An Appraisal Of Effective Negotiation As A Tool For The Achievement Of Purchasing Objectives

Project and Seminar Material for Purchasing and Supply PS

Project and Seminar Material for Purchasing and Supply PS


Chapter One


1.0 Introduction

1.1 Background Of The Study

The basic goal of any organization or industrial activities is the development and manufacture of products that can be marketed and maximizes profit and make profit. This goal is accomplished by the appropriate blending of what many management authorities calls the for (5) m’s which are machine, man. Material, money and management, material organization. No industrial organization can operate without them; they must be available at the right time in the right quantity at the right price and at the right place.

Whether in period of inflation, or price stability or recessim, obtaining material at the right price can literally mean the difference between a firms, success and failure. Hence the right price is of importance to every organization, profit or non profit.

Therefore to obtain the right price, there are (3) three basic method which can be used by a buyer,

These are;

  1. Published price list
  2. Competitive bidding
  3. Negotiations

When the buyer is not satisfied with the price after using published price lists and competitive bidding, he resorts to negotiation. According to the chambers 20th Century Dictionary “NEGOTIATION” means to confer for purpose of mutual agreement the Webster dictionary defines it as conferring, discussing or bargaining to reach agreement in business transaction.

According to Oyeoku, (1993), negotiation is just but a process whereby representatives of the buying organization and selling organization attempt to reach precise agreement on all terms and conditions which make a contract come into being. It involves a thorough analysis of all aspects of purchasing in each aspect and the ritual as a common understanding of what is best in interest of both parties. In successful negotiation both sides win, the wining are, seldom equally divided. Invariably one side wins more than the other. This is as it should be in business.

The importance at negotiation to purchasing is that it is a method used especially where the time of purchasing of materials is too short, the money value involved is too low, the number of bidders is inadequate, they are not willing to complete specification are not clear but vague, the supplier is a monopolist where all these situation exist or pretrial, the buyer has no alternative than to negotiation. Hence, negotiation is a practical technique arriving at a price to pay for goods and services.

One the other hand, material management is a total concept involving an organization structure, unifying into a single responsibilities of systematic flow and control of material from identification, the material functions of planning, scheduling, buying, storing, moving and distribution of material are met.

The objective is to contribute to increase profitability by coordinate achievement of least total material cost through common responsibility of these knowledge of materials and their uses. The co-ordination of these function into a simple materials management department will no doubt result in the reduction of operating costs.

Mobil producing Nigeria unlimited (MPN) is the second largest oil producer in Nigeria. It started operation in the country in 1955 as Mobil exploration Nigeria incorporated. (MEIN) in December 1961 after unsuccessful exploration efforts in the former western and northern regimes, MEIN was granted two offshore oil prospecting license (opis) in the eastern region. In early 1964 MENI made its first discovering. The prospecting license where converted to four oil mining license in 1968 and by the end of that year a total of 50 exploratory wells and 15 appraises wells had been drilled.

On June 16, 1969, mobil producing Nigeria incorporated to take over and continue the business of MENI early in 1991. in compliance with the requirements of the new company’s and allied matters decree No. 19 of 1990 company’s name became Mobil producing Nigeria unlimited. (MPN) MPN began producing of crude oil on February 15 1970 in the offshore area of the eastern region.

In February, 1985 after 15 years of production, MPN hit ONE BILLION BARREL MAKE made the two billion barrel mark. In April 1990, MPN structure another land mark when along with its joint venture partner, the NNPC it signed was agreement for about 900 million us dollars with international lenders to develop and produce its OSO field condense reserves, estimated at about 500 million barrels.

The company’s over all contribution towards the country’s economic and social development has followed closely in the male of its production growth. It was in recognition that it won together with its parent and sister companies. Mobil Oil Corporation and Mobil Nigeria Plc. The 1985 Honor award of the Nigeria American Chamber of commerce, the honour award of the society of occupation health physicians of Nigeria (SOPHON).


1.2 Statement Of Problem

The detailed analysis of contribution of negotiation to the profitability of an organization with regards to its external and internal environment will include the following problems.

  1. Lack of specialist in the field of purchasing has reselected to the incompetence and inefficiency of the buying by the buyer of designed item or material.
  2. Multiple sourcing which acts as increased security sometimes becomes uneconomical.
  3. The imposition of high import duties on purchasing aboard and the need to exploit alternative source of supply posed a lot of uncertainties to the profession.
  4. Another problem that is associated with this study is buying out material which takes large percentage of the organization revenue.
  5. Another problem is that purchasing as a management function has been treated with neglect by management in an organization companies and industries.
  6. There is tendency of fever and often larger sources of supplier.

An Appraisal Of Effective Negotiation As A Tool For The Achievement Of Purchasing Objectives


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