Effective inventory management is essential in the operation of any business (Bassin, 1990).
Hakansson and Persson (2004) identifies three different trends in the development of logistics
solutions within industry, one trend is concerned with the increased integration of logistics
activities beyond organization boundaries with an aim to reduce cost items such as
capital costs for inventory and handling costs of flows.
Inventory as an asset on the balance sheet of companies has taken on increased importance
because many companies are applying the strategy of reducing their investment in fixed assets,
like plants, warehouses, equipment and machinery, and so on, which even highlights
the significance of reducing inventory (Coyle et al., 2003).
Changes in inventory levels affect return on assets (ROA), which is an important financial
parameter from an internal and external perspective. Reducing inventory usually improves
ROA, and vice versa if inventory goes up without offsetting increases in revenue (Coyle et
al., 2003).