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1.

INTRODUCTION

In this Field Study Report, I have discussed about the Theory of Productionandtheirapplicabilityinthebusinessorganization. For thispurposeIhavevisitedandstudiedthefunctionsrelatingtomy topicofAttockRefineryLimited.

2.

THEORYOFPRODUCTION 2.1 CONTENTS In the theory of production, we study about the productionanditsfourfactorswhicharecomplementary inthesensethattheircooperationorcombinationis essentialintheproductionprocess. Theseare(i)Land: its meaning, importance and peculiarities; (ii) Labour: meaning, peculiarities, factors determining its efficiency anddivision; (iii) Capital:itsmeaning andimportance, formation,importanceandsourcesofformation;and(iv) Enterprise:Entrepreneursrole,typesofenterprises. 2.2 IMPORTANCE Productionofgoodsrelatestosupplysideanddiscussthe relation between inputs and output. Production in economicsisgenerallyunderstoodasthetransformation ofinputsintooutputs.Theinputsarewhatafirmbuys (i.e., productive resources) and outputs (i.e., goods and servicesproduced)whatitsells.Ineconomicanalysiswe restricttheuseofthetermproductiontotheproduction ofgoodsonly,becauseintheproductionofgoodswecan preciselyspecifytheinputsandalsoidentifythequantity andqualityofoutputs.Afirmseekstoproducethatlevel ofoutputatwhichitsprofitsaremaximum.

I N T R O D U C T I O N

2.3

MEANINGOFPRODUCTION

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Productionissometimesdefinedasthecreationofutility orthecreationofwantsatisfyinggoodsandservices.But thisisnotascientificallycorrectdefinition.Toproducea thingwhichhasutilitybutnotvalueisnotproductionin the economic sense. One may spread the cult of Yoga andpromotethephysicalandspiritualwellbeingofones friendsathingofgreatutilitybutunlessonemakesit ones profession, his activity will not come under production.Production,therefore,shouldbedefined,not ascreationofutility,butcreation(oraddition)ofvalue. Productionessentiallymeanstransformationofonesetof goodsintoanother. 3. FACTORSOFPRODUCTION Productive resources requiredtoproduce a given product are calledfactorsofproductions. Theseproductiveresourcesmay berawmaterialsorservicesofthevariouscategoriesofworkers or of capitalists supplying capital or of entrepreneurs assemblingthefactorsandorganizingtheworkofproduction. They are now generally called inputs. The factors of productionhavebeentraditionallyclassifiedasLand,Labour, Capital and Organization (or Enterprise). But the modern economists prefer to talk in terms of anonymous productive services.Thefourfactorsarecomplementaryinthesensethat theircooperationorcombinationisessentialintheproduction process.NowIshallbrieflydealwiththemonebyone. 3.1 LAND:MEANINGANDIMPORTANCE The term land has been given a special meaning in Economics. InthewordsofMarshall,landmeansthe materials and the forces which nature gives freely for mansaid,inlandandwater,inairandlightandheat. Lands stand for all natural resources which yield an income or which have exchange value. It represents those natural resources which are useful and scarce,

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actuallyorpotentially. 3.2 PECULIARITIESOFLAND Landisnaturesgifttoman. Landisfixedinquantity. Landispermanent. Landslackmobilityinthegeographicalsense. Lands provide infinite variation of degrees of fertility andsituationsothatnotwopiecesoflandareexactly alike.

3.3

LABOUR:MEANINGOFLABOUR: In ordinary speech, labour means mass of unskilled labour. But in economics it is used in a wider sense. Any work, whether manual or mental, which is undertaken for a monetary consideration, is called labour Anyworkdoneforthesakeofpleasureorlove does not fall under labour in the economic sense. In Marshalls words, Any exertion of mind or body undergonepartyorwhollywithaviewtosomegoodother thanthepleasurederiveddirectlyfromthework,iscalled labour.

3.4

PECULIARITIESOFLABOUR Labour is manifestly different from the other factors of production. Itisalivingthing,andthatmakesallthe difference.Labourisnotonlyameansofproductionbut alsoanendofproduction. Labourisinseparablefromthelabourerhimself. Labour does not last. It is perishable i.e., has no reserveprice.

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Labourhasaveryweakbargainingpower. Changesinthepriceoflabourreactrathercuriously onitssupply. There can be no rapid adjustment of the supply of labourtodemandforit.

