PRODUCTION

Production refers to the activity aimed at bringing a physical change in a good or service (product) so as to make it useful. It is an activity that results in the creation of goods and services for the satisfaction of human wants.

Production management is the process of planning for production and ensuring your production plans are put into efficient operation.

A product may be defined as a set of tangible, intangible and associated attributes capable of being exchanged for value with ability to satisfy consumer of business needs.

The product concept

To clearly understand a product, one needs to view the product from three different levels ie the actual product, the core product and the augmented product.

Actual product. This is the physical product defined by its design, packaging, quality and brand name.

Core product. This refers to the benefit of a product that actually satisfies the customers need.

Augmented product. This refers to the additional consumer service and benefit built around the actual and core products.

TYPES OF PRODUCTS

Products are classified in various ways and they are normally divided into tangible and intangible products.

Intangible products (non – material goods). These refer to the services that can be used to satisfy human wants. Examples of intangible goods include the services offered by a teacher, a doctor, a lawyer etc, transport, banking services and others.

Tangible products. These are products which are physical and can be seen. Tangible products are divided into durable goods and non – durable goods.

• Non – durable goods. These are products designed to last a relatively short period of time. They are goods whose capacity to satisfy human wants ends after giving use. Examples of such goods are perishable items like milk, bread and vegetables.

• Durable goods. These are products designed to last a relatively long period of time. They are goods capable of giving longer service, durable goods are usually physical and reusable in nature and they normally depreciate over time. Examples of durable products include refrigerators, furniture, cars, radios, televisions etc.

Durable goods are further sub divided into two ie consumer goods and producer / industrial goods.

• Consumer goods. These are goods that are consumed / used by consumers as final users. Consumer goods are meant for immediate consumption and they include goods such as home applications like refrigerators, goods bought on a daily routine such as sugar, bread, salt, clothes, shoes, jewelry and services etc.

• Producer / industrial goods. These are goods that are used as inputs for further processing or for use in doing a business activity. They help the producer to produce consumers’ goods. Examples of producer goods include raw materials used in the production process capital items like industrial machinery and equipment, vehicles for use in business like delivery vans and supplies like office stationery.

Elements of a product

Elements of a product refer to the attributes / features or characteristics which make a product different from others. They are the techniques used by entrepreneurs to make their products unique. Every entrepreneur should strive to make his/ her product different from others so as for him / her to be able to market it. This can be done through various ways normally referred to as elements of a product and they include the following

Branding. This refers to process of making a product different or distinct from others by giving it a name that will be known and remembered by customers. It is a name intended to identify products of an entrepreneur and to differentiate them from those of other competitors. For instance, branding makes Close up to be different from Delident although they are all tooth paste.

Product design / shape / model. Design includes the style of the product, its shape, safety, simplicity and economy. Entrepreneur should always strive to design their products to look different from those of the competitors so as to make them appealing to customers. For instance cameras, cars, computers, mobile phones etc come in different types. However, each has been designed differently to appeal to customer needs.

Packaging. This involves defining what the package should be for a particular product. One should consider the nature of packaging materials to ensure that the design of the product conforms to the planned packaging materials. Packaging helps to promote or protect the product.

Labeling. Usually, products are labeled with a view of identifying a particular brand. Entrepreneurs should strive to label their products differently for easy identification purpose. Labeling can be done through bar coding, use of unique colours, logos, trade mark, symbols

Product distribution. This involves making the product conveniently more available by a firm than its competitors

Methods of sales promotion. Entrepreneurs use unique techniques to promote their sales e.g unique pricing of products.

Technology used in production. Entrepreneurs normally use unique methods of production that come up with quality output than their competitors

Blending. This involves combining varieties or grades to obtain a mixture of a particular character, quality or consistency e.g blended tea leaves, tobacco etc

FACTORS CONSIDERED WHEN DESIGNING / DEVELOPING A PRODUCT

• Development of a product in relation to customer’s needs. The entrepreneur / producer uses product attributes like shape, colour texture , brand name , durability , quality etc. that are appealing to his / her customers
• Availability of raw materials to be used for making products. The entrepreneur designs a product that can easily be made using readily available raw materials and costs that will leave him / her with a profit.
• Compare your products with competitors’ products. You should decide whether to produce exactly the same products as of your competitors or producing a different and better product than those of competitors
• Government policy on product design. The entrepreneur should design a product that meets the set regulatory bodies like Uganda National Bureau of Standards (UNBS), National Environmental Management Authority (NEMA) and other government policies
• Nature of potential market. An entrepreneur should consider the type of customers to whom he expects to sell the products like their age, gender and income bracket etc
• Duration / life span / shelf life of the product. An entrepreneur should consider a life span of his products so that the materials used in making it can fit in the desired time of the product before its consumption
• Quality should also be considered right from the production process up to the sale of the product as consumers will always run for a product with a better quality
• Technological skills required for products, this normally applies in the production process, as entrepreneur should ensure that the skills required in designing a product are applied well so as to achieve the required finished product
• Features of the competing products. This activity requires the entrepreneur to identify the products of potential competitors, analyze their strengths and weakness that are likely to cause impact on his / her intended product. This analysis enables the entrepreneur to develop a product better than those of his / her competitors

CAPACITY PLANNING AND DESIGN.

Refers to the factors and operational ingredients needed to produce the targeted number of units of a product / service. These factors included

• The physical capacity needed
• Equipment and tools required
• The amount of labour demanded
• The time projected to produce the total number of products or services
• The amount of raw materials and suppliers needed

PRODUCTION PROCESS

This is how the business intends to produce the desired goods and services. It involves carrying out the following activities

Market research. This involves funding out the potential customers opinions about the product to enable the present and future decision making

Developing a product idea, this involves planning the shape, size, colour etc of the product to be produced

Translating a product idea into a product design

Sourcing raw materials, an entrepreneur obtains the raw materials necessary for production of a particular product

Carrying out actual production while observing the quality standards, this involves transforming the raw materials into finished products

Packaging the product, this involves wrapping the product produced and compressing it to protect it against pilferage, pouring and contamination

Branding the product, this involves labeling the products as well as including distinguishing features from similar products of other producers

Storing the product, the product is then stored in good place with good storage conditions that do not tamper with the product’s quality

Distributing the product, this involves offering the product for sale to customers. It includes all activities that enable the product to reach the final consumer

Making a follow up with customers to find out how the product is performing in the market

Making any improvement desired. After obtaining feedback on quality from the customers, an entrepreneur makes improvement of the product.

FACTORS AFFECTING PRODUCTION DECISION

Facilities and organisations. Efficient production facilities like equipment promote more production while inefficient ones discourage production.

Sale potential. High turnover encourages high production levels while low sales discourage production.

Production cost. High production costs limit production while moderate production costs encourage production.

Sales promotion and growth. Increased in business market share encourages more production while declining number of customers limits production.

Money requirements. Existence of money to buy the required inputs encourages production while absence of such limits production

Labour requirements. Existence of labour with required skills encourages production while absence of such limits production.

Supply sources. Reliable suppliers promote quick production while unreliable ones discourage quick production.

Transportation. Good transportation encourages production while undeveloped transport network discourage production.

Acceptance by community. A community that buys goods produced by the business encourages high production while un-supportive communities towards business products discourage production.

Legal requirements. Tight production requirements by government on business limit output while friendly measures promote production.

PURCHASING SKILLS

Purchasing means production supplied with required goods and services at the right time and at the right price from the right supplier. Purchasing is done in accordance with the requirements of a business either for the production and operational process or trading.

PRINCIPLES OF PURCHASING

The main principles of effective procurement / sourcing of raw materials in businesses include

Right quality. The person purchasing should be able to determine the right quality of materials needed. The quality of any raw materials comprises of the features, which are relevant to its ability to meet a given need.

Right quantity. The right quantity of purchases to be made depends on the level of stock an entrepreneur wants to maintain, availability of finance purchases and other costs, the consumption rate of the raw materials in terms of time and quantity.

Right price. This is not necessarily lowest price but should be the lowest price consistent with the quality specifications to leave the entrepreneur with a profit.

Right time, proper timing of purchase is important to avoid excessive stock and stock out problems. The entrepreneur should consider the lead time, the minimum stock in the store room, the place of buying materials and the mode of transport.

Right place. Raw materials should be received and stored near the factory as possible in order to minimize the cost and time involved in issuing and carrying them to the factory.

Right source. A source refers to the supplier or vendors of materials. Selection of right source is essential for getting the materials of right quality and quantity at the right place and the right time.

PROCEDURES FOR PURCHASING GOODS/ RAW MATERIALS AND EQUIPMENT

Determining the business needs. This is done through conducting market surveys in order to know who the business customers are as well as establishing their wants. This enables the business to know how much to stock, the materials and equipment it needs to produce goods for sale to customers.

Identifying potential suppliers. This involves finding out the different suppliers to sell the materials needed by the business. This can be done by asking friends, contacting media or business support organisation.

Contacting suppliers. The entrepreneur contacts different suppliers either by visiting their offices personally or using cost- effective means of communication. The aim is to get information regarding the kinds of goods, raw materials or equipment each supplier can provide.

Selecting the best suppliers. The entrepreneur compares the quotations received from various suppliers and selects one with the most favourable terms and conditions in terms of price, discounts, credit, reliability etc.

Ordering for goods. Having chosen the best supplier the buyer then places an order requesting for the supply of a particular item. An order can be filled by filling a pre-printed   form. Writing an order letter or by verbal ordering where the buyer goes to the supplier and orders for a commodity by a word of mouth.

Checking the goods as soon as they are received. This involves checking the delivery note to ensure that it corresponds with the ordered goods. Goods which got damaged during the transportation are isolated and excluded.

Checking the invoice for accuracy by comparing it with the delivery note.

Making payments either by cash or cheque and a receipt should be issued to acknowledge receipt of cash by the supplier. The entrepreneur / buyer should ensure that a receipt is issued to acknowledge receipt of cash by the supplier.

PURCHASING OF RAW MATERIALS

Raw materials refer to basic materials from which products are made through a transformation process. Raw materials may be natural or artificial. Examples of natural raw materials include cotton for cloth, timber for furniture and clay for bricks. Artificial raw materials include plastics, nylon and tar.

FACTORS CONSIDERED WHEN SELECTING THE RIGHT SUPPLIER OF RAW MATERIALS

Terms and conditions of payment. Suppliers have got different terms and conditions of payments. For example some can supply goods only on cash basis; others can deliver / allow credit terms while others can allow the buyer to get goods on hire purchase or differed payment. Some suppliers can also offer discounts such as cash and trade discount. The entrepreneur therefore selects a supplier whose terms and conditions are favourable to him / her.

The lead time. This how long it will take to order and receive goods needed. Entrepreneurs usually choose a supplier of raw materials whose lead time is short so as to avoid stock outs of raw materials and loss of customers to other competitors.

Distance from the supplier and mode of transport to be used. An entrepreneur selects a supplier who is not too far or where the transport system is efficient and effective to avoid delivery delays.

Communication with the supplier of raw materials. Most entrepreneurs select suppliers whom they can communicate to easily so that whenever raw materials are required, the supplier can and easily be accessed.

Quality of materials supplied. An entrepreneur selects a supplier who persistently offers items of good quality approved by the National Bureau of Standards in order to come up with qualitative finished goods.

