Production Planning and Organizational e

Strategic Journal of Business and Social Science (SJBSS) Volume 1, Dec 2018
Website: www.sj-bss.com Email: editor@sj-bss.com
PRODUCTION PLANNING AND ORGANIZATIONAL EFFECTIVENESS

1Okah Vincent Ph.D, 2Nduka Oyediya Ijedinma Ph.D, 3Ugwuegbu Charles Onyemachi
M.sc
1, 2, 3discipline: Business Management Imo State University Nigeria
Abstract:
Any production planning done without adequate forecasting or inventory management, for
the purpose in achieving effectiveness may cost the organization its life as a corporate entity.
Winning in this competitive era lies in the ability of a manufacturing firm to know what,
how, when, where, and how much to produce. This study investigated the effect of
Production Planning on organizational effectiveness of the beverage industry in South-East
Nigeria. In this respect organizational effectiveness is measured in the areas of inventory
cost minimization, customers' satisfaction, and sales volume. The study formulated four
research hypotheses, and questionnaires distributed to 212 respondents in the two sampled
manufacturing firms. One hundred fifty (150) copies of the questionnaires were retrieved.
From its findings based on the application inferential statistical method of Chi-square, the
study revealed that production planning has a significant effect on inventory cost
minimization, customer's satisfaction, and sales volume of the Nigerian beverage industry.
This finding implies that production planning significantly affects the organizational
effectiveness of firms. Based on these, the study recommends among others, that for an
organization to be committed to meeting customers' satisfaction, such an organization must
be ready to implement material requirement planning (MRP) and demand forecasting. Such
implementation will enable them in knowing what their customers' want, how they want it,
and when they want it.
Keywords: Production Planning, Organizational Effectiveness.
Strategic Journal of Business and Social Science (SJBSS) www.sj-bss.com

Okah Vincent: Production Planning and Organizational Effectiveness, 2018
pg. 1
1. Introduction
1.1 Background of the Study
Production Planning (PP) is the lifeblood of any manufacturing firm. It entails finding the
delicate tradeoff between satisfying customers and managing suppliers (Bradley, 2017). A
company can have a dynamic business model and waste hours of time (Bradley, 2017) and
naira on redundant processes when its production system is on guesses instead on a careful
analysis of the market/customers' demand. Furthermore, when a firm's production planning
is being carried out without adequate forecasting, it may cost the organization its life as a
corporate entity. Winning in this competitive era lies in the ability of a manufacturing firm
to know what, how, when, where, and how much to produce.
Production planning is gradually becoming one of the most vital activities of an
organization's operations. It is strategic for every establishment, no matter how large or
how small to embrace production planning in some form. Production is a process or
procedure developed to transform a set of inputs like men, materials, capital, information,
and energy into a specified set of output like finished products and services in proper
quantity and quality, thus achieving the objectives of an enterprise (Umoh, Ify, & Edwinah,
2013). Production planning, on the other hand, is a sequential step taken within a
manufacturing setting in ensuring that strategic raw materials (materials, men, money, and
machine) are available at the right time and in the right quantity to create finish products
according to the schedule specified. It is a management function concerned with deciding
the requirements of production facilities base on the availability of space, and on market
demands
The most important objective of production planning (PP) is to ensure that there is
coordination among departments in an organization. By working together, production
obstacles can be removed in the production process. Production planning helps an
organization in determining the requirements of men, material, and equipment, arranging
production schedules according to the needs of marketing demand, arranging various
inputs at the right time and in the right quantity, and making most economical use of
various inputs
This study centered on two major approaches to production planning namely demand
forecasting and material requirement planning (MRP). According to Baffa & RakeshSarin

pg. 2
(2002), the growing competition, frequent changes in customer's demand and the trend
towards automation demand is a reason why decisions in business should not be based
purely on guesses instead on a careful analysis of data concerning the future course of
events. The future must be accorded more time and attention than to the past, and the
question 'what is likely to happen?' should take precedence over 'what has happened?'
(http//.mech.at.ua/PPC-NOTES). No attempt can be made to answer the first question
(what is likely to happen) can without the facts and figures being available to answer the
second (what has happened). The process of making estimates of future conditions on a
systematic basis is called forecasting and the figure or statement thus obtained is defined
as forecast (http//.mech.at.ua/PPC-NOTES). Not knowing the future with certainty implies
that virtually every business and economic decision will rest upon a forecast of future
conditions. Forecasting aims at reducing the area of uncertainty that surrounds
management decision-making (http//.mech.at.ua/PPC-NOTES) concerning costs, profit,
sales, production, pricing, capital investment, and so forth.
Material requirement planning (MRP) as a production planning function that helps an
organization in ensuring that materials are available for production, products available for
delivery to customers, that and a firm maintains a minimal possible material and product
levels in the store. The possible reason for the above is that if a company purchases an
insufficient quantity of an item used in manufacturing (or the wrong item), it may be unable
to meet (http//The scope of MRP in manufacturing – Tutorial.com) contractual obligations
to supply products on time. Thus material requirement planning helps a firm to know; what
and how many items are required, and when are they needed.
Looking at the era we are, a manufacturing firm may lose its competitive edge due to
incorrect identification of the customers' needs regarding the product assortment and their
delivery terms. The above may be as a result of the uncertainty of the forecasts, lack of
coordination or incorrect coordination of the information flow, both between the client and
the enterprise and between the production process and the production planning and control
process. Also, high rate of changes in the customer demands (like the kind quantity of the
products, or their delivery terms), and dynamic changes in the market conditions, e.g.,
regarding the availability of the materials and other resources may force an organization to
lose its competitive position in an industry.

