ABSTRACT

Cost reduction programme has become an important practice among manufacturing firm in Nigeria the Introduction of cost reduction programme has increased productivity, reduction of unit and total cost of production and an increased in the profitability and growth of manufacturing firm in Nigeria. It was in this line that this study aims at evaluating the effect of cost reduction techniques to achieve profitability in manufacturing firm in Nigeria using Nigerian Breweries Plc Lagos as a case study. The study objectives are to examine the effect of cost reduction techniques on the performance of manufacturing firms in Nigeria. Both primary and secondary data were employed for the study. The primary data were generated from the management and senior staff officers heading various department of Nigerian Breweries Plc Lagos. Out of  50 set of questionnaires administered.46 were correctly answered and returned, while the secondary data were obtained from published and unpublished report which include textbooks, newspapers, journal articles seminar papers and online report. Four (4) research questions and three (3) research hypotheses  formulated in chapter one were analyzed  using the simple percentage while the three (3) hypotheses were analyzed  and tested using the chi-square statistical method. The conclusion reached is that there is a significant and positive impact of cost reduction techniques on the profitability and growth of manufacturing firms in Nigeria. The researcher recommends that manufacturing firms should institute or continued the use of cost reduction scheme or programme. This will help in avoiding unnecessary cost. The researcher also recommends that manufacturing firms should consistently review the method and techniques of cost reduction approved by management in line with the rate of inflation in the economy.       

CHAPTER ONE

INTRODUCTION

1.0   Background of the Study

        According to Aboyade (1983) Cost and revenue in business undertaking form part of what determines the financial performance and position of a business concern. Since management is concerned with profitability which is the measure of business performance, especially in the manufacturing concern, certain management techniques is very necessary. Mastery the technique in a business can help one to achieve the basic objectives of setting up a business and making it profitable (Oniwuliri, 2009).

        Hanson (1982: 21) pointed out that “the aim of all production is to satisfy human wants and make or maximize profit”. However in carrying out this production, certain costs are incurred. For any business to achieve it’s set objectives, adequate and effective cost reduction measures (formal or informal) should be adopted, in order to achieve the organizational objectives. The effectiveness of the these measures however may have helped some of these  companies to remain in business irrespective of the harsh economic condition, like inflation among others (Collins & Moore 2006).

        According to Iyahen, (2015) many Nigeria business establishments especially the manufacturing sector are in serious profit squeeze. Iyahen, (2016) also pointed out that there are number of factors accounting for this which include, the increasing cost of running business in Nigeria, drastic fall in Nigeria foreign exchange earnings. The situation is further aggravated by triple digit inflation currently present in our economy. The structural adjustment programme and payment of long exercise duties have caused some companies to be closed either indefinitely or produce at a high cost, thereby making the price of local goods to be high while the sale volume is low. All have resulted in poor profit margin, retrenchment or winding up. Firms therefore are struggling to maintain satisfactory pay-off where costs are continuously increasing which is becoming difficult to sustain. To maintain earning in the face of this harsh condition, there is need for companies to make decision with regards to cost reduction culture, to enhance profitability (Onuoha, 1993: 32). In addition to these, it will enhance competitive ability and generate reasonable profit margin for survival, growth, and expansion of the business.

        Finally, it is appropriate to say that the identification of these problems faced by some industries and the provision of solution to it will not only improve the profitability of its operation but also help in the improvement and betterment of the Nigeria economy.     

1.1   Statement of the Problem

        Every business activities result in the occurrence of cost and excessive cost could lead to a reduction in profits which is contrary to the purpose of any business endeavor, which is to maximize profits (Addison; 1980: 54). In Nigeria today, the economy is in extremely bad shape (Osakwe, 2016). Cost of production has been in the increased in the manufacturing sector of the economy, which in effect has resulted in a low contribution margin for the firm, thus making the business unprofitable.

