CAPACITY PLANNING AND PERFORMANCE IN THE NIGERIAN BREWING INDUSTRY IN SOUTHEASTERN NIGERIA

ABSTRACT

The study investigated the influence of capacity planning on the performance of brewery firms in South Eastern States of Nigeria. The specific objectives of the study were to determine the extent to which capacity planning enhanced the level of performance in the brewing industry in South Eastern Nigeria. The study examined the nature of the relationship between capacity requirement planning and materials requirements planning, to ascertain the extent to which capacity planning sustains organizations competitive advantage, thereby determining the relationship between capacity planning and capacity building, determining the steps toward developing a capacity planning that affects the profitability in the brewing firms in the area studied. The research design adopted in the study was a combination of the survey, oral interview and model modifications. Hypothesis 1,3 and 5 were tested using Z test of population proportions and 2 and

4 using Spearman‘s Rank Correlations revealed that capacity planning to a large extent enhanced the performance in the brewing industry in Southeastern Nigeria, that there was a significant capacity planning to a large extent (p< 0.05) enhanced the performance in the brewery industry in  the  area  studied.  Capacity requirement  had  positive  relationship  (p<  0.05)with  materials requirements planning. Capacity planning to large extent (p< 0.05) sustained the organizations competitive position. There was significant positive relationship (p< 0.05) between capacity planning and capacity building. The steps of the capacity plan positively (p< 0.05) affected profitability. Positive relationship between capacity requirements planning and materials requirements planning, that  capacity planning to a large extent sustained the organizational competitive  advantage,  that  there  is  a  positive  relationship  between  capacity  planning  and capacity building, that the 12 steps of the capacity plans were developed that positively affected the profitability in the brewing industry in the area studied.   In conclusion, the finding that capacity planning enhanced the performance in the brewing industry in Southeastern Nigeria implied that it made the brewing companies studied to achieve their organizational goals and objectives. The finding that there was a significant positive relationship between capacity requirements planning and materials requirements planning implied that there was a positive correlation between them. This means that materials requirements planning which was a method of coordinating the detailed production plans could lead to an enhancement of capacity requirements  planning  which  meant  taking  future  decisions  on  the  items  needed  for  the production capability of the brewing facility.

CHAPTER ONE

1.1 BACKGROUND TO THE STUDY

Capacity Planning has enhanced the performance of the brewing industry in Nigeria right from

1946 when Nigerian Breweries Limited set up the First Brewery in Nigeria (Nigerian Breweries PLC, 2011). The direction has been to increase the number of breweries. Guinness Nigeria Plc set up a Brewery in Lagos in 1963. The magnitude is now five breweries located at Ikeja, Ogba, Benin, Jos and Aba (Guinness Nigeria Plc; 2011). Capacity has continued to be the production capability of a facility in terms of the inputs, throughput and outputs.

In 1989, the Federal Government policy of using local inputs such as sorghum and corn instead of malled barley negatively affected a lot of the breweries. Both Nigerian Breweries Plc and Guinness Nigeria Plc depended on the assistance of the Parent Companies. The Brewing Industry in Nigeria have relied on capacity planning for meeting the increased demand for beer, stout and malt products through  Demand Forecasting and Capacity Requirements Planning (Guinness Nigeria Plc, 2011; Nigerian Breweries Plc, 2011).

Capacity building has followed capacity planning in the creation of the enabling environment with appropriate policy and legal frameworks, institutional development including community development (of women in particular). Human Resource Development and strengthening of managerial systems, adding that, UNDP recognizes that capacity building is a long-term, continuing process, in which all stakeholders participate (ministries, local authorities, non- governmental organizations and water user groups, professional associations, academics and other (citation: UNDP). Capacity building is very necessary for capacity planning. Planning is deciding in advance what is to be done, when, where, how and whom it is to be done. In that it bridges the gap from where we are to where we want to go in any business building and performance. It is continuous, periodic managerial activities and reduces uncertainty.  Capacity is the production capability of a facility and it is measured in terms of inputs, throughput and outputs. Manufacturing is that aspect of industry in which products, waste products and services are produced (UNDP, 2012).