The price at which the supplier is selling the product. This is normally done through comparing suppliers. Entrepreneurs will always move in for low cost suppliers of quality goods.

The ability of the supplier to supply the requirement of the business. The entrepreneur selects a supplier who has the capacity to supply enough and sufficient quantities whenever required.

Consistency and reliability of a supplier. This involves looking at the lead time and the supplier’s ability to supply goods required whenever they are required for.

Quantity required by the entrepreneur. Entrepreneur select suppliers basing on the level of stock of raw materials they want to maintain as well as their consumption of materials per production cycle.

Taxes charged: The taxes charged on the product will have an impact on the price of the same product. Therefore one should look at the different taxes charged both in the supplier’s country and the buyer’s country and one should choose a supplier where taxes are not too much.

Amount of waste from the production process. Businesses prefer to use raw materials that produce fewer wastes to those that produce many waste.

PROCESS OF ORDERING FOR GOODS AND SERVICES OR ACTIVITIES INVOLVED IN ORDERING SUPPLIES

Identifying the goods and services required. Here the business from its needs is able to identify the required goods and services.

Sending inquires to possible suppliers. This is done together with accompanying documents like drawings and specifications which enable the supplier to quote.

Receiving a quotation which is the response to inquiries. This will be accompanied by the price list, catalogue samples, quality delivery and other terms of the supplier

N.B a quotation refers to a document which is prepared by the potential supplier and sent to the buyers stating information about most of things which have been inquired for in a letter of inquiry e.g prices, lead time, delivery terms etc.

Placing an order to the supplier whose quotation has been accepted. A copy of the order is always retained for reference purposes.

N.B. a purchase order is a document requesting to be supplied with the goods already quoted

Receiving goods delivery note. This refers to the document that accompanies the goods supplied. The purchaser signs the document after delivery.

Receiving the dispatch note. This is normally given at the time when goods are being dispatched. It is expected to be sent separately and is expected to reach the purchaser before the arrival of the goods. It is therefore informs the purchaser that the goods have been dispatch and are on the way. This gives him a chance to prepare his store room in advance or make arrangement for sale of the old stock.

Receiving an invoice. This is a demand note. Once the delivery note has been received, checked and signed by the purchaser. The supplier is expected to prepare an invoice which indicates the balance due. The invoice actually shows that goods have been delivered on credit.

N.B. the following should be observed when receiving goods and services purchased

• Check quality and quantity against order
• Check delivery document against order
• Check for any damage
• Reject deliveries that do not conform to the order

PURCHASING PLAN

A small entrepreneur has to appreciate the critical importance of purchasing. Purchasing is not merely a matter of buying. It proves to be a linking element between the major function

When purchasing the following should be needed

• Determine the proper quality of each item needed
• Establish and follow quality standards
• Ensure on time delivery of items needed
• Purchase at the right value of the quality of items bought

SELECTION OF RAW MATERIALS

FACTORS TO BE CONSIDERED WHEN SELECTING RAW MATERIALS FOR A MANUFACTURING FIRM

Source of raw materials, ie from where the raw materials for the business can be acquired from. An entrepreneur selects a reliable, nearby and cost effective source so as not to affect the profitability of the firm.

Cost of raw materials. An entrepreneur selects raw materials that are relatively cheap and affordable since high cost materials will reduce the profits of the business.

Quality of raw materials ie the raw materials should be of good quality in order to produce quality products that are needed by customers.

Terms and conditions for purchase, ie an entrepreneur selects favourable terms to the business like whether they involve cash or credit for instance most entrepreneurs would wish to select raw materials where suppliers offer it on credit and even discounts due to bulk purchase.

The lead time, ie how long it takes for the supplier to deliver the raw materials ordered for, entrepreneurs tend to select reliable suppliers who can deliver raw materials within the shortest time possible.

The amount of raw materials needed or used per production cycle ie the amount of raw materials should correspond with the amount of goods to be produced per production cycle.

Availability and reliability. A manufacturer selects raw materials that are available whenever he/she needs them.

Risk of damages, businesses use raw materials that are less likely to get damages.

Amount of waste, businesses prefer materials that produce little waste.

Amount of raw materials to be maintained in inventory, this depends on the business policy and the rate at which the goods produced are bought. For goods that are bought immediately an entrepreneur stores more raw materials to enable continuous production and for slow moving goods fewer raw materials are maintained in sock.

CONCEPT OF INVENTORY

Inventory refers to good/ stock that are held by a firm for eventual sale

Or inventory refers to the stock of goods held in the business at a given period of time

TYPES OF INVENTORY

Raw materials:  these are goods used in the course of production to produce other goods for consumption. They are goods which have been received by the business but not yet committed to the production process.

Work in progress / process (semi – finished goods): these are goods which are still in the production but are not yet completed.

Finished goods: these are goods which have been completed and gone through the production process waiting for sale to customers.

Goods under repair: these are goods that may be damaged during the process of production or distribution and need repair.

Office supplies: these are materials which are used to support the production process for instance stationery, cleaning materials like soap or detergents.

NEED FOR INVENTORY

It is necessary to hold some inventory both for a manufacturer as well as a trader so that production and sales can continue uninterrupted. The specific benefits of holding inventory may include.

• To avoid loss of sale, By holding inventory, a business firm can avoid sales losses, which may occur because goods are not available when demanded by customers.
• To reduce ordering costs, cost of placing orders e.g typing, mailing etc can be reduced in a firm. A firm places a few large orders instead of several small orders.
• To achieve efficient production run. Holding enough inventory protects against shortage of raw materials that may either delay or halt production due to no availability of materials.

COSTS OF HOLDING INVENTORY  

Several costs and risks are involved in maintaining inventory. They may include

• Material costs. This includes the costs of purchasing the goods, transportation and handling charges less any discount allowed by the supplier of goods.
• Ordering costs. It comprises of cost of placing orders for purchase of raw materials and components. The fewer the orders, the lower the costs.
• Carrying costs. These are composed of expenses for storing the goods e.g insurance, cost of funds tied up in inventory, spoilage costs, decline in price of goods etc.

INVENTORY CONTROL/ MANAGEMENT

Inventory control refers to the system which ensures that the right quantity and quality of the inventory required is supplied at the required time without unnecessary investment in inventory. It includes control of raw materials; semi-finished and finished goods, office supplies and goods under repair.

Reasons for proper management of inventories in business / objectives on inventory management

• To maintain adequate so as to avoid production stoppage, loss of customers and revenue to competitors.
• To avoid excessive investment in inventory ie to avoid tying up a lot of working capital in investment.
• To reduce stock losses while in stores through theft, expiry of products, damages, unauthorized use, pilferage etc.
• To relieve management on excessive supervision of inventory.
• To minimize storage costs in terms of rent.
• To encourage proper accountability for the goods which have been purchased as issued
• To allow flexibility in production scheduling as well as marketing. This is possible through ensuring that inventories are available whenever required for production or for sale
• To ensure efficient use of raw materials
• To ensure timely replacement of raw materials for production of products for sale. Inventory management helps and entrepreneur to ensure that inventories are available whenever required for production or for sale
• To meet demand fluctuation and avoid expensive and embarrassing stock out. through ensuring that inventories are available whenever required for production or for sale.

Tools for inventory management

Re-order level. It refers to the minimum level below which the stock should not fall before fresh (new) orders are placed. This technique reminds the entrepreneur to place fresh / new orders because the stock is running out.

Lead time. This refers to the time it takes from when one places and order for goods and when the ordered goods are received.

Working capital. This is the amount of money used to buy stock for a given business or to meet daily financial operating needs of the business. Working capital helps the entrepreneur to meet the day to day operations. In case an entrepreneur has a small working capital then he/she has to place small but many repetitive orders.

THE CONCEPT OF STORE MANAGEMENT

Store refers to places where stock of raw materials or goods are kept before they are sold or dispatched to business which ordered for them

Stores are important because they help to protect the stock of raw materials or goods from getting spoilt, damages or stolen. It is therefore important that a business manages its stores properly so as to avoid losses through theft, damages, unauthorized use, expiry etc

Tools for effective store management

Stock cards. These are cards used for recording stock received and issued in the store. Stock cards normally show amounts of goods available in store, the date when goods have been issued.

Stock requisition and issue form, a stock requisition and issue form refers to a document that shows details of goods being requested for the corresponding need, the issues under this technique, the person in need of goods fills it and gets if authorized by the responsible person / store that against receiving the form issue them.

Physical and stock counting. This refers to the counting of stock physically to find out what is available in store and cross check to what is expected to be there as per the stock cards.

Stock reconciliation. This refers to the process of updating and balancing all the records regarding what is in the store so as to give a true record and then checked to what is physically in the store. This technique helps the entrepreneur to decide whether to order for more goods or not.

Stock taking. This refers to the actual counting of the stock available in the store. Under this technique, the entrepreneur counts his stock one by one so as to ascertain the actual number.

Labour requirements / employees

Labour is the human effort, physical or mental engaged in the production of goods or service in return for payment

Types of labour

• Skilled labour. These are workers with special skills, knowledge or (usually acquired) ability in their work and can produce best production.
• Semi – skilled labour, these are workers who possess particular skills in their area and can perform a job in that particular area but with close supervision.
• Un – skilled labour. These are workers who possess no special training and the work done involves the performance of simple duties which require less previous experience.

Labour planning involves the determination of the number of workers, skills and wages or salaries of the labour force

Reasons why labour is needed

• To increase production of goods and services.
• To manage the business operation.
• To promote good public image of the business.
• To combine with other factors of production to aid production.
• To facilitate exploitation of would be idle resources.
• To increase government revenue through payment of tax.

Factors to consider when determining the number and type of employees to work in an enterprise

Number of jobs available. This may vary with the size of the business such that the smaller the size of the business, the less the jobs available, and hence the smaller the number of employees. On the other hand, the more the jobs that are available, the higher the number of employees that are needed.

Family member supporting the business. Presence of family members supporting the business necessitates recruitment of few workers and vice versa.

Cost of hiring labour in relation to business output and profits. High costs involved in hiring labour reduce business profits and consequently few   people are employed in business and vice versa.

The level of demand for products. High demand for products leads to massive recruitment of workers to increase output and low demand lead to employment of few workers.

The level of technology used in business. High technology leads to employment of fewer workers since most of the works done by machines while low levels of technology used in production leads to employment of many workers in the business.

Types of skills required for some particular business / industries and work they do in relation to the production process for example carpentry skills for carpentry business, negotiation and communication skills for marketing etc

Factors considered when recruiting workers in an organisation

Before embarking on recruitment of workers, one should put into consideration the following factors.

Age of the employee. Employers always employ people above 18 years more than those below the age of 18 years as this would be taken as child labour according to the law.

Cost of employee. Labour whose cost is relatively low and affordable are purchased more than those which are very expensive.

Gender / sex of the employee. Most entrepreneurs employ more men than women maintaining that women have a lot of responsibilities and they need to balance between domestic and workplace duties which make them inefficient at work than men.

Number of workers needed. For a bigger business the number of workers should be relatively big as compared to a smaller business that requires less labour.

Working experience of the employee. Employers always recruit more workers with the required experience to perform the job so as to increase output as compared to those with little no work experience.

Type of skills required ie ability of the workers. Employees who possess the skills required in production are recruited more than the semi-skilled and the un – skilled.

