PRODUCTION MANAGEMENT

Introduction to production management

Production management. it refers to the process of effectively planning and regulating the
operations of the production part of the enterprise to ensure efficiency and effectiveness in the
transformation process of materials or inputs or is the process of planning for production and
ensuring that production plans are put into effective operation.
There are a number of production aspects that must be carefully considered which include the
following:
Below are some of the questions to guide your production management decisions:
1. The production processes
2. The concept of a product
3. Business premises and location
4. Raw materials and their acquisition
5. Technology and technical aspects of the production process (Choice of technology)
6. Labor requirements
7. The work place management
8. The plant lay out
9. Packaging
10. Utilities/ support services
11. Production costs
12. Quality control and management
13. Inventory management
14. Stages of product growth and development
15. Purchasing skills
16. Time management
The above aspects will help you to answer the following questions:
i. What kind of product will you make?
ii. Does the kind of product depend on customer wants?
iii. Does the kind of product depend on the skills you have or can hire?
iv. To what extent is quality important?
v. Does the quality depend upon raw materials?
vi. Does the quality depend upon men and/ or equipment?
vii. How will you control the quality of your product?
viii. How much should you spend for high quality?
ix. How much should you produce?
x. Does volume depend upon present market demand?
xi. How much inventory can you afford to carry?
xii. What equipment is required?
xiii. Is it cheaper to use equipment or labour? What mix of equipment and labor is most
economical?
xiv. How should lay out your plant?
xv. Will better lay out mean more production? Will a carefully planned plant layout increase
production
xvi. How can work methods be improved?
xvii. How much does it cost to produce the product at different production volumes?
xviii. What are the production costs for raw materials, labor and overhead?
xix. Is the selling price highly dependant on production costs?
xx. What price should you sell your product?

Type of product or service to be produced

A product is a good or service produced from the raw materials that is intended for sale. A
business can offer both goods and services

A service is a type of economic activity that is intangible, is not stored and does not result in
ownership. For example accounting, banking, cleaning, consultancy, education, insurance,
expertise, medical treatment etc

Capacity planning and design

Capacity planning and design focuses on the factors and operational ingredients needed to
produce the targeted number of units of a product or service
These factors include
i. Physical capacity needed
ii. The equipment and tools required
iii. The amount of labor demanded
iv. The time projected to produce the total number of products or services
v. The amount of raw materials and supplies needed
For example, consider the production of a table by a small manufacturer using basic hand tools.
Capacity assumptions might be as follows
Speed needed: a 6.1mx6.1m room
Equipment: saws, lather, tables, planes, chisels, harmers etc
Labor: one worker producing one table per day
Time: one table per day from his worker
Raw materials: wood, glue, nails, dowels, storage, materials handling, and support systems for
raw materials and finished products
NB. The management of production operations involves turning inputs into out puts to satisfy
customer tastes and preferences, needs and wants
Every business must find a way to convert inputs with added value, into something the customer
will buy the number of units/services to be produced by the business should be based on the
market share and nature of demand for the business product (s)
PRODUCTION PROCESS

1. Production process
This refers to the steps involved in the production of goods and services. Or it is the process
through which production inputs are transformed into finished goods and services. They are
activities done during the process of producing a particular product; such activities include
acquiring inputs and transforming them into outputs
Illustration of the production process

Environmental factors

In puts Transformation OUTPUT

Explanation of the elements
The inputs
These are factors of production that must be put in place in order to produce particular products
and they include, land, capital, labour or human resource information
Land
This is a source of raw materials used in the production process like minerals, agricultural
products, water etc
Capital
This consists of tools, machines, equipment, or already produced goods that are used to produce
other goods.
Labour (human resource)
These are human efforts used in the production process in terms of people with the required
skills
Information
This refers to the feedback about the input that is given to make sure that quality and cost
effectiveness at all stages is observed.
Time
This is the period within which the input is given to be transformed into output
FACTORS CONSIDERED WHEN SELECTING INPUTS
These include:
1. Quality of inputs. An entrepreneur should acquire inputs of a good quality in order to
produce good quality outputs or products.
2. Cost of the inputs. An entrepreneur should acquire inputs that are relatively cheap so as
to maximize profits, and charge a reasonable charge for his or her outputs.
3. Source or availability of inputs. An entrepreneur should choose a source of inputs that
is reliable and available at all times.
4. Lead time. This refers to how long it takes to receive the inputs ordered for.
TRANSFORMATION PROCESS
This is the process of changing inputs or raw materials into finished goods or services that are
more valuable than the inputs like producing maize flour out of maize, producing clothe out of
cotton.
The output (Products)
These are final goods and services produced from the raw materials used by the final consumer
e.g. sugar, clothes, maize flour, tea from tea leaves, wheat flour from wheat. etc. a product is a
good or service produced from raw materials intended for sale
A service is an intangible benefit with a monetary value that satisfies the needs of customers
while a good is an intangible item that satisfies the needs customers

Factors considered when designing a product

1. Customer’s needs. The manufacturer or entrepreneur should design the product in response
to the customer’s needs in terms of shape, colour, design and packaging materials.
2. The products of competitors and competing products. The entrepreneur should decide
where his or her products will be liked or better than those of the competitors.
3. Availability of raw materials. The entrepreneur or manufacturer should consider the
availability of raw materials for making or designing the product at reasonable costs so as to
live long for the business to make profits.
4. Government policy towards the quality of the product. The manufacturer or entrepreneur
should make or design or product that meets the set standards of regulatory bodies like
UNBS, NEMA and other government policies.
5. Lifespan / shelf life / duration. An entrepreneur should consider the lifespan of his or her
products so that the materials used in making them can fit in the desired time of the products
before their consumption.
6. Nature of the target market. An entrepreneur should consider the type of customers to
whom he or she expects to sell the products i.e. their age, gender, income bracket, interest
etc.
7. Desired weight / volume of the product. The manufacturer or entrepreneur should consider
the expected weight of the products and choose raw materials that would be able to meet the
desired eight.
Elements of a product
These are features, characteristics or attributes that make a product different from others. These
include the following:
1. Branding. It refers to the giving of a name, mark, symbol or design to a product to make
it different from other similar products of other manufactures or competitors
 2. Description. This may either be the product name or how it can be referred to as, which
helps the customers to distinguish it from other products
3. Quality. Is the ability of a product to satisfy the needs of customers. Difference in
quality makes a product unique from others
4. Competitions. This involves producing a product different from the entrepreneur’s
competing products
5. Complements. These are products that are jointly demanded (used) for example tooth
paste and tooth brush,
6. Substitutes. These are products that serve the same purpose with the company’s
products. An entrepreneur should look at such products in terms of quality, colour, size,
shape its
Feed back
This is the message or information the business gets about the production process like the quality
or inputs and outputs from the public so as to meet the needs of customers. This feedback can be
on:
 The quality of inputs or out puts
 Flexibility of the production process to meet the changing needs of customers
 Reliability of the production process for example delivery of inputs to the firm and final
goods to the market
 Costs associated with the production process
Environmental factors
These are external factors that affect decisions in the production process like competitors,
changes in the customers’ tastes, and preferences, availability of capital or financial services etc
as discussed below

- Competitors. These are businesses that produce similar products. These influence the
entrepreneur in making production decisions by producing almost the same product or
different from the competing products
- Business support services for example financial services. Adequate support services
encourage the entrepreneur to produce but absence of support services limits production
decisions
- Changes in customers’ tastes and preferences. Change in customer’s tastes and
preferences. These influence the entrepreneur on the choice of the production process
because of the need to produce products that satisfy customer wants
- Government policy towards quality standards of the product, taxes, interest rate etc. This
influences the choice of an entrepreneur on the production process to use. It should be in
line with the government policy
- Changes in natural environment. These affect businesses that depend on natural
environment in terms of raw materials, climatic conditions etc. favourable changes
encourage production but unfavourable changes discourage production
It involves carrying out the following activities.

 Carrying out market research

 Developing a product idea
  Translating a product idea into product design.
 Acquiring raw materials
 Carrying out actual production while observing quality standards.
 Packaging the product
 Branding the product
 Storing the product
 Distinguishing the product
 Making a follow up with customers to find out how the product is performing in the
market.
 Making any improvements required.

FACTORS AFFECTING PRODUCTION DECISIONS

i) Facilities and organization. Readily available facilities required to produce and sell the
product stimulate production decisions but scarcity of such facilities hinder production
decisions.
ii) Sales potential. This involves asking questions like how much, why and when will your
customers buy. Buying goods in large quantities by customers promote production
decisions, bur low volume of sales limit production decisions.
iii) Costs. High costs of production limit production decisions since they make it difficult to
sell the products at a reasonable price. But low costs of production encourage production
decisions because it allows the entrepreneur to set a reasonable price.
iv) Sales promotion and growth. Effective sales promotion increases the volume of sales
and stimulates production decisions. But ineffective sales promotion limits production
decisions.
v) Money requirements. Adequate financial requirements like initial investments, working
capital, etc stimulate production decisions but inadequate financial requirements like
working capital limit production n decisions like business expansion.
vi) Labor requirements. Adequate skilled labour encourages production decisions to
produce good quality products that increase business sales. But inadequate skilled
manpower limits production decisions. It also involves determining training programs
and sources of getting the needed employees.
vii) Supply sources. This involves determining the type of raw materials and components,
suppliers, quantity and quality. Readily available Readily available raw materials and of
good quality as well as at a reasonable price accelerate production decisions but
inadequate raw materials of poor quality and high price hinders production decisions.
viii) Transportation. This involves determining how to handle raw materials and
finished goods, transportation costs, etc.
ix) Acceptance by community. This involves the general feeling of the population about
business operations and their support. Good feeling of the community and support favors
production decisions, but bad community feeling and lack of support from the
community hinders production decisions.
x) Legal requirements. This involves getting licenses, etc. Favorable legal requirements
promote production decisions but unfavorable legal requirements like lengthy procedures
limit production decisions.
Questions:
1. Under what circumstances may an entrepreneur fail to implement production
decisions in an enterprise?
2. Explain the factors that limit an entrepreneur from implementing production
decisions.

Business location
BUSINESS PREMISES AND LOCATION
Business location refers to the setting up of a particular business in a particular area. Many
entrepreneurs prefer to place their business near customers, and where costs of production are
low.
Premises refer to buildings, workshops or ware houses used fro business operations.
FACTORS CONSIDERED WHEN CHOOSING A SITE OF PREMISES OF THE
BUSINESS.
1. Accessibility to good transport and communication facilitates. The site should be
accessible, that should be well connected to transport net work, where buyers can be able
to avail themselves with products, whenever the need arises.
2. Enough room for expansion. An entrepreneur should be able to fore last the rate at which
his or her business shall expand and should get a site with enough space.
3. Security. The place where business products are made should be secure to ensure their
safety and the life of the entrepreneur.
4. The cost of the place. The chosen site should be relatively cheap compared to the business
set up so as to allow or enable the owner to maximize profits.
5. Presence of market. The entrepreneur should create his or her business premises in a place
where there is available market (reliable) or where the customers are located to make it
easy for theme to access the business.
6. Government policies on allocation of enterprises. An entrepreneur should locate his
business in a a place or site that is legally accepted by the government
7. Nearness to the source of raw materials. Businesses should be located in places near their
sources of raw materials, so as to reduce on the transport costs.
8. Availability of adequate human resources, or labour, businesses should be set up in sites or
places where there is adequate labour to run the production and other business processes.
9. Nearness to power or electricity. An entrepreneur should choose a site with power to
provide light and to be used by machines in the production process.
10. Availability of adequate support services. An entrepreneur should choose a site with
enough business support services, like; banking, insurance extra.
11. Nearness to source of water. An entrepreneur should choose site with access to water,
because it’s used in cooling machines, as an input and for washing raw materials as well as
being used by the workers for drinking, cooking, bathing, cleaning premises etc.

REVISION QUESTIONS

(a) Distinguish between a business premise and location of a business.

(b) Explain the factors an entrepreneur should consider while locating business premises
(c) Explain the factors that limit an entrepreneur form choosing a particular site for his or her
business.
RAW MATERIALS
These refer to the basic materials form 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, clay for bricks, I and artificial raw materials include nylon, chemicals,
plastics, paper, colours etc.
FACTORS CONSIDERED WHEN SELECTING RAW MATERIALS
1. The location of materials. An entrepreneur should select raw materials that are nearer to
the business to reduce transportation costs.
2. Cost of raw materials. Raw materials that are cheap and affordable to enable the
entrepreneur accumulate profits.
3. Quality of raw materials. An entrepreneur should select materials of a high quality so as
to produce high quality products.
4. The terms of purchase. An entrepreneur should select raw materials that are from
suppliers who offer favourable terms of purchase, like giving discounts, credit facilities
etc.
5. Lead time. It refers to how long the supplier takes to deliver the raw materials. A supplier
with the shortest lead time would be preferred.
6. Availability and reliability. An entrepreneur should check whether the raw materials are
reliable such that they are available whenever he or she needs them.
7. Risk of damage. An entrepreneur should select raw materials that are at least likely to get
damaged, hence reducing losers in the business.
8. Amount of waste. Entrepreneur raw materials that produce as little waste as possible.
9. Amount of units or raw materials used per production cycle. An entrepreneur should
select raw materials that yield fast to produce more output than the used inputs in the
production process.
10. Amount of raw materials to be maintained in the inventory. The goods produced are sold
off immediately. An entrepreneur may store raw materials for continuous production to
 meet the customers’ needs. However, if the rate of sale to the goods produced is low;
then fewer raw materials.

Revision questions
(a) Distinguish between raw materials and the output.
(b) What are the factors that determine raw materials to use in the production process?
(c) Explain the factors that limit an entrepreneur from selecting a certain type of raw
material (s).
PROCEDURES/PROCESS/STEPS TAKEN IN ORDERING GOODS OR SERVICES
FROM SUPPLIERS

Entrepreneurs should follow specific procedures when purchasing goods, materials and
equipment from suppliers. Such procedures include the following;

STEP 1; Determining business needs; This is done through conducting market surveys to
know your customer and the products they want.
- Customer needs help to determine;
- Materials and equipment the business will need to produce goods for sale to customers.
- Finished goods to buy from suppliers for resale to customers.
- Amount of each product to buy as inventory.
- Price to pay for quantities of goods purchased from suppliers.
- Specific goods and materials needed to be received from suppliers.
STEP 2; Identifying potential suppliers. An entrepreneur can determine the suppliers who sell
the good materials or equipment by;

- Asking his/her business friends, the people who work with you and other suppliers
competitors use.
- Contacting organizations that support small businesses e.g. the local chamber of
commerce may identify honest and reliable suppliers.
- Reviewing newspapers, magazines, trade journals, and businesses in the telephone
directory for names and addresses of potential suppliers.
- Determining the goods, materials or equipment each supplier has to sell and the prices,
discounts, credit and delivery service they provide.
- Determining the reliability of each supplier.
STEP 3; contacting the supplier. This can be done by visiting the suppliers’ office personally
or using cost effective communication means. Each potential supplier should provide written
information to the entrepreneur regarding the kinds of goods, materials or equipment they can
provide.
- Specific questions include;
- Does the supplier have what you need in the qualities and quantities you need?
- What is the smallest quantity you can purchase?
- Do you need to pay cash or can you get credit?
- How much credit can you get and how soon do you need to pay it back?
 - Will you get discounts if you buy large quantities or pay quickly?
- Hoe much discount can you get?
- How soon after the order is placed will they deliver?
- Do you have to pay for transport or is delivery free?
 NB; The supplier must provide a response to your questions in writing (quotation)
STEP 4; selecting the best suppliers. An entrepreneur compares the quotations received from
various suppliers to determine what each of the different customers can offer. A quotation is a
written response to the letter of inquiry to the supplier. In a quotation, the supplier provides the
entrepreneur with detailed information about the goods, materials or equipments, prices,
payment, delivery and any other conditions related to your order.
The entrepreneur chooses the best supplier depending on the conditions and priorities like credit,
price, discounts, reliability, etc.
STEP 5; ordering goods. An entrepreneur orders the goods through writing, putting into
consideration the smallest quantity you can order, how much is there in each bulk package, etc.
STEP 6; checking the goods as soon as they are received. A supplier usually sends a delivery
note with the goods or materials and signs it as a proof that the goods have been received.
Some suppliers send an invoice instead of a delivery note which lists the goods bought, where
and how (cash, cheque) the supplier is to be paid.
An entrepreneur should check to ensure that everything ordered has been received on time.
STEP 7; Making sure that the invoice is correct. If an entrepreneur is buying on credit,
compare the invoice with the delivery note. An entrepreneur should make sure that he/she has
received everything she/he is asked to pay for and that the prices and totals are correct.
If the invoice is not clear, notify the supplier immediately.
STEP 8; Making the payment to the supplier by cash or cheque. Make sure that you get a
receipt so, there is proof of payment.

