The Effective Management Of Materials

Published Date: 02 Nov 2017

1. Introduction

The Greek economy is experiencing a period of great crisis, which characterized by high debt and high budget deficit, but problems existed and aggravated by the adverse impact of the global financial crisis which started in 2008. Result of these developments is that many countries entered a period of economic recession. Amid these developments particular interest showed by the business performance. We can say that "it is useless to try to stop running a raging river. The best thing you can do is to learn how to swim towards the direction of its path." .Many businesses showed a positive person in the midst of recession and achieved a good performance profits while maintaining or even increasing their jobs and also their credit worthiness. The aim of various economic researches which conducted mainly from 1989 to 2012 and have become with different methodological approaches and theoretical background and concern previous economic crises in various regions worldwide is to find the main features of successful enterprises. There are different views about what makes a successful business. Typically success should be judged by the ability to meet objectives. These attributes can be split into two separate categories, the first one is economic characteristics and the second qualitative features.

Some examples of the first category are the business liquidity and capital adequacy. This is useful because despite the fact that the recession tends to "freeze" any investment activity, however, there are multinationals continue to invest in developing and expanding their operations. Also, they include establishing and managing capital structure in a way to cover costs of long term losses and expensive loan payments, avoiding borrowing to finance the losses, managing stock’s levels efficiently and, if possible, reducing inventories and making savings (Aminu ,2012). Furthermore, another item that belongs to the first category is the size of the enterprise. We believe that small and medium-sized firms face greater financial, legal, and corruption obstacles compared to large firms, and that the constraining impact of obstacles on firm growth is inversely related to firm size. Also we can say that the small firms that stand to benefit the most from improvements in financial development and a reduction in corruption. (Beck, Demirguc-Kunt and Maksimovic ,2005). On the other hand, one example of the second category is the exports. Various economic theories suggests that against a background of continuing economic uncertainty, companies operating at an international level report significantly better revenues and profits compared to the companies on the domestic market. Globally, 50% of companies that do export reports increase in profits over the past 12 months compared with only 38% of companies that operate only domestically. And while Europe - despite continuing economic concerns about the future of the Euro - is the most popular destination for Greek companies, China is an increasingly popular and profitable market, as well as the Middle East. These are the main findings of the second global survey of Regus a survey that recorded the opinions more than 20,000 senior executives from more than 90 countries around the world. What is more another example for the second class is differentiation and innovation. Enterprises must learn to differentiate and innovate themselves from their competitors and their products to gain new and greater economic value. Product innovation matters most for the most profitable manufacturing establishments (Youtie and Roper, 2008). A product that best meets the needs and specifications of each customer (e.g. different country, different religions and different customs) has a greater value for the customer is willing to pay more for a differentiated product than a standard product.

2. Literature Review

There are still many features of these two classes. We can find some of these business features in the relevant literature that has been done on sustainable business profitability and survival. Furthermore we can find some of these criteria in the a series of empirical and theoretical studies in the last years which have been conducted about the features of enterprises, which is the way of successful companies.

Gary S.Hansen and Birger Wernerfelt (1989) integrated two sample models of firm performance, one which used economic factors and one which used organizational factors. The economic factor model is based primarily on economic tradition, emphasizing the importance of external market factors in determining firm success. The other model, organizational, is built on the behavioral and sociological paradigm and sees organizational factors and their fit with the environment as the major determinants of success. Their sample included 60 Fortune 1000 firms representing both dominant and lesser members of their respective industries. The sample was tested for multicollinearity and for heteroskedasticity using the Goldfeld-Quandt test. Their results confirm the importance and independence of both sets of factors in explaining performance, but they also find that organizational factors explain roughly twice as much variance in firm profit rates as economic factors.