By 1992, capacity building became a central concept in Agenda 21 and in other United Nations Conference on Environmental and Development (UNCED) Agreements. By 1998, the UN General Assembly had commissioned and received evaluations of the impact of the UN system‘s

support for capacity building. These evaluations were carried out by the UN Department of Economic  and  Social  Affairs  as  part  of  the  United  Nations  GATT  Agreement‘s  (UNGA‘) triennial policy review during which it looks at all UN system development activities (UN Publications Section). Since then, the issue of capacity building has become a major priority within the global conventions, the Global Environmental Facility (GEF) and the International Communities.

In the year 2000, UNDP through its Strategic Partnership with the GEF Secretariat, launched the Capacity Development Initiative (CDI), a consultative process involving extensive outreach and dialogue to identify countries‘ priorities issues in capacity development needs, and based on these findings, to develop a strategy and action plan that addresses identified needs to meet the challenges of global environmental action.

In 2002, the World Summit in Sustainable Development (WSSD) and the Second GEF Assembly reaffirmed the priority of building the capacity of development countries. The WSSD recommended that GEF resources be used to provide financial resources to developing countries to meet their capacity needs for training, technical knowhow and strengthening national institutions.

Capacity Building is, however, not limited to international aid work. More recently, the term is being used by governments to transform  community and industry approaches to social and environmental problems.

According to Skinner (1985), there are five periods of industrial history that stand out in the development of manufacturing management:

1780 – 1950    Manufacturing leaders as technology capitalists.

1850 – 1890    Manufacturing leaders as architects of mass production.

1890 – 1920    Manufacturing management as movers in the organization.

1920 – 1960    Manufacturing management refines its skills in controlling and stabilizing.

1960 – 1980    Shaking the foundations of industrial management.

During the early years of the indusial revolution, production began to shift from low volume activity to larger-scale operations. Although the scale of these early operations was large, the machinery was not particularly complex and production operations were rigid. The management of  these  operations  remained  essentially  in  the  hands  of  top  management  with  the  aid  of overseers. Working conditions during this period were often abysmal.

The major thrust of the Industrial Revolution took place in the (second 40-year) period from

1850 – 1890. During this period, the concepts of mass production and the assembly line were born. Since coal could be efficiently transported, plants could be located in a larger variety of locations. The plant foreman had enormous power and influence during this period.

According to Skinner(1985), the job of production manager actually came into being in the period 1890 – 1920. Manufacturing processes became too complex to be handled by top management personnel only. With this complexity came the need for scientific management techniques. Frederick Taylor (often called the father of industrial engineering) is generally credited with being the originator of the concept of scientific management. Most of the scientific management techniques introduced around the turn of the century involved merely breaking a task down into its various components. These techniques are probably less scientific than just orderly. With the new levels of complexity, the single plant foreman could no longer coordinate the demands of producing a varied product line and changing production schedules.

The enormous worldwide depression that took place n the 1930s notwithstanding, in many ways the period 1920 – 1960 can be considered a golden age for the development of industry in the United States. By 1960, the United States was the preeminent economic power in the world. With the growth of the labour movement, working conditions had improved enormously. True scientific methods started finding their way into the factory. Mathematical models for learning, inventory control, quality control, production scheduling, and project management gained acceptance by the user community. Top management often came through the ranks of production professionals during this period.

Since 1960, many American companies have relinquished their domination of certain markets. Products that were traditionally produced in the Untied States are now imported from Germany, Japan, and the Far East. Many products are produced more cheaply and with higher quality overseas. Furthermore, management-employee relations are often better in foreign companies. Quality circles, introduced in Japan, allowed employees to input opinions about product development and production procedures. Far more sophisticated scientific production methods have been adopted in Japan than in other countries. For example, there are many more robots and modern flexible manufacturing systems in Japan than in the United States (Skinner, 1985).

Over the past five years, a broad conceptual framework has emerged. This approach is increasingly being adopted by the development cooperation community. It involves a System Perspective that addresses various levels of environmental management capacities (i.e. capacities of institutions, individuals, overall countries and regions) (Vallejo, 2006). This approach lays greater emphasis on the Capacity Development Process itself, on local ownership of its process and on equal partnership in its support (Lafontaine, 200).Capacity Building involves human resource development, the development of organizations and promoting the emergence of an overall policy environment, conducive to the generation of appropriate responses to emerging needs (UNDP/UNDOALOS, 1994).