Health conditions of the employee. Employees normally employ workers with good health status as they are in position to be at work compared to workers with poor health associated with high levels of absenteeism from work.

Size of the business. The smaller the size of the business, the less the jobs available and hence the smaller the number of employees. On the other hand, the more the jobs that are available, the higher the number of employees that are needed.

Marital status of the employee. Most employers prefer people who are single because they will be committed to work and are flexible to married people with a lot of responsibilities and at times inflexible.

Languages spoken by the employees. Some businesses require people who can speak variety of languages for instance radio and television stations and journalists. This is because of the nature of the business that consists of customers with varied languages.

BUSINESS  LOCATION  AND  PREMISES

Businesses location: This refers to setting up a particular business in a given area. A number of entrepreneurs  consider the  areas  where  costs  of  production  are  low  and  easy  access  to  customers  when  determining  a business  location.

Business  premises:  These are composed  of buildings, workshops or ware houses  from which the  business operations are carried out.

Factors considered when choosing a business site and premises

 Market  factor:  A  business  should  be  located  nearer  to the market   or customers  so  as  to save  transport  costs  for both the  business  and  customers. This  is  also  important   in a  case  where  products  are bulky  and  costly  to  transport  or  where  competitors  are   nearer  to       market and in a situation   where  goods  are perishable  and  there  are  no means of preserving  them  before   they  reach  the  market.

Raw material source:  A  business  should be  located  nearer  to the  source  of  raw materials, this is so  when  raw materials  are  bulky  and  perishable. The  costs  of transport  are  hence  reduced and  reduces  the  risk  of the  raw materials  getting  spoilt.

Accessibility  to transport  and  communication network, a business  should be  set up  in an area  where  there  are  good  roads  in order  to  facilitate  a  smooth  flow  of its  raw materials, products and  customers, the  area  should  also  be  equipped  with  communication  services like  telephone,  internet  which  also  facilitates  communication  with   customers, suppliers,  bankers, etc.

Availability  of  premises  to be  purchased or  leased,  premises   required  by  the  business  to operate from  should  be  available  in  terms of  renting  ,  purchasing  or  leasing  the premises, this  should  be  highly  considered  as  it  affects   the  over all  capital  of the  business, so  the  associated  costs  should   be  in line  with the  planned  costs  to  avoid  problems  of  insufficient   working   capital.

Availability  of  human  resource, A business  should be  located  in a n  area  where  the required  labour  is  available,  for  instance  if  there  is a need  for skilled   labour,  its  supply  should be  at reasonable  wage rates  or  salary  scale.

Availability  of  power, this  should  be highly  considered  when  choosing   where  to  locate  a           business,  this is  because  some  businesses  require  a lot  of  power  like an  industry, so they        should  be  located  near  the  power  source  to reduce   the  costs of  extending  it  up   to the  premises  and  to  reduce  the   costs  of using   other  sources of  power  like generators  which  is  expensive.

Government   policy  on  location  of  business,  the   government  may  direct  the  location  of           some  enterprises  in a  particular  region,  this  is  done  for  different  reasons  like  balanced      industrial  growth,  in the  country, like  to-day they are  promoting   industrial  growth  in Northern  Uganda, So   any business  to  be  set  up should  ensure  that  it does so  in  line         with  the  government   policies.

Availability   of water, this  is   an  important  factor  as  a  component  and  a  raw material in  the  production   of  some  goods  like  soda,  brick  making  etc,  so  if  a  business  is  to use  water  as  a  raw material,  it  should be  located  where  it can  be cheaply  sources and  reliable.

Availability of security, all  entrepreneur s  would  wish  to set  up  their  businesses in  areas which  are  secure  in  order  to avoid   losses. That’s why  most business  men fear  to set  up enterprises  in northern  parts  of  Uganda  due to the  political  instabilities   in the  area.

Availability of  business  support  services, there  are some  business  support  services  that are  very important  in business  like  banks  that  provide  extra  funds  to  facilitate  smooth operations, like  insurance  companies  that  protect  the  business  against  risks, etc. So such            support  services   should  be  highly  considered  i.e  if they  are  existing  in  a given  locality         (area) before one  chooses  a  given site.

PLANT LAY OUT DECISION:

Plant lay out is the arrangement of machines, workstations, storage areas etc. in an already existing or proposed facility to ease the production process or the offer of the services. A facility layout has an implication on quality and productivity.

Principles of Plant Layout:

• Integration of all factors: The plant should integrate all the essential resources of men, machines and materials in order to give an optimum level of production.
• Minimum Movement : The less the movement of men, machines and materials, the less will be the cost of production. Thus, minimum movement of these resources will provide cost efficiency.
• Unidirectional flow : All materials should progressively move towards the same direction i.e. towards the stage of completion. Any back-tracking should be avoided here.
• Efficient space handling: The space used up during the plant work also costs money as more the space required, more will be the floor rent. The materials should be organized in stacks in a proper and recognizable order to maintain space efficiency.
• Inherent safety: The environment of the plant should be safe for the workers as well as the machines. There should be fire extinguishers and fire exits placed strategically. There should be minimum contact of the labour to toxic chemicals and environment.
• Maximum observation capacity: The layout of the plant should be in open such that all of its resources and workforce can be observed and evaluated at all points in time. This helps in better supervision of work and helps in increasing both effectiveness and safety.
• Maximum accessibility: The layout of the plant should ensure that all essential resources are accessible to the labour and machines without any delay. The aisles should be free from obstacles. The materials should be placed as close to the machines concerned as possible.
• Minimum Handling: The ineffective handling of materials leads to a rise in cost. Materials should be handled in stacks and transferred in one go. Handling of a material twice in the same direction must be avoided to avoid delays and costs.
• Maximum protection: The layout should ensure the protection of the materials and machines while they are in the working or the storage stage. The security system should be efficient without making too many doors or barriers.
• Maximum flexibility: The plant layout should not be rigid and permanent. If the need arises, the plant layout should be able to change itself without being expensive.
• Disposal site: When deciding on the plant lay out, it is also important to consider an area for disposal of waste from the factory than dumping the waste anywhere.
• Room for expansion: It is important to put in mind the space for future expansion of the business. This is because as more customers buy the products, more money comes in and this provides the need to expand the facility to match increasing demand for the products.
• Storage facilities: There is also need to consider room for storing materials in terms of raw or finished goods.

 Determinants of Plant Layout Design:

• Human needs: While deciding on the plant layout, human needs or requirements should be considered. These needs include toilets, washing rooms, drinking water facilities; all these should be arranged adequately for the employees and other people within the organization.
• Safety arrangements: While designing the plant layout, human safety should be looked at with care. It should be planned to allow free flow of people, goods and raw material in and out of the factory. It should have enough ventilation, light for sight etc.
• Easy repair and  maintenance: The  layout  should  be  properly  designed  so  as  to  allow engineers have easy movement or access to machine for repairs and maintenance
• Factory building: The nature and size of the buildings determines the floor space available for layout. In designing special requirements for air conditioning and dust control, the nature and size of the building must be considered.
• Plant environment: It is better to consider enough light in and ventilation to provide a conducive, health and safe environment for the workers.
• Type of machinery: Machines which are bought to be used for general purpose are always arranged as per process layout while those for special purpose or use are arranged according to product layout.
• Nature and size of the factory: This determines the floor space required especially in welfare facilities.
• Nature of the product to be produced: For uniform products, process layout in more suitable as compared to other forms.
• The production process:   In  manufacturing  businesses,  process  lay  out  can  be  more economical as compared to assembling firms where product line layout is better.

Elements of a good plant layout:

• Security Section: The lay out should have an area where security guards operates from and should be near the gate for the premises.
• Parking Yard: The lay out need to have an area where company trucks and employees or visitors of the company park their vehicles.
• Receiving and Dispatching Section : There should an area for receiving the firm’s raw materials and where goods to be sold are delivered from.
• Ware House Section: The lay out should show a place where finished goods or raw materials for production are kept before use or selling them.
• Machinery or Processing Section: This where the production machinery is assembled to form the production process.
• Maintenance Section: The  lay  out  should  have  an  area  where  repair,  cleaning  and  general maintenance of the company vehicles is done from.
• Emergency Section: The lay out should have an area for emergency exit by the workers in case of any fire outbreak in the business.
• Production Section: This is an area where the actual production for goods takes place.
• Welfare Facilities: There should be area where workers dress from, have lunch and breakfast from, toilets, plus where workers can rest from in case one is not feeling well.
• Generator Room: There should be a good ventilated room for generator plus a generator on standby in case power goes off so as to enable continuous production.
• Waste Disposal Section: The firm should have an area where to dispose off the remains and unused parts in production. This need to be well kept and maintained.

Advantages of a Good Layout:

• It minimizes overall process time and costs. This is because of the reduced unnecessary handling, movement and general increase in effectiveness of all the work.
• It simplifies supervision and production control. This is achieved by elimination of “hidden corners” in which information and materials can be misplaced.
• It leads to feeling of unity among the employees. This will be encouraged by avoiding unnecessary
• It leads to high total output. This will be ensured by maximum effective use of available space.
• It leads to increased quality output. Quality of goods and services will be sustained by safer and better methods of production.
• It leads to accommodation of changes in organizational programmes since it was planned during the layout process.
• It leads to minimal discomfort on the side of the employees and employer due to the sufficient lighting, low or no noise etc.
• It leads to minimal rate of accidents because of safety precaution put in plans during the designing of the layout.

PRODUCTION MACHINERY, EQUIPMENT AND FACILITIES

To attain and maintain the quality of products and control capacity of production, there is need for an entrepreneur to select machinery, equipment and tools which can operate efficiently and effectively.

• Machinery refers to a group of machines in general that gets work done. A machine on the other hand refers to device in which each part works together with the other to perform some function for example a sewing machine, recording and counting machine, vending machine, washing machine etc.

• Equipments are things needed to do some work, so machines, which are specific for particular functions are also referred to as equipment. Examples of equipments include office computers, cash counters, calculators, typewriters etc.

• Tools. A tool is any instrument or apparatus like axe, hammer, spade etc. which is held in the hands for doing some work. However, tools can be equipments although not all tools are equipments.

Different Types of Capital Items Bought By Firms:

• Buildings: These are permanent construction on site to house or enclose equipment and personnel employed in industrial, institutional or commercial activities.
• Installation equipment: These include plants and machinery or other major equipment used directly to produce the organization’s goods and services.
• Accessory equipment: These are durable major equipment used to facilitate the production of goods and services or to enhance the operation of a firm. Examples include motor vehicles, motorcycles, etc.
• Operating equipment: These category includes semi-durable minor equipment which are moveable and use in but not generally essential to the production of goods and services. E.g. gum boots, gloves etc. their absence cannot stop production to take place.
• Tools and  Instruments: These  are  semi-durable  or  durable  portable  minor  equipment  and instruments required for producing, measuring or calculating associated with the production of goods or services. E.g. tape measure, weighing scale, ruler, T-square for carpenters etc.
• Furniture and Fittings: These are the goods and materials employed to fit buildings for the organizational purposes but not specifically used in production.  g.  Floor covering, carpets, furniture, shelves and counters etc.

FACTORS CONSIDERED WHEN SELECTING MACHINERY, EQUIPMENT AND TOOLS

Capacity of machines and equipment ie how many units it can  produce within a given time, this is compared with the demand it has got to meet, leaving other factors constant an entrepreneur selects machinery with higher production capacity in order to meet his/her demands.