PURCHASING MANAGEMENT SKILLS

Purchasing refers to obtaining items or materials for the business firm in the right time, quality,
price, quality, quantity and from the right source

 For trading businesses, purchasing involves the following activities:

 Determining the needs(goods) of a business in respect to the quantities and quality
 Checking on where the goods can be sourced from and ordering for them
 Receiving and checking the delivered goods
 Storing the goods
 Paying for the goods
PRINCIPLES OF PURCHASING

The main principles of effective procurement/sourcing of materials in business may include the
following:
1. Right quantity: The right quality of any item comprises the features and characteristics
which are relevant to its ability to meet a given need
2. Right quantity: the right quantity of purchases made depends on the level of stock an
entrepreneur wants to maintain, availability of finance, the consumption rate etc
3. Right price. The price charged should be in line with the quality specifications
 4. Right time. This involves considering the lead time of the supplier, the place of buying
materials and the mode of transport
5. Right place. Raw materials should be kept near the firm or work place in order to
minimize transportation costs and time
Requirement of a business
The following are the requirements of a business:
 Machinery, tools and equipment
 Raw materials
 Utilities
 Goods for sale
Nb. The above requirements can be categorized into:

Fixed assets. These are items which render services to the business for very many production
cycles or periods. Examples include machinery, land, buildings, furniture, motor vehicles etc
Current assets. These are items which are used up in the course of the production as inputs in
order to produce output e.g. raw materials, fuel, labour etc
FACTORS THAT INFLUENCE THE CHOICE OF SUPPLIERS

The following are the factors influencing the choice of suppliers: -

1. Terms and conditions of payment. Different suppliers have different terms and
conditions for example some sale on cash basis only, some supply on credit basis only
while some supply on installment payment, some give discounts etc. entrepreneurs
normally buy from suppliers with favourable terms and conditions
2. Lead time and the distance between the supplier and the business. Entrepreneurs
normally choose suppliers whose lead time and distance are short.
3. Quantity required by the entrepreneur. Entrepreneurs choose suppliers with the required
capacity so as to maintain continuous production
4. Consistency and reliability of the supplier. Entrepreneurs choose suppliers who are able
to supply the required goods whenever they are required
5. Sources of goods to be purchased. Entrepreneurs consider the source from where raw
materials are produced or purchased because sometimes they influence the quality of
products
6. Prices of other suppliers. Entrepreneurs normally buy from low cost suppliers but with
high quality raw materials
7. Quality of the products of the supplier. Entrepreneurs buy from suppliers with good
quality raw materials to meet the expected standards of customers
8. Communication with the supplier. Entrepreneurs consider suppliers who can be easily
accessible with clear communication means
9. Taxes and regulatory procedures in the purchase and delivery of goods. Entrepreneurs
look for sources where low taxes are charged for example goods from East African
member countries
10. Mode and terms of delivery of goods. Some entrepreneurs choose suppliers that deliver
raw materials up to the final destination/ their business premises
ORDERING FOR GOODS AND SERVICES
Ordering for goods and services can either be done verbally or through writing. Ordering for
goods through writing involves drafting documents at each stage in the ordering process. The
ordering process begins with identification of the goods and services that are required in a
business and thereafter, steps that can be taken include the following
Step1. Making inquiries

- This involves sending inquiries to possible suppliers about the goods and services
available for sale and the terms and conditions of sale or payment.
- Inquiries can be made orally or in writing by way of sending letters of inquiry by phone
call, using messengers who reach the suppliers’ place.
Letter of inquiry.
Is a letter written to the supplier by the buyer requesting to be informed about goods available
for sale, terms and conditions of sale and the prices for the goods.
Example of letter of inquiry.

GOOD PRICE STATIONERY LIMITED,

P.O. BOX 112, MITYANA. TEL. 0778223344

ENQUIRY NO.12345
LETTER OF INQUIRY
24/03/2002

THE SALES MANAGER

UGANDA BOOKSHOP LTD

P.O.BOX 290, KAMPALA.

Dear sir,

Please quote us your price, terms of payment and terms of delivery for the following items

Quantity Description

10 boxes Blue pens

Yours faithfully,

……………………

Mr. Pipeline

Purchasing Manager.
STEP II –REPLY TO THE LETTER OF INQUIRY/ QUOTATION

Once a potential supplier receives an inquiry, he/she will respond by giving his/her quotations in
which he will state his/her prices, specifications of the products to be supplied, lead time,
warranties, payment terms and conditions. Therefore,

A quotation

Is a statement or letter prepared and sent by the potential supplier to the buyer stating
information about the things inquired about in the inquiry sent by the buyer such as……

It may also be accompanied by categories, price lists, product samples, etc.

A price list is a list of items sold by the supplier with their respective prices.

A catalogue is a booklet which briefly describes each item offered for sale, often carries
illustrations of the items and therefore more information than a price list. AN Example of a
quotation
UGANDA BOOKSHOP
PO BOX 290’
KAMPALA
DATE………….
QUOTATIO
TO; GOOD PRICE STATIONERY LTD, N
PO BOX 111 MITYANA
TEL 0778223311

SUBJECT; QUOTATION NO. 122

In reply to your letter of inquiry date…., we have the pleasure to send you our quotation as shown
in the information below

Quantity Description Unit Price Total price

- _ _ _
- _ _ -

Delivery: Two weeks from date of receipt of your purchase order and 50% deposit payment.

Payment; 50% purchase order, 50% balance on delivery with full purchase price
STEP (III) preparing a purchasing order.

Having recorded all the necessary information in the quotation the entrepreneur may now protect
to making a purchasing order

A purchase order.

Is a document issued by the entrepreneur /enterprise to the supplier whose quotation is the most
acceptable requesting to be supplied with the goods and services specified there in as regards
quantity, quality, description, price and place of delivery. It can be made orally, verbally, by
phone call.

EXAMPLES OF A PURCHASE ORDER

GOODS PRICE STATIONARY LTD

P.O BOX 111 MITYANA TEL 0707575787

PURCHASE ORDER
TO: The Sales Manager
Uganda bookshop
p.o box 290,
Kampala,

Dear sir,

Please supply us with the following goods

Quality Description Unit price total price

Delivery date ………………….

Packing; Separate
STEP IV_GOODS DELIVERY

After the supplier planning the purchase order from their buyer, he will then supply/deliver the
goods/ items order for, or buyer/entrepreneur may collect them in his own van or they can be
transported using public transporters.

At this point a good delivery note should be prepared by the seller and should accompany the
goods supplied and its name, size, colour, mode of transport used.

The entrepreneur or buyer should cross check the goods delivered and after studying the terms
and conditions sign the delivery note acknowledging receipt of the goods and then send it back
to the supplier.

Example of a delivery note.

UGANDA BOOKSHOP

PO BOX 290, KAMPALA

DATE……………
DELIVERY NOTE
DELIVERY NOTE NO. ….

TO; Good price stationery ltd

Po box111, Mityana

Tel. 077823344

Please receive the following:-

STEP V INVOICING

After delivering goods and receiving the delivery note signed by the buyer the amount by
preparing an invoice i.e. when goods have been brought on credit.

An invoice is a document prepared and sent to a purchaser by the goods supplied to him on
credit.
It serves as notification to the buyer of their amount due and also evidence of debt due to the
seller who also uses it for accounting or book keeping purposes.
An invoice contains the following information: -
- A brief description of the goods supplied to the entrepreneur or buyer.
- Total cost of the goods supplied.
- Any discount allowed if any either trade discount or quality discount.
- Net amount payable.
- Length of the credit period allowed
- Cash discount offered.
E$OC This abbreviation stands for errors and omissions expected meaning that the seller
reserved the right to correct an invoice should errors be discovered in it at a later date.
Examples of an invoice.

AN EXAMPLE OF AN INVOICE
Uganda Book shop ltd
P.o Box 290, Kampala,

Invoice no …….
 AN INVOICE

NB. In case of goods bought on cash basis, the invoice is not used but instead a cash receipt is
prepared and given to the buyer as evidence of payment for the goods bought.

RECEIVING GOODS AND SERVICES PURCHASED

This is the process of receiving goods and services purchased by the enterprise and delivered by
the supplier. In receiving goods and services purchased, the entrepreneur should do the
following;

- Check the quantity and quality of goods and services against the purchase order to make
sure that goods that have been delivered are of the right quality quantity as ordered for.
- Check the delivery document or note against the purchase order for accuracy to ensure
that what is recorded is what has been received and that the prices quoted are the prices
that were agreed upon.
- Check for damages to ensure that goods that got damaged during the transportation
process are excluded and replaced by the supplier.
- Deliveries found un acceptable because they don’t fit the description of the goods
ordered for or because they are damaged or the terms and conditions differ from those
agreed upon should be rejected.
OTHER DOCUMENTS USED WHEN PURCHASING GOODS AND SERVICES.
Proforma invoice;
This is a document similar to an ordinary invoice except that;
It is a document issued by the seller to an aspiring new customer indicating the terms and
conditions under which the goods and services are to be supplied and asking the customer to
make payment for the goods before they are dispatched.
It is normally used in the following circumstances.
i. When the seller does not intend to offer credit facilities to the buyer
ii. When goods ordered for are in small quantities for which the seller cannot give on credit.
iii. When samples have been sent together with the quotation, the proforma invoice is used
to request the buyer for the samples in case he/she is not willing to buy.
iv. When goods are sent to the buyer on buy or return basis
DEBT NOTE.
This is a document sent by the seller to the buyer in order to correct an overcharge in the invoice
and it informs the buyer that he has been credited by the seller i.e. relieved of paying the amount
of overcharge in the invoice.
A credit note may be sent under the following circumstances;
i. When any wrong quantities of goods i.e. goods of poor quality or wrong description
are sent to the buyer and the buyer returns them to the seller.
ii. When there is damage on the goods delivered to the buyer and the buyer returns them
to the seller
iii. When there is arithmetic error of wrong addition on the invoice causing overcharge
iv. When some packaging materials previously included in the price charged are
returned by the buyer to the seller
v. When goods not ordered for are sent to the buyer by the seller and the buyer returns
them.

CREDIT NOTE. This is a document sent by the seller to the buyer in order to correct an under
charge in the invoice and inform the buyer that he/she has been debited by the seller.

The debt note is sent to the buyer under the following circumstances.
 When more goods than what the buyer ordered for are delivered.
 When wrong prices and in this case lower prices than the agreed prices were
charged or due to wrong addition leading to under charging of the customer.
 When some items that were delivered to the buyer are omitted from the invoice.
Receipt
This is a document issued by the seller acknowledging payment by the buyer for the goods and
services supplied to him/her.

Example of a cash receipt.

UGANDA BOOK SHOP LTD

P.O BOX 290
DATE………….
CASH RECEIPT

CASH RECEIPT NO.224

Received from ………………

BUSINESS CONTRACTS
A contract is an understanding between two or more persons to perform an agreed transaction
basing on agreed terms and conditions
OR
Is an agreement or a promise made between two parties which is legally binding or enforceable
by law where by each party agrees to take part in the contract as stipulated.
TYPES OF CONTRACTS
1. Oral contracts. These are contracts in which parties agree to deal with each other without
writing down anything.
2. Written contracts. These are contracts written and signed by both parties and also
witnessed by a third party. Examples of written contracts may include sales agreements,
service provision agreements, appointment letters etc.
3. Unilateral. These are contracts in which only one party is bound e.g. in cases where a
person offers to rewards anyone who will recover his or her lost property.
4. Bilateral contract. These are contracts in which both parties are bound with contractual
obligations which they must fulfill e.g. where the seller agrees to sale his or her commodity
 and the buyer agrees to buy it at an agreed price and agrees to complete payment in an
agreed period of time.
5. Contract of records. This is a contract that consists of court judgment formed by entry on
the court records and the rights and obligations of the parties are put on court records.
6. Executed contracts. These are contracts when both parties to the contract have completely
performed their share of the contractual obligations and nothing remains to be done by
either parties
ELEMENTS/ESSENTIALS/ REQUIREMNTS FOR A VALID CONTRACT.
A contract will only be valid if its content satisfies all the relevant requirements of a valid
contract prescribed by law. The essentials or elements of valid contracts include;
1. Offer and acceptance. This means that the two parties must lawfully come to acceptance
leading to a valid contract. Offer refers to the terms and conditions set by one party to the
contract to the other as being his or her dealing position while acceptance is the agreeing to
the terms and conditions set by the other part to whom the offer was made.
2. Lawful consideration/price. Consideration is a price agreed upon by the parties to the
contract and paid by one party for the benefit received or the promise of the other party. A
valid contact must have a price i.e. both parties must pay something for something in
monetary terms.
3. Intention to create a legal relationship. For an agreement to the abiding contract, the
parties must be intended to attain legal implications i.e. if the contract is broken, the innocent
party will be able to use the other party for the breach.
4. Capacity of the parties. The parties to the contract must have contractual capacity for a
contract to be valid i.e. must be above 18 years of age, must be a sound and sober mind.
5. Certainty. The terms of the contract must be clear and understandable for a contract to be
valid.
6. Free consent. For a contract to be valid, it must be entered into freely and voluntarily.
Therefore, there must be no undue influence in making the contract.
7. Legality and lawful object. A contract will only be valid if the law provides that such
agreements are legal. The purpose of the agreement must be legal and not centrally to the
law and public policy
8. Possibility of performance. A contract must be capable of performance to be raised and
enforceable by law. In case the contract is impossible in itself either physical or legally then
it is not legal
WAYS OF TERMINATING THE CONTRACT OR DISCHARGE OF A CONTRACT
OR TERMINATION OF A CONTRACT.
A contract can be discharged by:
1. Performance. If the contract is fulfilled as per the agreed terms and conditions that is a
contract is discharged when each party to it has performed to the full satisfaction of the other
in accordance with the agreed terms and conditions.
2. Agreement. If parties concerned agree to discharge it then, can equally bring it to an end in
the same manner.
3. Frustration. If one of the parties fails to meet its obligations, the contract is discharged due
to frustration e.g. if the subject matter is destroyed or in case of death or incapability of one
of the parties.
4. Breach. If either of the parties to the contract fails or refuses to perform according to the
agreed terms and conditions of the contract then he or she has breached the contract.
5. By expiry/lapse of time. When the time for which the contract is meant to run expires
6. Operation of the law. If there is lapse of time, death, substitutions or bankruptcy of one or
both of the concerned parties.
- It can also be terminated by courts of law under the following cases:
- In case of bankruptcy of one party
- If the contact is declared illegal
- In case one of the parties to the contact is a minor
- In case of substitutions i.e. when a new contract has replaced the old one
UNDER WHAT CIRCUMSTANCES CONTRACTS MAY BE TERMINATED.
1. When the parties agree to terminate it
2. When it is frustrated by the parties
3. When one party breaches it
4. When the contract is fulfilled as per the agreed terms of conditions
5. If there is death, lapse of time or bankruptcy of one of the parties.
IMPORTANCE OF MAKING CONTRACTS

- It creates a good working relationship between the parties

- -They reduce losses in business –Encourages hard work
- -It enables enterprises to get ready supply of inputs /stock.
- -It makes the parties involved responsible
- -It ensures a reliable market for the business products
- -Teaches people to be trustworthy in business
- -Sources of revenue to the government i.e. those which involve cash
Revision questions

(a) Distinguish between offer and acceptance as used in contracts.