pg. 3
The problems indicated above many results in disturbing the flow of information and
materials between the client and the resource market on the one hand, and the production
process and the production planning and control process on the other hand. Production
planning can be a strategic tool for correcting the above problems thereby raising
customers' satisfaction. If the overall performance of the production system of an
organization is to be improved, disruptions must be managed effectively, with careful
consideration of both material requirement planning and demand forecasting.
The objectives of this study, therefore, is to examine the effect of Production Planning and
organizational effectiveness in the beverage industry, using Nigeria Breweries Plc and
Hero Beer operating in South-East Nigeria as a case study.
1.2 Statement of Problem
The main problem this study seeks to address is enhancing organizational effectiveness in
the beverage industry through production planning (PP).
The poor performance of firms in the manufacturing sector can be attributed to the inability
of a firm to understand what customers want regarding product assortment, functionality,
availability, durability, and features. Once there is a mismatch between what an
organization offers and what customers want, such an organization will gradually lose its
position in that market. Also, other factors such as dynamic changes in the market
conditions, high fluctuation in the resources used in the production process, which
translates to process instability, a high rate of change in the customer demands can affect
the execution of the tasks and attainment of the objectives of production planning and
control according to (Jolanta, 2015).
In all, the competitiveness of an organization lies on its ability to handle some production
management issues which include; inventory control, production scheduling and control,
equipment selection and control, maintenance, size and location of plants, plant layout and
structure, quality and inspection, traffic and material handling and finally methods. The
gap created by the possible effect of production planning on organizational effectiveness
is what led to this study.

pg. 4
1.3 The objective of the study
The objective of this study is to examine the effect of production planning on organizational
effectiveness in the beverage industry. The specific objectives are to:
a. Investigate the role of demand forecasting in increasing the sales volume of beverage firms
operating in the South-East of Nigeria.
b. Evaluate the role of material requirement planning (MRP) in enhancing customers’
satisfaction of beverage firms’ operating in the South-East of Nigeria.
c. Examine the effect of demand forecasting on minimizing inventory cost of beverage firms’
d. Analyze the effect of material requirement planning (MRP) on minimizing inventory cost
of beverage firms’ operating in the South-East of Nigeria.
1.4 Research Questions
The following research questions guide the study.
a. To what extent does demand forecasting increase the sales volume of beverage firms
operating in the South-East of Nigeria?
b. How does material requirement planning (MRP) enhance customers’ satisfaction of
beverage firms’ operating in the South-East of Nigeria?
c. To what extent does demand forecasting minimize inventory cost of beverage firms
operating in the South-East of Nigeria?
d. How does material requirement planning (MRP) minimize inventory cost of beverage
firms’ operating in the South-East of Nigeria?
1.5 Research Hypotheses
H01: Demand forecasting does not significantly increase the sales volume of beverage firms
H02: Material requirement planning (MRP) does not significantly enhance customers’ satisfaction
of beverage firms’ operating in the South-East of Nigeria.
H03: Demand forecasting does not significantly minimize inventory cost of beverage firms’
H04: Material requirement planning does not significantly minimize inventory cost of beverage
firms’ operating in the South-East of Nigeria.

pg. 5
1.6 Scope of the study
The content scope of the study is on demand forecasting, material requirement planning,
sales volume, customers satisfaction and inventory cost. The unit scope comprised of
management of the Nigeria Brewery Plc and Hero Beer Plc. The geographical scope of the
study is in Aba, Abia State, and Anambra State all in South-East Nigeria.
1.7 Significance of the study
The study will be beneficial to the following people:
To the studied firms, the findings of the study will help them to assess their production
planning techniques and efforts in a bid to ascertain if it yields the desired benefit. Such
will enable them to tune remedial or corrective actions for better efficiency and
productivity. Academically, this study will add to existing literature for further researchers
in the area of production planning.
2. Review of Related Literature
2.1 Conceptual Review
2.1. 1 The Meaning of Production and Production Planning
Production implies the creation of goods/services to satisfy human needs. Production is the
process of transformation of inputs (resources), into outputs (good/services) using physical
resources (https://docobook.com). It is also the process of transforming raw materials or
purchased components/semi-finished products into finished products for sale.
Production Planning is a managerial function which is mainly concerned with the following
vital issues Raphael and Chikwendu (2011):
a) What production facilities are required?
b) How can these production facilities be laid down in the space available for
production? and
c) How should production facilities be used to produce the desired products at the
desired rate of production?
Production planning is concerned with two main aspects: (i) routing or planning work tasks
(ii) layout or spatial relationship between the resources (http//.mech.at.ua/PPC-NOTES).

pg. 6
Production planning is dynamic and always remains in a fluid state as plans may have to
be changed according to the changes in circumstances. Production planning cannot be
effective without control. Control in production is a mechanism to monitor the execution
of the plans. It has several essential functions (http//.mech.at.ua/PPC-NOTES):
i) Making sure that production operations are started at planned places and planned
times,
ii) Observing progress of the operations and recording it accurately,
iii) Analyzing the recorded data with the plans and measuring the deviations,
iv) Taking immediate corrective actions to minimize the negative impact of
deviations from the plans and
v) Feeding back the recorded information to the planning section in order to
improve plans.
2.1.2 Objectives of Production Planning & Control
The objectives of PPC according to Raphael and Chikwendu (2011), include the following:
a. To deliver quality goods in the required quantities to the customer in the required
delivery schedule in order to achieve maximum customer satisfaction,
b. To ensure optimum utilization of resources/materials,
c. To minimize the production/manufacturing cycle time,
d. To maintain optimum inventory levels,
e. To schedule production facilities in an optimum manner,
f. To coordinate the activities of different departments relating to production to
achieve regular, steady and balanced flow of production,
g. To ensure confirmation of delivery commitments,
h. To ensure the production of quality products,
i. To keep the plant free from production bottleneck,
j. To ensure effective cost reduction and cost control.
k. To evaluate the performance of various shops & individuals,
l. To develop alternative plans in order to meet any emergency or contingency and
m. To maintain spare capacity to deal with rush orders.

pg. 7
2.1.3 Factors affecting PPC

The various factors which affect the production planning and control of an organization
include (https://docobook.com):
i) The interdependence of various operations involved in the transformation
process,
ii) The nature of the product and the quantity of the product,
iii) The nature and availability of various equipment and materials required for the
manufacturing process,
iv) The size of orders and the production run,
v) The nature and type of manufacturing system and
vi) The nature and type of manufacturing method adopted.
2.1.4 Demand forecasting as an Integral Part of Production Planning

