PRODUCTION PLANNING AND OPERATIONAL COST OF MANUFACTURING FIRMS IN RIVERS STATE

PRODUCTION PLANNING AND OPERATIONAL COST OF MANUFACTURING FIRMS IN RIVERS STATE

ABSTRACT: This study examined the relationship between production planning and operational cost in manufacturing firms in Rivers State. The study targeted 195 respondents in 39 manufacturing firms in Rivers State out of which 174 responded through the questionnaire that was administered to them. The spearman’s Rank Order Correlation statistical tool was used in testing the formulated hypotheses. The findings revealed that production planning through material planning, manpower planning, and machine planning negatively and significantly correlate with operational cost thereby reducing the production cost of firms. Also, technology was seen to significantly and partially moderate the relationship between production planning and operational cost. Based on findings, we recommend that manufacturing firms should adopt an automated manufacturing system, employ a suitable management policy, and ensure an effective production planning system. A suggestion for further research should be made concerning other industries.

CHAPTER ONE: INTRODUCTION

 Background of the Study

Operational costs are those recurring costs incurred in the operation of a business. Seemingly simple in concept, the identification, allocation, and control of these costs are complex and have generated a plethora of management practices (Mike, 2010).

Vollman (2007) postulates Operational costs as expenses associated with the maintenance and administration of a business on a day-to-day basis. The operational cost is a component of the operating 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.

Anthonio (2009) postulates Operational costs as the recurring costs incurred by a company in the course of running its business. They encompass virtually all the expenses incurred by a company, except for the costs of financing (interest), income tax, and depreciation. Thus, on the income statement, operating income is identified as remaining monies after the cost of revenue and other expenses are deducted from revenue.

According to Antonio .F (2009) in the importance of Operational cost

1. Uniform service is provided to all the customers.
2. The fixed and variable cost classification is necessary to ascertain the cost of service and the unit cost of service.
3. There is no physical stock of articles if an undertaking renders a service.
4. If a cost center is operating for an undertaking, there is no sale of service but render the service. In other words, if a cost center is operating for the public, it sells its service to the public.
5. The cost unit may be simple in certain cases or composite or compound in other cases like transport undertakings.

Banga & Sharma (2013) defined production planning as a means by which a manufacturing plan is determined, information issued for its execution, and data collected and recorded. This is a managerial function that tends to design and plan what to produce when to produce, where to produce and how to produce the quality, the quantity to produce and for whom to produce (Banga & Sharma, 2013).

Wild (1980) sees these functions as an attempt to define the key decision model involved in the production that is the long term and the short term planning as well as identifying the procedure, politics, and their control as a cost-effective way. Banga & Sharma(2013) postulates some of the importance of production planning as an absolute necessity for any business.
The benefits of production planning are that it allows each employee to understand their position during production. Everyone in the planning process benefits from it, the company, as well as the employees themselves. Understanding how to serve different types of clients is important, as there are many different types of services and industries to understand. One cannot encapsulate simply one topic and call it done? This is the importance of production planning, and where its meaning lies. Knowing exactly what the client requires in terms of service. If production planning is carefully considered, it may benefit any business that seeks the service. It is important to note that many people need to be a part of the process that this involves (Banga & Sharma, 2013). Not simply one individual can complete such a task on their own. Such a thing is impossible. There need to be different levels of understanding in all areas of that about business when coming up with proper production planning. In the end, it’s teamwork that gets the job done. This essentially is how it can be easily understood. Everyone has a purpose and place, as well as a role to serve. Each individual may then execute their plan effectively to benefit the respective company. Wild (1980) sees this importance in turn, increases production, and also, gives everyone who works for the company a sense of ownership?. Having that feeling, understanding that each worker is valued in that way makes then work harder, and the company in turn meets, even surpasses their goals. This is the importance of production planning. This is how it works and how it becomes a success for a business.

Martand (2013) defined it as the process by which management determines the demand of the companies to get cost reduction and production volumes to satisfy the customer demands through the use of more sophisticated and complex machines and equipment of better quality.

Adekoya (1978) posited that unfortunately, the Nigeria manufacturing companies are still not focusing enough on acquiring modern machinery that was introduced, up to now they are still using the same methods and machinery that were introduced as far back as the 1960s and 1970s. according to Adekoya, this has led to stagnation and greatly limits this solution for the future growth of the sector.