3.5

FACTORSDETERMININGEFFICIENCYOFLABOUR Thefollowingaresomeofthemainfactorswhichaffect labourefficiency: RacialqualitiesLabourefficiencylargelydependson heredity and the racial stock to which a worker belongs. ClimaticFactors. Acoolbracingclimateisconducive to hard work, whereas the tropical climate is enervating. Education.Efficiencyalsodependsoneducation,both generalandtechnical. Personalqualities.Aworkersefficiencyalsodepends upon his personal qualities, e.g. physique, mental alertness, intelligence, resourcefulness and initiative, etc. Industrial organization and equipment. The level of organizationandthenatureofequipmentsuppliedto theworkers,too,determinetheirefficiency. Factory Environments. Cramped and illventilated factories, situated in crowded and insanitary surroundings,arenotconducivetoefficiency. WorkingHours.Longhoursimpairlabourefficiency. Fair and prompt payment. A well paid worker is generallycontentedandputshisheartintothejob. Organization. An organized efforts is always more effective.

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SocialandPoliticalFactors. Socialsecurityschemes guaranteeingfreedomfromwantandfear,andwhich removethedreadofunemploymentthatalwayshangs overtheirhead.

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3.6

DIVISIONOFLABOUR Division of labour is an important characteristic of modern production. In fact, there is hardly any producing unit of a respectable size which does not organize production on the basis of division of labour. Division of labour is associated with efficiency of production. The division of labour is not a quaint practice of eighteenth century in factories; it is a fundamental principle of economic organization. When makingofanarticleissplitupintoseveralprocessesand eachprocessisentrustedtoaseparatesetofworkers,it iscalleddivisionoflabour. SIMPLE DIVISION OF LABOUR. This means division of society into major occupations, e.g. carpenters, blacksmiths, weavers,etc. Itmayalsobecalledfunctiondivision of labour. COMPLEX DIVISION OF LABOUR. In this case, no group of workersmakesacompletearticle.Instead,themakingof anarticleissplitupintoanumberofprocessesandsub processesandeachprocessorsubprocessiscarriedout byaseparategroupofpeople. Thisisdivisionoflabour proper. TERRITORIAL DIVISION OF LABOUR. This form of division of labour refers to certain localities, cities or towns specializingintheproductionofsomecommodity.Thisis alsocalledlocalizationofindustries.

3.7

CAPITAL Capitalreferstothatpartofamanswealthwhichisused in producing further wealth or which yields an income. But capital is not a primary or original factor of production. It is a produced means of production. Capital is manmade or is a produced agent of

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production. Itisperishableandmobile. Theamountof capital can be increased and income from capital is uniform.

3.8

IMPORTANCEOFCAPITAL Capital Plays a vital role in the modern productive system.Productionwithoutcapitalishardforusevento imagine. Naturecannotfurnishgoodsandmaterialsto manunless he has the tools and machines for mining, farming,foresting, fishing, etc. Becauseof its strategic role in raising productivity, capital occupies a central positionintheprocessofeconomicdevelopment.Infact, capital formation is the very core of economic development. Another important economic role ofcapital formation is thecreationofemploymentopportunitiesinthecountry. Capital formation creates employment at two stages. First,whenthecapitalisproducedsomeworkershaveto be employed to make capital goods like machinery, factories, dams, irrigation works, etc. Secondly, more menhavetobeemployedwhencapitalhastobeusedfor producingfurthergoods.

3.9

CAPITALFORMATION Capitalformationmeanstheincreaseinthestockofreal capital in a country. In other words, capital formation involvesmakingofmorecapitalgoodssuchasmachines, tools, factories, transport equipment, materials, electricity, etc. For making additions to the stock of capital,savingsandinvestmentsareessential.