According to Baffa & RakeshSarin (2002), when estimates of future conditions are made on a
systematic basis, the process is called forecasting and the figure or statement thus obtained is
defined as forecast. In a world where the future is not known with certainty, virtually every
business and economic decision rests upon a forecast of future conditions. Forecasting aims at
reducing the area of uncertainty that surrounds management decision-making
(http://mech.at.ua/PPC-NOTES.pdf) concerning costs, profit, sales, production, pricing, capital
investment, and so forth. If the future were known with certainty, forecasting would be
unnecessary. However, uncertainty does exist; future outcomes are rarely assured and, therefore,
an organized system of forecasting is necessary. In the views of Baffa & RakeshSarin (2002) cited
in http://mech.at.ua/PPC-NOTES.pdf, the following are the main functions of forecasting:
a. The creation of plans of action.
b. The general use of forecasting is to be found in monitoring the continuing progress of plans
based on forecasts.
c. The forecast provides a warning system of the critical factors to be monitored regularly
because they might drastically affect the performance of the plan.
Robert (2013) argued that for effective production planning, an organization must have a Demand
Forecasting System, typically administered by the company’s Marketing department. This system
prepares time-phased estimates of the unconstrained market potential (i.e., the potential sales at
current prices, if product availability is forthcoming) for each finished good. An essential input to
the Demand Forecasting System is the Order Board because it is crucial for two reasons: (1) Orders
to represent real demand; that portion of demand is known. Forecasting effort is required only for

pg. 8
the remaining portion of demand not yet realized. (2) It is valuable to track the forecast errors for
the various products. Demands for some products may be much easier to forecast than for others.
Characterizing the relative uncertainty of demand for various products is helpful information for
Production Planning. Ideally, the Quotation System should record all customer requests for quotes
as evidence of the existence of market demand, and furnish such information to the Forecasting
System to track forecast errors. Short of that, the record of booked orders provides documentation
of a subset of the realized demand.
A second business function of the Demand Forecasting System is to document Build Rules for
each product electronically. Build Rules specify how far through the supply-chain network that
production or procurement may be progressed without customer commitments in hand to purchase
the finished goods resulting from that production or procurement. To implement Build Rules, each
product or intermediate product in the supply chain is declared to be either “build to order” or
‘build to plan.’ Build to Order means that production or procurement may not start until a customer
commitment is at hand. While “build to plan” indicates that production or procurement may
proceed in response to the demand forecast, regardless of whether or not customer orders fulfilling
that forecast has been received. This specification is internally consistent in the sense that a build-
to-plan product is never a follower of a build-to-order product in the product structure. The Build
Rules also may specify a minimum inventory level for a build-to-plan intermediate product whose
followers in the product structure are build-to-order products. The following inventory of
completed build to-plan products should be the financial responsibility of the Marketing
Department, not the Manufacturing Department.
A third business function of the Demand Forecasting System is to document prioritization of the
various demands. The purpose of the priority scheme is to guide decisions to delay or defer
fulfillment of demands when status and capabilities render it impossible to meet all demands on
time.
1.2.5 Material requirements planning (MRP)
MRP is a production planning, scheduling, and inventory control system used to manage
manufacturing processes (https://en.wikipedia.org. Retrieved 2018). Most MRP systems are
software-based, but it is possible to conduct MRP by hand as well. An MRP system is intended to
simultaneously meet three objectives (http://bakerpedia.com and http://www1.ximb.ac.in):
a. Ensure materials are available for production and products are available for delivery to
customers.

pg. 9
b. Maintain the lowest possible material and product levels in the store
c. Plan manufacturing activities, delivery schedules and purchasing activities.
The scope of MRP in manufacturing includes dependent demand and independent demand.
Independent demand is demand originating outside the plant or production system, while
dependent demand is demand for components (https://en.wikipedia.org. Retrieved 2018). The
bill of materials (BOM) specifies the relationship between the end product (independent demand)
and the components (dependent demand). MRP takes as input the information contained in the
BOM. The primary functions of an MRP system include inventory control, bill of material
processing, and easy scheduling.
MRP helps organizations to maintain low inventory levels. It is used to plan to manufacture,
purchasing and delivering activities. Manufacturing organizations, whatever their products, face
the same daily practical problem - that customers want products to be available in a shorter time
than it takes to make them. The above means that some level of planning is required. Companies
need to control the types and quantities of materials they purchase, plan which products are to be
produced and in what quantities and ensure that they can meet current and future customer demand,
all at the lowest possible cost. Making a bad decision in any of these areas will make the company
lose money. A few examples are given below:
 If a company purchases insufficient quantities of an item used in manufacturing (or the

wrong item), it may be unable to meet contractual obligations to supply products on time.
 If a company purchases excessive quantities of an item, money is wasted - the excess
quantity ties up cash while it remains as the stock that might never be used at all.
 Beginning production of an order at the wrong time can cause customer deadlines to be
missed.
MRP is a tool to deal with these problems. It provides answers to several questions:
a. What items are required?

b. How many are required?
c. When are they required?
As explained by Daft (2001), organizational effectiveness can be evaluated by looking at how an

organization is attaining its multiple goals, both official and operative. In general, it is managers
who define the factors through which to measure the effectiveness of an organization. While many
organizations still use traditional effectiveness indicators such as productivity, many top managers

pg. 10
in leading organizations are now using new factors such as customer satisfaction or employees’
happiness.
This study assumed that there exists a relationship between production planning and organizational
effectiveness. The above assumption is on the basis that production planning can help an
organization to reduce inventory cost through having a safety stock and reducing excessive work-
in-process. Furthermore, production planning ensurs that human resources are utilized to their full
potential, improve on-time deliveries in meeting customers demand, enhance customer
satisfaction, enhances sales and finally makes sure that there is optimization of equipment usage.
This assumption led to the construction of a research model as depicted in fig 1.
Fig. 1 Conceptual Operational Frame Work:
Independent Variables Dependent Variables
Organizational
Effectiveness
Production Planning
(PP)
Sales Volume
Demand Forecasting
Customer Satisfaction
Material Requirement
Planning
Inventory Cost
Minimization

