THE PROBLEMS OF ACQUISITION AND REPLACEMENT OF PLANT AND EQUIPMENT IN A MANUFACTURING INDUSTRY

 

A CASE STUDY OF

 

 

ANAMBRA MOTOR MANUFACTURING COMPANY LIMITED ENUGU.

 

 

 

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

 

TABLE OF CONTENT

Title Page                                                                                i

Approval Page                                                                        ii

Dedication                                                                               iii

Acknowledgement                                                                   iv

Abstract                                                                                  vi

Table of Content                                                                     viii

CHAPTER ONE

1. O   Introduction                                                                   1

1.1            Background of the Study                                               1

1.2            Statement of Problem                                                    5

1.3            Objectives of the Study                                                  6

1.4            Significance of the Study                                               8

1.5            Scope of the Study                                                        9

1.6            Research Hypothesis                                                     10

1.7            Definition of Terms                                                       12

CHAPTER TWO        

2.0            Review of Related Literature                                         13

2.1     Evolution of capital Goods                                            12     

2.2            Replacement                                                                  16

2.3            The Concept of Capital Budgeting                                19

2.4            Financing of Capital Assets                                           24

2.5            Foreign Exchange                                                 27

2.6            Capacity Utilization of Machinery and Equipment       30

CHAPTER THREE    

3.0            Research Design and Methodology                                37

3.1     Sources of Data                                                             37

3.2            Determination of Sample Size                                       39

CHAPTER FOUR       

4.0            Presentation, Analysis and Interpretation of Data         45

4.1     Presentation and Analysis                                             45

CHAPTER FIVE

5.0            Summary of Findings Conclusion

and Recommendation                                                    74

5.1     Summary of Findings                                                    74

5.2            Conclusion                                                                     74

5.3            Recommendation                                                           75

5.4            Limitation of the Study.                                                 78

References                                                                      79

Appendix                                                                       81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

a.                 Capital goods for producing capital goods

b.                 Capital goods for producing intermediate goods

c.                  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.

a.                 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.

b.                 To identify what plant and equipment problems it is experiencing.

c.                  To find out the extent to which scarce financial resources in the economy affect the acquisition and replacement of plant and equipment.

d.                 To find out if there are external barriers militating against acquisition and replacement of plants and equipment.

e.                  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.

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.

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.

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

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