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Chapter 1
1
DOI: 10.4018/978-1-7998-3568-4.ch001
ABSTRACT
This research explores the relationship that exists between inventory control and
the use of technology. A survey was conducted in the city of Guadalajara, Mexico,
covering 466 micro-companies. A logit analysis was used to calculate the probability
for the micro-companies to implement formal inventory controls. The study found
that using technology in micro-companies fosters formal inventory control. This
chapter contributes to other management control studies which claim that technology
might foster the use of formal inventory controls. Furthermore, this chapter aims
to advise practitioners to adopt technology in their business as a way to facilitate
the implementation of formal inventory controls.
Inventory Control and the Use
of Technology in Businesses:
A Survey Study of Micro-
Companies in Mexico
Miguel Angel Gil Robles
https://orcid.org/0000-0001-7824-6367
Tecnologico de Monterrey, Mexico
Raul F. Montalvo Corzo
EGADE Business School, Tecnologico de Monterrey, Mexico
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Inventory Control and the Use of Technology in Businesses
INTRODUCTION
The relationship between inventory control and the use of technology has been studied
in the existing accounting literature (Song and Zipkin, 1993; Tao et al., 2017). The
current understanding of technology and inventory control is that an investment
in technology would foster inventory control (Hitomi, 2017). In particular, studies
found that organizations that adopted technological improvements implemented
more formal inventory control tools (Tayal et al., 2016). Nevertheless, scholars
argued that implementing novel technology was not the only factor that fostered
the implementation of formal inventory control tools. Some studies found that
hiring an accountant, paying taxes, combined with incorporating new technologies,
allowed organizations to implement more formal tools of inventory control (Hajej
et al., 2017; Hamilton, 1997). However, these empirical studies focused on large
organizations that already had corporate accounting practices that benefited from
the more intensive use of new technology (Li, 2013). Little is known about the effect
of incorporating new technologies in micro-economies and its impact on inventory
control (Nyathi and Benedict, 2017).
The current literature has ignored the context of micro-companies, where capital
is scarce, and the owners usually work in the organization that they own (Kelliher
and Reinl, 2009; Lin, 1980). Micro companies are defined as organizations with less
than ten employees and with total assets less than 400,000 USD (Jaouen and Lasch,
2017). Such unique characteristics of micro-companies affect how organizations
implement their control practices (Jaouen and Lasch, 2017). Additionally, micro-
companies tend to centralize control due to its small size. Thus, owners monopolize
organizational management, and they perceive that implementing formal control
tools is a threat to the legitimacy of their position (Assenova and Sorenson, 2017).
Besides, micro-companies owned that are also family businesses have even more
pressures to centralize control. The purpose of this paper is to find out whether
implementing new technologies in micro-companies fosters the implementation of
formal inventory control tools (Ignaciuk, 2013).
Using a scale of formal inventory controls (Daft and Macintosh, 1984), this
paper measures the effect of technology on the formality of inventory control in
micro-companies. This study examines whether using the internet, a computer, and
a mobile phone, increases the probability of implementing formal inventory control
tools. The current literature has explored the effect of technology improvements
and their impact on inventory control only in large and complex organizations (Van
der Laan and Salomon, 1997). This paper focuses on the effects of technology on
micro-companies, as it is unknown if the conclusions about large organizations can
be generalized into the context of micro-companies (Ojala et al., 2016).
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Inventory Control and the Use of Technology in Businesses
The main contribution of this chapter is to incorporate the use of technology as
a factor that fosters formal inventory control in micro-companies. This contribution
highlights the importance of implementing technology in a micro company to improve
formal inventory control but also recognizes the boundaries of such a conclusion
(Want, 2006). Furthermore, the context of this study is important; Mexico, as a
developing country, presents fundamental challenges for micro-companies that
hinder the implementation of formal control practices (Kakihara, 2010). Thus, the
context in which the micro-companies operate is incorporated in this research in
the form of control variables.
LITERATURE REVIEW
Micro companies are defined as organizations with no more than ten employees
and with an annual income that does not surpass 50,000 USD (Pavon, 2010). Also,
micro-companies are generally family firms (Fernandez and Nieto, 2005) and are
controlled by an individual or a group of people who own the firm. Furthermore,
micro-companies attend a regional market (Nikunen et al., 2017). Micro companies
usually only sell to a local market as they are not aiming to achieve geographical
expansion. Another vital characteristic of micro-companies is that they usually started
business informally without an organizational or managerial structure (Duong, 2013).