The initial cost of machinery and equipment. An entrepreneur selects machinery whose costs are relatively low and affordable in order to reduce the costs ie to be cost effective.

Ease of maintenance and repair. This involves spare parts and repair services, one would select machinery whose spare parts and repair services are available and cheaper, with a view to reduce the operating costs.

Flexibility for adjustment in relation to customer’s changing tastes and preference, an entrepreneur selects machinery that can easily adjust to the changing needs of customers.

Availability of other complementary machines and equipment; an entrepreneur would select machinery that is easily compatible or that can easily complement with the existing or other machinery, in order to facilitate consistence and continuous production.

Productivity and efficiency of machinery and equipment. Ie machinery that can produce quality products (efficiently). An entrepreneur selects machinery that can produce efficiently in order to increase productivity and profitability of the business.

Useful life of machinery and equipment, an entrepreneur selects, machinery/ equipment that is long lasting or durable in order to reduce unnecessary costs of buying or replacing other machinery

Guarantee given by manufacturers. Guarantee given by the manufacturer in terms of efficient, durability, Maintainace and safety devices encourages   businesses to select that kind of machinery compared to those without guarantee

Miscellaneous factors: These include; space requirement for the item, safety aspects, issues to do with the environment in terms of noise, air pollution etc

 Users – friendly of the machinery

Ways of ensuring proper machine handling, use and safety in an enterprise

• By switching off machines in case of any break down.
• By ensuring that machines are thoroughly checked before switching them off.
• By following instructional labels and guidelines on the use of machines.
• By making sure that machines are well maintained and have no broken or unstable parts.
• By using machines for work they designed for.
• By ensuring close monitoring and supervision of workers and the production process.
• By cleaning off the machines frequently and oiling all hand lubricating points daily to minimize wear.
• By training of workers on the usage and Maintainace of machinery.
• By attaching proper guards or warning labels to dangerous moving parts of machines and power transmission equipment.
• By providing safety devices to workers like hand gloves, helmets, gum boots, masks, overall etc.
• By using mechanical devices for feeding machines so as to avoid hazards and increase production.
• By using trained and experienced labour force so as to avoid machine accidents.
• By installing warning devices which can alert in case of any likely danger.
• By making use of the closest power point when plugging in the market.
• By avoiding messing up with machines if they are still plugged in or still running.

Policy Guidelines for Handling Machinery:

• Employees shall not start any machine of which its operation is not known as it may cause accidents
• Oiling and  lubrication  of  machines  shall  be  done  according  to  instructions  from  the manufacturer or supplier or manual.
• In case of any machinery break down during use, the employee(s) shall report to the immediate supervisor.
• Employees shall not directly use or allow the use of machines for other activities other than the officially approved one by the company.
• All machines shall be installed with warning devices in case of any danger.
• Movement of heavy machines shall be done with the help of cranes or lifts or other devices.
• No employee shall remove company machines without permission from the authority.
• Access to machines by unauthorized persons is strictly prohibited.
• Employees shall check the machine to ensure that all levers are in proper position before switching them off.
• Employees shall ensure that machines are stored in places free from moisture to avoid rusting.

TECHNOLOGY FOR SMALL ENTERPRISE

Technology refers to the know – how design and intellectual input of doing things

Technology is constantly changing the demands of consumers. Business use new technologies to produce new products and services.

Appropriate technology. This is the technology for use in small business and is determined by a number of characteristics.

• Simple; for technology to be considered appropriate, it must be simple to operate. The user of such technology must be able to apply without encountering problems
• Effectiveness; effectiveness of technology is judged by how well it fits in with the objectives of the user
• Availability; some technology may be appropriate for certain purposes but not available locally. Information technology for example may be the most appropriate for certain task but it may not be readily available locally
• Flexible; as time changes so do the requirements of technology. Appropriate technology must be flexible enough to adapt to changing time in the future
• Durable; technology that is durable requires less maintenance and repairs
• Efficient; technology should be efficient in its utilization of local resources
• Cost effective. The cost of technology should be justified by the benefits achieved. The overall benefits should be greater than the cost of the technology

TECHNOLOGY IN PRODUCTION

Technology refers to the know –how, design and intellectual input of doing things. Technology means the practice of any or all the applied sciences that have practical value and or industrial use.

TYPES OF TECHNOLOGY

Indigenous technology. This is the art developed within a country and passed over the years from generation to generation often with no development of improvement.

Characteristics of Indigenous technology:

• Indigenous technologies emerge from the implicate order to reflect the art of skillful living.
• Indigenous technology is pragmatic. It is responsive and responsible to the ecology in which it lives.
• Indigenous technologies attract the learning spirit(s) and provide a learning ecology that supports the revitalization and transformation of awareness and knowledge.
• Indigenous technology is intended to enhance the ability to maintain and renew balance and harmony within a multi-dimensional environment.
• Indigenous Technology is created within a sensory environment that builds on our sense of relationship, meaning, balance, feeling, memory and place as well as sight, sound, smell, taste and touch.
• Through meaningful interactions Indigenous technology seeks to engage and evoke significant knowledge and experiences reflective of the Indigenous world.
• Indigenous technologies have the obligation to come into existence, to be used and to transform within an ethical space that is responsible to life in all its forms.
• Indigenous technologies have intrinsic value because we know their ancestry where they came from, what their place is in our world.

Advanced technology. This is technology that has been developed from modern scientific principles. It is classified as adapted technology which is obtained from other countries, transferred technology which is extracted from advanced countries and appropriate technology which is relevant to the needs of the community

FACTORS INFLUENCING THE CHOICE OF TECHNOLOGY

• Technological requirements, industrial projects especially processing industries have a minimum economic size determined by the technological factor e.g a cement plant should have a capacity of at least 300 tons per day
• Input constraints: developing countries have constraints in obtaining certain inputs such as power fluctuations, scarcity of basic raw materials and inadequate foreign exchange thus select technology to use accordingly
• Investment control: the relationship between capacity and investment control should be considered since investment cost per unit of capacity decreases as the plant capacity increases
• Market conditions: a higher capacity is preferable for a product with a stronger market and a smaller capacity is used where the market is uncertain
• Resources of the business: the availability of resources such as management, financial resources etc, the business capacity design since they determine the capacity of obtaining a specific type of plant
• Government policy on technology: the capacity level may be constrained by government policy which may require a license and approval of operation
• Availability of spare parts: entrepreneur prefer technology whose spare parts are readily available to that whose spare parts are scarce
• Skilled man power requirement: the technology to be used depends on the availability of skilled man power to operate it, availability of cheaper man power make the technology good

Role of Technological Advancement in Business:

• Improving productivity: Advanced technology leads to increase in the production of goods or services and hence making the goods available for customers.
• Increasing resource utilization: The resources that would have remained idle and unused by businesses can be exploited with the advanced technology available.
• Promoting competition: With the application of advanced technology, businesses can produce quality products for their customers and hence leading to competition in businesses.
• Reducing operational costs: With the automation of the production process, costs of production can minimize costs of labour.
• Improvement in customer satisfaction: With the use of advanced technology, customers can get their goods on time, make orders of time and all these makes the customers satisfied.
• Enhancing labour knowledge and skills development: Technology makes workers get more skills and hence compete for different tasks which can lead to ore production.
• Minimizing resource wastage: Advanced technology ensures that the resources which were being wasted by use of labour will reduce drastically.
• Increasing profitability of the firm: Because of increased production and improvement in delivery of goods to the customers, more sales are likely to be made and hence more profits for the business.

PRODUCTION CONTROL

The term production control implies the existence of a product plan. It is therefore the means to monitor the execution of production plan in order to achieve its objectives

There are various production – related factors, which are quite important and therefore, must be carefully considered in entrepreneur’s production process. These aspects are discussed below

1. a) QUALITY CONTROL. No business enterprise can be successful without providing a product of the right quality as demanded by customers

Advantages of quality control

• It helps in improving the brand image of the enterprise
• It facilitates standardization
• It helps to reduce costs
• It enables the enterprise to determine its cost prices at competitive levels in advance of production
• It enables the enterprise to comply with standards prescribed by responsible supervisory authorities like Uganda National Bureau Of Standards

1. b) TECHNOLOGY AND TECHNICAL SKIILs FOR THE PRODUCTION PROCESS. This modern era, technology is changing very fast and there are enterprises with superior often have an edge over their competitors
2. c) PRODUCTION PROCESS. This aim of every manufacturing enterprise is to increase productivity; this means that whatever is spent on production should generate the maximum output possible

WAYS OF REDUCING THE OVERALL COSTS OF PRODUCTION IN BUSINESS

• Ensuring use of efficient and effective methods of production. This may be achieved through thoroughly studying the production methods to be employed in the production process to ensure that they efficient and effective. This is because inefficient methods of production usually lead to increased costs of production.
• Use of cheap but quality raw materials. Entrepreneurs should always buy their supplies or raw materials from the cheapest sources so as to minimize their production costs.
• Fixing time standards for all operation. Time standards for all operation should be fixed ie minimum and maximum time should be noted and the time for the process standardized. This helps to avoid wastage of time as well as minimizing production cost.
• Use of appropriate technology in production. The entrepreneur should ensure use of machines and tools which make work easier and lessen labour force so as to minimize labour costs and other costs that may arise from use of inappropriate technology.
• Ensuring close and constant supervision and monitoring of workers and the production process to ensure that work is going on well as planned. This helps to avoid relax times, movements and repetitive operations.
• Training and developing of employees (workers) to perform efficiently as per the set targets should be encouraged. This helps to equip workers with the necessary skills for production of goods and services and it enables workers to perform tasks in the shortest time possible.
• Employing skilled and experienced labour force. The producer / entrepreneur should ensure use of workers with the required skills to perform the production of the intended product. This helps to minimize costs arising from damages as a result of using inexperienced and unskilled workers.
• Spelling out duties and responsibilities for each employee (worker) to minimize conflicts, duplication of services, and lack of co-ordination and wastage of services. This also helps to minimize production costs.
• Studying the lead time i.e the time lag between placing of orders and receiving of the raw materials and other supplies should be established to ensure that raw materials and other supplies are received in time and do not disrupt the production process. This avoids unnecessary delays in the production process.
• Awarding tenders for supplies and raw materials to competent, reliable and affordable suppliers so as to avoid disruptions, losses and unnecessary delays in the production process.
• Laying off redundant workers. The business can lay off some redundant workers or employ part time workers to cut down the costs of maintaining employees at the station throughout the year.
• Proper handling and storage of both raw materials, finished and semi-finished products. This helps to minimize damages, wastage and losses.
• Buying raw materials and other supplies in bulk so as to take advantage of trade discounts and at the same time ensure adequate provision of both raw materials, finished and semi-finished products.
• Encouraging specialization and division of labour. This helps to promote efficiency in production which leads to increased output and thus reduced costs of production.
• Motivating workers by ensuring good working conditions. Providing a conducive working environment motivates workers to be more productive leading to increased output hence reducing on the costs of production.
• Using cheap means of transport for both raw materials and finished products so as to minimize the costs of production in terms of transport.
• Use of alternative cheap sources of energy like solar, bio gas so as to minimize power costs.
• Lobbying the government support through business associations like Uganda Manufacturers Association, Uganda small scale Association etc for low tax rates, tax holidays etc which can help to minimize costs of production.

