario, whereas efficient strategy is required to
address certain demand and supply scenario. The
following problems have been identified through

literature review, interaction with experts.

Identified common practices adopted in MSME
aligning supply chain in particular inventory
management. To begin with, improper inventory
management and lead-time issues and inability to
rapidly configure or reconfigure assets and
operations of the manufacturing systems to react
to consumer trends were observed. Although,
MSMEs look for structured and methodological
procedure to calculate inventory level, however,
argues that increased investment in inventory in
addition to an increased orders backlog perhaps
results in lost sales thereby minimal profits.
Therefore we decided to implement a systematic
approach as against extensively used thumb rules
to establish inventory policy parameters in
MSMEs, to optimizing inventory cost. For proper
execution of planning and inventory control, we
perceive understanding of crucial factors that
influence IM is pivotal. It perhaps enables
MSMEs to adopt an appropriate and optimal IM
practice. Of course the role of IM practices, cost
of inventory, quantity to be ordered and inventory
issues are well explained in theory, ironically,
empirical examination is not commonly observed
in the context of MSMEs. On this ground, study is
focused to get insight of pivotal factors that
influence inventory management performance.

3. Objectives, Scope and Methodology

1) To understand IM practices and performance
issues in MSMEs.
2) To identify critical factors that significantly
affects inventory cost.
3) To audit current prominence of IM in MSMEs.
4) To get insight for agile readiness.
The study is confined to MSMEs located in North
India; we have omitted Micro and Small
Enterprises. We focused on enterprises of medium
category, where turnover exceeds fifty million and
below hundred million, shortlisted inventory
intensive units having formal or informal
relationship with various large corporations
including multi-nationals (MNCs) located around
North Capital Region (New Delhi). The quality
and cost of engineering products depend on the
performance level of parent industry and their
automation levels. The development of MSME
units is therefore of paramount importance for a
competitive and self- efficacy industrial structure,

The effect of die shape on evolution of strain in Equal Channel Angular Pressing of Al Alloy

having the potential to offer substantial

employments. Therefore, medium sector is
perceived as notably appropriate. Because of nonavailability of a systematic database of MSMEs
located in North India, we decided to focus on a
maximum two hundred profit making MSMEs,
thereafter confined to eighty owing to resource
constraints. In addition to literature review,
several meetings with managers of MSME have
been conducted to study the inventory
management practices in MSME.
As an outcome of the meeting, a semi structured
questionnaire is developed in consultation with
domain experts. In this matter, feedback received
thoroughly analyzed and thereafter questionnaire
was modified accordingly. Finally thirty-one
enterprises responded well to semi structured
questionnaire. We focused on existing orientation
of clustered MSMEs through interaction with
experts and exhaustive literature review. The
critical success factors are identified through
literature survey, and then tested for their best
practicing effectiveness through questionnaire
survey. The basic features of data collection is
grouped in five sections as IM practices and
performance, economic variables, production
details, factors hindering IM. Regarding each
question, MSME managers were asked to gauge
the extent to which all concerned unanimously
agree for the mentioned statements. The questions
were in the form of short statements and they are
required to provide personal views on a five point
Likert scale. The data collection exercise was
carried out by the authors themselves during
August 2011 to February 2012. Nineteen
enterprises were cut-off because of inappropriate
information. The methodologies used for the data
analysis are descriptive analysis, regression
analysis and rank correlation.
4. Analysis of commonly used Inventory
management Practices and Performance
Since majority of MSMEs were inventoryintensive in nature with a significant portion of
production cost involves raw material and various
other inventory related cost, it is likely that the
MSMEs likely to recognize its due importance.
We have included objective to correlated different
scenario of practices with Aberdeen report. As
more than 60% of firms use relatively simplest

form of inventory management methods.