(b) Explain the elements of a valid contract
(c) Under what circumstances may the contract be terminated
(d) Explain the importance of contracts in business
 (e) Explain the ways of terminating a contract
(f) What factors can lead to frustration of contract.

BUSINESS LAWS IN UGANDA.

There are various forms of business laws relating to businesses in Uganda and these include the
following.

 The Weights and Measures Law. This is a business law that ensures that entrepreneurs
use the recommended weighting scales and measurements when selling goods to
customers. The weights and measures law is enforced by the government of slandered
(UNBS)
 The Food and Drugs Act. This is a business law by the government through the
Ministry of health and the National Drug Authority and such licenses will only be given
when the condition set by the foods and drugs Act are satisfied for example there must be
the drugs dispenser is a linseed pharmacist.
 The public Health Law. This is a business law that checks on the stranded of hygiene in
different public places for instance in hotels, restaurants, bars, schools, clinics, etc. Under
this law, the ministry of health through its representatives is expected to check standards
of hygiene in such places by sending them to inspect business premises and they may
close business which do not meet the required standards. The public health law also
enforces rules and regulations on building and drainage in different business.,
 Consumer Protection law. Under this law, the government protects the consumer are of
the acceptable standards in term as of quantity, quality and price. It is also meant to
ensure that producers give correct information about their products.
 The Environment Law (National Environment Statute). This is a business law
implemented by the government through the National Environment Management
Authority (NEMA)to ensure that business the environment in a sustainable way so that
the business activities will not cause effect to the public and the environment it therefore
provides for.
1) Maintain ace and preservation of the environment,
2) Protection of some areas of environmental concern like swamps and wet lands,
3) Controlling the effects of the premises or development of the environment.
 The Land Act. This law that provides for tenure, ownership and management of land
and of provides for four categories of land ownership in Uganda i.e. free hold ownership.
Lease hold ownership, customary and mailo land ownership.
 The Employees/Workers Protection Act (Employment Act). Under this law, the
government protects the workers from being exploited by way ensuring that the salaries
and wages paid to workers are genuine and that the terms and conditions of services
work are favorable.
  The Trade Licensing Act. This is a business law that requires all business to obtain the
trading license before starting operation. The trade licensing Act empowers the Local
Administration Authorities to impose and collect trade license fee from business.
 The Business Name Registration Act (Company Law). This law provides for
registration of business enterprises carrying out business under different names from
those of their owners.

Relevancies of business laws described in (a) above.

 The company law helps in the registration of the business
 The business name and registration Act protects the business names that help
entrepreneurs to establish strong brand in the market.
 The land act helps in solving the disputes and avoiding land conflicts while
operating the business.
 The foods and drugs Act protects Consumers from consuming expired drugs and
food staffs
 The public health law ensures that there is proper hygiene and sanitation I public
places such as hotels, entertainment place etc.
 The environment law protects the environment from being miss-used and over
exploited by ensuring that the business operates within the laid down regulations
 The consumer protection law protects consumers against exploitation by business
men through over charging and providing wrong information about goods.
 The licensing Act is a source of revenue to the government fees
 The weights and measures act protects consumers from being cheated by
businessmen through selling underweight goods.

TECHNOLOGY AND TECHNOLOGICAL SKILLS

This basically deals with the choice of the technology or machinery used in the production
process. It includes; machinery, tools, and equipment
Machinery, tools and equipment
Machinery. Refers to a group of machines in general that gets work done.
A machine refers to a device in which each part works together with the other to perform an
action, like; a washing machine, counting machines, sewing machines etc.
Equipment refers to the things needed to do some work like office computers, cash counters etc.
Tools are any instruments or apparatus like, axes, hammers, or spades which are held in the
hands to do some work.
They are used to transform raw materials into finished goods
FACTORS CONSIDERED WHEN SELECTING MACHINERY, TOOLS, AND
EQUIPMENT IN THE PRODUCTION PROCESS
The following are the factors considered when selecting machinery in an enterprise.
 1. The initial cost of the equipment and machinery. An enterprise should choose tools and
machines or equipment that are of a low cost and affordable so as to reduce production
costs.
2. The capacity of tools, machinery, and equipment. This refers to the units of output a
machine can produce in a given period of time. An entrepreneur should choose
machinery that can produce the required capacity (higher capacity)
3. Maintenance and repair costs. An entrepreneur should choose machines with low
maintenance and repair costs to allow him or her make profits. Such machines should
have spare parts and repair services available.
4. Flexibility for adjustment in relation to consumers’ changing tastes and preferences.
Machines, tools and equipment that are flexible should be chosen to meet customers’
demands.
5. Availability of other required equipment to operate the machines. An entrepreneur
should choose tools, machines, or equipment whose supplementary machines are readily
available, like for computers, when printers and ink are available.
6. Durability/life span of the machinery and equipment. Durable and long-lasting
equipment or machines should be selected to reduce on the cost of replacing machinery.
7. Productivity and efficiency of machinery and equipment. This should be considered
because efficient machines produce high level of output and of good quality, in the
shortest period of time possible.
8. Guarantee given by the manufacturer. Entrepreneurs choose machines whose efficiency,
durability, maintenance and safety devices are guaranteed by the manufacturer.
9. Ease and simplicity in the use of machines. Machinery tools, and equipment which are
easy and simple to use as proposed to difficult ones.
10. Complexity of the task to be done. This enables an entrepreneur to choose machines that
can perform the required activities effectively
11. Sources of machinery and equipment. Reliable sources are preferred by most
entrepreneurs since they allow continuous production in an enterprise
Qn: Define the following terms:
- Machinery
- Equipment
- Tools
Qn: Explain the factors considered when selecting machinery in an enterprise.
Explain the factors limiting entrepreneurs from using certain machines and equipment
Under what circumstances may an entrepreneur fail to use a certain type machines and
equipment?
CHOICE OFTECHNOLOGY AND DEVELOPMENT

Technology refers to the skills, knowledge and procedures of making, using and doing
productive activities. It also refers to the methods of production that involve the use of applied
science in form of production in order to increase the productivity of a country’s resources or

TYPES OF TECHNOLOGY
 a) Capital intensive technology (labor saving technology)
b) Intermediate technology
c) Appropriate technology
d) Technology transfer and development
The choice of techniques of production in LODCs depends on: relative price i.e. price of labor
Vs price of capital, availability of technology, employment creation, level of development of the
country, benefits and problems of the technology
CAPITAL INTENSIVE TECHNOLOGY (LABOR SAVING TECHNOLOGY)
Is a method of production that uses proportionately more capital than other factors of production
particularly labor in the production process
ARGUMENTS FOR CAPITAL INTENSIVE (ADVANTAGES/MERITS/POSITIVE
IMPLICATIONS)
1. It increases the productivity of other factors of production like labor thus increasing the
volume of goods and services in the economy it minimizes chances of labor strikes thus
reducing the possibility of destruction of property
2. It increases the level of capital accumulation due to greater savings. This is because
amount spent on wages is low leading to more profits for re-investment thus
accumulating more capital
3. It minimizes the costs of employing and maintaining very many workers thus reducing
the costs of production and selling goods at relatively cheaper price
4. It leads to development of skills among the workers as it requires training of labor to use
the complicated machinery
5. It facilitates technology transfer and development which help LDCs to improve on the
quality of out put and quantity
6. It produces high quality products which can compete favorably on the international
market thus fetching more foreign exchange
7. It facilitates the development of infrastructure for example roads, power supply, storage
facilities since its implementation necessitates so
8. It is time saving thus insuring adequate supply of commodities whenever they are needed
9. It helps in transformation of an economy from dominantly agriculture economy to
industrial oriented one since it promotes the manufacturing
10. In the long run it increases the level of employment opportunities since it increases the
level of savings and investments in the economy. Thus, expanding the scale of operation
11. Economies of scale are enjoyed in form of reduced average cost due to large scale
production
DISADVANTAGES OF CAPITAL INTENSIVE TECHNOLOGY
1. It causes technological unemployment as many workers lose their jobs when they are
replaced by machines
2. It requires high skilled man power which is scarce gin LDCs due to low levels of
education and poor education system
3. It increases the problem of external dependence in the economy since it requires the
importation of expensive capital goods like spare parts, computers etc. this may worsen
the BOP problem in LDCs
4. The small market in LDCs can hardly sustain the high levels of out put. This implies
wastage of resources by producing a lot of commodities which are not consumed
 5. It increases the problem of income inequality in the economy between those who can
afford the strategy and the majority poor who still use rudimentary production method
6. It is expensive since it involves high initial costs to install the machines and high
maintenance costs.
7. It may lead to depletion of resources due to over exploitation hence making the future
generation vulnerable to scarcity of resources
8. It involves high social costs such as pollution of air and water, noise etc. this results in
diseases like cancer leading to low standards of living
9. It encourages profit repatriation since it is mainly employed by foreigners who have
capital to buy machines
10. It is inappropriate in activities where human judgment is important for example
harvesting since employing it in such activities may reduce the quality of out put
produced
11. It leads to rural urban migration since it is mainly applied in urban centers leaving rural
areas un developed. This results in congestion, open urban un employment etc
LABOR INTENSIVE TECHNOLOGY (CAPITAL SAVING)
This is a production method which uses proportionately more labor than capital in production. It
is suitable in countries that have more labor than capital
ARGUMENTS/ADVANTAGES OF LABOR INTENSIVE TECHNOLOGY (CAPITAL
SAVING)
1. It provides employment to the majority of the population particularly the unskilled and
semi skilled labor. Thus, improving peoples’ standards of living
2. It provides a fair income distribution amongst the majority since many people are
actively involved in income generating activity. This reduces social unrest in the country
3. It is relatively cheap and easily adopted. It requires simple tools which can even be
locally produced and abundant supply of unskilled and semiskilled labor in LDCs
4. It reduces rural urban migration sine it is more suitable in rural areas where agriculture is
mainly carried out thus making rural people employed
5. It saves a country’s foreign exchange as it requires simple tools which are less costly and
can be produced at home
6. Labor intensive technology encourages development of craft man ship in workers which
is a basis for industrialization
7. It increases aggregate demand in an economy since every boy has access to income thus
widening the market for local produce
8. It reduces external dependence sine it does not require high skilled man power implying
that LDCs can easily utilize their local human resource thus stabilizing the BOP position
9. It widens the tax base due to many people being employed using labor intensive
technology. This enables the government to extend social services to its people
10. It is the most suitable technique in the dominant agricultural sector, since its applicable at
almost all levels
DISADVANTAGES/ ARGUMENTS AGAINSTLABOR INTENSIVE (CAPITAL
SAVING TECHNOLOGY)
1. It may be very expensive in the long run in terms of high wages and other benefits which
lead to high costs of production. Thus, discouraging investment
2. It produces low quality products due to less standardization. This leads to difficulty in
getting market for the commodity
 3. It leads to low levels of out put as a result of inefficiency created in the production
process. This retards the process of economic growth and development
4. The risks of strikes and labor unrest are very high since more labor is employed. The
many workers can easily organize themselves and strike incase of any misunderstanding
5. It requires close supervision of the workers which may be costly
6. It hardly provides jobs to the educated since it does not employ so many skilled
personnel in the production process
7. It worsens the BOP problem in LDCs due to increased importation of capital goods and
spare parts from MDCs.
8. Labor intensive wastes a lot of time and this result into failure to respond to rapid
structural changes
9. It may discourage foreign investors familiar with operating heavy industries

INTERMEDIATE TECHNOLOGY
Refers to a production method which is neither capital nor labor intensive. It is nether too
advanced nor too primitive
FEATURES OF INTERMEDIATE TECHNOLOGY
 It uses both labor and capital in fair proportions
 It should optimally utilize the available local resources
 It should lead to a balanced regional development and greater dispersion of industries
 It must be capable of being easily adopted into existing plan targets
WAYS OF OBTAINING INTERMEDIATE TECHNOLOGY
Upgrading the existing traditional technology
Degrading the advantaged technology
Entirely develop intermediate technology without basing on existing ones
MERITS OF INTERMEDIATE TECHNOLOGY
1. It creates more employment opportunities in LDCs since it strikes the balance between
labor and capital-intensive technology. This improves on people’s standards of living
2. It reduces the cost of urbanization by creating rural based industries like congestion,
development of slums, high crime rates etc
3. It reduces inequality in development and income between the rural and urban areas since
it is relatively cheap and affordable by many people. It also strikes the balance between
labor intensive and capital intensive
4. It is relatively cheap and therefore affordable by LDCs since it does not require
sophiscated skills
5. It reduces rural-urban migration with it’s associated like high crime rates, congestion,
development of slums etc problems since it is rural based technology
6. It leads to development of skills, inventions and innovations which creates a
technological base for LDCs
7. It leads to better resource utilization since it is based on local resources
8. It promotes and facilitates the development of local small-scale industries distributed all
over the country
9. It saves the scarce foreign exchange since it uses locally available resources thus
reducing external dependence
DISADVANTAGES OF INTERMEDIATE TECHNOLOGY
 1. It is difficult to obtain it because it is hard to up grade sine people may be reluctant to
learn new methods of production
2. It requires research and investment especially where it involves the development of new
machinery
3. The technology is only applicable on a limited range of industries such as grain milling,
bakery
4. Production of inferior goods or poor-quality goods
5. It requires some capital which is lacking in LDCs