pg. 11
2.2 Theoretical Review

This study uses the Theory of Constraints in explaining factors that might hinder the adequate flow
of production and in turn, affects organizational effectiveness. The theory of constraints (TOC) is
a management paradigm that views any manageable system as being limited in achieving more of
its goals by a (https://en.wikipedia.org/wiki/Theory_of_constraints. Retrieved 2018) a
minimal number of constraints. There is always at least one constraint, and TOC uses a focusing
process to identify the constraint and restructure the rest of the organization around it. TOC adopts
the common idiom "a chain is no stronger than its weakest link", meaning that processes,
organizations, etc., are vulnerable because the weakest person or part can always damage or break
them or at least adversely affect the outcome. The theory of constraints (TOC) is an overall
management philosophy introduced by Eliyahu M. Goldratt in his 1984 book titled The Goal that
is geared to help organizations continually achieve their goals.
The underlying premise of the theory of constraints is that organizations can be measured and
controlled by variations on three measures: throughput, operational expense, and inventory.
Inventory is all the money that the system has invested in purchasing things which it intends to
sell. The operational expense is all the money the system spends in order to turn inventory into
throughput. Throughput is the rate at which the system generates money through sales. Before the
goal itself can be reached, necessary conditions must first be met. These typically include safety,
quality, legal obligations (Rose & Robert, 2016). For most businesses, the goal itself is to make
money. However, for many organizations and non-profit businesses, making money is a necessary
condition for pursuing the goal. Whether it is the goal or a necessary condition, understanding how
to make sound financial decisions based on throughput, inventory, (Goldratt 2004) and operating
expense is a critical requirement.
Theory of constraints is based on the premise that the rate of goal achievement by a goal-oriented
system (i.e., the system's throughput) is limited by at least one constraint. The argument by reductio
ad absurdum is as follows (https://en.wikipedia.org/wiki/Theory_of_constraints. Retrieved
2018): If nothing was preventing a system from achieving higher throughput (i.e., more goal units
in a unit of time), its throughput would be infinite which is impossible in a real-life system. Only
by increasing flow through the constraint can overall throughput be increased.
The goal of a commercial organization is: "Make more money now and in the future" and its
measurements are given by throughput accounting as throughput, inventory, and operating
expenses. The five focusing steps aim to ensure ongoing improvement efforts are centered on the
organization's constraint(s). In the TOC literature, this is referred to as the process of ongoing

pg. 12
improvement (POOGI). These focusing steps are (http://www.tocsa.co.za) the critical steps to
developing the specific application mentioned below.
A constraint is anything that prevents the system from achieving its goal. There are many ways
that constraints can show up, but a core principle within TOC is that there are not tens or hundreds
of constraints. There is at least one, but at most only a few in any given system. Constraints can
be internal or external to the system. An internal constraint is in evidence when the market
demands more from the system than it can deliver. If this is the case, then the focus of the
organization should be on discovering that constraint and following the five focusing steps to open
it up (and potentially remove it). An external constraint exists when the system can produce more
than the market will bear. If this is the case, then the organization should focus on mechanisms to
create more demand for its products or services
(https://en.wikipedia.org/wiki/Theory_of_constraints. Retrieved 2018).
Types of (internal) constraints
a) Equipment: The way equipment is currently used limits the ability of the system to
produce more salable goods/services.
b) People: Lack of skilled people limits the system. Mental models held by people can cause
behavior that becomes a constraint.
c) Policy: A written or unwritten policy prevents the system from making more.
The concept of the constraint in Theory of Constraints is analogous to but differs from the
constraint that shows up in mathematical optimization. In TOC, the constraint is used as a focusing
mechanism for management of the system. In optimization, the constraint is written into the
mathematical expressions to limit the scope of the solution (X can be no greater than 5)
(https://en.wikipedia.org/wiki/Theory_of_constraints. Retrieved 2018).
In applying the theory, production planning and organizational effectiveness can be hindered by
factors which include: a shortage of inventory, poor forecasting, poor handling of materials and
equipment, unskilled personnel, poor scheduling, ineffective on-time delivery, etc.
2.3 Empirical Review

The relevance of this study is based on the following empirical studies:
In the study of Umoh, Harcourt, & Amah (2013): Production Planning and Corporate Productivity
Performance in the Nigerian Manufacturing Industry, the study investigated the relationship

pg. 13
between Production Planning and Corporate Productivity Performance of the Nigerian

manufacturing industry. The study measured Corporate Productivity Performance in the areas of
cost minimization, enhanced equity capital and growth. Three hypotheses were formulated, and
the questionnaire was distributed to eighty respondents in the eighty sampled manufacturing firms
from the one hundred in the industry, quoted in the Stock Exchange. Sixty-two copies of the
questionnaire were retrieved. These with the financial statements of the firms for five years were
used for the analysis. From its findings, the study revealed that production planning has significant
impacts on operational efficiency, enhanced equity capital, and growth of the Nigerian
manufacturing industry. The finding implies that production planning significantly affects the
Corporate Productivity Performance of firms. Based on the findings, the study recommended
among others, that the Nigerian manufacturing industry should review their production planning
concepts and implementation, in order to restore the industry as the base of all development.
In another empirical study by Ikon, and Nwankwo (2016) on Production planning and profitability
of selected manufacturing firms in Nigeria. The study used Flour Mill of Nigeria Plc, Dangote
Flour Mill Plc, and Honeywell Flour Mill Plc as a case study. The study reviewed that Production
Planning is essential in providing better and more economic goods to customers at a lower
investment. According to the study, inventory shortage as a result of stock out an unexpected
increase in demand, supply challenge associated with inadequate capacity installation of machines,
inferior technology, poor capacity utilization, inability to meet budgetary target as a result of
change in demand and supply variable and poor demand forecasting are established as the problem
of the study. Data collected for the study were based on Secondary information. Data obtained
were analyzed using Ordinary Least Square (OLS) technique by the use of time series. The finding
of the study shows that the estimated coefficient of the constant term is statistically significant at
better than 0.1 percent for Dangote Flour Mill Plcand Honeywell Flour Mill Plc and statistically
significant at 0.6 percent for Flour Mill of Nigeria Plc. This implies that an increase in turnover
(sales) lead to a subsequent increase in inventory which in turn increases the level of production.
The increase in turnover subsequently increases profitability in Dangote Flour Mill Plc and
Honeywell Flour Mill Plc.
2.4 Gap fills in the Literature