(Aberdeen Group, 2005). On this background we
understand the present perception of MSMEs
about the importance and convenience of IM
practices. Out of 31 concerned MSMEs, all of
them explicitly stated that IM is substantially
important for performance. Thus obviously
statement brings out that the awareness level of
IM practices is significantly highly distinguished
in MSMEs of North Indian region. In this matter,
it is appropriate to view these MSMEs to ascertain
that how many of likely to follow IM practices
and what is the kinds of practices they pursue. In
this relation, Table 1 shows how many MSMEs
follow IM practices and others who do not and of
which kind eventually pursued. The table clearly
indicates that mere seven MSMEs did not pursue
any kind of IM practice at all. Thus it is concluded
that although some MSMEs do consider IM
practice as important; however, do not pursue any
kind of IM practices. This is only because of
motivation lack on the part of the concerned
MSMEs. It is also likely that though they got an
explicit feeling that IM is important, perhaps
might not realized its crucial role by probing
others experience. It is observed that raw material
purchasing frequencies also vary from daily basis
to monthly basis. How frequently these units
would resort to purchase raw materials probably
depend upon the kind of IM practice adopted.
Therefore, it is pivotal to understand that how
does the raw material ordering frequencies of
MSMEs vary vis--vis the kind of IM practices
pursued. In this regard, Table 2 indicates such a
distribution. Although, it appears that few MSMEs
who did not pursue any kind of practice resorted
to less frequent raw material ordering. Whereas
other MSMEs which do adopted computerized
IM/JIT/VMI avoided more frequent raw material
ordering.
Table 1. Common inventory management practices
followed in MSMEs.
Sr.
Common Practices
Numbe
N

r of

MSME

1
2
3

No practice
Thumb rules
EOQ
(Economic
Quantity)

Order

s
07
09
04

4
5
6

ABC (Always Better Control)

Computerized IM
Just-in Time (JIT) &
Vendor Managed Inventory
(VMI)
Total

05
02
04

Thumb Rules
EOQ
ABC
Com. IM
JIT/ VMI
Total

31

1
0
1
0
1
3

2
2
2
2
2
12

2
1
1
0
0
7

4
1
0
0
1
8

0
0
1
0
0
1

9
4
5
2
4
31

D-Daily; W-Weekly; F-Fortnight; M-Monthly; Q-Quarterly

To assure whether there exists any statistically

significant relationship between the two variables.
We performed rank correlation analysis, by
ranking raw material ordering frequencies from
one to five: Quarterly (5), Monthly (4),
Fortnightly (3), Weekly (2) and Daily (1).
Whereas IM practices are ranked from one to six :
No practice (6), Thumb rules (5), EOQ (4), ABC
(3), Computerized IM (2), and JIT/VMI (1). The
rank correlation analysis unearths there is a
statistically significant positive correlation (0.343)
between raw material ordering frequencies and IM
practices. Henceforth, need for purchasing raw
material will also be realized based on stock
verification exercise previously done by these
units. Further, survey results clearly brought out
mere three MSMEs do stock verification exercise
on a daily basis. Only two of them perform on a
fortnightly basis and nine carryout on monthly
basis. The remaining eleven MSMEs performs
stock verification either quarterly or once a year.
Hence it is perceived that frequency of stock
verification exercise is also important for raw
material purchase on the one hand and IM
practices and IM cost on the other. It appears that
MSMEs which turned away from any kind of IM
practice resorted to less frequent stock
verification, on the contrary those MSMEs which
adopted computerized IM/JIT/VMI resorted to
more frequent stock verification. To verify
whether there exists any statistically significant
relation between the two variables, we performed
rank correlation analysis, by ranking stock
verification frequencies from one to five: Yearly
(5), Quarterly (4), Monthly (3), Fortnightly (2),
and Daily (1). Here also IM practices are ranked
from one to six. The result of rank correlation
analysis reflected that there is a statistically
significant positive correlation (0.480) between
frequencies of stock verification and IM practices.

