The effect of materials management on the profitability of the manufacturing company (a study of cadbury nigeria plc)

Thesis Overview

<p> <b></b></p><p><b><b>INTRODUCTION</b></b></p><p><b><b></b></b></p><b><b><p><b>1.1 &nbsp; &nbsp; <br></b><b>BACKGROUND TO THE STUDY</b></p><p><b></b></p><b><p>Over the last decade, our world has changed dramatically<br>due to the growing phenomenon of globalization and revolution in information<br>technology. There is tremendous demand on companies to lower costs, enlarge<br>product assortment, improve product quality, and provide reliable delivery<br>dates through effective and efficient coordination of production and<br>distribution activities. To achieve these conflicting goals, companies must<br>constantly re-engineer or change their business practices and employ<br>information systems (Mahesh, 2006).<b></b></p><b><p><b></b></p><b><p>Materials Management has always been an area of<br>scrutiny for organizations. This has become a central focal point as trends<br>from the supply chain arena have indicated that substantial operating cash can<br>be freed with leaner and more efficient handling of inventory.</p><p>As organizations examine the state of their<br>inventory, they often find that visibility across locations and warehouses are<br>inadequate, stock levels are inconsistent, demand is uncertain, and<br>communication between stocking locations or warehouses may be minimal or non-existent.<br>Among other things, the lack of an integrated interaction between peripheral<br>systems and materials managers leads to unnecessary purchasing and<br>overstocking.</p><p>The concepts of “materials management,” “physical<br>distribution management,” and “logistics management” are the primary materials<br>organizational tools which have been used successfully in the past and will be<br>used increasingly in the future to achieve closer coordination and control of a<br>firm various materials activities.<b></b></p><b><p><b></b></p><b><p>In general materials management is concerned with<br>bringing materials from outside of an organization to the point of production<br>and moving in processes.</p><p>If we distinguish between the operational function<br>of customer service and the resultant goal of customer value and satisfaction,<br>this discussion leads us to conclude the consequences of materials management<br>are lower costs and improved customer value and satisfaction to achieve<br>competitive advantage. Industry reports support this contention (Performance<br>Management Group, 2001).</p><p>The fast developing and technologically changing<br>environment has placed before the materials manager a tremendously challenging<br>task and responsibility. The task is really herculean when we recognize the<br>importance of materials, equipments and components per annum that go into the<br>production channels. The challenges become tough because the money tied up in<br>inventory or materials and equipment are enourmous.In fact, in many organizations<br>(big and small), materials form the largest single expenditure item. According<br>to Subramanian (1974) an analysis of the financial statements of a large number<br>of private and public sector organizations indicates that materials account for<br>nearly 60% of the total expenditure. Consequently, the importance of materials<br>management lies in the fact that any significant contribution made by the<br>materials manager in reducing materials cost will go a long way in improving<br>the profitability and rate of return on investment. Such increase in<br>profitability, no doubt, can be affected by increasing sales.</p><p>While<br>most of the writing and discussion on materials management is on acquisition<br>and standards, much of the day to day work conducted in materials management deals<br>with quality assurance issues. Parts and materials are tested, both before<br>purchase orders are placed and during use, to ensure there are no short or long<br>term issues that would disrupt the supply chain. This aspect of material<br>management is most important to the heavily automated industries, since failure<br>rates due to faulty parts can slow or even stop production lines, throwing off<br>timetables for production goals (Mentzer, 2001).</p><p>The<br>other major component of materials management is standards compliance. There<br>are standards that are followed in supply chain management that are critical to<br>a supply chain’s function. For example, a supply chain that uses just-in-time<br>or lean replenishment requires absolute perfection in the shipping of parts and<br>materials from purchasing agent to warehouse to place of destination. Systems<br>reliant on vendor-managed inventories must have up-to-date computerized<br>inventories and robust ordering systems for outlying vendors to place orders on<br>(Hax and Candea, 2004).</p><p>Effective<br>materials management according to Christine<br>(2002) is essential in order to provide the best service to customers, produce<br>at maximum efficiency, and manage inventories at predetermined levels to<br>stabilize investments in inventories. Successful materials management requires<br>the development of a highly integrated and coordinated system involving sales<br>forecasting, purchasing, receiving, storage, production, shipping, and actual<br>sales. Both the theory of costing<br>materials and inventories and the practical mechanics of cost<br>calculations and record keeping must be considered.