Looking at the various empirical works reviewed by the study, none looked on how production
planning would affect/improve the effectiveness indicators (sales volume, inventory cost
minimization, and customer satisfaction) raised by this study in the beverage industry. It is based
on the above that this study is carried out to fill such lacunas.

pg. 14
3. Research Methodology
3.1 Research Design
The study used a descriptive design. Descriptive research is a process of collecting data in order
to answer questions concerning the current status of the subjects in the study. This type of research
best describes the way things are
3.2 Population of Study
Population studies are more representative because everyone has an equal chance to be included
in the final sample that is drawn. The population of interest in this study comprised of all the senior
staff working in Nigeria breweries and Hero Beer all in South-East Nigeria. Based on the
information gotten from the Human resource department of respective firms’, Nigeria Brewery
has a population of Two Thundered (200) while that of Hero Beer is Ninety Eight (98)
3.3 Sample Size Determination
Sampling is a process of selecting a given number or any portion of that population to obtain
information for generalization about the large population (Nwabuokei, 2001). Sampling
population is used to avoid possible errors in dealing with the population.
The population size was narrowed down using Yaro Yamane formula in determining the sample
size. The statistical formula is:
n= N
1+N (e)2
Where:
n= sample size
N= number of the item in the population.
e= sample error or level of significance which is 5%
Therefore, n can be determined thus:

pg. 15
Nigeria Breweries Plc Hero Bee

n1= 200 n2 = 98
1 + 200(0.05)2 1 + 98 (0.05)2
n1 = 200 n2 = 98
1 + 200(0.0025) 1 + 98(0.0025)
n1 = 200 n3 = 98
1+0.5 1+ 0.245
n1 = 200 n2 = 98
1.5 1.245
n1 =133.3 n2 = 78.7
TOTAL sample size

n1 + n2 = 133+79=212
3.4 Sampling Procedure

Two forms of sampling techniques exist – probability and non-probability (Saunders, 2009). The
probability sampling gives all members of the population an equal opportunity of being
represented in the sample, whereas the non-probability also do not give equal opportunity to all
members of the population to be represented in the sample. Because of the nature of the
respondents, the non-probability convenience sampling method was used for the study. The reason
for using convenience is because it is not all the staff that can supply information as it regards to
production planning. Based on that, reliable information needs to come from those working in the
production section, marketing, finance, R&D, purchase, maintenance.
3.5 Sources of data
The study made use of both primary and secondary data. The primary data is mainly a
questionnaire and interview. While that the secondary data is from published journals and articles.
3.7 Validity of the Research Instrument

For validation, the questionnaires were distributed to experts in the field of management discipline
for their contributions and vetting. In achieving content validity, the study included in
questionnaire variety of questions on the knowledge on the knowledge the companies’ staff about

pg. 16
production planning and its effect on organizational effectiveness. Questions were based on
information gathered during the literature review to ensure that they were representative of what
respondents should know. Content validity was further ensured by consistency in administering
the questionnaires. All questionnaires were distributed to respondents by the researchers
personally. Questions were formulated in simple language for clarity and ease of understanding.
2.8 Reliability of Research Instrument

In order guarantee the consistency of the result generated from this study, a pilot test was first
conducted with a separate group who is not but possesses similar characteristics with the
respondents. The Spearman rank correlation coefficient (r) was used to calculate the reliability
index. A comparison of the result generated from the pilot test with the main study showed that
the instrument of the study is reliable.
3.9 Method of Data Analysis

The statistical tools for data analysis employed by the study are a simple percentage and the Non-
Parametric Chi-square test using the 20.0 version of the statistical package for social sciences
software (SPSS).
3.7 The Decision Rule

a. Accept Ho and reject H1 if P-value ≥ 0.05
b. Accept H1 and reject H0 if P-value ≤ 0.05
4. Presentation, Analysis, and Interpretation of Data

4.1.1 Analysis of Personal and Functional Characteristics
Table 1: Response Rate from Both Firms’

Respondents Total Returned Return Overall
sample numbers percentage respond
rate (%)
Nigeria Breweries 133 90 62.7
70.7%
Hero Beer 79 60 37.2
Total 212 150
Source: Field survey, 2018

pg. 17
From the table above, the study targeted sample size of 212 respondents from which 150
questionnaires were adequately filled and returned making a response rate of 70.7%. The reason
for the 70.7% response was because the study targeted crucial only informant of the companies.
Table 2: Response Rate based on Department
Department Nigeria Hero Total Response rate

Brewery Beer
Maintenance 7 8 15
Production 35 25 60
Purchase 20 10 30
Top Management 13 12 25
Finance 6 4 10
Others 5 5 10
Total 86 64 150
Table 3 Sex of respondents
Sex No. Respondents Percentage (%)

Male 120 80
Female 30 20
Total 150 100
The workforce of both firms is made of 120 males representing 80% and 30 females representing
20%. Though the gap is much, it is traceable to the nature of the job.
Test of Hypotheses
4.2.1 Effect of Demand Forecasting on Organizational Sales Volume (N=150)
Hypotheses one
Questions 11, 12, 13, 14 and 15 were designed to test hypothesis one that states that H01: Demand
forecasting does not significantly increase the sales volume of beverage firms operating in the

pg. 18
South-East of Nigeria. The Chi-square was applied as shown in Table 6 using Table 5 grouping
and Table 7 is the chi-square analysis for hypothesis one.
Table 6 Effect of Demand Forecasting on Sales Volume (N=150)
S/N DEMAND FORECASTING AND INCREASE IN SALES Mean Std.

