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
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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 basestations,
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 (HI): 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 (HI): 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 (HI): 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.
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