IMPACT OF POWER CRISIS ON EXPORTS' QUALITY

DR. GHULAM RASUL AWAN & NASIR RIAZ
(feedback@pgeconomist.com)
June 28 - July 04, 20
10

Currently, Pakistan is facing worst ever power crisis due to an estimated shortage of 4000 MW which may increase to 6000 MW by the end of the year. Consequently, power supply remains suspended on an average duration of 10-12 hours a day. The Demand-Supply gap is widening with each passing day which calls for fast track solution.

The interrupted power supplies are adversely affecting every thing and every body including common person and industries.

Industries consume almost 40 per cent of total power supply, and it is the biggest looser in this crisis. This is an alarming situation because industrial sector's output directly affects national GDP growth rate. Its efficiency and productivity has a direct relation with current electric power crisis.

According to a report, Pakistan's international trade is suffering huge deficit due to low demand for its exports. In international markets, Pakistani products are slowly loosing demand due to uncompetitive prices as well as inferior quality.

Industries like agro food, sports goods, glass, mineral and metal, chemicals, surgical instruments, sports goods, textile garments, and leather products have lost considerable portion of their export businesses due to quality deterioration. Ironically, importing countries are placing exports orders in countries with more reliable and effective infrastructure.

It is a well known fact that "Quality Sells" and this is universal truth in today's cut throat competitive environment. Majority of Pakistani industrial manufacturing units are already on lowest ebb in terms of capacity utilisation due to low sales volumes and less orders arising out of frequent power breakdowns.

PRODUCT QUALITY CONCEPT IN MANUFACTURING

Product quality is influenced by many stages of interactive activities such as design, production, operation and maintenance.

European Organisation for Quality expresses product quality as the degree to which it meets requirements of the customer. With manufactured products, quality is combination of quality of design and quality of manufacture.

Quality of design is determined by the degree to which product's quality fits consumer demand. Quality of manufacture, (also called as quality of conformance), is determined by the degree of conformance of individual units of the manufactured products with a standard (design, specification of requirements) decided by the design function.

Products are made by a variety of processes. Processes can be very simple, and can be very complex. Greater emphasis is placed on the production processes where actually material is converted into manufactured product.

UNIDO expert on quality Prof Edward Kindlarski has strong opinion that quality of manufacture is a function of quality of its production process. The quality of production process is in turn dependent on quality of following essential components:

1- Materials and Power
2- Machines, tools, devices, etc.
3- Manpower
4- Management.

These four components or ingredients if mixed properly at the right ratio will produce the desired level of product quality. Any alteration in any one of these components will change the whole equation of production process and thus the quality of product.

The text presented in this paper is primarily based on a study which was carried out across some key industrial units where quality of final product is highly sensitive to the quality of production process which in turn is dependent on quality of inputs especially power. These industries were ready made garments, food processing, rice mills, chemical and metallurgy. Most of these industrial units were mainly export oriented.

MATERIAL AND POWER

The inputs which go in making final product have a direct relation with quality of final product. Materials contribute about 60 per cent of inputs in a product. Necessarily, an uninterrupted electric power supply is required for smooth conversion of raw material to work in process (WIP) and then to finished goods.

Frequent power failure increases spoilage /wastage rate of raw materials and other inputs during production process which severely impacts quality of finished products. The importance of smooth uninterrupted power supply can be highlighted from the fact that many industrial units especially in textiles, chemical and food processing industries have set up their own power generation facilities at the cost of millions.

MACHINES AND TOOLS

In this area it has been found out that 50 per cent of the companies across these industries reported that their annual maintenance costs have gone up by 30 per cent which is eating out their profit margins. The main reason cited was that machines do not perform at optimum level as frequent power breakdown has increased wear and tear and in some case direct damage to machines. Resultantly, they are unable to maintain consistent product quality as per their buyer's specification.

MANPOWER

Frequent power breakdowns have marked effect on the efficiency, motivation and morale of the workers. They stay idle and loose their concentration and continuity at work. Workers involved in sensitive processing areas were found to be making more deviations from set quality standards. In textile sector it was found that the number of rework and rejection in garments at stitching and finishing stage has increased by 25 per cent overall due to frequent power failure. In terms of cost of output loss, re-work and overtime, there has been overall increase of 30 per cent in total manufacturing cost. This has seriously affected the profitability of firms, and they are forced to compromise on quality by hiring cheap low skilled manpower in order to make up for lost output and profits.

MANAGEMENT

Manager's performance has traditionally been evaluated on the basis of quality of product produced and meeting the production targets. Shortage of electric power provides lesser working hours in a day, which in turn has increased the priority of meeting production targets over quality of product. Now, managers can hardly meet production targets with existing manpower and equipment. Quality of product has not remained the top priority.

CONCLUSION

The critical issue is to see how the impact of power crisis on product quality translates into economic loss to the nation. As mentioned earlier in this article that the number of industries which are suffering due to current power crisis are mostly export oriented. According to TDAP report, there has been a decreasing trend in exportable value added commodities during the period July-April 2009-10, both in terms of value and percentage when compared with the same period 2008-09.

In our opinion the biggest loss is of intangible nature. In international markets Pakistan is loosing its image, trust and goodwill with the buyers of its products. Today, Pakistan is being perceived as unreliable manufacturer of goods and it is loosing its competitive position in value added high quality goods market. This is because our firms cannot deliver on set quality and time parameters due to frequent load shedding and interruptions disturbing their manufacturing process. In order to make up for lost output, firms try desperately to deliver and recover costs' as well. In this process consciously or unconsciously they compromise on quality standards which ultimately result in lost orders.

Unless the issue of power crisis is tackled on war footings by the government, it is feared that the brand name "Made in Pakistan" will be associated with inferior quality products, and it will be difficult to eliminate the widening trade deficit. Furthermore, the management of industry should remain focused on their first priority quality.

Dr Ghulam Rasul Awan is a Professor of Operations Management and Prof Nasir Riaz is Assistant Professor of Management at University of Central Punjab-Lahore.