the relationship between enterprise size and the obstacles impeding productivity development programs in ogun state

Description

ABSTRACT

Manufacturing enterprises can face obstacles that make productivity improvement efforts ineffective or even prevent improvement operations, this paper focus solely on identifying the relationship between enterprise size and the obstacles impeding productivity development programs in Ogun state; Data required for this study were collected through a questionnaire given to production and operations managers at manufacturing enterprises in Ogun. The results of applying factor analysis to a dataset of obstacles showed that these obstacles can be reduced to three major factors. Ranked according to their importance, these factors are poor management practices, employee job dissatisfaction, and poor human resource management. The findings of this research are of value to production and operations managers of manufacturing enterprises who are interested in conducting productivity improvement programs in Ogun state.

 

CHAPTER ONE

 INTRODUCTION

1. BACKGROUND OF STUDY

Productivity is one of the most widely used tools for evaluating, monitoring, and improving the performance of industries and national economies and at the same time, most of businesses operate in the form of a Small and Medium Enterprise (SME). SMEs play a significant role in the economic development of many nations. At a national level, productivity indicates how well an economy uses its resources in producing goods and services. A decline in productivity can lead to slow economic growth and high inflation. On the other hand, improved productivity can lead to a higher rate of economic growth and higher living standards for a nation (Bitran et al, 2014). At an organizational level, productivity measures how well an organization converts input resources (labor, materials, machines, etc.) into goods and services. A decline in productivity will result in an increase in costs and therefore deterioration in the competitive position of an organization. On the other hand, an improvement in productivity can lead to a decrease in the costs and duration of production, an improvement in quality, and therefore a growth in market share. According to Kazaz and Ulubeyli (2014), productivity is one of the most important factors affecting the overall performance of any organization, large or small. It is defined as a measure of the relationship between the physical volume of goods and services produced and the resources used in the production processes adopted by an economy. Productivity is also a measure of the efficiency with which employees and capital and natural resources are combined in an economy.

An organization can use productivity measurements to examine its performance in addition to assessing its performance by:

1. Evaluating its performance in comparison to that of competitors.
2. Evaluating the relative performance of the company’s various departments.
3. Assessing the relative advantages of various inputs.
4. Making the most efficient use of resources possible.

Depending on whether variables are measured in physical or financial terms and which resource inputs are chosen for performance evaluation, a number of productivity measures can be defined. Productivity measurements are generally divided into the following categories:

Partial factor productivity: the ratio of output to one type of input (labor, capital, material, or energy)

Multifactor productivity: using more than one input,

Total factor productivity: using all the inputs of production (labor, capital, material, and energy).

Organizational efficiency can be improved in a variety of ways. However, productivity enhancement strategies are not always implemented successfully. Obstacles to productivity improvement are factors that make productivity improvement attempts ineffective—or even prevent improvement activities from taking place. Internal and external impediments are the two forms of roadblocks. Internal impediments are those that arise from within the company. These are normally within the control of managers and stakeholders. Lacks of senior management support, as well as a lack of time and other resources, are examples of such roadblocks. External impediments, on the other hand, are those that come from outside the organization. Government laws and market circumstances are two examples of these influences.

The ownership structure of a company is thought to be a significant aspect that influences its health (Zeitun and Tian, 2007). If the ownership structure has an impact on a company’s health, the ownership structure can be used to forecast profitability.

According to Drucker (2016) “Productivity means a balance between all variables of production that will deliver the most output with the least effort,”. In another context “Productivity is a state of mind,” according to the European Productivity Council (2011). It is a mindset of growth, of constantly improving what already exists. It’s the assurance of always being able to achieve better than yesterday. It is the adaptation of economic and social life to changing circumstances on a continuous basis. The application of new techniques and procedures is a continuous endeavour. It is a belief in the advancement of humanity. Productivity is defined by the International Labour Organization as “the ratio between the volume of output as measured by production and the equivalent volume of labor input.” “Productivity is a comprehensive holistic phenomenon including all factors required to improve products / services (output),” according to the Japanese holistic approach.