The concept of capacity building includes the following issues.

Human resource development, the process of equipping individuals with the understanding, skills and access to information, knowledge and training that enables them to perform effectively.Organizational development, the elaboration of management structures, processes and procedures, not only within organizations but also the management of relationships between the different organizations and sectors (public, private and community).Institutional and legal framework development, making legal and regulatory changes to enable organizations, institutions and agencies at all levels and in all sectors to enhance their capacities.The levels of capacity building are that:The Individual: refers to the process of changing attitudes and behaviours-imparting knowledge and developing skills while maximizing the benefits of participation, knowledge exchange and ownership.The Institution: focuses on the overall organizational performance and functioning capabilities, as well as the ability of an organization to adapt to change.

The System: emphasizes the overall policy framework in which individuals and organizations operate and interact with the external environment (Lafontaine, 2000).

1.2   STATEMENT OF THE PROBLEM

There is difficulty in determining the extent to which capacity planning enhanced performance in the brewing firms in Southeastern Nigeria from the inception of brewing industry in Nigeria in

1946 to date. Capacity has consistently and continuously determined operational capabilities of decision, focasting changes in demand attitudes, skill and aids proximity to market future time services needed and work load leading to various shortage or lack of stock in production process which involves complex measures in terms of input, through put and output. This problem leads to other challenges in ascertaining the relationship between capacity requirementsplanning and material requirements planning and the extent to which capacity planning sustains organizations‘ competitive advantage.

Determining the extent of the relationship between capacity planning and capacity building and the steps towards developing a capacity plan to improve the profitability in the brewing sector have also produced several challenges and these lead to lack of gateways. It is these challenges that are to be addressed in this study.

The capacity planning problem of a brewing firm would make it have less output in the form of Lager beer, Stout and malt than is demanded by the present and potential customers. One of the numerous ways of solving this problem is to build a new brewery firm. This is a long term decision that will raise new issues of plant location, plant layout, selection and design of the product, selection of equipments and processes, production design of items processed, and job design. If these issues are not properly handled, performance will be negatively affected. This is why the topic on capacity planning and performance in the Nigerian brewing industry in the Southeastern States of Nigeria is apt.

1.3 OBJECTIVES OF THE STUDY

The thrust of the study is the effect of capacity planning on performance in the Nigerian brewing industry in Southeastern Nigeria.

The specific objectives of the study are as follows:

1)  To evaluate capacity planningand performance in thebrewing industry in Southeastern

Nigeria.

2)  To assess capacity requirements planning and materials requirements planning.

3)  To ascertain the extent to which capacity planning sustains organisations‘ competitive

advantage.

4)  To evaluate the relationship between capacity planning and capacity building.

5)  To assess the steps toward developing a capacity plan and the profitability in the brewing firms in the area studied.

1.4 RESEARCH QUESTIONS

This research is designed to provide answers to the following questions:

i.      To what extent does capacity planning enhances performance in the brewing industry in

South Eastern Nigeria?

ii.     What is the nature of the relationship between capacity requirements  planning and material requirements planning?

iii.    What  is  the  extent  to  which  capacity  planning  sustains  organisations‘  competitive

advantage?

iv.    What is the extent of the relationship between capacity planning and capacity building?

v.     How do we assess the steps that could be used to develop capacity planning that would affect profitability in the brewing industry in the area to be studied?

1.5 RESEARCH HYPOTHESES

Five research hypotheses have been formulated to guide the study. They are as follows: (i):       Capacity  planning  to  a  large  extent  does  not  enhances  performance  in  the  brewing

industry in South Eastern Nigeria.

(ii):      There is no significant relationship between capacity requirements planning and material requirements planning.

(iii):   Capacity  planning  to  a  large  extent  does  not  sustain  organizations‘  competitive

advantage.

(iv):     There is  no  positive significant  relationship  between  capacity planning  and  capacity building.

(v):      The steps towards developing capacity plan that would not affect profitability in the brewing industry in South Eastern Nigeria are of the same order of magnitude.

