Problems Of Acquisition And Replacement Of Plant And Equipment In A Manufacturing Industry

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Problems Of Acquisition And Replacement Of Plant And Equipment In A Manufacturing Industry


Abstract


This research is a study of the problems of acquisition and replacement of plant and equipment in a manufacturing industry. It is aimed at examining the activities involved in the production process with a view to using it in determining whether or not resources were fully utilized. It is also aimed at discovering the bottlenecks and weakness in the operations of manufacturing firms using Anambra motor manufacturing company limited as a case study.

This study has five chapters, which were combined to bring out all the ideals for a comprehensive work.

Chapters one contains general ideas of the study. It introduced the study and laid the foundation for the other chapters that appear in the other parts of the study. It contains three hypothesis which were tested in chapter four for statistical significance.

Chapter two reviewed related literature on the evolution of capital goods and investment appraisal techniques to be used in capital budgeting.

However, chapter three is on the research methodology, population size, sample size and measuring instrument used in the study. To make the study possible, survey research method was used based on the sample size of fifty two respondents.

Questionnaires were used as the research instruments administered, data collected, analyzed and interpreted in chapter four.

Chapter five deals specifically with summary, conclusion and recommendation.


Chapter One


1.0 Introduction

1.1 Background of the Study

The establishment of a consistent industrial system in which technology is fully understood is the primary objective of many developing countries. According to Omorodion (1986) an industrial system is a body of capital goods industries (Metallurgy, engineering, building and public works) of intermediate goods and consumer goods which are linked together by buying and selling relationship.

There are many obstacles to the emergence of an industrial system. In this study, they will be grouped into two, namely external and internal obstacles. External obstacles are likened to the world economic crisis. The fragile nature of the economy has resulted in industrialized countries altering their production system, thus, modifying the production system or methods and the distribution of industrial products. These are noticed in monetary imbalance, the drop in exports of manufactured products and the reduction of outlets. The bad economic situations experienced by the industrialized countries bounce back to the developing countries.

The situation is worsened by the continuous deterioration in he terms of trade, increasing indebtedness and the difficulties in the payment of debts. It is clear that inordinate increases in interest rtes are causing considerable problem in the debt management. Some of them have instituted austerity measures in order to avoid bankruptcy. In Nigeria, the structural Adjustment progrmme measure was introduced by the Babangida administration.

The internal obstacles are linked with the production system in any developing economy. It could be as a result of the scarce agricultural goods and services to satisfy the needs of the ever growing population of a country like Nigeria. The difficulties of achieving mastery of technology in relation to capital goods are undoubtedly one of the most serious hindrances to the birth of an industrial system in Nigeria. For the past three and a half decades, Nigeria has invested heartily though unequally in the acquisition of capital goods.

Omorodion (1988) defined capital gods, as those manufactured goods use in the production of all sorts of consumer goods capital goods can be used to produce some other capital goods like plant and equipment. He further classified capital goods by their uses such as:

  1. Capital goods for producing capital goods
  2. Capital goods for producing intermediate goods
  3. Capital goods for producing consumer goods

These capital goods constitute the base for the industrialization process because each category of the capital goods can help in the development of another.

A close analysis of works on the problems of industrialization in Nigeria has shown that planned objectives do not always achieve the desired results, but they rather result in opposite results due to lack of relationship between industries, lack of technological expertise to handle the imported capital or inadequate personnel etc. These difficulties resulted in the Nigerian Government modifying her trade relationship with the industrialized countries.
The federal government had the vision to more Nigeria forward and this lead to the establishment of six progressive automotive manufacturing plants in the mind seventies and eighties. These plants include Peugeot Antomobile of Nigeria located in Kaduna, Volkswagen of Nigeria Limited located in Lagos, Leyland motors company located in Bauchi. There are other private assembling lines like the federated motors which assembles Bedford buses amongst others. These plants have a total fixed capital investment of about four hundred million American dollars and can provide employment for not less than one million persons. The combined installed capacity of these commercial and private industries is over one hundred and twenty units annually.