 COSTING IN PRODUCTION

Meaning of costs of production. These are expenses incurred when producing goods and services.

Elements of costing

This is an analysis of the various items which together from the selling price of a manufactured article sold by a small manufacturing unit at a price.

Methods of costing business product.

• Job costing. This involves determining costs for each work order or job.
• Contract costing. This involves determining costs for big jobs spread over a specified period of time.
• Batch costing. This is used in determining costs for identical goods in a factory.
• Process costing. this is used in determining costs of production at each production stage,
• Operation costing. This is used in determining production costs in repetitive / mass production.
• Unit costing / output costing. This is used in costing single and identical products like cement.
• Operating costing. This is used in costing services like transport.
• Multiple costing. This involves determining production costs for the same product using more than one method of costing.

Types of costs.

The costs incurred by a business are different and can be broadly categorized into two major groups’ i.e direct costs and indirect or overhead costs.

Direct costs / prime cost. These are costs that are directly linked to the level of production of goods and services. The amount of direct costs incurred varies with the level or volume of production of a product or service. For instance, when the volume of production rises, the total direct costs incurred rise. In a producing business, direct costs consist of costs incurred towards purchasing direct materials (raw materials and labour).

Direct materials costs. Direct material costs refer to those materials that can be physically identified and traced to a particular product as part of the finished product. Examples of direct materials include wood/ timber that is used in the manufacture of furniture, cotton for cloth etc; direct costs constitute the largest share of business’ working capital requirements.

Direct labour costs (direct wages). Direct labour consists of the labour that can be specifically identified or traced with the production of a particular product. Examples of direct labour include wages of the workers who are directly involved in the operation of machines engaged in the production process and those who assemble parts into the finished product. For example, in a carpentry workshop, the wages paid to carpenters, machinists and finishers constitute direct labour for a furniture making business.

Direct expenses. These are expenses that are directly linked with the production of a particular product. For example cost of hiring machinery to produce a particular product, fuel / energy for running the machine etc. however, most items failing under this category tend to be indirect expenses.

Note: all direct costs of a product are referred to as prime costs.

For example, in the case of a small carpentry workshop, the following would be the prime or direct costs.

Item	Cost (shs)
Direct materials – timber	600,000
Direct labour – wage of machine and joinery staff	150,000
Direct expenses – fuel / transport	20,000
Prime costs	770,000

INDIRECT COSTS / WORK COSTS / OVERHEAD COSTS

Indirect costs are costs that cannot easily be traced to a particular product. Over a given range, indirect costs do not vary with the level or volume of production.

Note. Indirect costs may also be referred to as overheads.

• Indirect materials. These are materials that are not traceable to a particular product for example glue threads. Sandpaper, lubricant, cotton wastage, but get used up in course of general production. Using the example of a small carpentry workshop, indirect material costs would include glue m varnish, nails etc.
• Indirect labour. It consists of supportive labour of a product for instance manager, administrators, watchmen, gatekeepers, secretaries, tea girls etc. their services are applicable to all sections of a business and cannot be attached or traceable to any particular product. Their cost does not vary with the volume of production. A gatekeeper will remain working regardless of the level of business’ production.
• Indirect expenses. These are a type of business expenses that are not linked to a specific product or a given range of production level. They do not vary within production range. Examples of indirect expenses include factory rent, factory insurance, repair of machinery, electricity, telephone and office expenses etc.

Note. Indirect expenses which are also known as overhead expenses.

Selling and distribution overheads. These are indirect cost incurred during the selling and distribution of goods and services. Examples of selling and distribution overheads include.

• Advertising
• Sales promotion
• Delivery expenses / carriage outwards
• Salary of foremen
• Cost of samples given to potential buyers
• Free gifts
• Displays and exhibition materials
• Printing and stationary (for receipts , price lists, catalogues, invoices etc)
• Packing cases
• Insurance for ware house, delivery vans etc.

Administrative overheads. These are indirect costs incurred by the business during the formulation of policy, direct control, management and supervision of its affairs, examples include

• Printing and stationery for administration
• Administrative salaries and allowances
• Postage and stationery
• Telephone expenses
• Legal and accountancy charges
• Heating and lighting
• Depreciation of office equipment
• General expenses etc

Calculating the total costs of a business

The  format  below  will be followed  when  calculating  the  total  of  the  business.

Item	shs	shs
Direct  materials	Xxx
Direct  labour	Xxx
Direct  expenses	Xxx	xxxx
Total   prime  / direct  costs
Add indirect  costs  / over heads
Indirect  materials	Xxx
Indirect  labour	Xxx
Indirect expenses	Xxx	xxxx
Total indirect  / overhead costs
Total  production costs
Add  selling and administration  overheads	xxx
Add  administration  overheads	xxx
Total  administration, selling & distribution  costs		xxxx
Total  business  costs		xxxx

If  we  are to  consider  the  previous  example  of  a  carpentry  workshop, the  total costs could           be  summarized  as  below;

Item	shs	shs
Direct  materials	500,000
Direct  labour	150,000
Direct  expenses	40,000
Direct   prime  costs		690,000
Indirect  materials	100,000
Indirect  labour	150,000
Indirect expenses	60,000
Total  production costs		310,000
Selling   and  distribution  overheads	150,000
Administration expenses	200,000
Total  administration and  distribution expenses		350,000
Total  business  costs		1,350,000

 Determinants of Costing Method:

• The nature of the product or service: The costing approach designed for identical products is completely different  from  the  one  designed  for  different  products  because  the  processes  and resources they require will never be the same.
• The stages / processes the product passes through: Products that pass through a series of stages cannot have the same treatment as those which are not subjected to any stages. Therefore different  costing  methods  can  be  designed  to  suit  the  different  processes  used  by  different companies.
• Level of activity or Output: Identical and high volume output requires a cost method which is different from unique and single units that are produced to meet consumer’s specific requirement.
• Installation and Maintenance cost required: Systems that are required to capture and analyze production costs do not require the same costs. The costing method to be used in place by the firm may therefore be influenced by costs involved.
• Time required completing the product: Products do not take the same time to make. It is therefore important for companies to design costing methods that suit the time duration of every product

 WAYS OF MINIMIZING COSTS AND MAXIMIZING PROFITS

An entrepreneur can minimize costs in the following ways

• Paying labour a low wage
• Making labour work for long hours
• Reducing fringe benefits for labour e.g transport and medical allowances
• Buying raw materials from the cheapest source
• Avoiding unnecessary costs ie un planned expenditures
• Employing few workers

Maximizing profits

• Reducing credit sales
• Carrying out sales promotion
• Increasing the price of the product
• Employing few workers

Internal control systems of a business

This involves the control over business operations in various areas to achieve the set goals

Areas under which business control may be exercised

• Purchasing
• Quality control
• Employee morale
• Financial analysis
• Cost controls
• Sales pricing

Purchasing

This can be controlled by buying from at least two suppliers to check on prices, cater for a shortage in case one is affected by strikes, fire etc. purchasing is built to enjoy discounts and improve relationship with the suppliers.

 Quality control

Refers to the process which attempts to minimize or eliminate differences in production quality or it refers to the organizational techniques and activities that are used to fulfill requirements for quality

Measures to ensure quality control

• Reducing the price of slow selling goods to get rid of them and keep faster selling items on the selves
• Surveying customers from time to determine if they are satisfied with the level of product quality and service.
• Discussing merchandise returns with customers to determine the source of their discontent.

Note. Check others in the previous topic covered  

Employee morale

This involves keeping the employees attitude towards work positive such that they promote the company product.

Ways of improving employee morale.

Check the ways of motivating employees under personnel management or human resource management.

Financial analysis

It involves analyzing the costs and the sales (price) to ensure that the business costs are lower than the revenue hence operating at a profit.

Cost control

This involves reducing the costs of production in order to operate at a profit.

Ways of controlling costs

• Check for ways of reducing costs in the previous notes

Sales control

These are the total collections (revenue) from the selling of products produced

Ways of controlling sales

• Selling sales quotas
• Checking on the effect of seasonal variation on sales
• Examining the ways of smoothing out the sales to achieve better utilization of the facilities throughout the year
• Learning how to advertise the business efficiently and correctly

Pricing

This is the process of establishing the exact price to be charged on customers

It involves

• Setting prices high enough to provide gross margin that allows for a reasonable profit.
• Ensuring that the prices are in line with competition so that one does not loose sales on one extreme or go block to the other
• Marketing down the end of season merchandise to get rid of them.

Reasons/ objectives for setting internal control systems (ICS) in a business

• To maintain costs and maximize profits
• Maintain stable supplies for stable production
• Motivate employees for better productivity
• To control fraud among employees
• Ensure continuous production
• Meeting demand fluctuations among customers
• To control / maintain quality of the product that are produced
• Establish right prices affordable by the customers
• Enable the use of right employees in right jobs
• To ensure the safety of assets / inventory of the business
• To ease the operation of the business policy
• For easy monitoring and supervision of the business activities
• Develop a good relationship with customers / public
• To ensure proper management of business finance
• To increase and maintain business periodical sales
• For ensuring consistent business cash flows through regulating outflows.

Work place management

A work place refers to a place where production of goods and services are done like a kitchen, store etc.

Objectives of managing a work place

• To properly handle and store materials as some need careful handling and storage
• To facilitate easy movement of workers at the workplace
• To avoid accidents and dangers that are caused by workers and machines
• To control hazardous substances involved in the production process of chemicals from affecting others.
• To suite the condition of production
• To create conditions favourable for workers so as to increase productivity

Elements of a workplace

• Material handling and storage
• Work station
• Machine handling and storage
• Control of hazardous substance
• Lighting facilities
• Premises
• Work organisation
• Welfare facilities

 The Material handling and storage. This involves proper handling and storage of materials in right places.

Reasons for proper material handling and storage

• To reduce material damage and losses due to theft
• To reduce time wastage during production
• To reduce accidents that would be caused to workers
• To gain space for further production and easy
• To reduce costs related to over/under stocking

This can be maintained and handled in the following ways.

1. By removing things that are not frequently used out of work place
2. By providing convenient storage racks for tools and equipments for easy retrieval
3. By training the store keepers the proper handling methods of raw   materials.
4. By providing caterpillars, movable racks, cranes for easy moving of heavy loads.
5. By removing expired or out dated materials out of workplace.
6. By storing materials out of the workplace.
7. By storing materials in easy accessible places especially if they are heavy.
8. By using coolers or refrigerators in case materials require cool conditions.
9. By using stores ledgers, bin cards for numbering materials for easy retrieval.

b) Work stations. These are places where actual production of goods and services is done. Work stations should be designed in the following ways.

• Putting machine switches and other tools within easy reach of workers
• Using lifts and other mechanical measures to reduce the effort required by workers
• Providing a stable work surface at each work station
• Using cramps for holding things tightly and vices with two saws for holding things firmly
• Adjusting the height of equipment to avoid bending postures or high hand positions which strain workers
• Providing chairs or benches of correct height with steady back rest to promote efficiency of workers
• Provision of enough space within workstation which enables smooth production process to take place.

