Description
The study examined the contributions of Materials Management to organizational effectiveness, determined all the areas covered in the materials management functions, ascertained the level of attention given to the materials management functions in the telecom industry, and found out how appropriate materials management strategies could lead to cost savings and profitability.
i
MATERIALS MANAGEMENT AND ORGANIZATIONAL
EFFECTIVENESS: A STUDY OF SELECTED
TELECOMMUNICATION FIRMS IN DELTA STATE
BY
EDOZIE, EMMANUEL .S.
REG. NO. 426018F
A PROJECT WORK SUBMITTED TO THE
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF MANAGEMENT SCIENCE
NNAMDI AZIKIWE UNIVERSITY, AWKA
IN PARTIAL FULFILMENT OF THE REQURIEMENT FOR
THE AWARD OF MASTER OF SCIENCE (M.Sc.) IN
BUSNESS ADMINISTRATION
APRIL, 2010
ii
CERTIFICATION
I certify that this project report is based on a study undertaken by
me in the department of Business Administration, Nnamdi Azikiwe
University, Awka.
The work has not been previously submitted for the award of
any degree elsewhere.
This is a product of my personal research and where the views
of others have been expressed, they have been duly
acknowledged.
_____________________
EDOZIE, EMMANUEL .S.
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APPROVAL PAGE
This is to certify that this research work carried out by Edozie
Emmanuel .S. of the Department of Business Administration is
adequate in scope and contents and approved by the undersigned.
_______________ __________
Project Supervisor Date
Dr. Osisioma, H. E.
___________________ __________
HOD Date
Prof. Onwuchekwa C.I.
__________________ __________
External Examiner Date
iv
DEDICATION
To
The Almighty God
The giver of life and knowledge.
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ACKNOWLEDGEMENT
My immense gratitude goes to the Almighty God for his loving
kindness throughout this programme.
To my late parents, you both taught me the road to achieve
greatness, may your souls rest in perfect peace. (Amen)!
My sincere thanks goes to my supervisor, Dr. (Mrs.) Osisioma,
H.E. whose assistance, guidance and encouragement made this
work a reality.
To my lovely wife, Mrs. Francisca Edozie, you have proved to
be a wife, a mother and a motivator. To my two Angels,
Onyinyechukwu and Ifeoma Edozie, you have been a source of joy to
me.
My profound gratitude goes to my brothers and sisters, Mr.
Stephen Edozie, Peter Edozie, Mrs. Anthonia Osadebe, Mr. Pius
Edozie and Mrs. Ndidi Okogie, whose show of love and co-operation
has remained a source of strength to me and the family; My cousins,
in-laws and other relations too numerous to mention, may God bless
you all for being who you are.
My expression of thanks also goes to my friends and colleague
in the M. Sc. programme: DSP Onyeka Adinuba, who carried me to
and from school during the program, also to Thompson, our course
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rep, Perpetual, Chioma, Mrs. Ngozi Okafor, Onwuchekwa and so
many others too numerous to mention, may God continue to guide
and protect you all.
My thanks would be incomplete without mentioning the
invaluable contributions of the following: The entire staff of Admin /
Welfare of the DTHA, for their help; Isioma Osu, a staff of the Zenith
Bank, for always helping to grant me overdraft any time I ran out of
cash; my friends, Messer Innocent Onwochei, Zino Onyeke, Ofem
Eyong Esuku, Donatus Udukpula, Oganwu James, Odega Nathaniel
and so many others, may the Almighty God continue to guide and
bless them all, Amen!
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ABSTRACT
The study examined the contributions of Materials Management to
organizational effectiveness, determined all the areas covered in the
materials management functions, ascertained the level of attention given to
the materials management functions in the telecom industry, and found out
how appropriate materials management strategies could lead to cost savings
and profitability. To realize the stated objectives of the study, the researcher
sought to answer six research questions. Three hypotheses were formulated
to guide this study. Correlation co-efficient and Chi-square were used to test
the Null hypothesis. The researcher prepared and distributed a total of fifty
five (55) questionnaires comprising of twenty four (24) open ended/close
ended questions each. Out of these, fifty (50) ere received and analyzed. At
the end of the study, it was found that effective and efficient materials
functions contributes to the improvement of performance, leads to a
significant reductions in the total materials cost, and helps to enhance the
profitability of the telecom industry. It was recommended that the
organizational structure of the Telecom industry should be redesigned to
consolidate the existing Materials Management department, The Materials
Manager should be given the free hand to carry out his functions, He should
be made to report to an officer not below the rank of General Manager, The
process of competitive bidding should be made more transparent, and
various cost reduction strategies should be used where necessary.
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TABLE OF CONTENTS Page
Title Page - - - - - - - - - i
Certification - - - - - - - - - ii
Approval - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Abstract - - - - - - - - - vii
Table of Content - - - - - - - - viii
CHAPTER ONE
1.0 INTRODUCTION - - - - - - 1
1.1 Background of the problem - - - - - 5
1.2 Statement of problem - - - - - - 6
1.3 Purpose of study - - - - - - - 7
1.4 Significance of study - - - - - - 8
1.5 Scope/ of the study - - - - - - - 8
1.6 Limitation of study - - - - - - 8
1.7 Objectives of the study - - - - - - 9
1.8 Research questions - - - - - - - 9
1.9 Hypotheses - - - - - - - - 10
1.10 Definition of terms - - - - - - - 11
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction - - - - - - - - 12
2.1 Strategy, manufacturing and materials management - - 15
2.2 Purchasing management - - - - - - 28
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2.3 Inventory management - - - - - - 33
2.4 Transportation and physical distribution management- - 42
2.5 Cost reduction techniques - - - - - 48
2.6 Modern materials management approach - - - 54
2.7 Organization of Material Management - - - - 55
2.8 Structure of Materials Management Organization - - 58
2.9 Liberalization of the Telecommunication Industry - - 57
2.10 Materials Management Polices of telecom firms - - 58
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction - - - - - - - - 60
3.1 Research population - - - - - - 60
3.2 Sample size - - - - - - - - 60
3.3 Sampling method - - - - - - - 60
3.4 Types and sources of data - - - - - 61
3.4.1 Primary source - - - - - - - 61
3.4.1.1 Questionnaire - - - - - - - 61
3.4.1.2 Personal interview - - - - - - 61
3.4.2 Secondary sources - - - - - 61
3.5 Instrument of data collection - - - - - 62
3.6 Questionnaire assumptions - - - - - 63
3.7 Method of data presentation and analysis - - - 65
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CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.0 Introduction - - - - - - - - 65
4.1 Presentation and Analysis of Data - - - - 65
4.2 Testing of Hypothesis - - - - - - 79
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 Introduction - - - - - - - - 84
5.1 Summary of findings - - - - - - 84
5.2 Conclusion - - - - - - - - 85
5.3 Recommendations - - - - - - - 86
5.4 Areas for further study - - - - - - 89
REFERENCE - - - - - - - - 90
APPENDIX - - - - - - - - 92
1
CHAPTER ONE
1.0 INTRODUCTION
Materials are all the things we use for production of goods and
services. e.g. raw materials, spare parts, stock items. The
management of materials refers to all the functions of the various
departments that coordinate materials in and out of the organization.
Materials Management is the branch of logistics that deals with
the tangible components of a supply chain. Specifically, this covers
the acquisition of spare parts and replacements, quality control of
purchasing and ordering, the standards involved in ordering, shipping
and warehousing situation, the demand for raw materials,
components, sub assemblies, is dependent on the production plan for
the final product. It is therefore, possible to determine how many
parts or components will be needed in each future time period in the
planning horizon. Materials management method also known as
materials planning, uses this information about dependence of
demand in managing inventories and controlling the production lot
sizes of the numerous parts that go into the making of a final product.
The management objectives of material management is to
avoid inventory stock-out and overstocking, so that production runs
smoothly according to plan, and investment in raw materials and
work-in-process inventories are achieved at a reduced cost.
Materials Management systems in part or in whole, are used in
manufacturing firms both large and small. The reason is that it
provides a logical and ready understandable approach to the problem
of determining the number of parts, components and raw materials
needed to produce each end product. Material management also
provides the time schedule specifying when each of these materials,
parts and components should be ordered or produced.
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Materials Management and the need for it to be more efficient
became more pronounced because materials now account for three
quarters of the total amount of money invested by many
manufacturing service Industries. Telecommunications firms
manufactures recharge cards and other accessories as well as
procure generators and other items used for its numerous base-
stations, which enables it to provide quality services to its millions of
customers. Materials in this case must be effectively managed or
taken care of to avoid incurring losses and administrative costs,
which affect the organizational profitability.
According to Monk (1987), as production activities became
highly automated and use less direct labour was required, the
materials proportion of the product cost tends to increase. For this
reason, effective and efficient materials management procedures are
used to control the flow of materials.
Another factor in the success of any business as a whole in
attaining efficiency is the application of the concept of materials
management activities under one department, headed by a materials
manager. It also assigns materials management activities to all major
departments in the organization that contribute to materials cost. This
if carried out effectively, forces control and coordination between
purchasing, production control and all other functional units that
contribute to materials cost.
Efficient performance of the materials management functions is
vital to the smooth operation of the organization. It is the basic
responsibility of the materials management function to plan, organize
and control the flow of material distribution of finished goods. All the
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major departments under materials management should strive to
perform their own functions diligently so as to create and develop
awareness for the critical area of operations and the need to be
responsive to timing.
Despite the significance of materials management, its functions
have been continuously neglected, both in the public and the private
sectors of the economy. This normally stems from the wrong notion of
non-professionals. To a non-professional, materials management is
simply the functional responsibilities of all the units of the organization
together, without each having a specified or defined function or role to
play, thereby creating disorganization, confusion and inefficiency in
its management. An effective and efficient management of materials
goes beyond the profit earning contributions to the organization.
Materials management functions should be unified and coordinated to
enable the entire process achieve its target of minimum cost.
According to Monk (1987), for there to be a good materials
management system in any organization, it is necessary that there
should be an officer at a very senior level who takes responsibility
over the control of materials from the point of leaving the suppliers,
passing through the organization and finally reaching the customers.
He ensures that the right materials are available at the right time, at
the right place and in the right quantity and quality. This will help
avoid holding excess stock and its attendant costs. Apart from this an
efficient materials management helps in the effective utilization of
storage space and avoids shortage “out of stock syndrome” which
might cause production stoppage especially when the process is
automated.
Suffice it to say at this point that effective and efficient use of
materials has been the bane of both the public and private sectors.
4
But the realization of the fact that materials cost between 50-70% of
the entire expenditure in the public sector and the realization in the
private sector that materials costs account to a very high extent to the
profitability or otherwise of any organization. Further being aware that
an item well bought is an item well sold, has changed the entire
perception organizations have about the management of materials.
This reason formed the basis for the passage into law of the public
procurement act of 2007 by the National Assembly and its
subsequent passage of the same law by some states and the setting
up of the Bureau of public procurement popularly known as “Due
process office”, to supervise procurement activities in the various
levels of government. The private sector on its part, having realized
the profit centre of materials are now reorganizing and restructuring
their systems to accommodate a functional purchasing/procurement,
materials/supply chain department, to manage the entire materials
activities of their organizations. Thus, this department is usually
headed by a manager or director depending on who he/she reports to
in the organizational structure.
According to Lee and Dobler (1977), the paramount objective of
materials management is to reduce cost. More precisely, the total
costs associated with the acquisition and management of materials.
They also referred to materials management as a confederacy of
traditional materials activities bound by a common idea, and of an
integrated, management approach to planning, acquisition,
conversion, flow and distribution of production materials from the raw
materials state to finished product state. From the above definition,
for materials management to be efficient, it cannot be performed in
isolation.
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Materials management may be said to be an activity,
integrated, coordinated and concerned with such widely dispersed
functions of management as budgeting, purchasing, production
scheduling, receiving inventory, manufacturing maintenance and
materials quality control. An effective and efficient materials
management system is concerned with the whole process from a
need for material services, right through to the supply of them to the
users and in many cases, the product thereby being made available
to the customer. It encourages the final disposal of scraps, obsoletes
and decisions such as ‘make or buy’, value analysis and value
engineering, standardization, optimum specification, product
development and new product pricing, quality of materials and
continuity of supply. The implications are that materials management
must be prepared to play a number of different roles. The fortunes of
a company may be affected adversely, depending on how well these
roles are played. So the materials manager is required to cope with
technological development, new material and process as well as
economic conditions. In line with the above reasoning, Compton
(1981), averred that the materials manager is essentially a leader, an
organizer and an administrator and must have a sound management
training, as this would enable him to effectively and efficiently
manage the organization towards achieving set goals and objectives.
1.1 BACKGROUND OF THE PROBLEM
In Nigeria, being a developing country, management of various
aspects of our live have been haphazard. So also is our industry
which has been operating in an environment characterized by risks
and uncertainties resulting from the downturn present in the
economy.
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This was the situation in the telecommunication industry which
was originally weighed down by monopolistic tendencies whereby
only Nigeria Telecommunications Ltd (NITEL) was solely in charge in
the rendering of all Telecommunications Services within the country.
The fact that NITEL was able to sustain its services to the entire
country was as a result of government patronage and yearly
budgetary allocations as well as not having any form of competition.
Thus, the need to attain effectiveness and make profit from its
operations was absent.
The liberalization of the telecommunication sector and the
subsequent entry of other firms such MTN Nig Ltd, Econet (now Zain
Nig Ltd), Glo Nig Ltd, visafone, etisalat etc, whose objectives are to
attain effectiveness and efficiency in the rendering of quality services
to numerous customers and make reasonable returns on investment
a sine quo non, has now brought the need to manage every material
well so as to enhance the achievement of set goals.
1.2 STATEMENT OF PROBLEM
Materials management as perceived has not been widely
recognized in Nigeria by all and sundry, as a management activity
which is capable of enhancing the effectiveness of organization as
well as contributing to its overall profitability. This belief has inspired
the researcher into conducting this work on the materials
management effectiveness in the telecommunication industry.
Against this backdrop, the problem of effective management of
materials in the telecommunication industry is as follows:
i) Wrong interpretation of materials management concept.
ii) The profit potential of materials management has not been fully
realized.
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iii) There is the lack of separate materials management
department in the telecommunication industry.
iv) There us the problem of use of non-professionals to handle
materials management functions.
v) Materials management has not been given its rightful place as
a management activity in the telecommunication industry.
1.3 PURPOSE OF STUDY
The purpose of this study is to highlight the essentials of
materials management effectiveness in the telecommunication
industry.
The researcher also seeks to achieve other objectives
including:
i) To determine the relationship between Materials Management
effectiveness and organization profitability.
ii) To determine all the areas that are covered in the Materials
Management function.
iii) To ascertain the level of attention given to the materials
management function in the Telecommunications Industry.
iv) To ascertain whether the right persons are allowed to handle
the materials management function.
v) To ascertain how appropriate materials management strategies
can lead to cost reduction.
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1.4 SIGNIFICANCE OF STUDY
To demonstrate that a research is worthwhile, it must be
relevant to the society being studied. This study is relevant in respect
of the following:
i) Researchers: It will serve as a reference point for would be
researchers who will be interested in this area of study.
ii) Organizations: It will help both public and private organizations
to be conscious of the extent to which materials management
effectiveness can lead to costs reduction and the achievement
of profit objectives.
iii) Society: It will enable government to make appropriate policies
and laws on materials management activities.
iv) Telecommunication Industry: It will also be useful to firms in
the Telecommunications Industry who may have interest in the
progress of their firm and the need to engage the services of
professionals in this area.
1.5 SCOPE OF STUDY
Considering the fact that there are a great number of
telecommunication firms in Nigeria coupled with the fact that the
concept of materials management activities covers a very broad area,
the researcher therefore, focuses the study on the four major
telecommunication firms namely: MTN, Zain, Glo and Starcomm
since all of them are fully established in Delta State.
1.6 LIMITATION OF STUDY
The researcher encountered a number of constraints which
hindered an in-depth research on the topic.
First, is the conservative attitude of workers towards releasing
necessary information about their organizations. This is probably
9
because they want to hide certain information from their competitors.
This conservative posture is also reflected in their websites.
Secondly, is the time factor. The time is relatively short and did
not allow for a very detailed investigation to properly carryout the
study in order to obtain sufficient information needed by the
researcher.
Thirdly, is the unavailability of adequate and related texts in the
library. This might be attributed to the reason that materials
management, though old, is still an emerging phenomenon in
Nigerian.
Finally, is the financial constraints which limited the extent of
the researcher’s travel for literature and constant visits to the case
study companies for on-the spot observation required for this type of
study.
1.7 OBJECTIVES OF THE STUDY
The aims of the study are:
i) To determine the contributions of materials management to
organizational effectiveness
ii) To determine all the areas that are covered in the materials
management functions.
iii) To ascertain the level of attention given to the materials
management in the telecommunication industry.
iv) To ascertain how appropriate materials management strategies
can lead to cost savings and profitability.
1.8 RESEARCH QUESTIONS
To realize the stated objectives of this study, the researcher
seeks to answer the following:
i) What are the areas covered in the materials management
functions in the telecommunication industry?
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ii) What effect does materials management have on
organizational effectiveness in the companies under study?
iii) How can effective and efficient materials management activities
contribute to cost savings?
iv) Is materials management given its rightful place as a
management activity in the telecommunication industry?
v) Whether the use of non-professional will have any effect in the
operation of materials management functions?
vi) Is there any relationship between the rank/position occupied by
the head of materials management and its general
effectiveness?
1.9 HYPOTHESES
1) Null (Ho): There is no significant relationship between materials
management and organizational effectiveness (profitability)
Alternative (H
I
): There is a significant relationship between
Materials Management and organizational effectiveness
recognize.
2) Null (Ho): Telecommunication industry does not neglect the
services of qualified professional materials manager.
Alternative (H
I
): Telecommunication Industry does recognize the
services of qualified professional materials managers.
3) Null (Ho): Telecommunication industry has not given materials
management its rightful place as a management activity.
Alternative (H
I
): Telecommunication industry has given materials
management its rightful place as a management activity.
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1.10 DEFINITION OF TERMS
The following are the definition of terms which are unavoidable
in this research work. It is very important that these terms are defined
in order to clarify issues.
1. Non-Professionals:- persons that are not qualified in terms of
education and experience to undertake materials management
functions.
2. Inventory Control: The operation of continuously arranging,
receiving and issuing so that stock level is adequate to support
the current rate of production/consumption.
3. Ltd: This is the short form of writing limited which means limited
by guarantee.
4. Management Activity: Those activities that are carried out at a
high level such as planning, directing, organizing, staffing and
coordinating.
5. Sourcing: Identification or development of suitable sources of
supply of materials.
6. Profitability: Ability to contribute to the profit objectives of the
organization.
7. Competitive Tendering: Inviting prospective suppliers through
advertisement to bid or make an offer to undertake a piece of
work or supply goods at a stated price.
8. Outsourcing: Sub-letting certain jobs to firms that has the core
competencies to handle such jobs on behalf of the owner of the
jobs.
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CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
The changing world of business activities which has ushered in
intense competition has led to the need for coordination and perhaps
integration of materials management activities. This is as a result of
the fact that the profit making potentials of firms adopting effective
and efficient materials management is very clear to be seen.
According to Swallow (1982), materials include:
(a) Raw materials that have been purchased for use in the
operations of the business.
(b) Semi-finished parts or partly processed raw material awaiting
further processing
(c) Finished products that are in transit or awaiting distribution to
customers.
Materials are therefore, all raw materials, partly finished goods
known as work-in-progress (WIP) and finished goods which are in the
warehouse or ready for final users.
The importance of materials in any organization cannot be
overemphasized. They are a necessary input in the production of
goods and services. The Vietnam War for example, resulted in
upward price and material availability pressures. During the 1970s,
firms experienced widespread material problems related to oil
“shortages” and embargoes. The logical response of industry was to
become more efficient, particularly in the purchase and control of
materials.
Also, in alluding to the importance of materials in industry,
Charles Babbage (1822) in his books “The economy of machinery
and manufacturing, published in 1983 (Monczka et.al, 2002). He
13
referred to the importance of purchasing materials in what he called
“materials man”. Babbage wrote that a key officer responsible for
operating mines was “a materials man who selects, purchases,
receives, and delivers all articles required”. The importance which
Charles Babbage alluded to the various materials used in the firm led
to the fact that there has to be effective and efficient management of
them
In defining management, Bala (2007), view management from
two perspectives. Conceptional and functional. Management, as a
concept refers to a systematic process of working with others to
achieve common goals and objectives effectively, efficiently and
economically. It is the systematic development of strategies and the
marshalling of available resources to achieve the desired goals and
objectives effectively (doing what one is supposed to do), efficiently
(doing what one is supposed to do with less resources); and
economically (using resources wisely).
Management, as a function, denotes a set of individuals
charged with the responsibility of actualizing organizational goals and
objectives. In this vein, we have top management (who spend more
time planning and controlling strategic management), middle
management (who spend a lot of time organizing semi strategic
management; and lower management (who spend more time
directing-operational management). Generally, management as a
function connotes individuals who take or make decisions on behalf
of the organization.
Onwuchekwa (1993), viewed management as an aspect of
organizational design. According to him, the aim of organizational
design is to configure an appropriate structure. However, Stoner et.al
(2007) referred to management as “the process of planning,
14
organizing, leading and controlling the work of organization members
and of using all available organizational resources to reach stated
organizational goals. Onwuchekwa criticized this definition of
management by saying that Stoner only gave the functions of
management. He therefore, concluded that no one can manage
effectively and efficiently without understanding the management
theory.
Materials management, therefore, is the activity that controls
the transmission of physical materials through the value chain, from
procurement through production and into distribution. It includes
logistics which refers to the procurement and physical transmission of
materials through the supply chain, from suppliers to customers
(Charles Hill (2003). He went further to state that the twin objectives
of materials managements are to achieve this at the lowest possible
cost and in a way that best serves customers needs, thereby lowering
the costs of value creation and helping the firm establish a
competitive advantage through superior customer service.
According to Rahul (2003), materials management can be seen
as the process of strategically managing the procurement, movement
and storage of materials, parts and finished inventory (and related
information flow) through the organization and its marketing channels
in such a way that current and future profitability are maximized
through the cost effective fulfillment of orders. It refers to the
planning, organizing and controlling of a series of activities in the
entire supply chain.
Materials management exist in both service and manufacturing
organization, although the complexity of the chain may vary greatly
from industry to industry and from firm to firm. It provides a major
source of competitive and financial advantage, i.e. a position of
15
enduring superiority in terms of customer preference with low cost.
He concluded that materials management, works in demand driven
situation, encourages flow type production with small batch, reduce
idle inventory and idle time in any business by improving overall
customer centric approach.
Monczka et.al (2002) defined material management as all
activities associated with the flow and transformation of goods from
the raw materials stage (extraction), through to end users, as well as
the associated information flows. Materials and information flows both
up and down in an organization. Materials management includes
systems management, operations and assembly, purchasing,
production scheduling, order processing, inventory management,
transportation and physical distribution, warehousing and customer
service. It is essentially a series of activities that links suppliers to
customers.
As regards the effective and efficient management of these
materials, Lee and Dobler (1983), defined materials management
approach as the planning, acquisition, conversion, flow and
distribution of production materials, from the raw materials state to
the finished product state.
2.1 STRATEGY, MANUFACTURING AND MATERIALS
MANAGEMENT
Charles Hill (2003), while writing on strategy, manufacturing,
and logistics, viewed materials management as the activity that
controls the transmission of physical materials through the value
chain, from procurement through production and into distribution.
According to him, material management includes logistics which
refers to the procurement and physical transmission of materials
through the supply chain, from suppliers to customers. To him,
16
manufacturing and materials management are closely linked, since a
firm’s ability to perform its manufacturing function efficiently depends
on a continuous supply of high quality material inputs, for which
materials management is responsible. The efficiency with which this
is carried out can significantly lower cost, thereby creating more
value.
The manufacturing and materials management function of an
international firm has a number of important strategic objectives. One
is to lower costs. While manufacturing achieve costs reduction by
dispersing manufacturing activities to various locations around the
globe where each activity can be performed most efficiently, costs
can also be lowered by managing the global materials management
efficiently so as to better match supply and demand. Efficient
materials management reduces the amount of inventory in the
system and increases inventory turnover, which means the firms has
to invest less working capital in inventory and is less likely to find
excess inventory on hand that cannot be sold and has been written
off.
A second strategic objective shared by manufacturing and
materials management is to increase product quality by eliminating
defective products from both the supply chain and the manufacturing
process.
The idea of materials management strategy having major
impact on creating value was also supported by Rahul (2003).
According to him, effective materials management strategy may be
formulated to meet the needs of the market and integrate them with
technology to generate the highest level of customer satisfaction
while delivering the highest value to the shareholders. To him,
materials management strategy is based on collaboration strategy,
17
demand flow strategy, customer service strategy and technology
integration strategy. Both authors concluded that effective
manufacturing and materials management strategies would lead to
lower costs of value creation by reducing both manufacturing and
service costs.
The potential for reducing costs through more efficient materials
management is enormous. For the typical enterprise, material costs
account for between 50-70 percent of expenditures, depending on the
industry. This notion is supported by the World Bank report about
Nigeria between 2005-2006, that materials procurement consumes
about 50-70 percent of our revenues which informed the passage into
law by the national assembly in 2007, of the public procurement act
and the subsequent creation of the Bureau of Public procurement, to
oversee all forms of procurement in the public sector. A small
reduction in these costs can have a substantial impact on profitability
Charles Hill (2003).
Also, on costs reduction, which is the major and essential
objectives of materials management, Lyson (1981), argued that
materials management concept should be assigned to all major
activities which contribute to materials cost. These include all other
major procurement responsibilities including inventory management,
traffic, receiving, warehousing, surplus and salvage, frequent
production planning and control. But this issue of cost reduction is to
some extent, neglected by the telecom industry.
From the researchers observations and findings, the various
telecommunication firms in the industry, adopt mainly, two forms of
acquisition strategies: competitive bidding/tendering and outsourcing.