Nevertheless , an important determinant

of IM practice carried-out by these MSMEs
perhaps is their size itself. Vergin (2008) argues
for larger MSME size greater will be the scope for
multifaceted IM practice adoption and vice versa.
However, size is measured either in terms of
number of workforce or in terms of investment.
The research shoes that irrespective of size
MSMEs does not have competent and trendy IM
practices. To further verify if any statistically
significant relationship exists between size of
investment or number of employees and IM
practices, we again performed correlation analysis
that clearly shows that there is no link or
correlation between the two variables. Thus we
wonder if or not the type of production might have
suitable relationship with the IM practice.
Considering this aspect, Table 4 presents
distribution. Although it reflect out indication that
MSMEs who follow job shop/batch production
processes either do not have any IM practice or
simply follow thumb rule/EOQ/ABC based IM
practice. Whereas MSMEs who opts mass
production/flow shop production processes adopt
computerized IM/ JIT/VMI practices. In this
regard, correlation analysis indicates there is a
statistically significant positive (0.825) correlation
between the two. This implies that production
process has a significant relationship with the kind
of IM practice that MSMEs probably adopt. It is
obvious because production types like mass
production and flow shop production require more
frequent stock verification and raw material
purchases which have better compatibility with
inventory practices. On the contrary, job shop/
batch production systems does not requires either
frequent stock verification or frequent raw
material purchase and confidently managed even
without any IM practice. Table 3 shows stock
verification details.

Table 2. Common inventory management practices and

raw material ordering frequency.
RM Ordering Frequency

Table 3. Common inventory management and stock

verification frequency.
Stock Verification Frequency

IM Practice D
No Practice 0

IM Practice D

Total

Total

The effect of die shape on evolution of strain in Equal Channel Angular Pressing of Al Alloy

No Practice
Thumb Rules
EOQ
ABC
Com. IM
JIT/ VMI
Total

0
1
0
0
1
1
0

0
0
0
0
0
2
0

1
1
3
3
1
0
1

2
3
0
1
0
0
2

4
4
1
1
0
1
4

7
9
4
5
2
4
7

D-Daily; W-Weekly; F-Fortnight; M-Monthly; Q-Quarterly

Considering all these aspects, it is felicitous to

know whether or not inventory cost / sales has any
link with either IMP or raw material purchase or
stock verification frequency. To demonstrate this
perception of the relationship between the number
of raw material ordering frequencies and
inventory cost / sales, rank correlation analysis is
carried-out. The inventory cost per sales is a ratio
between the yearly inventory cost and the annual
sales, in percentage. The inventory costs were
ranked from one to five within different ranges; 0
-5 %, >5 10%, >10 15%, >15 20% and more
than 20% respectively. Similarly raw material
ordering frequencies were given number from one
to five starting from daily (5), weekly (4),
fortnightly (3), monthly (2) and end with quarterly
(1). Eventually, statistically significant negative
correlation between the two variables represent
whether the number of raw material ordering
frequency is more than inventory cost per sale is
positively less.
Table 4. Common Inventory Management practices
and production types.
Production Type
IM
Job
Batch
Mass
Flow
Total
Practices
No
3
4
0
0
7
shop
Shop
Thumb
5
3
1
0
9
Practice
EOQ
1
2
1
0
4
ABC
3
1
0
2
5
Com.IM
0
0
0
2
2
JIT/ VMI
0
0
1
3
4
Total
11
10
3
7
31

To obtain further interpretation about what kind of

relations do exists between stock verification
frequency and inventory cost / sales, rank
correlation analysis between number of
frequencies of stock verification and inventory
cost / sales is carried-out. As previously, done
inventory costs are ranked from one to five,
whereas number of frequencies of stock
verification are ranked one to five to represent the
frequencies of stock verification that range from