Besides the internal characteristic of micro-companies, another essential factor
is the context in which they operate. Usually, micro-companies have problems
when trying to access capital or, in some cases, they find that it can be expensive
(Hamilton, 1997). Furthermore, micro-companies are usually closely controlled
and managed by an individual or partners that generally have the same interests
(Lin, 1980). Thus, owners of micro-companies do not sense the need to implement
formal management control tools in their organizations. However, micro-companies
need to have a certain degree of management control to perform their day to day
operations. An example of this is the control of the inventory. Without inventory
control, even micro companies can fall short in operating efficiently (Collis, 2012).
Inventory control is a relevant issue with micro-companies (O’Dwyer and
Ryan, 2010). Managers and owners of micro-companies need to have control of
their inventories to complete their operations. Otherwise, firms may lack products
available for sale (Llach and Alonso-Almeida, 2015). Thus, the focus of inventory
control is to provide relevant data for the operation of the company.
Due to the nature and needs of micro-companies, inventory control generally
relies on informal tools (Marginson, 2002). Such informal tools are usually related
to visits from the owners or managers to the store, who typically do not document
operations related to the inventory (Cravens et al., 2004). Although in some cases,
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Inventory Control and the Use of Technology in Businesses
micro-companies operate with such informal control practices, in other cases,
managers and owners completely lose track of inventory control, so affecting the
performance of the firm (Pant, 2001). At this point, formal inventory controls become
relevant, even in small organizations where managers and owners work closely in
the day to day operations of the firm. Thus, an important question arises: ‘What can
foster the implementation of formal control tools in a micro-company?’
The current literature only answers the question in the context of larger
organizations. Several studies have concluded that technology fosters the
implementation of formal inventory controls in large organizations (Mandal and
Gunasekaran, 2002). For example, large manufacturing companies implement more
formal control practices after a digital transformation process (Bowersox and Closs,
2005). Moreover, large retailers have more standard forms of inventory control after
implementing Enterprise Resource Planning (ERP) in their operations (Hicks and
Stecke, 1995). However, it is not clear if technology would foster the implementation
of formal inventory control practices.
Regarding the geographical context of this study, the current literature has focused
more on the management processes of micro-companies in Guadalajara and Mexico.
For instance, Navarrete (2013) analyzed the decision-making process of local micro-
companies in Guadalajara. He stated that micro-companies in Guadalajara make
decisions through complex and sometimes chaotic processes. His results imply, to
some degree, the lack of formal management control in micro-companies. Besides,
Camarena (2002), in his study about the footwear industry in Guadalajara, found that
micro-companies imitate the institutional rules that other larger firms have. Such
results imply that micro-companies might be in pursuit of more formal control tools.
Regarding technology, micro firms have different technologies to that of larger
organizations. For instance, larger organizations focus on automatization, while
micro-companies tend to use technology to document data and perform core
operations (Hicks and Stecke, 1995). Additionally, the type of technologies that larger
organizations implement are usually ERPs, while micro-companies implement the
use of a computer, a mobile telephone, and the internet (Guang-wen, 2012). Thus,
the analysis of the implementation of technology in micro-companies should focus
on these specific implementations rather than more complicated investments such as
ERPs. The research question of this study is: ‘Does the use of technology in business
foster the implementation of formal inventory control tools in micro-companies?’
HYPOTHESIS
Due to the characteristics of micro-companies and the type of technologies these
firms implement, we test the following hypotheses,
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Inventory Control and the Use of Technology in Businesses
H1 = The use of a computer increases the probability that a micro company will
implement formal inventory control practices
H2 = The use of a mobile phone increases the likelihood that a micro company
will implement formal inventory control practices
H3 = Internet access increases the probability that a micro company will implement
formal inventory control practices
METHOD
The authors surveyed the second semester of 2017 in the city of Guadalajara,
Mexico, to collect the data for this study. The survey was of 500 micro-companies
that had an inventory. More specifically, the surveyed companies were: grocery
stores, clothing retailers, general stores, and pharmacies. To be considered a micro
company, it had to have no more than five employees and an income of less than
USD 10,000 per month.
The context of Guadalajara, Mexico, is also crucial for this study. Guadalajara
has become the third major city in the country in terms of economic activity and
population. Besides, must of the companies that have emerged in the region are
micro-companies. At the same time, several international large firms have developed
factories and offices in the city. This combination of technology and micro-companies
becomes exceptionally relevant when answering the research question in this study.
