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MATERIALS MANAGEMENT: A PRELUDE TO MINIMIZE COSTS OF

MATERIALS IN PAMPANGA’S BEST, INC.

A Thesis Presented to the Faculty of the College of Business Administration

of the Bulacan State University

City of Malolos, Bulacan

In Partial Fulfillment of the Requirements for the Degree

Bachelor of Science in Business Administration, Major in Financial Management

by:

Ciara Bernadette T. Policarpio

John Joshua B. Azarcon

Michelle Joy M. Zamar

Lois Ann C. Vivas

Mae B. Ramirez

December, 2017
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CHAPTER I
THE PROBLEM AND ITS BACKGROUND

Introduction

In order for a business to be successful in a world of scarcity, one has to consider

every opportunity and strive for the maximum efficiency. There should be a system in

controlling and utilizing materials in the most efficient manner; a need for materials

management – “the function of business that is responsible for the coordination of

planning, sourcing, purchasing, moving, storing, and controlling materials in an optimum

manner to provide products to customers at a predecided level at minimum cost" (The

Rai Technology, 2014, p. 9).

An efficient management of materials is most essential in a manufacturing entity,

having more materials employed than any other type of business operation. Financially,

materials usually represent up to 60% of total assets, likewise its costs range from 40% to

60% of the total expenditure of a manufacturing firm. Though there are manufacturing

entities that have adopted the concept of materials management, most of them still have

not (Arnold, Clive and Chapman, 2008). This implies that the application of materials

management in businesses has been given less importance. A proof is the non-existence

of a materials management department, with a view that anyone in the company may do

the procurement of materials and employs it as their needs arise, thus creates conflicts

among departments (Assiamah, 2008). This also means that there has been little or no

attention given to the issues of materials management, because of too much focus on the

manufacturing itself. The supply of components for the manufacturing process, high
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inventories, high freight costs, or poor customer delivery may be affecting company

performance, and these issues need to be addressed (McDonald, 2009).

Materials management is an important practice in attaining efficiency. It means

that maximizing materials productivity can minimize costs and contributes directly to the

company's profitability. This could only be possible with an efficient materials

management. It is therefore essential to have a department responsible for the flow of

materials, and that if the companies wish to acquire coordinated approach and minimize

costs, they will move in this direction.

The purpose of this thesis is to determine how the application of materials

management minimizes the cost of materials of a specific manufacturing entity. A

suggestion towards the implementation of materials management concept is the

Pampanga's Best, Inc., a multi-millionaire meat processing corporation, having no

materials management department. In this context, materials management concept refers

to the application of its functions such as production and materials planning,

procurement, materials handling, distribution, and communication. At the end of this

research, practices that are deemed applicable to the company, with the ultimate objective

of attaining organizational efficiency, will be recommended.

Company Background

Pampanga's Best, Inc. is amulti-millionaire meat processing corporation and

regarded as the first and original tocino-maker in the world, founded in 1967. Aside from

tocino, it also manufactures ten core products such as hotdogs, longaniza, ham, bacon,

tapa, burger patties, corned beef, embotido, barbecue, and nuggets. It implements Food
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Safety Management System (FSMS) to show their commitment in providing safe and

quality products.

Bought-out products. The direct and indirect resource the company utilizes are

of superior quality, and comes from world class accredited suppliers to ensure production

and quality safe foods. The company performs extensive inspection, testing, analysis, and

evaluation in the selection of materials and suppliers. The following are the materials that

they procure from their suppliers:

 Meat (pork, chicken, beef)

 Ingredients (salt, sugar, flavorings)

 Packaging (adhesives, bags, corrugated folding cartons, tapes)

 Indirect supplies (pallets, personal protection equipment, poly bags)

Human Resource. Pampanga’s Best, Inc.'s employees are screened, evaluated,

and trained toward their commitment to producing quality and safe food. The company

treats its employees as one of their greater assets, and regarded as the largest contributor

in the company's success.

Plant. The production of meat products takes place in the plant of Pampanga's

Best, Inc. in Barangay Dela Paz Norte, City of San Fernando, Pampanga. The facility

area is 1.2 hectares situated in a 37 hectare property. It has a production capacity of 50

metric tons.