They do these in order to leverage the gains that are derivable from
their uses.
18
According to Peter Baily et al (1994), effective and efficient
materials management involves the whole flow of material and parts
from the suppliers to the manufacturing establishment with it store
and production lines, and after manufacture and the flow of products
through warehouses and distribution centres on to customers. As a
result, materials cannot be said, to have been effectively managed in
any industry, if the final product fails to reach the final consumers. In
view of this, they advocated the need for the physical distribution
management and materials management to be incorporated in the
same department.
On the importance and necessity of having effective and
efficient materials management, materials management approaches
are likely to gain the advantage of better coordination of people and
activities dealing with materials. Other merits that should be derived
include better and effective profit and development in information and
communication.
The researcher observed that firms in Nigeria
telecommunication industry are beginning to attach a lot of
importance to the effective and efficient management of materials. On
daily basis, you see advertisement for the positions of purchasing
officers/managers, procurement managers/director supply chain
managers/administrators and the like, unlike before when the
contributions of materials management to the organizational
profitability was under estimated. Firms had thought that sales
department contributes more to the organization, simply because
they generate revenues for the organization. However, the realization
by firms that a N10 savings in procurement of materials is more than
N25 of sales and that an item well bought is an item well sold, has
19
now given the much desired importance to the managers of
materials.
According to Burton (1973), materials often represent the
largest single account expenditure of a company. This fact is noticed
in the entire telecommunication industry. The second largest after
materials costs, is the labour costs. He then stressed that materials
should be effectively managed in order to reduce high amount
frequently wasted in procurement. This, he said affects the cost per
unit of the finished goods and services. With regards to material
management effectiveness and its contribution to the profitability of
the organization, he emphasized that the whole operation contributes
its full share to the objectives of the organization.
In the view of Aljian (1973), materials management is an
organization grouping, placing all functions of materials which include
production scheduling, material handling, materials control,
purchasing, traffic and distribution, under a material manager, both of
whom report to the manufacturing official or president. In his view, it
means that a material manager occupies the middle management
position with the production manager. I see his definition of materials
management to be outdated, out fashioned and not relevant to the
present day realities, in which material managers are highly
recognized and well placed in every organization, either in the private
sector which is geared towards profitability or in the public sector that
is presently striving to save costs as a result of globalization and
competitions.
The single greatest benefits a firm receives from having an
effective materials management is that the manager thinks as the
President, who is incharge of the whole materials function. Managers
of individual materials function such as purchasing, production
20
control, inventory control of goods and services, think narrowly in
terms of the unique responsibilities associated with a specific
function.
According to Lysons (1981), quoting from Ammer .S. Dean,
Ballot B. Robert and the chartered institute of purchasing and supply
of Nigeria, states that:
a) Materials management is concerned with the flow of materials to
and from the manufacturing department.
b) Materials Management is that coordinated function responsible, to
plan for acquire, store, move and control materials and final
products to the point of usage of facilities, personnel, capital funds
and provide customer services in line with corporate goals.
c) Materials Management is the total of all these tasks, functions,
activities and the organization and the administration of the same
until they are consumed or used in the process of production
operations or sale.
From the above statements, Ammer (1981) limited Materials
Management functions to just overseeing the flow of materials to and
from the manufacturing department, while Ballot (1981) made us to
understand that effectiveness in Materials Management goes beyond
that. He then said that the functions involve distribution of materials to
the ultimate consumers. The chartered Institute of Purchasing and
Supply (CIPS), (UK) also made us to understand that both materials
and services are involved and also the administrative tasks which
involves documentation.
As a matter of fact, from the researcher’s point of view,
effectiveness in Materials Management means to reduce cost, solve
problems associated with Materials Management in the organization,
optimize it by coordinating performance of the various materials
21
functions, providing a communication network and controlling
materials study.
From the study, the researcher also found out that many
previous research works had limited themselves to an aspect of the
subject. While some limited their study to pure purchasing which in
modern day business is called procurement, some other researchers
focused on inventory management, while other focused on
transportation and physical distribution of goods and services. The
researcher, being fully aware of the dynamic and competitive nature
of today’s global business environment, has therefore, widened the
scope to cover all the chain of activities in the Materials Management
which includes: procurement, inventory and transportation and
distribution.
The researcher, having also observed that most previous
research works on this subject area, had focused on manufacturing
industry, decided to focus his study on the telecommunication
industry in the entire Delta State, since the telecommunication
industry is presently driving the economy of the country.
EVOLUTION OF MATERIALS MANAGEMENT
The concept of Materials Management existed right from the
evolution of trade and could be traced back up to 500years BC in
India. In the view of Rahul (2003), India was a trade leader in those
periods and dealt with huge domestic operations. However, because
of the exploitation and invasion by the British and others, India could
not maintain the efficiency in the trade operations.
Similarly, we could find vestiges of materials management and
efficient operations following thousands of years back. After the first
industrial Revolution the corporate were following factory system
which was efficient at that time but with fragmented materials
22
management approach. Every department was an isolated island and
hostile relationships were observed with other trading organizations
like suppliers, wholesalers, dealers etc. He averred that the scenario
started changing after the second Industrial Revolution happened as
Toyota production System in Japan. The same theme was
accelerated by advenSt of Materials requirement planning (MRP)
Systems, MRP-II Systems and finally ERP (Enterprise Resource
Planning) Systems. The organizations started evolving as one entity
and internal Materials Management started becoming stronger. In fact
the key deliverable expected from ERP system was the tightly
integrated organization dealing with equally integrated other
organizations. The relationships between the trading organizations
were improving which was referred as ‘partnership’. This evolution
ultimately resulted into materials management. Thus, the concept of
materials management is new
In the view of Monczka et.al (2002), materials management
dates back to the early (1850-1900) which occurred during the
development of purchasing. This period witnessed the growth of the
American railroad. By 1886, the Pennsylvania Railroad had given
purchasing, departmental status, under the title of supplying
department.
The 2
nd
period of purchasing fundamentals (1900-1939) lasted
until the beginning of the World War II. In 1905, a book devoted to
purchasing containing 18 chapters, was published. Prior to this
period, purchasing gained importance during the World War I
because of its role in obtaining vital war materials. Harold T. Lewis, a
respected purchasing professional during the 1930s through 1950s
noted that there was considerable doubt about the existence of any
general recognition of purchasing as being important to a company.
23
Lewis noted that from World War I 1945, at least a gradual if uneven
recognition developed of the importance of sound procurement to
company operation.
The war years (1939-1945) ushered in more interest on
purchasing due to the emphasis on obtaining the required but scarce
materials. A study conducted during this period revealed that 76% of
all purchase requisition contained no specifications or stipulation of
brand. This suggested that other department within the firm
recognized the role of the purchasing agent in determining sources of
supply.
Accordingly, the end of the World War II (1947-mid 1960s),
ushered in the quiet years. The heightened awareness of purchasing
that existed during World War II did not carry over to the post war
years. After the World War II, purchasing managers struggled for
recognition. The post war period saw the development of value
analysis technique, pioneered by General Electric in 1947. GE’s
approach concentrated on the evaluation of which materials or
changes in specifications and design would reduce overall product
costs.
Period five: materials management comes of age (mid-1960s-
late 1970s). During this period, American firms initiated the dramatic
growth of materials management concept within America Industry.
The importance of materials management began to grow as a result
of the global era (1970s-1990). They went further to state that this
global era ushered in intense global competitions which emphasized
quality at lower costs, firms increasingly emphasizing different
strategies, organizational structures and management techniques;
unprecedented technology change and international product life cycle
24
becoming shorter, and the ability to coordinate worldwide purchasing
activity by using international data networks and the worldwide web.
The final phase of the evolution and development has brought
in what they called integrated supply chain management (2000 and
beyond). The approaches beyond 2000 reflect a changing emphasize
towards importance of quality and the role of the supplier, early
supplier design involvement, cross-functional teams for supplier
evaluation, long-term supplier development, strategic cost
management and integrated internet linkages and shared data bases.
From the views of the above authors, it is the view of the
researcher that Rahul tailored his views to India while Monczka et.al
aligned their view on the evolution and development of materials
management to America, because of their backgrounds, and believed
that due to the reshaping of the materials management role in the
modern economy and its increasing overall importance, that materials
management must continue to become integrated with customer
requirements, as well as with operations, logistics, human resources,
finance, accounting, marketing and information systems.
OBJECTIVES OF MATERIALS MANAGEMENT
Objectives are measure of effectiveness. A good objective must
be hierarchical, quantitative, precise and realistic (Onwuchekwa
2003). Accordingly objectives are targets, which organizations must
achieve if they are to survive. The means through which organization
accomplish their objectives is through the formulation of various
strategies (Monczka, 2002). They also said that the overall objectives
of materials management was to solve materials problems from a
total system view point rather than the view point of individual
functions or activities. In doing this, materials management objectives
25
which are derived from the overall corporate objectives is to reduce
cost and maximize efficiency.
Both Onwuchekwa (2000) and (Monczka et.al, 2002) concurred
that since materials management objectives are derived from the
overall corporate objectives, the former must be strategically aligned
with the later. This means that materials management activities must
be consistent with the nature of business strategy and make a
proactive contribution to maximum efficiency, value creation and
profitability.
Within the broader management objective of an industry or
business, effective and efficient materials management contribution
towards objectives may be attained under certain subheading like:-
Purchasing materials play a vital role in the field of cost control
and operating expenditure of any organization, and therefore, have a
direct bearing on the costs of a product manufactured or service
rendered. Materials management department can reduce overall
materials cost through efficient system of buying. This if done means
that it directly contributes its share to the enhancement of profit of
organizations.
Purchasing is a prime functional responsibility of the materials
management department and helps to ensure effectiveness and
efficiency. But the researcher observed that providers in the
telecommunication industry do not have a functional materials
manager. For example a facilities officer handles such activities in the
MTN Asaba regional office. The reason the officer gave is that, most
of their procurements are done centrally, through competitive
bidding/tendering while all their base-substations are outsourced to
firms such as Mikano and others who have the core competence to
handle such jobs.
26
Materials management ensures that the right quality and right
quantity of materials is sourced from the right sources (suppliers), at
the right price and delivered to the right place at the right time. There
are also some other objectives that do not contribute directly but
rather help other departments achieve their own objectives but
different organizations put different emphasis on these objectives.
Such objectives are achieved through value analysis, value
engineering and make or buy decision.
According to Baily and farmer (1982), there are benefits an
organization will derive if they integrate their materials management
effectively and efficiently. Such benefits could be: -
Elimination of buck passing, this is by defining and centralizing
the authority and responsibility of all the materials function under one
key individual under the title: purchasing/procurement manager, or
rather materials manager or supply chain manager/administrator. By
doing this, a central point of control for materials flow is provided. For
instance, when the user departments have problems regarding their
materials requirement, they need not to move around but rather go to
a central point and ask for the materials.
Wise buying requires accurate information promptly supplied,
regarding materials need.
Therefore, when all materials function, including materials
planning and control and inventory control are joined together in an
organization, effective communication is greatly required.
When there is reduced materials lead-time with long
communication channels, substantial amount of time may lapse
between the time potential materials user recognizes his need and
the time that materials is received by the firm. But, under materials,
this reaction time is less and there is greater speed, accuracy and
27
completeness of communication regarding materials requirement and
usage rates. It is possible to reduce the total investment in inventory
with resultant savings in inventory costs.
According to Bala (2007), if objectives are well articulated, they
are likely to enhance indices of high productivity, such indices
include:- Market standing, innovation, productivity, physical and
financial resources, responsibility, performance and profitability.
In the same vein, the researcher believed that the objectives
which materials management aims to achieve, whether in the area of
purchasing, distribution and transportation, production scheduling and
routing, warehousing (storage)/ inventory management etc, are
geared towards achieving cost reduction and a way that best serves
customer needs, thereby, lowering the cost of value creation and
helping the firm establish a competitive advantage through superior
customer service.
THE SCOPE OF MATERIALS MANAGEMENT
The new Webster’s Dictionary of the English language (1994)
defined ‘scope’ as “the area covered by an activity, plan, study etc.
Materials management encompasses all the various activities
that direct the flow of goods and services from the suppliers to a
manufacturing facility up to the final users.
In the view of Rahul (2007), materials management is
understood as the process starting from procurement to the ultimate
consumption of the finished products, linking across suppliers-users
companies or the functions inside and outside a company that enable
the value chain to make products and provide services to the
consumers.
Suffice to say that the main areas covered in materials
management is as follows: -
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i. Purchasing (procurement) management
ii. Inventory (warehousing) management, and
iii. Transportation and physical distribution management.
2.2 PURCHASING MANAGEMENT
Organized purchasing has been defined by many authors in
various forms.
Dr. Iyson (1996) for instance, defined organizational purchasing
as “that function which is responsible for obtaining by purchase, lease
or other legal means, equipment, materials, supplies and services
required by an undertaking for use in production”
According to Rahul (2007), the fundamental goal of the
procurement or purchasing function is to acquire optimum quality and
quantity of goods and services for the company in a timely manner,
and at the lowest total cost. This also means that the sale is not over
until when the item is delivered by the supplier.
The significance of the role of purchasing in organizations today
is based on the size of expenditures for goods and services, as
reflected in the organization’s balance sheet and cost of
manufacturing or service operations. In fact, the whole concept of
purchasing function is now changing from the traditional materials
controlling to managing supply chains.
OBJECTIVES OF PURCHASING
According to Peter Baily and David farmer et.al (1994), a well-
known definition of purchasing objectives is to purchase the right
quality of materials, at the right time, in the right quantity from the
right source, and at the right price.
This hackneyed statement has been criticized by some as
being rather superficial and simplistic.
29
This is probably a valid comment, though this definition does
provide a practical framework for purchasing. Baily & farmer went
ahead to state that to achieve effectiveness in the management team,
the following broad statement of objectives is suggested:
- To supply the organization with a steady flow of materials and
services to meet it needs.
- To ensure continuity of supply by maintaining effective
relationships with existing sources and by developing other
sources of supply either as alternatives or to meet emerging or
planned needs.
- To buy efficiently and wisely, obtaining by an ethical means the
best value for every amount spent.
- To manage inventory so as to give the best possible service to
users at lowest cost.
- To maintain sound co-operative relationships with other
departments providing information and advice as necessary to
ensure the effective operation of the organization as a whole.
- To develop staff, policies, procedures and organization to ensure
the achievement of the foregoing objectives.
- In addition to the above broad objectives they added the following
specific objectives:
- To select the best suppliers in the market
- To help generate the effective development of the new product
- To protect the company’s cost structure
- To maintain the correct quality/value balance
- To monitor supply market trends.
- To negotiate effectively in order to work with suppliers who will
seek mutual benefit through economically superior performance
30
PURCHASING CYCLE
This refers to the various processes starting from the origin of
need up to the payment and accounting stage for goods and services
Purchasing cycle could also be likened as the basic activities of
purchasing functions. They are: -
- Checking materials specification, which are requisitioned in an
endeavour to standardize where possible, and to buy the materials
which are of the best value, for the purpose intended.
- Selection of sources of supplies, negotiation of terms, issuing of
orders, maintaining the necessary records to provide historical
data on price trends and vendor performance.
- Follow up (expediting) to ensure on the delivery and receipt of the
proper quantity and quality.
- Company’s intelligence in the market place, constantly researching
for new and more effective and efficient suppliers and new
products with the objective of cost reduction
- Suppliers’ evaluation.
Origin of need
Accounting System
Payment
Financial Approval
Market (Supplier) Assessment
Purchase decision
Receiving and Storage
Delivering Ordering
Traditional purchasing cycle called from Rahul Altekar (2007) P.174.
31
TYPES OF PURCHASE
Organization can separate its purchase according to the
following headings:
i. Raw material
ii. Purchased parts
iii. Packaging
iv. Maintenance, repair &operating (MRO)
v. Tools
vi. Resale items
vii. Equipment and
viii. Services.
Rahul (2007) said that these types of purchases require
different sets of skills to successfully accomplish the job. Though, not
all firms break-up their purchases in this manner and if they do the
definitions are often different.
PURCHASING MIX
The right quantity, the right quality, the right time and place, the
right price and the right source are what Oyeoku (1997) referred to as
the five rights of purchasing or technically described as “purchasing
Mix.
Also, according to Rahul (2007), they are the variables of
purchasing in the materials management since they directly affect
profit. Those rights according to line are
i. The right materials
ii. From the right source
iii. In the right quantity
iv. In the right condition
v. At the right time
vi. At the right price
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vii. With the right service
Rahul also summarized the techniques used for achieving
these “rights as follows: -
? To facilitate early purchasing supply involvement
? To conduct regular procurement audits
? To create cross-functional teams for the supplies through
partnering arrangements or strategic alliances.
? To continually carryout risk assessment in supply environment
? To develop strategic, long-range acquisition plans
? To carry out participation of suppliers in the corporate strategic
process.
To enable these work effectively, the methods strongly demand
the deliberate efforts from buyer end of aligning suppliers with the
main line of business and action programmes, then the cost saving
plane can be put into place to provide focus and priority to the buyer.
Overall the purchasing department adds value to the
organization in many value added ways including reducing operating
and administrative cost, improving the quality of its products and
services to the market place, and enhancing the organization’s
reputation through the achievement of better supplier quality.
Materials services are managed for maximum returns and minimum
risk. One should expect this department not only to pay for itself in
savings achieved through skilled management of supplier
relationships, but also to actually turn a profit.
PURCHASING ETHICS
Ethics in general represents the sources of conduct either
exhibited consciously or in a purposeful manner aimed at achieving
an end.
33
Oyeoku (2006) believed that people who buy on behalf of their
organizations cannot afford to give any one cause to believe that their
buying behaviour is not completely ethical. Since they utilize millions
of naira of their employers in the purchase of goods and services,
they are exposed to temptations that few of their colleagues face. In
this regard, they have to be honest, but more they must be seen to be
honest.
The National Association of Purchasing Managers of America
state three basic measures for “professional” behaviour:-
i. Loyalty to the organization
ii. Justice to all whom one associates
iii. Keeping faith within the profession.
Further classified a range of standards of practices as follows: -
a. Always to serve the best interest of the company.
b. To give fullest co-operation to others.
c. To optimism the use of resources
d. To act with integrity in his dealings with outside organizations.
e. To avoid sharp practices
f. To comply with the laws of the profession
g. To subscribe to truth in all activities
h. To denounce bribery in any form etc.
2.3 INVENTORY MANAGEMENT
Inventory as the name applies is an alternative term for stock
control. It is the physical stock of items that a business or production
organization keeps in hand for efficient running of affairs of its
production. According to Rahul (2007), it is very essential that
materials of the correct quantity and quality is made available as and
when required, with due regard to economy in storage and ordering
34
costs, purchase prices and working capital. Stock control involves the
following processes: -
i. Assessing the items to be held in stock
ii. Deciding the extent of stock holding of items individually and
collectively
iii. Regulating the input of stock into the stores
iv. Regulating the issue of stock from the stores
The management of inventory is thus an attempt to match
supply and demand at a particular time and so forms part of a
capacity management strategy (Oyeoku, 2006).
A number of approaches have been developed towards the
management of inventory including MRPI and MRPII. In the view of
Rahul (2007) inventory management means maintenance, upkeep
and assurance of adequate supply of goods in order to meet an
expected pattern of distribution of demand for given financial
involvement. Usually, the type of inventory management system
employed by an organization is determined by the nature of its
demand for goods and services.
Inventory can be classified into two categories: dependent and
independent (Oyeoku, 2006). Dependent demand is that which its
demand is relatively predictable because it is dependent on other
factors. MRP system manage dependent demand items by
calculating the quality needed and the timing required (taking into
account purchasing and assembling lead times) of each item.
Independent demand on the other hand, is not related to the demand
for the other inventory item. This demand comes from customers
outside the company and as such is not as predictable as dependent
demand items.
35
TYPES OF INVENTORY
Inventory may be classified either as:
1. Raw materials inventory
2. Work-in-progress (WIP) inventory
3. Furnished goods Inventory.
Someone’s finished goods could be some one else’s raw
materials. Waters (1996) also pointed out that the total cost of holding
stock is typically 25% of its value over a year.
Rahul (2007), gave his own classification of inventory as:
i. Raw Materials and Supplies Inventories: Consisting of raw
materials, parts, subassemblies and supplies, which companies
purchase from outside sources.
ii. Production Inventories: Raw materials parts and component,
which become part of the product during the production process.
iii. MRO Inventories: Maintenance, repairs and operation supplies.
They are assumed in the production process but do not become
part of the product e.g. oil, spare parts.
iv. In-process Inventories: These are semi-furnished products e.g.
Cards without numbers printed on them to become recharge
cards.
v. Finished Product Inventories: Furnished goods or stocks
which are completed products ready for the market.
vi. Material in Transit Inventory: These are raw materials and
supplies inventories which are in transit and have already been
paid for, but not so far been received at the factory.
vii. Dealer Stock: In case a company owns a showroom or
distribution center inventories of finished goods or product kept
there have also to be considered.
36
viii. Total Inventories: All the above categories of inventories as
capital is locked up in these.
The basic objective of inventory control was to provide efficient
and smooth service to the customers be minimizing the idling of men
and machines which may arise due to shortage of raw materials,
supplies and spare parts by sticking them and still avoiding heavy
cost occurring due to capital lock-up or investment expenses involved
in storing and handling as well as ordering inventories. The scope of
the inventory management cover the following areas:
i. Defining policies to guide the inventory control programmers
ii. Determining the most appropriated store organization structure
iii. Determining economic order quantity (EOQ)
iv. Determination of stock out
v. Determination of safety stock
vi. Determine of lead time
vii. Determine of inventory status
viii. Minimizing handling and storing cost
ix. Effective running of stores.
BASIC INVENTORY DECISION
According to Oyeoku (2006), the main concern of inventory
management is the tradeoff between the cost of not having an item in
stock against the cost of holding and ordering the inventory. As
Greasely (1999) pointed out, internal customer in which case a loss
of production output may occur, or to an external customer a drop in
customer service level will result. To then achieve a balance between
inventory availability and cost; the following inventory questions must
be addressed:
i. How much to order
ii. When to order
37
iii. How should decision about volume and timing be made for a
particular item?
iv. How much extra of an item should be stored (safety stock)
v. How can we find and keep tract of what is stored and where
vi. How can we use items from different stores etc?
ECONOMIC ORDER QUANTITY (?OQ)
As Oyeoku (2006) pointed out, the ?OQ formula was
developed in 1915 by F.Q. Henris. Later, according to Schroeder
(2000), this formula gained wide use in industry through the efforts of
a consultant named Wilson. Thus, the formulas is often called Wilson
?OQ even though it was developed by Henris.
?OQ is essentially an accounting formulae that determines the
point at which the combination of order costs and inventory costs are
the least. The result is the most cost effective quantity to order. In
purchasing, this is known as the order quantity, in manufacturing, it is
known as the production lot size (Rahul, 2007).
The ?OQ and its variations are still widely used in industry for
independent demand inventory management.
The basic ?OQ formulae is as follows: -
?OQ 2(Annual usage quantity)(ordering cost)
(Unit cost x stock hold/carrying cost)
Annual usage: Demand rate in units per year
Ordering cost: Cost per order placed or set up cost, in N
(The denominator is already explained).
Any symbol or letters could be used to represent the above the
formulae.
Examples: let us suppose that MTN is managing a store and
wants to determine how many recharge cards of a certain type to
buy/print. The cards has the following characteristics:
38
Annual Usage = 360 units or recharge cards per year
Order Cost = N10 per unit
Unit Cost = N8 i.e. Avg amount of inventory on hand x cost
Cost of one unit = N25% of carrying one unit per year
?OQ = 2(10) (360) = 60
8 X 25
Therefore, MTN Nigeria Ltd should produce/buy 60 units of
cards per annum.
Cost
?OQ
From the above diagram, as ordering cost is falling because
fewer orders is placed per year; carrying (holding) cost in increasing.
The point of which both intercept is the best quantity to be
ordered/produced i.e. ?OQ for the firm. Because of this trade-off, the
function total cost has a minimum.
The researcher therefore, believed that to meet demand,
adequate stock must be kept so as to avoid the effects of under
stocking and over stocking.
The effects of under stocking are:
i. Stock out
ii. Production stoppage
iii. Loss of good will
Culled from: Oyeoku (2006): Principles of Purchasing and
Supply Management. P.64
39
Effects of over stocking:
i. Tying down of capital on inventory
ii. Lead to material obsolesce
iii. Pilferage
iv. High carrying/holding costs etc.
THE MATERIALS REQUIRMENT PLANNING (MRP)
This technique originated way back in 1962 - 65 (Rahul 2007).
In the view of Oyeoku (2006), the original MRP date back to 1960s
when the letter stood for Materials Requirement Planning (now
called) MRP one or MRPI). It is basically applied to balance supply
and demand, automate the creation of new supply/work orders, and
regulate the inventory levels.
Rahul (2007) state further, that MRP is used to plan the
material that are required to produce or procure definite quantities
and at determined time, based on the specification in the master
production schedule (mps). Greasely (1999) asserts that MRP is
basically an information system which makes the manual volume and
timing calculations unnecessary.
CONCEPTUAL MODE OF MRP
Master schedule
Inventory records and
projected status
MRP
Product structure
(BOM, lead times)
Requirements for
“buy” items
Requirements for
“make” items
Culled from: Supply Chain Management: Concepts and cases by Rahul
V. Altekar (2007) P.190.
40
The researcher, therefore, see MRP as product oriented
computerized technique aimed at minimizing inventory and
maintaining delivery schedule. It allows you to stock at optimum and
the proper flow and management of materials.
COMPONENTS OF AN MRP SYSTM
Sources: Operations Management (Greasely, 1999) p. 172
AIMS OF MRP
? To synchronise ordering and delivery of materials and component
with production requirement.
? To achieve planned control of inventory.
? To promote planning between purchaser and supplier to the
advantage of each i.e. symbiotic relationship.
? To save cost like variety reduction.