APPROPRIATE TECHNOLOGY
Refers to the method of production which is socially, economically and technologically suitable
for a given country in terms of available resources and development requirements
FEATURES OF APPROPRIATE TECHNOLOGY
i. It is simple. For technology to be considered appropriate, it must be simple to operate.
The user must be able to apply it without encountering problems.
ii. It is effective. Effectiveness of technology is judged by how well it fits in with the
objectives of the users.
iii. It is readily available. It must be readily available locally.
iv. It is flexible. It must be flexible enough to adapt to changing times in the future.
v. It is durable. Technology that is durable requires less maintenance and repairs.
vi. It is efficient. It should be efficient in its utilization of local resources.
vii. It is 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.
ELEMENTS/ESSENTIALS OF APPROPRIATE TECHNOLOGY
The following are elements of appropriate technology
i. Simplicity. For technology to be considered appropriate, it must be simple to operate.
The user must be able to apply it without encountering problems.
ii. Effectiveness. Effectiveness of technology is judged by how well it fits in with the
objectives of the users.
iii. Availability. It must be readily available locally.
iv. Flexibility. It must be flexible enough to adapt to changing times in the future.
v. Durability. Appropriate technology should be durable with less maintenance and repairs.
vi. Efficient. It should be efficient in its utilization of local resources.
vii. 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.
Appropriate technology refers to technology relevant to the needs of the localities.
Factors influencing the choice of technology
1. Plant capacity: this is defined in two ways
- Feasible normal capacity refers to the capacity attainable under normal working
conditions which may be established on the basis of the installed capacity, technical
conditions of the plant, normal stoppage etc.
- Normal maximum capacity: this is the capacity which is technically attainable and
often corresponds to the installed capacity guaranteed by the supplier of the plant.
  Feasible normal plant capacity. This refers to the volume or number of
units that can be manufactured during a given period.
 Normal maximum plant capacity. Is the capacity which is technically
attainable and this often corresponds to the installed capacity guaranteed
by the supplier of the plant
2. Technological requirement. For many industrial projects particularly in processing
industries, there is a certain minimum economic size determined by the technological
factor e.g. a cement plant should have a capacity of at least 300 tones per day.
3. Input constraints: such as power supply fluctuation, scarcity of basic raw materials and
inadequate foreign exchange for inputs.
4. Investment cost: the initial cost of the technology is a major factor determining the
choice of technology since investment cost per unit of capacity decreases as the plant
capacity increases. Large initial investment limits the entrepreneur’s choice that a
particular technology
5. Market conditions. A large market for the product requires a plant of a higher
capacity. But a small market requires a smaller capacity.
6. Resources of the business/enterprise: the resources managerial and financial available
to a business define a limit to its capacity decision. If resources are readily available, a
business can employ advanced technology.
7. Government policy on technology. Favourable government policy regarding issuing
license and approval for its technology but unfavourable (restrictive government policy
may) limit the enterprise from using a given type of technology.
8. Availability of spare parts. Entrepreneurs usually prefer to use technology whose spare
parts are readily available to that whose spare parts are scarce.
9. Skilled manpower requirement. The technology to be used is determined by the
availability of skilled manpower to operate it. If the manpower is available and
inexpensive, then that technology is good technology.
Explain the factors limiting the choice of technology in an enterprise
LABOUR REQUIREMENTS

Labor refers to human effort, physical or mental, engaged in the production of a good or
provision of a service in return for payment. Labor is one of the three factors of production along
with capital and land.

TYPES OF LABOUR;
The three types of labor include;
1. Skilled labor. A skilled worker is any worker who has some special skill, knowledge or
ability in their work. Such a worker possesses knowledge and skills in his area of work
and can produce best production. Examples of skilled labour jobs are engineering, and
computer manufacturing.
2. A semi-skilled worker is one who possesses particular skills in his area and can perform
a job in his area. However, this type of worker requires close supervision
3. An un skilled employee is one who possesses no special training and whose work
involves the performance of simple duties which require the exercise of little or no
independent judgment or previous experience although a familiarity with the
occupational environment is necessary.
REASONS WHY LABOUR IS NEEDED.

 To increase production
 To manage business operations
 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.
EMPLOYEES
These are people who work in a business for wages or salaries. They provide skilled, semi
skilled and unskilled labour.
FACTORS CONSIDERED WHEN DETERMINING THE NUMBER AND TYPE OF
EMPLYEES TO WORK IN AN ENTERPRISE
The following are considered when determining the number and type of the employees.
NUMBER OF EMPLOYEES
1. The type of skills required for some particular business, and the work they do in the
production process like negotiation skills and communication skills are considered when
recruiting sales persons or marketers.
2. The number of jobs available. This varies with the size of the business in that the
smaller the size of the business, the less the jobs available, and the larger the size of the
business, the more the jobs available and the bigger the number of employees.
3. Support of the family members. Support from the family members necessitates the
business to employ fewer workers but when there is no family support, the business
employs more workers.
4. The level of demand for the products. High demand for products encourages
entrepreneurs to employ more people but low levels or demand cause fewer workers to
be employed.
5. Costs of hiring labour. High costs of hiring labour reduces the ability of a business to
employee people hence few people are employed but low costs of hiring labour enable
the business to employ more workers.
6. Level of technology used in the business. Use of advanced technology requires
employment of few workers, like, use of tractors, computers, but use of rudimentary
technology, low level of technology, traditional or backwards technology necessitates
many workers to be employed.

TYPES OF EMPLOYEES
1. Level of education/qualification. This considers the level of education of employees
that is some jobs require diploma or degree holders while others require certificates or
senior six leavers.
2. Working experience of employees. Most employers or entrepreneurs are interested in
experienced people or workers who are efficient and productive.
 3. Age of the employees. Different jobs have different age requirements that are some want
young and energetic workers like jobs that need lifters while technical jobs need mature
people like chief administrators.
4. Marital status. Some employers or entrepreneurs prefer employing single workers than
married workers because they are flexible. For example, school wardens and matrons due
to less responsibilities they possess
5. Sex of the employee. Some employers or entrepreneurs prefer employment to women
and others. Women to men for different reasons like for simple activities, women are
preferred while heavy work is preferred for men.
6. Health status of the employee. Some employer’s want workers with good health status
because they are in position to be at work at all times.
7. Language spoken by the employee. Some employers are willing to employ people who
know to speak many languages and specific languages for easy communication at the
work place.
Qn: Explain the factors that determine the number of employees in an enterprise.
Qn: What are the factors that an entrepreneur considers when determining the number
and type of employees in his enterprise.
WORK PLACE MANAGEMENT

A work place is an area or place where production of goods and services is done. Examples of a
work place include carpentry workshop, a school, a shop, etc

One of the most important things that management has to do is to manage the business work
place in such a way that it can become efficient, effective and increase productivity.

ELEMENTS OF THE WORK PLACE

There are various aspects of the work place that need to be managed so as to increase
productivity of the business. Such aspects are called ‘’elements of a work place” and they
include storage and handling of materials, work stations, production machine handling, use and
safety, control of hazardous substances, lighting of the work place, welfare of workers, premises
and organization of work in the work place.

1 MATERIAL HANDLING AND STORAGE

This element looks at how materials can be stored and handled well at the work place. It is
important that at the work place, materials that are used in the production process are handled
and stored properly so as to create a good working environment and conditions which will
increase productivity of the business.

Ways of how materials can be handled and stored in the workplace.

  Removing materials and other items that are not frequently used from the work area and
stored away. Such items should only be put outside the storage facility when they are
going to be used.
 Provision of convenient storage facilities like racks for tools, raw materials, finished and
semi-finished products.
 Using a spacious store build under standard specifications for storage purposes. E.g. the
materials should be stored in dry and safe places to avoid dampness.
 Providing facilities for handling and removing products or raw materials from one place
to another such as moving racks, cranes, and other mechanical aids that can be used
when moving heavy loads.
 Using specially designed pallets such as trays to hold and move 1raw materials, semi-
finished and finished goods.
 Using store ledgers, bin cards and others for numbering and classifying materials in the
store.
 Use of coolers or refrigerators where need be i.e. if the raw materials require conditions
which are cool like milk, fish, meat and others.
 Materials should be stored in easily accessible places especially if they are heavy or
bulky.
 Expired or out dated materials should be disposed off to avoid contamination with the
good ones.
 If materials are branded, they should be stored in different storage areas.
Importance/advantages of proper handling and storage of materials in the work place.
Proper handling of materials results in the following advantages

 It reduces accidents at the work place.

 Reduces material damage and loss.
 Reduces time wastage
 Creates and encourages proper use of space.
2 WORK STATION.

A work station is a particular place where actual production of goods and services is done.
Examples include a classroom and a lab in a school, workshop floor in a carpentry, etc. Work
stations should be designed in various ways so as to allow and promote efficient and quality
work.

WAYS OF MANAGING/IMPROVING THE WORK STATION

 Providing furniture and other office equipment which is of the right size in relation to the
available space like chairs or benches of correct height with a steady back rest so as to
promote efficiency of workers.
  Providing a stable work surface for each work station. This however depends on the
purpose of the work surface for instance, a furniture workshop floor or surface differs
from that of an office.
 The work station should suit the type of business. i.e. the entrepreneur should ensure that
the space is large enough to enable smooth operations of the business.
 Putting electric and machine switches and other tools within easy reach of workers.
 Ensuring adequate lighting in the work station so as to improve on the quality of work
being done as well as increasing productivity.
 Putting aside equipment that is not in use to avoid obstruction and accidents in the work
station.
 Providing enough entrance and emergency exit in the work station so that workers can
easily escape in case of any danger.
 Improving on the heat protection of workstation and this can be done by providing
ceilings in the work station or by covering metal walls and roofs with insulating
materials or use of paint which can easily reflect heat.
 Providing enough natural ventilation by having wall openings like doors, windows for
easy circulation of air in the work station.
 Providing emergency, health and safety equipment such as fire extinguishers, first aid
equipment, etc.
 Providing proper hygiene and sanitation facilities and ensure that they are regularly
maintained like places for meals.
 Ensure that the work station is maintained as clean and neat as possible to allow workers
carry on work conveniently.
 Providing adjustable equipment whose height can be adjustable and controlled to avoid
bending positions or high hand positions which can inconvenience workers during the
production process.
 Changing work methods such that workers can alternate sitting with standing while at
work to reduce fatigue.
 Using lifts, levers or any other mechanical measures if required to reduce the work
required by the worker.
 Providing specially designed devices like clamps, vices and other fixtures to hold items
firmly while work is done.

ADVANTAGES OF A WELL-DESIGNED WORK STATION

 It enables workers to carry on work conveniently
 Enables workers to produce quality work
 Promotes efficiency in workers
3 PRODUCTIVE MACHINE HANDLING AND SAFETY
This element looks at how production machines can be used and handled safely at the work
place. For machines used in the production process to be made more productive and safe,
various measures should be taken by the entrepreneur.

Ways in which production machines can be safely handled and used in the work place.

 Switching off machines in case of any break down and report immediately to the
production technician if there is anything wrong with any machine than one trying to
mend it your self.
 Checking machines thoroughly to find out whether all levers are in proper positions
before they are switched on for use.
 Following instructional labels and guidelines on the use of machines so as to know the
safety rules regarding the machines before using them
 Making sure that they are well maintained and have no broken or unstable parts through
regular servicing.
 Avoiding using machines for something they are not designed for. Also, one should not
try to move machines from where they were originally placed.
 Switching off production machines whenever they are not in use or when there is
something wrong with it.
 Ensuring close monitoring and supervision of workers and the production process by the
foremen or engineers.
 Ensuring proper connection of machines to avoid power short circuits and damage to
machines.
 Cleaning of the machines frequently and oiling all hand lubricating points daily to
minimize wear.
 Training of workers on the use and maintenance of machinery to minimize accidents and
damage.
 Attaching proper guards or warning labels to dangerous moving parts and power
transmission equipment.
 Re-designing facilities like guards which interfere with visibility, production or
maintenance to allow seeing of what one may be doing.
 Using mechanical devices for feeding machines to avoid hazards and increase
production.
 Using trained and experienced labor force to avoid accidents.
 Covering machines while not in use.
 Making use of closest power point when plugging in the machines.
 Avoid messing up with machines if still running or plugged in
Importance of handling and using production machines safely

 Avoid machine accidents

  Maintain efficiency of the production machines
 Avoid depreciation of machines at a high rate.
 Avoid unnecessary expenses in repair and maintenance of machines.
4. CONTROL OF HAZARDOUS SUBSTANCES

This element is concerned with how dangerous substances at the work place can be managed to
avoid losses, enhance quality and reduce health complaints of workers. It is important that
hazardous substances are managed at the work place to increase productivity and this can be
done in various ways.

Measures that can be taken to control hazardous substances at the work place.

 Providing adequate and appropriate types of protective equipment like helmets, masks,
gloves, gum boots, etc to reduce exposure to hazardous substances.
 Training and instructing workers on how to use and maintain personal protective
equipment and regularly administer their use.
 Making sure that workers exported to dangerous substances wash their hands with soap
or any other recommended detergent before eating or drinking anything
 Making sure that all flammable substances used like petrol, acid, paints are kept and
covered in containers so that they are not easily exposed.
 Substituting hazardous substances with those that are less hazardous like organic solvents
with inorganic ones if possible like using artificial manure instead of organic manure.
 Making sure that workers read and understand instructions of using hazardous substances
before using them.
 Ensuring adequate provision of emergency, health and safety facilities like fire
extinguishers, etc.
 Ensuring adequate lighting in the work station so as to avoid accidents resulting from
hazardous substances and increasing productivity.
 Providing warning labels on hazardous substances or areas to minimize accidents
especially those which can easily catch fire.
 Introducing or improving local ventilation for easy circulation of air in the work station
 Ensuring proper disposal of hazardous substances to minimize health risks of workers.
Importance of controlling hazardous substances at the work place
 Helps to avoid losses since some substances can easily affect other materials.
 Helps to avoid accidents especially those which can easily catch fire
 Helps to minimize health risks of workers.
 Enhances quality in production
5. LIGHTING FACILITIES

This element is concerned with how the lighting system at the work place can be improved for a
quality working environment. This can be achieved through various ways.
Ways of ensuring proper lighting of the work place

 Maximizing the use of natural lighting system by providing enough ventilators windows
and doors.
 Using proper colour of paint which can easily reflect enough light for instance painting
the ceiling and walls with white or bright colours and ensure that walls are kept clean.
 Providing artificial lightening where necessary adequate for any type of work being
done. For example, adding light sources by installing reflectors or repositioning of
existing lights.
 Reducing obstruction and eyestrain from glare by repositioning of lamps or shielding
further, workers should be positioned in a way that they do not face bright light from
windows or other sources.
 Making arrangements to lock out light completely in cases where it is not needed.
However, one should ensure that there is enough air circulation for example in photo
studios especially where development of films is done.
 Cleaning windows regularly to let in light especially glass windows.
 Adding skylights and ensuring that they are always kept clean.
 Cleaning and maintain light fixtures and replacing bulbs regularly.
 Providing specific lighting or adjustable lamps for special type of work.
Importance of proper lightening of the workplace.
 Proper lighting improves productivity of workers.
 Proper lighting helps to improve quality of the products.
 Enables one to see objects being used clearly
 It is important for the safety of workers and machines.
6. WELFARE FACILITIES

This element looks at how welfare facilities for workers can be improved in order to increase
their morale and productivity. It is always important to improve the welfare of workers and this
can be done through providing various work-related welfare facilities.