Distribution. The flow of Pampanga’s Best products is through their stores in

Pampanga, and their 32 distributors who have their own retail outlet, widely spread in the

Philippines. They also handle directly most of large scale supermarkets and institutional

accounts.
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Pampanga's Best products are also for export. This is possible through

consolidators in the Philippines that deliver these products in Hong Kong, South Korea,

Singapore, Dubai and some countries in the Middle East.

Statement of the Problem

Materials Management has been given less importance in businesses and thus, not

having a materials management department. The control over the materials depends upon

the employee/department using the same. Therefore efficient utilization may not be

assured, which should have been of utmost importance for a manufacturing entity.

The study, Materials Management: A Prelude to Minimize Cost of Materials in

Pampanga’s Best, Inc. aims to answer the question, “How can materials management

minimize the cost of materials in Pampanga's Best, Inc.?"

Specifically, this seeks to answer the questions:

1. How does the company procure materials from suppliers?

2. What materials handling system does the company adopt?

3. How does the company maintain stocks?

4. What actions can minimize the company's materials costs?

Significance of the Study

The study aims to contribute information about Materials Management. The

researchers intend to ascertain how materials management can minimize the cost of

materials in Pampanga's Best. The findings from this research will serve as guidance to

the following:
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Pampanga's Best, Inc. This study will help the company realize the importance

of materials management. Further, they may consider establish a department responsible

for managing the materials that would eventually enhance their work operations, reduce

cost and improve profits.

Manufacturing Industry. Holding the largest portion of inventories,

manufacturing firms could practice implementing the materials management concept, and

should be set as a standard in the industry.

Customers. One of the aims of materials management is to achieve the right

quality along with the right quantity, time, source and price. Such quality can be extended

to the final products bought by the customers.

Government. The most important input the company has towards the government

is the payment of taxes. Since the implementation of materials management concept

means reduced cost, and reduced costs means higher profits, it can be implied that this

leads to higher taxes payable to the government.

Future Researchers. This written output will serve as a reference for the future

researchers who will carry on investigating the related study. Such output would not

thrive without the past bases earlier used by the researchers.

Scope and Delimitation

The focus of the study is mainly based on how the application of material

management minimizes the cost of materials in Pampanga's Best, the sole company

which has been used in this study. Its profile encompassing its nature, products offered,

raw materials and suppliers are considered in this study.

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The material management concept involved in this research covers the functions

of production and material planning, materials handling, procurement of goods,

distribution, control of materials cost, and communication. The term 'materials' that is

used throughout this study is any physical substance used by a manufacturing industry to

process or manufacture its products or goods for sale (Assiamah, 2008). In addition, the

various costs involved in these materials are purchasing costs, inventory carrying cost,

transportation cost, materials handling cost, packing cost, marketing cost, obsolescence

and wastages.

A face-to-face interview with the purchasing, production and sales and marketing

managers will be conducted. In his/her absence any representative from the department

would be permitted.

To ensure the attainment of the research, the study intends to gather information

from related studies and literature.

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CHAPTER II
THEORETICAL FRAMEWORK

This chapter deals with the relevant theories, related literature and studies, and

that were culled to have a strong foundation in the improvement of the conceptual

framework.

Relevant Theories

There are several factors that influence the application of materials management.

In studying its extent, the following theories are taken into account.

Systems Theory. Olum (2004) cited that a system is a collection of part unified to

accomplish an overall goal. If one part of the system is removed, the nature of the system

is changed as well. The systems theory has had a significant effect on management

science and understanding organizations. A system can be looked at as having inputs

(e.g., resources such as raw materials, money, technologies, people), processes (e.g.,

planning, organizing, motivating, and controlling), outputs (products or services) and

outcomes (e.g., enhanced quality of life or productivity for customers/clients,

productivity). Systems share feedback among each of these four aspects of the system.

The concept of systems theory relates very well with this study since materials

management as a coordinating function, involves various activities that are interrelated

and interdependent. In its broader sense, the implementation of improvements as a result

of this study would largely depend on organizational interdependency. In other words, the

execution of the activities could be possible only with the support and commitment of the

entire organization to attain a common goal.

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Theory of Constraints. According to Arnold et al. (2008), the fundamental

concept of theory of constraints is that every operation producing a product or service is a

series of linked processes. Each process has a specific capacity to produce the given

defined output for the operation, and in virtually every case, there is one process that

limits or constrains the throughput from the entire operation.

Understanding the theory of constraints makes the management rethink of their

approaches. This theory and the materials management are both aimed mainly in

achieving the most efficient flow of materials in a plant through process improvement.