THE POWER OF JUST-IN-TIME (JIT)
According to monczka et.al (2002), when inventory moves so
fast that firms essentially hold zero inventory on hand, they are
following a system known as the “Lean Supply Chain”. It is a
combination of JIT purchasing, JIT transportation, and JIT production.
All three elements combine to create a supply chain that minimizes
inventory investment and eliminates waste.
Customer order
Demand forecast
Master production
schedule (mps)
Bill of materials
BOM
Inventory
status file (ISF)
MRP
calculation
Reports
41
Charles Hill (2003) averred that JIT was pioneered by
Japanese firms during the 1950s and 60s. It was first developed and
perfected within the Toyota manufacturing plants by Taiichi Ohno
(Frequently referred to as the father of JIT), as a means of meeting
consumer demands with minimum delays. The basic philosophy
behind JIT system is to economize on inventory holding costs by
having materials arrive at a manufacturing plant just in time to enter
the production process and not before. The major cost saving comes
from speeding up inventory turnover. It helps firms improve product
quality. Under a JIT system, parts enter the manufacturing process
immediately, they are not warehoused. This allows defective inputs to
be spotted right away.
The problem of JIT system is that it leaves a firm without a
buffer stock of inventory. Although, buffer (safety) stock are
expensive to store, they can tide a firm over shortages brought about
by disruptions among suppliers as well as help a firm respond quickly
to increase in demand.
BENEFITS OF JIT SYSTEM
According to Rahul (2007), the benefits derivable from using
JIT system is as follows: -
i. Reduced levels of in-process inventories, purchased goods, and
finished goods.
ii. Reduced space requirements
iii. Increased product quality and reduced scrap and rework
iv. Reduced manufacturing lead times
v. Greater flexibility in changing the production MIX
vi. Smoother production flow with fewer disruptions
vii. Worker participation in problem solving
viii. Pressure to build good relationships with vendors
42
ix. Increased productivity levels and utilization of equipment.
CONDITIONS FOR EFFECTIVE JIT SYSTEMS
(a) There must be effective communication system
(b) There must be effective transportation system
(c) There must be effective power system
(d) The firm’s suppliers must have good reputation
The researcher observed that the above conditions that must
be prevalent for an effective JIT system are lacking in the country and
by extension, the telecommunication industry in Nigeria, therefore,
JIT system cannot presently work effectively in Nigeria
telecommunication industry.
2.4 TRANSPORTATION AND PHYSICAL DISTRIBUTION
MANAGEMENT
Transportation is one of the most visible elements of logistics
operations. As a customer, we are accustomed to seeing trucks and
trains moving products, or packed at a distribution faculty.
J. L. Hanson (1974) defined ‘Transport’ as one of the ancillaries
of commerce. To him, the tremendous improvements in means of
transport that have taken place in the past two hundred years have
had far-reaching economic effects. Transport alters the geographical
position of the goods from the production point to the point of
consumption.
Rahul (2007) defined transportation in a simple language as: “a
means through which goods are transferred from one place to
another. He stated that transportation is a means of distribution.
Distribution to him, is the channel structure used to transfer products
from an organization to its customers. The primary function of
transportation is to move the product up and down the value chain.
Distribution decisions have significant implication on: -
43
- Product Margins and Profits
- Market Budgets
- Final retail pricing
- Sales management practices
Distribution channels can include one or more of these options.
? Retail: Stores selling to final buyers (one store, or a chain of
stores).
? Whole sales: An intermediary distribution channel that usually
sells to retail stores.
? Direct mail: Generally catalog merchants that sell directly to
buyers at retail price plus shipping via mail.
? Tele marketing: Merchants selling directly to buyers at retail via
phones
? Cyber Marketing: merchants selling directly to buyers at retail
prices, or business to business products and success at wholesale
prices via computer networks.
? Sales force: Salaried employee of a company or independent
company, or independent commissioned representatives who
usually sell products for more than one company.
DISTRIBUTION REQUIRMENT PLANNING (DRP)
DRP is a tool, which estimates inventory requirements at the
stocking locations and ensures that the supply sources are able to
meet the demand (monczka, 2002). It has been viewed as the key
requirement for Just in time (JIT), production and logistic system and,
is the logical extension of MRP.
44
DRP MRP
* DRP is determined by customer
demand on which the
organization has no control
* MRP is determined by a
production schedule which is in
term managed by the enterprise.
* DRP operates in an
independent demand situation.
* MRP operates in a dependent
demand situation.
* DRP co-ordinates once the
furnished goods are received in
the plant were house
* MRP controls inventory till
manufacturing or assembly is
completed.
(Characteristics of DRP and MRP by Rahul 2007 p. 227)
PLACE OF TRANSPORTATION IN MATERIALS
MANAGEMENT
To understand the functions of transportation, let us understand
where it occurs in the entire materials management chain.
Role of transportation in supply chain process (Rahul, 2007, p.241)
Supplier Transportation Stores Transportation
Manufacturing
Process I
Transportation
Manufacturing
Process II
Transportation Warehouse Transportation
Dealer Customer
45
MODES OF TRNSPORTATION
A mode identifies the basic transportation method or form. Each
mode has its significance depending upon the geographical location
and product to be transported.
Monczka et.al (2002), classified transportation into the
following:
i. Rail transportation
ii. Road transportation
iii. Water transportation
iv. Air transportation and
v. Pipeline transportation
They further averred, that the relative importance of each mode
can be measured in terms of system mileage, traffic, revenue and
nature of composition.
TRANSPORTATION DOCUMENTATION
There are several types of transport documentation required to
perform each transport movement.
According to Rahul (2007), the three primary documents are as
follows:
Bill of Lading: This is the basic document for using transport
services. It serves as a receipt, and documents the commodities and
quantities that are shipped. Accurate description and count are
essential. The designated buyer on the bill of lading is the only
bonafide receiver of the goods. The bill of lading specifies terms and
conditions of carrier liability and documents responsibility for all
possible causes of loss or damage.
Freight Bill: This represents a carrier’s method of charging for
transportation service performed. It is developed using information
contained in the bill of lading. It may be either prepaid or collect. A
46
prepaid bill as the name suggests means the transporter is paid prior
to performance. On the other hand a collect bill shifts the
responsibility of payment on the consignee.
Shipping manifest: This lists individual consignees when multiple
shipments are placed on a single vehicle. Each shipment requires a
bill of lading. The manifest lists the stop, bill of lading, weight and
case count for each shipment.
One objective of the manifest is to provide a single document
that defines the contents of the total load without requiring a review of
each individual bill of lading.
INBOUND AND OUTBOUND LOGISTICS
Logistics is generally concerned with movement and supplies.
The new Webster’s Dictionary of the English Language aligned with
the above definition. On its own part, logistics is referred to as “a
branch of military science concerned with troop movements and
supplies. Logistics which, originally is a military parlance, has been
generally used to mean the movement of supplies (goods and
service) in and out of organizations. Inbound (onward board) logistics
in the telecommunication industry refers to the movement of raw
materials, equipment and other supplies into the organization.
Outbound logistics on the other hand, refers to movement of
finished products and other supplies away from the organization,
home port, country, to other organizations or the final users.
CONTAINERIZATION
Containerization is an important element of the logistics
revolution that has changed freight handling on ships, railways, and
truck in the 20th century. Today, approximately 90 percent of Cargo
moves by containers via rails, roads, or water ways.
47
Simply stated, a container is a large rectangular box into which
a firm places commodities to be shipped. After initial loading, the
commodities themselves are not re-handled until they are unloaded
at their final destination.
The International Standards Organization (ISO) has made
recommendations for freight containers in Draft ISO No. 1496, which
are accepted generally by national standards bodies. The ISO says
that general purpose freight containers are of a rectangular shape,
weather-proof for transporting and storing a number of unit loads,
package or bulk materials, they confine and protect the contents from
loss or damage and can be separated from the means of transport,
handled as unit loads and transshipped without re-handling the
contents.
ISO STANDARD CONTAINER SIZES
These are based upon a module of 2.4m x 2.4m (8ft x 8ft), and
will make the following loads:
10ft long = 10 long tons
20ft long = 20 long tons
30ft long = 25 long tons
40ft long = 30 long tons
According to Rahul (2007), in the late 60’s ships spent 60
percent of their time in loading and unloading. Due to
containerization, this has reduced and the ships can turn around in a
few hours. He therefore, gave some of the benefits of containerization
to include:
? Simplified transport and flow of goods
? Easier and faster handling
? Faster deliveries
? Reduced loss due to damage, pilferage, misplacement
48
? Reduced packing cost
? Separation of incompatible goods
? Use of less congested routes
? Improved transport encourages trade etc.
2.5 COST REDUCTION TECHNIQUES
A materials manger looks always to the profit of the concern
which he represents. Materials manager must have good judgments
be well balanced, shrewd, sagacious, and well fortified with the
knowledge which he can scientifically accumulate; this is broadened
and improved by a close study of local, national and international
conditions which will make materials management a valuable assets
to any concern.
Materials management recognizes that the profit effect of a
naira saved in the purchasing function is the equivalent of at least
several naira of sales. Some firms have recognized the profit making
potential of materials management for many years and have a
programme of constant exploration of new ways to perform the
function more efficiently and with greater contribution to profit.
Techniques such as ABC analysis or 80/20 techniques, Blanket
cheque buying, Data phone, traveling requisition, Blanket orders,
systems contracting, computerized purchasing systems, automatic
vendor payment, economic order quantity(earlier explained), zero
defects, systematic vendor performance evaluation, purchasing
research, value analysis/engineering, supplier development, cost
analysis, incentive contracting, critical path analysis/method (CPA/M),
simplification, standardization, variety reduction, negotiation
technique etc. the researcher has decided to deal with only the
following cost reduction strategies as well as their contributions to
organizational profitability, for the purpose of this work:
49
ABC ANALYSIS OR 80/20 TECHNIQUE
While a materials manager may deal with several thousand,
different lines of item in the course of a year, the total money spent
on each item vary tremendously. If ABC analysis (or proportionate
value analysis) is used, the typical result will be as follows:
“A” item 10% of the line items account for 75% of the money spent
“B” item 10% of the line items account for 15% of the money spent
“C” item 80% of the line items account for 10% of the money spent
Obviously, the “A” items are the ones where the big money is, and
thus where the significant savings can be realized through better
purchasing, inventory and logistics management. A 10% savings on
“A” item may be equivalent to about 90% savings in “C” item. The
time and efforts spent by the materials manager should be allocated
on the basis of potential savings. It is a simple idea, but one which
often is overlooked and which can pay a big dividends.
ZERO DEFECTS
Purchase personnel should think in terms of “ultimate cost” of
the items they buy, it is not initial purchase price which is important,
but it is the final cost which has been incurred before the purchased
item performs the functions for which it was obtained that should be
minimized. If problems of inferior quality of purchased materials are
encountered, the “ultimate cost” will go up dramatically, and this will
affect profits.
Zero defects, which is similar to total quality management
(TQM) is a motivational approach used to condition suppliers and
their employees to “do it right the first time”, thus saving money for all
parties (sellers, buyers and final customers). Often purchasers
usually work closely with suppliers to set up a programme which will
50
result in better quality and reliability, to the ultimate benefit of all
parties to the transaction.
VALUE ANALYSIS (VA)/ENGINEERING (VE)
Value analysis and value engineering are both based on
obtaining a better cost/benefit ratio for a product. It is called value
engineering when it is applied to the initial design of a product and
value analysis when applied to existing product, components or
materials.
Oyeoku (2006), said that it is a systematic study of every
product, assembly and component made or bought out by an
enterprise, with a view to reducing their costs, by redesign to
eliminate design features which add to cost but do not contribute to
value. It is a disciplined way to attack cost. In identifying and
eliminating unnecessary costs, the performance of the product must
not be degraded. Basically, it required that valid and complete
answers be developed for the following five questions:
i. What is the item?
ii. What does it cost?
iii. What does it do?
iv. What else would do the job?
v. What would that alternative cost?
Generally speaking, most things possess two types of value,
aesthetic and functional. Hence, we must first determine which value
is the more important in the item we are requiring. In industry, the
vast majority of materials and components are bought for their
functional value. Industrials value, therefore, focuses upon function
and in pursuit of cost reduction through value analysis; the emphasis
is upon how a specific function can be performed at a lowest cost.
51
NEGOTIATION TECHNIQUE
The preferable method of price determination is competitive
bidding, which relies on the competitive force of the market to assure
the buyer a fair price. However, competitive bidding cannot be relied
on as a realistic pricing method when anyone of the following three
situations is present:
i. A sole source
ii. Collision exist among the seller, or
iii. The item being bought is extremely complex, with many difficult
– to- describe parameters (obviously, unless a precise work
statement can be given, a vendor will not be willing to make a
firm bid).
The alternative to competitive bidding is to negotiate the
purchase. According to Peter Baily et.al (1994), Negotiation supplies
some mutuality for wants, resolved by exchange. Negotiation is not
“hagging” or horse – trading”, instead, it is a rational process of
arriving at a reasonable price, one which will be fair to both buyer and
seller. It process involves setting contract objectives, determining the
pertinent facts surrounding the proposed buy, isolating and
classifying issues, determining the Negotiation position on each issue
and it importance, and setting a negotiation strategy.
SIMPLIFICATION AND VARIETY REDUCATION
Oyeoku (2006), said that ‘simplification which is a collary of
standardization represent a deliberate reduction in the variety of
items or products either purchased, sold, manufactured or held in
stock and attain economy. Simplification through a “variety reduction”
programmes is achieved through reduction in:
(i) The amount of tools and machinery employed
52
(ii) Labour costs through increased specialization of tasks and
through ease of hiring and training of staff.
(iii) Quantity of raw materials, work-in-progress and finished stock
inventories.
(iv) Machine set-up times; and
(v) Delivery failures.
Simplification and variety reduction improves quality and lower
unit costs and prices and thus makes it possible to achieve increased
sales.
The researcher believed that the application of simplification
and variety reduction will result in lowering the range of items lessens
the organization’s ability to meet with the needs of the market as well
as reducing the choice and custom of customers. They seem to be
persuaded to the limited lines available.
CRITICAL PATH ANALYSIS/METHOD (CPA/CPM)
This involves the preparation and analysis of the network for
making periodic progress reports. Preparing the Network according to
Ojo Kenneth involves:
i. Defining the objective of the project
ii. Identifying the individual job which make up the project.
iii. Determining the logical sequence of jobs
iv. Determining the estimated duration for each activity
v. Constructing the appropriate diagram.
He also averred that Network analysis can be viewed from the
aspects of time, cost and resources. It is basically a series of
activities and events. It can be describe as a diagram showing the
logical sequence of jobs within project. Consider a simple example of
a project of procurement where there are two activities, P&Q (p could
stand for receiving quotations from potential suppliers and Q for
53
sending job orders i.e. (local purchase order (LPO) for local
purchases and oversea purchase (OPO) for oversea purchases).
Activity Q can not be started until activity P is completed. CPA/CPM
which can also be called parato analysis, program evaluation and
review technique etc, are popular project control techniques that
requires the user to identify and determine the logical sequence of
those activities – critically following a path and doing first thing first.
STANDARDIZATION
Any accepted or established rule, model or criterion against
which comparisons are made is a standard (ASME). Standardization
as used here represents the agreement based upon certain factors
which affects an item such as its performance quality and various
dimension.
Consequently, certain components falling within a range of
models may be standardized and made interchangeable. For
instance, all the various range of recharge cards turned out by
telecommunication firms have the same standard. In other words,
materials whose composition and properties are specified either in
‘BSI’ specification, ‘SON’ specification or other specifications have
become a standard. Within this ambit, Oyeoku (2006), averred that
any specification which is intended for recurrent use becomes a
standard. Standardization gives a definite level of performance and
quality, as such improves business and cost decline to acceptable
standards when materials, procedures and products are pre-
determined so that future practices confirm to the standard and be
appraised.
SUPPLIERS EVALUATION
No best way exists to evaluate supplier (Monczka et.al (2002),
the overall objectives of the supplier evaluation process is to reduce
54
purchase risk and minimize overall value to the purchaser. Evaluation
involves the measurement of the effectiveness and efficiency of the
supplier. According to Peter Baily et.al (1994), it is the measurement
of the capacity of the existing supply base (suppliers), is called
vendor rating. All are aimed at satisfying low cost, delivery,
technology and service requirements etc.
They further stated that the key supplier evaluation criteria are:
i. Supplier management capability
ii. Overall personnel capabilities
iii. Cost structures of the suppliers
iv. Total quality performance
v. Process and technological capability
vi. Environmental regulation compliance
vii. Financial capability and stability (financial standing)
viii. Production scheduling and control systems
ix. E-commerce capability
x. Supplier sourcing strategies, policies and techniques
xi. Long-term relationship potential.
2.6 MODERN MATERIALS MANAGEMENT APPROACH
In the Enterprise Resource Planning (ERP) which is also
referred as CPFR (Collaborative Planning Forecasting Replacement,
all the organized players are seen as one entity. It means that
manufacturing organizations closely operates with all the trading
partners including customers at one side and suppliers at other side.
Infact, the well defined customer demand are known and the
main focus of the organization becomes fulfilling demand with supply
management thus integrating suppliers side. In the Global E-
Business Age, Consumers can directly talk with the manufacturing
55
company that is also a patent holder of the commodities required by
consumers.
2.7 ORGANISATION OF MATERIALS MANAGEMENT
A number of basic factors have now made the materials
management approach, more and more desirable in today’s industrial
complex. Again, the structure of a firm establishes the authority,
responsibility and relationships to a great extent, the manner in which
various groups of people work together.
In view of this, Lee and Dobler (1983) enumerated some factors
that largely determine the organizational approach chosen by any
firm. The factors include: -
i. The nature of the manufacturing operations.
ii. The amount of cost reduction leverage that can be brought to
bear on bought out material.
iii. The presence of multi-profit enter operations in a single plant.
iv. The degree to which the bought materials are in common use
among the several profit centers.
v. The availability of storage facilities and physical handling.
They went further to state that a study of the organization
structures for various companies showed large differences in formal
structure, even in organizations which manufacture similar products.
These differences are greatest on “higher” level.
According the Ericsson (1974), there is no ideal organizational
structure which fits all types of companies. The choice of the form of
the structures for the materials system is influenced by the problems,
which confront the firm and by the importance of the material flows
relative to other function in the company. Organizational structure is
very important in understanding how organization accomplished their
objectives (Onwuchekwa, 2000). According to him, management is in
56
organization to design appropriate organizational structure which is
capable of accomplishing the objective of an organization. Its major
aim is to create an effective link between the component parts of
organizational structure which resulted from departmentalization. So,
coordination helps an organization to integrate its component parts
towards the common good of the organization.
2.8 STRUCTURE OF A MATERIALS MANAGEMENT
ORGANIZATION
Sources: Dag Ericsson (1974) Materials Administration, (Pg 123)
Effective and efficient materials management is also influenced
by various characteristics of suppliers and customers by the
compositions of in-coming and out-going materials and product. In
view of the above, the researcher discovered that the organizational
Managing Director
Financial
Director
Marketing
Director
Production
Director
Material
s
Engineering
Director
Personnel
Director
Purchasing
Manager
Price
Analysis
Expediting
Purchase
Research
Inventory
Manager
Receiving
Inventory
control
Internal
transport
Materials
handling
Production control &
scheduling manager
Production control
Material control
Production planning
& scheduling
57
structure in the various telecommunication firms varies slightly. Their
choice was influenced by the peculiar problems which confront them.
There are ways in which materials management are structured
to ensure its effectiveness and efficiency. In some cases, it may be
appropriate to let the production department handle the materials
supply and stockholding and let the sales department be responsible
for distribution and stocks. This is quite distinct from what the
researcher found in the industry being studied as materials
management is presently given a lot of importance. Purchasing
department now take part in most, if not all materials activities. It is for
example not unusual to assign stock and stores control and freight to
purchasing.
Most companies that adopt the materials management simply
appoint a materials manager and regroup purchasing, production
control, and traffic function under him. As earlier pointed out, an
organization structure should be developed to meet the specified
needs of the organization and this differs from organization to
organization.
2.9 LIBERALIZATION OF THE TELECOMMUNICATION
INDUSTRY
Nigeria telecommunication Ltd. (NITEL) has been the only
telecom organization in the country. It’s services was by all standard
ineffective, inefficient and epileptic. This was largely due to the
inexistence of competition from any quarters, government patronage,
and wanton corruption in its entire system.
The then President, Gen. Olusegun Obasanjo, decided to
liberalize the telecom sector and in January, 2004, the Federal
Government through the Nigeria Communication Commission (NCC)
58
carried out the globally lauded Nigeria GSM auction and gave out
licenses to four other companies to carry out telecom services.
2.10 MATERIALS MANAGEMENT POLICIES OF TELECOM
FIRMS
Due to the nature of the industry, most telecom procurement
policies and procedure require that their suppliers comply with their
requirements, such as active involvement in Human resource
development.
While some have a materials management structure, others do
not have. Most of their service centres have counters where each
maintains a mini store of cards and lines used to service customers.
These cards and lines are daily collected from the inventory/store
officer who in turn receives its stock from their central store in Lagos,
since all their headquarters are based in Lagos, or any of their
regional offices. They generally maintain a centralized store system.
This helps to emphasize quality of the goods/products supplied to the
various firms to enable them give quality services.
On the use of professionals to handle materials management
functions, a check at MTN Nigeria website shows that a HND
marketing graduate from the federal polytechnic Ilaro, who later
studied did a B.Sc.in Business Administration in the UK was
employed as a reconciliation administrator. He later moved to
become the Regional Inventory Supervisor, Supplier Quality
Assurance Coordinator, Acting Manager, supplier Quality Assurance.
Also, Ericsson recently advertised for vacancies for the positions of:
client logistic manager and supply chain administrator respectively.
Applicants to the positions must posses requisite qualifications in
supply chain related disciplines as well as having varied experiences.
59
The telecommunication firms usually collect requirements from
the various departments and to be able to get value for money spent
on materials makes it purchases through bids/competitive tendering.
This ensures that the best price, quantity, quality and delivery time is
achieved. The bids could be either selective or open. It has its
registered contractors but new suppliers could be called upon when
the existing ones can not handle a particular supply. Also, some
minor purchases are allowed for emergencies.
Building of base sub-stations, supply of generating sets, fuelling
and regular maintenance are usually outsourced i.e. contracted out to
well established firms that have the core competencies to handle
such gobs. Though, designated staffs do carry out regular
supervision of the base/sub-stations because of their importance to
the general operations of the firms.
Before now, most telecommunication firms used to print their
recharge cards overseas and import them into the country until
recently when the federal government of Nigeria, through the National
Communications Commission (NCC), directed that the printing of
recharge cards by all telecommunication companies be done locally.
This directive has been complied with and has been helping in the
reduction of unemployment level as well as empowering the
producers of the raw materials that can be sourced locally.
Telecommunication companies in Nigerian regularly recruit
Nigerians who are qualified and interested in working for them. It
also, regularly pays taxes as well as supporting and sponsoring of
various sporting events, scholarships. It empower its distributors and
reward customers.
60
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.0 INTRODUCTION
Research design is the overall scheme or program of the
research (Okeke, 2001). This part of the study focuses on the
methods and design adopted for this study. Most of the methods
adopted are vary conventional, while others are more statistical
formulas. The details of the design and methodology are discussed
below
3.1 RESEARCH POPULATION
Materials management functions involve many departments.
The population of this study therefore, include all the employees of
the selected firms that are engaged in materials management
activities.
3.2 SAMPLE SIZE
The sample size for this study consists of only fifty (50) staff
from the selected telecommunication forms in Delta state that are
carrying out materials management functions.
3.3 SAMPLING METHOD
Convenience and judgmental (purposive) sampling techniques
were used. These are regarded as a non-probabilistic sampling
methods. These kinds of techniques were adopted became they were
the only practical approach for sampling the companies, due to the
fact that the researcher had to take certain factors into consideration
in selecting the forms. Such factors include the distance between the
companies to be examined and the researche’s location.
61
3.4 TYPES AND SOURCES OF DATA
The sources of data for this study include
i. Primary Source
a. Questionnaire
b. Interview
ii. Secondary Source
3.4.1 Primary sources: - These are the initial information and
they were gathered through the administration of questionnaire,
interview and survey. This is to ensure that the work is as original as
possible and of a practical background.
3.4.1.1 Questionnaires: - These were a major source of data
used for the survey. The questionnaires comprised “Yes” or “No”
questions and in some cases, the respondents were required to write
a statement or two that are not contained in the options given so as to
elicit the precise distinctions in their answers to the questions. They
were also highly structured questions which gave the respondents a
wide range of choice and also made for some explanations.
3.4.1.2 Personal Interview: - The inherent inadequacies in the use
of questionnaires has given rise to personal interview which was
adopted to clarify and improve the reliability of the information got
from the questionnaires. These interviews were focused mainly on
the history of the firms, separation of duties and adherence to
materials management roles.
3.4.2 SECONDARY SOURCES
The study was also carried out with the use of information
contained in various publications by the Chartered Institute of
Purchasing and Supply Management of Nigeria (CIPSMN), Journals,
62
websites and textbooks. These sources were duly acknowledged or
referenced with great thanks and appreciation.
3.5 INSTRUMENT OF DATA COLLECTION
The main instrument of data collection was the questionnaire.
Fifty five (55) questionnaires were prepared, each comprising of
twenty four (24) questions and distributed to the employees of the
selected companies in order to collect information for the study. Out
of the figure distributed, 50 questionnaire were received.
The questionnaire has a dual purpose: -
i. To translate the research objective into specific questions, the
answer to which will provide the data necessary for analysis.
ii. To assist the researcher in motivating the respondent to
communicate the required information needed for the study.
Two types of questionnaire were used in the study namely:
a. Open ended questionnaire.
b. Close ended questionnaire.
In open ended questionnaire, questions are framed in such a
way or manner that respondents are to answer in their own way i.e.
they are not limited to a particular choice or answer.