 Machine handling and safety

Ways of ensuring proper machine handling and safety

• Attaching proper guards to dangerous moving parts of machines and power transmission equipment
• Using safety devices which prevent running of machines while the workers’ lives are in danger
• Redesigning situations which interfere visibility, production and maintenance aeration
• Making sure that the machines are well maintained by regularly servicing them
• Reducing and following instructions about the use of machines before using them.
• Putting precautions for instructions manually
• Painting machines to avoid rusting which affects its use
• Covering machines when not in use like computers to avoid dust effects
• Employing skilled employees to avoid accidents caused by machines
• Through close monitoring and supervision of employees
• Through proper storage of machines as they need care when handling them
• Switching off machines in case of any breakdown and reporting it immediately to competent personnel
• Checking machines to find out whether they are in good order before they are switched on for use.
• Avoiding use of the machines for something they are not designed for respecting machine capacity.
• Ensuring proper connection of machines to avoid short power circuits and damaging machines.

KIBOBO TRANSPORTERS

P.O BOX 222, Kampala

TEL: 0752-99-88-77

ROUTINE MAINTENANCE SCHEDULE OF MACHINES

Date of service	Type of machine	Description of work	Person in charge	Venue of service	Date of next service	remarks
7/11/18	2 trucks	Changing oil	technician	Business premises	2/12/18
9/12/18	2 trucks	Over hauling	Technician	Business premises	2/01/18

 

          Prepared by                                                         approved by

          Sign:                                                                    …………………………….

          Name: Namubiru Edith                                       ………………………………

          Title :  transport manager                                  ………………………………

Control of hazardous substances

Refer to dangerous materials to workers e.g broken glasses, chemicals, contaminated food.

Reasons for controlling hazardous substances

• To minimize losses in business
• To improve or enhance quality
• To improve health complaints among workers
• Need to promote efficiency/ productivity of workers
• To minimize or control pollution
• To avoid accidents
• To maintain good relationship within the society

Ways of controlling hazardous substances in an enterprise.

• Substituting hazardous substances or chemicals with less hazardous ones
• Keeping hazardous substances in covered containers
• Providing adequate and appropriate types of protective equipment
• By ensuring proper disposal of hazardous substances
• By training workers on proper use and maintenance of protective substance
• By providing adequate emergency, health and safety facilities
• Through reading and understanding instructions on the hazardous substances before using them
• Ensuring proper lighting facilities or ventilation
• Providing warning labels on hazardous substance or areas to minimize accidents.
• Developing general rules on safe working habits and publicizing them e.g washing hands with soap, changing clothes and cleaning the environment
• Through maintenance of health and safety records or statistics

LIGHTING FACILITIES

• By adding skylights and keeping windows clean to let in natural light.
• By painting ceilings white and walls for concentration and reflection of light.
• By providing artificial lighting which is adequate for the type of work.
• By reducing obstructions and eye strains through repositioning g of Lamps or bulbs
• By providing ventilations and ensuring their cleanliness.
• Providing local lighting or adjustable lights
• Switching off in case there is no need of light
• By replacing bulbs when they are fault.

WELFARE FACILITIES

This helps to enhance health, morale and productivity through work related welfare facilities

 This can be managed in these following Ways.

• By providing adequate and safe drinking water in all workplaces to the workers.
• Proving regularly cleaned sanitary facilities close to the workplace including soap for washing hands and separate toilets for both sexes.
• Providing a separate comfortable hygienic place for meals of the workers while at work.
• Availing storage space for person clothing, bicycles or private changing rooms to workers as they report for work.
• Availing resting time (breaks) and resting place to help workers get refreshment at work.
• Providing recreational facilities to the workers within the workplace to help workers spend their leisure time
• Providing first aid equipments
• Providing special clothing e.g company uniform
• Providing working incentives which keep the mind awake like music during production.

PREMISES MANAGEMENT (WORKPLACE LAYOUT)

This can be managed in the following ways.

• By providing a sign post for business premises to direct visitors and other people involved in the workplace.
• By providing a clean environment for business premises.
• Through improving room temperature of the premises by covering the walls and roofs with insulating materials
• By carrying away sources of heat and noise through constructing noise proof walls.
• By providing fire extinguishers to protect premises against fire accidents.
• By providing two ways out of every room for easy way out in case of any accident
• By minimizing the steps in the passages with in the premises. This can interfere with the movement of wheel barrows which carry heavy loads.
• By eliminating lose wire connection which can cause accidents.
• Providing walk ways and freeways at the workplace.
• Clearing passage and providing marking barriers to keep them clear and allow free movement of workers
• Eliminating regular wiring connections to reduce risks
• Ensuring that the layout and the working conditions are in good order to suite the nature of the product and productivity of the business
• By ensuring safety and security of assets of the business
• Providing good storage facilities for raw materials, work in progress and finished good during production
• Ensuring enough work space for workers during the production process.
• Ensuring stability of the work surface for quality products to be produced
• Providing proper furniture to the employees to use during production with stable back rest
• Allowing for furniture development plans where expansion can take place.

Work organisation

It helps to optimize production and job satisfaction through better work organisation

Ways of ensuring proper work organisation

• Eliminating some tasks by using machines
• Keeping workers alert and reducing fatigue through frequent changes in task, opportunities to change posture, short breaks music etc.
• Using quality circles or group work to improve productivity and quality of the workers
• Through re-arranging layout and order of operations to improve production flow, efficiency and productivity
• Dividing labour and separating tasks so that each worker knows what is supposed to do and when.
• Avoiding monopoly by using shifts for workers during production process.
• Keeping records for worker’s performance and those who are better being rewarded e.g by promotion.

Factors considered when designing a workplace

• Cleanliness / sanitation / hygiene. A well designed workplace should ensure a clean environment
• Ventilation ( heat production)
• Storage facilities
• Safety / security
• Emergency facilities / fire extinguishers
• Work place
• Stability of the work surface
• Nature of the furniture
• Sign post
• Installation of power requirements
• Machine requirements
• Future workplace development plant
• Nature of the products
• Inventory management

Ways of Controlling Fixed Assets of the Business:

• Having Assets register: A register book can be used to record the assets of the business like the furniture, computers, buildings, calculators etc. Review your physical assets regularly against your asset register and investigate any missing items. Make sure this is done irregularly not just on 30 June.
• Labeling the Assets: Company assets can be controlled by labeling them in the company names and assigning the some unique numbers for identification e.g. KSL/001/2014 etc.
• Physical security such as locking premises, using security cameras, safes etc.
• Restricting access to access codes for the asset by outsiders except trusted employees only.
• Changing computer passwords regularly.
• Avoiding giving one employee total control over a process.
• Making sure that there is an independent check on processes and procedures.
• Having firewalls and protective devises on computer systems.
• Having clear guidelines on personal use of assets of the company.
• Ensuring proper management supervision.
• Locking laptop to desks computers and data projectors as popular targets for theft.
• If your office entrance is located near the street or a staircase ensure hand bags and petty cash are well locked up at all times.
• Allocating a staff member to be responsible for any expensive items, ensure staff knows the location of the asset and lock it away when not in use.
• Reviewing your physical assets regularly against your asset register and investigate any missing items. Make sure this is done irregularly not just on 30 June.

STRUCTURING TIME FOR INCREASED PRODUCTIVITY

Making productive use of hidden time: Hidden time is the time that was previously mismanaged, consumed with distractions or used for other tasks. This should be used to accomplish priority tasks.

Using energy high and lows: this involves improving the schedules of work depending on the time where performance is high

Ensuring that work is started faster by accomplishing the first tasks earlier to avoid interfering with actual work time

TIME MANAGEMENT / CONTROL

Time management is a technique for allocating of the managers’ own time through setting goals, assigning priorities, identifying and eliminating time wasters and using managerial techniques to reach goals efficiently

EFFECTIVE TIME MANAGEMENT / CONTROL

Spending time planning and organizing, use time to think and plan for the time well spent.

Setting goals, setting clear goals which give people a sense of direction. Set goals which are specific, measurable, realistic and achievable

Prioritizing time to concentrate on work / items which have a greatest reward.

Using a to do list: the to do list is the last thing constructed the previous day or first thing in the morning such people may combine to do list with a calendar or schedule.

Being flexible: allowing time for interruptions, distractions and unplanned emergencies, when interrupted begin with the most important thing.

Considering biological prime time. Prime time is the time of the day where high performance is expected of an individual. If it is effective to use this prime for major activities.

Doing the right thing right: doing the right thing is effectiveness and doing things right is efficiency, focus on effectiveness and concentrate on efficiency.

Eliminating the urgent: urgent tasks should be dealt with first so that time is set for important priorities.

Practicing the art of intelligent neglect: eliminating from life tasks which have no long term consequences

Avoiding being a perfectionist: believe that errors and mistakes are to humans

Conquering procrastination: ie breaking the task into smaller tasks and doing just one smaller task and doing just one smaller task and setting time for the bigger

Learning to say no: after getting convinced about the importance of priorities, say no to the unimportant ones

Rewarding him/her: an entrepreneur has to celebrate achievement of his/ her success in achieving goals

TIME MANAGEMENT TECHNIQUES

Identifying goals: this involves understanding what is required to be accomplished each month, week or day, list your goals in order of importance.

Ensuring self-motivation: entrepreneurs should motivate themselves to produce high output in work which they have to do in a specific time frame.

Establishing a dead line: more work can be done if specific deadlines for achieving certain tasks are set.

Taking notes: recording thought and ideas and note down such things as names, telephone numbers, appointments and things to do.

Being goal oriented: concentrating on activities which lead to significant results, be selective in your work activities and try not to do everything.

Working in blocks of time: do major tasks in blocks of time during the period of the day you feel more effective.

Asking questions before working: for example what, who, how and why?

Being action oriented: outline your specific course of active and do it.

Being reflective: reflective thinking is the act of learning from one’s past, present and potential future activities.

Planning the next day’s activities at the end of each day

Questioning yourself on time usage, in order to manage time properly.

HOW DO ENTREPRENEURS WASTE TIME

• Talking with people about personal matters unconnected with work
• Having unnecessary or extra-long group meetings
• Allowing too many interruptions
• Being disorganized or on specific targets
• Engaging in little or no delegation
• Being indecisive ie failure to make decisions on the side of entrepreneur
• Being late or absent
• Misusing time reminders

Effects / disadvantages / costs of wasting time

• It leads to the delays in production
• It lowers sales volume hence reducing revenue
• It leads to poor or late service delivery
• Puts the business / firm at a competitive disadvantage ie the firm can easily be out competed
• It leads to consumer dissatisfaction
• It worsens employee – employer relationship
• It destroys team work
• Reduces the profit of the firm
• Lowers productivity of the firm
• Delays or prolongs decision making process.
• It makes strategic planning difficult.

PACKAGING

Packaging refers to the process of wrapping, crafting or compressing goods to protect them from spoilage, breaking, theft, contamination etc during the process of transit, storage and use.

Importance of packaging

• Packaging protects the contents there in from rough handling and external conditions like poor weather.
• It facilitates easy handling and transportation of goods to the markets especially liquids, cereals etc.
• Through packaging goods can be preserved like food products, chemicals that can be protected against external conditions and germs like through putting them in tins.
• Well packed goods may attract a number of customers and facilitates easy selling as a customer can easily identify the product through its appearance and they end up buying them.
• Products are normally packed in relatively small sizes, which are easy to display in retail stores, easy to price and hence being affordable to different / many customers.
• It is easy to distribute / deliver packed products to the markets; it can facilitate mail order services which are convenience, fast and hence increasing profitability through increased sales of the product.
• Packed goods are usually accompanied with instruction labels which serve as a guide to inform / teach customers about the content and usage of the product there in.
• Self-service is possible with packaged goods; this saves time, attracts more customers and increases the sales of the business.