Related Literature

This presents different related literature that have direct relevance to the study.

The following were reviewed by the researchers to provide significant insights in the

determination on how can materials management concept minimize the cost of materials

in Pampanga's Best, Inc.

Supply Chain Management. Lu (2011) Supply chain is a network of companies

that works together to add value to basic commodities, in order to be converted to

finished products that are demanded by the designated market. He added that the ”supply

chain management is simply and ultimately the business management" (p. 13) It is the

‘planning and controlling all of the business processes that link together partners in a

supply chain in order to serve the needs of the end-customer.

The aim within a supply chain must be to keep materials flowing from source to

end-customer. It suggests that parts are moved through the supply chain as quickly as
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possible. And in order to prevent local build-ups of inventory, flow must be in harmony

so that parts move in a coordinated manner. (Harrison and Hoek, 2008)

Logistics Management. Logistics can be seen as part of the overall supply chain.

The overall task of supply chain management is the task of logistics to manage material

and information flow (Harison and Hoek 2008). Oftentimes, supply chain and logistics

management are used interchangeably. However, there is a difference between the

concepts of the two. Logistics management typically refer to the materials and

information flow that occur within the boundaries of a single organization, and supply

chain management refers to such flow within the networks of companies that work

together and coordinate their functions to deliver product to market. (Hugos, 2011).

Moreover, Arnold et al. (2008) pointed out that the business logistics' emphasis is more

often on the transportation and distribution system – with a little concern for what occurs

in the factory.

Materials Management. "Material Management is a branch of logistics that

deals with the tangible components of supply chain" (The Rai Technology, 2014, p. 6). It

is a process that coordinates planning, assessing the requirement, sourcing, purchasing,

transporting, storing and controlling of materials, minimizing the wastage and optimizing

the profitability by reducing cost of material. (Patel and Vyas, 2011). The Rai

Technology (2014) also states that Materials management's aim, also called the famous 5

Rs of materials management, is to have appropriate materials of the right quality, in the

right quantity, at the right time, from the right source, and at the right price.

Materials. From the Business Dictionary, the term "materials" refer to any

physical matter from which something can be made that may be consumed directly or
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indirectly. Further, Vrat (2014) pointed out that the scope of materials management can be

categorized as (a) purchased materials such as raw and indirect materials; (b) work in

process which are semi-finished and finished parts and components lying on the shop

floor; and (c) finished goods or those final products either waiting to be assembled in the

assembly lines or in stores which are stocked for final delivery waiting to sell.

Costs of materials. According to Jessop et al. (1998), the costs associated with

the materials are basic price, purchasing costs, inventory carrying cost, transportation

cost, materials handling cost, packing cost, marketing cost, obsolescence and wastages.

Hugos (2011) asserts that many costs are hidden - either they are not realized at

all or brought into the general overhead. But he pointed out that these costs are applicable

to the manner in which materials are managed, and therefore dependent on materials

management effectiveness. These costs are inventory carrying costs, shortage costs, cost

of materials handling, inspection costs, and cost of replenishing materials. Thus, due to

these costs not being recognized, there may be tendency in the part of the decision

makers to cater only visible costs which may be a small portion, with hidden costs being

the main cost components.

In addition, Arnold et al. (2008) maintained that costa may be reduced by assuring

that the right materials are in the right place at the right time and the resources of the

company are properly used.

Production and materials planning. According to Carter et al. (2008)

production and materials planning is essential to ensure efficient use of personnel,

materials facilities and capacity. This also covers assistance in both long and short term

planning with control over the materials used and issued.

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Materials required for any operation are based on the sales forecasts and

production plans. Planning and control involves estimating the individual requirements of

parts, preparing materials budget, forecasting the levels of inventories, scheduling the

orders and monitoring the performance in relation to production and sales. (The Rai

Technology, 2014)

The Materials Requirement Planning is a software system technique to plan level

of materials that should be ordered and purchased. This plan will be translated into a

manufacturing schedule called Master Production Schedule. This involves establishing

the correct priorities such as what is needed and when, and making sure that the capacity

is available to meet those priorities. These techniques are widely used in business

planning and production so as to assure that the product will be available to the

customers. On the other side, production planning takes place to ensure that sufficient

raw materials, staff and other necessary items are procured and employed to create

finished products according to the schedule specified (Hugos, 2011)

Moreover, Arnold et al. (2008) addressed that it is the responsibility of the

production planning to find the moat productive way in meeting the demand of the

marketplace.