In the close-ended questionnaire, the respondents is restricted
to only one answer. In this case, they are given the option to choose
from various alternative answers provided.
Close-ended questionnaires are further divided into:
a. Dichotomous questions and
b. Multi choice questions
The dichotomous questions are such that the respondents are
required to select one of the only two options while in Multi-choice,
many options are provided, where the respondents is required to pick
just an answer.
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3.6 QUESTIONNAIRE ASSUMPTIONS
The following assumptions were made in designing the
questionnaires
i. That respondents are competent to answer the questions.
ii. That respondents will voluntarily and honestly answer the
questions without being influenced
iii. That the exercise would be of interest to the respondents, as such
they would co-operate.
3.7 METHOD OF DATA PRESENTATION AND ANALYSIS
Accordingly, the analysis and interpretation of the raw data of
an investigation are the means by which the research problem is
answered and the stated hypothesis are tested. Therefore, the
researcher extracted tables and data deemed relevant and necessary
from the questionnaire, from which certain findings originated. The
researcher also made use of percentages based on responses
extracted from questionnaires.
In analyzing the data obtained from the field, correlation co-
efficient and chi-square were calculated by the researcher to test the
null hypotheses.
There are numerous correlation coefficients used in statistics.
The most common of these used is the so called product- moment
correlation coefficient due to Karl Pearson. The correlation coefficient
“?“ or its estimate “r’ has a range of from -1 to +1. The coefficient has
a value of 1 of the two variables have a perfect and direct linear
relationship. If “?” or its estimate “r” has a value of O, the two
variables are assumed to have no linear relationship.
64
a. COMPUTATION
The calculation of ri2, the correlation between x
1
, and x
2
is
given below.
r = n?xii Xi2 – ? Xii ?xi2
[cn?x
2
ii – (?xii)
2
(n?X
2
ii – (?? xi2)
12
]
SIGNIFICANCE TESTS FOR CORRELATION COEFFICIENT
Correlation coefficient ‘r’ is an estimate of the populations’ ?.
The null hypothesis is stated as:
Ho: : ?
12
= ? = o
Against the alternative hypothesis
H: : ?
12
= ? ? o
Under the assumption that the variables X, and X
2
have a joint
normal distribution, it can be shown that when ? =o, the statistic
t = r n-2
i – r
2
It has a student t distribution with n – 2 degrees of freedom
Ho: is accepted at the X significance level of /t/ ? t, - x; n -2
n
Otherwise, the null hypothesis is rejected in favour of the alternative.
b. chi-square (x
2
)
it is a parametric inferential statistical method used in analyzing
frequencies or nominal data. Chi-square is given by:
X
2
=? ( 0– ?)
?
Where O = Observed frequency
E = Expected or frequency
? = Summation sign.
65
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.0 INTRODUCTION
This chapter presents an analysis of the data collected. The amount
of data collected for any research does not make any sense until raw
data have been analyzed and interpreted thereby presenting a good
proof for decision and drawing, there from an appropriate, reliable
and accurate conclusion.
4.1 PRESENTATION AND ANALYSIS OF DATA
The data were collected and analyzed according to each
question contained in the questionnaire.
Question 1: Sex of the Respondents
Table 1 showing the sex of the respondents.
Sex No of responses Percentages %
Male 30 60%
Female 20 40%
Total 50 100%
ANALYSIS
The above table shows that out of the figures received, 30
respondents representing 60% were Male while 20 respondents
representing 40% are female. Therefore, majority of the respondents
are male.
66
Question 2: Marital Status of the Respondents
Table 2 showing the Marital Status of the Respondents.
Marital Status No of responses Percentage
Married 33 66%
Single 17 34%
Divorced - -
Widowed - -
Separated - -
Total 50 100%
The above table shows that out of the figures received 33
respondents representing 66% are married while 17 respondents
representing 34% are single. Therefore, majority of the respondents
are married.
Questions 3: Age of the respondents
Table 3 Showing the Age Range of the Respondents
Age range No of responses Percentage
Below 20 - -
21-30 13 26%
31-40 37 74%
41-50 - -
51-60 - -
Total 50 100%
The table above shows that out of the figure received, 13
respondents representing 26% belongs to the age range 21-30 years
while 37 respondents representing 74% fall into the age range of 31-
40 years. Therefore majority of the respondents are of average age.
67
QUESTION 4; Qualification
Table 4 showing the qualifications of the respondents
Qualification No of Responses Percentage
SSCE/GCE - -
OND 7 14%
HND/B.Sc. 23 46%
MBA/M.Sc. 20 40%
IPSW/CIPSMN - -
P.Hd. - -
Total 50 100%
The above table shows that out of the figures received, 7
respondents representing 14% have OND, 23 respondents
representing 46% have either HND or B.Sc. while 20 respondents
representing 40% have either MBA or M.Sc. results. Therefore,
majority or the respondents are graduates or have post graduate
qualifications.
QUESTION 5: Position held
Table 5: showing the position held by the respondents in the
organization.
Position No of Responses Percentage %
Management staff 13 26%
Supervisory 17 34%
Junior staff 20 40%
Total 50 100%
The table above shows that out of the figures received, 13
respondents representing 26% are management staff, 23
68
respondents representing 45% are supervisors while 20 respondents
representing 40% are junior staff.
Questions 1-5 were asked to ascertain the personal data of the
respondents but not asked for analysis.
MATERIALS MANAGEMENT SECTION
QUESTION 6: Does your organization have a materials
management department?
Table 6 showing whether the organization has materials management
department.
No of Response Percentage %
Yes 43 86%
No 7 abstained 14%
Total 50 100%
The above table clearly shows that out of the figures received
43 respondents representing 86% answered yes that their
organization has a materials management department while 7
respondents representing 14% answered NO. Therefore, most of the
firms under study have materials management department.
QUESTION 7: if your answer in question 6 is yes do you
consider materials management department as important in
your organization?
Table 7: showing whether materials management is considered
important in the firms under study.
No of Reponses Percentage %
Yes 43 86%
No 7 abstained 14%
Total 50 100%
69
The above table show that 43 respondent representing 86%
agreed that material management department is important while
7respondents representing 14% abstained. Therefore, materials
management department is important in the firms under study.
Question 8: If your answer in question 6 is no, which
departments do you think should carry out materials
management functions?
Table 8 showing the department that should carry out materials
management function when the department is not important.
No. of responses Percentage (%)
Production Department. - -
Sales Department - -
Accounts Department - -
Personnel Department - -
Others, please specify - -
Total - -%
The above table shows that none of the respondents believed that
materials should be handled by any other department.
Question 9: Do Materials account for a large portion of cost in
your company?
Table 9: Showing whether materials account for a large portion of
cost in the firms under study.
No. of responses Percentage (%)
Yes 47 94%
No 3 6%
Total 50 100%
70
The table above shows that out of the figures received 47
respondents representing 94% believes that materials account for a
large portion of cost while only 3 respondents representing 6% said
otherwise. Therefore, materials accounts for a large portion of cost in
the firms under study.
Question 10: What percentage of your materials is a cost item?
Table 10: showing the percentage of materials that is a cost item.
No. Of responses Percentage (%)
20% 2 4%
40% 27 54%
60% 13 26%
70-80% 8 16%
Total 50 100%
The above table shows that out of the figures received, 2
respondents representing 4% said 20%, 27 respondents representing
54% said 40%, 13 respondents representing 26% said 60% while 8
respondents representing 16% said between 70-80% is the
percentage of materials that is a cost item. Therefore, majority of the
respondents believed that 40percent of materials is a cost item in the
firms under study.
71
Question 11: Who takes decision on whether to make or buy
materials needed in your organization?
Table 11: showing who takes ‘make or buy’ decision.
No. Of responses Percentage (%)
Materials manager 10 20%
Top management 10 20%
General manager 10 20%
All of the above 20 40%
Total 50 100%
The above table shows that out of the figures received, 10
respondents representing 20% believed that materials manager, top
management and general manager should take make or buy decision
while 20 respondents representing 40% believes that all of them
should be involved in deciding whether to make or buy. Therefore,
make or buy decision should not be taken by any particular
department or only top management but input should come from all
parties involved.
Question 12: Who does the materials manager report to in your
organization?
Table 12: showing who materials manager reports to.
No. of responses Percentage (%)
Production manager 3 6%
General manager 37 74%
Personnel manager - -
Managing director 10 20%
Others, please specify - -
Total 50 100%
The above table shows that out of the figures received, 3
respondents representing 6% believes the materials manager should
72
report to the production manager, while 37 respondents and 10
respondents representing 74% and 20% respectively, supported the
materials manager reporting to general manager and managing
director. Therefore, majority of the respondents supported the
materials manager reporting to the general manager in the firms.
Question 13: What is the rank of the Head of the Materials
Management Department in your organization?
Table 13 showing the rank of the head of materials management
department.
Position No. of responses Percentage (%)
Stores officer - -
Logistics officer - -
Procurement officer - -
Materials manager 13 26%
Facilities manager 37 74%
Others, please specify - -
Total 50 100%
The above table shows that none of the respondents believed
that stores officer, procurement officer and logistics officer should
head the materials management department. 13 respondents
representing 26% supported materials manager heading the
department while 37 respondents representing 74% supported the
facilities manager heading the materials management department.
This position is supported by the fact that in the course of my visit to
the telecommunication firms in Delta State, I was always directed to
see the faculty manager.
73
Question 14: What is the educational qualification of the head of
your organizations materials management department?
Table 14 showing the qualifications of the head of materials
management department in the firm under study..
Qualification No. of responses Percentage (%)
SSCE/GCE - -
OND 3 6%
B.Sc/HND 17 34%
Postgraduate 30 60%
Professional (CIPSMN) - -
Total 50 100%
The above table shows that 3 respondents representing 6%
said that their Head of Materials Management Department have
OND, 17 respondents representing 34% said they have B.Sc./HND
while 30 respondents representing 60% shows that their Head of
Materials Management Department have postgraduate qualifications.
None believed that holders of SSCE/GCE and professional
qualifications are heading the department.
Question 15: Do you consider your Materials Management
Department as contributing to your organization’s
effectiveness?
Table 15 shows whether Materials Management Department
contributes to the effectiveness of the organization under study.
No. of responses Percentage (%)
Yes 47 94%
No 3 6%
Total 50 100%
The above table shows that 47 respondents representing 94%
believes that their Materials Management Department contributes to
74
their firms effectiveness while the other 3 respondents representing
6% answered otherwise. Therefore, Materials Management
Department contributes to effectiveness in the telecommunication
industry.
Question 16: If your answer in question 15 is yes, what level of
effectiveness does the department have on the organization?
Table 16 showing the level of effectiveness contributed by the
Materials Management Department.
No. of responses Percentage (%)
20-30% - -
31-40% 26 52%
41-50% 7 14%
51-60% 17 34%
Total 50 100%
The above table shows that 26 respondents representing 52%
believes that the department contributes between 31-40% level of
effectiveness to their organization, 7 respondents representing 14%
believes it only contributes between 41-50% while 17 respondents
representing 34% said that Materials Management contributions to
organizational effectiveness is between 51-60%. Therefore, materials
management Department contributions to effectiveness is between
31-40% in the firms under study.
75
Question 17: Which area of Materials Management contributes
highest to your organizational effectiveness?
Table 17 showing the areas of Materials Management contributing
highest to organizational effectiveness.
No. of responses Percentage (%)
Procurement 24 48%
Stores/inventory control 20 40%
Transportation 3 6%
Materials planning 3 6%
Others, please specify - -
Total 50 100%
The above table shows that 24 respondents representing 48%
believes that procurement contributes highest to organizational
effectiveness. Other contributions are stores/inventory control with 20
respondents representing 40%, transportation with 3 respondents
representing 6% and Materials planning, also having 3 respondents
representing 6%. Therefore, procurement functions contributes the
highest to organizational effectiveness.
Question 18: Please indicate the Materials Management activity
you consider poorly undertaken by your company?
Table 18 showing the Materials Management activity that is poorly
undertaken.
No. of responses Percentage (%)
Buying 23 46%
Stores/inventory control - -
Standardization - -
Traffic/transportation 7 14%
Value analysis - -
76
Subcontracting - -
Purchasing research 17 34%
None 3 6%
Total 50 100%
The above table shows that out of the figures received, 23
respondents representing 46% said buying, 7 respondents
representing 14% favoured traffic/transportation, 17 respondents
representing 34% favoured purchasing research while 3 respondents
representing 6% said none. Therefore, buying is the activity that is
poorly undertaken in the firms under study.
Question 19: Is there a free flow of information among functional
units in your organization’s Materials Management Department?
Table 19 showing whether there is a free flow of information.
No. of responses Percentage (%)
Yes 50 100%
No 0 0%
Total 50 100%
The above table shows that 50 respondents representing 100%
said that there is free flow of information in their organization’s
Materials Management Department.
Question 20: Do Telecommunication Industry recognize the
services of professionally qualified materials personnel?
Table 20 Showing whether Telecommunication Industry recognizes
the services of professionally qualified materials personnel?
No. of responses Percentage (%)
Yes 48 96%
No 2 4%
Total 50 100%
77
The above table shows that out of the figures received,
respondent representing 96% said yes while 2 respondents
representing 4% said No. Therefore, Telecommunication Industry
recognizes the services of professionally qualified materials
personnel.
Question 21: In your own opinion, do you believe that Materials
Management functions is being given its rightful place in your
organization?
Table 21 shows whether Materials Management is being given its
rightful place in the Telecommunication Industry.
No. of responses Percentage (%)
Yes 43 86%
No 7 14%
Total 50 100%
From the above table, 43 respondents representing 86%
believes Materials Management is being given its rightful place in
Telecommunication Industry while only 7 respondents representing
14% said No. Therefore, Materials Management is being given its
rightful place in the Telecommunication Industry.
Question 22: Do you consider your Materials Management
Department as covering all the various activities involved in the
supply chain?
Table 22 showing whether Materials Management Department is
covering all the various activities in the supply chain.
No. of responses Percentage (%)
Yes 40 80%
No 10 20%
Total 50 100%
78
The above table shows that 40 respondents representing 80%
favoured that Materials Management Department is covering all the
various activities in the supply chain while 10 respondents
representing 20% said No. Therefore, all the activities in the supply
chain are being covered in the Materials Management Department.
Question 23: Do you consider your organizations as giving the
right interpretation to the materials management concept?
Table 23 showing whether the organizations under study are given
the right interpretation to Materials Management Concept.
No. of responses Percentage (%)
Yes 37 74%
No 13 26%
Total 50 100%
The above table shows that 37 respondents representing 74%
believes that Materials Management concept is given the right
interpretation while 13 respondents representing 26% said No.
Therefore, the right interpretation is given to materials management
concept on the firms of study..
Question 24: Indicate the area you think contributes the most to
the Materials Management Department in your organizations?
Table 24 showing the area of Materials Management that is
contributing the most to the department.
No. of responses Percentage (%)
Purchasing management 23 46%
Transport/distribution
management
10 20%
Inventory management 17 34%
Total 50 100%
79
The above table shows that among the main areas of Materials
Management, 23 respondents representing 46% favoured purchasing
management, 10 respondents representing 20% said transportation
management while 17 respondents representing 34% around
inventory management. Therefore, purchasing management
contribute most to materials management department.
4.3 TESTING OF HYPOTHESES
The researcher will be testing the already formulated
hypothesis by the use of correlation coefficient for hypothesis 1 and
chi-square for hypothesis 2 and 3.
HYPOTHESIS 1
There is no significant relationship between materials
management and organizational effectiveness.
80
CALCULATIONS TO OBTAIN THE CORRELATION COEFICENT BETWEEN MATERIAL MANAGEMENT AND
ORGANIZATIONAL EFFECTIVENESS
S/N % output of material Management Productivity in % X1X2 X1
2
X2
2
1 70 50 3500 4900 2500
2 52 45 2340 2704 2025
3 55 48 2640 3025 2304
4 40 30 1200 1600 900
5 49 44 2156 2401 1936
6 51 32 1632 2601 1024
7 44 25 1100 1936 625
8 38 40 1520 1444 1600
9 50 49 2450 2500 2401
10 53 47 2491 2809 2209
11 52 33 1716 2704 1089
12 46 30 1380 2116 900
13 70 52 3640 4900 2704
14 53 41 2173 2809 1681
15 47 35 1645 2209 1225
16 54 48 2592 2916 2304
17 50 60 3000 2500 3600
18 36 42 1512 1296 1764
19 37 44 1628 1369 1936
20 50 50 2500 2500 2500
21 56 52 2912 3136 2704
22 57 48 2736 3249 2304
23 68 49 3332 4624 2401
24 69 50 3450 4761 2500
25 71 61 4331 5041 3721
26 40 31 1240 1600 961
27 42 34 1428 1764 1156
28 50 47 2350 2500 2209
29 52 48 2496 2704 2304
30 53 40 2120 2809 1600
31 44 36 1584 1936 1296
32 65 52 3380 4225 2704
33 64 51 3264 4096 2601
34 61 51 3111 3721 2601
35 69 55 3795 4761 3025
36 33 40 1320 1089 1600
37 34 41 1394 1156 1681
38 60 49 2940 3600 2401
39 29 49 1421 841 2401
40 50 49 2450 2500 2401
41 53 45 2385 2809 2025
42 52 50 2600 2704 2500
43 60 70 4200 3600 4900
44 62 60 3720 3844 3600
45 70 60 4200 4900 3600
46 44 50 2200 1936 2500
47 30 49 1470 900 2401
48 38 40 1520 1444 1600
49 60 61 3660 3600 3721
2533 2214 119824 137089 108645
81
r = n?Xi1 Xi2 - ?Xi1?Xi2_______
{(n?X
2
i1 – (?Xi1)
2
(n?X
2
i
2
– (?Xi2)
2
}
½
r = 50(119824) – (2533)(2214)__________
{50(137089) – (2533)
2
(50(108645) – (2214)
2
}
½
r = 383138________
{(438361) (530454)}
½
r = 383138
482214 = 0.7945
Thus the correlation coefficient between materials management
level and organizational profitability are positively associated.
SIGNIFICANCE TEST FOR CORRELATION COEFFICIENT
We test the Null Hypothesis
H0: P
12
= P = 0
Against the alternative hypothesis,
H1: P
12
= P ? 0
Under the assumption that the variables X
1
and X
2
have a joint
normal distribution, it can be shown that when P = 0
t = r n – 2
1 - r
2
has a student t distribution with n-2 degree of freedom H0 is accepted
at the x significant level if /t/? t
1
– x/2: n-2, where x is at 5% significant
level.
:. t = 0.7945 50 – 2
1 – 0.6312
82
t = 0.7945 48___
0.3688
t = 9.063
Tabulated t = t0.975:48 = 2.01
.: 9.063 > 2.01 we reject the Null Hypothesis and conclude that
material management output and organizational productivity are
significantly correlated.
HYPOTHESIS 2
Telecommunication Industry does not recognize the services of
qualified professional Materials manager.
To test this hypothesis, respondents were asked if
telecommunication industry recognize the services of qualified
professional material managers. The hypothesis seeks to test the
significant of such relationship.
OBSERVED VALUES TABLE
Options 0 E 0-E (0-E)
2
(0-E)
2
/E DoF
Yes 48 24 24 576 24.00 1
No 2 24 -22 484 20.17
44.17
The calculated chi-square value (X
2
) 44.17 is greater than the
tabulated value 6.635 at 1 percent significance level. We reject the
Null Hypothesis H0 and conclude that the telecommunication industry
83
does recognize the services of qualified professional material
managers.
HYPOTHESIS 3
Telecommunications Industry has not given Materials
Management its rightful place as a Management activity.
To test this hypothesis, respondents were asked if
telecommunication industry has given material management its
rightful place. The hypothesis seeks to test the significance of such
relationship. The table below is the observed values representing the
responses to the question.
OBSERVED VALUES TABLE
Options 0 E 0-E (0-E)
2
(0-E)
2
/E DoF
Yes 43 25 18 324 12.96 1
No 7 25 -18 324 12.96
25.92
The calculated chi-square value (X
2
) 25.92 is greater than the
tabulated value 6.635 at 1 percent significance level. We reject the
Null Hypothesis and conclude that the telecommunication industry
has given material management its rightful place.
84
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 INTRODUCTION
In a wide spectrum, the objective of this study is to ascertain
the effect of Materials Management functions on the Organizational
effectiveness in the Telecom industry using selected Telecom Firms
in Delta State as a study.
5.1 SUMMARY OF FINDINGS
The major findings of this study as revealed by the analysis has
made the researcher to be able to put incoherent facts together.
Based on the analysis of the information obtained by the researcher,
the following findings were made
I. Majority of the staff handling materials management functions
are graduates or have post-graduate qualifications
II. Telecom firms have materials management department
III. Telecom firms see materials management as very important
IV. Materials account for a large portion of cost in the Telecom
industry
V. About 54% of materials is a cost item in the industry
VI. Make or buy decision is not taken by only one department, but
all parties are involved
VII. Materials manager reports to General Manager or above
VIII. The head of the materials management department is called
Facilities manager
IX. The head of the materials management department have post
graduate qualifications
X. Materials management functions contributes to organizational
effectiveness
85
XI. Procurement is the materials management function that
contribute highest to organizational effectiveness
XII. Buying/Procurement is the materials management activity that
is poorly undertaken
XIII. There is free flow of information in the materials management
department
XIV. Materials management function is given its rightful place as a
management activity
XV. Materials management department covers all the various
activities involved in the supply chain
XVI. Materials management concepts is given the right
interpretations in the Telecom Industry
5.2 CONCLUSIONS
Having gone this far, it is pertinent to conclude this study by
saying that the main objective of any organization is to maximize
profit by causing a drastic reduction in costs. From the investigations
carried out on the selected telecom firms in Delta State, the problem
centered on the co-ordination and control of the various activities
starting from the identification of need, to the satisfaction of
customers. The effectiveness and efficiency in the materials
management functions, no doubt enhances organizational
performance.
It was found out that appropriate procurement, stock control
and transportation strategies would lead to a substantial benefits
most especially, when all the chain of activities such as value
analysis/engineering, inventory, materials handling, materials
planning, transportation/physical distribution, sourcing etc, are placed
under one department and headed by a qualified personnel.
86
The fact that losses from ineffective and inefficient materials
management are not seen directly on a firm’s cost accounting records
or its profit and loss statement does not make them less real, than the
more visible losses. Losses are where there is virtually no control
measures to mitigate them because, they usually hang over the firm’s
neck for years unnoticed as in the cases of losses from ineffective
and inefficient materials management.
Finally, the researcher concludes this work by saying that any
attempt to engage in materials management whether on a high or
small scale without involving the experts in the profession will bring a
great loss to the organization while every attempt to ensure that there
is synergy amongst all the materials management functions so as to
bring about better co-ordination in the department, would help the
organization achieve its main objective of profit maximization.
5.3 RECOMMENDATIONS
Having carried out a thorough and careful study of the selected
firms, particularly the areas relating to materials management and
having critically analyzed the findings, the researcher therefore,
makes the following recommendations:
1. The organizational structure of the industry should be
redesigned thereby consolidating on the existing materials
management department. In the new structure, procurement,
inventory control, traffic (transport) and other ancillary services that
involve materials, should be brought together under one manager, to
be called the materials manager. This is of immense importance in
view of the inherent responsibilities of:
(a) Determining production requirements
(b) Scheduling the production process
87
(c) Procurement, storage and distribution of materials at the right
time and within the allowable cost.
2. To further enhance the organizational effectiveness and profit
earning potential, the materials manager should be given a free hand
to carry out all activities relating to materials acquisition and all other
functions that ensures that value is created.
3. All the sections in the materials management department such
as inventory control, procurement, transportation should be headed
by professionally qualified personnel in the field while a
materials/supply chain manager should head the department.
4. The materials manager should be made to report to an officer
not below the rank of a general manager.
5. The use of competitive bidding/tendering usually used by the
telecom industry, to procure her materials is commendable, but the
process should be made more transparent by making it open.
6. Various cost reduction strategies such as value analysis/value
engineering, Materials Requirement Planning (MRP), Just-In-Time
(JIT), ABC Analysis, Negotiation technique etc should be widely
used where necessary.
7. As materials represent an increasing percentage in total
product cost, the control of all materials should be treated with the
importance it deserves, to reduce the costs in the firms.
8. The industry must as a matter of fact, recruit high caliber
professionals, especially where they do not exist, who will be in
charge of the materials management department to ensure quality
maintenance, effectiveness and efficiency. They must be either of
the:
a) Members of the chartered institute of purchasing and supply
management of Nigeria (CIPSMN)
88
b) Members of the chartered institute of purchasing and supply
(CIPS), London.
c) Graduate of Business Administration purchasing and supply with
an additional professional qualification in purchasing and supply
chain management.
9. The industry should engage in a sophisticated materials
planning and control for strategic materials sources and acquisition
taking cognizance of the epileptic nature of our economy which has
given rise to the persistent shortages of basic raw materials, which
are likely to continue and become more complex in the near future.
10. The telecom industry which out-sources some of its services
especially in the areas of building and maintenance of base-stations
as well as engaging in procurement through competitive
building/tender, should make the process more transparent by
encouraging all prospective firms to be involved. This would help to a
very large extent to reducing cost and the enhancement of
profitability.
11. Finally, telecom industry should improve in the use of
computers in the carrying out of materials management functions.
It is my fervent believe and opinion that if these
recommendations are appropriately adhered to, it will by no small
measure improve the effectiveness and efficiency of the materials
management functions in helping the telecom industry to render
quality services to its numerous customers and the enhancement of
its profitability.
89
5.4 AREA FOR FURTHER STUDY
The following areas are suggested for further study:
1. Materials management and organizational effectiveness, using a
fast consumer moving goods (FCMG) organization as a study
2. The contributions of inventory management to organizational
profitability
3. The importance of effective procurement management to
organizational survival
4. The role of Transportation management in achieving cost
reduction
90
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Wikipedia encyclopedia (2008), “materials management” (online).
