The Importance of Efficient Purchasing in a Manufacturing Company

The Importance of Efficient Purchasing in a Manufacturing Company

CHAPTER ONE

1.0 INTRODUCTION

BACKGROUND OF THE STUDY

Purchasing is concerned with the “process of defining the privet sector needs, selecting suppliers, agreeing terms, placing the order and receiving goods and services. It is by its nature of service” function-oriented to providing a complete supply service for users within the organization.

Purchasing according to Oyeoku (1993) is referred to as a function of business that enters into contracts with the privet sector suppliers and final places orders with them. Where the function of procurement is emerged with that of the store, the receive and pay for the goods and service in other to receive on behalf of the private sectors. purchasing can also be defined according to oyeoku (1993) as the act of accomplishing through identifying and comparing the suppliers as well as their suppliers that are available to the organization through the process of negotiation with the sources available to them with the sole intention of arriving at an agreed term to limit cost and improve the organization profit.

According to Lyson (1984), he defines privet sector purchasing is that function that is responsible for obtaining by purchase, equipment, material, lease, or other legal means, supplies, and service required by an undertaking for production use.

In this definition, the word purchasing has been used in an economic sense of defining the function of creating utilities goods and services that satisfy human wants.

Purchasing does not confine to manufacturing output but also applied to even distributing, and services organizations.

The importance of efficient purchasing to manufacturing organizations cannot be over-emphasized, ‘that is it is to create an efficient supply of equipment, fuel raw materials, component, power, and another consumable service for use by industries.

Long ago buyers were employed to buy production material without proper research on the market to obtain the right quality at the right price, and with a high increase of profit to the organization.

Today purchasers are trash to have privet sectors needed in an efficient economical and wiser from for equipment to organization. This approach was only successful when services or goods are not many substitutes, when there was an abundant material and when many managers took resources for granted.

According to Baily (1987) organizational purchasing is the process by which the private sector define the needs for goods and services, compare the supplies and suppliers available for them, arrive at agreed terms of trading and make contracts and place orders, also accept, revise and pay for the goods and service supplied.

The numerous diverse item that is constantly needed and when the quality of material influences the cost of manufacturing the final product, then a private sector purchaser function becomes particularly very important, and this demand close attention.

Therefore public sector should realize the fact that the buyers are the custodians of organization purser and hence economists are derived purchasing provide direct saving on cost and contribute to cash increase flow

According to the institute for supply management purchasing is defined as a major function of required material service and equipment.

1.2 HISTORICAL BACKGROUND OF THE STUDY AREA

Taimacon Aluminium MFG. Co Lt started as an aluminum products manufacturer over 43 years ago and expanded into other sectors such as food and spices, textiles, and more. The group is committed to quality and highly adept at identifying new business opportunities and challenges. After Taimacon Aluminium, its flagship company, Taimacon Aluminium also established a textile unit, Kitex. The ScooBee Day and Trawellday Bags division under Kitex caters to the constant demands for school bags, travel bags, and similar products. Saras Spices, launched in 1979, is a major player engaged in the processing and distribution of spices, branded curry powders, and masalas. Taimacon Aluminium has always been focused on expanding its possibilities through diverse products and brand portfolios. From fast-selling Aluminium utensils to much-in-demand anodized aluminum extrusions, Anna Group is consistently developing its potential. The company’s state-of-the-art manufacturing units produce Aluminium sheets which are in high demand in the construction industry.

1.3 STATEMENT OF PROBLEMS

In recent years, it has been noticed that purchasing has not been accorded the status that it deserves in the private sector.

The major problem lies in the fact that in the private sector everybody wants to buy in purchasing decisions. It is also surprising that the departmental manager or heads contract for the purchase of raw material even as furniture and the general manager apart from the part he plays when capital items are concerned is interested to know the particular vendor to whom the contract is awarded to the selfish interest.

Company executives are not convincing of the procurement or service of an efficient and effective service render by purchasing department and the full benefit through purchasing department.

In some manufacturing, the purchasing departments are not constituted with qualified people and therefore are not competent enough to tackle the trends in purchasing function. 

1.4 OBJECTIVES OF THE STUDY

The researcher undertaking the study of the need for efficiency is purchasing and store management in the private sector.