The researchers aimed to survey 500 organizations to have a significant amount
of data that would allow for statistical analysis. Besides, the researchers calculated
that 500 micro-companies would represent about 10% of the total number of micro-
companies in the city center of Guadalajara. Thus, such a number would convey the
total population of micro-companies in that specific area of the city.
As part of the survey, the owners or managers of the companies answered a
questionnaire. The answers were typed into an Excel spreadsheet, which was later
used for the statistical analysis. From a total of 500 surveyed companies, 34 were
discarded due to omissions and errors committed by owners or managers while
answering the questionnaire.
The independent variable of this study is whether or not the micro company
uses formal inventory control tools. To determine if the company used formal
inventory control tools, the company had to be able to answer ‘yes’ to at least 3 of
the following questions: (i) Does the company have an inventory form (physical
or virtual) with the current quantities?; (ii) Does the company have an established
procedure to count and verify the current inventory?; (iii) Does the firm know the
price of their goods in the inventory?; (iv) Does the organization know the goods
that go to waste in their inventories?; (v) Is there a person in charge of supervising
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Inventory Control and the Use of Technology in Businesses
the inventory of the company? It was necessary to have a dummy variable since the
research design included a logit analysis that aimed to calculate which variables
correlate more with the probability of implementing formal inventory control tools.
Regarding the variables that measure the use of technology in the company, three
dummy variables were used. The first variable is whether the company uses the
internet; this means that the micro company has internet service in the physical place
where the business is conducted. The second variable is whether the micro company
has and uses a computer. In the case of this second variable, the computer does not
necessarily need to be connected to the internet. The third variable is whether the
company uses mobile phones. As with the second variable, having a mobile phone
does not mean it needs to be connected to the internet.
Methodologically, it is essential to differentiate whether the company is connected
to the internet or if they only own a computer or a mobile phone. Contrary to what
happens in developed countries where internet connections are relatively cheap1,
common, and easy to install, in Mexico, the reality is very different. Internet
penetration is scarce, and there are certain areas, even in cities, where Internet
Service Providers do not have the infrastructure to provide the service. Similarly,
mobile phone companies are expensive, and they usually charge for the data used.
Thus, consumers tend to minimize their use of the internet on the mobile phone to
reduce costs.
Five control variables were used to test if specific characteristics of the companies
affected the results of the regression analysis. The control variables were: (i)
whether the company hired an accountant; (ii) if the owner of the company received
managerial training; (iii) if the company pays its taxes correctly; (iv) the income of
the company, and; (v) the number of employees.
STATISTICAL ANALYSIS
The descriptive statistical analysis is shown in this section. Table 1 shows the
descriptive statistics of each of the variables.
As mentioned earlier, from 500 surveys that were competed in the data collection
period, only 466 could be used in this study. The other 34 surveys were not used
due to errors and omissions. From the 466 micro-companies surveyed, only 107
qualified as having formal inventory control tools. The other 359 micro-companies
were cataloged as not having formal inventory control tools.
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Inventory Control and the Use of Technology in Businesses
Table 1. Descriptive Statistic
Inventory Internet Computer Mobile Accountant Training Taxes Income Employees
Mean 0.770386 0.772532 0.757511 0.761803 0.465665 0.495708 0.429185 2.412017 1.532189
Median 1 1 1 1 0 0 0 2 2
Maximum 1 1 1 1 1 1 1 5 5
Minimum 0 0 0 0 0 0 0 1 0
Std. Dev. 0.421036 0.419648 0.429049 0.426438 0.499356 0.500519 0.495492 1.111903 1.093497
Skewness -1.285764 -1.300258 -1.201668 -1.229176 0.137664 0.017168 0.286146 0.330144 0.006655
Kurtosis 2.65319 2.690671 2.444007 2.510874 1.018951 1.000295 1.08188 2.108743 1.913029
Jarque-Bera 130.7332 133.1666 118.1535 121.9899 77.67364 77.66667 77.79684 23.88866 22.94434
Probability 0 0 0 0 0 0 0 0.000006 0.00001
Sum 359 360 353 355 217 231 200 1124 714
Sum Sq. Dev. 82.43133 81.88841 85.59871 84.56009 115.9506 116.4914 114.1631 574.8927 556.0172
Observations 466 466 466 466 466 466 466 466 466
Source: Author
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Inventory Control and the Use of Technology in Businesses
REGRESSION ANALYSIS
The regression analysis used in this study is the logit regression. A logit regression
analysis is relevant when the objective of the study is to determine which variables
affect the probability of a particular phenomenon to occur. In the case of this study,
the aim is to determine if the use of technology affects the likelihood that a company
will implement formal inventory control tools. Thus, due to the research question
stated earlier, this study uses a logit regression analysis.
