66 CHAPTER – II REVIEW OF RELATED LITERATURE Introduction There are several studies conducted in the areas of production, operations and material management. The material management is one of the important stages in the manufacturing process, supply of goods and service delivery. It also plays critical roles in the quality of service and delight of the consumers. In the back drop of the Chapter 1, the investigator had focused on the review of the relevant literature and presented the brief account earlier studies on material management in Chapter 2. The review of literature lead the investigator to design research methodology and the details of the same also included in the present Chapter. Thus the Chapter 2 presented with two parts – (1) Review of related literature and (2) Methodology followed in the study. Part: 1 - Review of Related Literature Review of Literature Research in the area of materials management both at the Macro and the Micro levels remains conspicuously absent in India as adequate indigenous literature is not available on this subject. However, of late, on account of its growing importance, few research studies have been conducted at various universities in our country which highlight some of the problems faced by the selected central and the state public sector undertakings. Apart from the above research work, few Studies Conducted by Administrative Staff College of India, Hyderabad and by some individual authors focus attention on the existing
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66
CHAPTER – II
REVIEW OF RELATED LITERATURE
Introduction
There are several studies conducted in the areas of production,
operations and material management. The material management is one of the
important stages in the manufacturing process, supply of goods and service
delivery. It also plays critical roles in the quality of service and delight of the
consumers. In the back drop of the Chapter 1, the investigator had focused on
the review of the relevant literature and presented the brief account earlier
studies on material management in Chapter 2. The review of literature lead the
investigator to design research methodology and the details of the same also
included in the present Chapter. Thus the Chapter 2 presented with two parts –
(1) Review of related literature and (2) Methodology followed in the study.
Part: 1 - Review of Related Literature
Review of Literature
Research in the area of materials management both at the Macro and the
Micro levels remains conspicuously absent in India as adequate indigenous
literature is not available on this subject. However, of late, on account of its
growing importance, few research studies have been conducted at various
universities in our country which highlight some of the problems faced by the
selected central and the state public sector undertakings. Apart from the above
research work, few Studies Conducted by Administrative Staff College of India,
Hyderabad and by some individual authors focus attention on the existing
67
policies, procedures and problems of industrial organizations in the field of
materials management. Besides the above studies, there are a number of
reports submitted by governmental committees from time to time particularly on
inventory management in India.
Bansal(1) in his study on Materials Management: A case Study of Bharat
Heavy Electricals Limited, Bhopal Unit, (BHEL), has evaluated the existing
systems of inventory management. He emphasises.
The need for automatic replenishment system in the undertaking offer
studying the application of ABC analysis and EOQ technique of inventory
control. He also points out the accumulation of surplus stores and non-moving
items in the organization and recommends that the surplus and absolute stores
which are no longer required should be disposed off as early as possible at the
best available price. Further, he suggests the preparation of monthly class wise
statements on inventories for effective control over them and the introduction of
reconciliation system of stores ledgers with account ledgers to avoid
misappropriation of stores, and spares for production and operation are above
their actual consumption level. The inventories in general are found to be above
their routine requirements. The holdings of stores and spares corresponding to
two to three years requirements should be considered excess.
Sambasiva Rao. K(2) In his Study on Materials Management in Public
Sector Ship Building Industry evaluates. The performance of materials
management and identifies some problems faced by materials management in
the heavy engineering industry. The method of investigation involves the
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documentary evidence and survey of expert opinion. He evaluates the existing
purchase systems and lead time involved in procurement of materials and
suggests that the long lead time should be reduced. His study points at the
excess inventory in terms of number of months cost of production in all the
engineering units. He also highlights some of the problems in the area of
materials management such as delay on the part of customers in supplying their
own materials, existence and disposal of surplus and non-moving items,
excessive lead times and excessive dependence on imports. According to him
the administrative and procurement lead times of the company are on the higher
side due to the peculiar nature of the industry. He suggests liberalized purchase
procedures, increased financial powers to the personnel, Opening up of liaison
offices in various countries to reduce the lead time.
Phaniswara Raju(3) has conducted a research study on materials
management in Andhra Pradesh State Road Transport Corporation (APSRTC) in
2006. In his study, he examines the materials management practices and
purchasing systems in APSRTC on the basis of various parameters like material
consumption per vehicle, material consumption per kilometer, inventory per
vehicle, inventory in terms of number of months consumption etc. He highlights
some major problems in the procurement of materials. The study is primarily
based on the secondary data collected from the published annual reports of
APSRTC, the records of MIS, the reports on performance of National Road
Transport Undertakings of CIRT, Pune etc., In addition to the personal
discussions held with various officials of the corporation. The study reveals the
increasing levels of materials consumption in APSRTC. As compared to other
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undertakings. The study points to the absence of the use of important analytical
techniques like value analysis and network techniques in the purchasing system
of APSRTC.
The inventory control system in APSRTC is critically examined in respect
of stock out pattern, reordering and review policies, Lead time patterns, stock out
levels etc. He suggests the reclassification of stores stems based on the
criticality, the refixation of reorder level and reorder quantities. The study has
also indicated the wastage caused by maintenance of unnecessary stock
records relating to stems which are not in use.