TYPES OF PACKAGING

• Bottling or Canning: This is the putting of goods in the bottles or cans. It is common with liquid foods like drinks, drugs etc.

• Bagging or putting in bags: Here products are put or packed in bags. This is common with clothes etc.

• Putting in plastic containers: Here, products are packed in plastic containers and it is common with drinks, powder, perfumes etc.

• Baling or Tying in bales: This is commonly used in paper trims and waste paper, beverage containers, plastic wraps, fiber such as cotton wool, tobacco etc.

• Tinning or putting in Tins : Here products are packed in tins after production. Examples of products tinned are drinks, powders, tablets etc.

• Putting in boxes: This is packaging products in the boxes. This is common for products like flowers, spare parts for cars and bicycles, mineral water and other tangibles, books etc.

Different types of packaging materials

• Metal – aluminum , tin plate, steel
• Plastic polythene papers, jerry cans, bottles etc
• Wood –wood , packing cases etc
• Glass for example bottle
• Laminators – aluminum foils, films etc
• Polyesters
• Hessians / jute for bags

Note. The nature of goods determines the types of packaging to use. For instance, oil, wine and other liquid products are put in bottles, tins or cartons,

FACTORS CONSIDERED WHEN CHOOSING THE TYPE OF PACKAGING MATERIALS TO USE

Sources of packaging materials and suppliers, the source where the materials are got should be reliable in terms of quality and suppliers must be willing and able to supply whenever a need arises in order to avoid changing materials for the products over and again.

Availability of the packaging materials required, an entrepreneur selects a material that is available or that can be got in the required quantities to allow constant production and distribution of the goods.

The unit cost of packaging materials required per production cycles and inventory levels to be maintained, the unit cost should be relatively low and one should only acquire these materials that are needed depending on the volume and type of materials in stores.

The cost of packaging in relation to the value of the good being packaged, one should select a material which is not expensive to package, Cheap and lowly priced commodities, as it affects the profitability of the business.

Types of goods to be packaged, like liquids, gases, solids, should be considered e.g one is not expected to choose wood boxes to package oil or petroleum products, instead jerry cans are preferred.

The purpose of packaging, there are some goods that are packaged purposely to store them for a long time, one should choose along lasting materials like wooden boxes instead of glasses that are delicate, then others like food stuffs that are to be consumed in a short period of time, might be packaged in polythene  bags or paper bags.

Means of transport to be used, this greatly affects the packaging materials e.g products that are to be moved via the roads (using trucks) should use a strong packaging materials for proper protection like wooden boxes.

The nature of goods to be packaged determines the materials like oil, wine and other liquid products are put in bottles or tins, cotton and other bulky products can be put in bales, while fragile goods like fruits, glasses are packed in paper boxes.

The government policies may also be considered , the government may decide to ban certain materials for packaging, so one is not excepted to use such materials, for example the government of Uganda recently banned the importation and use of certain types of polythene bags.

Note. For packaging of a product to be successful, an entrepreneur must ensure that it is easy to use, open, of practical size and has instructions which can be easily followed and understood.

QUALITY MANAGEMENT

Quality refers to the ability of a good or service to meet/ satisfy a customer requirements or wants.

ATTRIBUTES THAT DEFINE QUALITY OF A PRODUCT

1. Performance. It refers to the basic or primary operating characteristics of a product. E.g in case of a TV performance may mean sound, clarity etc
2. Features. These are the secondary operative characteristics of a product. They supplement the basic functions of a product e.g DVD player on a computer.
3. Durability. This attribute measures the product life. Durability is the amount of use one gets from a product before it breaks down, the longer the life of a product the more the quality.
4. Reliability / Guarantee (expiry date) the longer the expiry date the more the reliability of the product.
5. Conformance. This refers to the degree to which a product design and operating characteristics meet the set standards like weight for example bread is sold in different weights like 500 gms or 1 kg.
6. Serviceability. It refers to the speed competence and ease of repair a given product. Consumers not only mind about a product breaking down but also the time before the service is restored , the timeliness with which service appointment are kept, the nature of dealing with service personnel etc.
7. Perceived quality. This is how consumers view things. Consumers have different tastes and therefore, perceive quality of products differently. In such circumstances, things like images, advertising, brand names and misconceptions about quality are critical in perceived quality.

 Common terms used in relation to quality

Quality policy: this refers to the overall intentions and direction of a business or an organisation with regard to quality as prescribed by the top management. Quality policy is normally expressed and developed by the top management and is communicated to the subordinates / workers. In most cases, quality policy is expressed in the mission statement.

Quality planning: it refers to the establishment of what the business or an enterprise is planning to do so as to achieve quality.

Or

Quality planning refers to establishment of measures of what an enterprise is going to do so as to achieve quality.

Quality control: this refers to the activities and operational techniques that are used to fulfill the requirements of quality.

Quality system: it refers to organisational structure, procedures, process and resources needed to implement quality management.

Quality assurance: it refers to all the plans and systematic activities which are to be implemented within the quality system so as to achieve quality.

CONSUMER’S PERCEPTION ABOUT QUALITY

Due to differences in tastes and preferences, consumers usually perceive quality differently. This however, results into various inference / misconceptions about the quality by consumer.

CONSUMERS MISCONCEPTION ABOUT QUALITY

Misconception about price: it is always assumed that the higher the price, the higher the quality. However, this may not be the case.

Misconception about the brand name: consumers usually assume that some products are superior to others basing on their brand names. This is because a brand name tends to give a product either a good or bad reputation. For example one may prefer a DVD player branded “Toshiba” because of the brand name to that of Sony.

Consumers’ point of view: consumers perceive quality of product differently. This is due to differences in consumers’ tastes and preferences. Such differences results into various misconception about quality of goods and services.

Misconception about durability/ guarantee. Here, different consumers assume that quality products are those ones that take long time to get expired or break down.

Misconceptions about the origin of goods and services: consumers tend to assume that quality products are produced from specific countries or places e.g in Uganda people assume that cars from Germany are of high quality than from other countries.

Misconception about the size of the product: consumer considers quality products as those that can serve the purpose while in large quantities.

FACTORS THAT INFLUENCE THE GENERAL QUALITY STANDARDS OF AN ENTERPRISE   

Selection of raw materials that are used as inputs in production. The use of low quality raw materials usually results into poor quality products while use of good quality raw materials yields quality products. Therefore, it is always important to use good quality raw materials so as to have a good quality product.

Cleanliness of the environment under which the product is being developed. A clean environment under which a good is produced or a service is offered helps in the production of quality products compared to unclean environment.

Packaging. The way of packaging may affect its quality in various ways for example, packaging can lead to contamination. It can also bring about damage or it can lead to product expiry if the product is kept long time. Therefore, the entrepreneur considers the packaging materials to ensure that the design of the product conforms to the planned packaging materials.

Technical specifications regarding quality and quantity. This affects the quality of products in a way that if there is change in the technical specifications like in the mixing of ingredients or size of the product, the quality and quantity are affected. For example in a bakery, if there is alteration in the mixing of ingredients and size, the quality of bread will be affected.

Storage of raw materials and finished goods.  Improper storage of raw materials and finished goods results into low quality products while proper storage of raw materials and finished goods promotes production of quality products. Therefore, the producer should consider proper storage of raw materials and finished products.

Limits of deviations from set standards ie there is always set standards and specification for quality that should be maintained. The more the deviation from them, the more the quality of the product will be affected

Machinery used in production. Quality of products produced is greatly affected by the type of machines used in production process. This means that use of unsuitable machines in production process leads to low quality output and vice versa. Therefore an entrepreneur / producer should determine the machines required for production, the technical aspects of producing the product and proper installation of machines.

Availability of necessary skills for the production of products. This refers to Labour with the required skills to perform the production of the intended product. Usually the use of skilled labour leads to quality products and vice versa.

Product design and development. Wrong and improper product designs lead to low quality of the product while right product designs as demanded by customers lead to quality output.

QUALITY CONTROL IN A BUSINESS

Quality refers to various activities and operational techniques employed by an entrepreneur to achieve and maintain quality of a product or services.

Quality refers to the measures under taken by an entrepreneur to ensure that high quality products are produced

Why is necessary to observe quality in a business

• To improve the brand image of the business. Quality control helps to improve the brand image of a business while helps the business to expand its market share.
• To reduce costs of production. This results from the minimizing wastage of raw materials when producing good quality products.
• To create consumers’ loyalty. Quality control helps the entrepreneur to maintain his customers as the entrepreneur has to design and develop a product that conforms the needs of the customers.
• To facilitate standardization of the business products ie through production of uniform products or service.
• To comply with the quality standards prescribed by the relevant authority e.g UNBS in Uganda.
• To produce quality products. Quality control leads to production of high quality products which improve the image and reputation of the entrepreneurs’ business.
• To compete with other competitors in the same line of business through improving on the quality of the output.
• To determine product costs and price at competitive levels in advance of production.
• To achieve business objectives concerning quality specification.
• To maintain business customers through improved quality.

WAYS / MEASURES OF ENSURING QUALITY OF A PRODUCT

• Ensuring selection and use of better quality raw materials. The entrepreneur ensure use of good quality raw materials so as to produce quality products.
• Monitoring and supervision of the production process. To ensure that the goods produced conform to the set standards.
• Ensuring proper packaging of the product. The entrepreneur ensure use of suitable materials in line with the product design.
• Selecting appropriate production machines and ensuring proper installation of such machines and equipment.
• Carrying out market research before developing the product and even in the process of making the product so as to understand the needs of the customers
• Employing labour with the required skills to perform the production of the intended product.
• Ensuring proper sale and distribution of the product. This requires the entrepreneur to select a suitable channel of distribution for his production.
• Ensuring a clean environment under which the product is to be produced.
• Considering the technical specifications regarding quality and quantity of the product to be produced like mixing ingredients or produced chemicals, size of the product etc.
• Ensuring good / right product design and branding of goods as demanded by the customers.
• Ensuring proper storage of both raw materials and finished products.
• Motivating employees to keep their morale high towards quality production.

Importance of quality control in business.

• Quality control helps to improve the brand image of a business while helps the business to expand its market share
• It helps to reduce costs of production. This results from the minimizing wastage of raw materials when producing good quality products
• Quality control helps the entrepreneur to maintain his customers as the entrepreneur has to design and develop a product that conforms the needs of the customers
• It facilitates standardization of the business products through which production of uniform products or service
• It helps the entrepreneur to comply with the quality standards prescribed by the relevant authority e.g UNBS in Uganda
• Quality control leads to production of high quality products which improve the image and reputation of the entrepreneurs’ business.
• It helps entrepreneur to compete with other competitors in the same line of business through improving on the quality of the output.
• It enables entrepreneur to determine product costs and price at competitive levels in advance of production.
• It enables entrepreneur to achieve business objectives concerning quality specification.