1.6 SIGNIFICANCE OF THE STUDY

This study will be of immence significance to the Shareholders, Board members, Manager and Stakeholders of brewing firms. It will also benefit officers of government, the public at large and future researchers in the following ways: Shareholders, Members, Managers, Stakeholder, Officers of Government,The public and Researchers.

1.7 SCOPE AND DELIMITATION OF THE STUDY

The focus of the study is to determine the extent to which capacity planning enhances the performance in the brewing industry in the South Eastern Nigeria. The brewing companies were chosen across the major zones in south eastern Nigeria in terms of subject matter, methodology, spatial and data that best fits the study.

The geographical scope is South Eastern Nigeria, and the time scope of the study is 2 years from

December 2010 to December 2012. The brewing firms studied are Nigeria Breweries Plc, Ninth

Mile  Enugu, Guinness Nigeria Plc, Aba (former Dubic Breweries Plc), Premier Breweries Plc

Onitsha and Continental Breweries Plc Awoomama.

1.8       LIMITATIONS OF THE STUDY

Attitude of Respondents: Privacy of information and attitude of respondents were alo being constraints. Some of the respondents were reluctant at releasing the required information as a result of prejudiced opinion conceived by the study.

The Survey Research Design: It had the limitation that some respondents were not willing to give answers to the probes. This limitation is minimized by persuading the respondents to give answers.

The oral interview: Ithad the limitation that the interviewing situation may change from one situation to another especially if more than one field data collector is used. This limitation is minimized by the Researcher doing most of the field work.

The Questionnaire Research instrument: It had the limitation that its structured nature compelled some of the respondents to give answers that they do not fully endorse. This limitation was minimized by also asking some open-ended questions in an oral interview schedule.

The oral interviewschedule: It had the limitation that the open-ended questions asked were difficult to analyse. This limitation was minimized by also using relative frequencies as the numbers given over the total number of research instruments returned.

1.9    PROFILES OF THE BREWING FIRMS STUDIED Historical Development of Nigerian Breweries

Nigerian Breweries Plc (NBPLC) is the country‘s pioneer  factory.  Incorporated in 1946, it

commenced  production  in  1949.  It  started  as  a  joint  venture  between  the  United  African Company (UAC) International, UK and Heineken of Holland, Thus, at inception, it was 100 per cent foreign owned. By the early 1950s, when it began operating fully, some indigenous traders already involved with its products were invited to become shareholders. Under the indigenization policy of the early 1970s the foreign shareholders were forced to sell a significant proportion of their holdings. Today, the company is 60 per cent Nigerian owned and 40 per cent foreign owned. The 60 per cent Nigerian stake is held by company employees and members of the public, while the 40 per cent foreign ownership is split almost equally between CWA Holdings Limited (for Unilever) and Heineken Brouwerijen BV (Nigerian Breweries Plc, 2011).

The foreign partners now perform the role of technical advisers, with Unilever advising on commercial aspects such as accounting, purchasing, marketing and personnel, while Heineken does the same for technology. Organizationally,  the company has  four divisions: technical, finance, marketing and personnel, each of which is headed by an executive director (Nigerian Breweries Plc, 2011).

Performance and Development

At its inception in 1949, NBPLC had only Start Lager (Nigeria‘s first) on the market, over the years it has broadened its product range. Except for the period 1984-86, when sales volume suffered an annual average decline of about 18 per cent, turnover growth in the company has generally been accompanied by growth in profit and production volume. Thus, when normal growth was restored in 1987, the 51 per cent and 83 per cent increases in turnover and operating profit, respectively, for 1987 – 88 were accompanied by about 35 per cent volume growth. Similarly, the turnover of about N1.7 billion recorded in 1991 was partially the result of 8 per cent growth in sales volume. However, from all indications, product pricing has been the major factor in the impressive growth in operating profits (Nigerian Breweries Plc, 2011).

The Table 1.1 presents indicators of the growth turned in the company. Apart from sales and profit, both net total assets and the numbers of employees have enjoyed respectable growth.

