Thursday December 08, 2022

Costs of mismanagement

November 12, 2022

LAHORE: Cost of doing business is high not only due to government policies but also due to lethargy of the productive sectors that continue to operate with low power and energy efficiency, lower workers productivity, higher wastages and low marketing skills.

Power and energy is a major input cost of many industries. In textiles the power and energy is a major cost of production, this cost is higher than the main raw material in case of plastic industries.

The energy and power cost is extremely high in the steel industry. Apart from high power and energy tariff the inefficiency of their use also increases the cost. The efficiency could be improved substantially through proper energy audit conducted by energy experts.

It has been proved that 15-25 percent improvement in power and efficiency could be achieved if changes in procedures are made as suggested by the energy auditor. The cost of these changes are minor and could be recovered through power and energy savings in 6-12 months.

Workers’ wages and other expenses born by an enterprise account for 15-20 percent of the production cost. Productivity is linked to the working environment, quality of human resources, and healthcare facilities. Workers productivity in Pakistan varies in the same manufacturing sector from company to company.

The workers’ salaries and expenses are lower in those industries operating with high workers productivity.

All manufacturers must strive to increase their workers' productivity.

Productivity experts engaged by the Small and Medium Enterprises Development Authority in the apparel and auto parts sector have demonstrated that the efficiencies in delivery, set-up time, labor, wastage control, repetition of work could be improved simply by streamlining the procedures without any financial investments. Wastages are a major expense in the manufacturing sectors of Pakistan.

Productivity improvements of up to 40 percent have been recorded in both apparel and auto-parts sectors by streamlining procedure. Entrepreneurs in Pakistan tend to neglect the good management policies and capacity building of their human resource.

The improvement in productivity of reformed industries should be highlighted and appreciated at the highest level to motivate over 99 percent of our industries that are operating inefficiently due to procedural flaws.

Marketing is the weakest link of our manufacturing sector. Instead of employing professionals for sales they tend to engage salesmen on very low or no salary and pay commission on the basis of orders that they bring. Use of social media is rare.

The state must facilitate the manufacturing sector when its competitiveness has been hurt by concessions provided to their counterparts in all other economies. However the state must not patronize inefficiencies. The facilitation it provides should be linked to improvement in their efficiencies.

Major Job creation would come from the SME sector. Unfortunately the productivity is lowest in these enterprises. The SME badly needs government attention. There must be provisions for small enterprises in any package that the state designs for the larger industries.

Authorities must realize that less than one percent of over 4 million small and medium enterprises in the country are in the documented sector. Even these enterprises are operating at low efficiencies. The situation in the remaining 99 per cent SMEs is much worse.

While announcing a relief package for the regular industries the government should motivate the non-documented SMEs to improve energy and procedural efficiencies.

It should provide concessionary credit to these enterprises for the upgradation of their technology.