THE IMPACT OF PRODUCTION PLANNING AND CONTROL ON OPERATIONAL COST OF MANUFACTURING INDUSTRY IN NIGERIA: A CASE STUDY OF SEVEN UP BOTTLING COMPANY
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Production planning and control is simply the analysis involved in transforming raw material or components into finished products, integrated synergistically to reduce waste in time and finance with maximum obtainable profit. With reference to services (intangible), production is the discharge of a function with some degree of utility, which for goods (tangible) production is viewed as the fabrication, interchange and re-use of physical objects through machines, human resources and any other pertinent applicable tools (Bartak, 1999).
The objectives of production planning can be summarized and is to provide the capacity and production to meet agreed or projected demand, ensure timely and positional availability of materials and components, provision of a steady flow of work through all departments, provide a balanced work between various departments involved in production operation, make available adequate manufacturing instructions to enable proper management, and supervision and records and Provide adequate information to arrest failure and delay (Pounds, 1999).
Planning is a continuous process which involves decisions or choices, about alternative ways of using available resources with the aim of achieving a particular product at some time in the future (Silver, Pyke & Peterson, 1998). The relatedness of production planning to effective operation in any organization has been indicated and recognized as enhancement to organizational output and reduced operational cost.
For many manufacturers the task of meeting the ever rising demand and customer expectations and lowering operational costs in an environment of more products, more complexity, more choice and competition is placing great stress on the effectiveness of their planning of activities in the production process (Pounds, 1999). Organizations have already adopted solutions with vary degrees of planning and controlling capabilities. Yet, operation executive acknowledge that these same systems are becoming out dated, lacking the speed, flexibility and responsiveness to manage their increasing complex production environment.
Effective production planning and controlling is vital to the success of every manufacturing business. Regardless of the industry, finding the best way to purchase, allocate and utilize the production resources to efficiently satisfy the customers while minimizing operational costs is a constant challenge (Banjoko, 2005). But, without the right production planning and control, it is near impossible.
The process of production planning is central to the success of any manufacturing company. In general terms, the production planning process involves generating a plan to satisfy customers in a manner that results in a reasonable profit. The specifics of the production plan should vary company to company, and industry to industry. Production planning is an important part of the process for manufacturing firms. The organization of production relies in general on the implementation of a certain number of basic functions, among which the control function plays an essential role. Magee (2006) emphasized the interrelationships between these two important production management activities. Irrespective of organizational status, it is generally recognized that production planning and control, are closely interrelated. In theory, problems are frequently classified according to type of problems, example distribution, queuing or sequencing. However, real industrial problems often do not fit into rigid categories. Production control is a unifying problem closely related to other areas within an organization such as sales, cost control, purchasing, capital budgeting and inventory management (Pounds, 1999).
Control is the establishment of starting and finishing dates for productive activities (Rago, Huisman & Wagelmanss, 2003). Under certain conditions, control may also determine the sequence of operations and/ or the assigned workload on certain equipment. For example, as the size of the control matrix increases, (i.e., more orders to be assigned to a larger array of machines) the number of possible combinations of routings increases exponentially.
Control concerns the allocation of limited resources to tasks over time. McKay, Kenneth & Vincent (2006) explained “Production control is concerned with the allocation of resources and the sequencing of tasks to produce goods and services. Although allocation and sequencing decisions are closely related, it is very difficult to model mathematically the interaction between them. However, by using a hierarchical approach, the allocation and the sequencing problems can be solved separately. The allocation problem is solved first and its results are applied as inputs to the sequencing problem. The resource allocation problem can sometimes be solved using aggregate production planning techniques. However, the accomplishment of the control function should not generally imply that rank orders have been set or specific machine loads determined. The term control is often used to describe the sequencing situation. Control should be reserved for procedures which give the time of arrivals units requiring service. Sequencing is defined as determining the order in which items are processed. The control of complex activities, particularly when job process times are short, does not explicitly determine the order of work for manufactured items. Control–sequencing problems are, therefore, concerned with determining both the time that the order processing is completed and the rank order, that is, the sequence of order processing.
Production control has three goals or objectives. The first involves due dates and avoiding late completion of jobs. The second goal involves throughput times; the firm wants to minimize the time a job spends in the system, from the opening of a shop order until it is closed or completed. The third goal concerns the utilization of work centres. Firms usually want to fully utilize costly equipment and personnel. Often, there is conflict among the three objectives. Excess capacity makes for better due – date performance and reduces throughput time but wreaks havoc on utilization. Releasing extra jobs to the shop can increase the utilization rate and perhaps improve due date performance but tends to increase throughput time.