Measures that can be used to promote welfare facilities for employees

 Providing adequate supply of food or feeding facilities especially when the workers are
to spend relatively long periods of time at the workplace.
 Providing regularly cleaned sanitary facilities close to the work place such as washing
facilities, washing soap, water, etc.
 Providing resting time for tea and lunch and resting places so that workers do not
become tired and bored.
 Providing enough supply of free, safe and cool drinking water for workers at the work
place.
  Providing places of convenience i.e. toilets which should be separate i.e. for women and
men and should always be kept clean.
 Providing inceptives to workers to motivate them such as medical allowances, transport
allowances, accommodation and others at the workplace.
 Providing recreational facilities for workers to entertain them like soft music, and tv like
in the school staff room
 Providing adequate and appropriate types of protective gears like helmets masks, gum
boots etc for workers at the workplace.
 In case where workers need special clothing, staff should be provided with such.
However, private changing rooms be provided if workers are to use work place clothing
 Providing adequate storage for workers’ belongings like clothing, bicycles, etc.
 Putting in place user-friendly facilities for the disabled at the work place.
 Providing separate comfortable and hygienic places for meals.
 Providing first aid equipment and training first aid providers
 Ensuring that noise pollution is minimized at the workplace.
Importance of improving welfare facilities of workers.
 It improves on the workers’ health
 Enhances the working morale of workers
 It increases productivity since workers will be happy and interested in what they
are doing
 Improving welfare facilities of workers improves working relationship between
workers and employers.
7. PREMISES/WORKPLACE DESIGN AND LAYOUT.

This looks at how management can improve on the workplace layout, working conditions and
organization for better efficiency and increase productivity at the work place.

Ways of improving workplace premises layout, working conditions and organization.

 Providing a signpost for the business for easy identification

 Providing a clean environment conducive to all workers so as to promote increased
productivity
 Ensuring enough natural ventilation by having more roof and wall openings like
windows, doors, etc
 Providing enough entrances and exits at the workstation so that workers can easily
escape in case of any danger.
 Improving on the heat protection of the building and this can be done by covering metal
walls and roofs with insulating materials or using paint which can reflect heat easily
 Providing adequate lighting system suitable for employees and the work done to allow
perfect vision.
  Providing passage ways which should be regularly cleared or provide barriers to keep
them clean
 Providing enough fire extinguishers within easy reach of workers. However, one should
ensure that workers know how to use such equipment.
 In case there are sources of noise, heat, fumes or welding, these should be out of the
work station or provide enough barriers or exhausts.
 Providing proper hygiene and sanitation facilities and ensure that they are regularly
maintained for instance places of meals.
 Arranging machines and tools properly for easy and proper movement of the workers
and materials without obstruction
 Avoiding irregular, entangled or worn wiring connections from the work place
 Providing adjustable equipment like working chairs or tables whose light can be adjusted
to avoid bending positions or high hand positions that can inconvenience workers during
the production process.
 Providing specially designed devices like trays, vices and other fixtures which can be
used to hold items firmly while doing work.
8. WORK ORGANISATION
This is the last element of the workplace and it is concerned with how work at the workplace
should be properly organized to optimize production and job satisfaction.
Measures that can be undertaken to ensure proper work organization.
 Using work schedules to ensure that work is completed on time and that a given
piece of work is done effectively and efficiently according to the schedules.
 encouraging specialization or division of labor i.e. sharing of tasks among the
workers
 Eliminating some tasks by using machines which can combine some operations
and improve efficiency.
 Using group work or quality circles to improve production and quality.
 Organizing tasks for workers in shifts so as to avoid work being done by similar
people all the time.
 Making frequent re-arrangements of workplace lay out, order, or production
operations to improve production flow.
Importance of proper work organization

 It avoids duplication of work

 It avoids conflicts within the workers
 It promotes optimum use of resources.
 Better work organization enhances job satisfaction of workers.
 Sample Questions

 1a) How can an entrepreneur control hazardous subsistence in an enterprise?

 b) Suggest possible ways of improving work place premises
 
 2a) Why is it necessary to improve worker’s welfare?
 b) In what ways is employees’ welfare improved in most enterprises

PLANT LAY OUT

A plant lay out can be defined as the arrangement of physical facilities such as machinery,
equipment, furniture etc. with in the factory building in such a manner so as to have a quickest
flow of materials at the lowest cost and with the least amount of handling in processing the
product from the receipt of material to the shipment of the finished product”

A good plant layout should do the following.

 Increase production. Work will be easier and will be done faster.

 Cut down on expenses. There will be less wasted time and material
 Improve working conditions. Workers will be more comfortable
 Increase safety. Since workers have room, accidents will occur less often and involve
fewer people if they do happen.
 Improve the way materials are handled. Raw materials will be located in the right places.
They will not have to be moved as far.
 Reduce wasted space. Each part of the floor space will be used in the best way.
It takes care of the following aspects:
 Storage facilities for materials, suppliers, goods in process and finished goods
 Space required for movement and provision for emergency outlet
 Room for further expansion
 The process flow and flow of materials
 Dispersal of industrial waste
OBJECTIVES OF ENSURING PROPER PLANT LAY OUT.

An efficient plant lay out is one that can be instrumental in achieving the following objectives;

a) To achieve proper and efficient utilization available floor space.

b) To ensure that work proceeds from one point to another point without any delay.
c) To provide enough production capacity through effective utilization of space which
allows expansion of production activities.
d) To reduce material handling costs hence reducing production costs.
e) To utilize labor efficiently by avoiding time wastage in production.
f) To increase employee morale by ensuring employee convenience, safety and comfort at
work.
g) To provide ease to supervision and control through following plant lay out of product or
process or any other type used.
h) To provide for employee safety and health by reducing accidents and hazards to
personnel in production.
 i) To allow ease of maintenance of machine and equipment in the production process.
j) To improve productivity by increased speed and efficiency of production.
TYPES OF LAY OUT.

An entrepreneur must posses an expertise to lay down a proper layout for new or existing plants.
It differs from plant to plant, from location to location and from industry to industry. It therefore
follows basic principles governing plant layout are however more or less the same.

There are three main types of plant lay out, namely.

1. Products or line layout

2. Products or function layout
3. Fixed position or location layout.
Products or line layout.

This is a plant lay out in which machines and equipment is arranged in one line depending upon
the sequences of operations required for the product. The materials move from one workstation
to another sequentially without any backing or deviation. Therefore, materials are fed into the
fist machine and finished goods travel automatically from machine to machine, the output of one
machine becoming input of the next, e.g. in a paper mill, bamboos are fed into the machine at
one end and paper comes out the other end.

A line layout for two products is given below.

PRODUCTS LAY OUT (SAMPLES)

Lathe Drill Grinder

Pain shop Assembly

PRODUCT B

planner Grinder Miller

Welding Lather

Process or functional layout:

In this type of lay out machines of a similar type are arranged together at one place or under one
dependant and hence are various departments arranged in order of sequences of operations e.g.
Machines performing drilling operations are arranged in the drilling department ,machines
performing casting operations be grouped in the casting department .Therefore the machines are
installed in the plants, which follow the process of production but with short distance between
the departments to avoid long distance of moving materials.

Hence, such layouts typically have drilling departments, milling departments, welding
department, heating departments and painting department etc.

PROCESS LAY OUT

Milling Drilling
department Planning
department deparment

Assembling Grinding Welding

department department department

Position or location lay out

This is a plant layout where the major product being produced is fixed at one location and
therefore equipment, labor and components are moved to that location. All facilities are brought
and arranged around one work Centre This type of layout is not relevant for small scale
entrepreneur. The following figure shows a fixed lay out regarding shipbuilding.

FIXED POSITION OR LOCATION LAY OUT.

SHIP BUILDING YARD

Material labor
Equipment Finished
Equipment product
Combined layout

This is the type of plant layout which combines all the three discussed above i.e. products,
process and fixed position lay outs. The combined lay out is mainly used in manufacturing
plants where several products are produced in repeated numbers with no likelihood of
continuous production since the different products may be having different processes.
FACTORS INFLUECING THE PLANT LAYOUT
While deciding the lay out of his factory or unit or establishment or store, a small-scale
businessman should keep the following factors in mind:
1. Factory building. The nature and size of he building determines the floor space
available for layout. While designing the special requirements. e.g. air conditioning dust
control, humidity control etc must be kept in mind.
 2. Nature of product. Products layout is suitable for uniform products whereas process
layout is more appropriate for custom-made products.
3. Production process. In assembly line industries, products layout is better. In job order or
intermittent manufacturing on the other hand, process lay out is desirable.
4. Type of machinery. General purpose machine is often arranged as per process layout
while special purpose machines are arranged according to product lay out.
5. Repairs and maintenance. Machines should be so arranged that adequate space is
available between them for movement of equipment and people required for repairing the
machines.
6. Human needs. Adequate arrangement should be made for cloakroom, washroom,
lockers, drinking water, toilets and other employee facilities, proper provision should be
made for disposal of effluents, if any.
7. Plant environment. Heat, light, noise, ventilation and other aspects should be duly
considered, e.g. paint shops and planting section should be located in another hall so that
dangerous fumes can be removed through proper ventilation etc. Adequate safety
arrangement should also be made. Thus, the layout should be conducive to health and
safety of employees.
Sample plant layouts.

PLANT LAY OUT FOR A MAIZE MILLING FACTORY.

The following are major elements of a plan lay out:

- Security room/section
- Parking yard
- Receiving and dispatching section
- Inspection room
- Ware house
- Processing section
- Maintenance section
- Production offices
- Power/generator room
- Waste disposal section
- Employee facilities like dressing rooms, serving places for lunch and break fast
 PLANT LAY OUT FOR A MILK COOLING PLANT.

Administ Main gate Reception Kitchen/cooking

ration
block

Parking yard
Dispatch
section

Cooling
Packaging
Inspection section
section
room

Waste
Toilets/bath
disposal
rooms

SITE PLAN.
A site plan is a drawing prepared on scale showing accurately and with complete dimensions,
the boundaries or property lines of a site and the location of all buildings, structures, uses and
principal development features on a specific piece of land.

It is a drawing that provides an overhead perspective or picture on how facilities or structures

such as buildings, parking areas, fence, etc appear on a given piece of land and the proposed
improvements.

A site plan is expected to show the following information;

- Title of the plan

- An accurate scale of the plan or drawing.
- An arrow indicating north direction.
- Property lines or boundaries of the piece of land planned with the actual dimensions.
- Street or road adjacent to the planned piece of land.
- Buildings and other structures and their overall dimensions
- Indication of the proposed improvements or changes.
- The distance from the boundaries or property lines to all existing and proposed
structures.

Sample sites plan.

A SITE PLAN FOR MUTIMA FRESH DAIRY
Kironde Road 20M To park Yard 10M
N
 Administration
block Main gate Security
office

15m Packaging Cooling section Kitchen/

section cooking
15m block

Toilets Disposal ground

30m

PACKAGING

Packaging refers to wrapping, crafting, filling or compressing of goods to protect or prevent

them from spoilage, pouring, contamination during handling, transportation, usage etc. for
packaging of a product to be successful, an entrepreneur must ensure that it is easy to use and
open; it is of practical size and has instructions which can be easily followed and understood.