annual (1), quarterly (2), monthly (3), fortnightly

(4), daily (5). Table 6 results thereby reflected that
there is a statistically negative correlation between
the number of frequencies of stock verification
and inventory cost / sale. This manifestation
indicates MSMEs who practice stocks verification
on daily basis have less inventory cost / sales as
compared to others which perform it on monthly,
quarterly, semi- annually and annual basis.
Consequently, few MSMEs, which constantly
monitor stocks on a daily, are better positioned to
understand purchase requirements and place
orders optimally. Thus a positive correlation exits
between IM practices and raw material ordering
frequency while a negative correlation exits
between raw material ordering frequency and
inventory cost / sales. However, it is expected that
there will be a negative correlation between IM
practices and inventory cost / sales. In this matter,
Table 5 shows distribution of MSMEs in terms of
inventory cost per sales Vs IM practices.
Table 5. Common inventory management practices and
inventory cost / sale.
Inventory Cost / Sale
IM
Practice 0 5 >5 - 10 >10 >15 - 20 > 20 Total
No
0
1
3
2
1
7
Thumb
1
5
3
0
0
9
EOQ
1
1
2
0
0
4
ABC
1
3
0
1
0
5
Com.IM
2
0
0
0
0
2
JIT/
0
3
1
0
0
4
Total
5
13
9
3
1
31

* Correlation is significant at the 0.05 level (2tailed). **Correlation is significant at the 0.01
level (2-tailed).
Table 6. Rank Correlation.
Variables
Raw Material Ordering Frequency and
Stock Verification Frequency and IM
Inventory Cost per Sales and IM
Capital Investment and IM Practice
Labour and IM Practice
Inventory Cost per Sales and RM
Inventory Cost per Sales and Stock
Inventory Cost per Sales and
(CC- Correlation Coefficient)

CC
0.343**
0.480**
-0.522**
0.104
0.127
-0.260*
-0.297**
-0.201

Above analysis enables us to identify factors such

as raw material ordering frequency, stock
verification frequency that positively influence
inventory cost / sales. Thus analytical description
with multifaceted dimensions encouraged us to
understand the extent and diversity of IM methods

implemented and their relationship with inventory

cost /sales of MSMEs. This is particularly
distinguished that MSMEs that adopts superior
IM practice are well positioned to achieve lower
inventory cost / sales. In such a backdrop an
understanding of ITR in MSMEs has to be
implied. Inventory turnover ratio is a ratio
between the annual sales and the amount spent for
materials required for production. It is most often
used technique to unearth IM performance of
firms (Rabinovich et al., 2003; Vastag et al., 2005;
Koumanakos, 2008; Rao, 2009). It is an
appropriate method for evaluating management
effectiveness (Zeng and Hayya, 2009). Therefore,
it is appropriate to get insight of the variance of
ITR among MSMEs of our efforts. The ITR ratios
of MSMEs are presented in Table 8. It is
significant to note that 19 MSMEs had an ITR
up to five; 8 MSMEs in the range of above five
to 10; and hardly 4 MSMEs had a ratio of more
than 10. It clearly shows that by and large MSMEs
having lower ITRs imply enough scope to
improve their inventory performance. The
regression results are presented in Table 7.
Table 7. Regression Analysis results.
MSMEs
ITR (Inventory Turnover Ratio)
INV c/s
-0.62 (-5.91) {0.000}
D1M1
-0.52 (-3.55) {0.001}
D1M2
- 0.023 (-0.26) {0.795}
DRF
{0.486}
-0.093 (-0.70)
DPT
0.044 (0.485) {0.629}
Constant
13.58 (12.92) {0.00}
Adjusted R2
0.327
F
9.75 (0.00)
N
31
Table 8. ITR Distribution.
No
1
2
3
4
5