Armstrong & Nwachukwu (2006), defined manpower planning as the process by which management attempts to provide for human resources to accomplish its task. Banga & Sharma (2013) defined manpower planning as a strategy for the acquisition, utilization, improvement, and preservation of human resources of an enterprise. According to Vetter as cited in Sharma, Manpower planning is the process by which management determines how the organization should move from its current manpower position to its desired manpower position.

Banga & Sharma (2013) defines material planning as the process of setting up consumption standards and working out the requirements for all the materials for any given manufacturing program, by considering all relevant factors such as make or buy, laying down standards and specification, sources of supply available, availability of stock. Umoh (2005) considered the management of the inventory of an organization as an efficient means of planning and control of inventory. This he said would be achieved by determining the ideal stock level necessary for avoiding understocking or overstocking.

There seems to be a close relationship between production planning and operational cost.  These kinds of production plans for example tend to influence or even determine inventory plans and control systems.  Indeed production plans tend to determine the level of quantity held in production in the system. In continuous productions, which are characterized by mass production, for example, high quantities of inventories in form of finished goods, work in progress raw materials, and spares may have to be held at any given time.  Intermittent production systems, on the other hand, may require a high level of inventories.  The number of inventories held however will depend on the specific production schedules and programs.

Modern production is complex hence both technologically related operation and administrative activities must, therefore, be planned carefully to take account of all the possible restriction constraints and advantages.

Rodrigo et al (2010) did a study based on transaction cost theory. The study is based on how firms plan and internationalize as well as the structured arrangements that would be required to improve the odds of success. Jain (2008) did a study on production Planning, control, and industrialization. The study focused on the need to plan in other to satisfy customers in a manner that results in a reasonable profit.

Vollman, (2007) did a study on manufacturing planning and control systems. His study is based on proper planning of transforming and restructuring of raw materials into finished products.

However, the studies mentioned above do not analyze the most important needs in production planning and cost of operation.

To fill the knowledge gap that exists, this study seeks to achieve the production objectives concerning quality, quantity, cost reduction, and timeless delivery and to obtain the uninterrupted production flow to meet customers’ varied demands concerning quality and committed delivery schedule with effective utilization of firms resources.

Statement of the Problem

The success of our present-day industries depend on how to manage our resources and to enhance growth and development for the better industrialization.  Therefore, this research work is concerned with identifying and proffering remedies to the problems of production planning and operational cost in the manufacturing company.  To this end, the following question occupies our mind as a problem before the research.  What role do the choice of production planning and operational cost play in the beverage industry?

The problem of the low level of technology in our manufacturing industries is one of the setbacks. According to This day newspaper (2011): Developments in technology and innovations are the primary forces propelling industrialization across the world today. New processes and procedures of doing old things and automation have radically transformed manufacturing and multiplied productivity. Unfortunately, industries in Nigeria cannot acquire modern machinery that has improved processes. Most of them, especially textiles, bakeries, leather, paper manufacturing, and many others still use machinery that was procured in the 1960s, and this result in frequent breakdowns and reduction in capacity utilization rates.

Vollman (2007) asserted that faulty policies, poor planning in production, and the changing environment of the manufacturing industries were contributory factors to its present state. Peter Drucker cited by Banga & Sharma (2013) said that planning deals with what has to be done today to be ready tomorrow. Undoubtedly, where the future is known; then, is no need for planning.

Elenya (2002), noted that in the Nigerian manufacturing sector, there exists a high level of de-industrialization despite the natural, human, and capital resources.  Contrary to the level of de-industrialization, the western economies have developed a strategic policy and production planning mechanism that could enhance business through cost minimization and profit maximization (Jain, 2008) including having the highest efficiency in production by manufacturing the required quantity of product, of the required quality and at the required time in a cost-effective manner (Bestwick & Lockyer, 2008: Wild, 2008: Johnson & Montgomery, 2009). However, Clinton, Jack & Thomas (2006) Opined that failure to engage in production planning gives rise to inefficiency and lack of direction. Ann, Christopher & Adibe, (2012) pointed out that few manufacturing firms in Nigeria still grapple with their inefficiency due to unintended internal environmental problems of poor and inaccurate decisions resulting from poor planning and control of men and other resources of the enterprise.

Chiweizu(1979) and Agbadudu (1996) identified curiosity beyond the capacity of scholars especially in Nigeria where there had been scanty empirical studies on operational cost.

