How was it that a company with poorly managed inventory was thriving? Was the financial result the ultimate true picture of the company’s success or was there something else to consider?

Sitting in the warehouse office, staring at the financial statements in her hands, Shefali Agrawal was confused. She had spent the day observing the business and then the whole evening brooding over the position of her family business. The appearance of the warehouse was incompatible with the business financials she held in her hands.

The family business, Agrawal Kitchenware Distributors (Agrawal), was a wholesaler and distributor of kitchenware items. The company carried more than 100 inventory items but had no inventory management system. Instead, the warehouse was a picture of confusion, characterized by go-with-the-flow inventory management, which was reflected in the inventory’s physical condition. However, there was delightful business growth; the balance sheet increased from ₹12 million1 to ₹16 million in 2020. Also, the net profits had doubled to ₹2 million.

How was it that a company with poorly managed inventory was thriving? Was the financial result the ultimate true picture of the company’s success or was there something else to consider? A wholesale business seemed simple: buy the goods in bulk from the manufacturer or another wholesaler and sell the goods in smaller quantities to retail businesses.

A wholesale business primarily involved inventory and its movement without much need to worry about production or consumption, especially when dealing with necessities such as kitchenware, which had year-round demand. Given Agrawal’s financial performance in the business, did it need inventory management? Shefali knew that she needed to analyze the situation more carefully to identify the bridge between the inventory and the financial position of her family business.