EVALUATION OF COST REDUCTION TECHNIQUE IN ACHIEVING PROFITABILITY IN AN INFLATED ECONOMY

ABSTRACT

CHAPTER ONE

INTRODUCTION
For a business to succeed, knowledge of certain management, techniques is over necessary.
Mastering the techniques that can help one to achieve the basis objectives of building up a business and making it profitable,

1.1 BACKGROUND OF THE STUDY
The aim of all production is to satisfy peoples wants, however in carrying out this production, certain costs are incurred I order to achieve the stated organisational objective be it to satisfy peoples wants according to Hanson J. L to maximizes profit. For any business to achieve it s set objective there have to be adequate, strong and effective cost reduction measures (formal or informal) which should be adopted. The effectiveness of the these measures however may have heaped some of these companies to still remain in business irrespective of the hash condition like inflation among others. Many Nigerian business establishments presently, especially the manufacturing sectors are in serious profit squeeze. A number of factors account for this into ward condition which include, the increasing cost of running business in Nigeria, drastic fall in Nigerian foreign exchange market did not help matters. The situation is further aggravate by tripple digit inflation present in our (Nigeria) economy. The structural adjustment programme, ban on importation of certain basic raw materials, payment of long excise duties have caused some companies either to have closed indefinitely or produce at high cost, thereby making even the local goods high and sale volume low. All have result in poor profit margin payout, retrenchment, compulsory leave and retirement with or without benefit which invariable affects the company as well. Firms therefore are struggling to maintain satisfactory pay-off where costs are using and o price increase becoming more and difficult to sustain. To maintain earnings in the face of thee conditions, there is the need for these companies to make decision with regard to cost maintenance culture, increase productivity to enhance profitability and diversification into a complete new market area. In addition to these, it will enhance competitive ability and generate reasonable profit margin for survival, growth and expansion of the business.
It is the view that most industries do not have approved they exist, are not well organisation. This analysis therefore is designed to explore the various strategies and evaluate them and well as open to manufacturing firms in reduction system can go a long way at improving profitability and over coming inflation.
It is appropriate therefore to say that the identification of these problems of some industries and the solution to them will not only improve the profitability of its operations but also helps largely towards the improvement of the Nigerian economy. This work therefore is assumed to be of some benefits to manufacturing firms and help than improve further than returns on investment and improving the Nigeria economy generally.

1.2 STATEMENT OF PROBLEM
The firms are business to make profit. It does this by producing and selling some commodities.
Essentially, every activity whether productive of not, consumes resources. According to Lipsey Et Al “there are insufficient productive resources in the world to produce the amount of goods and services that would be required to satisfy every ones want”. The scarcity of these productive resources eg (human and material) made it imperative that there should be product and judicious use of them.
Most firms in Nigeria are faced with raising cost of production and low contribution margin.
Small firms in particular have peculiar problems and easily swept off their feet by conditions that other companies could accommodate,
Factors that can disrupt the profitability of Nigerian Breweries Plc in this our economy of hyper inflation includes:
i Inadequate capital structure
ii Inadequate to enjoy economies of purchase
iii Tiny market share r loosing their market share
iv Higher cost of research and development.
Having considered the above factors, certain questions needed to be answered include:
1. Is there any possible means of installing a cost reduction system so as to eliminate avoidable cost and or waste and enhance the Nigeria Breweries Plc’s profitability.
2. Do this firm have any cost reduction scheme or programme and if present, how effective and efficient are they ? Are they producing the desired result ?
3. Can the cost per unit of production of a given product be realized wit out affecting h quality and usefulness of product.
4. Are the firm resources being fully utilized or some of them lying idle and thus going to waste.
5. How, out of the various alternatives do we employ our limited resources to produce this assertments as efficiently as possible.
6. In a manufacturing set-up, what specific area requires reduction in cost and what level of cost reduction is require in a given cost level.

1.3 OBJECTIVE OF THE STUDY
Having identified these problems above, and the operational environment surrounding the company, which the researcher is aimed at solving, the following as what this study is aimed at achieving:
– To find out how effective, the resources of Nigerian Breweries PLC are being utilized to improve profitability.
– To know of cost reduction scheme are being applied in the industry.
– To find out the specific strategies adopted, the level of application and the specific areas where they are being administered their evaluation.
– To ascertain whether there is a systematized cost reduction schemes/programme under the personnel and or accounting department.
– To know if certain specific cost reduction techniques applied in one industry will still achieve some result elsewhere.
– To offer suggestions ion the specific cost reduction techniques to the company under review as well as providing an assistance where firms including the low ones.

1.4 SIGNIFICANCE O THE STUDY
Certain facts /things has been fund significant and had taken note of by the research in this analysis which will help him go on with the study. Some of these include
1. That Nigerian Breweries Plc is a going concern that have specific and procedural cost reduction techniques.
2. That the problem being encountered by this organisation in its problems as the case may be.
Since the establishment of Nigerian Breweries Plc which is over fifty (50) years ago with the sole aim of producing lager beer and other mineral drinks have forming strength, making and declaring its profits.
If the life cycle of a business star5ts at Zero, climbing gradually through its peak and then falling down to extinction, Nigerian Breweries Plc has remained at its peaks and yet growing a new peak irrespective of the economic down turns and serious hyper inflation associated presently with our economy.
This had not been without the proper implementation of the various techniques to cost production. Management skills, proper recording and analysis of transactions to management acquiring them with state of the financial position sand avoiding unnecessary spending.
These techniques therefore need to be evaluated and reviewed to either commend the management or advice for a change if a particular techniques is becoming out of fashion.