Therefore, it is of keen interest to study production planning and operational cost with the view to identifying and proffering remedies to the problems of operational cost in the manufacturing firms as it relates to production planning.

Figure 1.1: The Conceptual framework of this study

Source: Dimensions of Production planning which are Machine Planning, Material Planning, and Manpower Planning were adapted from the work of Banga & Sharma (2013), and measures of Operational Cost were adopted from the work of Mike (2010).

The technology serves as moderating variable which moderates the independent variable of Production planning with its dimensions which are Machine Planning, Material Planning, and Manpower Planning and dependent variable which is Operational cost

Aim and Objectives of the Study

This study aims to examine the relationship between production planning and operational cost. Specific objectives are to:

1. Investigate the relationship between machine planning and operational cost in manufacturing firms in Rivers State.
2. Evaluate the relationship between material planning and operational cost in manufacturing firms in Rivers State.
3. Ascertain the relationship between manpower planning and operational cost in manufacturing firms in Rivers State.
4. Examine how technology moderates the relationship between production planning and operational cost in manufacturing firms in Rivers State.

Research Questions

In the course of this study, we attempt to ask the following questions thus:

1. What is the relationship between machine planning and the operational cost of manufacturing firms in Rivers state?
2. What is the relationship between material planning and operational cost of manufacturing firms in Rivers state?
3. What is the relationship between manpower planning and operational cost of manufacturing firms in Rivers state?
4. What is the moderating role of technology on the relationship between production planning and operational cost of manufacturing firms in Rivers state?

Research Hypotheses

Based on the research questions above, the following research hypotheses were formulated.

H₀₁: There is no significant relationship between machine planning and the operational cost of manufacturing firms in Rivers State.

H_O2: There is no significant relationship between material planning and the operational cost of manufacturing firms in Rivers State.

H₀₃: There is no significant relationship between manpower planning and the operational cost of manufacturing firms in Rivers State.

H_O4:  Technology does not significantly moderate the relationship between production planning and operational cost of manufacturing firms in Rivers State.

Limitation of the Study

This study is limited to the 39 registered and functional manufacturing firms in Rivers State (Manufacturers Association of Nigeria: MAN) Rivers chapter. It will also cover the effect of production planning and control on the operating costs of manufacturing, productivity, profitability, and organizational effectiveness.

Other limitations include:

1. Lack of prior research on this research was a major limitation
2. The attitude of respondents: Respondents from which the primary data were gotten from didn’t give answers to questions truthfully.
3. Lack of reliable data identified after the research was also a limitation to this research.
4. Limitation due to cross-sectional survey.

Significance of the Study

The importance of production planning on operational cost cannot be overemphasized as it lies in the fact that it will bring to focus, improvements to both scholars and industries.

• Theoretical significance

This study will increase the body of knowledge accumulated on the subject matter production planning and operational cost by researchers and scholars in the field of production management as it will provide insight into the understanding of production planning

• Practical significance

That planning is a veritable managerial tool and pre-production activity which is made evident in the various subsystems of the organization, executives/managers at different levels of the organization for an effective management decision (Martand, 2013).

Finally, the study would bring to light the recommendations proffered on how to reduce wastage and improve cost in the production system of the manufacturing industry.

Scope of the Study

• Content Scope:

The content scope of this study is focusing on the production planning which is being represented by material planning, machine planning, and manpower planning. The scope also comprises operational cost, as well as technology which represents the moderating variable.

• Geographic Scope

This research is domiciled in Port Harcourt manufacturing firms.

• Unit Scope

Its area of interest is the manufacturing firms in Port Harcourt. It was performed at the organizational level which implies that the managers and supervisors were study units.

Operational Definition of Terms

The following terms were used in the course of this study:

1. Production cost: These are manufacturing costs, product costs, a manufacturer’s inventorial costs, or the costs occurring in the factory.
2. Production planning: This is the predetermination of manufacturing requirements such as manpower, materials, machines, and manufacturing process.
3. Manpower Planning: This is defined as the process by which management determines and provides for human resources needs to accomplish the desired set task in the organization.
4. Material Planning: This defines the processes involved in the setting up of consumption standards of working out the requirement for all materials for any given manufacturing program, by considering all relevant factors such as make or buy, laying down standards and specification, sources of supply available and availability of stock.
5. Machine Planning: This is the process of planning for future machine use.