ITR
0 to 2.5
>2.5 to 5
>5 to 7.5
>7.5 to 10
Above 10
Total

Number of MSMEs
5
14
5
3
4
31

If however, the ITRs of MSMEs vary, it is

fundamental to know how they vary among range
IM practices implemented, among others. The
variance of ITR of MSMEs between different IM
practices is shown in Table 9. It is consequential
to observe that MSMEs who avoided or not
availed any IM practice had a lower ITR whereas
those MSMEs who did pursue methodological IM

practices have higher ITRs. This itself highlight

the importance and necessity to adopt IM
practices as substantially improves ITRs. To
further actualize the relationship between ITRs
and IM practices, rank correlation analysis is
again performed, where IMP are ranked from one
to six as in the previous case. The ITRs are ranked
from 0 2.5 (5), >2.5 5 (4), >5 7.5 (3), >7.5
10 (2), and > 10 (1). The statistically significant
positive correlation between the two variables
actualizes inference that better the IM practice
adopted, higher is ITR. For a given the
relationship between IM practice and ITR we
were impassioned to know how ITR varies with
raw material ordering frequency. In this regard,
relationship in terms of distribution of MSMEs
between raw material ordering frequencies and
ITRs is presented in Table 10. It is obvious that
MSMEs which resorted to less frequent raw
material ordering had a lower ITR. On the other
hand a significant proportion of MSMEs which
resorted to more frequent raw material ordering
(daily basis and on a weekly basis) had ITRs
ranging from 7.5 and above. Our correlation
analysis further actualizes positive relationship.
The rank correlation coefficient brought out value
0.401.
The next connected issue is whether ITR
varies between production types of MSMEs. Table
11 shows the distribution of MSMEs in terms of
production type and ITRs. The table clearly infer
that MSMEs with job shop production and batch
production have lower ITRs whereas mass
production and flow shop production system have
relatively much higher ITRs. The rank correlation
between production type is taken as job shop (1),
batch production (2), mass production (3), flow
shop (4)) and ITRs (0 - 2.5 (1), >2.5 - 5 (2), >5
7.5 (3), >7.5 10 (4), >10 (5)), this brings out that
there exists statistically significant, although a
lower, positive correlation (0.294) between two
variables.
Table 9. Common Inventory Management practices
and Inventory Turnover Ratio.

The effect of die shape on evolution of strain in Equal Channel Angular Pressing of Al Alloy

Inventory Turnover Ratio

IM Practices 0 2.5
No practice
Thumb rule
EOQ
ABC
Com.IM
JIT/ VMI
Total

>2.5 - 5 >5 7.5 >7.5 10 > 10 Total

4
2
0
0
0
0

2
5
1
2
02
2

1
1
2
1
1
1

0
1
1
1
0
1

0
0
0
1
1
0

7
9
4
5
2
4

12

31

Looking at state of above situation we were

interested to know whether the size of MSMEs
has anything to do with the ITRs. Our analysis
between enterprise size (in terms of capital) and
ITRs bring out that size has nothing to do with
ITRs. Thus it is important to know relationship
between ITR and inventory cost /sales. Other
things remaining constant, there should be a
negative relationship between the two variables
implying that MSMEs which have lower
inventory cost / sales are have higher ITRs and
vice versa. Table 12 presents the distribution of
MSMEs in terms of inventory cost / sales and
ITRs. The table shows MSMEs with lower
inventory cost / sales tend to have high ITRs. The
higher value of statistically significant negative
correlation (-0.6) supports stated inference.
Table 10. Inventory turnover ratio and raw material
ordering frequencies.
RM Ordering Frequency
ITR
0 2.5
> 2.5 5
> 5 7.5
> 7.5 10
> 10
Total

D
1
1
0
1
2
5

W
2
4
2
0
2
10

F
2
4
1
1
0
8

M
0
5
2
0
0
7

Q
0
0
0
1
0
1

Total
5
14
5
3
4
31

D-Daily; W-Weekly; F-Fortnight; M-Monthly; Q-Quarterly

With reference to above it is important to establish

what factors determine the level of ITR in MSME.
The possible factors are (1) the appropriateness of
IMP, (2)
frequency of
ordering,
(3)
implementation level of modern manufacturing,
and (4) inventory cost / sales. To confirm whether
these factors really have significant influence on
ITR, again regression analysis is put to use, as
follows: ITR = b 0 + b 1 inc+ b 2 D IM1 + b 3 D
IM2 + b 4 D RF + b 5 D PT, Where ITR =
Inventory Turnover Ratio, b 0, b 1, b 2, b 3 , b 4, b
5 are beta coefficients of the variables, D IM1 and
DIM2 are dummy variables for IM practices, D

