The Effect Of Materials Management On The Profitability Of The Manufacturing Company (A Study Of Cadbury Nigeria Plc)
This research was to examine The Effect of Materials Management on the Profitability of the Manufacturing Company with special reference to Cadbury Nigeria Plc. This study show with statistical evidences that materials management significantly increase the profitability, wellbeing and productivity of the organization. The research methodology adopted has the limitations peculiar to the use of questionnaire like, the uncooperative attitude of respondents, slow pace of instrument retrieval, etc. Although the study adopted the use of simple languages, but some respondents still found it difficult to understand some concepts and they had to be put through, so much time is wasted in the course of doing this. Finally, the opinions of the respondents form the basis of this research, but this did not in any way affect the quality of the study. Simple percentage distribution was used in the presentation and interpretation of the data collected.
To this end, the data were tabulated in a frequency distribution form and the corresponding percentage equivalent were calculated and recorded respectively. To test the hypotheses earlier formulated, the chi-square statistical method was also adopted.Materials management should be handled through the act of directing and controlling the acquisition and usage of materials in the organization and it should be seen as the most important resources for any organizational production. Without the materials, no one can do anything. In the light of field discoveries, the information gathered will assist the management of any organization in general and Cadbury Nigeria Plc in particular, in taking appropriate steps of inculcating means of managing materials as parts of the prerequisite for improving organisational productivity.
Table of Content
- Title Page
- Table of Content
- 1.1 Background To The Study
- 1.2 Statement Of The Problem
- 1.3 Objective Of The Study
- 1.4 Research Questions
- 1.5 Significance Of The Study
- 1.6 Research Hypotheses
- 1.7 Scope And Limitations Of The Study
- 1.8 Operational Definition Of Terms
- 2.0 Introduction
- 2.1 Historical Background Of Nestle Nigeria Plc
- 2.2 Conceptual Framework
- 2.2 The Relationship Between Materials Management And Profitability
- 2.3 Materials Requirements Planning and Capacity Requirements
- 2.4 Theoretical Framework
- 2.5 The Planning Decisions and Approach in Materials Management
- 2.6 Production Utilities in Materials Management
- 2.7 Customer Satisfaction as It Relates to Materials Management
- 2.8 Material Availability in Materials Management
- 2.9 Purchasing And Inventory Policy in Materials Management
- 2.10 Time of Purchasing In Materials Management
- 2.11 Source of Purchases of Materials
- 2.12 Summary of Literature Review
- 3.0 Introduction
- 3.1 Research Design
- 3.2 Population of Study
- 3.3 Sample and Sampling Procedure
- 3.4 Data Collection Instruments
- 3.5 Data Analysis
Data Analysis and Interpretations
- 4.0 Introduction
- 4.1 Respondents’ Characteristics and Classification
- 4.2 Presentation and Analysis of Data According To Research Question
- 4.3 Presentation and Analysis of Data According to Test of Hypotheses
Summary, Conclusion and Recommendations
- 5.0 Introduction
- 5.1 Summary of Findings
- 5.2 Conclusion
- 5.3 Recommendations
1.1 Background to the Study
Over the last decade, our world has changed dramatically due to the growing phenomenon of globalization and revolution in information technology. There is tremendous demand on companies to lower costs, enlarge product assortment, improve product quality, and provide reliable delivery dates through effective and efficient coordination of production and distribution activities. To achieve these conflicting goals, companies must constantly re-engineer or change their business practices and employ information systems (Mahesh, 2006).
Materials Management has always been an area of scrutiny for organizations. This has become a central focal point as trends from the supply chain arena have indicated that substantial operating cash can be freed with leaner and more efficient handling of inventory.
As organizations examine the state of their inventory, they often find that visibility across locations and warehouses are inadequate, stock levels are inconsistent, demand is uncertain, and communication between stocking locations or warehouses may be minimal or non-existent. Among other things, the lack of an integrated interaction between peripheral systems and materials managers leads to unnecessary purchasing and overstocking.
The concepts of “materials management,” “physical distribution management,” and “logistics management” are the primary materials organizational tools which have been used successfully in the past and will be used increasingly in the future to achieve closer coordination and control of a firm various materials activities.
In general materials management is concerned with bringing materials from outside of an organization to the point of production and moving in processes.
If we distinguish between the operational function of customer service and the resultant goal of customer value and satisfaction, this discussion leads us to conclude the consequences of materials management are lower costs and improved customer value and satisfaction to achieve competitive advantage. Industry reports support this contention (Performance Management Group, 2001).