However, the advent of structural Adjustment programme in 1986 initiated the actualization of the vision of the founding fathers of these entities. This programme helped the industries up to the early nineties. However, since the middle nineties, these industries have been plundering and oscillating between life and death. Some have already caved in while the few surviving ones scrap on marginally. With the exceptions of Anambra Motor manufacturing company, Peugeot Assembly of Nigeria and some other private assembling lines, the other manufacturers have stopped production entirely or are producing far below installed capacities.


1.2 Statement of the Problem

Plant and equipment items form the largest group of total fixed assets employed in an industrial enterprise. Its percentage to total fixed assets varies from industry depending upon the degree of mechanization, manufacturing processes and technology adopted.

It has a higher percentage of the total fixed assets employed by a production oriented enterprise.
The acquisition and replacement of plants and equipment have always been a major problem with indigenous industries especially those enterprises that are not multinationals. On account of the above This study addresses itself to the following problems.

  1. To find out f Anambra motor manufacturing company limited is under capacity utilization is due to the problem of acquisition and replacement of plant and equipment.
  2. To identify what plant and equipment problems it is experiencing.
  3. To find out the extent to which scarce financial resources in the economy affect the acquisition and replacement of plant and equipment.
  4. To find out if there are external barriers militating against acquisition and replacement of plants and equipment.
  5. To identify the internal barriers (if any) militating against the acquisition and replacement of plants and equipment.

1.3 Objective of the Study

The shortage of products, the high prices of available products and the production of different types of products to satisfy consumers in Nigeria have been of growing concern among manufacturing firms. Manufacturing industries have not been able to meet their primary objectives because of the factors affecting their production systems.

The major factors affecting manufacturing firms in this country today is the problem associated with their productive system. These problems could be divided into internal and external.

The internal problems that a firm faces in its environment could be the lack of financial resources for the acquisition of plants and equipment, the maintenance of these plants and equipment, the replacement of plant and equipment to the capacity required to meet customers demand ad how to generate the funds.

The external problems are not normally under the control of the firm, these problems include low infrastructures, government policies and the technology of industrialized countries.

Therefore, the purpose of this study are as follows:-

  1. To find out if there is under utilization of resources.
  2. To find out the bottlenecks and weaknesses in the operation of Anambra motor manufacturing company as re-paid plants and equipment acquisition and replacement.
  3. To make recommendations on the best method to improve in the resources utilization.
  4. To determine the rate of acquisition and replacement of equipment.
  5. To identify the factors influencing the rapidity of replacement.
  6. To examine the contribution of acquisition and replacement of replace to organizational performance.

1.4 Significance of the Study

This research work would be of immense relevance to a lot of people in different ways, it will be very helpful to the economy at large because plant and equipment have the highest percentage of the total fixed assets employment by any production oriented enterprise and it is therefore expected to yield maximum production to satisfy the economic needs of the people.

This study will also be of significance help to investors since they will like to know how fund are being utilized in the acquisition and replacement of plants and equipment as this takes the largest portion of funds invested by the investors.

Also, this study will be of help to different financial institutions like insurance companies, banks, financial houses etc. In order to avail themselves of the opportunity of knowing the plants and equipment needed by manufacturing firms and the way such plants and equipment will be acquired and replaced (ie the funding and the sources of fund).
Other researchers on any similar topic will find this research work helpful as it will form a base for the review of related literature and also will be a stepping-stone for future researchers.


1.5 Scope of the Study

This research will find out the problems of acquisition of plant and equipment in Nigeria industries (A case study of Anambra Motor Manufacturing Company Limited). Therefore, other materials places, items activities or periods are just for the purpose of clarity and vivid understanding of the subject matter and not within the scope.
A research of this nature cannot be carried out without difficulties in the process. There is no doubt that it was an up hill task for me to carry out this research work.


1.6 Research Hypothesis

According to Oyi, hypothesis is a “proposition put forward as a basis for reasoning on a supposition formulated from provided date and presented as a temporary explanation of occurrence as a science in order to establish a basis for future research”. Also, Chinelo G.O Nzelibe and Guy C. Ilofu defined hypothesis as a guess on a statement of conjunctive showing the relationship between two or more variable in the population under certain condition. The relationship can be general on specific the impact of one or the other i.e cause-effect”. In other to analyse the problems o acquisition and replacement of plant and equipment in a manufacturing industry, the following hypothesis will be made.