RF is the dummy variable for raw material

purchase frequency, DPT is the dummy variable
for the production type respectively as explained
in the previous analysis. Regression analysis of
ITR with Inventory cost / share, IMP and raw
material results are shown below, that clearly
indicates that model is statistically significant,
eventually explains almost 37% of the variation in
ITR.
Table 11. Production type and Inventory Turnover
Ratio .
Type of Production
Job
3
6
0
2
0
11

0 2.5
> 2.5 5
> 5 7.5
> 7.5 10
>10
Total

Batch Mass
2
0
5
1
3
0
0
1
0
2
10
4

Flow
0
2
2
0
2
6

Total
5
14
5
3
4
31

However, IMP that is based on thumb rule, EOQ,

and ABC did not make any difference at all
compared to MSMEs which does not follow any
IMP. Although, MSMEs which practice modern
IM practice such as computerized IM, JIT/VMI
seems to achieve higher ITR as reflected in the
positive coefficient of the variable (though it is
significant only at the 20% level). In addition both
raw material ordering frequencies and production
types have statistically significant positive
influence on ITR.
Table 12. Inventory Turnover Ratio and Inventory
Cost / Sale.
Inventory cost / sales
0 5 >5 - 10 >10 15 >15 20

0 2.5
> 2.5 5
> 5 7.5
> 7.5 10
> 10
Total

1
1
0
1
3
6

1
9
2
1
1
14

2
4
1
1
0
8

1
0
2
0
0
3

> 20

Total

0
0
0
0
0
0

5
14
5
3
4
31

Ordering Frequency and Production Type:

Dependent Variable Inventory Turnover
Ratio
We were more particular about how IMP and
inventory cost / sales make influence on ITR.
Therefore, separate regression analysis is done.
ITR = e 0 + e 1 inc+ e 2 D IM1 + e 3 D IM2 ,
where e 0, e1, e2, and e 3 are beta coefficients of

the variables, D IM1 and D IM2 are dummy

variables for sophistication of IM practices
respectively.
Table 13. Correlation between inventory turnover ratio
and other factors.
Variables
CC
ITR and IM Practice
0.692**
ITR and Capital Investment
0.076
ITR and Labour
0.123
ITR and RM Frequency
0.401**
ITR and Production Type
0.294**
ITR and Inventory Cost per
-0.638**
** Correlation Coefficient is significant at the 0.01
level (2-tailed).

The dummy variable representing MSMEs which

practice thumb rules, EOQ, ABC based IM
practices were not statistically significant. But the
dummy variable representing MSMEs with
computerized IM, JIT, VMI practices were
statistically significant reflecting its positive
influence on ITR. Inventory cost / sales have a
statistically significant negative influence. The
results of regression analysis of ITR with
inventory cost / sale and IM Practices are shown
below.
Table 14. Regression results
Machine Tool
INV c/s
-0.38 (-3.63) {0.00}
D1M1
0.01 (0.15) {0.87}
D1M2
0.37 (1.27) {0.20}
Constant
7.62 (4.13) {0.00}
Adjusted R2
0.34
F
15.65 (0.00)
N
31
(Values within the parentheses and brackets aret
values and significance level)

In spite of decreasing explanatory power, the

model is substantially significant. The overall
analysis clearly directs that by adopting superior
IMP certainly reduce inventory cost / sales and
thereby increase ITRs.