</p><p>Costing materials<br>present some important, often complex, and sometime highly controversial<br>questions concerning the costing of materials used in production and the cost<br>of inventory remaining to be consumed in a future period. In financial accounting, the subject is<br>usually presented as a problem of inventory<br>valuation; in cost accounting,<br>the primary problem is the determination of the cost of various materials<br>consumed in production and a proper charge to cost of goods sold<br>(Freeman, 2006).<b></b></p><b><p><b></b></p><b><p><b>1.2 &nbsp; STATEMENT OF THE PROBLEM</b></p><p><b></b></p><b><p>Many<br>organizations seem to be failing in the realization of the corporate goals and<br>objectives. However, for most of these organizations (particularly<br>manufacturing organizations), materials are crucial aspect of the firm’s<br>prosperity and goal attainment (Burt,2003).<b></b></p><b><p><b></b></p><b><p>The<br>challenge is that some firms do not have genuine and efficient management of<br>the purchase, storage and usage of the materials. The importance of materials<br>management is evident in the amount of expenditure allotted to materials and<br>the significant contribution of materials to organizational performance.<br>Efficient materials management will reduce materials cost, improves<br>profitability and increase rate of return on investment. Such increase in<br>profitability, no doubt, can be influenced by increasing sales. In fact, as<br>market pressure intensifies, organizations will be forced to cut down the<br>costs. Material Management is all about purchasing mix. It involves the<br>procurement of materials in store and the ability to know the total number of<br>available goods that are to be issued out on request. All the functions are<br>primarily carried out by the store manager whose mission is to ensure that<br>goods are not below average as to satisfy the demands of customers. The general<br>importance of materials management is to ensure that the demand and sales of<br>the company are streamlined as to enable it to be aware when the management or<br>the organization is short of goods and will not go to the extent of making use<br>of their buffer stock.(Maloni,1997).<b></b></p><b><p><b></b></p><b><p><b>1.3 &nbsp; OBJECTIVE OF THE STUDY</b></p><p><b></b></p><b><p>This<br>study will show with statistical evidences that materials management will<br>significantly increase the profitability, wellbeing and productivity of the<br>organization. However, the specific objectives of the study are: <b></b></p><b><p><b></b></p><b><p>1. &nbsp; &nbsp; To<br>examine the impact of materials management on the productivity of the<br>organization.<b></b></p><b><p><b></b></p><b><p>2. &nbsp; &nbsp; To<br>examine the impact of materials management on profitability.<b></b></p><b><p><b></b></p><b><p>3. &nbsp; &nbsp; To<br>examine the effect of materials management on the organizational efficiency and<br>performance.<b></b></p><b><p><b></b></p><b><p>4. &nbsp; &nbsp; To<br>examine the impact of materials management on customers’ satisfaction.<b></b></p><b><p><b></b></p><b><p>5. &nbsp; &nbsp; To<br>examine the effect of materials management on the organizational coordination.</p><p><b>1.4 &nbsp; RESEARCH QUESTIONS</b></p><p><b></b></p><b><p>In<br>this study, attempt will be made to provide answers to the following questions<b></b></p><b><p><b></b></p><b><p>1. &nbsp; &nbsp; What<br>is the impact of materials management on the productivity of the organization?<b></b></p><b><p><b></b></p><b><p>2. &nbsp; &nbsp; What<br>is the impact of materials management on profitability?<b></b></p><b><p><b></b></p><b><p>3. &nbsp; &nbsp; What<br>is the effect of materials management on the organizational efficiency and<br>performance?<b></b></p><b><p><b></b></p><b><p>4. &nbsp; &nbsp; What<br>is the impact of materials management on customers’ satisfaction?<b></b></p><b><p><b></b></p><b><p>5. &nbsp; &nbsp; What<br>is the effect of materials management on the organizational coordination?</p><p>The<br>research work was taken up to show the significance of materials management to<br>aggregate performances of the organization. Apparently, all organizations,<br>whether service oriented or good oriented need to pay attention to the essence<br>of materials and materials management in their organizations. Consequently, it<br>is clear that the contribution and importance of this study cannot be over<br>emphasized.</p><p>The<br>results of this study should also assist in defining new methods/ strategies of<br>materials management for manufacturing sector in particular and management<br>organisations in general.</p><p>Finally,<br>the results of this study should help scholars, students and upcoming<br>researchers in the conduct of future research.</p><p><b>1.6 &nbsp; &nbsp; <br></b><b>RESEARCH<br>HYPOTHESES</b></p><p><b></b></p><b><p>This<br>study will be geared towards testing the following hypotheses.