The terms ‘productivity’ and ‘efficiency’ must be understood in distinct ways. Efficiency is a more limited definition that refers to a single element’s level of performance. Productivity has a much broader definition. Adding more work that isn’t essential isn’t exactly constructive. A production system’s productivity is a measure of its efficiency. Productivity is defined as the ability to produce the proper type of product at the right quality (as per design specifications). Productivity is a function of output quality and pace of production, hence it is more outcome-oriented than output-oriented.

2. PROBLEM STATEMENT

The need for production planning is to reduce waste thereby minimize cost with aim of increased production at minimal cost thereby improve sales and loyalty which lead to enhance performance. In developing economy like Nigeria for instance, external factor dictate how businesses operate, these factors involve poor infrastructure- epileptic power supply, road network, communication, double taxation, security even ease of doing business. All gave rise to cost of production and higher uncertainty in the availability of basic raw materials for production.

In Ogun state, the size of industry, small, medium, and large scale, has a significant effect on both the numerical strength of staff and level of involvement in inventory management of both raw material and the finished product and at the same time determines the level of obstacle the enterprise can face.

This factor has over bearing effect on how production planning and control which will affect the profit margin of business organizations. In all these, it is expected that flexibility will equally help in dealing with some of these unexpected factors, by allowing management to take action. It is against this background that it is sought to critically assess the impact of production optimization (PO) on corporate performances (OP) in the Nigerian manufacturing industry around Ogun state and also to ascertain if production optimization practices (Pop) have significant relationship on product quality (PQ) in Nigeria manufacturing industry.

Some Identified Lingering Problems of the Manufacturing Sector

High productivity in the Ogun state manufacturing sector has been constrained by many factors which include the following:

1. Low Level of Technology: This is perhaps the greatest obstacle constraining productivity in Nigeria as developments in technology and innovations are the primary forces propelling industralisation today. New processes and procedures of doing old things, and automation have revolutionalised the manufacturing industry and multiplied productivity in the industrialised nations. Unfortunately, industries in Nigeria cannot acquire modern machines that have reduced processes. Most of them, especially textiles, cement, bakery, leather, paper manufacturing and many others are all producing with machinery that were procured, giving rise to frequent breakdown and reduction in capacity utilization rates. Low technology is responsible for the inability of local industry to produce capital goods such as raw materials, spare parts and machinery, the bulk of which are imported. Hence there is very low value added and low productivity.
2. Low Level of Capacity Utilization Rate: Capacity utilization rate in the manufacturing sector is between 30 and 40 per cent, indicating gross underutilization of resources. This has been blamed largely on frequent power outages, lack of funds to procure inputs, fallen demand for manufactures and frequent strikes and lockouts by workers and their employers.

iii. Low Investments: Lack of funds has made it difficult for firms to make investments in modern machines, information technology and human resources development which are critical in reducing production costs, raising productivity and improving competitiveness. Low investments have been traced largely to banks unwillingness to make credits available to manufacturers, owing partly to the mismatch between the short-term nature of banks’ funds and the medium to long-term nature of funds needed by industries. In addition, banks perceive manufacturing as a high risk venture in the Nigerian environment, hence they prefer to lend to low-risk ventures, such as commerce, in which the returns are also very high. Even when credit is available, high lending rates, which were over 40 per cent at a time, made it unattractive; more so when returns on investments in the sub-sector has been below 10 per cent on the average.

1. High Cost of Production: Since the introduction of SAP, high and increasing cost of production has been recorded by most business organisations as a major constraint on their operations (CBN Business Surveys). Increased cost, traced largely to poor performing infrastructural facilities, high interest and exchange rates and diseconomies of scale, has resulted into increased unit price of manufactures, low effective demand for goods, liquidity squeeze and fallen capacity utilization rates.
2. Inflation: which can be described as persistent increase in the general price level constitutes a disincentive to saving for future use and thereby retards investments and growth. It also encourages speculative activities and diverts resources from productive ventures.
3. Poor Performing Infrastructure: Poor performance of infrastructural facilities, characterized by frequent disruption in electric power and water supplies and inefficient telecommunication and transportation systems, is a major constraint on productivity. As firms have to invest huge capital to provide alternative infrastructural facilities to run their businesses, enterprises are forced to carry high cost structure which reduces efficiency and results in loss of competitiveness for their products.