Bathy (1980:82) asserts that greater effort should be made by manufacturing firms to keep cost to the lowest minimum, through efficient and effective utilization of the resources to achieve profitability. Many manufacturing firms are faced with the problem of how to embark on cost reduction scheme and also to make it more effective and efficient in order to achieve desired goal. Moreover the problem of inefficiency under the utilization of resource has a tremendous effect on our economy and should be taken into full consideration (Lipsey 1983:12).

Organizations are faced with the inability to make enough profit and achieve increase in productivity. This is due to the inability to reduce cost installing the appropriate cost reduction techniques in their businesses. It follows that it is essential to monitor the cost of production. So how then can cost be effectively applied in an organization to help management attain it goals in an inflated economy? According to Adeniyi (2009) cost reduction campaigns are often introduced at a rush to reduce the cost of production of goods.

1.2   Objective of the Study

        Generally, this study is aimed at evaluating the effect of cost reduction technique in a manufacturing sector to achieve profitability in an inflated economy with Nigeria Breweries Plc as the case study. Specifically, the study will be conducted to:

1.     To find out if cost reduction scheme are applied in the Nigeria breweries Plc.

2.     To find out how effective, the resources of Nigeria breweries Plc are utilized to improve profitability.

3.     To investigate if the cost reduction technique of Nigeria Breweries Plc has a significant effect on the profitability of the business.

4.     To offer suggestions on specific cost reduction techniques to the company under review.

1.3   Research Question

        This study, on the evaluation of cost reduction techniques to achieve profitability in an inflated economy will be based on the following questions to help direct the study.

1.     Is there any cost reduction scheme or programme Nigeria breweries Plc if not, is there any possible means of installing a cost reduction system so as to eliminate avoidable cost or waste and enhance the Nigeria Breweries Plc Profitability.

2.     Does effective cost reduction technique any significant and positive impact on the profitability and growth of Nigeria breweries Plc?

3.     Does effective cost reduction technique help in the achievement of increase productivity?

4.     Does effective cost reduction technique help in reduction of unit cost and total cost of production?

1.4   Research Hypotheses

        The following hypotheses stated in Null (H_o) and alternative hypotheses (H_i) forms were formulated for the study

H_o:   effective cost reduction does not have a significant and positive impact on the profitability and growth of Nigeria breweries Plc.

H₁:   Effective cost reduction does have a significant and positive impact on the profitability and growth of Nigeria breweries Plc.

H_o:   There is no significant relationship between effective cost reduction technique and the achievement of increased productivity in   Nigeria Breweries plc.

H₁:   There is a significant relationship between effective cost reduction technique and the achievement of increased productivity in Nigeria Breweries plc.

H₀:   There is no significant relationship between effective cost reduction technique and the reduction of unit cost and total cost of production in Nigeria Breweries Plc.

H_i:    There is a significant relationship between effective cost reduction technique and the reduction of unit cost and total cost of production in Nigeria Breweries Plc.  

1.5   Significance of the Study

        This study on the Evaluation of the effect of cost reduction techniques to achieve profitability in an inflated economy (A study of Nigeria Breweries Plc) will generally educate the entire public on how cost reduction programme will be an effective tool employed by management of business organization in achieving profitability in an hyper inflated economy.

        This study will also be of immense benefit to business organization especially Nigeria Breweries Plc to improve upon their cost reduction programme as a measure of reducing cost of production. 

        Moreover, this study will also serve as a source of information and reference material to future researchers who may wish to do research on related areas.

        Finally, the finding of this study may also help in updating previous studies conducted in the area of cost reduction technique, thereby adding value to existing literature.

1.6   Scope and Limitation of the Study

        This research study is strictly limited to manufacturing industries with special regard to Nigeria Breweries Plc.

The researcher is interested in the way this firm is carrying out its business operation in the face of our hyper inflation and business uncertainties.

        In carrying out this research study, the researcher encountered very many constraints which include the following.