Seung-Hyun Lee, Paul W. Beamish, Ho-Uk Lee and Jong-Hun Park (2008) examined how sudden domestic market shrinkage can shove firms to increase their level of export to deputize the loss incurred during such a period, using as a context Korean firms for the 1994–2000 period before and after the Asian economic crisis. Service firms were excluded because of their lack of exporting activity and their inconsistency of accounting practices compared with manufacturing firms. They used regression model to test their model. They found that domestic market leaders have a greater motivation to increase their level of export, because they lost the most from the domestic market shrinkage. In addition, they also found backing for real options theory: while firms with no location- bound flexible capabilities benefit more during the economic crisis period than pre-crisis period, firms with location-bound capabilities such as advertising actually make it harder for the firms to increase their export level.

It is worth to mention the contribution of Elijah E. Ogbadu (2009) who focused on how business firm can attain profitability through effective management of materials with particular attention on sourcing, receiving, storing and issuing materials. Prudent management of materials reduces depreciation, pilferage and wastages while ensuring availability of the materials as at when required. The researcher made use of survey research design. In carrying out this study, the researcher used two sources of data collection methods, namely primary data and secondary data. The target population of this study consist staff of the Benue Brewery Limited. Because of the difficulty in studying the entire accessible population, the researcher used the random sampling technique. The rationality of using this technique was based on equal chance of being selected approach. The sample size from the population was determined using the Yaro Yamen’s formula (Kelechi, 2008). The objective of his paper is to identity problems of material management, which if corrected can result in profitability. Given the problem that arises as a result of the inefficiencies, breakdown and shut down of the plant, it becomes very necessary to re-organize the materials management department, establish good relationship with suppliers of spare parts in order to minimize losses arising from frequent breakdown and improve profitability. The results shown that there is need to recognize the materials management function and it has been suggested that for a firm to achieve profitability.

Another study which conducted by Vikash Naidoo (2009), focused on Chinese manufacturing small and medium enterprises and investigated whether marketing innovation, defined as improvements in the marketing mix, can assist in withstanding the challenges of operating during the financial crisis. Using structural equation modeling (SAS system's CALIS procedure)there are three findings. First, the examined Chinese manufacturing had a greater perceived likelihood of survival had they developed and sustained a competitive advantage. Second, marketing innovation assisted in developing and sustaining competitive advantages based on differentiation and cost leadership strategies. Third, marketing innovation capabilities improved when the examined small and medium enterprises manufacturing were competitor oriented and had good inter-functional capabilities.

According to Serafeim Tsoukas (2010) , over the period 1995-2007, used five Asian economies (Indonesia, Korea, Malaysia, Singapore and Thailand) and analyzed the links between firm survival and financial development. The empirical models are estimated with the complementary log–log model (cloglog) which is equivalent to the discrete time version of the proportional hazard model .His findings were the following: a) if stock markets become larger survival chances improve, on the other hand, we show that higher levels of financial intermediation can increase firm failures b) during the later years of the sample the beneficial effects of stocks market development are more definite c) the large firms are more likely to profit from developments in financial markets than small firms. Serafeim Tsoukas finally believed that the country level indicators of financial development have an important role to play in influencing firm survival.

Other researchers, such as Celeste Amorim Varuma and Vera Catarina Rochab (2010) analyzed the moderating effect of firm size on firm exit during recessions for Portugal. They use data from a longitudinal database, ‘Quadros de Pessoal’, from GEP of the Portuguese Ministry of Labor and Social Solidarity. The database collects data from a compulsory questionnaire sent to all firms with wage earners in Portugal since 1982. They focused on the 1988 cohort and manufacturing firms born .They used discrete duration models (Singer and Willett, 1993) . Their findings are that, during recession the firm size reduces the exit risk by less than during nonrecession periods and the hazards seem to increase more rapidly in size during recessions .The study suggests likely to exit that large firms suffer a greater increase in exit hazard during downturns than smaller firms do, although small firms remain generally more.