Procurement. Procurement involves the process of selecting vendors,

establishing payment terms, strategic vetting, selection, the negotiation of contracts and

actual purchasing of goods. This function deals with the acquisition of all the materials

that are necessary to manufacture the finished products (Lim, 2014). Vrat (2014) stated

that among the materials management functions, the most critical aspect is the vendor

section. He maintained that vendors as partners are the most important asset to materials
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management. He should have the right kind of capabilities to do his job with the good

quality, and should have the right attitude to meet what is stated in the contract. Vrat

added that if the company does not find the right vendor, all following materials

management function will be is crisis.

There are cases that procurement and purchasing are used interchangeably,

despite the fact that procurement envelopes the function of purchasing (Lim, 2014).

Purchasing. According to Lim (2014), purchasing is generally the buying of

goods and services as well as receipts and payments. It is usually described as a

transactional function of procurement, that is, in what manner the good and services are

acquired. It is therefore the subset of the procurement process. Lu (2011), in his definition

of purchasing, noted that it refers to the actual obtainment of the materials ordered.

Materials handling. Material handling is the movement, protection, storage and

control of materials and products throughout manufacturing, warehousing, distribution,

consumption and disposal. As a process, material handling incorporates a wide range of

manual, semi-automated and automated equipment and systems. A company’s material

handling system and processes are put in place to improve customer service, reduce

inventory, shorten delivery time, and lower overall handling costs in manufacturing,

distribution and transportation. (MHI, 2017) According to the Business Dictionary, it will

be an efficient activity if short distance movement of goods is taking place in the

production.

For Ray (2008) the foremost importance of materials handling is that it helps

productivity and thereby increases profitability of an industry. He revealed the fact the

many enterprises go out of business because of inefficient materials handling practices.

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Also, competing businesses is seen to have the same production equipment, but hone who

has improved materials handling system maintains ahead of their competitors. He added

that materials handling attempts to achieve (i) improved efficiency of production system,

(ii) cut indirect labor costs, (iii)reduce damage of materials, (iv) maximize space

utilization (v) reduce overall costs by improving materials handling. However, there are

notions materials handling also have negative aspects that should not be overlooked. It

may include additional capital cost, reduced flexibility, and additional maintenance costs.

But Ray contended that these are only short term expenses that will be paid off by long

term benefits.

Inventory management. Vrat (2014) distinguishes materials management from

inventory management. He mentioned that materials management covers inventory

management, and that the latter is the central theme of the former. In his book, he stated

that inventory or stock is a "useable but idle economic resources that have economic

value" (p. 21). –apart from the flowing materials that materials management also covers.

It is necessary for a business to have a physical stock to take care of the anticipated

demand, because non-availability of materials when needed lead to delay in production.

However, keeping inventory is not free because there are opportunity costs of carrying or

holding inventory in the organization. The notion is that, an organization needs inventory

but it is not desirable to have inventory. It is this paradoxical situation that makes

inventory management a challenging area in materials management. (Vrat, 2014)

One of the powerful ways of controlling the materials is through Inventory

control. It covers aspects such as setting inventory levels, doing various analyses such as
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ABC, fixing economic order quantities (EOQ), setting safety stock levels, lead time

analysis and reporting. (Mathur, 2017)

Storage and Warehousing. Part of materials handling is the storage and

warehousing, which deals with the physical custody of materials after they are acquired

until they are used for consumption or production. The receipt of materials and placement

in the storage or warehouses until the time that they are needed is the major task of

storage and warehousing. Otherwise, delay and increased cost may arise (Vrat, 2014).

Storage and warehousing becomes necessary when adequate stocks comprising of

large number of items are on hand. The procedure for receipt, inspection, issue and

accounting of materials and so on has also to be in place. In a manufacturing

organization, not only raw materials and consumables are to be stored, but also the

finished and processed products are to be warehoused. Proper methods of stocking should

not be overlooked (Arnold et al., 2008).

Hugos (2011) contended that the facilities of production (factories, storage and

warehouses) should establish the trade-off between responsiveness and efficiency. If

almost all of the facility's capacity is used, the business may not be able to respond to

fluctuations in demand. On the other hand, if the facilities are built with a lot of excess

capacity, that portion could not generate revenue. So the insufficient capacity, the less the

responsiveness. The more the excess capacity, the less the efficiency.