VOLUME deviation
1 Forecasting helps an organization in knowing how many products
3.7000 1.84064
are needed to be produced during a specified period.
2 Monthly sales target of your company is met with the help of the
3.5333 1.83852
sales forecast.
3 Cost of sales is minimized with the help of demand forecasting. 3.8800 1.23992
4 The customer base of your firm has been improved with the
3.9367 1.14763
demand forecasting.
5 Forecasting helps in increasing sales and profit. 4.1533 .36091
Source: field survey, 2018 SPSS.
Table 7 Frequencies Demand Forecasting

Observed N Expected N Residual
Disagree 17 60.0 -43.0
Strongly Disagree 19 60.0 -41.0
Undecided 25 60.0 -35.0
Agree 88 60.0 28.0
Strongly agree 151 60.0 91.0
Total 300
SPSS Output
Table 8 Chi-Square Test Statistics

Demand Forecasting on Sales Volume
Chi-Square 230.333a
Df 4
Asymp. Sig. .000
SPSS OUTPUT
Remarks: Calculated chi-value (230.1) is greater than the table value (9.48) at alpha (confidence)
level of 0.05 and degree of freedom 4. The null hypothesis that states: Demand forecasting do not

pg. 19
significantly increase the sales volume of beverage firms operating in the South-East of Nigeria is
therefore rejected.
4.2.2 Effect of Material Requirement Planning (MRP) on Customer Satisfaction (N=150)

Hypothesis Two
Questions 6,7,8,9 and ten on the questionnaire were designed to test this hypothesis which states
that H02: Material requirement planning (MRP) does not significantly enhance customers’
satisfaction of beverage firms’ operating in the South-East of Nigeria.
Table 9 is a summary of the mean and standard deviation; table 10 highlighted the grouping of the
questions and Table 11 is the Chi-square analysis.
Table 9 Effect Materials Requirement Planning (MRP) on Customers’ Satisfaction (N=150)
S/N Materials Requirement Planning (MRP) AND Enhance Mean Std.

Customers’ Satisfaction deviation
1 MRP helps an organization in meeting customers’ needs which is
4.7733 .75215
a priority for every business organization.
2 MRP enhances customers’ loyalty and retentions 4.6867 .82035
3 MRP leads to on-time delivery company’s product to the market
4.5600 .99987
thereby, reducing customers’ complain.
4 On-time delivery of product to the market through MRP enhances
4.6800 .72649
customers’ satisfaction.
5 Customer’s ill-will due to non-availability of a company’s product
4.2600 .44010
in the market is minimized via MRP.
Source: field survey, 2018 SPSS.
Table 10 Chi-Square Test Statistics

Material Requirement Planning on Customer Satisfaction
Chi-Square 318.133a
df 4
Asymp. Sig. .000
SPSS OUTPUT

pg. 20
Table 11 Frequencies Material Requirement Planning

Options Observed N Expected N Residual
Disagree 5 30.0 -25.0
Strongly Disagree 5 30.0 -25.0
Undecided 7 30.0 -23.0
Agree 16 30.0 -14.0
Total 150
SPSS OUTPUT
Remarks: Calculated chi-value (318.133) is far greater than the table value (9.48) at alpha
(confidence) level of 0.05 and degree of freedom 4. The null hypothesis states: Material
Requirement Planning (MRP) does not significantly enhance customers’ satisfaction of beverage
firms operating in the South-East of Nigeria is therefore rejected.
4.2.3 Effect of demand forecasting on Inventory Cost Minimization (N=150)

Hypothesis Three
Questions 16, 17, 18, 19, and 20 on the questionnaire were designed to test hypothesis three which
states that: H03: Demand forecasting does not significantly minimize inventory cost of beverage
firms’ operating in the South-East of Nigeria.
Table 12 shows the summary of the mean and standard deviation while table 13 is the grouping
used to evaluate the Chi-square of Table 14 for the test.
Table 12 Effect of Demand Forecasting on Inventory Cost (N=150)
S/N Demand Forecasting AND Inventory Cost Minimization Mean Std.

deviation
1 Demand forecasting enables an organization to know when to
3.8000 1.51945
place an order for raw materials.
2 Demand forecasting helps an organization to know how much
3.9333 .96702
to order.
3 Demand forecasting helps in preventing stock-out which could
4.2533 1.08799
lead to loss of customers.
4 Demand forecasting helps in offsetting uncertainties in
3.9600 .69398
customer’s demand.
5 Demand forecasting helps in balancing demand and supply. 4.0933 .83824
Source: field survey, 2018

pg. 21
Table 13 Frequencies Demand Forecasting on Inventory Cos Minimization

Disagree 7 30.0 -23.0
Strongly disagree 8 30.0 -22.0
Undecided 5 30.0 -25.0
Agree 14 30.0 -16.0
Total 150
SPSS OUTPUT
Table 14 Chi-square Test Statistics
Demand Forecasting on inventory cost
Chi-Square 309.667a
Df 4
Asymp. Sig. .000
SPSS OUTPUT
Remarks: The null hypothesis that states ‘Demand forecasting does not significantly minimize
inventory cost of beverage firms’ operating in the South-East of Nigeria’ rejected because the
calculated chi-value (309.667) was far greater than the table value (9.48) at the alpha level of 0.05
and with a degree of freedom 4.
4.2.4 Effect of Material Requirement Planning (MRP) on Inventory Cost (N=150)

Hypothesis Four
Questions 1,2, 3, 4, and five on the questionnaire were designed to test hypothesis four which
states that Material requirement planning does not significantly minimize inventory cost of
beverage firms’ operating in the South-East of Nigeria. Table 16 is the grouping used, and the Chi-
square analysis is summarized in Table 17.

pg. 22
Table 15 Effect of Material Requirement Planning on Inventory Cost (N=150)
S/N Material Requirement Planning (MRP) AND Inventory Cost Mean Std.
Minimization deviation
1 MRP enables an organization to minimize inventory holding cost. 4.1600 .65620
2 MRP helps an organization to reduce excessive work-in-progress. 4.3133 1.04359
3 MRP helps in controlling inventory carrying the cost 4.0933 1.07032
4 MRP helps in controlling shortage cost 3.2467 1.40439
5 MRP helps in controlling cost associated with deterioration. 3.9133 1.03585
Source: field survey, 2018
Table 16 Frequencies of Material Requirement Planning on Inventory cost