5. Inferences and Recommendation

Inventory is buffer in the Supply Chain, while
there is no 'one size fits all' concept in SCM
moreover IM Models are not used exactly as we
learned them, thus its essential to get insight
about, hat is 'IM Theory/Model' and what is NOT
'IM theory/model' is important and matters.
Although today technology matters, however
business processes matter even MORE. Inventory
intensive manufacturing MSMEs were expected to

be aware of the need and importance of IM

practices. On the contrary our study found that
although they are aware of IM practices, however,
when it comes to practice, almost one fourth of
them did not pursue/implemented any kind of IM
practice, if pursue, pursued simplistic inventory
management methods. This is primarily due lack
of perception of benefits and competitive
advantage. It has been found that majority were
adopting self-defined inventory management
process or simplistic inventory management
methods. While modern IM practices are only
confined to a fraction of MSMEs being inventory
intensive units.
The recommendations made for these MEMEs to
initiate with following measures to get close to
being agile by implementation of modern IM
practices.
1. Look out for economical logistics operator to
provide delivery just before manufacturing, which
facilitates Zero Inventory.
2. For in-house inventory operations, implement
functional inventory classifications in terms of
cycle stock, safety stock, pipeline inventory,
anticipation Inventory etc.
3. Decide whether to stock or not to stock? i.e.
decide among Buy-to-order versus Buy-to-stock.
4.Supply Chain Decisions (strategic) - What are
the potential alternatives to inventory?
5. Deployment Decisions (strategic) - What items
should be carried as inventory? In what form
should they be maintained? How much of each
should be held and where?
6. Replenishment Decisions (tactical/operational)
how often should inventory status be determined?
When should a replenishment decision be made?
How large should the replenishment be?
7. Decide among Continuous Or Periodic Review
of Inventories. In Periodic Review; review
periods are usually scheduled and consistent /
ordering occurs at review, while in Continuous
review ensure transactions reporting / collecting
information and making decision.
8. Decide Approach among Cost Minimization
Approach; requires costing of shortages / finding
trade-off between relevant costs and Customer
Service Approach; Establish constraint on
customer service / Minimize costs with respect to
customer service constraints.
9. Involves multiple flows, for physical (raw
materials, WIP, finished goods) flow.

The effect of die shape on evolution of strain in Equal Channel Angular Pressing of Al Alloy

10. Determine required trade-offs, across different

entities and across metrics: Cost, Service, Time,
Risk, Flexibility, etc.
11. Deals with uncertainty - Uncertainty in supply,
process, and demand and consider both flexibility
and robustness.
12. Portfolio of approaches are usually needed There is no one size fits al concept applicable in
SCM, therefore get insights and know when to
apply appropriate approach is critical to success.
13. Apply generic Reorder Point calculation.

6. Conclusions
Our subsequent analysis indicated that those
which pursued better IM practices reflected
frequent stock verification as well as raw material
ordering. Study unearths two important
dimensions, inventory cost per sales and ITR
where IM have a positive influence while
inventory cost per sales has a negative influence
on ITR. Now it is being evident that better IM
practices or modern inventory practices achieve
lower inventory cost per sales as well as higher
ITR. Our study brought out that this has indeed
been the case in the context of MSMEs we
covered in our study. Our final analysis enables us
to infer that academicians and consultants could
encourage MSMEs to adopt better IM practices.
Through implementation of modern IM practices
enable them to achieve lower inventory cost per
sales and higher ITRs thus enables them to step
closer to be a agile manufacturer just by
incorporating virtual partnerships in their business
process, to enhance competitive advantage and
organizational value.

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Biography
Puneet Mangla
Ashish Agarwal
Pulak M Pandey
Subrata Das is an Associate Professor in
Department
of
Mechanical
Engineering,
Hindustan College of Science & Technology
(HCST), Mathura, UP, India. He is actively
involved in research and teaching since 1994. His
research interest includes supply chain
management,
operation
research
and
manufacturing optimization. He has 7 publications
to his credit in journals and conferences. He is
also a Fellow of Institution of Engineers, India
(FIE).