Distribution. Physical supply or distribution deals with the activities involved in

the movement of goods; from the supplier, throughout production process, to the

consumer. The particular path in which it is moved—through distribution centers,

wholesalers, and retailers—is called the distribution channels. It is an important activity

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as it involves substantial costs. Efficient & responsive distribution system is very

necessary for giving a good service. (Vrat, 2014)

Emphasized by Hugos (2011), the distribution of materials acquired by a

company must be ascertained and its flow and continuity of supply must be maintained

by the materials management department. The management has to maintain continuity in

production to meet possible uncertainty in demand and control the situation by proper

flow of materials supply and distribution at various production facilities and other

departments as per changes in production quantity.

The objective of distribution management is to provide the required level of

customer service at the least total system cost. Minimizing one activity costs will do

nothing, but an overall cost minimization would be much more effective (Arnold et al.,

2008).

Control of materials cost. The most common way of increasing productivity is

to minimize costs. When costs arise, materials management must organize cost reduction

programs, and provide effective means of monitoring the effects of the programs (Vrat,

2014).

Communication. Materials management is the concept of having one department

responsible for the flow of materials, from supplier through production, to the customer.

It covers different activities such as production and materials planning, procurement,

materials handling, distribution, and control of materials costs. It can be seen that

different departments may be responsible over these activities. However, it should be the

responsibility of the materials management department that a well-balanced and efficient

communication exist among various departments (Arnold et al. 2008)

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This study revolves around the notions of the above mentioned literature relative

to materials management and costs of materials. This study will be further strengthened

by the succeeding related studies.

Related Studies

This section presents the related local and foreign studies quoted from

unpublished materials such as theses and dissertations. This will help the researchers

grasp others' point of views who are interested on the same topics and determine what the

results have been.

Local Studies

Velasco (2014) conducted a study in supply chain management in Filipino SMEs.

Most literature on supply chain management focuses on large organization with global

operations employing high-level information technology. This study analyzes the SCM

model being used by small medium enterprises (SMEs) in the Philippines. The SCM

model is based on the Focus-Localize-Partner framework as applied to the supply chain

architecture and the support being used by Philippine SMEs. Main respondents of the

study are members of an NGO that helped in the development and growth of SMEs in the

Philippines. Philippine SMEs adapt a supply-chain-management model that captures the

needs of the customers. This decision is composed of four major considerations, when,

how much, how many, and where to buy. Final decision to purchase the goods lies on the

ultimate customers. The decision to buy triggers the dynamics of the entire supply chain.

Filipino SMEs cater to the domestic Filipino market as their ultimate customers. Results
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of the study revealed that Philippine SMEs are carrying out SCM through the in-depth

incorporation of accepted business practices among Filipino entrepreneurs.

Encina (2009) conducted a research on inventory management of maintenance

items in Mitsubishi Motors Philippines Corporation. The study is focused in the plant

maintenance section of the company's production department. The main objective of the

study was to eliminate or reduce equipment downtime by analyzing first the existing

process in the company. This was done by creating a process map that illustrates clearly

the flow of operations. It was found out that the cause of downtime are out of stock of

parts that are used to repair equipment, lack of skilled maintenance man and slow

machine repair. In order to reduce the downtime, the author presented alternative courses

of action and improve the production process. These are the monitoring of the inventory

and establishment of a control system. To attain the objectives of the study, the author

conducted a qualitative approach through interview, observation and plant tour.

Foreign Studies

Pattanawasanporn (2014) conducted a case study about supply chain management

(SCM) being a major of competitive strategy to enhance organizational profitability,

technologies for effectively and productivity. The study was conducted in Noodle Factory

whose major issue is largely a result of the rising costs of manufacturing, shortened

product life cycles, and the globalization of market. The study is focused on logistics and

supply chain, lean, and six sigma tool. Data was collected through a questionnaire, which

was sent to twenty (20) food factories in Nakhonsawan Province. The data was analyzed

through fishbone diagram where in this research used seven waste to identify operation
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process waste: defects, overproduction, transportation, waiting, inspection, motion, and

process. The study concluded that “Logistics and supply chain management affects all

processes, decreases their profitability and affects the quality of the service given by the

University. The people have the opportunity to assess the perception of the core

competences of the organization. The customers take measures by Logistic and Supply

Chain Management. The level of information has a direct effect in the customer. SCM

will contribute to their perception and increases the employment efficiency of the

business to other businesses. The SCM and Logistic will make advantaged by developing

skills. The logistic will provide them with the opportunity to achieve leadership ability

and maintain it effectively. The logistic will also make be successful in the production of

information for logistic purpose and in the human resources. The Six Sigma Method can

apply thought the organization for solving problem and decrease defect and control of

variation. Lean Method can identify problem and current state process, eliminate delay,

and reduce waste such as reduce delay, reduce defect and reduce of deviation. Finally,

Academics or Research Institutes in Thailand should studies from this case study and will

apply to other case study for sustainable in future”.