Disagree 12 30.0 -18.0
Strongly disagree 21 30.0 -9.0
Undecided 20 30.0 -10.0
Agree 15 30.0 -15.0
Total 150
17 Chi-square Test Statistics

Material Requirement Planning
Chi-Square 114.467a
Df 4
Asymp. Sig. .000
SPSS OUTPUT
Remarks: The calculated Chi-value (114.467) is far more significant than the table value (9.48)
at an alpha level of 0.05 and degree of freedom 4. The null hypothesis Material requirement
planning does not significantly minimize inventory cost of beverage firms’ operating in the South-
East of Nigeria is therefore invalid.

pg. 23
4.3 Discussion of Findings on Hypotheses

Four hypotheses postulated for this study were subjected to statistical analysis using inferential
analysis (Chi-square via SPSS). The conclusions drawn varied according to initial assumptions
and conditions to which the hypotheses were subjected. The following findings were observed
along with the conclusion drawn.
4.3.1 Demand Forecasting and Sales Volume
In hypothesis one, the null hypothesis which states ‘Demand forecasting does not significantly
increase the sales volume of beverage firms operating in the South-East of Nigeria’ was rejected
on the ground that Ho1 is less than the level significance (0.000 < 0.005). The rejection implies
that both firms’ business decisions on customer demands are not based on a mere guess, but rather
on careful analysis. It also means that forecasting has helped both organizations in knowing how
many products are needed to be produced during a specified period, which will result in increased
sales, market share, etc. The study found out that both firms’ do consider the competitive nature
and changes in the market because in festive periods, there will be high demand, and through
forecasting, the organizations will then be strategically positioned to meet those demands at a
profit.
4.3.1 Material Requirement Planning (MRP) Customer Satisfaction

From hypothesis two, the result shows that customers’ satisfaction cannot be achieved without
proper production planning via material requirement planning (MRP). As a result of that, the null
hypothesis was also rejected on the ground that Asymp. Sig (0.000) is less than the significance
figure of 5% (0.000 < 0.005). The implication is that both firms’ are committed to meeting
customers’ satisfaction. The study found out the possible reason for customer satisfaction to
include; product quality at a fair price, on-time delivery of the products to the market, and low
complain from customers’. The study further found out that a well-implemented requirement
planning (MRP), will enable an organization to know what customers’ want, how they want it, and
when they want it.
4.3.2 Demand Forecasting and Inventory Cost minimization

Analysis of hypothesis three showed that minimizing inventory costs cannot be achieved without
adequate production planning of inventory. The rejection of the null hypothesis implies that
inventory costs such as: inventory holding cost (deterioration cost, security cost, pilferage cost),
shortage cost (cost due to lots of sales or lost goodwill of customer, and idle production time arising
from the delay in receiving materials ordered), salvage cost (goods sold at a lower price due to
deterioration), and purchase cost are checkmated always. The study also found out that there are
likely factors from the business environment that can affect the inventory cost of an organization

pg. 24
which includes; government policy as regards to importation of raw materials, interest rates, and
exchange rates to mention but a few. With a sound and implemented forecast, such challenges can
be curtailed.
4.3.3 Material Requirement Planning and Inventory Cost minimization
The result of hypothesis four cannot be ignored as it shows that the need for material requirement
planning is sacrosanct for organizational competitiveness regarding cost minimization. For
example, if a company purchases insufficient quantities for, (or the wrong item), it may be unable
to meet contractual obligations to supply products on time. If a company purchases an excessive
quantity of an item, money is wasted - the excess quantity ties up cash while it remains as a stock
that might never be used at all. The study found that the above three challenges faced by firms’
can manage with material requirement planning (MRP) regarding helping an organization in
knowing; what items are required, how many are required and when are they required.
The study findings are supported by the findings of Umoh, Harcourt, & Amah (2013) who
investigated the effect of Production Planning and Corporate Productivity Performance in the
Nigerian Manufacturing Industry. Their findings revealed that production planning has significant
impacts on operational efficiency, enhanced equity capital, and growth of the Nigerian
manufacturing industry.
Also, the findings of the study are in agreement with the study of Ikon, and Nwankwo (2016) on
Production planning and profitability of selected manufacturing firms in Nigeria. Their findings
revealed that increase in turnover (sales) lead to a subsequent increase in inventory which in turn
increases the level of production and that an increase in turnover subsequently increases
profitability.
5. Conclusion and Recommendations

This study has investigated the effect of production planning on organizational effectiveness. The
significant constraints in the successful attainment of remarkable organizational output have been
the inability to properly plan before embarking on production thereby resulting to shortage or
excess of inventory, poor handling of materials and equipment, unskilled personnel, poor
scheduling, ineffective on-time delivery of products to customers’ as at when due.
Looking at the importance of demand forecasting, business decisions on customer demands cannot
be based on a mere guess, but rather on a careful analysis. It also means that forecasting has really
helped both organizations in knowing how many products are needed to be produced during a
specified time period. That has resulted in an increase in sales, market share, etc. Firms’ must
consider the competitive nature and changes in their respective industries, because in festive

pg. 25
periods, there will be high demand, and through forecasting, the organizations will be strategically
positioned to meet those demands at a profit.
Furthermore, the importance of material requirement planning (MRP) to customers’ satisfaction is
sacrosanct to organization effectiveness. We conclude that a well-implemented requirement
planning (MRP) will enable an organization to know what customers’ want, how they want it, and
when they want it.
Based on these findings, the following recommendations were suggested;
i. Business decisions on customers’ demand should not base on a mere guess, preferably on
a care analysis. It then means that there need for demand forecasting for all firms especially
for corporate that their demands are seasonal. The adoption such management technique
(demand forecasting), will help organizations in knowing how many products are needed
to be produced during a specified period, which will result in increased sales, market share,
etc.
ii. Customers’ satisfaction cannot be achieved without proper production planning via
material requirement planning (MRP). For an organization to be committed to meeting
customers’ satisfaction, such an organization must be ready to implement material
requirement planning (MRP) this will enable them in knowing what their customers’ want,
how they want it, and when they want it.
iii. Minimizing inventory costs cannot be achieved without adequate production planning of
inventory. Inventory holding cost (deterioration cost, security cost, pilferage cost), shortage
cost (cost due to lots of sales or lost goodwill of customer, and idle production time arising
from the delay in receiving materials ordered), salvage cost (goods sold at a lower price
due to deterioration), can be curtailed with the help of demand forecasting and material
requirement planning .

