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Asian Finance & Banking Review; Vol. 4, No. 2; 2020 
ISSN 2576-1161    E-ISSN 2576-1188 

Published by CRIBFB, USA 

 

     1 
 

 

The Effects of Inventory Management Capability on Performance of the Firm- 
Business Strategies as a Mediating Role 

 
 

 
Md. Sazzadur Rahman Khan PhD 

Assistant Professor 
Department of Business Administration 

Stamford University Bangladesh, Bangladesh 
E-mail: tipu06bd@yahoo.com 

 
 
 
Received: April 29, 2020       Accepted: May 30, 2020            Online Published: July 02, 2020 
 
doi: 10.46281/asfbr.v4i2.649     URL: https://doi.org/10.46281/asfbr.v4i2.649 

 
 
 
Abstract 
The research aim is to evaluate the mediating aspects of business strategies e.g. differentiation and cost leadership strategy in 
affecting the aspects of inventory capability e.g. cost-related factors of inventory and techniques of inventory and firm 
performance e.g. return on asset (ROA) and improve productivity (IMP) of the Bangladeshi garment industry. A survey was 
utilized to collect information and the questionnaire was dispersed among 385 senior managers in the readymade garment 
industry of Bangladesh. For the data analysis, AMOS version 24 and SPSS version 23 were used. The findings of the analyzed 
data revealed that strategies of the business mediate the consequence of inventory materials capability and performance of the 
firm. The (SEM) results identify that the study model has an appropriate observation fits.  
 
Keywords: Inventory Capability, Business Strategy, Firm Performance.   
 
1. Introduction 
The economy of Bangladesh is heavily dependent on the readymade garment industry which is the foundation for creating job 
opportunities in the country. In a developing country like Bangladesh, the garment industry is the major driver for 
industrialization. The readymade garment industry is the basis of foreign earnings and accounted for 81% of total export 
income in Bangladesh (BGMEA, 2016). Bangladesh export garment products about $28 billion, on the other hand, China who 
secured the first position in export equivalent to $130 billion of readymade garment product (BGMEA, 2016). The present 
issue is how China secured this achievement – the answer might be a business strategy with proper inventory management 
practices. Knitwear sector contribution increases in which the local suppliers provide about 80% of raw materials and the 
manufacturers whereas only 15% of raw materials are supplied by the local suppliers in the case of the woven sector. In the 
woven sector remaining 85% raw materials required to import from other nations (Nuruzzaman, 2013). In Bangladesh, there is 
insufficient raw material production which influences buying fabrics from different countries. It encourages the deficiency of 
vertical integration. At the end of the day, it creates high lead time to complete the order (Alam & Natsuda, 2016). There is 
deficiency also in the greater position of infrastructure that creates in the delay of shipment (Saxena & Salze-Lozac'h, 2010). 
This research applies the Resource-Based View (RBV) theory developed by Barney (1991) to evaluate business strategies as a 
mediating role in the consequence of inventory materials capability and firm performance of the readymade garment industry. 
 
2. Literature Review 
Inventory can be defined as a stock that required producing a product e.g. items in work in process and raw materials and 
supportive activities' e.g. repair, operating, and maintenance Dey and Sumon (2011). According to Bozarth, Handfield, and 
Chandiran (2008) there are two categories of safety stock and the cycle of inventory stock. The stock of safety refers to the 
additional stock to meet up some uncertain demands and stock of cycle is the company's regular used stock Dey and Sumon 
(2011). According to Farahani and Rezapour (2011), stocks are reserved for various reasons- to reduce uncertainties, further 

mailto:tipu06bd@yahoo.com
https://doi.org/10.46281/asfbr.v4i2.649
https://doi.org/10.46281/asfbr.v4i2.649


