Assessment Of Cost Reduction Tools As A Means Of Improving Organizational Profitability

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Assessment Of Cost Reduction Tools As A Means Of Improving Organizational Profitability


Abstract


This research work investigated with a particular reference to unilever Nigeria plc, the existing an Assessment of cost reduction tools in operation. Their effectiveness as veritable cost reduction tools and above all, how much or less they have contributed to reduction of cost operation/production of the company. In carrying out a case study, three modes of gathering information were used which includes, questionnaire, personal discussions and interview and observations in the firm the data which were collected through questionnaire administered, were analyzed with the use of simple percentage method.

However, the study revealed that the company adopted and used the following cost reduction tools among others, staff training (to enhance efficiency and skill), good inventory management through economic order quantity (EOQ) model, maintenance of low labour turnover rate, strict supervision of activities, responsibility accounting system, turn around strategy, and periodic preparation of cost analysis and investigation of material variances. These strategies have not been without problems. It was found that staff members who have been denied some welfare facilities and fringe benefits as a result of cost reduction tools in vogue have developed a like ward altitude of work and a declining moral for productivity.

Based on these findings, it was concluded that these tools wopted by Unilever Nig. Plc are suitable for modern day operation/productions for a manufacturing company of its caliba. Also these tools have equally led to a significant difference in materials costs of the integration strategies, reviews of contract, establishment of a separate purchasing department and approving of overtime allowances for workers on essential duties are areas to be looked into within a view to enhancing preference of the workers areas recommended to be seriously encouraged including the accounting system in operation.


Chapter One


Introduction

1.1 Overview Of The Study

The desire of every rational producer is to minimize the resources invested to achieve a desired objective. Thus, at any point in time he/she should be devising ways of reducing the cost of achieving the desired benefits.

This situation is equally relevant to organization of any kind, whether their profit oriented or non-profit oriented. However, this has made imperative for every organization especially the profit oriented ones not to stop controlling the use of resources to conform with established standards.

Also, spirited attempts should be made continuously to reduce costs without imparing the quality of their products. The above pursuits by manufacturing companies has bee era of surprising rate of inflation, especially low exchange rate and reuiry reports of grossly low capacity utilization.

Moreover, the business environment has been vary inclement due to the interplay of some other powerful extraneous variables. Maybe it was this situation Greater (1975) Page (1975:13) foresaw when he said “cost must be minimized, cost must be controlled, profitability must be improved”. These are the crises of the managers echoing through the streets if industry and commerce. Coming home, Ogulana page (1983:010) (1983) called “Nigeria is passing difficult period every thing possible must be done by everyone in position to do so, to assist the economy in marketing a quick recovery? One way of heeding to these glaring calls by managers of companies is the adoption of cost reduction tools aimed at improving profitability.

One may at this juncture ask, what is cost reduction and what are the tools used for reducing cost? The answers to these questions can be better understood if the meaning of cost is briefly discussed. Also, a line of demarcations going to be drawn between cost reduction and the tools to reducing the cost. The importance of this distinction will be appreciated if one knows that the terms, cost reduction and tools all have functional meanings in understanding the focus of this study.

The reduction cost of production and/or operation in an organization while still maintaining that sample if not higher, quality of products or services rendered.

Cost reduction tools is a generally accepted device, system or technique after knowing the importance of cost reduction needs to also know the areas where the tools can be applied in the organization. The scope of cost reduction should embrace the activities of the entire company, from purchasing to distribution and at every level in the organization.

Areas in which cost may be reduced as follows, materials, labour cost, finance costs rationalization measures.
The task of reducing costs was erroneously left in the hands of cost accounts alone in the past. Today, with the sophistication of business firms, the separation of ownership form management, the complexity of business operation and the competitive market situation in our country (Nigeria) where firms are daily devising efficient means of operation at lower cost, adoption adequate cost reduction, everybody from the messenger into up to the managing directors is involved. This is because the unit cost of the manufactured product is of utmost importance if one is to complete favourably with related firms in the same industry.