1.     Time Factor: The researcher has to carryout this project at the same time together with other social and economic engagement which he must have to attend to.

2.     Financial Problem: According to Anyanwu (1994) noting is ever done without finance. The current inflation in our economy has inflicted a very high economic hardship that only a little I do cost so much money.

3.     Scarcity of Materials: Scarcity of materials on the topic delayed the early completion of this work. The collection of primary and secondary data was also a costly exercise.

        According to Ademolekun (1983) to arrive at a decision that is satisfactory, a man does not account time and resource constraints. These did not however hindered the quality of this work.

1.7   Organization of the Study   

        To provide sufficient understanding, this study is organized into five (5) chapters.

        Chapter one presents the introduction which captures, background of the study, Statement of Problems, Objectives of the Study, Research Questions, Research Hypotheses, Significance of the Study, Scope and Limitation of the Study, Organization of the Study, Historical Background of the Nigeria Breweries Plc and Definition of Operational Terms.

        Chapter two reviews the related literature on the topic.

        Chapter three is concerned with the research methodology. It examines s the procedures for carrying out the research, research design method and instrument for data collection.

        Chapter four is based on presentation, Analysis and interpretation of data.

        Lastly, chapter five summarizes the research findings, draws the conclusions and gives recommendations.

1.8   Historical Background of Nigeria Breweries Plc

        Nigeria breweries Plc, was in incorporated on 16^th November, 1946 and recorded a Landmark when the first bottle of star larger beer rolled off the bottling lines in its Lagos Brewery in June 1946. This was followed by Aba Brewery in 1957. Kaduna Brewery which was commissioned in 1963 followed by Ibadan Brewery in 1982. In September 1993, the company acquired it fifth brewery in Enugu. On April 9, 2001 it also laid another foundation for yet another brewery in Enugu which has started operation.

        From its humble beginning in 1946, the company now have six (6) operational breweries from which it high quality product are distributed to all parts of this great country. Nigeria Breweries Plc has a rich portfolio of high quality brands namely:

Star Larger Beer Introduce in (1949)

Gulder Larger Beer Introduce (1970)

Maltina Introduce in (1976)

Legend Extra Stout Introduce in (1992)

Amster Malta Introduce in (1994)

Schweppes Orange Drink Launched in (1996)

        This was followed by the launch in Nigeria market Heineken larger Beer in June 1998. However, in August 2001, the company decided to exist the carbonated soft drink market because, of the need to concentrate on it area of core competence.

        Nigeria Breweries Plc keeps space with key international developments thus, ensuring that it system, processes and operational procedures is always in conformity with the world class standards. It is in line with the policy that the company established a research and development centre in 1987, to enhance its research activities on all aspect of brewing operation.

1.9   Definitions of Terms

        The following terms which are used in this study are defined precisely as they relate to the context of this research work.

1.     Cost: According to Adeniji (2009) “Cost may be defined as the amount of expenditure (actual or national) incurred on or attributable to a specified things or activity”.

2.     Cost Reduction: This is the process whereby a permanent cost saving are made without affecting the quality or the usefulness of a given product.

3.     Profit Squeeze: This is the persistent dwindling of return investment ceased by high cost of operation.

4.     Profitability: It is the yardstick for measuring returns, efficiency and effectiveness on the use of productive resources.

5.     Cost Centre: A cost centre is any location, person or item of equipment for which cost may be ascertained and used for the purpose of cost control (Adeniji 2009:9)

6.     Profit Centre: This is a centre used to assign responsibility or revenues and expenses.

7.     Evaluation: This is the review of a process and the measurement of the achievement of the process of the derived goal. 

8.     Technique: This can be seen as the style or mode adopted in implementing a decision geared toward achieving a desired objective.

9.     Inflation: This is the general increase in the prices of goods and services and fall in the purchasing power of consumer or value of money. 

10.   Economy: This is the state of a country in terms of the productions and consumption of goods and services and the supply of money.