A study on materials management in construction sites in India was done by Patel

and Vyas in 2011. Their subjects were three well-known builders wherein the study aims

to fill the gap in the absence of proper materials management. The study had summarized

the material management processes into eight (8) main parts. They were planning,

benchmarking, purchasing, receiving, inspection, storage, issuing material and inventory

control. These were divided into 4 phases which are material identification, vendor

selection, procurement and construction phase. The problems associated with each phase
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were clearly identified through the employment of questionnaires. By doing so, it

disclosed the usual problems occurring in these phases.

They concluded that there was an absence of co-ordination between the sites and

the organization, and therefore, a centralized materials management team is required. In

addition, they pointed out that there is a need of an efficient MIS integrating all aspects of

material management. Awareness and accountability should also be created within the

organization, as well as proper control, tracking and monitoring of the system should also

be practiced. Finally, they emphasized that firms employing proper material management

system are seen to have increased their overall efficiency by 35%.

Vieira, Pasa, Borsa, Milan, and Pandolfo (2011) evaluated the impact of materials

handling management in the manufacturing unit of an automotive industry in Brazil,

through internal customers’ perceptions. The study discussed the changes made in the

materials handling process to address the concerns regarding the delays in production

caused by forklifts. Instead of using forklifts, they proposed to use a tractor towing small

“wagons” which forms a train-like vehicle. With this, larger volumes of materials can be

moved over long distances. After thorough testing, evaluations and innovations,

conclusions were made. Based on the findings, the improvement in material flow caused

by the used of the proposed vehicle increased the accuracy of materials delivery time of

the company and it also increased the overall satisfaction of the internal customers.

Another related study was conducted by JerutoKeitany, Wanyoike and Richu

(2014). The aim of the research was to assess the role of material management on

organizational performance of New Kenya Cooperative Creameries Limited, in Eldort

Kenya, being one of the largest and the oldest dairy company in East and Central Africa.
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The study intended to assess how inventory control systems and lead time affect

organizational performance. There are 7 departments that deals with materials, were

selected which include: Production, Purchasing, Quality Control, Warehouse/store,

Human Resource Development, Finance and audit and Physical Distribution

Departments. Data was collected through a structured questionnaire, consisting mainly of

closed ended and open-ended questions. The data was analyzed through descriptive

statistics such as mean, standard deviation, median and percentages. Results showed that

there was significant increase in organizational performance as a result of inventory

control system involvement. Further, results showed that lead time was highly significant

to organizational performance through acquiring and delivering the needed materials

within the shortest time possible. The study advocated that a lot of emphasis need to be

directed to materials management in dairy companies in order to achieve significant cost

savings, reduction in wastes and production costs and to achieve increase in profitability

and product quality, consequently improving the organizational performance. The study

recommended that dairy companies adopt the use of Information Communication

Technology (ICT), use of proper codes in all materials, and the employees be trained on

the use of inventory control systems.

Dereje Tekabe (2013) conducted a research about the materials management in

secondary schools of West Hararghe Zone. The purpose of the study was to investigate

the current practices of material resource management in secondary schools of West

Hararghe Zone. The data both qualitative and quantitative were gathered through

questionnaire, interviews, observation and documents. The collected data were analyzed

using frequencies, percentage and chi-squares. Purchasing of material resources was

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undertaken by inappropriate personnel. (ii) With regard to the utilization and guideline

for material resources, there was no guideline for purchasing and utilization of material

resources and schools were not in position to manage their material resources properly.

(iii) Storing activities were left only for storekeeper and materials in stores were not

classified and codified due to lack of proper storeroom and non-involvement of

concerned staff. (iv) Inventories were carried out only when needed without regular plan.