pg. 26
References
Baffa & RakeshSarin, (2002). Modern Production / Operations Management, John Wiley
& Sons 8th Edition.
Bradley James Bryant (2017). Production Planning Steps Bizfluent.
https://bizfluent.com/way-5305043-production-planning-steps.html.
G.I. Umoh, Ify Harcourt Wokocha, Edwinah Amah (2013): Production Planning and
Corporate Productivity Performance in the Nigerian Manufacturing Industry. IOSR
Journal of Business and Management (IOSR-JBM). www.iosrjournals.org.
Ikon. M. A; and Nwankwo, C. N. (2016) Production Planning and Profitability of selected
Manufacturing Firms in Nigeria. International Journal of Business and Management
Review Vol.4, No.1, pp.11-32.
Leachman Robert C (2013): Industrial Engineering Design of Production Planning
Systems for the Semiconductor Industry. Department of Industrial Engineering and
Operations Research University of California Berkeley.
Nwabuokei (2001) Introduction to social Research: Quantitative and Qualitative Research
Aba, Sage Publication.
Richard Daft (2000), Management. The Dryden Press Harcourt Brace College Publishers.
Raphael and Chikwendu (2011), Production and material management: An integrated
system. Ambix Printers Nig, NO8 Lagos Street, Owerri. Imo State.
Rose Chepchumba Kosgei & Robert Gitau (2016). Effect of Supplier Relationship
Management on Organizational Performance.
http://iajournals.org/articles/iajpscm_v2_i2_134_148.pdf.
WEBSITES
Unit-ii unit-iii - mighty mechanical - Home page. http://mech.at.ua/PPC-NOTES.pdf
The scope of MRP in manufacturing Tutorial.
https://www.vskills.in/certification/tutorial/logistics-and-supply-chain
management/supply-chain-management-professional/scope-mrp-manufacturing/
Production Planning and Control - PDF Free Download. https://docobook.com/production-
planning-and-control64954cb738e597dc541b3c22087ae76120409.html
http://bakerpedia.com and http://www1.ximb.ac.in Retrieved 2018

pg. 27
Material requirements planning - Wikipedia.

https://en.wikipedia.org/wiki/Material_requirements_planning Retrieved 2018
Theory of constraints - Wikipedia. https://en.wikipedia.org/wiki/Theory_of_constraints
Retrieved 2018
EFFECT OF SUPPLIER RELATIONSHIP MANAGEMENT ON ....
http://iajournals.org/articles/iajpscm_v2_i2_134_148.pdf
The Theory of Constraints (TOC).
http://www.tocsa.co.za/Whoweare/TheTheoryofConstraints(TOC).aspx
http://www.sj-bss.com/wp-content/uploads/2019/01/PRODUCTION-PLANNING-AND-
ORGANIZATIONAL-EFFECTIVENESS-edited.pdf
http://www.sj-bss.com/production-planning-and-organizational-effectiveness-1okah-vincent-ph-d-
2nduka-oyediya-ijedinma-ph-d-3ugwuegbu-charles-onyemachi-m-sc/

pg. 28

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Strategic Journal of Business and Social Science (SJBSS) Volume 1, Dec 2018

Website: www.sj-bss.com Email: editor@sj-bss.com

PRODUCTION PLANNING AND ORGANIZATIONAL EFFECTIVENESS

Keywords: Production Planning, Organizational Effectiveness.

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1.1 Background of the Study

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1.3 The objective of the study

The following research questions guide the study.

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1.6 Scope of the study

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2.1.2 Objectives of Production Planning & Control

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2.1.3 Factors affecting PPC

2.1.4 Demand forecasting as an Integral Part of Production Planning

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1.2.5 Material requirements planning (MRP)

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 If a company purchases insufficient quantities of an item used in manufacturing (or the

a. What items are required?

As explained by Daft (2001), organizational effectiveness can be evaluated by looking at how an

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Fig. 1 Conceptual Operational Frame Work:

Independent Variables Dependent Variables

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2.2 Theoretical Review

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Types of (internal) constraints

2.3 Empirical Review

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between Production Planning and Corporate Productivity Performance of the Nigerian

2.4 Gap fills in the Literature

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Nigeria Breweries Plc Hero Bee

TOTAL sample size

3.4 Sampling Procedure

3.7 Validity of the Research Instrument

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2.8 Reliability of Research Instrument

3.9 Method of Data Analysis

3.7 The Decision Rule

4. Presentation, Analysis, and Interpretation of Data

Table 1: Response Rate from Both Firms’

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Table 2: Response Rate based on Department

Department Nigeria Hero Total Response rate

Table 3 Sex of respondents

Sex No. Respondents Percentage (%)

4.2.1 Effect of Demand Forecasting on Organizational Sales Volume (N=150)

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Table 6 Effect of Demand Forecasting on Sales Volume (N=150)

S/N DEMAND FORECASTING AND INCREASE IN SALES Mean Std.

Table 7 Frequencies Demand Forecasting

Table 8 Chi-Square Test Statistics

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4.2.2 Effect of Material Requirement Planning (MRP) on Customer Satisfaction (N=150)

Table 9 Effect Materials Requirement Planning (MRP) on Customers’ Satisfaction (N=150)

S/N Materials Requirement Planning (MRP) AND Enhance Mean Std.

Table 10 Chi-Square Test Statistics