The stated equation to complete the logit analysis is shown as follows:
log ( ) (int ) ( ) ( ) (it inv ernet computer mobile contr= + + + +α β β β γ
1 2 3 1 ools)+µ
From the previous equation, “inv” represents whether the micro company uses
formal inventory control tools. “Internet” is whether the micro company has and uses
the internet service. “Computer” is whether the micro company owns a computer.
“Mobile” is whether the micro company uses a mobile phone. Finally, “controls”
is the vector of control variables that were stated in the previous section.
RESULTS
This section provides the answer to the Research Question stated previously. As
mentioned in the method section, this study uses a logit regression to evaluate if
certain variables affect the probability of a micro company to implement formal
inventory control tools. This section provides the result of such regression analysis
and provides an answer to the research question stated previously: Does the use of
technology in business foster the implementation of formal inventory control tools
for micro-companies?
Descriptive statistics provide a general overview of the relationship between
the variables. The following is the correlations table of the variables used in the
regression.
As seen in Table 2, the use of the internet, computers, and mobiles are correlated
in, between, and also with the implementation of formal inventory controls. The
correlations within the other variables are much weaker. The results from the analysis
of the table of correlations are not conclusive; therefore, it is necessary to complete
the regression analysis of the sample to answer the research question.
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Inventory Control and the Use of Technology in Businesses
Table 2. Correlations Table
Inventory Internet Computer Mobile Accountant Training Taxes Income Employees
Inventory 1 0.8844 0.8340 0.8685 -0.0325 0.0310 -0.2482 -0.0318 0.0371
Internet 0.8844 1 0.7799 0.8743 -0.0374 0.0158 -0.2431 -0.0292 0.0113
Computer 0.8340 0.7799 1 0.7885 -0.0339 0.0002 -0.2175 -0.0606 0.0190
Mobile 0.8685 0.8743 0.7885 1 -0.0435 0.0002 -0.2479 -0.0647 0.0142
Accountant -0.0325 -0.0374 -0.0339 -0.0435 1 -0.0221 0.0510 -0.0519 0.0060
Training 0.0310 0.0158 0.0002 0.0002 -0.0221 1 0.0074 0.0109 0.0671
Taxes -0.2482 -0.2431 -0.2175 -0.2479 0.0510 0.0074 1 -0.0484 -0.0494
Income -0.0318 -0.0292 -0.0606 -0.0647 -0.0519 0.0109 -0.0484 1 0.0934
Employees 0.0371 0.0113 0.0190 0.0142 0.0060 0.0671 -0.0494 0.0934 1
Source: Authors
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Inventory Control and the Use of Technology in Businesses
The logit regression aims to find the variables with higher correlations. By
identifying such variables, it is possible to answer the hypotheses established in
the previous sections. The following table shows the result of the logit regression.
As Table 3 shows, the three stated hypotheses pass with 99% significance. The
three variables have a positive effect on the implementation of formal inventory
control tools. The variable with the most impact (higher coefficient) is the use of a
computer, followed by the use of the internet in the business and, finally, the use of
a mobile phone for business purposes. The results of the regression show that the
research question, ‘Does the use of technology in business foster the implementation
of formal inventory control tools for micro-companies?’ can be answered as ‘yes.’
An interesting result from the control variables is that the increase in the number of
employees is not significant in affecting the probability of adopting formal inventory
control tools. A possible explanation for this is that the number of employees varies
from 0 to 5, which, in perspective, is a shallow level and doesn’t contradict the
argument by Davila and Foster (2005) that, in general, the number of employees
affects the Control Systems significantly.
Table 3. Logit Regression
Variables Coefficient Std. Error z-value
Constant -5.256799*** 1.3291 -3.9552
Internet 3.376611*** 0.7375 4.5786
Computer 3.453181*** 0.6456 5.3488
Mobile 2.36944** 0.7412 3.1966
Accountant 0.2966 0.6331 0.4685
Training 0.5380 0.6390 0.8418
Taxes -0.8709 0.6663 -1.3070
Income 0.2212 0.3019 0.7326
Employees 0.4319 0.3129 1.3807
R-square 0.8230
*p > 0.90, **p>0.95, ***p>0.99
Observations 466
Source: Author
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Inventory Control and the Use of Technology in Businesses
DISCUSSION
The use of technology and management control are popular topics in recent literature.