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sale to others, co-ordinate manufacturing process, and to achieve economies in respect of objectives. Inventory material 
management consists of planning, storing, and processing materials in the right place, right quantity, right quality, and the right 
time. 
 In Malaysia, inventory capability was focused on the garment industry by Bin Syed, Mohamad, Rahman, and 
Suhaimi (2016). The purpose of the inventory management capability of this research was to evaluate the association between 
inventory management and company performance. Arrangements between the evaluation of the company's performance and 
inventory management were identified based on days on inventory and). Days on inventory referred to identify the number of 
days it would be required to convert turnover from the inventory. High inventory piled up for the long term is not favorable for 
the company which is the major factor for business failure. Return on assets (ROA) can be defined as net profit generated after 
the tax has been paid divided by the company's total assets. Results indicated a direct connection between increased values on 
assets (ROA) and days on inventory. 
 It was examined the connotation between inventory capability and firm performance covering the period of 1992-
2002 by Roumiantsev and Netessine (2005). In this study, traditional variables e.g. lead time margins and inventory levels were 
used and found there was no connection between the reduced level of inventory and greater enactment of assessment in terms of 
increased values on assets (ROA). Shin, Ennis, and Spurlin (2015) evaluated the affiliation between firm performance and 
inventory capability which reveals that a lower margin of inventory acquires a higher profit. Koumanakos (2008) evaluated the 
inventory management effects on the firm performance grounded on varieties of industrial sectors namely textile, food, and 
chemicals representing the period of 2000- 2002 in Greece. The purpose was to evaluate the connection between inventory 
management capability and firm performance. The study focused on the traditional measurement e.g. levels of inventory, lead 
time, and demand. The analysis also revealed that the firm maintains a high level of inventory that leads to a lower rate of return.  
 Kimaiyo and Ochiri (2014) stated management of inventory refers to systems about monitoring the inventory, 
reduction of cost, lead time, and demand of suppliers affect the firm performance. The study also focused that stock holding and 
cost of the order will improve the performance, inventory management systems reduce cost and in turn generate more profit. 
Shardeo (2015) examined the special consequences of inventory competency on the performance of the garment industry. It was 
revealed the positive association between firm competency and inventory turnover. It was also examined various factors that are 
important to know the concept of inventory management e.g. costs about inventory, costing methods of inventory, models of 
inventory, and controlling tools for inventory. Costs about inventory entail ordering cost, purchase cost, carrying cost, and 
shortage cost. Methods of inventory involve current price and standard price, weighted average, first-in-first-out (FIFO), and 
last-in-fast-out (LIFO). The model of the inventory consists of the economic order quantity (EOQ), inventory controls related 
to activity-based costing analysis, maximum level, minimum level and reorder level of inventory. Muiruri and Mwangangi (2017) 
studied to show the effects of material management, warehousing activities with managing inventory. Analysis disclosed that 
inventory has a great influence on firm performance in respect to material management and warehousing activities.  
 Various factors associated with inventory management capability namely cost-related factors, techniques of costing 
about inventory, methods of controlling the inventory, and various methods of inventory. Cost related inventory factors include 
ordering cost, carrying cost, purchase, and stock out cost. Techniques of costing about inventory include FIFO, Weighted 
average, LIFO, and standard costing. Models of inventory include EOQ (Economic order quantity). For controlling inventory, 
various methods like activity-based costing, minimum level, reorder level, maximum level, just in time, and outsourcing have 
significant effects on firm performance (Shardeo, 2015). 
 For effectively controlling inventory management, information technology plays a key role to efficiently manage the 
inventory system. Studies reveal that capacity and demand-oriented factors have a strong influence on inventory management. 
Demands of buyers always searching for quality of the product, flexibility, and delivery of the product. Safety stock levels are 
affected by their regular demand for inventory management. The disparity of capacity adversely affected inventory management. 
Sudden demand causes an increase or decrease in inventory level (Basaran, 2013). 
 
H1: Business strategies have mediating effects of cost associated aspects of inventory on firm performance- ROA 

H2: Business strategies have mediating effects of cost associated aspects of inventory on firm performance- IMP 

H3: Techniques of inventory and firm performance- ROA are mediated by business strategies 

H4: Techniques of inventory and firm performance-IMP are mediated by business strategies  

 
 
 
 
 



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Figure 1. Illustrates the conceptual framework 
 
 
3. The Methodology of the Study 
The structure developed in this study is specified in figure one. As elucidated previously, this structure consists five constructs: 
'cost-related factors of inventory, and ‘techniques of inventory', are treated as independent paradigms, 'business strategy' is 
considered as an intermediating paradigm, and 'return on asset (ROA)’ and ‘improve productivity (IMP)’are dependent 
constructs. 
 
3.1 Research Instrument 
To collect data in this study, a questionnaire was served that comprises 39 questions dividing into separate elements. The 
preliminary portion contains 18queries of the respondents. It contains demographic information. The other portion contains 21 
queries which are constructed based on Likert scales (Five points). These scales are developed based on distinguished authors 
Namusonge, Mukulu, and Iravo (2017), Bin Syed et al. (2016), De Sousa Batista, de Oliveira Lisboa, Augusto, and de Almeida 
(2016), Rakovska (2013), Lynch, Keller, and Ozment (2000), Zahra and Covin (1993). 
 
3.2 Data Collection 
The respondents in the questionnaires were experienced managers in 2018 from the upper export readymade garment in 
Bangladesh. The questionnaires circulated among 450 people. 385 respondents out of 450 were correctly accomplished and 
were properly used. 
 