  1. Ho: There is no direct relationship between the rate of acquisition and replacement of plant and equipment and organizational performance.
    Hi: There is a direct relationship between the rate of acquisition and replacement of plant and equipment and organizational performance.
  2. Ho: Under utilization of capacity in manufacturing industry does not hinder the acquisition and replacement of plant and equipment.
    Ho: Under utilization of capacity in manufacturing industry hinders the acquisition and replacement of plant and equipment.
  3. Ho: Availability of financial resources does not greatly influence the acquisition and replacement of plant and equipment.
    Ho: Availability of financial resources greatly influences the acquisition and replacement of plant and equipment.

1.7 Definition of Terms

Acquisition:

This is the act of possessing property. However, properties that has never belonged to anyone or that has been abandoned may be acquired.

Plant And Equipment:

These are those tangible properties of a relatively character that are used in the normal conduction of business.

Manufacture:

To make or produce something especially by machinery or other industrial processes and usually in large quantities.


Chapter Five


5.0 Summary of Findings, Conclusions and Recommendation

5.1 Summary of Findings

The major tests tables has proved that under utilization of capacity hinders against the acquisition and replacement of plant and equipment. It also proved with proper statistical techniques that internal barriers militate against the acquisition and replacement of plant and equipment .

More so, the computation also showed that the limited financial resources of the economy hinders the acquisition and replacement of plant and equipment in manufacturing industry.


5.2 Conclusion

From the information available, it has been noticed that one of the major problems of Anambra Motor manufacturing Company Limited has been under production. Any enterprise which is not utilizing its capacity adequately to make profit will not succeed hence, external finances are resorted to in event of the plant being scrapped on rendered obsolescent Anambra Motor Manufacturing Company has been responsible for its not being able to replace old plants as it ha not been making profit.

External finances are reluctant to invest or lend funds to projects that are not viable and self liquidating. This has been part of the problem of Anambra Motor manufacturing Company being a government owned industry.
Also, political consideration have been over-riding the profitability issues of the company.

Finally, the unprofitable operation of the company has been due to inherent deficiencies in the technical and managerial set up of the company right from its inception, planning and execution stages respectively.


5.3 Recommendation

From the information available, I wish to suggest the following to the management of Anambra Motor manufacturing Company Limited.

  1. Proper capital budgeting should be prepared and considered especially the cost benefit before embarking on the project.
  2. People of proven integrity and experts in the field should be allowed to master mind the implementation of projects. This failure of projects starts from poor planning to poor execution. One of the major sources of persistent annual under production in the company operation can be traced back to the basic technical errors in the selection, acquisition and installation of old mismatched and under sized plant and equipment in the factory at the critical stages of installation.
  3. Another source of electricity like a generating plant should be acquired because of the inpredicable electric power failure of the National Electric Power Authority (NEPA) in order to ensure proper and steady maintenance of all the facilities, plants and equipment including the old equipment to make sure that there is no cause under utilization of capacity leading to under production.
  4. There should be a strong internal control system to ensure the use of fund especially wages paid to workers. This will help to minimize frequent strike actions which aggravated what under production problems.
  5. Men with technical expertise should be employed to direct the affairs of the company. The government should allow the management to operate without much interference. This government intervention is not helpful to the company as they appoint directions or political consideration without their possessing any special required qualification to justify their appointment. This leads to poor management but if the company should be allowed to operate on its own, the good management of the company will be ensured.

5.4 Limitation of the Study

Due to time constraints, I restricted myself to the special forces working against internal and external financing of the company in relation to plants and equipment acquisition and replacement.

The time allocated for this research did not allow me to have a more detailed and exhaustive work. Also, considering the economic condition, finance also limited me to one company as I would have desired to visit other companies and find out the problems in relation to replacement and acquisition of plants and equipment.

Although it was easy to obtain approvals, from appropriate quarters of the company I didn’t find it easy obtaining other vital information from some department especially the accounts/ finance department that refused giving out the company balance sheet and operating statements for the past three years.

In contrast, these limitations did not in the end invaluable the finding of this study as more set backs were controlled.


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