Available at htp://en.wikipdia.org/wiki/materialsmanagement.
doc_199500648.pdf
The study examined the contributions of Materials Management to organizational effectiveness, determined all the areas covered in the materials management functions, ascertained the level of attention given to the materials management functions in the telecom industry, and found out how appropriate materials management strategies could lead to cost savings and profitability.
i
MATERIALS MANAGEMENT AND ORGANIZATIONAL
EFFECTIVENESS: A STUDY OF SELECTED
TELECOMMUNICATION FIRMS IN DELTA STATE
BY
EDOZIE, EMMANUEL .S.
REG. NO. 426018F
A PROJECT WORK SUBMITTED TO THE
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF MANAGEMENT SCIENCE
NNAMDI AZIKIWE UNIVERSITY, AWKA
IN PARTIAL FULFILMENT OF THE REQURIEMENT FOR
THE AWARD OF MASTER OF SCIENCE (M.Sc.) IN
BUSNESS ADMINISTRATION
APRIL, 2010
ii
CERTIFICATION
I certify that this project report is based on a study undertaken by
me in the department of Business Administration, Nnamdi Azikiwe
University, Awka.
The work has not been previously submitted for the award of
any degree elsewhere.
This is a product of my personal research and where the views
of others have been expressed, they have been duly
acknowledged.
_____________________
EDOZIE, EMMANUEL .S.
iii
APPROVAL PAGE
This is to certify that this research work carried out by Edozie
Emmanuel .S. of the Department of Business Administration is
adequate in scope and contents and approved by the undersigned.
_______________ __________
Project Supervisor Date
Dr. Osisioma, H. E.
___________________ __________
HOD Date
Prof. Onwuchekwa C.I.
__________________ __________
External Examiner Date
iv
DEDICATION
To
The Almighty God
The giver of life and knowledge.
v
ACKNOWLEDGEMENT
My immense gratitude goes to the Almighty God for his loving
kindness throughout this programme.
To my late parents, you both taught me the road to achieve
greatness, may your souls rest in perfect peace. (Amen)!
My sincere thanks goes to my supervisor, Dr. (Mrs.) Osisioma,
H.E. whose assistance, guidance and encouragement made this
work a reality.
To my lovely wife, Mrs. Francisca Edozie, you have proved to
be a wife, a mother and a motivator. To my two Angels,
Onyinyechukwu and Ifeoma Edozie, you have been a source of joy to
me.
My profound gratitude goes to my brothers and sisters, Mr.
Stephen Edozie, Peter Edozie, Mrs. Anthonia Osadebe, Mr. Pius
Edozie and Mrs. Ndidi Okogie, whose show of love and co-operation
has remained a source of strength to me and the family; My cousins,
in-laws and other relations too numerous to mention, may God bless
you all for being who you are.
My expression of thanks also goes to my friends and colleague
in the M. Sc. programme: DSP Onyeka Adinuba, who carried me to
and from school during the program, also to Thompson, our course
vi
rep, Perpetual, Chioma, Mrs. Ngozi Okafor, Onwuchekwa and so
many others too numerous to mention, may God continue to guide
and protect you all.
My thanks would be incomplete without mentioning the
invaluable contributions of the following: The entire staff of Admin /
Welfare of the DTHA, for their help; Isioma Osu, a staff of the Zenith
Bank, for always helping to grant me overdraft any time I ran out of
cash; my friends, Messer Innocent Onwochei, Zino Onyeke, Ofem
Eyong Esuku, Donatus Udukpula, Oganwu James, Odega Nathaniel
and so many others, may the Almighty God continue to guide and
bless them all, Amen!
vii
ABSTRACT
The study examined the contributions of Materials Management to
organizational effectiveness, determined all the areas covered in the
materials management functions, ascertained the level of attention given to
the materials management functions in the telecom industry, and found out
how appropriate materials management strategies could lead to cost savings
and profitability. To realize the stated objectives of the study, the researcher
sought to answer six research questions. Three hypotheses were formulated
to guide this study. Correlation co-efficient and Chi-square were used to test
the Null hypothesis. The researcher prepared and distributed a total of fifty
five (55) questionnaires comprising of twenty four (24) open ended/close
ended questions each. Out of these, fifty (50) ere received and analyzed. At
the end of the study, it was found that effective and efficient materials
functions contributes to the improvement of performance, leads to a
significant reductions in the total materials cost, and helps to enhance the
profitability of the telecom industry. It was recommended that the
organizational structure of the Telecom industry should be redesigned to
consolidate the existing Materials Management department, The Materials
Manager should be given the free hand to carry out his functions, He should
be made to report to an officer not below the rank of General Manager, The
process of competitive bidding should be made more transparent, and
various cost reduction strategies should be used where necessary.
viii
TABLE OF CONTENTS Page
Title Page - - - - - - - - - i
Certification - - - - - - - - - ii
Approval - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Abstract - - - - - - - - - vii
Table of Content - - - - - - - - viii
CHAPTER ONE
1.0 INTRODUCTION - - - - - - 1
1.1 Background of the problem - - - - - 5
1.2 Statement of problem - - - - - - 6
1.3 Purpose of study - - - - - - - 7
1.4 Significance of study - - - - - - 8
1.5 Scope/ of the study - - - - - - - 8
1.6 Limitation of study - - - - - - 8
1.7 Objectives of the study - - - - - - 9
1.8 Research questions - - - - - - - 9
1.9 Hypotheses - - - - - - - - 10
1.10 Definition of terms - - - - - - - 11
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction - - - - - - - - 12
2.1 Strategy, manufacturing and materials management - - 15
2.2 Purchasing management - - - - - - 28
ix
2.3 Inventory management - - - - - - 33
2.4 Transportation and physical distribution management- - 42
2.5 Cost reduction techniques - - - - - 48
2.6 Modern materials management approach - - - 54
2.7 Organization of Material Management - - - - 55
2.8 Structure of Materials Management Organization - - 58
2.9 Liberalization of the Telecommunication Industry - - 57
2.10 Materials Management Polices of telecom firms - - 58
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction - - - - - - - - 60
3.1 Research population - - - - - - 60
3.2 Sample size - - - - - - - - 60
3.3 Sampling method - - - - - - - 60
3.4 Types and sources of data - - - - - 61
3.4.1 Primary source - - - - - - - 61
3.4.1.1 Questionnaire - - - - - - - 61
3.4.1.2 Personal interview - - - - - - 61
3.4.2 Secondary sources - - - - - 61
3.5 Instrument of data collection - - - - - 62
3.6 Questionnaire assumptions - - - - - 63
3.7 Method of data presentation and analysis - - - 65
x
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.0 Introduction - - - - - - - - 65
4.1 Presentation and Analysis of Data - - - - 65
4.2 Testing of Hypothesis - - - - - - 79
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 Introduction - - - - - - - - 84
5.1 Summary of findings - - - - - - 84
5.2 Conclusion - - - - - - - - 85
5.3 Recommendations - - - - - - - 86
5.4 Areas for further study - - - - - - 89
REFERENCE - - - - - - - - 90
APPENDIX - - - - - - - - 92
1
CHAPTER ONE
1.0 INTRODUCTION
Materials are all the things we use for production of goods and
services. e.g. raw materials, spare parts, stock items. The
management of materials refers to all the functions of the various
departments that coordinate materials in and out of the organization.
Materials Management is the branch of logistics that deals with
the tangible components of a supply chain. Specifically, this covers
the acquisition of spare parts and replacements, quality control of
purchasing and ordering, the standards involved in ordering, shipping
and warehousing situation, the demand for raw materials,
components, sub assemblies, is dependent on the production plan for
the final product. It is therefore, possible to determine how many
parts or components will be needed in each future time period in the
planning horizon. Materials management method also known as
materials planning, uses this information about dependence of
demand in managing inventories and controlling the production lot
sizes of the numerous parts that go into the making of a final product.
The management objectives of material management is to
avoid inventory stock-out and overstocking, so that production runs
smoothly according to plan, and investment in raw materials and
work-in-process inventories are achieved at a reduced cost.
Materials Management systems in part or in whole, are used in
manufacturing firms both large and small. The reason is that it
provides a logical and ready understandable approach to the problem
of determining the number of parts, components and raw materials
needed to produce each end product. Material management also
provides the time schedule specifying when each of these materials,
parts and components should be ordered or produced.
2
Materials Management and the need for it to be more efficient
became more pronounced because materials now account for three
quarters of the total amount of money invested by many
manufacturing service Industries. Telecommunications firms
manufactures recharge cards and other accessories as well as
procure generators and other items used for its numerous base-
stations, which enables it to provide quality services to its millions of
customers. Materials in this case must be effectively managed or
taken care of to avoid incurring losses and administrative costs,
which affect the organizational profitability.
According to Monk (1987), as production activities became
highly automated and use less direct labour was required, the
materials proportion of the product cost tends to increase. For this
reason, effective and efficient materials management procedures are
used to control the flow of materials.
Another factor in the success of any business as a whole in
attaining efficiency is the application of the concept of materials
management activities under one department, headed by a materials
manager. It also assigns materials management activities to all major
departments in the organization that contribute to materials cost. This
if carried out effectively, forces control and coordination between
purchasing, production control and all other functional units that
contribute to materials cost.
Efficient performance of the materials management functions is
vital to the smooth operation of the organization. It is the basic
responsibility of the materials management function to plan, organize
and control the flow of material distribution of finished goods. All the
3
major departments under materials management should strive to
perform their own functions diligently so as to create and develop
awareness for the critical area of operations and the need to be
responsive to timing.
Despite the significance of materials management, its functions
have been continuously neglected, both in the public and the private
sectors of the economy. This normally stems from the wrong notion of
non-professionals. To a non-professional, materials management is
simply the functional responsibilities of all the units of the organization
together, without each having a specified or defined function or role to
play, thereby creating disorganization, confusion and inefficiency in
its management. An effective and efficient management of materials
goes beyond the profit earning contributions to the organization.
Materials management functions should be unified and coordinated to
enable the entire process achieve its target of minimum cost.
According to Monk (1987), for there to be a good materials
management system in any organization, it is necessary that there
should be an officer at a very senior level who takes responsibility
over the control of materials from the point of leaving the suppliers,
passing through the organization and finally reaching the customers.
He ensures that the right materials are available at the right time, at
the right place and in the right quantity and quality. This will help
avoid holding excess stock and its attendant costs. Apart from this an
efficient materials management helps in the effective utilization of
storage space and avoids shortage “out of stock syndrome” which
might cause production stoppage especially when the process is
automated.
Suffice it to say at this point that effective and efficient use of
materials has been the bane of both the public and private sectors.
4
But the realization of the fact that materials cost between 50-70% of
the entire expenditure in the public sector and the realization in the
private sector that materials costs account to a very high extent to the
profitability or otherwise of any organization. Further being aware that
an item well bought is an item well sold, has changed the entire
perception organizations have about the management of materials.
This reason formed the basis for the passage into law of the public
procurement act of 2007 by the National Assembly and its
subsequent passage of the same law by some states and the setting
up of the Bureau of public procurement popularly known as “Due
process office”, to supervise procurement activities in the various
levels of government. The private sector on its part, having realized
the profit centre of materials are now reorganizing and restructuring
their systems to accommodate a functional purchasing/procurement,
materials/supply chain department, to manage the entire materials
activities of their organizations. Thus, this department is usually
headed by a manager or director depending on who he/she reports to
in the organizational structure.
According to Lee and Dobler (1977), the paramount objective of
materials management is to reduce cost. More precisely, the total
costs associated with the acquisition and management of materials.
They also referred to materials management as a confederacy of
traditional materials activities bound by a common idea, and of an
integrated, management approach to planning, acquisition,
conversion, flow and distribution of production materials from the raw
materials state to finished product state. From the above definition,
for materials management to be efficient, it cannot be performed in
isolation.
5
Materials management may be said to be an activity,
integrated, coordinated and concerned with such widely dispersed
functions of management as budgeting, purchasing, production
scheduling, receiving inventory, manufacturing maintenance and
materials quality control. An effective and efficient materials
management system is concerned with the whole process from a
need for material services, right through to the supply of them to the
users and in many cases, the product thereby being made available
to the customer. It encourages the final disposal of scraps, obsoletes
and decisions such as ‘make or buy’, value analysis and value
engineering, standardization, optimum specification, product
development and new product pricing, quality of materials and
continuity of supply. The implications are that materials management
must be prepared to play a number of different roles. The fortunes of
a company may be affected adversely, depending on how well these
roles are played. So the materials manager is required to cope with
technological development, new material and process as well as
economic conditions. In line with the above reasoning, Compton
(1981), averred that the materials manager is essentially a leader, an
organizer and an administrator and must have a sound management
training, as this would enable him to effectively and efficiently
manage the organization towards achieving set goals and objectives.
1.1 BACKGROUND OF THE PROBLEM
In Nigeria, being a developing country, management of various
aspects of our live have been haphazard. So also is our industry
which has been operating in an environment characterized by risks
and uncertainties resulting from the downturn present in the
economy.
6
This was the situation in the telecommunication industry which
was originally weighed down by monopolistic tendencies whereby
only Nigeria Telecommunications Ltd (NITEL) was solely in charge in
the rendering of all Telecommunications Services within the country.
The fact that NITEL was able to sustain its services to the entire
country was as a result of government patronage and yearly
budgetary allocations as well as not having any form of competition.
Thus, the need to attain effectiveness and make profit from its
operations was absent.
The liberalization of the telecommunication sector and the
subsequent entry of other firms such MTN Nig Ltd, Econet (now Zain
Nig Ltd), Glo Nig Ltd, visafone, etisalat etc, whose objectives are to
attain effectiveness and efficiency in the rendering of quality services
to numerous customers and make reasonable returns on investment
a sine quo non, has now brought the need to manage every material
well so as to enhance the achievement of set goals.
1.2 STATEMENT OF PROBLEM
Materials management as perceived has not been widely
recognized in Nigeria by all and sundry, as a management activity
which is capable of enhancing the effectiveness of organization as
well as contributing to its overall profitability. This belief has inspired
the researcher into conducting this work on the materials
management effectiveness in the telecommunication industry.
Against this backdrop, the problem of effective management of
materials in the telecommunication industry is as follows:
i) Wrong interpretation of materials management concept.
ii) The profit potential of materials management has not been fully
realized.
7
iii) There is the lack of separate materials management
department in the telecommunication industry.
iv) There us the problem of use of non-professionals to handle
materials management functions.
v) Materials management has not been given its rightful place as
a management activity in the telecommunication industry.
1.3 PURPOSE OF STUDY
The purpose of this study is to highlight the essentials of
materials management effectiveness in the telecommunication
industry.
The researcher also seeks to achieve other objectives
including:
i) To determine the relationship between Materials Management
effectiveness and organization profitability.
ii) To determine all the areas that are covered in the Materials
Management function.
iii) To ascertain the level of attention given to the materials
management function in the Telecommunications Industry.
iv) To ascertain whether the right persons are allowed to handle
the materials management function.
v) To ascertain how appropriate materials management strategies
can lead to cost reduction.
8
1.4 SIGNIFICANCE OF STUDY
To demonstrate that a research is worthwhile, it must be
relevant to the society being studied. This study is relevant in respect
of the following:
i) Researchers: It will serve as a reference point for would be
researchers who will be interested in this area of study.
ii) Organizations: It will help both public and private organizations
to be conscious of the extent to which materials management
effectiveness can lead to costs reduction and the achievement
of profit objectives.
iii) Society: It will enable government to make appropriate policies
and laws on materials management activities.
iv) Telecommunication Industry: It will also be useful to firms in
the Telecommunications Industry who may have interest in the
progress of their firm and the need to engage the services of
professionals in this area.
1.5 SCOPE OF STUDY
Considering the fact that there are a great number of
telecommunication firms in Nigeria coupled with the fact that the
concept of materials management activities covers a very broad area,
the researcher therefore, focuses the study on the four major
telecommunication firms namely: MTN, Zain, Glo and Starcomm
since all of them are fully established in Delta State.
1.6 LIMITATION OF STUDY
The researcher encountered a number of constraints which
hindered an in-depth research on the topic.
First, is the conservative attitude of workers towards releasing
necessary information about their organizations. This is probably
9
because they want to hide certain information from their competitors.
This conservative posture is also reflected in their websites.
Secondly, is the time factor. The time is relatively short and did
not allow for a very detailed investigation to properly carryout the
study in order to obtain sufficient information needed by the
researcher.
Thirdly, is the unavailability of adequate and related texts in the
library. This might be attributed to the reason that materials
management, though old, is still an emerging phenomenon in
Nigerian.
Finally, is the financial constraints which limited the extent of
the researcher’s travel for literature and constant visits to the case
study companies for on-the spot observation required for this type of
study.
1.7 OBJECTIVES OF THE STUDY
The aims of the study are:
i) To determine the contributions of materials management to
organizational effectiveness
ii) To determine all the areas that are covered in the materials
management functions.
iii) To ascertain the level of attention given to the materials
management in the telecommunication industry.
iv) To ascertain how appropriate materials management strategies
can lead to cost savings and profitability.
1.8 RESEARCH QUESTIONS
To realize the stated objectives of this study, the researcher
seeks to answer the following:
i) What are the areas covered in the materials management
functions in the telecommunication industry?
10
ii) What effect does materials management have on
organizational effectiveness in the companies under study?
iii) How can effective and efficient materials management activities
contribute to cost savings?
iv) Is materials management given its rightful place as a
management activity in the telecommunication industry?
v) Whether the use of non-professional will have any effect in the
operation of materials management functions?
vi) Is there any relationship between the rank/position occupied by
the head of materials management and its general
effectiveness?
1.9 HYPOTHESES
1) Null (Ho): There is no significant relationship between materials
management and organizational effectiveness (profitability)
Alternative (H
I
): There is a significant relationship between
Materials Management and organizational effectiveness
recognize.
2) Null (Ho): Telecommunication industry does not neglect the
services of qualified professional materials manager.
Alternative (H
I
): Telecommunication Industry does recognize the
services of qualified professional materials managers.
3) Null (Ho): Telecommunication industry has not given materials
management its rightful place as a management activity.
Alternative (H
I
): Telecommunication industry has given materials
management its rightful place as a management activity.
11
1.10 DEFINITION OF TERMS
The following are the definition of terms which are unavoidable
in this research work. It is very important that these terms are defined
in order to clarify issues.
1. Non-Professionals:- persons that are not qualified in terms of
education and experience to undertake materials management
functions.
2. Inventory Control: The operation of continuously arranging,
receiving and issuing so that stock level is adequate to support
the current rate of production/consumption.
3. Ltd: This is the short form of writing limited which means limited
by guarantee.
4. Management Activity: Those activities that are carried out at a
high level such as planning, directing, organizing, staffing and
coordinating.
5. Sourcing: Identification or development of suitable sources of
supply of materials.
6. Profitability: Ability to contribute to the profit objectives of the
organization.
7. Competitive Tendering: Inviting prospective suppliers through
advertisement to bid or make an offer to undertake a piece of
work or supply goods at a stated price.
8. Outsourcing: Sub-letting certain jobs to firms that has the core
competencies to handle such jobs on behalf of the owner of the
jobs.
12
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
The changing world of business activities which has ushered in
intense competition has led to the need for coordination and perhaps
integration of materials management activities. This is as a result of
the fact that the profit making potentials of firms adopting effective
and efficient materials management is very clear to be seen.
According to Swallow (1982), materials include:
(a) Raw materials that have been purchased for use in the
operations of the business.
(b) Semi-finished parts or partly processed raw material awaiting
further processing
(c) Finished products that are in transit or awaiting distribution to
customers.
Materials are therefore, all raw materials, partly finished goods
known as work-in-progress (WIP) and finished goods which are in the
warehouse or ready for final users.
The importance of materials in any organization cannot be
overemphasized. They are a necessary input in the production of
goods and services. The Vietnam War for example, resulted in
upward price and material availability pressures. During the 1970s,
firms experienced widespread material problems related to oil
“shortages” and embargoes. The logical response of industry was to
become more efficient, particularly in the purchase and control of
materials.
Also, in alluding to the importance of materials in industry,
Charles Babbage (1822) in his books “The economy of machinery
and manufacturing, published in 1983 (Monczka et.al, 2002). He
13
referred to the importance of purchasing materials in what he called
“materials man”. Babbage wrote that a key officer responsible for
operating mines was “a materials man who selects, purchases,
receives, and delivers all articles required”. The importance which
Charles Babbage alluded to the various materials used in the firm led
to the fact that there has to be effective and efficient management of
them
In defining management, Bala (2007), view management from
two perspectives. Conceptional and functional. Management, as a
concept refers to a systematic process of working with others to
achieve common goals and objectives effectively, efficiently and
economically. It is the systematic development of strategies and the
marshalling of available resources to achieve the desired goals and
objectives effectively (doing what one is supposed to do), efficiently
(doing what one is supposed to do with less resources); and
economically (using resources wisely).
Management, as a function, denotes a set of individuals
charged with the responsibility of actualizing organizational goals and
objectives. In this vein, we have top management (who spend more
time planning and controlling strategic management), middle
management (who spend a lot of time organizing semi strategic
management; and lower management (who spend more time
directing-operational management). Generally, management as a
function connotes individuals who take or make decisions on behalf
of the organization.
Onwuchekwa (1993), viewed management as an aspect of
organizational design. According to him, the aim of organizational
design is to configure an appropriate structure. However, Stoner et.al
(2007) referred to management as “the process of planning,
14
organizing, leading and controlling the work of organization members
and of using all available organizational resources to reach stated
organizational goals. Onwuchekwa criticized this definition of
management by saying that Stoner only gave the functions of
management. He therefore, concluded that no one can manage
effectively and efficiently without understanding the management
theory.
Materials management, therefore, is the activity that controls
the transmission of physical materials through the value chain, from
procurement through production and into distribution. It includes
logistics which refers to the procurement and physical transmission of
materials through the supply chain, from suppliers to customers
(Charles Hill (2003). He went further to state that the twin objectives
of materials managements are to achieve this at the lowest possible
cost and in a way that best serves customers needs, thereby lowering
the costs of value creation and helping the firm establish a
competitive advantage through superior customer service.
According to Rahul (2003), materials management can be seen
as the process of strategically managing the procurement, movement
and storage of materials, parts and finished inventory (and related
information flow) through the organization and its marketing channels
in such a way that current and future profitability are maximized
through the cost effective fulfillment of orders. It refers to the
planning, organizing and controlling of a series of activities in the
entire supply chain.
Materials management exist in both service and manufacturing
organization, although the complexity of the chain may vary greatly
from industry to industry and from firm to firm. It provides a major
source of competitive and financial advantage, i.e. a position of
15
enduring superiority in terms of customer preference with low cost.
He concluded that materials management, works in demand driven
situation, encourages flow type production with small batch, reduce
idle inventory and idle time in any business by improving overall
customer centric approach.
Monczka et.al (2002) defined material management as all
activities associated with the flow and transformation of goods from
the raw materials stage (extraction), through to end users, as well as
the associated information flows. Materials and information flows both
up and down in an organization. Materials management includes
systems management, operations and assembly, purchasing,
production scheduling, order processing, inventory management,
transportation and physical distribution, warehousing and customer
service. It is essentially a series of activities that links suppliers to
customers.
As regards the effective and efficient management of these
materials, Lee and Dobler (1983), defined materials management
approach as the planning, acquisition, conversion, flow and
distribution of production materials, from the raw materials state to
the finished product state.
2.1 STRATEGY, MANUFACTURING AND MATERIALS
MANAGEMENT
Charles Hill (2003), while writing on strategy, manufacturing,
and logistics, viewed materials management as the activity that
controls the transmission of physical materials through the value
chain, from procurement through production and into distribution.
According to him, material management includes logistics which
refers to the procurement and physical transmission of materials
through the supply chain, from suppliers to customers. To him,
16
manufacturing and materials management are closely linked, since a
firm’s ability to perform its manufacturing function efficiently depends
on a continuous supply of high quality material inputs, for which
materials management is responsible. The efficiency with which this
is carried out can significantly lower cost, thereby creating more
value.
The manufacturing and materials management function of an
international firm has a number of important strategic objectives. One
is to lower costs. While manufacturing achieve costs reduction by
dispersing manufacturing activities to various locations around the
globe where each activity can be performed most efficiently, costs
can also be lowered by managing the global materials management
efficiently so as to better match supply and demand. Efficient
materials management reduces the amount of inventory in the
system and increases inventory turnover, which means the firms has
to invest less working capital in inventory and is less likely to find
excess inventory on hand that cannot be sold and has been written
off.
A second strategic objective shared by manufacturing and
materials management is to increase product quality by eliminating
defective products from both the supply chain and the manufacturing
process.
The idea of materials management strategy having major
impact on creating value was also supported by Rahul (2003).
According to him, effective materials management strategy may be
formulated to meet the needs of the market and integrate them with
technology to generate the highest level of customer satisfaction
while delivering the highest value to the shareholders. To him,
materials management strategy is based on collaboration strategy,
17
demand flow strategy, customer service strategy and technology
integration strategy. Both authors concluded that effective
manufacturing and materials management strategies would lead to
lower costs of value creation by reducing both manufacturing and
service costs.
The potential for reducing costs through more efficient materials
management is enormous. For the typical enterprise, material costs
account for between 50-70 percent of expenditures, depending on the
industry. This notion is supported by the World Bank report about
Nigeria between 2005-2006, that materials procurement consumes
about 50-70 percent of our revenues which informed the passage into
law by the national assembly in 2007, of the public procurement act
and the subsequent creation of the Bureau of Public procurement, to
oversee all forms of procurement in the public sector. A small
reduction in these costs can have a substantial impact on profitability
Charles Hill (2003).
Also, on costs reduction, which is the major and essential
objectives of materials management, Lyson (1981), argued that
materials management concept should be assigned to all major
activities which contribute to materials cost. These include all other
major procurement responsibilities including inventory management,
traffic, receiving, warehousing, surplus and salvage, frequent
production planning and control. But this issue of cost reduction is to
some extent, neglected by the telecom industry.