Table 1:1  Performance Indicators for NBPLC

	1971	1975	1981	1985	1991
Turnover (Nm)	40.2	75.7	241.1	179.1	1,708.6
Pretax    operating    profit   (Nm)	6.1	12.4	38.5	41.6	422.5
Net assets (Nm)	11.9	29.1	103.6	161.9	1,248.5
Employees	1,270.0	2,243.0	n.a	3,998.0	4,297.0

Source:  Nigerian  Breweries  Plc  (2014).  Annual  Report  and  Statement  of  Account.  Lagos:

Nigerian Breweries Limited.

The deteriorating results recorded by the company in 1984-86 reflected the foreign exchange rationing policy of the period, which was necessitated by the severe balance of payments crisis of the post-oil-boom era. The import licence allocation of the company could hardly satisfy one third of its foreign exchange requirements. The government‘s mandatory backward integration policy in the mid-1980s saw the company establishing a 5,000 – hectare far, estimated to be worth N30 million, in Niger State. The farm is highly mechanized and produces mainly maize, rice and sorghum, with Soya beans and cowpeas as rotational crops. The main crops are used as input replacements for barley malt. The changeover in input mix was assisted by the company‘s N2 million R&D facility, which was commissioned in June 1987 and plant conversion costing about N100 million (NBL,PLC, 2011).

The company works with highly structured plans, with annual budgets of intentions translated into explicit targets. The decision board sits towards the end of the year to deliberate on the report of each divisional head. Annual budget estimates are made in the middle of the year while decisions on annual plans are left fill the end of the year (NBL, PLC 2011).

The company has experienced remarkable changes in its technical capability. In 1949 it used to take between 28 and 30 days to produce a bottle of beer but with technological improvement it now takes about two weeks. The change in input content in the late 1980s also involved changes in processing technology (NBL, PLC, 2011).

Different measures of productivity are used for the technical division and other divisions. In the technical section, productivity is measured in terms of the efficiency of plant operation an also in terms of capacity utilization. In other divisions, it is in terms of the accomplishment of assigned

responsibility. The company is viewed as a leader in the national industry and in Africa it enjoys a high rating, in term of both productivity and product quality (NBL, PLC, 2011).

NBPLC  concentrates  on  the  production  of  its  beer  and  related  products,  leaving  ancillary services such as bottles, crown corks, labels, cartons and crates to be supplied by other local manufacturers. In fact, Nigerian law precludes a brewer from producing such ancillary services. Only the companies in the soft drinks industry appear to sponsor firms to produce such services. Backward integration into farming was a special concession granted to the breweries in 1984 following the stringent foreign exchange control measures introduced in that year. It also uses outside transport companies for 60 per cent of total distribution (NBL,PLC, 2011).

The company; cooperates with other producers in the industry in lending materials that are urgently required were applicable and most needed. Under the umbrella of MAN, it cooperates with competitors to discuss issues affecting the industry, e.g. adverse government policy. There is no collusion with competition in marketing and no cooperation in technical services, probably because most of the local brewers have foreign technical partners (NBL, PLC, 2011).

The prosperity of the company has been preserved by its efficient costing system, which seeks to protect profit margins in a high-inflation setting by adjusting prices in response to changing costs of production. Input costs rose to about 105 per cent in the period 1982 to June 1992 and selling prices have risen to almost the same extent (NBL,PLC, 2011).

Historical Development of Guinness Nigeria Plc

In 1759, Mr. Arthur Guinness built his factory on a site whose area was four acres. The site was not far from the western entrance to the city of Dublin in Ireland. Even though the gate is no more, the factory which bears the name of the founder has increased in size to upwards of 66 acres and is one of the biggest breweries in the world (Guinness Nigeria Plc, 2011).

In 1936, the high demand for Guinness necessitated the establishment of a second factory. This was located at Park Royal near London. In 1963, the third Guinness factory was opened at Ikeja, Lagos, Nigeria. Quite unlike the situation in both Dublin and Park Royal, Guinness in Nigeria is bottled in the factory and the Ikeja factory has the largest bottling hall of all Guinness breweries all over the world (Guinness Nigeria Plc, 2011).