Quality and production management

Quality control involves activities at all phases of the production process ie product design, purchase of raw materials, marketing / marketing research, production machines and their installation, production of the product, Storage of materials and finished products, packing, sale and distribution. In the process of producing a product, the quality of the end – product is influenced by activities in each phase of the production process.

Phases and activities in the production process that have an impact on quality

Marketing and market research for the product. This involves collecting and analyzing information relating to markets so as to find out opinions of potential customers about the product that the entrepreneur intends to produce.

Product design and development. This stage involves planning the shape, fashion, size and colour of products to be produced.

Purchase of production raw materials. Poor quality raw materials lead to purchase to poor quality products and vice versa.

Production of the product. This stage involves transforming of the raw materials through the use of inputs like machines into finished products.

Packaging and storage of the product. This involves wrapping and compressing of the products produced in various packing materials so as to protect them from spoilage and damage and for easy transportation. After packing the products are then stored.

Selling and distribution of the product. This involves selecting of an appropriate channel of distribution and an effective mode of transportation to enable the entrepreneur’s products reach the final consumer.

Installation of the product at the user’s premises. After distribution of the product. The entrepreneur or salesperson installs the product at the client’s premises. Installation may be free or at a small charge. However, this only applies to those products which require installation like machinery and equipment.

Technical assessment and servicing of the product. This is the last stage in the product life cycle.  It involves the activities carried out to ensure that the customer is satisfied with the good or service and the entire business enterprise. It includes after sales activities like checking and ensuring product smooth performance and maintenance / servicing.

THE PRODUCT LIFE CYCLE (PLC)

Product life cycle refers to the combination of various activities that influence the quality of a given business product. The product life cycle merely views and enterprise from the angle of production management. Other angles to view and analyze an enterprise are human resource management and financial management.

 STAGES OF PRODUCT LIFE CYCLE

Summarizing major events during product life cycle stage. This provides a summary of the major differences between the stages in the product life cycle with respect to sales, costs, profits, types of customers and the nature of competition.

1. a) Introduction stage

The market size and growth is slight. It is possible that substantial research and development costs have been incurred in getting the product to this stage. In addition marketing cost may be high in order to test the market undergo launch promotion and setup distribution on channels

It is highly unlike that companies will make profits on products at the introduction stage. Products of this stage have to be carefully monitored to ensure that they start to grow otherwise the best option may be to withdraw, low sales and high unit cost

Characteristics of the introduction stage

• Sales generally are low and somehow slow to take off. Customers are characterized as innovators
• Production costs tend to be high on a per unit because the firm has yet to experience any significant economies of scale
• Marketing cost required for creating awareness, interest and trial and for introducing the product into distribution channels are high
• Because of low sales and high unit costs, profits tend to be negative or very low
• Competitors tend to be few in number indeed there may be only major player in the market place the innovating firm
• No profits

1. b) Growth stage

It is characterized by rapid growth in sales and profits. Profits a rise due to an increase in output, economies of scale and possibly better prices. At this stage, it is cheaper for the business to invest in increasing market shares as well as enjoying the overall growth of the market

CHARACTERISTICS OF GROWTH STAGE

• Sales increase rapidly. This increase is due to consumers’ rapidly spreading positive word of much about the product
• Declining cost on per unit basis because sales leads to longer production runs and therefore economies of scale in production
• Decline unit costs and rapidly increasing profits due to increasing sales
• Customers are mainly majority. It is the early adoption specifically that is responsible for stimulating the WOM effect
• Competition continues to grow throughout this stage as competitors recognize profits, potentials in the market e.g enter the market with their own session of the products

1. c) Maturity stage

It is in this stage that competition is intense as companies fight to maintain their market share. Here both marketing and financial become key activities. Marketing expenses have to be monitored carefully, since any significant moves are likely to be copied by competitors. The maturity stage is the time when most profit is earned by the market as a whole.

Any expenditure on research and development is likely to be restricted to product modification and improvement and perhaps to improve production efficiency and quality

CHARACTERISTICS OF MATURITY STAGE

• Sales continue to grow during early stage (post) of maturity but at a much slower rate than experienced during the growth phase. At some point, sales reach the peak. This peak may last for extended periods of time
• Costs continue to rise during maturity because of market situation and continually intensifying competition
• Competition, where this slowing of sales is combined with this stage, the result is that profits will have reach their highest level and must from this point on decline
• The only remaining customers to enter the market will be late, the late majority and the laggards. These customer groups are by far the most risk averse and most hesitant to adopt new products
• Competition is mostly intense. The intensity of competitive in fighting drives the changes in costs and profitability

1. d) Decline stage

The market is shrinking / reducing the overall amount of profit that can be shared amongst the remaining competitors. At this stage, great care has to be taken to manage the product carefully; it may be possible to take out some production cost to transfer production to a cheaper market. Ultimately depending on whether the product remains profitable, a company may decline to end the product

Characteristics of the decline stage

• Sales continue to deteriorate in addition unless major changes in strategy or market conditions occur, sales aren’t likely to be recovered costs because competition is still spent on promotion particularly sales aimed at providing customers with price concessions
• Profits continue to decline with little hope of recovery
• Customers again are primarily laggards
• There are generally a significant number of competitors still in the industry at the beginning of decline. However as decline progress marginal competitors remaining thus decline leads to the large more entrenched competitors with significant market shares

1. e) Withdrawal stage

There is a down turn in the market e.g more innovative products are introduced or customers tastes change. There is intense price cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing expenditure and cost cutting

Benefits of product life cycle in enterprise

• It helps the entrepreneur in product decision making
• It helps the product designers and service providers, government agents and individuals to make choice
• It leads to increased productivity
• It reduces wastage of products and raw materials
• It minimizes product costs through the re – use of the original data
• It enhances the entrepreneur ability to quickly identify potential sales opportunities and renew contribution

 Problems with product life cycle (critics of product life cycle)

• In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage e.g from maturity to decline by price cutting, not all products pass through this stage. Some go from introduction to decline, it’s not easy to tell which stage the product is in
• it doesn’t any way predict the length of each phase and it can’t be used to forecast sales with any accuracy
• The model is self-filling e.g if a marketer decides that a product is approaching its decline phase and stops actively marketing it. The product sales will almost inevitable decline. This might not have happened had it been managed as if it was still in its maturity stage
• It’s possible that by improving a product aggressively on an ongoing basis growth can continue for a long time. The model doesn’t consider them
• Successful marketer need to draw on a wide range of data and on analysis to help them decide which phase a product is in and whether that phase can be explained

TOTAL QUALITY MANAGEMENT

This is the method designed to prevent errors such as poor quality products from happening. It’s a way of managing an organisation so that every job, every process is carried out right from first time of every time.

FEATURES / ELEMENTS OF TOTAL QUALITY MANAGEMENT

Quality chains, it emphasizes the linkage between suppliers and customers. The chain remains intact if the supplier satisfies the customers. Failure to accomplish this make delays in the next stage of production.

Company policy and accountability. Total quality stresses the role of the individual and aims to make anyone accountable for their own performance.

Control. Customers’ needs will only be satisfied if the business has control of the factor that affect a product’s quality. These may be human, administrative or technical factors.

Monitoring process, monitoring the business process enables possible improvements to be made thereby leading to total quality management. An entrepreneur has to develop methods to achieve this.

Team work, total quality management stresses that team work is the best effective way of solving problems in an organisation. The main advantages are

• A greater range of skills, knowledge and experience can be used to solve the problem.
• Employees’ morale is often improved.
• Problems across departments are better dealt with.
• A greater variety of problems can be tackled.
• Team “deals’ are more likely to be used than individual ones.

Total quality management strongly favours team work throughout the business. It builds trust and morale, improves communication and cooperation and develops interdependence.

Consumers’ views. Firms have to be committed to their customers by responding to all their needs as per the quality standards customers except. This leads to total quality management

Zero defect policy, this is aimed at ensuring that every product manufactured is free from defects. Companies that guarantee zero defects in customers order builds a good reputation and lead to new clients and improved sales

Advantages of total quality management

• A greater range of skills, knowledge and experience can be achieved to solve a problem
• Employees’ morale is often improved
• Problems across departments are better dealt with
• A greater society of problems can be tackled from individual ones
• Total quality management favours team work throughout the business. It builds trust and morale improves communication, co-operation and develops interdependence

 BENEFITS OF TOTAL QUALITY MANAGEMENT

• It focuses dearly on the needs of clients or customers and relationship between suppliers and customers.
• It helps to achieve quality in all aspects of business not just product or service quality.
• Enable entrepreneur to critically analyze all the processes to remove waste and inefficiencies
• It helps to find improvements and develop measurement of performance
• It develops effective procedures from communication and acknowledgement of work
• It develops a team approach to a problem solving
• It helps entrepreneur to utilize human resources better
• It reduces product development time

 CRITICS / PROBLEMS OF TOTAL QUALITY MANAGEMENT

• It involves taking developmental costs of the new system
• Total quality management only works if there is commitment from the entire business or organisation
• Involves a great deal of bureaucracy and documentation and regular audits are needed. This may be a problem for entrepreneurs or small firms
• Stress is placed on the process and not on the product
• Some workers and unions regard total quality management as management by stress and a way of de-unionizing work place
• It delegate the determination of quality to quality experts because total quality management is a complicated entity beyond the comprehension of the coverage employee

QUALITY BUSINESS MANAGEMENT TASKS

In small enterprise, management also carries out special activities designed as functions. The basic management functions in a small enterprise are shown below:

Planning: planning is management task which involves the establishment of goals and objectives of a business and determination of how they will be achieved.

Advantages

• It gives and entrepreneur direction and course of activities
• Helps the entrepreneur to set and achieve goals
• Enables the entrepreneur to allocate time from the different activities
• Enables the entrepreneur to make proper utilization of resources
• Enables the entrepreneur to evaluate alternatives and achieve the best alternative to benefit the business

Organizing: refers to the identification of what activities are to be done, grouping their activities into sections (departments) and designing or delegating the activities to particular individuals to carry them out.

Staffing: it involves the process of recruiting, training, developing, compensating and evaluating employees who identify tasks.

Leading: leading involves motivation and guiding employees about the process and methods of work in the organisation. It requires leading by example and ensuring open communication.

Controlling: controlling in small enterprise deals with monitoring the goods purchased and sold. Money received and paid out, stock and other property of the business. This ensures the smooth running of the business and achievement of the set goals and objectives.

Communication: it is the process of passing information with suppliers, workers, customers, for successful performance.

Motivation: it’s the process of encouraging people to give their best towards the achievement and get employees to willingly pursue biasness objectives.

Budgeting: a budget is a document showing expected income and expenditure of an enterprise of a given period of time. This is used as guide in monitoring and controlling the implementation of the planned business activities.

Need for budgeting in an enterprise.

• To price business products appropriately in order to make the desired profits.
• To calculate the cost of goods in advance.
• To prioritize expenditure of business funds.
• To encourage workers to work harder so as to achieve the set targets.
• To be able to compare actual performance with targeted one.
• To facilitate future planning of the business basing on set objectives.
• To motivate workers by involving them in setting targets to be achieved.
• To enable top management to communicate its expectations to workers for proper understanding.

 Benefits of budgeting

• It provides managers with a way to cost their financial implications
• It provides specific goals and objectives that serve as a yard stick for evaluating performance
• It reveals potential problems before they occur
• It coordinates the activities of the entire business by integrating the plans and objectives of various department