From the researchers observations and findings, the various
telecommunication firms in the industry, adopt mainly, two forms of
acquisition strategies: competitive bidding/tendering and outsourcing.
They do these in order to leverage the gains that are derivable from
their uses.
18
According to Peter Baily et al (1994), effective and efficient
materials management involves the whole flow of material and parts
from the suppliers to the manufacturing establishment with it store
and production lines, and after manufacture and the flow of products
through warehouses and distribution centres on to customers. As a
result, materials cannot be said, to have been effectively managed in
any industry, if the final product fails to reach the final consumers. In
view of this, they advocated the need for the physical distribution
management and materials management to be incorporated in the
same department.
On the importance and necessity of having effective and
efficient materials management, materials management approaches
are likely to gain the advantage of better coordination of people and
activities dealing with materials. Other merits that should be derived
include better and effective profit and development in information and
communication.
The researcher observed that firms in Nigeria
telecommunication industry are beginning to attach a lot of
importance to the effective and efficient management of materials. On
daily basis, you see advertisement for the positions of purchasing
officers/managers, procurement managers/director supply chain
managers/administrators and the like, unlike before when the
contributions of materials management to the organizational
profitability was under estimated. Firms had thought that sales
department contributes more to the organization, simply because
they generate revenues for the organization. However, the realization
by firms that a N10 savings in procurement of materials is more than
N25 of sales and that an item well bought is an item well sold, has
19
now given the much desired importance to the managers of
materials.
According to Burton (1973), materials often represent the
largest single account expenditure of a company. This fact is noticed
in the entire telecommunication industry. The second largest after
materials costs, is the labour costs. He then stressed that materials
should be effectively managed in order to reduce high amount
frequently wasted in procurement. This, he said affects the cost per
unit of the finished goods and services. With regards to material
management effectiveness and its contribution to the profitability of
the organization, he emphasized that the whole operation contributes
its full share to the objectives of the organization.
In the view of Aljian (1973), materials management is an
organization grouping, placing all functions of materials which include
production scheduling, material handling, materials control,
purchasing, traffic and distribution, under a material manager, both of
whom report to the manufacturing official or president. In his view, it
means that a material manager occupies the middle management
position with the production manager. I see his definition of materials
management to be outdated, out fashioned and not relevant to the
present day realities, in which material managers are highly
recognized and well placed in every organization, either in the private
sector which is geared towards profitability or in the public sector that
is presently striving to save costs as a result of globalization and
competitions.
The single greatest benefits a firm receives from having an
effective materials management is that the manager thinks as the
President, who is incharge of the whole materials function. Managers
of individual materials function such as purchasing, production
20
control, inventory control of goods and services, think narrowly in
terms of the unique responsibilities associated with a specific
function.
According to Lysons (1981), quoting from Ammer .S. Dean,
Ballot B. Robert and the chartered institute of purchasing and supply
of Nigeria, states that:
a) Materials management is concerned with the flow of materials to
and from the manufacturing department.
b) Materials Management is that coordinated function responsible, to
plan for acquire, store, move and control materials and final
products to the point of usage of facilities, personnel, capital funds
and provide customer services in line with corporate goals.
c) Materials Management is the total of all these tasks, functions,
activities and the organization and the administration of the same
until they are consumed or used in the process of production
operations or sale.
From the above statements, Ammer (1981) limited Materials
Management functions to just overseeing the flow of materials to and
from the manufacturing department, while Ballot (1981) made us to
understand that effectiveness in Materials Management goes beyond
that. He then said that the functions involve distribution of materials to
the ultimate consumers. The chartered Institute of Purchasing and
Supply (CIPS), (UK) also made us to understand that both materials
and services are involved and also the administrative tasks which
involves documentation.
As a matter of fact, from the researcher’s point of view,
effectiveness in Materials Management means to reduce cost, solve
problems associated with Materials Management in the organization,
optimize it by coordinating performance of the various materials
21
functions, providing a communication network and controlling
materials study.
From the study, the researcher also found out that many
previous research works had limited themselves to an aspect of the
subject. While some limited their study to pure purchasing which in
modern day business is called procurement, some other researchers
focused on inventory management, while other focused on
transportation and physical distribution of goods and services. The
researcher, being fully aware of the dynamic and competitive nature
of today’s global business environment, has therefore, widened the
scope to cover all the chain of activities in the Materials Management
which includes: procurement, inventory and transportation and
distribution.
The researcher, having also observed that most previous
research works on this subject area, had focused on manufacturing
industry, decided to focus his study on the telecommunication
industry in the entire Delta State, since the telecommunication
industry is presently driving the economy of the country.
EVOLUTION OF MATERIALS MANAGEMENT
The concept of Materials Management existed right from the
evolution of trade and could be traced back up to 500years BC in
India. In the view of Rahul (2003), India was a trade leader in those
periods and dealt with huge domestic operations. However, because
of the exploitation and invasion by the British and others, India could
not maintain the efficiency in the trade operations.
Similarly, we could find vestiges of materials management and
efficient operations following thousands of years back. After the first
industrial Revolution the corporate were following factory system
which was efficient at that time but with fragmented materials
22
management approach. Every department was an isolated island and
hostile relationships were observed with other trading organizations
like suppliers, wholesalers, dealers etc. He averred that the scenario
started changing after the second Industrial Revolution happened as
Toyota production System in Japan. The same theme was
accelerated by advenSt of Materials requirement planning (MRP)
Systems, MRP-II Systems and finally ERP (Enterprise Resource
Planning) Systems. The organizations started evolving as one entity
and internal Materials Management started becoming stronger. In fact
the key deliverable expected from ERP system was the tightly
integrated organization dealing with equally integrated other
organizations. The relationships between the trading organizations
were improving which was referred as ‘partnership’. This evolution
ultimately resulted into materials management. Thus, the concept of
materials management is new
In the view of Monczka et.al (2002), materials management
dates back to the early (1850-1900) which occurred during the
development of purchasing. This period witnessed the growth of the
American railroad. By 1886, the Pennsylvania Railroad had given
purchasing, departmental status, under the title of supplying
department.
The 2
nd
period of purchasing fundamentals (1900-1939) lasted
until the beginning of the World War II. In 1905, a book devoted to
purchasing containing 18 chapters, was published. Prior to this
period, purchasing gained importance during the World War I
because of its role in obtaining vital war materials. Harold T. Lewis, a
respected purchasing professional during the 1930s through 1950s
noted that there was considerable doubt about the existence of any
general recognition of purchasing as being important to a company.
23
Lewis noted that from World War I 1945, at least a gradual if uneven
recognition developed of the importance of sound procurement to
company operation.
The war years (1939-1945) ushered in more interest on
purchasing due to the emphasis on obtaining the required but scarce
materials. A study conducted during this period revealed that 76% of
all purchase requisition contained no specifications or stipulation of
brand. This suggested that other department within the firm
recognized the role of the purchasing agent in determining sources of
supply.
Accordingly, the end of the World War II (1947-mid 1960s),
ushered in the quiet years. The heightened awareness of purchasing
that existed during World War II did not carry over to the post war
years. After the World War II, purchasing managers struggled for
recognition. The post war period saw the development of value
analysis technique, pioneered by General Electric in 1947. GE’s
approach concentrated on the evaluation of which materials or
changes in specifications and design would reduce overall product
costs.
Period five: materials management comes of age (mid-1960s-
late 1970s). During this period, American firms initiated the dramatic
growth of materials management concept within America Industry.
The importance of materials management began to grow as a result
of the global era (1970s-1990). They went further to state that this
global era ushered in intense global competitions which emphasized
quality at lower costs, firms increasingly emphasizing different
strategies, organizational structures and management techniques;
unprecedented technology change and international product life cycle
24
becoming shorter, and the ability to coordinate worldwide purchasing
activity by using international data networks and the worldwide web.
The final phase of the evolution and development has brought
in what they called integrated supply chain management (2000 and
beyond). The approaches beyond 2000 reflect a changing emphasize
towards importance of quality and the role of the supplier, early
supplier design involvement, cross-functional teams for supplier
evaluation, long-term supplier development, strategic cost
management and integrated internet linkages and shared data bases.
From the views of the above authors, it is the view of the
researcher that Rahul tailored his views to India while Monczka et.al
aligned their view on the evolution and development of materials
management to America, because of their backgrounds, and believed
that due to the reshaping of the materials management role in the
modern economy and its increasing overall importance, that materials
management must continue to become integrated with customer
requirements, as well as with operations, logistics, human resources,
finance, accounting, marketing and information systems.
OBJECTIVES OF MATERIALS MANAGEMENT
Objectives are measure of effectiveness. A good objective must
be hierarchical, quantitative, precise and realistic (Onwuchekwa
2003). Accordingly objectives are targets, which organizations must
achieve if they are to survive. The means through which organization
accomplish their objectives is through the formulation of various
strategies (Monczka, 2002). They also said that the overall objectives
of materials management was to solve materials problems from a
total system view point rather than the view point of individual
functions or activities. In doing this, materials management objectives
25
which are derived from the overall corporate objectives is to reduce
cost and maximize efficiency.
Both Onwuchekwa (2000) and (Monczka et.al, 2002) concurred
that since materials management objectives are derived from the
overall corporate objectives, the former must be strategically aligned
with the later. This means that materials management activities must
be consistent with the nature of business strategy and make a
proactive contribution to maximum efficiency, value creation and
profitability.
Within the broader management objective of an industry or
business, effective and efficient materials management contribution
towards objectives may be attained under certain subheading like:-
Purchasing materials play a vital role in the field of cost control
and operating expenditure of any organization, and therefore, have a
direct bearing on the costs of a product manufactured or service
rendered. Materials management department can reduce overall
materials cost through efficient system of buying. This if done means
that it directly contributes its share to the enhancement of profit of
organizations.
Purchasing is a prime functional responsibility of the materials
management department and helps to ensure effectiveness and
efficiency. But the researcher observed that providers in the
telecommunication industry do not have a functional materials
manager. For example a facilities officer handles such activities in the
MTN Asaba regional office. The reason the officer gave is that, most
of their procurements are done centrally, through competitive
bidding/tendering while all their base-substations are outsourced to
firms such as Mikano and others who have the core competence to
handle such jobs.
26
Materials management ensures that the right quality and right
quantity of materials is sourced from the right sources (suppliers), at
the right price and delivered to the right place at the right time. There
are also some other objectives that do not contribute directly but
rather help other departments achieve their own objectives but
different organizations put different emphasis on these objectives.
Such objectives are achieved through value analysis, value
engineering and make or buy decision.
According to Baily and farmer (1982), there are benefits an
organization will derive if they integrate their materials management
effectively and efficiently. Such benefits could be: -
Elimination of buck passing, this is by defining and centralizing
the authority and responsibility of all the materials function under one
key individual under the title: purchasing/procurement manager, or
rather materials manager or supply chain manager/administrator. By
doing this, a central point of control for materials flow is provided. For
instance, when the user departments have problems regarding their
materials requirement, they need not to move around but rather go to
a central point and ask for the materials.
Wise buying requires accurate information promptly supplied,
regarding materials need.
Therefore, when all materials function, including materials
planning and control and inventory control are joined together in an
organization, effective communication is greatly required.
When there is reduced materials lead-time with long
communication channels, substantial amount of time may lapse
between the time potential materials user recognizes his need and
the time that materials is received by the firm. But, under materials,
this reaction time is less and there is greater speed, accuracy and
27
completeness of communication regarding materials requirement and
usage rates. It is possible to reduce the total investment in inventory
with resultant savings in inventory costs.
According to Bala (2007), if objectives are well articulated, they
are likely to enhance indices of high productivity, such indices
include:- Market standing, innovation, productivity, physical and
financial resources, responsibility, performance and profitability.
In the same vein, the researcher believed that the objectives
which materials management aims to achieve, whether in the area of
purchasing, distribution and transportation, production scheduling and
routing, warehousing (storage)/ inventory management etc, are
geared towards achieving cost reduction and a way that best serves
customer needs, thereby, lowering the cost of value creation and
helping the firm establish a competitive advantage through superior
customer service.
THE SCOPE OF MATERIALS MANAGEMENT
The new Webster’s Dictionary of the English language (1994)
defined ‘scope’ as “the area covered by an activity, plan, study etc.
Materials management encompasses all the various activities
that direct the flow of goods and services from the suppliers to a
manufacturing facility up to the final users.
In the view of Rahul (2007), materials management is
understood as the process starting from procurement to the ultimate
consumption of the finished products, linking across suppliers-users
companies or the functions inside and outside a company that enable
the value chain to make products and provide services to the
consumers.
Suffice to say that the main areas covered in materials
management is as follows: -
28
i. Purchasing (procurement) management
ii. Inventory (warehousing) management, and
iii. Transportation and physical distribution management.
2.2 PURCHASING MANAGEMENT
Organized purchasing has been defined by many authors in
various forms.
Dr. Iyson (1996) for instance, defined organizational purchasing
as “that function which is responsible for obtaining by purchase, lease
or other legal means, equipment, materials, supplies and services
required by an undertaking for use in production”
According to Rahul (2007), the fundamental goal of the
procurement or purchasing function is to acquire optimum quality and
quantity of goods and services for the company in a timely manner,
and at the lowest total cost. This also means that the sale is not over
until when the item is delivered by the supplier.
The significance of the role of purchasing in organizations today
is based on the size of expenditures for goods and services, as
reflected in the organization’s balance sheet and cost of
manufacturing or service operations. In fact, the whole concept of
purchasing function is now changing from the traditional materials
controlling to managing supply chains.
OBJECTIVES OF PURCHASING
According to Peter Baily and David farmer et.al (1994), a well-
known definition of purchasing objectives is to purchase the right
quality of materials, at the right time, in the right quantity from the
right source, and at the right price.
This hackneyed statement has been criticized by some as
being rather superficial and simplistic.
29
This is probably a valid comment, though this definition does
provide a practical framework for purchasing. Baily & farmer went
ahead to state that to achieve effectiveness in the management team,
the following broad statement of objectives is suggested:
- To supply the organization with a steady flow of materials and
services to meet it needs.
- To ensure continuity of supply by maintaining effective
relationships with existing sources and by developing other
sources of supply either as alternatives or to meet emerging or
planned needs.
- To buy efficiently and wisely, obtaining by an ethical means the
best value for every amount spent.
- To manage inventory so as to give the best possible service to
users at lowest cost.
- To maintain sound co-operative relationships with other
departments providing information and advice as necessary to
ensure the effective operation of the organization as a whole.
- To develop staff, policies, procedures and organization to ensure
the achievement of the foregoing objectives.
- In addition to the above broad objectives they added the following
specific objectives:
- To select the best suppliers in the market
- To help generate the effective development of the new product
- To protect the company’s cost structure
- To maintain the correct quality/value balance
- To monitor supply market trends.
- To negotiate effectively in order to work with suppliers who will
seek mutual benefit through economically superior performance
30
PURCHASING CYCLE
This refers to the various processes starting from the origin of
need up to the payment and accounting stage for goods and services
Purchasing cycle could also be likened as the basic activities of
purchasing functions. They are: -
- Checking materials specification, which are requisitioned in an
endeavour to standardize where possible, and to buy the materials
which are of the best value, for the purpose intended.
- Selection of sources of supplies, negotiation of terms, issuing of
orders, maintaining the necessary records to provide historical
data on price trends and vendor performance.
- Follow up (expediting) to ensure on the delivery and receipt of the
proper quantity and quality.
- Company’s intelligence in the market place, constantly researching
for new and more effective and efficient suppliers and new
products with the objective of cost reduction
- Suppliers’ evaluation.
Origin of need
Accounting System
Payment
Financial Approval
Market (Supplier) Assessment
Purchase decision
Receiving and Storage
Delivering Ordering
Traditional purchasing cycle called from Rahul Altekar (2007) P.174.
31
TYPES OF PURCHASE
Organization can separate its purchase according to the
following headings:
i. Raw material
ii. Purchased parts
iii. Packaging
iv. Maintenance, repair &operating (MRO)
v. Tools
vi. Resale items
vii. Equipment and
viii. Services.
Rahul (2007) said that these types of purchases require
different sets of skills to successfully accomplish the job. Though, not
all firms break-up their purchases in this manner and if they do the
definitions are often different.
PURCHASING MIX
The right quantity, the right quality, the right time and place, the
right price and the right source are what Oyeoku (1997) referred to as
the five rights of purchasing or technically described as “purchasing
Mix.
Also, according to Rahul (2007), they are the variables of
purchasing in the materials management since they directly affect
profit. Those rights according to line are
i. The right materials
ii. From the right source
iii. In the right quantity
iv. In the right condition
v. At the right time
vi. At the right price
32
vii. With the right service
Rahul also summarized the techniques used for achieving
these “rights as follows: -
? To facilitate early purchasing supply involvement
? To conduct regular procurement audits
? To create cross-functional teams for the supplies through
partnering arrangements or strategic alliances.
? To continually carryout risk assessment in supply environment
? To develop strategic, long-range acquisition plans
? To carry out participation of suppliers in the corporate strategic
process.
To enable these work effectively, the methods strongly demand
the deliberate efforts from buyer end of aligning suppliers with the
main line of business and action programmes, then the cost saving
plane can be put into place to provide focus and priority to the buyer.
Overall the purchasing department adds value to the
organization in many value added ways including reducing operating
and administrative cost, improving the quality of its products and
services to the market place, and enhancing the organization’s
reputation through the achievement of better supplier quality.
Materials services are managed for maximum returns and minimum
risk. One should expect this department not only to pay for itself in
savings achieved through skilled management of supplier
relationships, but also to actually turn a profit.
PURCHASING ETHICS
Ethics in general represents the sources of conduct either
exhibited consciously or in a purposeful manner aimed at achieving
an end.
33
Oyeoku (2006) believed that people who buy on behalf of their
organizations cannot afford to give any one cause to believe that their
buying behaviour is not completely ethical. Since they utilize millions
of naira of their employers in the purchase of goods and services,
they are exposed to temptations that few of their colleagues face. In
this regard, they have to be honest, but more they must be seen to be
honest.
The National Association of Purchasing Managers of America
state three basic measures for “professional” behaviour:-
i. Loyalty to the organization
ii. Justice to all whom one associates
iii. Keeping faith within the profession.
Further classified a range of standards of practices as follows: -
a. Always to serve the best interest of the company.
b. To give fullest co-operation to others.
c. To optimism the use of resources
d. To act with integrity in his dealings with outside organizations.
e. To avoid sharp practices
f. To comply with the laws of the profession
g. To subscribe to truth in all activities
h. To denounce bribery in any form etc.
2.3 INVENTORY MANAGEMENT
Inventory as the name applies is an alternative term for stock
control. It is the physical stock of items that a business or production
organization keeps in hand for efficient running of affairs of its
production. According to Rahul (2007), it is very essential that
materials of the correct quantity and quality is made available as and
when required, with due regard to economy in storage and ordering
34
costs, purchase prices and working capital. Stock control involves the
following processes: -
i. Assessing the items to be held in stock
ii. Deciding the extent of stock holding of items individually and
collectively
iii. Regulating the input of stock into the stores
iv. Regulating the issue of stock from the stores
The management of inventory is thus an attempt to match
supply and demand at a particular time and so forms part of a
capacity management strategy (Oyeoku, 2006).
A number of approaches have been developed towards the
management of inventory including MRPI and MRPII. In the view of
Rahul (2007) inventory management means maintenance, upkeep
and assurance of adequate supply of goods in order to meet an
expected pattern of distribution of demand for given financial
involvement. Usually, the type of inventory management system
employed by an organization is determined by the nature of its
demand for goods and services.
Inventory can be classified into two categories: dependent and
independent (Oyeoku, 2006). Dependent demand is that which its
demand is relatively predictable because it is dependent on other
factors. MRP system manage dependent demand items by
calculating the quality needed and the timing required (taking into
account purchasing and assembling lead times) of each item.
Independent demand on the other hand, is not related to the demand
for the other inventory item. This demand comes from customers
outside the company and as such is not as predictable as dependent
demand items.
35
TYPES OF INVENTORY
Inventory may be classified either as:
1. Raw materials inventory
2. Work-in-progress (WIP) inventory
3. Furnished goods Inventory.
Someone’s finished goods could be some one else’s raw
materials. Waters (1996) also pointed out that the total cost of holding
stock is typically 25% of its value over a year.
Rahul (2007), gave his own classification of inventory as:
i. Raw Materials and Supplies Inventories: Consisting of raw
materials, parts, subassemblies and supplies, which companies
purchase from outside sources.
ii. Production Inventories: Raw materials parts and component,
which become part of the product during the production process.
iii. MRO Inventories: Maintenance, repairs and operation supplies.
They are assumed in the production process but do not become
part of the product e.g. oil, spare parts.
iv. In-process Inventories: These are semi-furnished products e.g.
Cards without numbers printed on them to become recharge
cards.
v. Finished Product Inventories: Furnished goods or stocks
which are completed products ready for the market.
vi. Material in Transit Inventory: These are raw materials and
supplies inventories which are in transit and have already been
paid for, but not so far been received at the factory.
vii. Dealer Stock: In case a company owns a showroom or
distribution center inventories of finished goods or product kept
there have also to be considered.
36
viii. Total Inventories: All the above categories of inventories as
capital is locked up in these.
The basic objective of inventory control was to provide efficient
and smooth service to the customers be minimizing the idling of men
and machines which may arise due to shortage of raw materials,
supplies and spare parts by sticking them and still avoiding heavy
cost occurring due to capital lock-up or investment expenses involved
in storing and handling as well as ordering inventories. The scope of
the inventory management cover the following areas:
i. Defining policies to guide the inventory control programmers
ii. Determining the most appropriated store organization structure
iii. Determining economic order quantity (EOQ)
iv. Determination of stock out
v. Determination of safety stock
vi. Determine of lead time
vii. Determine of inventory status
viii. Minimizing handling and storing cost
ix. Effective running of stores.
BASIC INVENTORY DECISION
According to Oyeoku (2006), the main concern of inventory
management is the tradeoff between the cost of not having an item in
stock against the cost of holding and ordering the inventory. As
Greasely (1999) pointed out, internal customer in which case a loss
of production output may occur, or to an external customer a drop in
customer service level will result. To then achieve a balance between
inventory availability and cost; the following inventory questions must
be addressed:
i. How much to order
ii. When to order
37
iii. How should decision about volume and timing be made for a
particular item?
iv. How much extra of an item should be stored (safety stock)
v. How can we find and keep tract of what is stored and where
vi. How can we use items from different stores etc?
ECONOMIC ORDER QUANTITY (?OQ)
As Oyeoku (2006) pointed out, the ?OQ formula was
developed in 1915 by F.Q. Henris. Later, according to Schroeder
(2000), this formula gained wide use in industry through the efforts of
a consultant named Wilson. Thus, the formulas is often called Wilson
?OQ even though it was developed by Henris.
?OQ is essentially an accounting formulae that determines the
point at which the combination of order costs and inventory costs are
the least. The result is the most cost effective quantity to order. In
purchasing, this is known as the order quantity, in manufacturing, it is
known as the production lot size (Rahul, 2007).
The ?OQ and its variations are still widely used in industry for
independent demand inventory management.
The basic ?OQ formulae is as follows: -
?OQ 2(Annual usage quantity)(ordering cost)
(Unit cost x stock hold/carrying cost)
Annual usage: Demand rate in units per year
Ordering cost: Cost per order placed or set up cost, in N
(The denominator is already explained).
Any symbol or letters could be used to represent the above the
formulae.
Examples: let us suppose that MTN is managing a store and
wants to determine how many recharge cards of a certain type to
buy/print. The cards has the following characteristics:
38
Annual Usage = 360 units or recharge cards per year
Order Cost = N10 per unit
Unit Cost = N8 i.e. Avg amount of inventory on hand x cost
Cost of one unit = N25% of carrying one unit per year
?OQ = 2(10) (360) = 60
8 X 25
Therefore, MTN Nigeria Ltd should produce/buy 60 units of
cards per annum.
Cost
?OQ
From the above diagram, as ordering cost is falling because
fewer orders is placed per year; carrying (holding) cost in increasing.
The point of which both intercept is the best quantity to be
ordered/produced i.e. ?OQ for the firm. Because of this trade-off, the
function total cost has a minimum.
The researcher therefore, believed that to meet demand,
adequate stock must be kept so as to avoid the effects of under
stocking and over stocking.
The effects of under stocking are:
i. Stock out
ii. Production stoppage
iii. Loss of good will
Culled from: Oyeoku (2006): Principles of Purchasing and
Supply Management. P.64
39
Effects of over stocking:
i. Tying down of capital on inventory
ii. Lead to material obsolesce
iii. Pilferage
iv. High carrying/holding costs etc.
THE MATERIALS REQUIRMENT PLANNING (MRP)
This technique originated way back in 1962 - 65 (Rahul 2007).
In the view of Oyeoku (2006), the original MRP date back to 1960s
when the letter stood for Materials Requirement Planning (now
called) MRP one or MRPI). It is basically applied to balance supply
and demand, automate the creation of new supply/work orders, and
regulate the inventory levels.
Rahul (2007) state further, that MRP is used to plan the
material that are required to produce or procure definite quantities
and at determined time, based on the specification in the master
production schedule (mps). Greasely (1999) asserts that MRP is
basically an information system which makes the manual volume and
timing calculations unnecessary.
CONCEPTUAL MODE OF MRP
Master schedule
Inventory records and
projected status
MRP
Product structure
(BOM, lead times)
Requirements for
“buy” items
Requirements for
“make” items
Culled from: Supply Chain Management: Concepts and cases by Rahul
V. Altekar (2007) P.190.
40
The researcher, therefore, see MRP as product oriented
computerized technique aimed at minimizing inventory and
maintaining delivery schedule. It allows you to stock at optimum and
the proper flow and management of materials.
COMPONENTS OF AN MRP SYSTM
Sources: Operations Management (Greasely, 1999) p. 172
AIMS OF MRP
? To synchronise ordering and delivery of materials and component
with production requirement.
? To achieve planned control of inventory.