3.10 IMPORTANCEANDSOURCESOFCAPITALFORMATION Capital accumulation is the very core of economic

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development. It may be a predominantly private enterprise system like the American, or a communistic economy like the China, economic development cannot take place without capital accumulation. No economic development is possible without the construction of irrigationworks,theproductionofagriculturaltoolsand implements,landreclamation,buildingofdams,bridges and factories with machines installed in them, roads, railways, and airports, ships and harbors all the produced mans of further production associated with highlevelsofproductivity.Itseemsunquestionablethat the insufficiency of capital accumulation is the most serious limiting factor in underdeveloped countries. In theviewofmanyeconomists,capitalformationoccupies the central and strategic position in the process of economicdevelopment. 3.11 ENTERPRISE The fourth factor of production is enterprise which is suppliedbytheentrepreneur. 3.12 ENTREPRENEURSROLE The role that the entrepreneur plays consists in co ordinatingandcorrelatingtheotherfactorsofproduction. He starts the work, organizes and supervises it. He undertakes toremunerateallthefactorsofproduction: topayrenttothelandlord,andpaystheminadvanceof thesaleofgoods. Theresidue,ifany,ishis. Nothing maybeleftafterhehadmadethenecessarypayments. Inthatcase,hisventurewillhavebeenmiscarried.Butit is also possible that he may be lucky to make a handsomeprofit.Whatevermaybetheoutcome,hemust be prepared to accept it. He thus takes the final responsibilityofthebusiness. 3.13 TYPESOFENTERPRISES.

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Therearecommonlythreetypesofenterprises: 3.14 SOLEPROPRIETORSHIP Asoleproprietorshipisownedandmanagedbyasingle man.healoneisresponsibleforthesuccessorfailureof his business. Sole proprietorship is generally found in smallbusinessandgenerallylargescaleproductionunits cannotbeestablishedassoleproprietorship.Thisformof businessissuitablewhereonlyonepersoncanmanage thewholeaffairsofit,butitisnotsuitable,wheremore managerial ability, more capital, and more supervision are required and where the optimum size of the productionunitsisratherlarge: 3.15 CHARACTERISTICS: Ownedandoperatedbyoneman. Necessarycapitalisprovidedbytheproprietor. Proprietor has unlimited for all the debts of his business. There is no legal formality to start a sole trading business. Theprofitsandlossesaresharedbyproprietoronly.

3.16 PARTNERSHIP With the expansion of business, it necessitates a combination of money, skill, and working experience. Thustwoormorepersonmayjoinhandswithaviewto carrying on a business together and share the profits derived therefrom, thereby avoiding the limitations of doingbusinessbyapersonalone,namelylackofcapital and inadequate managerial capabilities, etc. The partnershipisarelationshipbetweenpersonswhohave

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agreedtosharetheprofitsorlossesofabusinesscarried onbyalloranyofthemactingforall. Accordingtothe lawtherecannotbemorethan10partnersinabanking business and more than 20 partners in any other business. For those professions, however which are debarred from doing business in the form of a limited company, such as the physicians, attorneys and the accountants,themaximumlimitdoesnotapply. 3.17 CHARACTERISTICS: Limitedlifedissolvedduetovarietyofcausessuch as,death,insolvency,orbecomingofunsoundmindof apartner,thehappeningofaneventwhichmakesit unlawfulforthebusinesstobecarriedon,orpartner givinganoticeofhisintentiontoleavethefirm,etc. Unlimited liability jointly or severally liable to creditorsfordebts. Coownership of investment/property investment andpropertyarejointly. Partnership agreement arises out of an agreement betweenthepartners.

3.18 JOINTSTOCKCOMPANY(CORPORATION) Withtherapidgrowthoftrade,commerceandindustry, the size of business houses began to increase and the sole proprietorships and partnership found themselves unabletosupplyallthecapitalneeded.Therefore,anew formofbusinessorganizationcameintoexistencewhere public was invited to contribute capital. This form of businessisknownasJointStockCompany.InUSAand Canada,itisknownascorporation. 3.19 TypeofCompanies:

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Companylimitedbyshares,inwhichtheliabilityofits membersislimitedtotheextentoftheamountoftheir shares. There is two type of companies limited by shares(i)PrivateLimitedCompanywhichrestrictthe righttotransfershares,prohibitanyinvitationtothe public to subscribe for their shares and minimum number of their shareholders can be to while the maximum number can be 50. (ii) Public Limited Company those companies to whom none of the restrictionsofaprivatecompanyapply.Theminimum numberofshareholdersofthistypeofcompaniescan besevenwhilethereisnolimitedaboutthemaximum number. CompanylimitedbyGuaranteeisoneinwhicheach members gives a guarantee to contribute a specified sumtothecompanyintheeventofitsbeingwound up. Companiesinthisclassareusuallyassociations notforprofitmaking. Unlimited company is one in which the liability of a shareholders is unlimited as in an ordinary partnership.Ifthepartnersofafirmdoesnotwantto establish a company limited by shares and the number of its partners are going to increase to the maximum limit of 10 or 20, they can form an unlimitedcompany.

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4.