Clarke, George R.G., Cull, Robert, and Kisunko, Gregory (2010) used two data sets to study how country and firm characteristics affected financial constraints and firm survival during the early phase of the recent global financial crisis in Eastern Europe and Central Asia . The first data source provides information on the reported harshness of financial constraints for 360 firms from 23 countries in 2002, 2005, and 2008. By following the same firms over time, we are able to summarize the gradual easing of financial constraints from 2002 to 2005 and their tightening during the crisis. They used regression and their findings are that financial constraints during the crisis were less severe in countries with well-established foreign banks and that changes in the severity of financial constraints were more pronounced for large firms than others during the crisis. The second data source provides information on whether firms remained in operation in 2009 in six Eastern Europe and Central Asian countries. Controlling for other relevant characteristics, firms were more likely to survive the crisis if they had access to external credit.

Melita Stephanou Charitou,Maria Elfani and Petros Lois (2010) investigate the effect of working capital management on firm’s financial performance in an emerging market. We hypothesize that working capital management leads to improved profitability. Their data consist a sample of 43 firms listed in the Cyprus Stock Exchange for the period 1998-2007. The method they use is multivariate regression analysis. Their results support their hypothesis, indicate that the cash conversion cycle and all its major components; namely, days in inventory, days sales outstanding and creditors payment period - are associated with the firm’s profitability. The results are important to managers and major stakeholders, such as investors, creditors, and financial analysts, especially after the recent global financial crisis and the latest collapses of giant organizations worldwide. Their findings are that efficient utilization of the firm’s resources leads to increased profitability and reduces volatility, which leads to the reduction in default risk and thus improves the firm’s value.

Martin Kunc and Rahul Bhandari (2011) investigated the strategy development process followed by enterprises during the financial crisis and current economic though the relationship between changes in performance measures and strategic success factors. They used executives of global firms asking the importance of performance indicators and strategic success factors has been performed getting 53 usable surveys. Also test has been performed to identify respondent bias. Empirical results from the survey are presented and t-tests have been performed to validate the statistical significance of these factors .The findings show us that the firms followed a reactive strategic development process because they adjusted their strategic direction to the problems in their performance affected by the economic crisis. Martin Kunc and Bahul Bhandari finally concluded that new strategic direction and goals and their corresponding strategic initiatives should be repeated to obtain that the strategic initiatives will contribute positively to the sustainability of the firm.

One very important study which carried out from Marina-Eliza Spaliara and Serafeim Tsoukas (2012) examined the indirect effect of the Asian crisis on firm survival since firms with varying levels of profitability, debt and collateral might respond to the crisis differently. They used a Cox proportional hazard model (Cox, 1972) with time-varying covariates. Their results based on firm-level data of five Asian economies – Indonesia, Korea, Malaysia, Singapore and Thailand – over the period 1995–2007 suggest that the sensitivity of survival to financial indicators is significantly higher during the Asian crisis compared to tranquil periods. In addition, they found that the effect of financial indicators is quantitatively and qualitatively more important in economies with less developed stock exchanges (Indonesia, Malaysia and Thailand). They show that firms operating in bank-based economies, which are likely to suffer from a credit cut during the crisis, might have to exhibit good financial health to continue their operations. Finally, their study has an institutional implication. The development of diversified financial systems in which well developed stock and bond markets would complement their banking systems should become a priority in the national governments’ agenda. This will help to facilitate the development of a balanced economy and to create appropriate conditions that will improve firms’ performance and survival prospects.

3. Conclusions-proposals

To summarize, this paper builds upon a sample of small medium and large enterprises all over the world and the main concern is firm success. There are many different business features which increase the profitability and survival of the enterprises. Some researchers believe that levels of exports are very important for business profitability. Others support that marketing innovation and the effective management of materials (sourcing, receiving, storing and issuing materials) plays an important role for business successful. However some researches mention that financial development, country and firm characteristics affected financial constrains and firm survival. On the contrary there are researchers acknowledge that size of the firm and different levels of profitability, debt and collateral might effect different the business sustainability. In our model we want to use financial and qualitative features in order to try to find the most important of these criteria which increase profitability and maintain business success in Greece during recession. In the subsequent section we will further develop our model.