TYPES OF PACKAGING
The common types of packaging include;
i) Bottling and canning
ii) Bagging (paper, polythene, plastic)
iii) Use of plastic containers
iv) Baling
v) Tinning
vi) Boxing or use of cartons.
The different types of materials used for packaging include;
i) Metals-aluminium , tinplate and steel
ii) Plastic-polythene papers, jerry cans and bottles
iii) Wood-cartons and packing cases
iv) Paper- paper, board and corrugated board
v) Glass- bottles
vi) Laminates- aluminium foils and plastic films
 vii) Polyesters
viii) Hessian/ jute for bags, etc
FACTORS CONSIDERED WHEN CHOOSING PACKAGING MATERIALS
1. Sources of packaging materials and supplies. Readily available sources are preferred by
most entrepreneurs to allow continuous production and supply
2. Availability of the packaging materials in the required amounts. Readily available
packaging materials and adequate in supply are preferred to those that are not readily
available and limited in supply
3. Unit cost of packaging materials required per production cycle and inventory levels to be
maintained. Packaging materials with low unit cost per production cycle are preferred to
those with high unit cost per production cycle to allow the entrepreneur earn profits
4. Cost of packaging in relation to the value of the good being packaged. Cheap but of high
quality packaging materials are preferred so as to allow the business to earn profits than
those which is expensive in relation to the value of the product to be packaged
5. Type of good to be packed- for example liquid, solid or gas etc. liquids products are
packaged in tins, bottles, can etc to prevent them from pouring but solid products are
packaged in boxes, bags, bales etc to prevent damages, contamination etc
6. Purpose of packaging. Businesses/manufactures/entrepreneurs with the major purpose of
informing the customers use packaging materials with a large space to include
instructions but manufactures with the major aim of attracting customers use attractive
packaging materials
7. Means of transport to be used. Water transport requires the use of containers, tins, bottles
etc as packaging materials to avoid contamination. Air transport requires light packaging
materials like paper bags, wooded boxes etc but road transport requires durable
packaging materials like containers, wooden boxes etc
8. Nature of the product. Durable products require durable packaging materials that can
maintain their life span but non-durable packaging materials require packaging materials
that can maintain their life span
9. Effect of the packaging materials on natural environment/environmental matters.
Packaging materials that are friendly to the natural environment are preferred to
packaging materials that are harmful to the environment like polythene bags
10. Quality of the packaging materials. Good quality packaging materials are preferred to
poor or low-quality packaging materials
The following are the factors that limit entrepreneurs from using certain packaging
materials.
1. High costs of the packaging materials increase the production costs which reduce the
entrepreneurs’ profits thus limiting them from using such packaging materials.
2. Inappropriate packaging materials in relation to the nature of the product, like; liquid
products may limit entrepreneurs from using packaging materials, like paper (boxes),
wood etc.
3. Inappropriate packaging materials compared to the means of transport, like entrepreneurs
who use railway transport and trucks are limited to using light packaging materials like
polythene.
 4. Inadequate packaging materials (raw). This limits entrepreneurs from using such
packaging materials so as to avoid unnecessary delays and shortages in the production
and selling process.
5. Poor quality or the packaging materials; which limits the entrepreneur form using such
materials, because they do not maintain the quality of the product.
6. Harmful packaging materials to the environment which limits the entrepreneurs form
using such materials. Since they pollute the environment which is against environment
rules.
7. Unreliable sources of the packaging materials, which limits entrepreneurs from using
some packaging materials so as to avoid, stand stills in the production process.
8. Failure of the packaging materials to suit the purpose of packaging like, having
inadequate space for writing information to the customers. Lime about the price usage.
Etc
IMPORTANCE OF PACKAGING
Packaging is useful in an enterprise as follows;
1. Protection. It protects the products from damage or getting spoilt especially during
transit and storage period.
2. Portability. It facilitates easy handling of goods and transportation up to the consumers
especially liquids, cereals, and flour like putting soda bottles in a crate.
3. Preservation. Packaging helps in preserving the content like; goods, especially food and
chemicals are protected from (against) atmospheric germs and contamination.
4. Promotion or advertising. Goods that are well packaged and attractive create a good
product image, hence promoting brand awareness to customers about the product.
5. Positioning. Packaged goods in relatively small sizes, that is according to weight, length,
volume, common usage, etc. increase the appeal of the products to large sections of
customers like children, adults etc.
6. Distribution. Packaged goods are easily delivered to customers. Like by mail order
services.
7. Product differentiation. Packaging helps entrepreneurs to make the looking of their goods
different from those of their competitors. This involves using unique packaging materials
in terms of colours, design, scent etc.
8. Self service; packaging facilities, self service since all the products are well packaged
and arranged.
9. Instructions and labels. Packaging enables easy labeling and giving instructions since
packaging materials provide space where entrepreneurs normally write the labels
instructions.
10. It saves the entrepreneur (saler) from weighting the products again hence saving time.
11. Ease of selling. Packaged goods ease the selling process, like some packaged goods can
be sold by automatic machines.
Questions
(a) Explain the objects of packaging in enterprise.
(b) Why is it necessary to package goods in an enterprise?
(c) Of what purpose of (is) packaging in an enterprise?
 (d) Explain the reasons of packaging business products.
Approach
Use to, in order to etc.
PURPOSE/RATIONALE/NEEDFOR/OBJECTIVES/REASONS/JUSTIFICATION OF
PACKAGING IN BUSINESS.
1. To protect the products from damage, or getting spoilt, especially during transit, and
storage periods.
2. To facilitate easy handling and transportation of the products up to the consumers
especially to the liquid products like soda.
3. To preserve the goods, like food products and chemicals in order to protect them against
atmospheric germs and contamination.
4. To promote and advertise the goods, because well packaged products attract customers,
and create brand awareness about the products
5. To position the packaged goods, because goods in small quantities or volumes increase
the customers’ appeals, like sweets.
6. To facilitate distribution of the products because well packaged goods can easily be
distributed or delivered to customers, like through mail orders, from mail order shops.
7. To differentiate products that is, packaging separates the products of one business from
those of another due to the quality of designs of packaging, materials used, etc
differentiate the packaged products of different businesses.
8. In order to facilitate self service, since all the products are well packaged, and arranged.
9. To also facilitate instructing and advertising since through packaging, the entrepreneurs
get space on the packaging materials to label the products and write the instructions for
usage or storage of the products for the customers.
10. To save the sellers’ time since they do not have to weigh the products again since they
are already packaged.
11. To ease the process of selling i.e. selling packaged products is easy that it can even be
carried out by automatic machines.
UTILITIES
These are services needed to support the business and include; water, electricity, telephone
services, transport etc.
1. Transport. This is the movement of goods and people from one place to another. It
helps the business to transport workers to their work places as well as raw materials to
their production units.
2. Security. This is needed to protect the business from an un authorized person who
intends to harm the business.
3. Electricity. It’s important in the running of the machines during the processing, lighting
the premises, operating cameras, etc.
4. Ware housing. Provides a safe storage for the business products (finished goods) raw
materials, semi finished goods, assets etc.
5. Advertising. This helps the business to promote its products to the customers.
6. Banking services. This accepts deposits for the business, provides loans to the business,
and other monetary services.
7. Communication services. This helps the business to get and send information to and
from the suppliers’ business partners etc.
 8. Education and training services. Those train the workers of the business in different
skills and abilities.
TRANSPORT IN PLANNING FOR A BUSSINESS
Questions
Explain the roles of transport in a business enterprise
What factors should be considered when choosing the means of transport?
Give the different means of transport that can be used by an enterprise.
This refers to the physical movement of people or goals from one place to another. In a
business, transport helps in distributing goods to the customers or getting materials (raw) from
their sources up to the business premises.
MODELS TO TRANSPORT USED BY DIFFERENT BUSINESSES
1. Road Transport. This consists of lorries, pickup vehicles, cars, wheel barrows bicycles,
etc.
2. Railway transport. This involves the use of a train and basically carries bulky good.
3. Water transport. It deals with the movement of goods over water bodies like. Lakes,
oceans, etc. by use of water vessels, like ships, boats, ferries, canoes, etc and mainly used
to transport bulky goods between continents.
4. Air transport. This involves the use of air crafts to carry goods and passengers from one
place to another. It is the most or swiftest and fastest or comfortable and convenient
mode of transport. It is very expensive, and normally used to transport goods of high
value, urgently needed goods like drugs highly perishable goods like flowers, and goods
of high value, like minerals.
5. Pipeline transport. This involves the use of pipes to carry liquids and gases like fuel,
water and gas products from one place to another.
FACTORS CONSIDERED BY ENTREPRENUERS WHEN CHOOSING THE MODE
OF TRANSPORT.
1. Availability of the mode. An entrepreneur should choose the mode of transport that is
easily available to be used whenever need arises. The chosen mode of transport should be
safe for the goods.
2. Cost of transport. The cost of transport should be relatively cheap compared to the
value of goods to be carried so as to avoid the goods becoming too expensive.
3. The nature of goods. perishable and urgently needed goods require the fast and swiftest
mode of transport like air, transport, i.e. aero planes while commodities with long life
span or durable and not urgently can be transported by railway, water, extra.
4. Size of the load. Bulky goods may be transported by railways or Lorries. If goods are
crossing the continent, water transport and if the goods are light, road and air transport.
5. Distance to be covered. Long distances can easily be covered by railways or air
transport while roads would be preferable for short distances.
6. Flexibility. If the goods are to be sold on any route, road transport would be the most
preferable system because it is entirely controllable by the entrepreneur like bakeries;
milk dealers, matooke etc use this system for their products.
7. The value of goods. Valuable goods like precious minerals like diamond, gold, silver,
etc are suitable for air transport.
 8. Speed and urgency. When goods are required urgently, the fast modes of transport like
air transport, is preferable but when goods are not urgently needed are preferable for road
transport.
IMPORTANCE OF TRANSPORT IN PLANNING FOR A BUSINESS.
1. Transport bridges the gap between the producer and a customer. In other words, it brings
goods produced to customers.
2. It facilitates the movement of raw materials form their sources to manufacturing firms for
processing into finished or semi finished goods with an added value, like tea from tea
leaves, maize to maize flour, sunflower to cooking oil etc.
3. It helps to transport the employees to their work places in time.
4. It helps in moving goods from areas of plenty to areas of scarcity, there by eliminating
black market.
5. It links entrepreneurs to markets where ever they may be.
6. Movement of goods from various places avails customers with a variety and choices.
This can create customers’ loyalty in the business because of the ability to purchase all
that is needed at one’s business or to one’s shopping centers.
7. It enables entrepreneurs to get off surplus stock to areas with high demand for it.
8. Transport also encourages the development of enterprises any where since entrepreneurs
are innovated to locate their ventures in areas with good transport system.
GUIDING QUESTIONS
- Explain five (5) modes of transport used by entrepreneurs in your country
- Explain the advantages of road transport to an entrepreneur.
- Explain the importance of utilities in business.
- Explain the advantages of utilities in the production process.
ADVANTAGES OF UTILITIES.
1. They enable the entrepreneurs to get information of about raw materials, prices of
products, new markets, sources of raw materials etc.
2. They provide security to the business, hence safeguarding business property and lives of
employees like, security groups i.e. SEK, ESCOM, SECURIKO, SARACEN etc.
3. They provide skilled workers to the business utilities like education institutions, and in
addition, they upgrade skills of existing employees, leading to high labour productivity
and efficiency.
4. They provide financial assistance to business in form of loans, hence facilitating their
activities like banking services or utilities.
5. They accept deposits of businesses, and also keep important documents of businesses
hence enabling businesses to get interest on their savings.
6. They enable businesses to promote their products to customers through advertising,
informing the community about the existence or different products.
7. They provide storage facilities to businesses like the ware housing utility. This enables
businesses to keep their raw materials, finished and semi finished goods.
8. They facilitate movement of business products, and workers from place to place i.e. form
producing units to market centres, and from home areas to work areas respectively.
9. They provide power needed in the production process, like for lighting, running
machines etc.
 10. They safeguard businesses against unexpected risks like the insurance utility protects
businesses from theft, accidents, fire out breaks etc.
11. They provide water needed in the production process like for cooling machines, washing,
raw materials and for domestic use by employees.

Qn: Why is it necessary to consider utilities in running a business?

- Explain the objectives of considering utilities in setting up a business.
- Explain the reasons for considering utilities in the production process.
OBJECTIVES OF CONSIDERING UTILITIES IN SETING UP A BUSINESS.
1. To enable entrepreneurs, get information about raw materials, prices of products, raw
materials, prices of products, new markets, prices and sources of raw materials.
2. To provide security to the business hence safe guard business property and lives of
employees through security groups like, SEK, SARACEN, etc
3. To provide skilled workers to the businesses through utilities like, education institutions
and in addition, they upgrade the skills of existing employees leading to high labour
productivity and efficiency.
4. To provide financial assistance to businesses in form of loans hence facilitating their
activities, like the banking services or utilities.
5. To accept the deposits of the businesses and also keep the important documents of the
business hence enabling the businesses to gain interests on their savings through the
banking utilities.
6. To enable businesses to promote their products to customers through advertising,
informing the community about the different business products, like the community
utilities.
7. To provide storage facilities to businesses like the ware housing utility. This enables
business to keep their raw materials, finished and semi finished goods.
8. To facilitate the movement of business products raw materials, and workers form one
place to another, that is form producing units to market centres and from home areas to
work areas, respectively.
9. To provide power needed in the production process like for lighting, running, machines,
etc.
10. To safeguard business against unexpected risks like the insurance utility protects the
business form theft accidents, fire out breaks etc.
11. To provide water needed in the production process, like for cooling machines, washing
raw materials and also used as a raw material in production of some products like drinks
(soft).

COSTS OF PRODUCTION

Costs. These are expenses that an entrepreneur incurs on production, buying goods and services
for his or her business or running business operations or
A cost is what detects an entrepreneur to produce or to acquire goods and service; the amounts
of direct costs incurred varies with the level of output e.g. in case of producing chairs, its cost
would include what it takes to buy timber, glue, nails, vanish, etc.
 Categories of costs. There are majorly two categories of costs namely:
a) Direct costs
b) Indirect costs
DIRECT COSTS
There are costs that are directly linked to the level of production of goods or services.
OR
These are costs that vary with the level of output produced i.e. when the level of output raises,
the total direct costs incurred arises.

Examples of direct costs

(i) Direct material costs. These refer to costs incurred in buying raw materials that can be
physically identified and traced to a particular product as part of the finished product.
Therefore, direct material are materials that can be physically identified e.g. timber or wood,
cotton
(ii) Direct labour costs (Direct wages). These are costs incurred on labour that can be specifically
identified or traced with the production of a particular product. Or are costs in form of wages
or salaries paid to workers who are directly involved in the manufacturing or production of a
product
Examples of direct labour include;
- Wages of workers who are directly involved in the operation of machines engaged in the
production process.
(iii) Direct expenses. These are expenses that are directly linked with production of a particular
product e.g. cost of hiring machinery to produce a particular product, expenses for water and
electricity thant can be traced to the units of goods or services produced etc
The total direct costs of a product are referred to as prime costs or direct costs,
Prime costs = Direct material costs + Direct labour costs + Direct expenses

Prime costs

Diect material costs Direct labour cost Direct Expenses

Exercise:
Mr. Musege incurred the following costs in his carpentry workshop:
Costs on timber shs. 500,000/=
Payments to machines and joinery staff shs. 200.000/=
Expenses on transport and water shs. 50.000/=
Calculate his total prime costs
Mr Polokoto in his business of juice processing had total prime costs as shs. 1.000.000/= out of
which he used shs. 250.000/= to pay workers and shs. 400.000/= to buy the necessary factor
inputs. Calculate the direct expenses he incurred
INDIRECT COSTS OR OVER HEAD COSTS
These are costs that can not easily be traced to a particular product
OR
These are costs that do not vary with the level of out put produced
Indirect costs also consist of;
1. Indirect material costs
2. Indirect labour cost
3. Indirect expenses
Indirect material costs
These are costs that are incurred on materials that are not traceable to a particular product e.g. in
a carpentry workshop indirect material costs would include; glue, vanish, lubricant etc.
Indirect labour cost
These are costs incurred on supporting labour to produce a given product e.g. costs on managers,
gate keepers, secretaries, tea girls or boys etc.
Indirect expenses or over head expenses
These are business expenses that are not linked to a specific product or a given level of out put
e.g. costs on rent, insurance, electricity, repairing of machines, telephone and office expenses.
Total indirect costs or over head costs is given by indirect material costs + indirect labour cost
+ undirect expenses

Indirect costs

Indirect material costs Indirect labour cost Indirect Expenses

The total of prime costs and over head costs is referred to as the total production costs
Example of indirect and overhead costs
Direct / prime costs Amount (shs) Indirect / overhead Amount (shs)
costs
Direct material cost 50,000 Indirect material costs 100,000
 Direct labour cost 150,000 Indirect labour costs 150,000
Direct expenses 40,000 Indirect expenses 60,000
690,000 310,000
Total Total Production 1,000,000
Costs
There other costs incurred by the business apart from production costs. These include the
following:
SELLING AND DISTRIBUTION OVER HEADS
1. These are indirect costs incurred during the selling and distribution of goods and
services. Examples include; Advertising
2. Sales promotion
3. Delivery expenses
4. Salary of foreman
5. Cost of samples given to potential buyers
6. Displays and exhibition costs
7. Printing and stationery costs
8. Packaging costs
9. Insurance for warehouse delivery van etc.
ADMINISTRATIVE OVERHEADS
These are indirect costs incurred by the business during the formulation of policies, direct
control, and management and monitoring of its affairs.
Examples include;
1. Printing and stationery for administration
2. Administrative salaries and allowances
3. Telephone expenses
4. Heating and lighting expenses
5. General expenses
6. Postage costs
7. Depreciation of office equipment etc.
Qn: Given that direct material costs, direct labour cost, direct expenses, indirect material,
indirect labour, indirect expenses, total indirect expenses, calculate;
(i) Total indirect costs
(ii) Total indirect costs
(iii) Total production costs
Direct material cost = 15,000/=
Direct labour cost = 50,000
Direct expenses = 20,000/=
Indirect material costs = 2000/=
Indirect labour cost = 30,000/=
Indirect expenses = 2000/=
Selling and distribution costs shs 300.000/=
Administration expenses shs. 200.000/=
ITEM AMOUNT (USH) AMOUNT (USH)
Direct costs
Direct material costs 15,000
Direct labour cost 50,000
Direct expenses 20,000
Total direct costs 85,000

Indirect Costs
Indirect material cost 2,000
Indirect labour cost 30,000
Indirect expenses 2,000
Total direct costs 34,000

Total production cost 119,000

Add: selling and distribution 300.000
Administration expenses 200.000
500.000
Total cost of the business 619.000
There fore Total cost of the business= Total production costs+ Selling and distribution
costs+ Administration costs
Revision Question
1. (a) Distinguish between indirect materials and direct material.
(b) State any three examples of indirect material costs
2. (a) Distinguish between prime costs and overhead costs
(b) State the various types of indirect costs?
3. (a) Distinguish between capital and working capital
(b) Discuss the various sources of capital to most entrepreneurs in your community.
4. (a) Distinguish between selling overheads and administrative overheads
(b) Explain any ten examples of selling overheads in an enterprise.

METHODS OF COSTING
Methods of costing

Different industries follow different methods for ascertaining cost of their products. The method
to be adopted by a business organization will depend on the nature of the production and the
type of output.