ANALYSIS OF THE ORGANIZATION IN LIGHT OF THE SUBJECTTOPIC 4.1 ORGANIZATION AttockRefineryLimitedwasincorporatedinPakistanas aprivatelimitedcompanyonNovember8,1978andwas converted into a public limited company on June 26, 1979.AttockRefineryLimitedisalsolistedonthethree stock exchanges of Pakistan and its shares are traded there.Thecompanyisprincipallyengagedinrefiningof crudeoil.AttockOilCompany,incorporatedinEngland, istheholdingcompanyofAttockRefineryLimited. The companyissituatedinMorgah,Rawalpindi.

4.2

BOARDOFDIRECTORS The Board of Directors of the company consists of one Chairmanandsevendirectors.

4.3

SHAREHOLDING: ThecapitalofthecompanyisdividedintosharesofRs. 10/eachandheldinthefollowingmanner: Shareholders JointStockCompanies InvestmentCompanies President,Pakistan InsuranceCompanies Individuals No. 6 2 1 2 392 Sharesheld 12,308,327 2,097,501 7,875,000 28,319 190,853 % 54.70 9.32 35.00 0.13 0.85

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Wecanseealsotheshareholdersdivisioninthefollowingpie chart.

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4.4

ORGANIZATIONALSTRUCTURE

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4.5

CAPITAL Thecompanyspaidupcapitalwasincreasedfrom Rs. 187.50 million to Rs. 225 million through capitalizationofanamountofRs.37.5million,out oftheprofitsofthecompanybywayofissueoffully paidbonussharestothemembersofthecompany in the proportion of one new share for every five shares held. The company has also in Reserves amounting to Rs. 272.08 million (235 million in 1997)

4.6

LAND

ThecompanyhasfreeholdlandofRs.2.2 million on which it has installed its plan and machinery and constructed office buildings, roads, parks, clubs,residences,etc.

4.7

LABOUR

There are total 608 number of workforce doing mental,physicalormanualjobsinthecompany.

4.8

DIVISIONOFLABOUR

The division of workforce in the company is as under:

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Executives ChiefExecutive Managers AssistantManagers ExecutiveOfficers/Officers Workers Grade1&2 General Worker, Gardener, Helper Peon,etc. Grade3&4 Blacksmiths Jr., Carpenter, Cook, Mechanic Jr., Mason, Welder, Fitter,DespatchRider,etc. Grade5 Blacksmith, Mate, Oil Movement Operative, Switch Board Operator, etc. Grade6 Armature Winder, Driver, Plant Attendant, Turbine Operator, Mechanic. Grade7&8 AssistantPlantOperator,Assistant Foreman, Assistant Supervisor, Surveyor. Grade9 Draughts man, Supervisor, Foreman, Plant Operator Incharge, ShiftEngineer.

34 1 5 5 23 574

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OfficeStaff: GradeC1 Clerk,TypistJr.etc. GradeC2 Patwari,Typist,etc. GradeC3 ClerkSr.,OfficeAssistant,etc. GradeC4 Asstt.Supervisor,Stenotypist GradeC5 Supervisor,Stenographer Grade6 SupervisorSr.,PersonalAssistant 4.9 PRODUCTION The four factors of this organization with co operation or combination is producing production inayearincomparisonwithpreviousyearinthe followingmanner:

PRODUCTION (M.Tonsinthousand) Product MotorSpirit GasOil Kerosene Asphalt 1998 320.0 210.0 98.0 81.0 1997 280.0 198.0 100.0 80.9

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FurnaceFuel/others

370.0

290.0

[Crudeoilconsumedthisyear1090(980in1997)]
Asphalt Kerosene Gas Oil Motor Spirit Furnace Fuel/others

400 350 300 250 200 150 100 50 0 1998 1997

5.

CONCLUSION The nameplate refining capacity of the company is 10,065,000barrels(1.330millionM.Tons)totalthroughput of the refinery during the year. The companys refining capacity continued to be under utilized due to non availability of indigenous crude oil. The entire indigenous crudeproductionfromtheNorthernRegionwasprocessedat theRefinery. At this scenario to conserve the foreign exchange, the company should utilize its full production capacity as we havesufficientcrudeoilinsouthernregion. Thecompanyisoverstaffedascomparedtostaffpositionin otherrefineries. Sothemanagementdecidednottorecruit workersforsometimeandforrightsizingtheylauncheda

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schemeofVoluntarilySeparationfromService. Therefore, at this stage the workers should involve themselvesinworkwithzeal,devotionandconfidence.

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