</p><p><b>Hypothesis One</b></p><p><b></b></p><b><p><b><i>Ho1</i></b>&nbsp; There is no significant relationship between<br>materials management and organizational productivity.<b></b></p><b><p><b></b></p><b><p><b><i>Ha1</i></b>&nbsp; There is significant relationship between<br>materials management and organizational productivity.</p><p><b>Hypothesis Two</b></p><p><b></b></p><b><p><b><i>Ho2</i></b>&nbsp; There is no significant relationship between<br>materials management and profitability.<b></b></p><b><p><b></b></p><b><p><b><i>Ha2</i></b>&nbsp; There is significant relationship between<br>materials management and profitability.<b></b></p><b><p><b></b></p><b><p><b>Hypothesis Three</b></p><p><b></b></p><b><p><b><i>Ho3</i></b>&nbsp; There is no significant relationship between<br>materials management and organizational efficiency and performance.<b></b></p><b><p><b></b></p><b><p><b><i>Ha3</i></b>&nbsp; There is significant relationship between<br>materials management and organizational efficiency and performance.<b></b></p><b><p><b></b></p><b><p><b>Hypothesis Four</b></p><p><b></b></p><b><p><b><i>Ho4</i></b>&nbsp; There is no significant relationship between<br>materials management and customer’s satisfaction.<b></b></p><b><p><b></b></p><b><p><b><i>Ha4</i></b>&nbsp; There is significant relationship between<br>materials management and customer’s satisfaction.<b></b></p><b><p><b></b></p><b><p><b>Hypothesis Five</b></p><p><b></b></p><b><p><b><i>Ho5 &nbsp;</i></b>There<br>is no significant relationship between materials management and organizational<br>coordination?<b></b></p><b><p><b></b></p><b><p><b><i>Ha5</i></b>&nbsp; There is significant relationship between<br>materials management and organizational coordination?<b></b></p><b><p><b></b></p><b><p><b>1.7 &nbsp; &nbsp; <br></b><b>SCOPE<br>AND LIMITATIONS OF THE STUDY</b></p><p><b></b></p><b><p>The<br>area of this study is on materials management in the organization, directed to<br>the case of Nestle Nigeria Plc, a reputable manufacturing organization.<b></b></p><b><p><b></b></p><b><p><b>1.8 &nbsp; &nbsp; <br></b><b>OPERATIONAL<br>DEFINITION OF TERMS</b></p><p><b></b></p><b><p>In the course of study,<br>certain words and group of words were used to describe certain situations and<br>the meanings of these words are given below:</p><p><b>Economic order quantity:<br></b>This is the level of inventory that<br>minimizes the total inventory holding costs and ordering costs. It is one of<br>the oldest classical production scheduling models.</p><p><b>Consumer<br>satisfaction</b>: This implies that the organization<br>meets the wants of the consumers. It is a measure of how products and services<br>supplied by a company meet or surpass customer expectation.</p><p><b>Materials management: </b>This is the act of directing and controlling the<br>acquisition and usage of materials in the organization. Planning and control of<br>the functions supporting the complete cycle (flow) of materials, and the<br>associated flow of information.</p><p><b>Supply chain:</b>This is the linked set of resources<br>and processes that begins with the sourcing of raw material and extends through<br>the delivery of end items to the final customer.</p><p><b>Supply Chain<br>Management:</b>This encompasses the planning and<br>management of all activities involved in sourcing, procurement, conversion, and<br>logistics management.<b></b></p><b><p><b></b></p><b><p><b>Logistics:</b>The<br>management of business operations, such as the acquisition, storage,<br>transportation and delivery of goods along the supply.</p><p><b>Just-in-time<br>manufacturing: </b>&nbsp;This can be defined as the elimination of all<br>waste and continuous improvement in productivity. This means there should be no safety stocks,<br>and lead times are minimal.</p><p><b>Safety stock:</b>&nbsp;This is also referred to as buffer stock. It is<br>used to describe a level of extra stock that is maintained below the cycle<br>stock to buffer against stockouts.</p><p><b>Manufacturing</b>:<br>This is the use of machines, tools and labour to make things for use or sale.<br>The term may refer to a range of human activity, from handicraft to high tech,<br>but is most commonly applied to industrial production, in which raw materials<br>are transformed into finished goods on a large scale.</p><p><b>Productions: </b>These<br>are processes and methods employed in transformation of tangible inputs (raw materials,<br>semi-finished goods, or sub-assemblies) or intangible inputs such as ideas,<br>information, know-how into goods and services.<b></b></p><b><p><b></b></p><b><p><b>Profitability: </b>This<br>is the act of making gains in business activity and for the benefit of the<br>owners of the business.<b></b></p><b><p><b></b></p><b><p><b>Efficiency:</b><br>This is concerned with the percentage resource actually used over the resources<br>that were planned to be used.</p><p><b>Performance:</b>&nbsp;This is described as the net wealth after subtracting<br>the inputs and throughputs (the activities of processing work) from the outputs<br>or final results.</p></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b> <br><p></p>