The following are the important methods of costing

1. Job costing. Job costing is concerned with the finding of the cost of each job or work
order. This method is followed by these concerns when work is carried on by the
customer’s request.
2. Contract costing. This is applied for contract work like construction of a dam,
building civil engineering contract etc.
3. Batch costing. A batch is a group of identical products. Under this method, a batch
is divided by the total number of units in a batch to arrive at the cost per unit. It is
generally in industries like bakery etc.
4. Process costing. This method is used in industries where production is carried on
through different stages/processes before becoming a finished product. Costs are
determined separately for each process.
5. Service (operating) cost. This method is used in those industries which render
services instead of producing goods. Organizations such as water supply department
and electricity department are the best examples of using operating costing.
6. Operation costing. This is suitable for industries where production is continuous and
units are exactly identical to each other. This method is applied in industries like
mines or drilling, and cement works.
7. Multiple costing. It is a combination o two or more of the above methods of costing
where a product comprises of many assembled parts or components e.g. a motor car
costs have to be ascertained for each component as well as for the finished product.
WAYS OF REDUCING PRODUCTION COSTS
Use by/through
5. By studying the production methods employed thoroughly to ensure that they are
efficient and effective.
6. By introducing supporting facilities like tools and fixtures whenever possible to ease the
process of handling work.
7. Fixing time standards for all operations should be done. For any operation or process,
minimum and maximum times should be noted and then time for the process
standardized.
 8. Through establishing the time gap between placing of an order and receiving the
materials to ensure that raw materials and other supplies are received on time and that
they do not disrupt the production process.
9. Through numbering the storage bins for easy reference and retrieval.
10. Through studying the process layout to ensure that slack times are removed, repetitive
operations and movement are avoided, and that the layout and organization of work
promotes efficiency and effectiveness.
11. By specifying employees’ duties and responsibilities to minimize conflicts, duplication,
lack of coordination and wastage of other resources.
12. Through proper storage and handling of materials to avoid spoilage and contamination.
13. By promoting good working relations to employees to reduce costs from strikes.
14. By recycling products to reduce costs of buying raw materials.
15. By contracting part time workers who are cheaper than full time workers.
Elements of costing

These include the following

- Direct labour
- Indirect labour
- Materials used directly for the job
- Other direct expenses
- Management expenses
- Administration including general office expenses
- Selling charges
- Distribution costs
- Profits
QUALITY CONTROL AND MANAGEMENT

Qn: Quality refers to the ability of product to meet the needs of customers.
COMMON TERMS USED IN QUALITY MANAGEEMNT
i. Quality Policy. This refers to the overall attention and direction of an enterprise with
regard to quality as formerly expressed by top management.
ii. Quality planning. This refers to establishing what an enterprise is going to do to achieve
quality.
iii. Quality assurance. This refers to all plans and systematic activities implemented within
the quality system and implemented as needed to provide adequate confidence that
quality will be achieved and maintained.
iv. Quality control. This refers to operational techniques and activities that are used to
fulfill quality requirements. or
v. It refers to the process of regular checks by an entrepreneur or regulatory authorities to
ensure that the product quality meets the laid down standards of performance.
vi. Quality system. This refers to an organizational structure, procedure, processes and
resources needed to implement quality management
MISCONCEPTIONS ABOUT QUALITY
There are many ways in which people misconceive quality of products due to some false
arguments which include:-
i. The higher the price, the higher the quality. Some people assume that the price, the
higher the quality of products. This is not true since today, some products are duplicated
and tend to be over charged.
ii. Origin of the product determines its quality. Or where the product was made form.
There is a perception that quality products are produced from specific countries. Like
quality watches are from Switzerland, quality equipment and household gadgets are
made in Britain or Germany while products from newly industialised countries and
developing countries are presumed to be of low quality.
iii. Brand name of the product determines its quality. Some people easy that a brand
name gives a product a goods or bad reputation or quality like radios, branded “Phillips”
may be assumed of a better quality than “Makula”.
iv. Consumers’ point of view. Consumers have different tastes and preferences and
therefore, perceive quality of a product differently.
v. Quality improvement will require new and large investment. Its true that new and large
investment in machinery tools and equipment enable us to improve quality but there are
other factors that contribute to quality too like technical discipline of workers, timely
payments.
vi. Some entrepreneurs entirely blame their workers for the poor quality of their products
yet in most cases; the management of the enterprise is responsible for the business’
failure.
vii. High quality costs much. Some people believe that to produce high quality products, it
will require high costs or expenses which is not true.

FACTORS THAT INFLUENCE THE GENERAL QUALITY STANDARDS OF

PRODUCTS IN AN ENTERPRISE
The general quality standards of products in an enterprise are influenced by a number of factors
as follows;
1. Hygiene or cleanliness of the production area/enterprise. A clean environment
enables an entrepreneur to produce high quality products like presence of clean utensil at
the work place, safe drinking water, but a dirty environment reduces the quality of
products in an enterprise.
2. The quality of raw materials. Good quality raw materials result into high quality
finished goods or products while low quality raw materials result into low quality
products.
3. The production process. A systematic or well organized and timed production process
results into high quality products while inefficient and disorganized process lowers the
quality of products.
4. Quality of human resource management/quality of management. Proper
management of workers in the enterprise like timely payments can motivate employees,
close supervision etc, contributes to high quality compared to poor human resource
management characterized with delayed payments which leads to low quality products in
an enterprise.
 5. Level/quality of financial management. Strict and proper financial management
encourages savings which are used for other business activities at quality, like research
while weak financial management leads to low quality due to less saving for other
activities that improve quality.
6. Quality standards or objectives set by an individual/entrepreneur(s). Entrepreneurs
with high set quality standards produce high quality products while entrepreneurs with
low quality set standards produce low quality set products.
7. The quality standards set by regulating authorities. High quality standards set by
regulatory authorities enable entrepreneurs to produce high quality products but low-
quality standards set by regulatory authorities lime the Uganda National Bureau of
standards make entrepreneurs relaxed, hence producing low quality products.
8. Handling of products during distribution/nature of the distribution channel. Good
methods used to distribute products to customers, maintain the quality of products but
poor methods used to distribute goods to customers negatively affect the quality of
products in an enterprise.
9. Level of monitoring and supervision. High level of monitoring and supervision of
employees leads to production of high quality gods and services but low level of
supervision leads to low quality products
10. Technical specification regarding quality and quantity of a product. Proper and
accurate mixing of ingredients leads to production of high quality products but improper
or wrong mixing of ingredients leads to production of low/poor quality products
11. Availability and quality of storage facilities. Adequate storage facilities with a good
quality maintain the quality of products but inadequate and poor quality existing storage
facilities lower/reduce the quality of products

The following are ways of ensuring quality in an enterprise:

Use by/through at the beginning of every point
- Through carrying out market research
- Through setting high quality objectives in an enterprise
- By purchasing and using good quality raw materials
- Through motivating employees
- Recruiting skilled workers
- Operating in a clean and hygienic environment
- Ensuring close monitoring and supervision of workers
- Giving clear instructions to workers
- Observing the technical specifications
- Ensuring proper packaging of products
- Training of workers
- Storing inventory properly
- Handling the products well during distribution
- By ensuring proper financial management
- Establishing a systematic and well-organized production process
- Observing the set quality standards by regulatory authority
- Employing skilled workers in the enterprise

How proper human resource management ensures production of high quality products
Ways in which proper human resource management promote the quality of products in an
enterprise
Use by/through
- Training of workers to equip them with necessary skills
- Motivating workers to encourage hard work
- Ensuring a proper organizational structure
- Employing skilled and qualified workers
- Giving workers detailed and clear instructions
- Providing a fovourable working environment
- Carrying out performance appraisal to enable judgment of performance respect to quality
- Ensuring discipline among employees to help promote unity and peace at work so as to
achieve quality
- Giving timely and adequate remunerations which make employees satisfied at work
- Giving workers appointment letters to work with job security
- Involving workers in decision making process

Ways in which proper financial control promotes the quality of products in enterprise
By/through
- Purchasing all equipment required in the production process
- Constructing the workplace in a systematic way that promotes quality
- By motivating workers through monetary rewards
- By obtaining and paying utilities in time e.g. electricity, water etc
- By financing research about quality management
- Paying workers remuneration in time
- By purchasing high quality raw materials
- Employed skilled workers in the enterprise
- Using advanced technology in the production process
- Buying durable packaging materials to protect the products from atmospheric germ,
spoilage etc
Questions
a) Explain the factors influencing the quality of products in an enterprise
b) Explain the factors that limit an enterprise from achieving the set quality standards.
c) Under what circumstances can an enterprise fail to achieve the set quality standards?
BENEFITS OF QUALITY CONTROL IN THE PRODUCTION PROCES.
An entrepreneur will realize many benefits if the products produced are of a high quality. They
may include the following.
1. It improves on the brand image of the enterprise through production of high quality
branded products which appeal to the customers.
2. It enables an entrepreneur to produce standardized goods which eliminates cheating of
the customers.
3. It reduces production costs by ensuring that the right amount and type of raw materials
are used in the production process.
4. It helps an enterprise to determine its production costs and the prices at competitive
levels in advance before production starts.
 5. Enables enterprise to comply with the set standards by supervisory authorities like the
Uganda National Bureau of Standards UNBS)
6. It helps the entrepreneur to maintain the image and reputation to the enterprise since it
will be known and liked for its high-quality products.
7. It helps an enterprise to achieve its set goals, and objectives concerning quality
specification e.g. if it wants to be a market leader with the best quality.
8. It increases sales since the quality of the products will attract the customers. This eases
advertisement and creates relationships between an entrepreneur and the customers.
Questions
 Explain the objectives of observing quality in an enterprise.
 Why is it necessary to observe quality in an enterprise?
 Explain the reasons for carrying out quality control in an enterprise. (Approach: To, or in
order to, etc)
OBJECTIVES OF OBSERVING QUALITY IN AN ENTERPRISE
1. To improve on the brand image of the enterprise through production of high quality
products and branded in order to appeal to the customers.
2. To produce standardized goods which eliminates cheating of the customers?
3. To reduce production costs by ensuring that the right amount and type of raw materials
are used on the production process.
4. To help an enterprise to determine its production costs and the prices, at competitive
levels in advance before production starts off.
5. Comply with the set standards by supervisory authorities like the UNBS and hence
producing feasible products.
6. To enable the entrepreneur to maintain to maintain the image and reputation to the
enterprise since it will be known and liked for its high quality products.
7. To achieve the set goals of the enterprise and its objectives concerning quality
specification like if it wants to be a market leader with the best quality.
8. To increase sales since the quality of the products will attract customers. This eases
advertisement and creates relationships between an enterprise the entrepreneur, and his
customers.

QUALITY AND PRODUCTION MANAGEMENT

Introduction
In the process of producing a product, the quality of the end products is influenced by the
activities in each phase of the production process. If low quality raw materials are used, or
purchased, it will not be possible to produce high quality products. This requires systematic
planning of the production process.

THE PRODUCT LIFE CYCLE

 This refers to the various steps or phases, and activities involved in producing a product,
starting with the conduction of market research up to the point of satisfying the customers’ needs
through technical assessment and servicing.
FEATURES OF THE PRODUCT LIFE CYCLE.
The activities or phases involved in the product life cycle have an impact on quality and they
include;
1. Carrying out market research. Under this phase, an entrepreneur finds out potential
customers’ opinion about a product.
2. Product design and development. This involves the actual planning of the shape, size,
colour, textured, extra; of the products to be produced.
3. Purchasing of raw materials. An entrepreneur then selects, and buys the desired raw
materials to be used in the production process.
4. Production of the products. This is the estate or stage which involves the transforming
of the raw materials through the use of inputs to produce the desired product.
5. Packaging and storage of the product. This is the step where the end product is
wrapped, compressed, etc to prevent and protect it against pilferage, contamination,
pouring; etc after packaging the product is stored.
6. Sales and distribution. This phase involves the offering of the products to customers
for sale and includes all activities that enable the product to reach the final consumer.
7. Installation (where necessary). If the product is a machine like grinding machine, the
entrepreneur organizes to have it fitted in a place ready for use. n
8. Technical assessment and servicing. This is the last step, where an entrepreneur visits
the customer to check on the performance of the products especially for technical goods
and when necessary, the entrepreneur does the servicing.
The above activities may be presented systematically in a mode known as the product life cycle.
Pilferage to seal things of little value or in small quantities especially from the place where you
work.
Grinding to break or crush something into small particles or powder

PRODUCT LIFE CYCLE

Technical assessment and

Market research
servicing

Installation (if necessary)

Product design and
development P.L.
Purchase of raw materials C Sales and distribution

Packaging and storage of the

Production of a product product
ENTERPRISES ACTIVITIES MODEL
This is another model, which is useful in upgrading the quality of the product. It is also called
the inputs process – output model
All work accomplished by an enterprise goes through a process. The outputs are results of the
process and are either tangible or intangible. The process itself is the transformation that adds
value and involves people and other resources to do the transformation.
COMPONENTS OF THE ENTERPRISES ACTIVITIES MODEL
The enterprises activities model is a method used in production processes to ensure land upgrade
quality products. It has three (3) components namely;
i. Inputs. This involves all the necessities of the production process like manpower
recruitment and management, financial management and capital involvement together
with purchase, transport, and storage of the raw materials.
ii. Process. This refers to all work that should be accomplished so as to come out with the
finished product. This involves activities like real production and planning and work
place management, human resource management and marketing.
iii. Output. This refers to results of the process which may either be tangible or intangible.
Output should be properly handled before distributing it to customers.
Enterprises, activities, modes

Marketing Human Resource management

Input Output
Production management Financial management
and planning

INVENTORY MANAGEMENT

Inventory refers to stock at hand in form of raw materials, goods in the process of production,
goods under repair and finished goods for sale, operating items etc.

Inventory management refers to control of stock at hand by ensuring that the business or firm
does not tie up too much working capital in stock so as to have continuous production.

Inventory management systems are rules for enterprises which smaller businesses and vendors
should have. The systems ensure customers always have enough of what they want and balance
that goal against a retailer’s financial need to maintain as little stock as possible.
Mismanaged inventory means disappointed customers too much cash tied up in ware houses and
slower sales.

Modern inventory management systems must have the ability to track sales and available
inventory, communicate with suppliers

CATEGORIES/ TYPES OF INVENTORY.

1. Raw materials. These are goods received by the business to be processed or transformed
in the production process to produce other goods and services.
2. Work in progress. This includes goods that are still in the production process and have
not yet been completed and therefore are not yet ready for sale.
3. Finished goods. These are goods that have gone through or completed the production
process but have not yet been sold.
4. Office supplies. These are materials used to support the production process for example
cleaning materials, stationary, computer etc.
INVENTORY MANAGEMENT.

Refers to control of stock at hand, ensuring that the business or firm does not tie up too much
working capital in the stock at the same time maintains enough stock in the to ensure continuity
of the production process.

IMPORTANCE OF INVENTORY MANAGEMENT

1. It helps to avoid tying up a lot of financial investment or working capital in inventories

since it ensures that enough quantity of raw materials is kept in store without excesses to
support continues production.
2. It helps to meet demand fluctuations and avoid embarrassing or expensive stock outs by
ensuring that the right quantity and quality of raw materials that match with the current
demand is kept.
3. Inventory management reduces stock losses while in stores through theft, expiry of shelf
life etc since it ensures maintenance of only the required amount of stock to sustain the
business production cycle.
4. Inventory management allows flexibility in production scheduling as well as marketing
scheduling.
5. It ensures timely replacement of raw materials for continuous production or replacement
of products / merchandise for sale thus ensuring continuity of the production cycle or
process.
NB, Objectives – use ‘to’ or ‘In order to’

INVENTORY MANAGEMENT TOOLS.