1.3      RESEARCH QUESTIONS

The following questions are formulated for the study:

1. What are the obstacles affecting the productivity of production companies in Ogun state?
2. What relationship exists between enterprise size and identified obstacles in companies’ productivity?

iii. Does the size of enterprises determine the kind of obstacle faced by production companies in Ogun state?

1.4                  OBJECTIVES OF STUDY

The aim of this study was to investigate the relationship between enterprise size and the obstacles impeding productivity development programs in Ogun State.

The specific objectives include:

1. Identify the enterprise size and the obstacles impeding Nigerian FMCG companies’ productivity development programs in Ogun State.
2. Assess the relationship between identified problems and the Nigerian FMCG companies’ productivity, mentioning the causes of these problems.

iii. Evaluate pragmatic solutions to these identified obstacles facing manufacturing industries in Ogun state.

1.5 RESEARCH HYPOTHESIS

In order to attain this objective, the following null hypotheses are formulated and tested:

Ho1: There is a significant relationship between enterprise size and the obstacles impeding productivity development programs in Ogun State.

Ho2: There is no significant relationship between enterprise size and the obstacles impeding productivity development programs in Ogun State.

1.6 SIGNIFICANCE OF STUDY

This study helps us identify different sizes of enterprise and the problems that enterprise in Ogun state are facing that impedes their production development program; it also outlines some major industrial challenges affecting the nation’s economy and needs urgent attention. This study suggestively mentions some solutions to the identified issues.

1.7 SCOPE OF STUDY

This study examines the relationship between the size of enterprise and the obstacles that retard the productivity of manufacturing industries within Ogun state. This study uses a sample of three (3) Nigerian FMCG companies listed industries in Ogun state in conducting this survey.

1.8 DEFINITION OF TERMS

1. Production: In simple terms, ‘Production’ is the process of manufacturing or fabricating or producing certain type of goods, semi finished or finished, input being basic raw material or semi finished products or subassemblies. Production is a measure of output only and not a measure of efficiency of the organization.
2. Productivity: Biggest and most challenging task faced today by any organization is “PRODUCTIVITY”. It is the measure of the combined efficiency or integrated efficiency of employees, machines and other devices and equipments, nature of raw material inputs, performance of the management, efficiency of the whole production system. Productivity can be computed and expressed as the ratio of average acceptable output per period by the total costs incurred through various resources ( Labor, Input material, consumables, power utilized, capital, energy, material, personnel) consumed in that period. It is nothing but a measure of efficiency of the integrated system consisting of resources like Money, Men, Materials, Machines (4 Ms of an industry) and time etc.

iii. Multi Factor Productivity: Productivity measures that consider more than one variable or factors are termed as “Multi Factor Productivity (MFP)”.

1. Total Factor Productivity: Productivity which is the measure of all the variables or factors influencing the production process (Men, Machines, Material and Money or capital employed, energy charges, overhead charges etc.,) is termed as “Total Factor Productivity (TFP)”. Ratio of the total output of a chemical factory with respect to the installed capacity of the plant which considers all the inputs is the typical example of MFP.

Profitability: Profitability of any system or organization hint at how efficient the organization utilizes its resources and assets to produce the outputs. Productivity of different elements in the system ultimately decides the profitability of any organization.

Output and profitability of different organizations in the Nation decides the progress of the Nation which is very significant for its global status. For progress of the Nation what is most required is the highest productivity of different organizations engaged in production or service industry. But the astonishing factor is that there is not a single organization which does not face the problem regarding productivity since the factors affecting productivity are of confronting nature and large in number. Low productivity leads to reduced profitability of the organization, cumulative effect of which is the retarded growth of the Nation.

1. Partial Productivity: When only one variety of inputs is considered for the measurement of productivity, then it is often referred as “Partial Productivity”. For example, measurement in no of pieces of shirts produced from a fixed length of a cloth piece. In an organization, worker hours, materials or power used per unit of production are typical examples of partial productivity.

Vii. Enterprise size: Small enterprise is an enterprise with 10 to 49 employees. Medium-sized enterprise is an enterprise with 50 to 249 employees. Large enterprise is an enterprise with 250 employees or more.