? To promote planning between purchaser and supplier to the
advantage of each i.e. symbiotic relationship.
? To save cost like variety reduction.
THE POWER OF JUST-IN-TIME (JIT)
According to monczka et.al (2002), when inventory moves so
fast that firms essentially hold zero inventory on hand, they are
following a system known as the “Lean Supply Chain”. It is a
combination of JIT purchasing, JIT transportation, and JIT production.
All three elements combine to create a supply chain that minimizes
inventory investment and eliminates waste.
Customer order
Demand forecast
Master production
schedule (mps)
Bill of materials
BOM
Inventory
status file (ISF)
MRP
calculation
Reports
41
Charles Hill (2003) averred that JIT was pioneered by
Japanese firms during the 1950s and 60s. It was first developed and
perfected within the Toyota manufacturing plants by Taiichi Ohno
(Frequently referred to as the father of JIT), as a means of meeting
consumer demands with minimum delays. The basic philosophy
behind JIT system is to economize on inventory holding costs by
having materials arrive at a manufacturing plant just in time to enter
the production process and not before. The major cost saving comes
from speeding up inventory turnover. It helps firms improve product
quality. Under a JIT system, parts enter the manufacturing process
immediately, they are not warehoused. This allows defective inputs to
be spotted right away.
The problem of JIT system is that it leaves a firm without a
buffer stock of inventory. Although, buffer (safety) stock are
expensive to store, they can tide a firm over shortages brought about
by disruptions among suppliers as well as help a firm respond quickly
to increase in demand.
BENEFITS OF JIT SYSTEM
According to Rahul (2007), the benefits derivable from using
JIT system is as follows: -
i. Reduced levels of in-process inventories, purchased goods, and
finished goods.
ii. Reduced space requirements
iii. Increased product quality and reduced scrap and rework
iv. Reduced manufacturing lead times
v. Greater flexibility in changing the production MIX
vi. Smoother production flow with fewer disruptions
vii. Worker participation in problem solving
viii. Pressure to build good relationships with vendors
42
ix. Increased productivity levels and utilization of equipment.
CONDITIONS FOR EFFECTIVE JIT SYSTEMS
(a) There must be effective communication system
(b) There must be effective transportation system
(c) There must be effective power system
(d) The firm’s suppliers must have good reputation
The researcher observed that the above conditions that must
be prevalent for an effective JIT system are lacking in the country and
by extension, the telecommunication industry in Nigeria, therefore,
JIT system cannot presently work effectively in Nigeria
telecommunication industry.
2.4 TRANSPORTATION AND PHYSICAL DISTRIBUTION
MANAGEMENT
Transportation is one of the most visible elements of logistics
operations. As a customer, we are accustomed to seeing trucks and
trains moving products, or packed at a distribution faculty.
J. L. Hanson (1974) defined ‘Transport’ as one of the ancillaries
of commerce. To him, the tremendous improvements in means of
transport that have taken place in the past two hundred years have
had far-reaching economic effects. Transport alters the geographical
position of the goods from the production point to the point of
consumption.
Rahul (2007) defined transportation in a simple language as: “a
means through which goods are transferred from one place to
another. He stated that transportation is a means of distribution.
Distribution to him, is the channel structure used to transfer products
from an organization to its customers. The primary function of
transportation is to move the product up and down the value chain.
Distribution decisions have significant implication on: -
43
- Product Margins and Profits
- Market Budgets
- Final retail pricing
- Sales management practices
Distribution channels can include one or more of these options.
? Retail: Stores selling to final buyers (one store, or a chain of
stores).
? Whole sales: An intermediary distribution channel that usually
sells to retail stores.
? Direct mail: Generally catalog merchants that sell directly to
buyers at retail price plus shipping via mail.
? Tele marketing: Merchants selling directly to buyers at retail via
phones
? Cyber Marketing: merchants selling directly to buyers at retail
prices, or business to business products and success at wholesale
prices via computer networks.
? Sales force: Salaried employee of a company or independent
company, or independent commissioned representatives who
usually sell products for more than one company.
DISTRIBUTION REQUIRMENT PLANNING (DRP)
DRP is a tool, which estimates inventory requirements at the
stocking locations and ensures that the supply sources are able to
meet the demand (monczka, 2002). It has been viewed as the key
requirement for Just in time (JIT), production and logistic system and,
is the logical extension of MRP.
44
DRP MRP
* DRP is determined by customer
demand on which the
organization has no control
* MRP is determined by a
production schedule which is in
term managed by the enterprise.
* DRP operates in an
independent demand situation.
* MRP operates in a dependent
demand situation.
* DRP co-ordinates once the
furnished goods are received in
the plant were house
* MRP controls inventory till
manufacturing or assembly is
completed.
(Characteristics of DRP and MRP by Rahul 2007 p. 227)
PLACE OF TRANSPORTATION IN MATERIALS
MANAGEMENT
To understand the functions of transportation, let us understand
where it occurs in the entire materials management chain.
Role of transportation in supply chain process (Rahul, 2007, p.241)
Supplier Transportation Stores Transportation
Manufacturing
Process I
Transportation
Manufacturing
Process II
Transportation Warehouse Transportation
Dealer Customer
45
MODES OF TRNSPORTATION
A mode identifies the basic transportation method or form. Each
mode has its significance depending upon the geographical location
and product to be transported.
Monczka et.al (2002), classified transportation into the
following:
i. Rail transportation
ii. Road transportation
iii. Water transportation
iv. Air transportation and
v. Pipeline transportation
They further averred, that the relative importance of each mode
can be measured in terms of system mileage, traffic, revenue and
nature of composition.
TRANSPORTATION DOCUMENTATION
There are several types of transport documentation required to
perform each transport movement.
According to Rahul (2007), the three primary documents are as
follows:
Bill of Lading: This is the basic document for using transport
services. It serves as a receipt, and documents the commodities and
quantities that are shipped. Accurate description and count are
essential. The designated buyer on the bill of lading is the only
bonafide receiver of the goods. The bill of lading specifies terms and
conditions of carrier liability and documents responsibility for all
possible causes of loss or damage.
Freight Bill: This represents a carrier’s method of charging for
transportation service performed. It is developed using information
contained in the bill of lading. It may be either prepaid or collect. A
46
prepaid bill as the name suggests means the transporter is paid prior
to performance. On the other hand a collect bill shifts the
responsibility of payment on the consignee.
Shipping manifest: This lists individual consignees when multiple
shipments are placed on a single vehicle. Each shipment requires a
bill of lading. The manifest lists the stop, bill of lading, weight and
case count for each shipment.
One objective of the manifest is to provide a single document
that defines the contents of the total load without requiring a review of
each individual bill of lading.
INBOUND AND OUTBOUND LOGISTICS
Logistics is generally concerned with movement and supplies.
The new Webster’s Dictionary of the English Language aligned with
the above definition. On its own part, logistics is referred to as “a
branch of military science concerned with troop movements and
supplies. Logistics which, originally is a military parlance, has been
generally used to mean the movement of supplies (goods and
service) in and out of organizations. Inbound (onward board) logistics
in the telecommunication industry refers to the movement of raw
materials, equipment and other supplies into the organization.
Outbound logistics on the other hand, refers to movement of
finished products and other supplies away from the organization,
home port, country, to other organizations or the final users.
CONTAINERIZATION
Containerization is an important element of the logistics
revolution that has changed freight handling on ships, railways, and
truck in the 20th century. Today, approximately 90 percent of Cargo
moves by containers via rails, roads, or water ways.
47
Simply stated, a container is a large rectangular box into which
a firm places commodities to be shipped. After initial loading, the
commodities themselves are not re-handled until they are unloaded
at their final destination.
The International Standards Organization (ISO) has made
recommendations for freight containers in Draft ISO No. 1496, which
are accepted generally by national standards bodies. The ISO says
that general purpose freight containers are of a rectangular shape,
weather-proof for transporting and storing a number of unit loads,
package or bulk materials, they confine and protect the contents from
loss or damage and can be separated from the means of transport,
handled as unit loads and transshipped without re-handling the
contents.
ISO STANDARD CONTAINER SIZES
These are based upon a module of 2.4m x 2.4m (8ft x 8ft), and
will make the following loads:
10ft long = 10 long tons
20ft long = 20 long tons
30ft long = 25 long tons
40ft long = 30 long tons
According to Rahul (2007), in the late 60’s ships spent 60
percent of their time in loading and unloading. Due to
containerization, this has reduced and the ships can turn around in a
few hours. He therefore, gave some of the benefits of containerization
to include:
? Simplified transport and flow of goods
? Easier and faster handling
? Faster deliveries
? Reduced loss due to damage, pilferage, misplacement
48
? Reduced packing cost
? Separation of incompatible goods
? Use of less congested routes
? Improved transport encourages trade etc.
2.5 COST REDUCTION TECHNIQUES
A materials manger looks always to the profit of the concern
which he represents. Materials manager must have good judgments
be well balanced, shrewd, sagacious, and well fortified with the
knowledge which he can scientifically accumulate; this is broadened
and improved by a close study of local, national and international
conditions which will make materials management a valuable assets
to any concern.
Materials management recognizes that the profit effect of a
naira saved in the purchasing function is the equivalent of at least
several naira of sales. Some firms have recognized the profit making
potential of materials management for many years and have a
programme of constant exploration of new ways to perform the
function more efficiently and with greater contribution to profit.
Techniques such as ABC analysis or 80/20 techniques, Blanket
cheque buying, Data phone, traveling requisition, Blanket orders,
systems contracting, computerized purchasing systems, automatic
vendor payment, economic order quantity(earlier explained), zero
defects, systematic vendor performance evaluation, purchasing
research, value analysis/engineering, supplier development, cost
analysis, incentive contracting, critical path analysis/method (CPA/M),
simplification, standardization, variety reduction, negotiation
technique etc. the researcher has decided to deal with only the
following cost reduction strategies as well as their contributions to
organizational profitability, for the purpose of this work:
49
ABC ANALYSIS OR 80/20 TECHNIQUE
While a materials manager may deal with several thousand,
different lines of item in the course of a year, the total money spent
on each item vary tremendously. If ABC analysis (or proportionate
value analysis) is used, the typical result will be as follows:
“A” item 10% of the line items account for 75% of the money spent
“B” item 10% of the line items account for 15% of the money spent
“C” item 80% of the line items account for 10% of the money spent
Obviously, the “A” items are the ones where the big money is, and
thus where the significant savings can be realized through better
purchasing, inventory and logistics management. A 10% savings on
“A” item may be equivalent to about 90% savings in “C” item. The
time and efforts spent by the materials manager should be allocated
on the basis of potential savings. It is a simple idea, but one which
often is overlooked and which can pay a big dividends.
ZERO DEFECTS
Purchase personnel should think in terms of “ultimate cost” of
the items they buy, it is not initial purchase price which is important,
but it is the final cost which has been incurred before the purchased
item performs the functions for which it was obtained that should be
minimized. If problems of inferior quality of purchased materials are
encountered, the “ultimate cost” will go up dramatically, and this will
affect profits.
Zero defects, which is similar to total quality management
(TQM) is a motivational approach used to condition suppliers and
their employees to “do it right the first time”, thus saving money for all
parties (sellers, buyers and final customers). Often purchasers
usually work closely with suppliers to set up a programme which will
50
result in better quality and reliability, to the ultimate benefit of all
parties to the transaction.
VALUE ANALYSIS (VA)/ENGINEERING (VE)
Value analysis and value engineering are both based on
obtaining a better cost/benefit ratio for a product. It is called value
engineering when it is applied to the initial design of a product and
value analysis when applied to existing product, components or
materials.
Oyeoku (2006), said that it is a systematic study of every
product, assembly and component made or bought out by an
enterprise, with a view to reducing their costs, by redesign to
eliminate design features which add to cost but do not contribute to
value. It is a disciplined way to attack cost. In identifying and
eliminating unnecessary costs, the performance of the product must
not be degraded. Basically, it required that valid and complete
answers be developed for the following five questions:
i. What is the item?
ii. What does it cost?
iii. What does it do?
iv. What else would do the job?
v. What would that alternative cost?
Generally speaking, most things possess two types of value,
aesthetic and functional. Hence, we must first determine which value
is the more important in the item we are requiring. In industry, the
vast majority of materials and components are bought for their
functional value. Industrials value, therefore, focuses upon function
and in pursuit of cost reduction through value analysis; the emphasis
is upon how a specific function can be performed at a lowest cost.
51
NEGOTIATION TECHNIQUE
The preferable method of price determination is competitive
bidding, which relies on the competitive force of the market to assure
the buyer a fair price. However, competitive bidding cannot be relied
on as a realistic pricing method when anyone of the following three
situations is present:
i. A sole source
ii. Collision exist among the seller, or
iii. The item being bought is extremely complex, with many difficult
– to- describe parameters (obviously, unless a precise work
statement can be given, a vendor will not be willing to make a
firm bid).
The alternative to competitive bidding is to negotiate the
purchase. According to Peter Baily et.al (1994), Negotiation supplies
some mutuality for wants, resolved by exchange. Negotiation is not
“hagging” or horse – trading”, instead, it is a rational process of
arriving at a reasonable price, one which will be fair to both buyer and
seller. It process involves setting contract objectives, determining the
pertinent facts surrounding the proposed buy, isolating and
classifying issues, determining the Negotiation position on each issue
and it importance, and setting a negotiation strategy.
SIMPLIFICATION AND VARIETY REDUCATION
Oyeoku (2006), said that ‘simplification which is a collary of
standardization represent a deliberate reduction in the variety of
items or products either purchased, sold, manufactured or held in
stock and attain economy. Simplification through a “variety reduction”
programmes is achieved through reduction in:
(i) The amount of tools and machinery employed
52
(ii) Labour costs through increased specialization of tasks and
through ease of hiring and training of staff.
(iii) Quantity of raw materials, work-in-progress and finished stock
inventories.
(iv) Machine set-up times; and
(v) Delivery failures.
Simplification and variety reduction improves quality and lower
unit costs and prices and thus makes it possible to achieve increased
sales.
The researcher believed that the application of simplification
and variety reduction will result in lowering the range of items lessens
the organization’s ability to meet with the needs of the market as well
as reducing the choice and custom of customers. They seem to be
persuaded to the limited lines available.
CRITICAL PATH ANALYSIS/METHOD (CPA/CPM)
This involves the preparation and analysis of the network for
making periodic progress reports. Preparing the Network according to
Ojo Kenneth involves:
i. Defining the objective of the project
ii. Identifying the individual job which make up the project.
iii. Determining the logical sequence of jobs
iv. Determining the estimated duration for each activity
v. Constructing the appropriate diagram.
He also averred that Network analysis can be viewed from the
aspects of time, cost and resources. It is basically a series of
activities and events. It can be describe as a diagram showing the
logical sequence of jobs within project. Consider a simple example of
a project of procurement where there are two activities, P&Q (p could
stand for receiving quotations from potential suppliers and Q for
53
sending job orders i.e. (local purchase order (LPO) for local
purchases and oversea purchase (OPO) for oversea purchases).
Activity Q can not be started until activity P is completed. CPA/CPM
which can also be called parato analysis, program evaluation and
review technique etc, are popular project control techniques that
requires the user to identify and determine the logical sequence of
those activities – critically following a path and doing first thing first.
STANDARDIZATION
Any accepted or established rule, model or criterion against
which comparisons are made is a standard (ASME). Standardization
as used here represents the agreement based upon certain factors
which affects an item such as its performance quality and various
dimension.
Consequently, certain components falling within a range of
models may be standardized and made interchangeable. For
instance, all the various range of recharge cards turned out by
telecommunication firms have the same standard. In other words,
materials whose composition and properties are specified either in
‘BSI’ specification, ‘SON’ specification or other specifications have
become a standard. Within this ambit, Oyeoku (2006), averred that
any specification which is intended for recurrent use becomes a
standard. Standardization gives a definite level of performance and
quality, as such improves business and cost decline to acceptable
standards when materials, procedures and products are pre-
determined so that future practices confirm to the standard and be
appraised.
SUPPLIERS EVALUATION
No best way exists to evaluate supplier (Monczka et.al (2002),
the overall objectives of the supplier evaluation process is to reduce
54
purchase risk and minimize overall value to the purchaser. Evaluation
involves the measurement of the effectiveness and efficiency of the
supplier. According to Peter Baily et.al (1994), it is the measurement
of the capacity of the existing supply base (suppliers), is called
vendor rating. All are aimed at satisfying low cost, delivery,
technology and service requirements etc.
They further stated that the key supplier evaluation criteria are:
i. Supplier management capability
ii. Overall personnel capabilities
iii. Cost structures of the suppliers
iv. Total quality performance
v. Process and technological capability
vi. Environmental regulation compliance
vii. Financial capability and stability (financial standing)
viii. Production scheduling and control systems
ix. E-commerce capability
x. Supplier sourcing strategies, policies and techniques
xi. Long-term relationship potential.
2.6 MODERN MATERIALS MANAGEMENT APPROACH
In the Enterprise Resource Planning (ERP) which is also
referred as CPFR (Collaborative Planning Forecasting Replacement,
all the organized players are seen as one entity. It means that
manufacturing organizations closely operates with all the trading
partners including customers at one side and suppliers at other side.
Infact, the well defined customer demand are known and the
main focus of the organization becomes fulfilling demand with supply
management thus integrating suppliers side. In the Global E-
Business Age, Consumers can directly talk with the manufacturing
55
company that is also a patent holder of the commodities required by
consumers.
2.7 ORGANISATION OF MATERIALS MANAGEMENT
A number of basic factors have now made the materials
management approach, more and more desirable in today’s industrial
complex. Again, the structure of a firm establishes the authority,
responsibility and relationships to a great extent, the manner in which
various groups of people work together.
In view of this, Lee and Dobler (1983) enumerated some factors
that largely determine the organizational approach chosen by any
firm. The factors include: -
i. The nature of the manufacturing operations.
ii. The amount of cost reduction leverage that can be brought to
bear on bought out material.
iii. The presence of multi-profit enter operations in a single plant.
iv. The degree to which the bought materials are in common use
among the several profit centers.
v. The availability of storage facilities and physical handling.
They went further to state that a study of the organization
structures for various companies showed large differences in formal
structure, even in organizations which manufacture similar products.
These differences are greatest on “higher” level.
According the Ericsson (1974), there is no ideal organizational
structure which fits all types of companies. The choice of the form of
the structures for the materials system is influenced by the problems,
which confront the firm and by the importance of the material flows
relative to other function in the company. Organizational structure is
very important in understanding how organization accomplished their
objectives (Onwuchekwa, 2000). According to him, management is in
56
organization to design appropriate organizational structure which is
capable of accomplishing the objective of an organization. Its major
aim is to create an effective link between the component parts of
organizational structure which resulted from departmentalization. So,
coordination helps an organization to integrate its component parts
towards the common good of the organization.
2.8 STRUCTURE OF A MATERIALS MANAGEMENT
ORGANIZATION
Sources: Dag Ericsson (1974) Materials Administration, (Pg 123)
Effective and efficient materials management is also influenced
by various characteristics of suppliers and customers by the
compositions of in-coming and out-going materials and product. In
view of the above, the researcher discovered that the organizational
Managing Director
Financial
Director
Marketing
Director
Production
Director
Material
s
Engineering
Director
Personnel
Director
Purchasing
Manager
Price
Analysis
Expediting
Purchase
Research
Inventory
Manager
Receiving
Inventory
control
Internal
transport
Materials
handling
Production control &
scheduling manager
Production control
Material control
Production planning
& scheduling
57
structure in the various telecommunication firms varies slightly. Their
choice was influenced by the peculiar problems which confront them.
There are ways in which materials management are structured
to ensure its effectiveness and efficiency. In some cases, it may be
appropriate to let the production department handle the materials
supply and stockholding and let the sales department be responsible
for distribution and stocks. This is quite distinct from what the
researcher found in the industry being studied as materials
management is presently given a lot of importance. Purchasing
department now take part in most, if not all materials activities. It is for
example not unusual to assign stock and stores control and freight to
purchasing.
Most companies that adopt the materials management simply
appoint a materials manager and regroup purchasing, production
control, and traffic function under him. As earlier pointed out, an
organization structure should be developed to meet the specified
needs of the organization and this differs from organization to
organization.
2.9 LIBERALIZATION OF THE TELECOMMUNICATION
INDUSTRY
Nigeria telecommunication Ltd. (NITEL) has been the only
telecom organization in the country. It’s services was by all standard
ineffective, inefficient and epileptic. This was largely due to the
inexistence of competition from any quarters, government patronage,
and wanton corruption in its entire system.
The then President, Gen. Olusegun Obasanjo, decided to
liberalize the telecom sector and in January, 2004, the Federal
Government through the Nigeria Communication Commission (NCC)
58
carried out the globally lauded Nigeria GSM auction and gave out
licenses to four other companies to carry out telecom services.
2.10 MATERIALS MANAGEMENT POLICIES OF TELECOM
FIRMS
Due to the nature of the industry, most telecom procurement
policies and procedure require that their suppliers comply with their
requirements, such as active involvement in Human resource
development.
While some have a materials management structure, others do
not have. Most of their service centres have counters where each
maintains a mini store of cards and lines used to service customers.
These cards and lines are daily collected from the inventory/store
officer who in turn receives its stock from their central store in Lagos,
since all their headquarters are based in Lagos, or any of their
regional offices. They generally maintain a centralized store system.
This helps to emphasize quality of the goods/products supplied to the
various firms to enable them give quality services.
On the use of professionals to handle materials management
functions, a check at MTN Nigeria website shows that a HND
marketing graduate from the federal polytechnic Ilaro, who later
studied did a B.Sc.in Business Administration in the UK was
employed as a reconciliation administrator. He later moved to
become the Regional Inventory Supervisor, Supplier Quality
Assurance Coordinator, Acting Manager, supplier Quality Assurance.
Also, Ericsson recently advertised for vacancies for the positions of:
client logistic manager and supply chain administrator respectively.
Applicants to the positions must posses requisite qualifications in
supply chain related disciplines as well as having varied experiences.
59
The telecommunication firms usually collect requirements from
the various departments and to be able to get value for money spent
on materials makes it purchases through bids/competitive tendering.
This ensures that the best price, quantity, quality and delivery time is
achieved. The bids could be either selective or open. It has its
registered contractors but new suppliers could be called upon when
the existing ones can not handle a particular supply. Also, some
minor purchases are allowed for emergencies.
Building of base sub-stations, supply of generating sets, fuelling
and regular maintenance are usually outsourced i.e. contracted out to
well established firms that have the core competencies to handle
such gobs. Though, designated staffs do carry out regular
supervision of the base/sub-stations because of their importance to
the general operations of the firms.
Before now, most telecommunication firms used to print their
recharge cards overseas and import them into the country until
recently when the federal government of Nigeria, through the National
Communications Commission (NCC), directed that the printing of
recharge cards by all telecommunication companies be done locally.
This directive has been complied with and has been helping in the
reduction of unemployment level as well as empowering the
producers of the raw materials that can be sourced locally.
Telecommunication companies in Nigerian regularly recruit
Nigerians who are qualified and interested in working for them. It
also, regularly pays taxes as well as supporting and sponsoring of
various sporting events, scholarships. It empower its distributors and
reward customers.
60
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.0 INTRODUCTION
Research design is the overall scheme or program of the
research (Okeke, 2001). This part of the study focuses on the
methods and design adopted for this study. Most of the methods
adopted are vary conventional, while others are more statistical
formulas. The details of the design and methodology are discussed
below
3.1 RESEARCH POPULATION
Materials management functions involve many departments.
The population of this study therefore, include all the employees of
the selected firms that are engaged in materials management
activities.
3.2 SAMPLE SIZE
The sample size for this study consists of only fifty (50) staff
from the selected telecommunication forms in Delta state that are
carrying out materials management functions.
3.3 SAMPLING METHOD
Convenience and judgmental (purposive) sampling techniques
were used. These are regarded as a non-probabilistic sampling
methods. These kinds of techniques were adopted became they were
the only practical approach for sampling the companies, due to the
fact that the researcher had to take certain factors into consideration
in selecting the forms. Such factors include the distance between the
companies to be examined and the researche’s location.
61
3.4 TYPES AND SOURCES OF DATA
The sources of data for this study include
i. Primary Source
a. Questionnaire
b. Interview
ii. Secondary Source
3.4.1 Primary sources: - These are the initial information and
they were gathered through the administration of questionnaire,
interview and survey. This is to ensure that the work is as original as
possible and of a practical background.
3.4.1.1 Questionnaires: - These were a major source of data
used for the survey. The questionnaires comprised “Yes” or “No”
questions and in some cases, the respondents were required to write
a statement or two that are not contained in the options given so as to
elicit the precise distinctions in their answers to the questions. They
were also highly structured questions which gave the respondents a
wide range of choice and also made for some explanations.
3.4.1.2 Personal Interview: - The inherent inadequacies in the use
of questionnaires has given rise to personal interview which was
adopted to clarify and improve the reliability of the information got
from the questionnaires. These interviews were focused mainly on
the history of the firms, separation of duties and adherence to
materials management roles.
3.4.2 SECONDARY SOURCES
The study was also carried out with the use of information
contained in various publications by the Chartered Institute of
Purchasing and Supply Management of Nigeria (CIPSMN), Journals,
62
websites and textbooks. These sources were duly acknowledged or
referenced with great thanks and appreciation.
3.5 INSTRUMENT OF DATA COLLECTION
The main instrument of data collection was the questionnaire.
Fifty five (55) questionnaires were prepared, each comprising of
twenty four (24) questions and distributed to the employees of the
selected companies in order to collect information for the study. Out
of the figure distributed, 50 questionnaire were received.
The questionnaire has a dual purpose: -
i. To translate the research objective into specific questions, the
answer to which will provide the data necessary for analysis.
ii. To assist the researcher in motivating the respondent to
communicate the required information needed for the study.
Two types of questionnaire were used in the study namely:
a. Open ended questionnaire.
b. Close ended questionnaire.
