The solution in such cases is to manage the demands of raw materials and other inputs of the SMEs, which can be achieved by proper IM ( Baron et al., 2011). The problems of SMEs can be addressed to avoid the failure of the operation of SMEs primarily by considering the importance of economic growth and poverty alleviation ( ILO, 2010). In terms of employment generation, SMEs have been predominant by employing about 24 million people in the last year ( Hossain, 2021). More than 50% of industrial enterprises are SME-sized, and it has low capital intensity and high labor intensity compared to other large-scale enterprises ( Alauddin and Chowdhury, 2015). To encourage and persuade entrepreneurial activities, SMEs can be a primary source of business interest, and they can contribute to the national economy to a large extent.Įnsuring these enterprises' rapid and sustainable growth can alleviate poverty and generate employment. Collectively, the contribution of these SMEs may get prominence in the next few years if these firms can manage themselves with proper nurturing and efficiency. The number of SME firms has been increasing in the last two years due to the declaiming role of ready-made garments (RMG) and remittances in the economy of Bangladesh.
A recent study conducted by the Japan Bangladesh Chamber of Commerce and Industry (JBCCI) reported that there are 17,384 micro-enterprises, 15,666 small firms, 6,103 medium firms in Bangladesh 3,639 large-scale enterprises ( Rahman, 2021). In Bangladesh, the relative market share of SMEs in the manufacturing sector is very significant, which was reported 40–50% of the total value added generated by the sector ( Alauddin and Chowdhury, 2015). It necessitates further exploring the dynamics of SMEs' IM practices for better understanding. So, there are differences in the findings on the influence and association of IM practices on SMEs' business operation and financial performance. Karadağ (2018) found that receivables management and cash management are strongly associated with financial performance though the association of IM was found relatively weaker. Effective IM practices can become helpful for SMEs to ensure financial soundness. (2020) specified a significant relationship between IM and the financial performance of small firms. An effective IM system can be integrated with capacity utilization to increase quality and reduce cost for better competitiveness ( Ricklavely, 1996). It can be done by using effective IM, enabling a firm to manage and minimize inventory to acquire competitiveness over the other rival firms in the market ( Sprague and Wacker, 1996). To survive in today's competitive business environment, SMEs should emphasize increasing their competitive advantage through low-cost but high-quality product offerings in line with their limited resources ( Scully and Fawcett, 1994). For the development of the national economy, SMEs can play an essential role in increasing productivity, efficiency and fair competition. These small and medium enterprises (SMEs) hold an important place in both developing and developed countries by contributing significantly to the national economy ( Visvanathan and Kumar, 1999). Small firms mostly neglect IM by accumulating excessive inventory for a time with cash tied in it, and it leads to the inability to control the flow of inventory effectively ( Bai and Zhong, 2008). Effective inventory management (IM) can lead to higher revenue and profits. It is used to balance the supply and demand of a specific product. Inventory is a crucial part of a systematic supply chain of a business.
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