CHAPTER I 1.1 Background of the Study During the Second World War after the industrial revolution, industries sprang up in hundreds every day. As a result of the increase in industries, raw materials became scarce. This made production to be complex. Accounts needed to be prepared and customers needed to be attended to within a short period of time. Alternative sources were required and new product needed improvement and development. With this problem in mind, the material management concept was introduced with the view to solving them in a scientific manner to achieve optimal success and reduce production cost. By the 1950s and 1960s an uneven transition from the old concept of material management as clerical function to a newer function or concept of material management emerged which embraced inventory control, distribution and buying function. By late 1960s material management was recognized as an important function in an organization. Thus, the importance of material management lies in the fact that any significant contribution made by the materials manager in reducing material cost will go along way in reducing production cost and improving the profitability and the rate of return on investment. Today, materials are the livelihood of any industry, no industry can operate without them, they must be made available at the proper time, in proper quality, at the proper place and at the proper price. Material handling is an integral aspect of material management that is concerned with the means by which materials move in the materials are moved from one stage of processing to the other in such a way that processing, safe movement and use of space is enhanced. Hence, it is also an integral part of a production process which does not really contribute to the value of what is being processed, but an integral part of a production process which does not really contribute greatly to the processing cost. It is for this reason that this research work tends to take a clerical look at the significance of material handling and its impact on production cost. 1.2 Statement of Problems As it has been stated earlier, the impact of material handling on the production cost of an organization with particular reference to the PHCN industry, forms the basis of the research. This is not only because materials cost forms the overall 65% of the cost of running any organization according to some research in material management, but also because materials must be moved from one processing stage to another. Thus, there is always the need to effectively manage materials in order to curtail the amount of waste and also enhance maximum service in such organizations. This particularly calls for effective materials handling and maintaining a standard in the cost of production. Another problem is the employment of unqualified personnel to handle the store activities. This problem often results to poor material handling, deterioration, pilferage, theft and redundancy. Now that store operation is beginning to receive attention of those in authority, the necessity to actively coordinate these activities for better performance to create more impact and subsequently more recognition can not be over emphasized. Effective material handling and its prime function is a matter of ensuring that sufficient materials are retained in the store to meet all requirement without carrying unnecessary large stock or too little to ensure efficiency and profitability in PHCN. The researcher also gathers that there has been negligence of the store department and sometime brought under unrelated department which result in poor performance. This scenario depicts the existence of material handling deficiencies in the area of planning, replenishment, recording and inventory control which effect profitability in the organization. 1.3 Objective of the Study The rationale for this study is to examine critically the application and to understand the impact of effective material handling which deals with the inflow and out flow of materials into within and right through to the consumer of the products in relationship to its operational performance and economic. This study is specifically designed to i. Investigate the current trend of materials availability in the organization under study. ii. Establish the effectiveness in the material handling system in PHCN. iii. Evaluate the impact of deficiencies in material handling system on profitability. iv. Examine the factors responsible for dismal performance in material handling. v. Suggest strategies for effective coordination and management of material handling system that can improve and provide constant and uninterrupted flow of materials which will invariably contribute to the profitability level of the organization under study. 1.4 Significance of the Study The research work is carried out to be of benefit to individual, organizations and the society in general. Thus the significance of the study are: The project work will be beneficial to subsequent researcher who will want to undertake a research into similar or related fields of study as it will provide them with relevant information on the subject matter. The study will also provide the public with first hand information and knowledge on how stores or materials are managed and control in public establishment with regard to PHCN. Similarly the research work has been undertaken to broaden the knowledge of the researcher and the society on how efficient material handling can contribute to the survival and profit level of an organization with particular reference to PHCN. Therefore the project will highlight the benefit which PHCN and other organization stand to gain if they employ and apply the right material handling system manned by qualified and trained professionals. 1.5 Delimitation of the Study The scope of these study is restricted and confined to the material handling system in public institutions from 2007-2009 with the population of 250 staff drawn from production, materials management, power plant and utility units and a sample size of 50 which represent 20% of the population. The study seek to established the impact of effective method of material handling on the profitability of PHCN putting into consideration the enormous materials that serve as input for the organization. 1.6 Research Questions To measure the impact of material handling to the profitability of PHCN, the researcher has drawn up some research questions which are: i. What is the rate of materials availability in the organization under study? ii. Why is material handling system ineffective in PHCN? iii. What are the effects of deficiencies in material handling system in profitability level in PHCN? iv. What are the factors responsible for poor performance in material handling? v. What are the remedies for improving efficiency of material handling system in PHCN? 1.7 Definition of Terms Stock: All the tangible asset of a company other than the fixed asset. Control: Standard set for checking the result of an activity. Profitability: Adding or bringing to profit of an organization. Stock taking: This is a complete process of writing the quantity balance of the entire range of items held in stock. Stock Checking: This is any other check on physical quantity which may be applied either regularly or intermittently. Redundant: Holding excess stock over normal equipment. Materials: These are components, spare parts, semi processed goods in an organization. Store: Is the place where all raw materials, component parts, are held for safe keeping. Stock out: It is not having the required parts or materials on hand when and where they are needed. Stock level: Is a predetermined quantity of stock to be held. Obsolete: When an item is no longer usable by the organization concern because of a change in operational practice or method of production