THE IMPACT OF MATERIAL MANAGEMENT ON THE PROFITABILITY OF AN ORGANISATION

ABSTRACT

This study is on the impact of material management on the profitability of an organization. The total population for the study is 200 staff of Nestle plc. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, production managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

 CHAPTER ONE

INTRODUCTION

• Background of the study

Material Management, as practiced in business today, can be defined as “a confederacy of traditional material activities bound by a common idea. The idea of an integrated management approach to planning, comersion flow and distribution of products materials form the raw materials state to the finished state. (Iornum, 2007).

Over the last decade, our world has changed dramatically due to the growing phenomenon of globalization and revolution in information technology. There is tremendous demand on companies to lower costs, enlarge product assortment, improve product quality, and provide reliable delivery dates through effective and efficient coordination of production and distribution activities. To achieve these conflicting goals, companies must constantly re-engineer or change their business practices and employ information systems (Mahesh, 2006). Materials Management has always been an area of scrutiny for organizations. This has become a central focal point as trends from the supply chain arena have indicated that substantial operating cash can be freed with leaner and more efficient handling of inventory.

As organizations examine the state of their inventory, they often find that visibility across locations and warehouses are inadequate, stock levels are inconsistent, demand is uncertain, and communication between stocking locations or warehouses may be minimal or non­existent. Among other things, the lack of an integrated interaction between’ peripheral systems and materials managers leads to unnecessary purchasing and overstocking.

The concepts of “materials management”, “physical distribution management,” and “logistics management” are the primary materials organizational tools which have been used successfully in the past and will be used increasingly in the future to achieve closer coordination and control of a firm various materials activities.

In general materials management is concerned with bringing materials from outside of an organization to the point of production and moving in processes.

If we distinguish between the operational function of customer service and the resultant goal of customer value and satisfaction, this discussion leads us to conclude the consequences of materials management are lower costs and improved customer value and satisfaction to achieve competitive advantage. Industry reports support this contention (Performance Management Group, 2001).

The fast developing and technologically changing environment has placed before the materials manager a tremendously challenging task and responsibility. The task is really herculean when .we recognize the importance of materials, equipment’s and components per annum that go into the production channels. The challenges become tough because the money tied up in inventory or materials and equipment are enormous. In fact, in many organizations (big and small), materials form the largest single expenditure item. According to Subramanian (1974) an analysis of the financial statements of a large number of private and public sector organizations indicates that materials account for nearly 60% of the total expenditure. Consequently, the importance of materials management lies in the fact that any significant contribution made by the materials manager in reducing materials cost will go a long way in improving the profitability and rate of return on investment. Such increase in profitability, no doubt, can be affected by increasing sales.