The main tools for inventory management or control include the following;

1. Re-order level. This refers to the minimum level below which stocks should not fall
before fresh orders are placed. This technique triggers the entrepreneur to make fresh
orders when stocks are running out.
 2. Lead time. This refers to the time it takes between when the entrepreneur places the
order and the actual time he receives the goods ordered for. In case it is long, then the
entrepreneur has to place orders for large quantities or place his order much easier to
avoid stock outs.
3. Working capital. This is the amount of money used to buy stock for a given business
venture or meet routine operating needs of a business.

TOOLS FOR STORE MANAGEMENT.

Stores are places where stocks are kept before they are sold or dispatched to the owners. They
help to protect the stocks from getting spoilt, damaged or stolen.

Store management refers to application of goods methods of receiving and keeping goods in
store such as having proper record system, proper protection of stock from getting spoilt, stolen
or damaged.

The following are the tools that can be can be used for proper store management.

i. Store cards. These are cards where information regarding the stock items kept in store is
written. They show the amount available and the corresponding dates when they were
received. A store card is kept for each item and every time an item is received or given
out the quantity received or given out is entered on this card.
Examples of store cards.
Date , particulars , Date of issue , Balance units, Issued to, Authorized by .
ii. Store requisition and issue forms. This is a document that shows he details of what is
being requested for and the corresponding record of issues. The person in need of an item
completes this form and gets it authorized by the responsible person.
iii. Physical stock counting/stock taking. This is where the stock is physically counted to
ascertain what is available and cross check what is expected to be there as per the stock
cards.
iv. Stock reconciliation. This refers to up dating and balancing all records regarding what is
in store to give a true record of what should be in store. The records are checked and
compared to what is physically or actually in store and discrepancy is cross checked and
accounted for.
v. Stock taking. This is the actual counting of the stock available in the store to ascertain
the number of goods kept in store.

PRODUCT LIFE CYCLE (PLC)

This is the period of time over which an item is developed, brought to market and eventually
removed from the market. To say that a product has life is to assert four things.
1- That products have limited life
 2- Product sales pass through distinct stages, each fetching different challenges,
opportunities and problems to the seller
3- Profits rise and fall at different stages of product life cycle
4- Products require different marketing, financial, manufacturing, purchasing and
human resource strategies at each life cycle stage.
SUMMARISING MAJOR EVENTS DURING PRODUCT LIFE CYCLE STAGES
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. The major
events during the PLC stages are as follows;

SALES

TIME
Introdun. Growth Maturity Decline
Withdraw
a) Introduction stage
At the introduction stage (or development 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 costs may be high in order to test the market,
undergo a launch promotion and set up distribution channels. It is highly unlikely that
companies will make profits on products at the introduction stage. Products at this stage have to
be carefully monitored to ensure that they grow. Otherwise, the best option may be to withdraw
the product.

CHARACTERISTICS OF THE INTRODUCTION STAGE

i. Sales generally are low and somewhat slow to take off. Customers are
characterized as innovators.
ii. Production costs tend to be high on a per unit basis because the firm has yet to
experience any significant economies of scale.
iii. Marketing costs required for creating customer awareness, interest and trial and
for introducing the product into distribution channels are high.
iv. Profits, because of low sales and high unit costs tend to be negative or very low.
v. Competitors tend to be few in number, indeed there may be only one major
player in the market place- the innovating firm.
b) GROWTH STAGE
The growth rate is characterized by rapid growth in sales and profits. Profits arise due to an
increase in output (economies of scale) and possibly better prices. At this stage, it is cheaper for
businesses to invest in increasing their market share as well as enjoying the overall growth of the
market. Accordingly, significant promotional resources are traditionally invested in products that
are firmly in the growth stage.

CHARACTERISTICS OF THE GROWTH STAGE

i) Sales increase rapidly during the growth phase. This increase is due to;
a) Consumers’ rapidly spreading positive word-of- mouth information about the
product.
b) An increasing number of competitors enter the market with their own versions of
the products.
c) Intensive advertising and other forms of promotion to create market awareness
stimulate interest in the product and encourage trial are done
ii) Costs are declining on a per unit basis because increased sales lead to longer
production runs and therefore economies of scale in production.
iii) Because sales are increasing and at the same time, unit costs are declining, profits
rise significantly and rapidly during this stage.
iv) Customers are mainly early adopters and early majority. It is the early adopter,
especially, that is responsible for stimulating the word of mouth (WOM) effect.
During the latter part of growth, the first major segment of the mass market,
called the early majority, enters the market. This category of consumers is
somewhat more price-sensitive and lower on the socio-economic spectrum. As a
result, these consumers are somewhat more risk averse and therefore more
hesitant to adopt the product.
v) Competition continues to grow throughout this stage. As the competition
recognizes the profit potential in the market, they enter the market with their own
versions of the product. As competition intensifies, strategies turn to those that
will best aid in differentiating the brand from those of competitors. Attempts are
made to differentiate and find sources of competitive advantage. In addition,
firms identify ways in which the market can be segmented and may develop
focused marketing strategies for individual segments.

c) MATURITY STAGE.
The maturity stage is perhaps the most significant stage for all markets. It is in this stage that
competition is most intense as companies fight to maintain their market share. Here, both
marketing and financing 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 THE MATURITY STAGE
a. Sales continue to grow during the early part of maturity but at a much slower rate than
experienced during the growth phase
b. Costs continue to rise during maturity because of market saturation and continually
intensifying competition
c. The only remaining customers to enter the market will be the late majority and the
laggards. These customer groups are by far the most risk averse and most hesitant to
adopt new products
d. Competition is most intense during this stage. The intensity of competitive in-fighting
drives the changes in costs and profits
e. Profits start declining

d)DECLINE STAGE
In the 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 facility
or sell the product into other cheaper markets
Characteristics of the decline stage
i. Sales continue to deteriorate through the decline stage. And, unless major change in
strategy or market conditions occur, sales are not likely to be revived
ii. Profits continue to erode during this stage with little hope of recovery
iii. Customers are primarily laggards
iv. There are a significant number of competitors in the industry at the beginning of this
stage but as decline progresses, marginal competitors will flee the market and only larger
competitors with significant market shares remain
v. Sales promotions is aimed at providing customers with price concessions

e) WITHDRAWAL STAGE
At this point there is a downturn in the market. For example, more innovative products are
introduced or consumer tastes change. There is intense price-cutting and many more products
are withdrawn from the market. Profits can be improved by reducing market expenditure and
cost cutting

Examples of products that are currently at different stages of the product life cycles

Introduction Growth Maturity Decline

Fourth generation Portable players DVD, personal Typewriters
mobile phones computers
E-conferencing Email faxes Handwritten letters
All-in-one racing Breathable Cotton T-shirts Shell suits
skin-suits synthetic fabrics
Iris-based personal Smart cards Credit cards Cheque books
identity cards
Problems with product life cycle
 i. The decisions of marketers can change the stage, for example, from maturity to decline
by price-cutting
ii. Some products do not go through all the stages i.e. some go from introduction to decline
iii. It is not easy to tell which stage the product is in
iv. The length of each stage varies enormously

PRODUCTION PLANNING AND CONTROL

Components of production planning
The following are the most important parts of a production plan
1. Raw materials: these are materials needed to make a product.
2. Labour planning: this involves the determination of the number of workers, skills and
wages or salaries of the labourforce.
3. Costing: this is the determination of the total cost of producing one product, including
costs of materials, direct labor etc.
4. Plant location: the site of the plant chosen should be viewed in relation to other
equipment or facilities in the environment.
5. Office space: this refers to the number of office space required for the key personnel to
operate.
6. Capital equipment: the number or list of equipment needed in the manufacturing process
should be known that is it should be clear whether the equipment should be rented or
built or purchased.
7. Work scheduling: the scheduling should be done properly so that there are no loopholes
that make the workers idle at certain times.
8. Waste disposal: this refers to the placement of waste into or on the land. Disposal
facilities are usually designed to permanently contain the waste and prevent the release of
harmful pollutants to the environment.
9. Packaging: refers to wrapping, crafting, filling or compressing of goods to protect them
or handle, transport
Specific Business Control Systems

Mechanism for controlling business assets

The assets which need protection often by multiple systems include:
a) Cash

-
All cash should be recorded on sequentially numbered sales slips. Each customer should
get a receipt.
- You should utilize a daily cash reconciliation worksheet to record all cash receipts and
the cash register or sales slips totals.
- Do not accumulate cash. You should have a private area for counting your money. You
should make frequent trips to deposit the money in the bank.
(b) Accounts receivable

-
Maintain a file of accounts receivable cards with one card for each active account. All
charge sales and amounts received on account should be posted daily.
- Analyze your accounts receivable on a regular basis and write letters or make phone calls
to accounts that are slow in paying.
(c) Inventory of merchandise for sale or raw materials
 - Set up a perpetual system with a card for each item. Record all sales/receipts on the card.
- Take a physical count of inventory at least one year and post the actual amounts to the
cards to determine the shilling value of inventory storage.
- Place valuable inventory items in a safe or locked storage room and require that all items
removed be recorded in a sign out box.
- If you deal in appliances, auto or other items with serial numbers, keep an inventory file
on cards by numbers so that you can then enter the name and address of purchasers .
- Analyze your inventory control cards to determine frequency of use or sales.
(a) Physical assets

- Maintain a file of information on all buildings and building improvements, vehicles,

furniture, office machines, machinery and tools that you expect to last more than one
year.
- Maintain a depreciation schedule listing all depreciable equipment and showing your
method and amount depreciation claimed for each year in the life of each item.
(b) Customer merchandise

i) Keep a file by date on which completed work was promised. If the items are not
picked up, call or send a letter to remind the customer.

ii) Do not release goods unless you get cash, a cheque or a signed promise to pay.

Internal System of Small Businesses

Control over business operations may be exercised in the following areas;

(a) Purchasing

- If possible, buy from at least two suppliers to keep a check on prices. This helps you to
overcome hardships like shortage of materials.

- Keep your eyes open, talk to sales people, read trade magazines and visit trade shows to
determine new products that you should be carrying and see how marketing trends might
affect your present business.

(b) Quality control

- Spot check your merchandise to make sure it is up to your own quality standards with
respect to the price.
- Keep an eye on your merchandise. If you spot slow moving items, reduce the price to get
rid of them so you can keep faster moving items on your shelves.
- Survey your customers from time to time to determine if they are satisfied with your
level of product quality and service.
- Discuss merchandise returns with customers to determine the sound of their discontent.
(c) Employee moral
Keep an open channel of communication so that you are made aware of any problem which
might reduce efficiency or cause employees to quit/sabotage your business.

(d) Financial analysis

- Divide your business into logical profit centres if you are performing more than one
function or selling multiple product lines. Establish a record keeping system that allows
you segregate your income and purchases.
- Compare your operating costs and profits to find similar businesses or industry averages
to find areas for improvement.
(e) Cost controls

- Analyze your labour efficiency to see if your workers are performing up to their ability.
Higher wage for more experienced workers should be reflected in more output or higher
quality.
- Look for ways to cut added extras out of your business without lowering customer
satisfaction.
- Continually scrutinize your operating expenses to find ways to reduce costs through
more efficient tools and methods or materials.
(f) Sales

- Set sales quotas and keep track of your sales find out what motivates your employees to
perform up to their full potential.
- Check the effect of seasonal variation on your sales and examine ways of smoothing out
your sales to acheve better utilization of your facilities throughout the year.
- Learn how to advertise your business correctly and efficiently.
(g) Pricing
- Be sure to set your prices high enough to provide a gross margin that allows for a
reasonable profit after your expenses are met.
- Ensure that your prices in line with completion so that you do not lose sales.
- Mark down end of season merchandise to get rid of it.
Technology in production
Technology means the practice of any or all of the applied sciences that have practical value
and/or industrial use.
It refers to “how” of doing something.
Types of technology
There are two main types of technologies namely;
i) Indigenous technology. This is the art developed within a country and passed over
the years from generation to generation, often with no development or improvement.
ii) Advanced technology. This is technology that has been developed from modern
scientific principles.
Technology can also be classified as;
- Adapted technology
- Transferred technology
 - Appropriate technology
TIME MANAGEMENT
This refers to the use of available time appropriately to increase productivity in an enterprise
Hidden time. Refers to time that the entrepreneur or the business has previously mismanaged,
consumed with destructions, or used for other tasks or activities that are turned into productive
time for pursuing priority tasks. For example the entrepreneur may use the 10minutes waiting in
the supplier’s office to plan, dictate or to receive calls of clients
Executive time
TECHNIQUES OF ENSURING EFFECTIVE TIME MANAGEMENT
1. Spending time planning and organizing first. This involves using time to think and plan
what to do in a day or a week
2. Setting goals/being goal oriented. This technique requires an entrepreneur to set goals
that are specific, measurable, realistic and achievable. This gives him a direction on how
to use his time effectively
3. Prioritizing time. This involves prioritizing your time to concentrate on items or tasks
with the greatest rewards or allocate more time on your priority activities
4. Setting a daily “to do” list. This involving preparing a list of activities to be done in a day
or a week and what to begin with first and to end with
5. Establishing deadlines. Setting realistic deadlines (time periods) for certain activities is
one way of managing time effectively since it enables an entrepreneur to accomplish
more tasks
6. Being flexible in time usage. This involves scheduling time for unexpected, unplanned
emergencies. this enables the entrepreneur to handle interruptions and destructions
7. Considering your biological prime time. This is the time of day when you are at your
best. It is important to identify your biological time and you use it to do your priority
activities
8. Doing the right thing right. This involves identifying the right thing to and then
concentrate on efficiency or doing it right because “doing the right thing is more
important than doing things right”
9. Practicing the art of intelligent neglect/learning to say “no” to useless activities. This
enables an entrepreneur to allocate his/her time on activities that are beneficial to the
business
10. Avoiding being a perfectionist. This saves the entrepreneur from over concentrating on a
particular activity where he/she can not yield maximum benefits
11. Breaking bigger tasks into small tasks and handle one at a time. This gives the
entrepreneur more courage to accomplish smaller tasks than bigger tasks
12. Being action-oriented. This involves outlining specific course of action to solve specific
problems
13. Being reflective. Reflective thinking is the act of learning from one’s past, present and
potential future activities. This enables an entrepreneur to be focused
 14. Questioning your self on time usage. Generate questions on how you use time in a day or
a week or a month
15. Taking notes. This involves recording thoughts and ideas, future appointments and things
to do etc reduces wastage of time
16. Motivating your self. This involves promising your self a reward for completing each
task or finishing the total job
Why is it necessary to practice good time management in an enterprise?
Why is there a need for effective time management in an enterprise?
Begin with to/in order to
1. To minimize resource wastage by particularly making use of raw materials and other
resource inputs before they go bad
2. To ensure perfect customer- care relations by serving them as quickly as possible
3. To increase sales as sales deals are quickly zealed so that many customers are served by
the end of the day
4. To increase productivity of an enterprise in the shortest possible time, this enhances
quick business expansion
5. To withstand competition
6. To ensure production/provision of good quality products
7. To ensure timely stock-taking for timely re-stocking
Explain the importance of effective time management
Use “es” tense on the above points e.g. it ensures, it provides etc