(v) Unused materials were accumulated in storerooms and not disposed in due time due

to lack of a guideline of disposal of unused materials except unused textbooks. The major

problems affected the management of material resources were the absence of proper

guideline for the appropriate purchasing and utilization of materials, the absence of the

participation of stakeholders in the management of material resources, lack of proper

stores in secondary schools, lack of specific responsible body for material resource

management and lack of appropriate manpower for respective functions of material

resource management. In sum, materials management functions were not implemented at

the same extent, the involvement of teachers and non-teaching staffs in MM functions

were not adequate in secondary schools. Thus, to improve the situation, Schools should

have guidelines to ensure the proper purchasing and utilization of materials and disposal

of unused materials, create conducive environment to participate the concerned bodies in

the management of material resources.

Small and Medium Scale Industrial Enterprises (SMEs) play a significant role in

contributing on the economic growth of a country. However, most of the SMEs lack of

skills and knowledge in inventory management that causes loss in the business.

Mismanagement of inventory can result to inadequate inventory of raw material and its
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spare parts. These problems can cause the break of production schedule and machine

breakdowns. Also inefficient inventory management can lead to underutilization of

capacity that can bring about unemployment problem of an economy. Monisola (2013)

conducted a study considering strategic importance of inventory to an effective operation

of an enterprise. The study examines the different practices in inventory management in

sales to assess its impact on the inventory decisions on the organization. Based on the

results, the study found out that the impact of shortage of inventory on workers

performance, utilization of machinery and organizations profitability in different sectors.

This suggests the need for a system in order to facilitate the proper inventory

management through perpetual inventory approach.

In addition, Zhang (2014) conducted a study in materials management of Chinese

SMEs in processing industry. The purpose of the study is to identify the main problems

and reasons to these problems regarding the materials management of Chinese SMEs.

Based on the result of the surveys, the researcher identified some of the problems: High

costs of materials management, incorrect billing of materials, quality problems, shipping

errors, receiving errors, etc. On the other hand, the researcher also identified the reasons

these problems occur: High inventory, wrong encoding, ineffective quality control, wide

range of materials, lack of management and control, etc.

To address these problems, the researcher recommended applying the ERP

(Enterprise Resource Planning) system and ABC (Activity Based Classification)

classification for materials management. In ABC classification, the inventory is divided

into three categories, in order of their importance. It helps to manage the entire volume
 23

and assign relative priority to the right category. The ERP system helps in improving

working efficiency and reducing errors.

Conceptual Framework

The input, process, output conceptual model is adopted in the study of materials

management and its application towards materials cost reduction in Pampanga's Best, Inc.

INPUT PROCESS OUTPUT

• Choice of company • Data collection • Identified and

determined:
• Face-to-face
• Aim of the research interview • Materials
management-related
• Presentation and work operations
evaluation of • Level of importance
• Literature review
Pampanga's Best Inc.'s of materials
materials-related work management
operations in terms of: concept

• Production and • Recommended

materials planning materials management
• Procurement scheme to minimize
cost of materials
• Materials handling
• Distribution
• Control of materials
cost
• Communication

Figure 1. Paradigm of the study

The paradigm is composed of three frames. The first one represents the "input",

that is, the ideas, information, references and sources used in conducting the study. It

starts with the choice of the company and aim of the research, followed by the reviewed
 24

literature that forms the basis of this study, and the data gathered through face-to-face

interview and on-site observation. The second frame pertains to the "processes" that the

said data will undergo. It involves a thorough analysis and clear presentation of all the

information so as to come up with an "output", as illustrated in the last frame. From this,

findings will take place and researchers could bring out their recommendations.

Definition of Variables

For the purposes of this study, the following terms are defined operationally.

Production and materials planning. This function is the planning of materials to

be issued and used in production.

Procurement of goods. This refers to the acquisition of materials from suppliers

that are needed in the production. It involves the functions of selecting vendors,

negotiation and actual purchasing.

Materials handling. It is the acceptance, handle and physical movement of

materials to production.

Distribution. This pertains to the receipt, storage and dispatch of finished goods

to distribution channels.

Control of materials cost. This deals with the efficient use of materials and cost

reduction programs related to materials flow.

Communication. As a coordinating function, materials management should

ensure an effective communication with different departments of the organization.

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CHAPTER III
METHODOLOGY

The chapter describes the research methodology adopted throughout the research.

