THE EFFECT OF MATERIAL MANAGEMENT ON THE PROFITABILITY OF THE MANUFACTURING COMPANY

ABSTRACT

This research presents the investigation into the effects of material management on the profitability of the manufacturing company, Cadbury Nig Plc was used as the location for the study and a total of 100 staff was sampled. Data was gathered using a self -constructed questionnaire and the result gotten was analyzed using the simple percentage method, chi square was also used for the testing of the hypothesis.  The validity and reliability of instrument were ascertained. The result of the study reveals that there is positive effect of material management in the profitability of the organization because material management effects the product output and this will definitely influence the profitability of the organization, Manufacturing firms in Nigeria are encouraged to increase their resource commitment to staff training in Materials Management so as to develop skills, update knowledge, enhance new product development and create indigenous source of supply for foreign materials.

CHAPTER ONE

1.0     INTRODUCTION

1.1     BACKGROUND OF THE STUDY 

1.2     STATEMENT OF THE PROBLEM

1.3     OBJECTIVES OF THE STUDY     

1.4     RESEARCH QUESTIONS

1.5     SIGNIFICANCE OF THE STUDY 

1.6     SCOPE OF THE STUDY

1.7     LIMITATION OF THE STUDY

1.8     DEFINITION OF TERMS     

CHAPTER TWO

2.0     LITERATURE REVIEW

CHAPTER THREE

3.0     RESEARCH METHODOLOGY

3.1     RESEARCH DESIGN

3.2     LOCATION OF THE STUDY

3.3     SOURCE OF DATA COLLECTION

3.4     POPULATION OF THE STUDY

3.5     SAMPLE SIZE

3.6     METHOD OF DATA COLLECTION

3.7     METHOD OF DATA ANALYSIS

CHAPTER FOUR

4.0     DATA PRESENTPRESENTATATION AND ANALYSIS

          4.1     INTRODUCTION

          4.2     DATA ANALYSIS

CHAPTER FIVE

5.0     SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

          5.1     SUMMARY OF FINDINGS

          5.2     CONCLUSION AND RECOMMENDATION

          5.3     LIMITATION

          5.4     SUGGESTION FOR FURTHER STUDIES

REFRENCE

APPENDIX

CHAPTER ONE

1.0                                               INTRODUCTION

1.1     Background of the Study

Materials are the lifeblood and heart of any manufacturing system (Lee et al., 1977). They represent the major component of manufacturing cost and profitability. No industry can operate without them. They must be made available at the right price, at the right quantity, in the right quality, in the right place and at the right time in order to co-ordinate and schedule the production activity in an integrative way for an industrial undertaking. The accumulation of, and need for materials in the form of inventories, is a significant variable for managers to concentrate on, monitor and control. Materials are simply industrial goods that become part of another physical product. In manufacturing companies, a high proportion of operational expenditure is expended on materials (Oniwon, 2011). In the cost structure of most of the products manufactured, the cost of materials exceeds 50% of the total cost (Ramakrishna, 2005). Such a large investment requires considerable planning and control of materials so as to minimize wastage which invariably affects the performance of organizations. A manufacturing firm will remain shaky if materials are understocked, overstocked or in any way poorly managed (Banjoko, 2000). This points to the need for proper budgeting and control on cost of materials. The various types of materials to be managed in any organization include purchased materials, work-in-process (WIP) materials and finished goods (Banjoko, 2000). Ogbadu (2009) identified basic price, purchasing costs, inventory carrying cost, transportation cost, materials handling cost, office cost, packing cost, marketing cost, obsolescence and wastages as the various costs involved in these materials. Thus, the management of these materials so as to reduce the costs associated is what the study refers to as Materials Management.