3.3 Reliability, Validity and Measurement Scales 
The value of Cronbach's alpha in this study was satisfactory and it was above 0.70. The value of Cronbach's alpha in this study-
inventory management capability 0.86, business strategies 0.91, and firm performance 0.81. Meanwhile, the questionnaires were 
developed through borrow/ adjust from specialists. 
 

Table 1. Table of measurement 
 

Items and Factors Loading 
(Estimated) 

Loading 
(Standardized) 

Error of 
Standard 

Critical ratio 

Inventory management competency 

(α=0.86) 
IMC1 
IMC2 
IMC3 
IMC4 
IMC5 

 
 

0.985 
1.000 
0.940 
0.888 
0.774 

 
 

0.972 
0.850 
0.841 
0.758 
0.896 

 
 

0.073 
- 

0.051 
0.644 
0.554 

 
 

23.562 
- 

22.974 
21.890 
26.760 

Business strategies (α=0.91) 
Cost leadership strategies 

 
 

 
 

 
 

 
 

Cost related 

factors of 

Inventory 

Techniques 

of inventory 

Business 

strategy 

Return on 

asset 

(ROA) 

Improve 

productivit

y (IMP) 



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CLS1 
CLS2 
CLS3 

Differentiation strategies 
DS1 
DS2 
DS3 
DS4 
DS5 

1.998 
1.258 
1.300 

 
1.234 
1.143 
1.334 
1.212 
1.321 

0.824 
0.700 
0.754 

 
0.543 
0.432 
0.323 
0.766 
0.876 

0.198 
0.167 

- 
 

0.103 
- 

0.143 
0.156 
0.130 

8.075 
9.765 

- 
 

10.032 
- 

9.633 
11.785 
10.789 

Firm performance (α=0.81) 
ROA 
IMP 

 
0.675 
0.590 

 
0.689 
0.878 

 
0.095 
0.050 

 
18.437 

- 

 
3.4 Inventory Management Capability Scale 
Inventory management capability scale was measured by factors including cost of inventory management, shortages of frequency, 
inventory control techniques, the efficiency of inventory, long inventory days (Namusonge et al., 2017; Lwiki, Ojera, Mugenda, 
& Wachira, 2013). 
 
3.5 Business Strategies Scale 
Business strategies scale was measured based on cost leadership and differentiation strategies such as cost minimization, 
procurement efficiency, full capacity utilization, controlling overhead, methods, and tools of quality control number of a new 
product, rate of new product development (Zahra & Covin, 1993). 
 
3.6 Scale of Firm Performance 
Firm performance scale refers to the extent of return on assets that were measured by total income before interest expense 
divided by total average assets (Zhao, Dröge, & Stank, 2001). Improve productivity was identified by the percentage of labor 
productivity-comparing percentage of labor productivity from the year of 2013- 2015 (Prajogo & Shoal, 2006). 
 
4. Results 
4.1 Testing Hypothesis 
In this research, for the data analysis, SPSS 23and AMOS 24 software was used. The questionnaire validity was identified 
through a load assessment procedure, confirmatory factor analysis, and extracted average variance. In the hypothesis portion and 
systematic results, Friedman and Spearman test of correlation, structural equation modeling, were engaged. For the testing 
hypothesis, the maximum alpha error was considered 0.05 (P ≥ 0.05). The mediation measurement was performed through 
regressions ensuring-references about Baron and Kenny, (1986). To get proper mediation, the study considered the meaningful 
coefficients of correlation among three paradigms (Baron & Kenny, 1986). 
 
Table 2. Coefficients of correlation among ever al paradigms 
 

 Mean Standard 
deviation 

Cost factors of 
inventory 

Techniques of 
inventory 

Business 
strategy 

ROA 

Cost factors of 
inventory 

3.60 0.703     

Techniques of 
inventory 

3.18 0.856 0.61**    

Business strategy 3.64 0.944 0.52** 0.58**   

ROA 3.53 1.10 0.55** 0.47** 0.18*  

IMP 4.16 0.47 0.31** 0.46** 0.42** 0.55** 

* p< 0.05 **p< 0.01       

 
According to the outputs, cost-related factors of inventory affect strategies of business in the garment industry 

(P<0.01). However, the results suggest that the structural prototypical strategy of the business has an important consequence on 

the return on assets of the firm (P<0.01). The standardized coefficient (β) effect of cost-related factors on strategies of the 
business that is equivalent to 0.711. The standardized coefficient of the effect of modest strategies on return on assets is 



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equivalent to 1.14. On the other hand, the standardized coefficient (β) of the impact of cost-related factors on improving 
productivity is equal to 0.17. All the positive hypothesis relationships are showing in this orientation. Given the results, it can be 
summarized that the total effect of cost-related factors on firm performance (with the mediating role of business strategies) is 

significant. Moreover, the standardized coefficient (β) of the techniques of inventory on business strategies is equal to 0.232 and 
the standardized coefficient of the impact of competitive strategies on return on asset is equal to 0.24. However, the 

standardized coefficient (β) of the impact of techniques of inventory on improve productivity is equal to 0.68. All the 
hypothesis relationships in this orientation are also positive. Based on the results, it is summarized that the overall effects of 
techniques of inventory on firm competency (business strategies as a mediator) are also significant and supported the hypothesis. 
 