Therefore, this study will review some existing costs reduction tools as the effect the UNILEVER Nigeria plc, the extent of their implementation, their effectiveness as well as the justification for their adoption as important costs reduction tools.


1.2 Statement Of The Problem

In spite of the benefits obtainable from cost reduction tools, problems still militate against its adoption by the company. These include the facts that:

  1. The company, unilever brothers, they do not know the tools used for cost reduction
  2. The problem of the company is that, they do not know that there are tools which can be used to reduce cost.
  3. Cost reduction techniques have not been adopted by the company.
  4. Another problem is that, the company do not know that cost reduction tools can be applied to control the unnecessary cost encountered by the company.

1.3 Objectives Of The Study

  1. Is to introduce the tools/techniques used for cost reduction to the company.
  2. To help the company adopt the techniques, in other to reduce the unnecessary cost.
  3. To investigate the problems encouraged in reducing cost and also the ways, the company used in reducing cost.
  4. Is to help the company choose or select the best tools they will use to reduce there unnecessary cost.

1.4 Research Questions

To accomplish the objectives enumerated above answers are hopefully going to be provide to the following questions.

  1. Does Unilever know cost reduction tools?
  2. Does the level of employees motivation relate to the effectiveness of cost reduction tools?
  3. What are the problems associated with cost reduction implementation?
  4. What measures do they adopt to reduce cost?
  5. What other alternative measures do they adopt to reduce cost?

1.5 Hypothesis

In order to make conclusion and recommendation, the following hypothesis will be tested.

  1. There is significant difference in material cost before and after embarking on cost reduction tools.
  2. There is no significant difference in material cost before and after-embarking on cost reaction tools.

1.6 Significance Of The Study

This findings and recommendation of this study will not doubt, be of immense importance to the management of Unilever Nigeria plc. It will equally go a long way to guiding similar firms in the manufacturing industries on the proper cost reduction they should adopt that will be appropriate to their activities new and prospective managers would equally be acquainted with not just the cost reduction tools already familiar with but also ones suggested by more experienced managers.

Also, the study hopes to come up with a guide to managers on how to adopt cost reduction tools, problems likely to be faced, how to reduce the impact of such problems or possibly prevent their occurrence. Another intended contribution of this study is to find out how effective are the tools for cost reduction and if not, why they are effective.


1.7 Scope Of The Study

For the purpose of this study, emphasize will be solely Unilever Nigeria Plc. This is influenced by the fact that Unilever is the longest manufacturing surviving giant company in Nigeria having been in operation since 1923.
It was a general consensus that it is against management policy to give out internal document to any outsider for reason unless under special circumstance. Therefore, the analysis will be made based on the questionnaire, results, facts gathered during interview and discussions as well as personal observations made during the work.


1.8 Limitation Of The Study

There is no doubt that research of this nature is bound to be limited by certain factors, this certain factors prevents the exhaustive treatment of the topic. Prominent among these factors are time, distance of the area of study, and data collection, also the supervisors constraints, financial constrains, lecture etc. it is obvious that there are many sites spread across the states, which needed to be visited for more information, forwards a complete research work on the topic, but the research was highly constrained by time both in carrying out he research and attending lecturers.


1.9 Definition Of Terms

Cost:

Cost can be seen as a systematic measurement in monetary terms of the amount of resources, used for some purpose.

Cost Reduction:

This is the reduction or lowering of cost of production in a manufacturing organization without altering the of product produced or services rendered.

Value Analysis:

Is the study of a product already on offer or purchased.

Value Engineering:

On the other hand, is the design activity involving the design of value into a product.

Variety Reduction:

Is the examination of the product range show that it is too intensive and that some of the products are uneconomical because they are produced in a small quantities.


Assessment Of Cost Reduction Tools As A Means Of Improving Organizational Profitability


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