Innovations in Inventory Management to Improve the Profitability of Local SMEs

Efficient inventory management is a critical internal capability for ensuring the financial sustainability of micro and small enterprises, especially in emerging economies affected by post-pandemic disruptions. In Bagua, Peru, MSMEs often lack digitised control systems, leading to frequent stock imbalances, rushed purchases at high prices, and lower profitability; a deeper understanding of inventory practices that drive financial performance can contribute to more informed and strategic decision-making.

This quantitative, descriptive, and explanatory study examined the effects of four components of inventory management-control, valuation methods, control records, and measurement-on profitability; a convenience sample of 83 MSMEs yielded 200 valid responses from key personnel involved in inventory decisions; A 21-item Likert scale validated by experts was applied, and the data were analysed using descriptive statistics and multiple linear regression in SPSS v27. Profitability indicators included return on assets (ROA), gross margin (GM), and return on equity (ROE).

All dimensions of the inventory showed moderate levels of implementation (means: 2.37-2.62 on a five-point scale). The regression model demonstrated satisfactory predictive power (R ² = 0.402; F = 32.81; p < 0.001). Inventory measurement was the strongest and only highly significant predictor of profitability (β = 0.383; p < 0.001), followed by inventory control, with a smaller but significant contribution (β = 0.257; p = 0.013). Inventory valuation methods and control records did not show statistically significant direct effects (p > 0.40).

The findings highlight that decision-oriented measurement practices, supported by systematic control, are essential factors for the financial performance of micro and small enterprises; investment in digital monitoring tools, replenishment based on key performance indicators, and staff training could improve operational and financial efficiency; due to its cross-sectional design and localised context, future studies should incorporate longitudinal data and broader geographical comparisons to strengthen generalisation and explore possible mediation pathways between accounting-oriented practices and profitability.