The fast developing and technologically changing environment has placed before the materials manager a tremendously challenging task and responsibility. The task is really herculean when we recognize the importance of materials, equipments and components per annum that go into the production channels. The challenges become tough because the money tied up in inventory or materials and equipment are enourmous.In fact, in many organizations (big and small), materials form the largest single expenditure item. According to Subramanian (1974) an analysis of the financial statements of a large number of private and public sector organizations indicates that materials account for nearly 60% of the total expenditure. Consequently, the importance of materials management lies in the fact that any significant contribution made by the materials manager in reducing materials cost will go a long way in improving the profitability and rate of return on investment. Such increase in profitability, no doubt, can be affected by increasing sales.
While most of the writing and discussion on materials management is on acquisition and standards, much of the day to day work conducted in materials management deals with quality assurance issues. Parts and materials are tested, both before purchase orders are placed and during use, to ensure there are no short or long term issues that would disrupt the supply chain. This aspect of material management is most important to the heavily automated industries, since failure rates due to faulty parts can slow or even stop production lines, throwing off timetables for production goals (Mentzer, 2001).
The other major component of materials management is standards compliance. There are standards that are followed in supply chain management that are critical to a supply chain’s function. For example, a supply chain that uses just-in-time or lean replenishment requires absolute perfection in the shipping of parts and materials from purchasing agent to warehouse to place of destination. Systems reliant on vendor-managed inventories must have up-to-date computerized inventories and robust ordering systems for outlying vendors to place orders on (Hax and Candea, 2004).
Effective materials management according to Christine (2002) is essential in order to provide the best service to customers, produce at maximum efficiency, and manage inventories at predetermined levels to stabilize investments in inventories. Successful materials management requires the development of a highly integrated and coordinated system involving sales forecasting, purchasing, receiving, storage, production, shipping, and actual sales. Both the theory of costing materials and inventories and the practical mechanics of cost calculations and record keeping must be considered.
Costing materials present some important, often complex, and sometime highly controversial questions concerning the costing of materials used in production and the cost of inventory remaining to be consumed in a future period. In financial accounting, the subject is usually presented as a problem of inventory valuation; in cost accounting, the primary problem is the determination of the cost of various materials consumed in production and a proper charge to cost of goods sold (Freeman, 2006).
1.2 Statement of the Problem
Many organizations seem to be failing in the realization of the corporate goals and objectives. However, for most of these organizations (particularly manufacturing organizations), materials are crucial aspect of the firm’s prosperity and goal attainment (Burt,2003).
The challenge is that some firms do not have genuine and efficient management of the purchase, storage and usage of the materials. The importance of materials management is evident in the amount of expenditure allotted to materials and the significant contribution of materials to organizational performance. Efficient materials management will reduce materials cost, improves profitability and increase rate of return on investment. Such increase in profitability, no doubt, can be influenced by increasing sales. In fact, as market pressure intensifies, organizations will be forced to cut down the costs. Material Management is all about purchasing mix. It involves the procurement of materials in store and the ability to know the total number of available goods that are to be issued out on request. All the functions are primarily carried out by the store manager whose mission is to ensure that goods are not below average as to satisfy the demands of customers. The general importance of materials management is to ensure that the demand and sales of the company are streamlined as to enable it to be aware when the management or the organization is short of goods and will not go to the extent of making use of their buffer stock.(Maloni,1997).
1.3 Objective of the Study
This study will show with statistical evidences that materials management will significantly increase the profitability, wellbeing and productivity of the organization.
However, the specific objectives of the study are:
- To examine the impact of materials management on the productivity of the organization.
- To examine the impact of materials management on profitability.
- To examine the effect of materials management on the organizational efficiency and performance.
- To examine the impact of materials management on customers’ satisfaction.
- To examine the effect of materials management on the organizational coordination.
1.4 Research Questions
In this study, attempt will be made to provide answers to the following questions
- What is the impact of materials management on the productivity of the organization?
- What is the impact of materials management on profitability?
- What is the effect of materials management on the organizational efficiency and performance?
- What is the impact of materials management on customers’ satisfaction?
- What is the effect of materials management on the organizational coordination?
1.5 Significance of the Study
The research work was taken up to show the significance of materials management to aggregate performances of the organization. Apparently, all organizations, whether service oriented or good oriented need to pay attention to the essence of materials and materials management in their organizations. Consequently, it is clear that the contribution and importance of this study cannot be over emphasized.
The results of this study should also assist in defining new methods/ strategies of materials management for manufacturing sector in particular and management organisations in general.
Finally, the results of this study should help scholars, students and upcoming researchers in the conduct of future research.
1.9 Research Hypotheses
This study will be geared towards testing the following hypotheses.
- Ho1 There is no significant relationship between materials management and organizational productivity.
- Ha1 There is significant relationship between materials management and organizational productivity.
- Ho2 There is no significant relationship between materials management and profitability.
- Ha2 There is significant relationship between materials management and profitability.
- Ho3 There is no significant relationship between materials management and organizational efficiency and performance.