However, most of the studies focus on developed countries and on organizations
that can be considered as small, medium, or large. Researchers have practically
ignored micro-companies. Micro companies are crucial actors in the economies
of developing countries, where capital is scarce, and businesses tend to be much
smaller compared to those in developed economies. This study aims to understand
if the use of technology can foster the implementation of formal inventory tools,
specifically in the context of micro-companies in a developing country.
The study found that there is a higher probability of implementing formal inventory
control tools in micro-companies when such businesses use the internet, a computer,
and a smartphone. The three variables proved to have a 99% significance in the
implementation of formal inventory control tools. This study is consistent with the
findings of Mandal and Gunasekaran (2012), who already stated that increasing the
use of technology in the business might foster formal management control. However,
this study adds to the literature by examining the context of micro-companies in a
developing country.
The analysis of the results in the regression of the control variables can also
provide exciting conclusions. For instance, the number of employees was not
significant in influencing the probability of implementing formal inventory control
tools. This result contradicts previous studies on organizational control, which argues
that increasing the number of employees in the organization leads to more formal
management control (Davila & Foster, 2005).
Surprisingly, hiring an accountant and the owners attending training in management
techniques were not significant variables either. Such finding is contradictory to
other studies that have found a positive relationship between hiring accountants
and formal control (Hamilton, 1997). A possible explanation for these results is
that those variables may affect the probability of implementing controls when the
companies are larger. In this case, the micro size of the companies affected how
owners perceive technology and control. It might be interesting to replicate this
study with small companies (larger than micro but smaller than medium companies)
to verify these conclusions.
CONCLUSION
The theoretical implications of this study are twofold. First, to strengthen the notion
that the use of technology in businesses is related to the implementation of more
formal management control tools. Second, in the case of micro-companies in Mexico,
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Inventory Control and the Use of Technology in Businesses
the use of technology fosters the implementation of such controls. The results of
this paper are in line with the findings of Mandal and Gunasekaran (2012), thus
expanding the current knowledge of the use of technology and management control.
Moreover, as highlighted earlier in the paper, this research takes into consideration
the context of micro-companies in developing countries. This approach contributes
to bridging the gap in the existing literature, where most of the researchers focus
their studies on more complex organizations and developed countries.
The practical contribution of this research is for practitioners and policymakers
to realize the importance of technology in management control. Practitioners should
be aware of the management control benefits of implementing technology and how
it might facilitate the implementation of formal inventory control tools. Regarding
policymakers, it is relevant to notice that if micro-companies adopt technologies,
it is more probable that they would implement more formal management control
tools. Therefore, it might be a good idea for policymakers in developing economies
to fund programs that aim to improve the technology of micro-companies.
This study is aware of its limitations; focusing on a single city in Mexico draws
its conclusions from only one local community. However, these concluding remarks
can be expanded to other geographical areas with similar socio-economical contexts.
As the size of the organizations is the focus of this study, the results do not permit
generalizations for more complex organizations. However, larger organizations can
adopt some concepts, such as the positive effect of technology on management control.
Further research should aim to replicate this study in a similar context to validate
the results. Additionally, an interesting future study could focus on a sample where
the government has intervened to improve the use of technology and compare its
results. Finally, another interesting future research to compare the effect of technology
in management control could also include small organizations.
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KEY TERMS AND DEFINITIONS
Dummy: A type of a dichotomous and quantitative variable that can take on
any of two quantitative values.
ERP: Acronym of Enterprise Resource Planning is a type of software used to
manage day-to-day business activities.
Inventory Control: Also known as ‘Stock Control,’ it consists of how firms
regulate and maximize the company’s warehouse inventory.
Logit: It is a type of regression used for modeling a categorical outcome variable.
Micro-Company: They are the smallest companies in the market whose limits
on the number of employees and turnover vary between countries.
Policymaker: A member of a government department who is responsible for
making new rules to rule firms and society from the public sector.
Retailer: It is a type of intermediary between the wholesaler and the final consumer.
Technology: The practical application of knowledge to benefit society and firms.
ENDNOTE
1 In Mexico, the monthly average fee of an Internet Service Provider is 5 days
work on minimum wages (25 USD).
