The Effect of Inventory Management on Firm Profitability and Operating Cash Flows of Kenya Breweries Limited, Beer Distribution Firms in Nairobi County

Abstract

The main purpose of management of inventory is basically to try and balance the conflicting economics of not wanting to hold too much inventories or stocks. However, most managers ignore the saving potential that arise from proper management of inventories, trying to treat inventories as a necessary evil and not as an asset that require to be managed. As such, some firms do not or ignore to control their inventory holding, this usually leads to under stocking and causing the firm to stop or slow its production. This finally results to firm’s ineffectiveness. This study sought to examine effect of inventory management on firm’s profitability and operating cash flows of Kenya Breweries Limited beer distribution firms in Nairobi County. The study employed a descriptive research design. Population of the study involved six Kenya Breweries Limited beer distribution firms in Nairobi County thus the study carried out a census of the six firms in Nairobi County. The study used secondary data, which was collected using a data collection sheet from six firms for a period of 10 years from the years from 2006-2015. The data collected was analyzed using ordinary least squares in form of regression equations via the statistical package for social sciences. The study established a significant relationship between the management of inventory and the operating cash flows of Kenya Breweries Beer distribution firms in Nairobi County. The study concluded that inventory management significantly influences firm profitability and operating cash flows of Kenya Breweries beer distribution firms in Nairobi County, Kenya. The study recommended that the management of Kenya breweries ltd beer distribution firms in Nairobi County should adopt effective inventory management practices like just in time and material requirement planning. This is because such inventory management practices would improve their profitability and operating cash flows.