Table 3. AMOS output 
 

Independent 
construct 

Mediating 
construct 

Dependent construct AMOS findings Result 

Cost related 
factors of 
Inventory 

Business strategy Return on asset (ROA) S.C(β)= 1.14, p value = 0.001 and 
t value = 4.12.  

Supported 

Cost related 
factors of 
Inventory 

Business strategy Improve productivity 
(IMP) 

 S.C(β)= 0.17, p value = 0.04 and 
 t value = 3.78 

Supported 

Techniques of 
inventory 

Business strategy Return on asset (ROA) S.C (β) = 0.24, p value = 0.001 
and t value = 5.65 

Supported 

Techniques of 
inventory 

Business strategy Improve productivity 
(IMP) 

S.C(β) = 0.68, p value = 0.03 and 
 t value = 4.72 

Supported 

 
 
 
 
 

0.711                  1.14 
 

  
 

 
 

                                                                              0.232                       0.068 
 

 
 
 

Figure 2. Findings summary 
 

(RMSEA=0.088; CFI=0.975; TLI=0.943; df=129; and Chi-square=293.15) (p< 0.05) 
 
5. Discussion  
The findings revealed that firm performance in readymade garment relies on cost-related factors and various techniques of 
inventory. The outcomes also propose that these factors and techniques of inventory can affect firm performance through 
business strategies. All the hypotheses (H1, H2, H3 & H4) identified the positive (+ve) relationship amongst related factors 
and techniques of inventory and firm performance (p ≤ 0.05). These hypotheses were maintained by preceding research shown 
by various authors (Bin Syed et al., 2016; Roumiantsev & Netessine, 2005; Shin et al., 2015; Koumanakos, 2008; Kimaiyo & 
Ochiri, 2014; Shardeo, 2015). 

As controllable and in organizational factors, they provide firms to establish competitive business strategies required to 
enhance the organizational effectiveness and efficiency. Although the many competitions in the readymade garment industry, 
Bangladeshi manufacturers should continuously-proceed phases to advance intra-organizational aspects resulting intensify firm 
activities progressively. It's necessary to use enterprise resource planning (ERP) for the further development of the production 

ROA CFI 

TOI 

BS 

IMP 



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process. Garment manufacturers should give effort to have comprehensive control over the production processes and quality of 
inventory.  

From the above findings, numerous contributions have been identified for the theory with the practice of inventory 
management. At first, logistics can be interlinked with strategic management by developing a new framework with theory. 
Secondly, present research contributes to the readymade garment industry about the new information for the RBV researches. 
Thirdly, the analysis engages a model concerning structural equation to test the hypothesis which supports consistency in 
clarifying the output. Finally, this issue highlights managers dedicating a vigilant deliberation to interior factors that they can 
maintain to lower the costs that allow the readymade garment factories in Bangladesh to take its place around the international 
market. 
 
6. Conclusion 
Inventory management consists capable to forecast and measurability of inventory management practices that reduce cost and 
provides inventory control efficiency. Inventory is the most significant portion of any business, particularly for the garment 
industry. It is hidden charges which are to be measured for sustaining in the recent competitive world. Besides costs, improve 
productivity is also a crucial part of the garment industry. Inventory management also advances the level of productivity to 
survive in the present world. So, a garment manufacturing firm indispensable to fix the best practices regarding inventory 
monitoring to expand the return of assets in addition to productivity improvement. Planning inventory is an important part that 
is to be done effectively and efficiently. Without efficient inventory planning, the firm cannot be reached at the optimum level of 
inventory management strategy as well as a business strategy. 
 It's important to discourse that few limitations exist in the present issues. At first, this research attentive in business 
strategies e.g. cost leadership with differentiation strategies, which does not fulfill the third party logistics strategy. Secondly, the 
results of current issues were related to readymade garment factories particularly firms engaged with export concerning making, 
packaging, and cutting systems. Some variables were restricted to some extent in respondents' query e.g. improve productivity, 
increased value in assets. Finally, due to confidential data, it was gathered based on the experienced manager's observations. One 
can investigate further negotiation skills and experienced personnel for strategic purchasing. Strategic cost control and firm 
performance could be further researchable work.  
 
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