The world  wide popularity of  Guinness  has  made it  possible to  establish  breweries  in  the following countries:

1.         Malaysia;

2.         Cameroon;

3.         Ghana; and

4.         Jamaica (Guinness Nigeria Plc, 2011).

Guinness is also brewed under Guinness supervision in the following countries:

i.         Kenya;

ii.        Sierra Leone;

iii.       Australia; iv.       Trinidad; v.         Canada;

vi.       Mauritius;

vii.      New Zealand;

viii.     Seychelles;

ix.       Liberia;

x.        Thailand;

xi.       Indonesia; and

xii.      Venezuela (Guinness Nigeria Plc, 2011)

In 1959, Guinness went into the production of a larger brand of beer called Harp in Ireland and soon expanded this market into many other countries including U.K. where it sells very widely. Larger beer is now produced in Ireland, U.K., Malaysia, Cameroon and in the Benin Factory in Nigeria (Guinness Nigeria Plc, 2011).

Historical Development of Premier Breweries Plc

Premier Breweries Plc was incorporated on 23rd  January, 1976 with head office in Onitsha, Anambra State. It was listed on the Nigerian Stock Exchange in 1988. Proshare reports that Premier Breweries Plc declares 2008, 2009 and 2010 Audited Results with N42.225m million loss in 2010. The Stock Exchange weekly reports that Premier Breweries Plc‘s audited result for the year ended 31st  March 2008 shows Nil Turnover same as in 2007. Loss after tax stood at N23.005 million compared with N224.21 million in 2007. Consequently, if previous year‘s losses are taken into account, the retained loss carried forward stood at N440.3 million compared to N417.3 million in 2007 (Premier Breweries Plc, 2011).

Historical Development of Continental Breweries Plc

The company was established at Awoomama in 1980 in Imo State and very well located on the Onitsha-Owerri Road. It is very close to such big towns like Oguta, Orlu, Owerri and Onitsha and this gives it the advantage of proximity to a lot of traders travelling from Owerri to Onitsha. Owerri is the State Capital of Imo State, Onitsha is the biggest commercial center in Southern Nigeria. The location advantage of the factory is instrument to their product ―33‖ lager beer to be very popular and the patronage of the customers has led to the factory being a very big factory with very modern factory facilities such as matching, cementing, match rating and bottling facilities (Continental Breweries Plc, 2011).

1.10 OPERATIONAL DEFINITION OF TERMS

The key terms used in this study are defined as follows:

Capacity Planning is defined as the forecasting and decision making to determine the service capability of the brewing firms and is the process of determining the production capacity needed by an organization to meet changing demand for its product (North Caroline State University). Capacity planning, is also the maximum amount of work an organization is capable of completing in a given period due constraints such as quality problems, quantity, delays, materials handling etc. Capacity planning is also used in business computing as synonym for capacity management.

Performance is the extent to which the brewing firm achieves her organizational objectives. It looked  at   operational,   financial,   and   managerial   and   share   angles.   A  performance management system thus consists of the processes used to identify, encourage, encourage, evaluate, improve, and reward employee performance. Armstrong & Baron (1998), define performance  as  a strategic  and  integrated  approach  to  delivering sustained successes  to organizations by improving the performance of the individual contributors. Since organizations exist to achieve goals, the degree of success that individual employees have in reaching their individual goals, therefore, becomes a critical state in the capacity planning process.

Material requirements planning is a method for coordinating detailed production plans, It is a multi-stage process which beings with a master schedule and works backward to determine when and how much components will be needed. It gives the time for placing orders and when the order is required considering the lead time.

Capacity requirements    planning  is  a  method  that  utilizes  the time  faced  material  plan information produced by a material requirement system and includes the consideration of all actual lot sizes as well as lead times for both open shop orders (schedule receipts) and orders planned for future release (planned orders).

Profitability is that aspect of performance that is a measure of the difference between total revenue and total cost, and if the difference is positive, it is said that there is profit, if negative, it is said to be a loss.

(i)        Steps are procedures for doing capacity planning.

(ii)        Competitive advantage is the distinctive competence which makes a particular firm to stand out among its competitors. (iii)       Capacity building is the creation of enabling environment with appropriate policy and legal frameworks, institutional development, including community participation (of women in particular), human resources development and strengthening of managerial systems.

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