In the earlier years, Materials Management was treated as a Cost Centre, since Purchasing Department was spending money on materials while store was holding huge inventory of materials, blocking money and space (Ramakrishna, 2005). However, with the process of liberation and opening up of global economy, there has been a drastic change in the business environment, resulting in manufacturing organizations exposed to intense competition in the market place. The manufacturing companies’ worldwide has been forced to work out various strategies to face the challenges and to cut down manufacturing costs to remain competitive. As noted by Ramakrishna (2005), progressive management has since recognized that Materials Management can provide opportunities to reduce manufacturing costs and can be treated as a Profit Centre. Today, there are dramatic evolutions in the market environment and every organisation strives to keep itself in business. Major competition has shifted from the market to the production floor where manufacturing costs can be cut down and profitability boosted for firms to compete favourably. Backed by advanced technology, firms are closely monitoring their manufacturing costs and embarking on efficient management of materials (Ondiek, 2009). Fearon et al. (1988) see the introduction of computers as a great boost to the adoption of Materials Management, as materials functions have many common databases. Therefore, efficient Materials Management is fundamental to the survival of business, industry and economy. Businesses in the Nigerian manufacturing sector have tottered over the years due to lack of adequate management commitment to timely funding of materials procurement coupled with unethical practices of some executives (Oba, 2008). According to a survey carried out in 2010 by the Manufacturers Association of Nigeria (MAN), 834 manufacturing companies have shut down their operations in 2009 across the country due to high manufacturing costs created by exorbitant price of raw materials among other reasons (Adeloye, 2010). The few surviving manufacturing firms are faced with stiff competition in the current markets. This has led to the need for coming up with better method of managing and measuring how material resources are utilized by various jobs or products, and therefore be able to eliminate any wastage in the value chain. Thus, this study became inevitable in view of the developing and changing nature of the Nigerian economy given the extra environment: economic, political, changes in technological development, government regulations, multiple taxation, environmental degradation, and reduction in quality of raw materials as a result of re-cycling and stiffer competition. Previous Researches (Whybark and William, 1986; Evan et al., 1987; Ramakrishna, 2005; Ogbadu, 2009; Ondiek, 2009) have shown that materials account for more than fifty percent of the annual turnover in the manufacturing firms. This shows clearly that priority should be given to management of materials in manufacturing firms to avoid unnecessary costs. Thus, Materials Management should no longer be viewed as a drain-pipe, but as a serious stabilizing and economic growth potential factor. Unfortunately, few studies exist yet on the effect of Materials Management on the performance of manufacturing firms for a developing economy as Nigeria.

1.2     Statement of the Problem

In recent years many manufacturing companies has suffered from inefficient and imprudent management of resources and product scarcity, which has resulted in invaluable economic and social losses to the society. On the surface, this scarcity has been attributed to shut downs and breakdown in the companies due largely to a lack of smooth maintenance activities, which is brought about by the unavailability of replacement of parts, which should have been provided by the materials management department. The function of the materials management department is very important especially in view of the difficulties associated with the purchase of equipment spares, which in most cases are foreign-sourced. Frequently, the materials management department has been accused for the frequent breakdown and shut downs as a result of its inability to provide the necessary spares as at when they are need.

1.3     Objective of the Study

The main objective of this study is to find out the effect of material management on the profitability of the manufacturing company in Nigeria, specifically the study intends to:

1.     Find out the effect of material management on the product output of a manufacturing company

2.     Analyze the effect of material management on the profitability of a manufacturing company

3.     Investigate the challenges of managing materials in manufacturing companies

1.4     Research Question

1.     What is  the effect of material management on the product output of a manufacturing company

2.     Is there any effect of material management on the profitability of a manufacturing company

3.     What are the challenges of managing materials in manufacturing companies

1.5     Research Hypothesis

Ho: there is no significant effect of material management on the profitability of a manufacturing company

Hi: there is significant effect of material management on the profitability of a manufacturing company

1.6     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 organizations in general.

Finally, the results of this study should help scholars, students and upcoming researchers in the conduct of future research.

1.7     Scope of the Study

The scope of this research work is limited to Ikeja LGA, Lagos state, the organization selected for these study is Cadbury Nigeria, makers of Bournvita.

1.8     Limitation of the Study

The challenge of finance for the general research work will be a challenge during the course of study.  However, it is believed that these constraints will be worked on by making the best use of the available materials and spending more than the necessary time in the research work. Therefore, it is strongly believed that despite