It provides the information about the methods and techniques to be used, population and

sample, research instruments adopted, data gathering procedure, and finally, data

processing in order to achieve the objectives of the study.

Methods and Techniques of the Study

Due to the aim of this research work, that is, to determine the impact of materials

management concept in the cost of materials in Pampanga's Best, Inc., a qualitative

descriptive design method will be used in order to achieve the desired results for this

research. Qualitative descriptive research (case study) is comprehensive summarization

of specific events experienced by individuals or groups of individuals with the ultimate

goal of is to improve practice which presupposes a cause/effect relationship between

behavior and outcome. (Hatter, 2017). The researchers chose this approach since it will

enable them look into all areas of the topic at hand and also give a thorough

understanding and analysis.

Regarding the use of sampling in a qualitative descriptive design, purposive

sampling technique will be used. Sampling for population generalization is not the main

concern of this study. Like any other qualitative research design, the goal is to obtain

cases deemed rich in information for the purpose of satisfying the data (Lambert and

Lambert, 2012). This involves identifying and selecting individuals or groups of

individuals that are especially knowledgeable about or experienced with a phenomenon

 26

of interest (Cresswell & Plano Clark, 2011). With this, the researchers chose to acquire

managerial perspective that provides expertise on how the company deals with its

materials.

Population and Sample of the Study

The research work will be conducted on a single company, Pampanga's Best, Inc.,

being a multi-millionaire meat processing corporation and considered to be the first and

original tocino-maker in the world. However, after an initial research, it was found out

that the company does not have a materials management department. This is despite of

the fact that a manufacturing entity has the largest levels of materials on hand that needs

to be managed.

The respondents of face-to-face interviews will be the managers from the

purchasing, production, and sales and marketing departments, since they are the most

knowledgeable with the materials flow.

Research Instruments

A semi-structured interview will be used as main tool in data collection. The

instrument comes from different thesis questionnaires, which are collected and further

enhanced to suit with the work operations of Pampanga's Best Inc.

For a flexible interview that allows a deviation from the standardized

interviewing, the conversational strategy will be adopted. This will enable the researchers

to acquire greater interest in the interviewee's point of view (Lavrakas, 2008)

 27

For the purchasing officer, fifteen (15) general questions are prepared, ten (10) for

the production manager, and twelve (12) for the sales and marketing officer.

Data Gathering Procedure

Data collection of qualitative descriptive studies focuses on discovering the nature

of the specific events under study. Thus, the researchers will use the method of

interviewing in order to acquire a better understanding of the study on hand. The persons

to be involved in the interview are the purchasing officer, production manager, and the

sales and marketing officer. In addition, on-site observations, and examination of records,

reports, photographs, and documents will be performed.

The time and date of the interview will be conducted according to the

convenience of the interviewees. The researchers will just have to tell them the timeframe

allotted for the interview. The typical session of interview is estimated to be one hour.

Data Processing

After the conduct of interview and completion of questionnaires, the researchers

will have to verify that no question is left unanswered. This will be assured for the

interview since they have prepared interview questions beforehand.

The collected data will be analyzed qualitatively through content analysis. It is the

method of systematically describing the meaning of qualitative data (Schreier, 2012). The

following steps of content analysis are adopted from Ahmed (2017).

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1. The text will be first read and simultaneously the researchers will listen to the

recorded interviews several times to grasp a sense of whole.

2. After reading and listening to interviews, meaning units will be recognized and

summarized the content, but essence will be maintained.

3. The condensed units will be transcribed and then grouped categories and sub-

categories so as to organize the text in a way that will reflect the central content in

the interviews.
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APPENDICES

INTERVIEW QUESTIONS:

1. Does your company have materials management department?

2. Why does the company prefer purchasing department than materials

management department?

3. In your opinion, do you think the concept of materials management could

be beneficial to your company in terms of cost reduction?

4. In your opinion, has the purchasing department contributed to cost

reduction?

5. What is the current workforce of the organization?

6. How does the company source for materials from suppliers?

7. Do you inspect materials before accepting them into the stores or

warehouse?

8. Do you put measures in place to prevent cases of stock out?

9. What strategic measures does management take to ensure that finish goods

leave company’s premises to its customers on time?

10. How do you ensure that bulk goods from supplies reach the company’s

premises in time for production since you experience shortages?

11. What channels do you use to distribute goods to your customers both

home and abroad?

12. What role does the security department play in the organization?

13. Do you adopt quality control measures?