Inventory, IT Investment, and Profitability: Empirical Evidence using Industry Groups

This research investigates relationships among IT investment, inventory performance, and financial performance to find the empirical evidence for the theory that operational excellence in inventory management and relevant IT investment enhance profitability in the long run. Using ANOVA, post hoc analysis, and hierarchical regression, we analyze longitudinal data at the industry group level (manufacturing, wholesale trading, and retail trading sectors) to examine inventory trends during the last four decades, effect of IT investment on inventory performance, and effect of IT investment on the relationship between inventory performance and financial performance. The results indicate that 1) inventory levels have decreased in the manufacturing sector but increased in the wholesale and retail sectors over the last four decades; 2) increased IT investment has a positive influence on inventory reduction in manufacturing and retail sectors; and 3) a lower inventory level is beneficial to improving firms’ profitability. However, the positive influence of IT investment on financial performance appears indirect and mediated by inventory performance.