Hari R. Swami(4) in his research work materials management in public
undertakings evaluates the performance of materials management in the central
public undertakings in Rajasthan Viz., Instrumentation Limited, Kota Unit, HMT,
Ajmer Unit, Hindustan Zinc Limited, Debari Unit, Hindustan Copper Limited,
Khetri Unit and Sambhar salts limited. The study covers various aspects of
materials management in these enterprises from 1977-78 to 1981-82. The
methods of investigation includes questionnaire interview, on the spot study and
desk work techniques etc. It is observed that the cost of materials accounts for
more than 50 percent of the total cost of production in the selected units of the
study. The importance of proper materials management has not been fully
realized by the public undertakings in Rajasthan and very little attention has so
far been paid to the task of controlling investment in inventories through the
application of various scientific techniques of materials management. The
researcher expresses the view that materials management should not cover the
inspection function and that an autonomous and independent cell be created in
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the organization for this purpose. The study reveals that the lead time in the
selected public enterprises is considerably long and suggests reduction of
administrative lead time by expediting purchase matters. The study also reveals
that the inventory of selected public enterprises has accumulated due to faulty
purchases, heavy rejections, long lead time, in-cohesive organization, non-
adoption of scientific and modern techniques of materials management and
defective inventory control. He suggests that the inventory holdings could be
reduced by adopting an integrated system of materials management, appointing
qualified and trained inventory managers, reducing lead time, setting and
regulating consumption and stocking norms of raw materials and other goods,
applying modern techniques of materials management and identifying slow and
non moving items. He concludes that the public enterprises had suffered losses
or earned low level of profits due to the inefficient management of materials. Had
public, enterprises followed standard techniques of materials management, they
would have generated adequate resource for their own expansion and increased
production resulting in more profits.
Apart from the above research studies, proving the growing awareness of
the subject, some studies are also conducted in the area of materials and
inventory management focusing attention on the existing policies, procedures
and problems. There are also some text books viz: Rationalising Materials
Management(5), Essentials of Materials Management: Text and Cases(6),
Materials Management: Procedures Text and Cases(7), Management of
Materials(8), Materials Management(9), Materials Management: An Integrated
Approach(10), Integrated Materials.
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Management(11), Materials Management(12), An integrated concept of
Materials Management(13). These books dead mainly with the functions,
procedures and problems in the area of Materials Management and caters to the
needs of students, researchers and professionals dealing with the subject.
However, in some text books, some typical and useful case studies are
discussed at length for the benefit of the readers.
There are also some text books exclusively on the inventory management
such as Inventory Management in India(14), Inventories in Indian
manufacturing(15), Inventory Management(16), Purchasing and Inventory
Control(17), Inventory Holding by manufacturers in India and united
states(18), Working Capital Planning and Control(19), Problems of Working
Capital(20) and Management of Working Capital(21).
In all the books, an attempt is made by the respective authors to explain
the concepts, importance, tools and techniques and problems of inventory
management with some case studies. For instance, Krishna Murthy and Sastry
studied inventory behaviour of 21 industries comprising 91 percent of output and
96 percent of inventories of the group of the industries covered by the causes of
manufactures. The study deals only with inventory holdings of the manufacturers
and the analysis in terms of the prices prevailed during the study period.
Similarly, the IFMR’s survey “Inventory management summarises briefly
the findings of four important surveys it conducted in the area of inventory
management practices in the Indian industry. A study on control practices in
Indian industry conducted by the faculty members of the Jamnalal Bajaj Institute
72
of Management Studies, University of Bombay concludes that most of the
companies are still guided by rules of thumb and intuition in deciding on the
capital to be invested in inventory. Of the 224 companies approached, 36
responded and among them only 13 reported using inventory control techniques.
Only 6 out of the 13 companies took into account inventory costs in controlling
inventories.
The study by the faculty members of the Administrative staff college of
India on inventory management practices with a focus on the Tandon committee
recommendations concerning inventory norms indicates that industries are found
to carry, by and large, More stocks of raw materials including spare parts and
imported items than the suggested norms of the committee. It has reveals that
industries except in the engineering and the textile sectors are managing the
work-in-progress inventory within the specified norms.
The IFMR conducted an empirical study on inventory management
practices in public sector undertakings and public limited companies in the
private sector in 1979 to highlight the range of problems of inventory
management and to appreciate the value of techniques and practices adopted in
the Indian context to tackle these problems. While it intended to cover two
hundred or organizations, response is actually received only from 48
organisations of whom a majority gave high priority to inventory management. It
also reveals that there is a considerable scope for reducing the spares inventory
in the engineering and process industries, There is a general lack of appreciation
of the benefits that accrue from the integrated materials management. Most of
the respondents treated the materials management function as a service centre
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except for a few who conferred on it has status of a profit centre. In most
instances there is a very strong case to elevate the materials management
function and accord to it much higher status with close scrutiny from the top
management.
In addition to this, there are a number of reports submitted to the
Government from time to time. For instance, the committee on public
undertakings in its 40th report(22) points out the deficiencies in materials
management in the public sector undertakings in India. The BPE(23) issued
guidelines on materials management to the public sector undertakings to
introduce modern and for improving their materials management functions.
The administrative reforms commission(24) has made some
recommendations for reducing inventory levels. The RBI study group(25)
appointed to frame guidelines and to lay down norms for bank credit applicable
to all classes of industrial borrowers (popularly known as Tandon Committee
Report), has classified inventories prescribing inventory norms for fifteen
industries. The committee on inventory control(26) appointed by Bureau of
Public Enterprises (BPE) in 1972 examined inventories of the three public sector