1.5 SCOPE AND LIMITATION OF THE STUDY
There are so many companies in Nigerian today and her are a lot number of bravery industries.
More than a thousand companies are registered with Manufactures Association of Nigerian (MAN) as at today. The work is strictly limited to bravery with special regard to Nigerian Breweries Plc. The research is interested in the ways in which this firm is carrying on with it s business operation in face of this our hyper inflation and business uncertainties.
In carrying out this research study, the researcher encountered very many constraints, Some of balm, hoarding of relevant information and scarcity of materials and other miscellaneous elements.

TIME FACTORS:
The researcher has to write this project and at the same time is preparing for this final examination together with other social engagements which he must have to attend to.

FINANCIAL PROBLEMS:
Nothing is ever don without finance , the inflation inflicted very high economic hardship that only a little they do cost so much money which of course us very scarce to get.
Transportation cost us and for and other places is another thing.

HOARDING OF RELEVANT INFORMATION:
Omuoha B. C had it all that failure to disclose information resulted from the fact that they are prejudiced by the fear that information about the enterprise might reach the tax authorities or nearby competitors. As a matter of policy of the company getting information delayed the whole project as bureaucratic procedures must rake its course.
SCARCITY OF MATERIALS:
Scarcity of materials on the topic hindered the carrying out this work. Collect of primary data is a very costly excerise.
According to L. Ademolekun “to arrive at a decision that is satisfactory, the administrative man does not account time and resources constraints.
The concept of bounded rationality.

MISCELLANEOUS ELEMENTS:
Incessant and intermittent punctuality of academic problem encountered by the researcher.
This is no small measures reduce by the concentration and seriousness in the pursuit of this programmes.
Nigerian Breweries Plc was incorporated first as Nigerian Breweries Limited on the 16th of November 1946 with the sole aim of producing, distributing and selling beverage drinks (beer, and minerals).
In 1957, when a second brewery concerned in Aba, the name was changed to Nigerian Breweries limited and was finally changed to Nigerian Breweries Plc in accordance with the Company and Allied Matter Act f 1990. Fifty (50) years had rolled by, since the incorporation of the Company in 1946.
The Company with its headquarter located at Lagos now has five branches located variously in Lagos 1946, in Aba 1957, Kaduna 1971 and lastly Enugu breweries bought over from former Diamond Breweries in 1993. It has a research and development centre (R&D) in her Lagos headquarters established in 1987 to conduct research into various ways of brewing. The company has a portfolio of five (5)
brands which includes:
1. STAR
2. GUILDER
3. MALTINA
4. LEGEND
5. AMSTEL MALTA
STAR, the first locally made beer rolled on the Nigerian Breweries owned bottling line on the 2nd of June, 1949 and pushed into the market amidst other highly competing international products like Heineken and Becks lager beer. GUILDER was introduced in 1980, Maltina in 1976, Legend Extra stout in 1992 and Amstel Malta in 1994. Newly introduced but yet to be launched into the Nigerian Market is the Schweppes international product which includes; Bitter lemon, Tonic water, soda water and almighty brush.
The company is blessed with the assistance of external expert partners like UNILEVER on commercial activities and Heineken on technological activities. It has a well established production and machinery, distribution, sales and marketing channels. It is also a good corporate citizen and had been socially responsible, touching the lives of so many in several ways by its award of scholarship, furnishing schools with science equipments sponsoring several sporting activities and donating to health institutions. It is currently headed by Nigerian Chief Festus Odumegwu as the Chairman/Managing Director since 1998 till the time o this project /research.

1.6 OPERATIONAL DEFINITIONS OF TERMS
The following terms which are used in this study are defined precisely they related to the context of this research work.
1. COST REDUCTION
This is a process whereby a permanent cost savings are made without affecting the quality or the usefulness of a given product (goods and services).
2. PROFIT SQUEEZE:
This is persistent dwindling of return on investment cased by high cost of operation.

3. PROFITABILITY:
It is the yardstick for measuring return efficiency and effectiveness on the use resources.
4. COST CENTRE:
This is the smallest responsibility center for which cost are accumulated. Sometimes “an entire department is considered a single cost centre. It control and report cost only.
5. PROFIT CENTRE
This is centre used to assign responsibility for revenues
and expenses.
6. SEGMENT AUTONOMY:
This is the “procession of decision-making power” by
managers of sequent of an organisation.
7. DYSFUNCTIONAL BEHAVIOUR:
This can be defied as “the taking of decisions and actions that are in conflict with top-management or organisational goals.
8. EVALUATION:
This is the review of a process and the measurement of the achievement of the process of the derived goal.
9. TECHNIQUE:
This can be seen as the style or mode adopted in implementing a decision geared toward achieving a desired objective.

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