It highlights the functions of purchasing which centers on the co-ordination and control of material costs and maximizing profit therefore the purpose of the study with special interest and the privet sector is narrowed down in the following point.

1. To examine the caliber of staff employed for the performance of purchasing function.
2. To ascertain the extent the purchasing importance have been adopted
3. To find out purchasing contribution of profitability and efficient running of the store management.
4. To stress the importance of purchasing in-store management in the private sector.
5. To find out the relationship between the purchasing and another department.

1.5 SIGNIFICANCE OF THE STUDY

The importance of the study lies in the profitability contribution of the purchasing function to a firms operation, especially in-store management in the private sector where material and services account for about 85% of its total input as it knows that 4%saving in purchasing can contribute to the same amount and mark- up of 20% on sales.

The significance of the study derives its usefulness in the following ways.

1. To the company, it will highlight the impact of purchasing on profitability.
2. Students or anybody that does not have an idea of the role of the purchasing function and its contributions to profitability. If come across this project will also gain and know as well. And also use this project as a research book
3. Finally, It is hoped that the findings and recommendations will help other organizations to begin to accord purchasing and supply function recognition if they must make a profit. 

1.6 RESEARCH QUESTIONS

In the bid to achieve the objectives of this research work, the following research questions will be treated, thus;

1. Does the role of the purchasing agents enhance the privet sector’s needs for selecting suppliers, agreeing to terms placing orders, and also receiving service in-store management?
2. Does the role of purchasing regarding the negotiation of the right price for the goods influence the efficiency of store management?
3. Does the function of purchasing involve ensuring that goods arrived at the right time and place?
4. Is effective purchasing power necessary for the purchase of raw materials used in the manufacturing industries?
5. Does efficient purchasing ability promote the profitability and productivity of a manufacturing organization?
6. Does purchasing ensure a good source of supply?
7. Do purchasers help in the evaluation of potential suppliers before dealing with them for agreement into the continuous supply of material to the organization?

1.7 RESEARCH HYPOTHESIS

In the course of this research work, the following hypothesis will be tested, thus

H_o:    There is no significant relationship between effective and efficient purchasing ability and the profitability of manufacturing industries.

H_A:    There is a significant relationship between effective and efficient purchasing ability and the profitability of manufacturing industries.

SCOPE OF THE STUDY

The scope of this researcher’s work comprises all the factors that ensure efficient purchasing within the manufacturing organization. For the sake of coherency, specification, and distinctive, the study has chosen as a case study the Nigeria Bottling Company coca-cola plot 82 industrial layouts Trans Amadi Port Harcourt through the findings can vividly and validly be applied to all the business organizations at large.

LIMITATION OF THE STUDY

The important limitation on this research factor is the time involved in gathering facts and compilation, especially the examination of the researcher is having other factors include financial problem, lack of textbooks and as well as the attitude of respondents in dividing information term as “classified”

DEFINITION OF TERMS

It is pertinent to state here that words have meanings and their meanings are different according to their usage either directly or indirectly.

SPECIFICATION

This shows the details description of service materials, parts, and components to be used in a manufacturing organization.

PURCHASE REQUISITION NOTE

This is a document used by an authorized person in a company requesting the purchasing department to order or purchase particular items, materials stating the required quantity and quality.

LOCAL PURCHASING ORDER [LPO]  

A document used by a buyer to the supplier for ordering the supply of specified goods and services is generally specifying the quantity required and the price.

QUALITY ASSURANCE SCHEME

This means the process involved in ensuring that the right quality materials are obtained in carrying out purchasing activities.

VENDOR APPRAISAL

This is an act of assessing the supplier’s capability to comply with organization specifications.

QUOTATION CHART

This is a chart that shows supplier quotations on how they are evaluated and in most cases, it also shows the supplier that won the contract.

GOODS RECEIVE NOTE [G.R.N]

This represents a document that shows the receipts of goods from a supplier.

SUPPLY MARKET

This shows the means on how different sources of supplier desire can be selected.

SUPPLY MARKEY RESEARCH

The process of examining the actual and potential sources which constitute a supply market.

SOURCING

This entails a proper identification of a suitable source of supply or supplier.

CONTRACT

This refers according to the study that shows the agreement reached by an organization purchaser and the supplier for the supply of material components.