- Ha3 There is significant relationship between materials management and organizational efficiency and performance.
- Ho4 There is no significant relationship between materials management and customer’s satisfaction.
- Ha4 There is significant relationship between materials management and customer’s satisfaction.
- Ho5 There is no significant relationship between materials management and organizational coordination?
- Ha5 There is significant relationship between materials management and organizational coordination?
1.10 Scope and Limitations of the Study
The area of this study is on materials management in the organization, directed to the case of Nestle Nigeria Plc, a reputable manufacturing organization.
1.11 Operational Definition of Terms
In the course of study, certain words and group of words were used to describe certain situations and the meanings of these words are given below:
Economic order quantity:
This is the level of inventory that minimizes the total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models.
This implies that the organization meets the wants of the consumers. It is a measure of how products and services supplied by a company meet or surpass customer expectation.
This is the act of directing and controlling the acquisition and usage of materials in the organization. Planning and control of the functions supporting the complete cycle (flow) of materials, and the associated flow of information.
This is the linked set of resources and processes that begins with the sourcing of raw material and extends through the delivery of end items to the final customer.
Supply Chain Management:
This encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management.
The management of business operations, such as the acquisition, storage, transportation and delivery of goods along the supply.
This can be defined as the elimination of all waste and continuous improvement in productivity. This means there should be no safety stocks, and lead times are minimal.
This is also referred to as buffer stock. It is used to describe a level of extra stock that is maintained below the cycle stock to buffer against stockouts.
This is the use of machines, tools and labour to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale.
These are processes and methods employed in transformation of tangible inputs (raw materials, semi-finished goods, or sub-assemblies) or intangible inputs such as ideas, information, know-how into goods and services.
This is the act of making gains in business activity and for the benefit of the owners of the business.
This is concerned with the percentage resource actually used over the resources that were planned to be used.
This is described as the net wealth after subtracting the inputs and throughputs (the activities of processing work) from the outputs or final results.
Summary, Conclusion and Recommendations
The main thrust of the research was to examine the effect of materials management on the profitability of the manufacturing company with special reference to Nestle Nigeria Plc. Hence, the entire summary of findings was made in this chapter. Conclusion and recommendations were also drawn for the study, based on the findings.
5.1 Summary of Findings
The following findings were made through this study, that:
- Question one revealed that materials management was the act of directing and controlling the acquisition and usage of materials in the organization, 65% of the total population affirmed the notion while another 34.7% supported.
- In question two of the section B, it was also gathered that manager and staff in manufacturing should have good basic understanding of the factors influencing materials flow, all respondents strongly agreed to the notion.
- In question three, 56.1% and 27.2% were evident as they supported that materials were important resources for any organizational production. The remaining 16.5% were undecided.
- Effective management of materials improved customers’ satisfaction in 35.5% strongly agreed while 28.0% agreed 22.3% were undecided. The remaining 9.0% and 4.9% totally disagreed to the notion in question four.
- In question five, 50.4% as the highest frequency affirmed that materials effectively managed leads to organizational productivity. This is followed by 30.5% who could not contribute to the question asked.
- Through this study, good materials were found to motivate worker’s effort into production, 33.8% and 3.3% of the total target population agreed while 21.4% of the total population disagreed,as shown in question six.
- In question seven, 68.5% and 9.9% agreed that managing materials assisted in production efficiency while 15.7% did not decide. The remaining 5.7% disagreed to the notion.
- Effective materials usage improved product produced in the organisation. This is evident as 35.5% and 46.2% agreed while the remaining 18.1% disagreed to the notion,as shown in question eight.
- Question nine shows that,76.8% affirmed that well-utilized and well managed materials increased profitability. The remaining 23.1% disagreed totally.
- In question ten, 55.3% and 17.3% agreed that effective materials management maximized sales gain while 27.2% did not decide.
- When asked if the company save more money when it detects bad materials early, 45.4% and 50.4% strongly agreed while the remaining 4.1% could not decide,as shown in question eleven.
- In question twelve,30.5% and 9.0% affirmed that lowering costs of purchase increased profit efficiency in the company. Another 38.8% which has the highest frequency did not respond to the question. Hence, the remaining 21.4% disagreed to the notion.
- Question thirteen shows that, Profitability was found to be the ultimate determinant of a company’s failure. This is evident as all respondents agreed to the notion.
- Workers’ efforts were better coordinated with materials management. This is supported by 65.2% and 34.7% as shown in question fourteen.
- In question fifteen, there was significant relationship between organizational coordination and materials management. This also is also supported by 65.2% and 34.7%.
- Profitability in business organizations can be measured through materials management. This is supported by 66.9% and 10.7%. The remaining 22.3% agreed undecidedly as shown in question sixteen.
- Question seventeen shows that 100% agreed that profitability was the ultimate determinant of a company’s success.