In open ended questionnaire, questions are framed in such a
way or manner that respondents are to answer in their own way i.e.
they are not limited to a particular choice or answer.
In the close-ended questionnaire, the respondents is restricted
to only one answer. In this case, they are given the option to choose
from various alternative answers provided.
Close-ended questionnaires are further divided into:
a. Dichotomous questions and
b. Multi choice questions
The dichotomous questions are such that the respondents are
required to select one of the only two options while in Multi-choice,
many options are provided, where the respondents is required to pick
just an answer.
63
3.6 QUESTIONNAIRE ASSUMPTIONS
The following assumptions were made in designing the
questionnaires
i. That respondents are competent to answer the questions.
ii. That respondents will voluntarily and honestly answer the
questions without being influenced
iii. That the exercise would be of interest to the respondents, as such
they would co-operate.
3.7 METHOD OF DATA PRESENTATION AND ANALYSIS
Accordingly, the analysis and interpretation of the raw data of
an investigation are the means by which the research problem is
answered and the stated hypothesis are tested. Therefore, the
researcher extracted tables and data deemed relevant and necessary
from the questionnaire, from which certain findings originated. The
researcher also made use of percentages based on responses
extracted from questionnaires.
In analyzing the data obtained from the field, correlation co-
efficient and chi-square were calculated by the researcher to test the
null hypotheses.
There are numerous correlation coefficients used in statistics.
The most common of these used is the so called product- moment
correlation coefficient due to Karl Pearson. The correlation coefficient
“?“ or its estimate “r’ has a range of from -1 to +1. The coefficient has
a value of 1 of the two variables have a perfect and direct linear
relationship. If “?” or its estimate “r” has a value of O, the two
variables are assumed to have no linear relationship.
64
a. COMPUTATION
The calculation of ri2, the correlation between x
1
, and x
2
is
given below.
r = n?xii Xi2 – ? Xii ?xi2
[cn?x
2
ii – (?xii)
2
(n?X
2
ii – (?? xi2)
12
]
SIGNIFICANCE TESTS FOR CORRELATION COEFFICIENT
Correlation coefficient ‘r’ is an estimate of the populations’ ?.
The null hypothesis is stated as:
Ho: : ?
12
= ? = o
Against the alternative hypothesis
H: : ?
12
= ? ? o
Under the assumption that the variables X, and X
2
have a joint
normal distribution, it can be shown that when ? =o, the statistic
t = r n-2
i – r
2
It has a student t distribution with n – 2 degrees of freedom
Ho: is accepted at the X significance level of /t/ ? t, - x; n -2
n
Otherwise, the null hypothesis is rejected in favour of the alternative.
b. chi-square (x
2
)
it is a parametric inferential statistical method used in analyzing
frequencies or nominal data. Chi-square is given by:
X
2
=? ( 0– ?)
?
Where O = Observed frequency
E = Expected or frequency
? = Summation sign.
65
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.0 INTRODUCTION
This chapter presents an analysis of the data collected. The amount
of data collected for any research does not make any sense until raw
data have been analyzed and interpreted thereby presenting a good
proof for decision and drawing, there from an appropriate, reliable
and accurate conclusion.
4.1 PRESENTATION AND ANALYSIS OF DATA
The data were collected and analyzed according to each
question contained in the questionnaire.
Question 1: Sex of the Respondents
Table 1 showing the sex of the respondents.
Sex No of responses Percentages %
Male 30 60%
Female 20 40%
Total 50 100%
ANALYSIS
The above table shows that out of the figures received, 30
respondents representing 60% were Male while 20 respondents
representing 40% are female. Therefore, majority of the respondents
are male.
66
Question 2: Marital Status of the Respondents
Table 2 showing the Marital Status of the Respondents.
Marital Status No of responses Percentage
Married 33 66%
Single 17 34%
Divorced - -
Widowed - -
Separated - -
Total 50 100%
The above table shows that out of the figures received 33
respondents representing 66% are married while 17 respondents
representing 34% are single. Therefore, majority of the respondents
are married.
Questions 3: Age of the respondents
Table 3 Showing the Age Range of the Respondents
Age range No of responses Percentage
Below 20 - -
21-30 13 26%
31-40 37 74%
41-50 - -
51-60 - -
Total 50 100%
The table above shows that out of the figure received, 13
respondents representing 26% belongs to the age range 21-30 years
while 37 respondents representing 74% fall into the age range of 31-
40 years. Therefore majority of the respondents are of average age.
67
QUESTION 4; Qualification
Table 4 showing the qualifications of the respondents
Qualification No of Responses Percentage
SSCE/GCE - -
OND 7 14%
HND/B.Sc. 23 46%
MBA/M.Sc. 20 40%
IPSW/CIPSMN - -
P.Hd. - -
Total 50 100%
The above table shows that out of the figures received, 7
respondents representing 14% have OND, 23 respondents
representing 46% have either HND or B.Sc. while 20 respondents
representing 40% have either MBA or M.Sc. results. Therefore,
majority or the respondents are graduates or have post graduate
qualifications.
QUESTION 5: Position held
Table 5: showing the position held by the respondents in the
organization.
Position No of Responses Percentage %
Management staff 13 26%
Supervisory 17 34%
Junior staff 20 40%
Total 50 100%
The table above shows that out of the figures received, 13
respondents representing 26% are management staff, 23
68
respondents representing 45% are supervisors while 20 respondents
representing 40% are junior staff.
Questions 1-5 were asked to ascertain the personal data of the
respondents but not asked for analysis.
MATERIALS MANAGEMENT SECTION
QUESTION 6: Does your organization have a materials
management department?
Table 6 showing whether the organization has materials management
department.
No of Response Percentage %
Yes 43 86%
No 7 abstained 14%
Total 50 100%
The above table clearly shows that out of the figures received
43 respondents representing 86% answered yes that their
organization has a materials management department while 7
respondents representing 14% answered NO. Therefore, most of the
firms under study have materials management department.
QUESTION 7: if your answer in question 6 is yes do you
consider materials management department as important in
your organization?
Table 7: showing whether materials management is considered
important in the firms under study.
No of Reponses Percentage %
Yes 43 86%
No 7 abstained 14%
Total 50 100%
69
The above table show that 43 respondent representing 86%
agreed that material management department is important while
7respondents representing 14% abstained. Therefore, materials
management department is important in the firms under study.
Question 8: If your answer in question 6 is no, which
departments do you think should carry out materials
management functions?
Table 8 showing the department that should carry out materials
management function when the department is not important.
No. of responses Percentage (%)
Production Department. - -
Sales Department - -
Accounts Department - -
Personnel Department - -
Others, please specify - -
Total - -%
The above table shows that none of the respondents believed that
materials should be handled by any other department.
Question 9: Do Materials account for a large portion of cost in
your company?
Table 9: Showing whether materials account for a large portion of
cost in the firms under study.
No. of responses Percentage (%)
Yes 47 94%
No 3 6%
Total 50 100%
70
The table above shows that out of the figures received 47
respondents representing 94% believes that materials account for a
large portion of cost while only 3 respondents representing 6% said
otherwise. Therefore, materials accounts for a large portion of cost in
the firms under study.
Question 10: What percentage of your materials is a cost item?
Table 10: showing the percentage of materials that is a cost item.
No. Of responses Percentage (%)
20% 2 4%
40% 27 54%
60% 13 26%
70-80% 8 16%
Total 50 100%
The above table shows that out of the figures received, 2
respondents representing 4% said 20%, 27 respondents representing
54% said 40%, 13 respondents representing 26% said 60% while 8
respondents representing 16% said between 70-80% is the
percentage of materials that is a cost item. Therefore, majority of the
respondents believed that 40percent of materials is a cost item in the
firms under study.
71
Question 11: Who takes decision on whether to make or buy
materials needed in your organization?
Table 11: showing who takes ‘make or buy’ decision.
No. Of responses Percentage (%)
Materials manager 10 20%
Top management 10 20%
General manager 10 20%
All of the above 20 40%
Total 50 100%
The above table shows that out of the figures received, 10
respondents representing 20% believed that materials manager, top
management and general manager should take make or buy decision
while 20 respondents representing 40% believes that all of them
should be involved in deciding whether to make or buy. Therefore,
make or buy decision should not be taken by any particular
department or only top management but input should come from all
parties involved.
Question 12: Who does the materials manager report to in your
organization?
Table 12: showing who materials manager reports to.
No. of responses Percentage (%)
Production manager 3 6%
General manager 37 74%
Personnel manager - -
Managing director 10 20%
Others, please specify - -
Total 50 100%
The above table shows that out of the figures received, 3
respondents representing 6% believes the materials manager should
72
report to the production manager, while 37 respondents and 10
respondents representing 74% and 20% respectively, supported the
materials manager reporting to general manager and managing
director. Therefore, majority of the respondents supported the
materials manager reporting to the general manager in the firms.
Question 13: What is the rank of the Head of the Materials
Management Department in your organization?
Table 13 showing the rank of the head of materials management
department.
Position No. of responses Percentage (%)
Stores officer - -
Logistics officer - -
Procurement officer - -
Materials manager 13 26%
Facilities manager 37 74%
Others, please specify - -
Total 50 100%
The above table shows that none of the respondents believed
that stores officer, procurement officer and logistics officer should
head the materials management department. 13 respondents
representing 26% supported materials manager heading the
department while 37 respondents representing 74% supported the
facilities manager heading the materials management department.
This position is supported by the fact that in the course of my visit to
the telecommunication firms in Delta State, I was always directed to
see the faculty manager.
73
Question 14: What is the educational qualification of the head of
your organizations materials management department?
Table 14 showing the qualifications of the head of materials
management department in the firm under study..
Qualification No. of responses Percentage (%)
SSCE/GCE - -
OND 3 6%
B.Sc/HND 17 34%
Postgraduate 30 60%
Professional (CIPSMN) - -
Total 50 100%
The above table shows that 3 respondents representing 6%
said that their Head of Materials Management Department have
OND, 17 respondents representing 34% said they have B.Sc./HND
while 30 respondents representing 60% shows that their Head of
Materials Management Department have postgraduate qualifications.
None believed that holders of SSCE/GCE and professional
qualifications are heading the department.
Question 15: Do you consider your Materials Management
Department as contributing to your organization’s
effectiveness?
Table 15 shows whether Materials Management Department
contributes to the effectiveness of the organization under study.
No. of responses Percentage (%)
Yes 47 94%
No 3 6%
Total 50 100%
The above table shows that 47 respondents representing 94%
believes that their Materials Management Department contributes to
74
their firms effectiveness while the other 3 respondents representing
6% answered otherwise. Therefore, Materials Management
Department contributes to effectiveness in the telecommunication
industry.
Question 16: If your answer in question 15 is yes, what level of
effectiveness does the department have on the organization?
Table 16 showing the level of effectiveness contributed by the
Materials Management Department.
No. of responses Percentage (%)
20-30% - -
31-40% 26 52%
41-50% 7 14%
51-60% 17 34%
Total 50 100%
The above table shows that 26 respondents representing 52%
believes that the department contributes between 31-40% level of
effectiveness to their organization, 7 respondents representing 14%
believes it only contributes between 41-50% while 17 respondents
representing 34% said that Materials Management contributions to
organizational effectiveness is between 51-60%. Therefore, materials
management Department contributions to effectiveness is between
31-40% in the firms under study.
75
Question 17: Which area of Materials Management contributes
highest to your organizational effectiveness?
Table 17 showing the areas of Materials Management contributing
highest to organizational effectiveness.
No. of responses Percentage (%)
Procurement 24 48%
Stores/inventory control 20 40%
Transportation 3 6%
Materials planning 3 6%
Others, please specify - -
Total 50 100%
The above table shows that 24 respondents representing 48%
believes that procurement contributes highest to organizational
effectiveness. Other contributions are stores/inventory control with 20
respondents representing 40%, transportation with 3 respondents
representing 6% and Materials planning, also having 3 respondents
representing 6%. Therefore, procurement functions contributes the
highest to organizational effectiveness.
Question 18: Please indicate the Materials Management activity
you consider poorly undertaken by your company?
Table 18 showing the Materials Management activity that is poorly
undertaken.
No. of responses Percentage (%)
Buying 23 46%
Stores/inventory control - -
Standardization - -
Traffic/transportation 7 14%
Value analysis - -
76
Subcontracting - -
Purchasing research 17 34%
None 3 6%
Total 50 100%
The above table shows that out of the figures received, 23
respondents representing 46% said buying, 7 respondents
representing 14% favoured traffic/transportation, 17 respondents
representing 34% favoured purchasing research while 3 respondents
representing 6% said none. Therefore, buying is the activity that is
poorly undertaken in the firms under study.
Question 19: Is there a free flow of information among functional
units in your organization’s Materials Management Department?
Table 19 showing whether there is a free flow of information.
No. of responses Percentage (%)
Yes 50 100%
No 0 0%
Total 50 100%
The above table shows that 50 respondents representing 100%
said that there is free flow of information in their organization’s
Materials Management Department.
Question 20: Do Telecommunication Industry recognize the
services of professionally qualified materials personnel?
Table 20 Showing whether Telecommunication Industry recognizes
the services of professionally qualified materials personnel?
No. of responses Percentage (%)
Yes 48 96%
No 2 4%
Total 50 100%
77
The above table shows that out of the figures received,
respondent representing 96% said yes while 2 respondents
representing 4% said No. Therefore, Telecommunication Industry
recognizes the services of professionally qualified materials
personnel.
Question 21: In your own opinion, do you believe that Materials
Management functions is being given its rightful place in your
organization?
Table 21 shows whether Materials Management is being given its
rightful place in the Telecommunication Industry.
No. of responses Percentage (%)
Yes 43 86%
No 7 14%
Total 50 100%
From the above table, 43 respondents representing 86%
believes Materials Management is being given its rightful place in
Telecommunication Industry while only 7 respondents representing
14% said No. Therefore, Materials Management is being given its
rightful place in the Telecommunication Industry.
Question 22: Do you consider your Materials Management
Department as covering all the various activities involved in the
supply chain?
Table 22 showing whether Materials Management Department is
covering all the various activities in the supply chain.
No. of responses Percentage (%)
Yes 40 80%
No 10 20%
Total 50 100%
78
The above table shows that 40 respondents representing 80%
favoured that Materials Management Department is covering all the
various activities in the supply chain while 10 respondents
representing 20% said No. Therefore, all the activities in the supply
chain are being covered in the Materials Management Department.
Question 23: Do you consider your organizations as giving the
right interpretation to the materials management concept?
Table 23 showing whether the organizations under study are given
the right interpretation to Materials Management Concept.
No. of responses Percentage (%)
Yes 37 74%
No 13 26%
Total 50 100%
The above table shows that 37 respondents representing 74%
believes that Materials Management concept is given the right
interpretation while 13 respondents representing 26% said No.
Therefore, the right interpretation is given to materials management
concept on the firms of study..
Question 24: Indicate the area you think contributes the most to
the Materials Management Department in your organizations?
Table 24 showing the area of Materials Management that is
contributing the most to the department.
No. of responses Percentage (%)
Purchasing management 23 46%
Transport/distribution
management
10 20%
Inventory management 17 34%
Total 50 100%
79
The above table shows that among the main areas of Materials
Management, 23 respondents representing 46% favoured purchasing
management, 10 respondents representing 20% said transportation
management while 17 respondents representing 34% around
inventory management. Therefore, purchasing management
contribute most to materials management department.
4.3 TESTING OF HYPOTHESES
The researcher will be testing the already formulated
hypothesis by the use of correlation coefficient for hypothesis 1 and
chi-square for hypothesis 2 and 3.
HYPOTHESIS 1
There is no significant relationship between materials
management and organizational effectiveness.
80
CALCULATIONS TO OBTAIN THE CORRELATION COEFICENT BETWEEN MATERIAL MANAGEMENT AND
ORGANIZATIONAL EFFECTIVENESS
S/N % output of material Management Productivity in % X1X2 X1
2
X2
2
1 70 50 3500 4900 2500
2 52 45 2340 2704 2025
3 55 48 2640 3025 2304
4 40 30 1200 1600 900
5 49 44 2156 2401 1936
6 51 32 1632 2601 1024
7 44 25 1100 1936 625
8 38 40 1520 1444 1600
9 50 49 2450 2500 2401
10 53 47 2491 2809 2209
11 52 33 1716 2704 1089
12 46 30 1380 2116 900
13 70 52 3640 4900 2704
14 53 41 2173 2809 1681
15 47 35 1645 2209 1225
16 54 48 2592 2916 2304
17 50 60 3000 2500 3600
18 36 42 1512 1296 1764
19 37 44 1628 1369 1936
20 50 50 2500 2500 2500
21 56 52 2912 3136 2704
22 57 48 2736 3249 2304
23 68 49 3332 4624 2401
24 69 50 3450 4761 2500
25 71 61 4331 5041 3721
26 40 31 1240 1600 961
27 42 34 1428 1764 1156
28 50 47 2350 2500 2209
29 52 48 2496 2704 2304
30 53 40 2120 2809 1600
31 44 36 1584 1936 1296
32 65 52 3380 4225 2704
33 64 51 3264 4096 2601
34 61 51 3111 3721 2601
35 69 55 3795 4761 3025
36 33 40 1320 1089 1600
37 34 41 1394 1156 1681
38 60 49 2940 3600 2401
39 29 49 1421 841 2401
40 50 49 2450 2500 2401
41 53 45 2385 2809 2025
42 52 50 2600 2704 2500
43 60 70 4200 3600 4900
44 62 60 3720 3844 3600
45 70 60 4200 4900 3600
46 44 50 2200 1936 2500
47 30 49 1470 900 2401
48 38 40 1520 1444 1600
49 60 61 3660 3600 3721
2533 2214 119824 137089 108645
81
r = n?Xi1 Xi2 - ?Xi1?Xi2_______
{(n?X
2
i1 – (?Xi1)
2
(n?X
2
i
2
– (?Xi2)
2
}
½
r = 50(119824) – (2533)(2214)__________
{50(137089) – (2533)
2
(50(108645) – (2214)
2
}
½
r = 383138________
{(438361) (530454)}
½
r = 383138
482214 = 0.7945
Thus the correlation coefficient between materials management
level and organizational profitability are positively associated.
SIGNIFICANCE TEST FOR CORRELATION COEFFICIENT
We test the Null Hypothesis
H0: P
12
= P = 0
Against the alternative hypothesis,
H1: P
12
= P ? 0
Under the assumption that the variables X
1
and X
2
have a joint
normal distribution, it can be shown that when P = 0
t = r n – 2
1 - r
2
has a student t distribution with n-2 degree of freedom H0 is accepted
at the x significant level if /t/? t
1
– x/2: n-2, where x is at 5% significant
level.
:. t = 0.7945 50 – 2
1 – 0.6312
82
t = 0.7945 48___
0.3688
t = 9.063
Tabulated t = t0.975:48 = 2.01
.: 9.063 > 2.01 we reject the Null Hypothesis and conclude that
material management output and organizational productivity are
significantly correlated.
HYPOTHESIS 2
Telecommunication Industry does not recognize the services of
qualified professional Materials manager.
To test this hypothesis, respondents were asked if
telecommunication industry recognize the services of qualified
professional material managers. The hypothesis seeks to test the
significant of such relationship.
OBSERVED VALUES TABLE
Options 0 E 0-E (0-E)
2
(0-E)
2
/E DoF
Yes 48 24 24 576 24.00 1
No 2 24 -22 484 20.17
44.17
The calculated chi-square value (X
2
) 44.17 is greater than the
tabulated value 6.635 at 1 percent significance level. We reject the
Null Hypothesis H0 and conclude that the telecommunication industry
83
does recognize the services of qualified professional material
managers.
HYPOTHESIS 3
Telecommunications Industry has not given Materials
Management its rightful place as a Management activity.
To test this hypothesis, respondents were asked if
telecommunication industry has given material management its
rightful place. The hypothesis seeks to test the significance of such
relationship. The table below is the observed values representing the
responses to the question.
OBSERVED VALUES TABLE
Options 0 E 0-E (0-E)
2
(0-E)
2
/E DoF
Yes 43 25 18 324 12.96 1
No 7 25 -18 324 12.96
25.92
The calculated chi-square value (X
2
) 25.92 is greater than the
tabulated value 6.635 at 1 percent significance level. We reject the
Null Hypothesis and conclude that the telecommunication industry
has given material management its rightful place.
84
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 INTRODUCTION
In a wide spectrum, the objective of this study is to ascertain
the effect of Materials Management functions on the Organizational
effectiveness in the Telecom industry using selected Telecom Firms
in Delta State as a study.
5.1 SUMMARY OF FINDINGS
The major findings of this study as revealed by the analysis has
made the researcher to be able to put incoherent facts together.
Based on the analysis of the information obtained by the researcher,
the following findings were made
I. Majority of the staff handling materials management functions
are graduates or have post-graduate qualifications
II. Telecom firms have materials management department
III. Telecom firms see materials management as very important
IV. Materials account for a large portion of cost in the Telecom
industry
V. About 54% of materials is a cost item in the industry
VI. Make or buy decision is not taken by only one department, but
all parties are involved
VII. Materials manager reports to General Manager or above
VIII. The head of the materials management department is called
Facilities manager
IX. The head of the materials management department have post
graduate qualifications
X. Materials management functions contributes to organizational
effectiveness
85
XI. Procurement is the materials management function that
contribute highest to organizational effectiveness
XII. Buying/Procurement is the materials management activity that
is poorly undertaken
XIII. There is free flow of information in the materials management
department
XIV. Materials management function is given its rightful place as a
management activity
XV. Materials management department covers all the various
activities involved in the supply chain
XVI. Materials management concepts is given the right
interpretations in the Telecom Industry
5.2 CONCLUSIONS
Having gone this far, it is pertinent to conclude this study by
saying that the main objective of any organization is to maximize
profit by causing a drastic reduction in costs. From the investigations
carried out on the selected telecom firms in Delta State, the problem
centered on the co-ordination and control of the various activities
starting from the identification of need, to the satisfaction of
customers. The effectiveness and efficiency in the materials
management functions, no doubt enhances organizational
performance.
It was found out that appropriate procurement, stock control
and transportation strategies would lead to a substantial benefits
most especially, when all the chain of activities such as value
analysis/engineering, inventory, materials handling, materials
planning, transportation/physical distribution, sourcing etc, are placed
under one department and headed by a qualified personnel.
86
The fact that losses from ineffective and inefficient materials
management are not seen directly on a firm’s cost accounting records
or its profit and loss statement does not make them less real, than the
more visible losses. Losses are where there is virtually no control
measures to mitigate them because, they usually hang over the firm’s
neck for years unnoticed as in the cases of losses from ineffective
and inefficient materials management.
Finally, the researcher concludes this work by saying that any
attempt to engage in materials management whether on a high or
small scale without involving the experts in the profession will bring a
great loss to the organization while every attempt to ensure that there
is synergy amongst all the materials management functions so as to
bring about better co-ordination in the department, would help the
organization achieve its main objective of profit maximization.
5.3 RECOMMENDATIONS
Having carried out a thorough and careful study of the selected
firms, particularly the areas relating to materials management and
having critically analyzed the findings, the researcher therefore,
makes the following recommendations:
1. The organizational structure of the industry should be
redesigned thereby consolidating on the existing materials
management department. In the new structure, procurement,
inventory control, traffic (transport) and other ancillary services that
involve materials, should be brought together under one manager, to
be called the materials manager. This is of immense importance in
view of the inherent responsibilities of:
(a) Determining production requirements
(b) Scheduling the production process
87
(c) Procurement, storage and distribution of materials at the right
time and within the allowable cost.
2. To further enhance the organizational effectiveness and profit
earning potential, the materials manager should be given a free hand
to carry out all activities relating to materials acquisition and all other
functions that ensures that value is created.
3. All the sections in the materials management department such
as inventory control, procurement, transportation should be headed
by professionally qualified personnel in the field while a
materials/supply chain manager should head the department.
4. The materials manager should be made to report to an officer
not below the rank of a general manager.
5. The use of competitive bidding/tendering usually used by the
telecom industry, to procure her materials is commendable, but the
process should be made more transparent by making it open.
6. Various cost reduction strategies such as value analysis/value
engineering, Materials Requirement Planning (MRP), Just-In-Time
(JIT), ABC Analysis, Negotiation technique etc should be widely
used where necessary.
7. As materials represent an increasing percentage in total
product cost, the control of all materials should be treated with the
importance it deserves, to reduce the costs in the firms.
8. The industry must as a matter of fact, recruit high caliber
professionals, especially where they do not exist, who will be in
charge of the materials management department to ensure quality
maintenance, effectiveness and efficiency. They must be either of
the:
a) Members of the chartered institute of purchasing and supply
management of Nigeria (CIPSMN)
88
b) Members of the chartered institute of purchasing and supply
(CIPS), London.
c) Graduate of Business Administration purchasing and supply with
an additional professional qualification in purchasing and supply
chain management.
9. The industry should engage in a sophisticated materials
planning and control for strategic materials sources and acquisition
taking cognizance of the epileptic nature of our economy which has
given rise to the persistent shortages of basic raw materials, which
are likely to continue and become more complex in the near future.
10. The telecom industry which out-sources some of its services
especially in the areas of building and maintenance of base-stations
as well as engaging in procurement through competitive
building/tender, should make the process more transparent by
encouraging all prospective firms to be involved. This would help to a
very large extent to reducing cost and the enhancement of
profitability.
11. Finally, telecom industry should improve in the use of
computers in the carrying out of materials management functions.
It is my fervent believe and opinion that if these
recommendations are appropriately adhered to, it will by no small
measure improve the effectiveness and efficiency of the materials
management functions in helping the telecom industry to render
quality services to its numerous customers and the enhancement of
its profitability.
89
5.4 AREA FOR FURTHER STUDY
The following areas are suggested for further study:
1. Materials management and organizational effectiveness, using a
fast consumer moving goods (FCMG) organization as a study
2. The contributions of inventory management to organizational
profitability
3. The importance of effective procurement management to
organizational survival
4. The role of Transportation management in achieving cost
reduction
90
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