Vollman, William & Clay (1997) noted that the production control is derived from the production plan; it is a plan that authorized the operations function to produce a certain quantity of an item within a specified time frame. In a large firm, the production control is drawn in the production planning department, whereas, within a small firm, a production control could originate with a lone production controller or even a line supervisor.
Operational costs are expenses associated with the maintenance and administration of a business on a day-to-day basis. The operational cost is a component of operating income and is usually reflected on a company’s income statement. While operational costs generally do not include capital outlays, they can include many components of operating a business including accounting and legal fees, bank charges, sales and marketing costs, travel expenses, entertainment costs, non-capitalized research and development expenses, office supply costs, rent, repair and maintenance costs, utility expenses, salary and wage expenses.
The Seven-Up bottling company Plc is one of the largest independent manufacturer and distributor of the well-known and widely consumed brands of soft drinks in Nigeria. The brands are Pepsi, 7UP, Mirinda, Teem and Mountain Dew, which is produced and marketed in all its present 9 manufacturing plants. The company also markets its products through its over 200 distribution centres that is also call depots spread over the nooks and crane of Nigeria. The workforce is currently in the neighbourhood of 3500 employees. A Lebanese Mohammed El-khalil who came to Nigeria for the very first time in 1926 founded the company. Mohammed is the father of the company’s current chairman Faysal El-Khalil. The company metamorphosed from a very successful transport business [El-Khalil Transport] in a bid to diversify the then largest transport company in the entire West of Africa. On October 1st 1960, the exact day the great country Nigeria won her independence, Nigerians also experienced the birth of a soft drink giant as the first bottle of 7Up rolled out from the factory located in Ijora. Since then, the company continued to grow in the leap and the bound.
1.2 STATEMENT OF THE PROBLEM
Jain and Aggarwal (2008) state that, every manufacturing activity requires resource input in terms of men, materials, money and machines. They went further to state that in any business that produces a product or service production activity must be related to market demands as indicated by the continuous stream of customers’ orders. It follows therefore that for maximum effectiveness, this must be done in such a way that customers’ demands are satisfied, but at the same time production activities are carried on in an economic manner. However, the researcher is of the opinion that the process of developing this kind of relationship between market demands and production capability must be the function of production planningwhich has been described by several researchers as the predetermination of manufacturing requirements of such things as available basic materials, detailed equipments, production runs, order priority, money, man and production process within the scope of the enterprise for efficient production of goods to match its sale requirements. Controlcan be effected principally through the management of workflow, inventories and backlogs, and changing levels of operation (Winston, 2004). It is on this note that the researcher is examining the impact of production planning and control on operational cost of manufacturing industry in Nigeria with specific focus on the Seven up bottling company.
1.3 OBJECTIVES OF THE STUDY
The general objective of this study is to examine the impact of production planning and control on operational cost of Seven up bottling company in Nigeria while the following are the specific objectives:
- To examine the effect of production planning and control on operational cost of Seven up bottling company.
- To examine the effect of production planning and control on profitability of Seven up bottling company.
- To examine the effect of production planning and control on organizational effectiveness and productivity of Seven up bottling company.
1.4 RESEARCH QUESTIONS
- What is the effect of production planning and control on operational cost of Seven up bottling company?
- What is the effect of production planning and control on profitability of Seven up bottling company?
- What is the effect of production planning and control on organizational effectiveness and productivity of Seven up bottling company?
1.5 HYPOTHESES
HO1: There is no significant relationship between production planning/control and operational cost in seven up bottling company.
HO2: There is no significant relationship between production planning/control and profitability in seven up bottling company.
HO3: There is no significant relationship between production planning/control and organizational effectiveness/productivity in seven up bottling company.
1.6 SIGNIFICANCE OF THE STUDY
The outcome of this study will educate the manager of industries and other stakeholders in the manufacturing sector on ways by which production planning and control can drastically reduce the operational cost in an industry. It will also educate on the effect of production planning and control on organizational effectiveness, profitability and productivity. This research work will constitute a body of literature to the existing scholarly materials on the impact of production planning and control on operational cost to help strengthen and promote organizational development.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study is limited to the staffs of seven up bottling company, Benin factory in Edo State. It will also cover the effect of production planning and control on operating cost of manufacturing, productivity, profitability and organizational effectiveness.
Other limitations includes
Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.8 DEFINITION OF TERMS
Planning: the process of making plans for something.
Production: the action of making or manufacturing from components or raw materials, or the process of being so manufactured.
Operation: the fact or condition of functioning or being active.
Control: the power to influence or direct people’s behavior or the course of events.
Manufacture: make (something) on a large scale using machinery.
Cost: estimate the price of an operation
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