- Consumer’s satisfaction implied that the organization meets the wants of the consumers. This is supported with 63.6% and 36.6% as evident in question eighteen.
- Question nineteen shows that, all respondents agreed that customers’ commitment and demand increase purchase of product.
- Whether well-managed materials help to create quality products, 75.2% and 9.9% agreed to the notion, while just 0.8% disagreed to the notion as shown in question twenty.
- Companies make work easy through better materials. This is supported with 81.8% and 18.1% as shown in question twenty-one.
- 39.6% in question twenty-two showed that there was significant relationship between materials management and performance in work organization while the remaining 60.35 agreed undecidedly.
- Materials management was concerned with bringing materials from outside of an organization to the point of production. This was revealed as 33.8% and 19.0% supported the notion. The highest frequency of 47.1% did not respond to the notion,this was shown in question twenty-three.
- In question twenty-four,45.4% and 38.0% agreed that good quality was a consumer expectation and a vital part of customer satisfaction. The remaining 16.5% agreed undecidedly.
- Question twenty-five,All respondents affirmed that the quality of material can deteriorate between the time it leaves the production floor and the time it arrives at the customer’s storeroom.
- Customer service is the timeliness and accuracy of the information a supplier provides to a customer. This is supported 66.9% and 17.3% agreed to the notion while the remaining 15.75 could not decide; this was shown in question twenty-six.
- Question twenty-seven shows that all respondents agreed that customers were keenly concerned for information on which they can rely.
- Question twenty-eight revealed that the company’s management did not face with the decision as to whether purchasing was to be centralized. 35.5% strongly disagreed.
- The company was not faced with the decision as to whether purchasing is to be decentralized. This is supported with 51.2% as shown in question twenty-nine.
- Customer service is a concept that applies to all suppliers whether they are exter¬nal to the company or internal. 30.5% and 40.4% agreed to the notion. 19.8% however disagreed as shown in question thirty.
In the light of field discoveries, the information gathered will assist the management of any organisation in general and Nestle Nigeria Plc in particular, in taking appropriate steps of inculcating means of managing materials as parts of the prerequisite for improving organisational productivity.
Every organisation expects her employees to put in effective and efficient services.
Therefore, the following were concluded:
- That there was significant relationship between materials management and organization’s productivity. This was evident as X2 calculated (99.4) was greater than X2 tabulated value (9.488).
- The second hypothesis showed that there was significant relationship between materials management and profitability.
- The third hypothesis also showed that there was significant relationship between materials management and organization’s efficiency and performance. This was gathered through chi-square statistical method. The calculated value was 187.1 as against 9.488.
- In the same vein, the fourth hypothesis also showed that there was significant relationship between materials management and customer’s satisfaction.
- The last hypothesis accepted alternative hypothesis, stressing that there was significant relationship between materials management and organizational coordination.
Based on the findings and conclusions drawn from this context, the following recommendations were made.
- Materials management should be handled through the act of directing and controlling the acquisition and usage of materials in the organization.
- Manager and staff in manufacturing must have good basic understanding of the factors influencing materials flow. This will assist them in making good use of the available materials.
- Materials should be seen as the most important resources for any organizational production. Without the materials, no one can do anything.
- Effective management of materials should be felt as it must improve customers’ satisfaction at all times. Hence, materials effectively managed will surely lead to organizational productivity.
- Good materials should motivate worker’s effort into production. This should be carried out alongside other motivational packages.
- Managing materials effectively should assist in production efficiency. Hence, this act should not be done in isolation but must be managed by all levels of management.
- Effective materials usage should also improve product produced in the organisation. This can be achieved if the involved workers are well trained. Hence, materials should be well utilised for enhanced organisational productivity.
- Effective materials management will maximize sales gain if they are well managed.
- Company(ies) should find it as habit to save more money when she detects bad materials early.
- Lowering costs of purchase should increase profit efficiency in the company.
- Profitability is the ultimate determinant of a company’s failure. This should be handled with utmost care. Workers’ efforts should be better coordinated with materials management. This enhances organisational productivity.
Profitability in business organizations should be measured through materials management at all times.
- Consumer’s satisfaction implied that the organization meets the wants of the consumers. This should be looked into and make necessary decision for facilitation purpose.
- Since customers were found committed, their demand will increase purchase of product. Hence, work organisations must make available materials at all times.
- A well-managed material should aid good quality products. Management organisations must however take cognisance.
- Companies should make work easy through better materials.
- Materials management should be concerned with bringing materials from outside of an organization to the point of production.
- Good quality should be seen as a consumer expectation and a vital part of customer satisfaction.
- Quality of material deteriorates between the time it leaves the production floor and the time it arrives at the customer’s storeroom. This notion should be taken cognisance of.
- Customers should be provided of information on which they can rely.
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