Impact Of Negotiation In Attaining Purchasing Objectives

Project and Seminar Material for Purchasing and Supply PS

Impact Of Negotiation In Attaining Purchasing Objectives


In this project, an attempt has been made to know the impact of negotiation in attaining purchasing practice. This research exposed the importance of negotiation in an organization and who and when a negotiation should be carried out. For an organization to function effectively and efficiently in this procurement, negotiation is very important to attain it. Without an effective negotiation an organization will not or cannot be able to carryout its buying activities effectively. In purchasing and supply, negotiation is vital because without it, it cannot function effectively. An organization enter into negotiation to get a fair and reasonable price in its buying activities. Companies in Nigeria have a relentless goal of keeping their procurement cost down as most of them depend solely on tution fees. In the past, companies would mostly look to make cost-savings from headcount reductions or internal re-organisation. Now they are increasingly turning to procurement and strategic sourcing as a means for cost reduction in procurement. The study examined the impact of effective negotiation in realization of procurement goals in Nigeria Bottling Company PLC. The research was conducted through the use of self-administered questionnaire to obtain primary data. The study had sample size of 206. Purposive sampling technique was used to select respondents that are involved in procurement for the area of the Study. Descriptive analysis and linear regression analysis were used in analyzing the obtained data. The results indicated that effective negotiation is a strong procurement strategy in Nigeria Bottling Company PLC and has a significant impact in realization of procurement goals. The study concluded that Nigeria Bottling Company PLC procurement goals are realizable with effective negotiation strategy.

Chapter One

1.0 Introduction

1.1 Background to the Study

The basic goals in any industrial activity is the development and manufacture of products that can be marketable at a profit. This goal is accomplished by the appropriate blending of what many management authorities call the five mis-machines, men, material, money and management. Materials today are the life blood of industry, no industrial organization can operate without them. They must be at the right time, in the right quantity at the right quality, at the right price and at the right place. Whether in period of inflation, or price stability or recession, obtaining materials at the right place can literary mean the different between a firms success and failure, hence the right price is prime importance to every organization, profit or non-profit.

Professional buyers, interpret the right price that is fair and reasonable to both the buyers and sellers. Unfortunately no single set of pricing principles or criteria exists for calculating precisely what constitute fair and reasonable. Therefore to obtain the right prices, three basic methods can be used by buyers, these are:

  1. Published price list
  2. Competitive buying
  3. Negotiation

When a buyer is not satisfied with the price after using published price list and competitive bidding he resort to negotiation.

According to Chambers 20th Century Dictionary, Negotiation means to counter the purpose of mutual agreement. The Webster Dictionary defines it as conferring discussion or bargaining to reach agreement in business transaction. In industry negotiation is sometimes confused with happening and rise selling. While in government it is frequently visualized as a nefarious means of a competitive building of awarding contract, surreptitious favour supplies.

According to Oyeoku (1993) negotiation is just but a process whereby a representative of buying organization and the selling organization attempt to reach precise agreement on all terms and conditions which makes a contract come into being. It involves a thorough analysis of all aspect of purchasing rational discussion conferring and bargaining on each aspect and the arrival at a common understanding of what is the best in the interest of both side parties. In successful negation both sides win, the winning are seldom equally divided. Invariably one side win more that the other, this is how it should be in business “superior” business skill meant superior reward. Negotiation is particularly useful though not always fully successful in dealing with sellers who are sore source of supply or with seller controlling multiple source that behave in a monopolistic manner, in case where cost are not reliable determine in advance as in most research contract and in any contract for items that had never been made before, there is no source alternative in negotiation.

The important of negotiation of purchasing is the it is a method used especially were 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 compete, specification are not clear but vague, the supplier is a monopolist, where all these situation exist or prevail, the buyer has no alternative than to negotiate, hence negotiation is practical technique arriving at a price to pay for goods and services.

The Nigerian Bottling Company (NBC) operates Owerri plant since 1982 and it is located in the capital city of Owerri, Imo State in South – East Nigeria. The Owerri plant is responsible for the production of coca-cola, fanta, sprite and Schweppes and distribution of all product categories. The coca-cola first arrived in Nigeria in 195 that same year, the Nigerian Bottling Company Limited (NB) was incorporated to bottle and sell carbonated non-alcoholic beverages. NBC has the sole franchise to bottle coca-cola products in Nigeria. Coca cola was an instant hit with the Nigerian consumer and has remained so over the next six decades, NBC has continued on its journey keeping its promise of refreshing consumes, strengthening its communities, enriching the workplace and preserving milestones along the way.

In 1953 production of coca-cola began at a bottling facility in Ebute-metta Lagos State. The same year the company opened its first bottling place in Apapa. 1960 the year Nigerian gained independence, NBC exceeded the one million case a year mark. 196 commissioned its bottling facility at Ibadan Oyo State and rapidly expanded its operations of the next couple of years. In 1972 it listed its shares on the Nigeria Stock exchange and became a publicly devoted company. 1991 acquired the Eva premium water and Schweppes brands. In 2000 it became a member of the newly formed coca-cola Helleric Bottling Company South Africa (an anchor bottling group with operations in 28 countries worldwide.

2001 commissioned the first ultra modern fully automated NBC plant in Benin. 2003 launched the Five Alive brand. In 2007 launched PET packaging for its sparking drinks category. In 2006 launched the 10 energy drink burn. 2007 launched coca-cola, fanta and sprite. 2008 introduced more environmentally ultra glass packaging of tits returnable glass bottle product segments. 2010 the operations stands at 13 facilities and 59 depots across the country. 2011 the company was recognized for its cooperate social responsibility activities as the most socially responsible company in Nigeria and most environment friendly company at the social enterprise reporting awards. The company obtained Nigeria’s First Food Safety System Certification (FSSC) 22000.

The study on the impact of negotiation in attaining purchasing objective is being continued to the operation of the Nigerian Bottling Company Plc Owerri, Imo State. The bottling company is a public limited liability company. The bottling company Limited operates in 13 plants in Nigeria, they are located at Abuja plant, Benin plant, Apapa, Ikeja, Ilorin, Jos, Maiduguri, Kaduna, Port Harcourt and Owerri plant. The bottling company also have 59 distribution centres in the country. The bottling operations in the regions are major purchases of sugar, bottles, labels, marketing materials and services at same time, they play an active role in local communities with out support and local initiatives. The principle activities of the company are manufacturing and sales of wide range of consumer products.

1.2 Statement of Problems

This entails the problems encountered during the course of this research. It is an attempt to look at the various problems facing the purchasing department in purchasing the right quantity materials at the right place, the problems are as follows:

i. Lack of Competent Staff:

For materials to be purchased at a reasonable price, there is need for competent staff who understand the various methods of pricing. There is lack of good negotiation in the organization, therefore this reduces the success of negotiation.

ii. External Circumstances:

External forces also contribute the problems of the purchasing department. These are political, economic and social force.

iii. Unreliable Suppliers:

The reliability record level, this posses problem to the purchasing department.

1.3 Objective of the Study

The objective of this study is to identify the different methods of pricing and by so doing, state the importance of negotiation as one of the means of arriving at a price to pay for goods and services. It is also to highlight negotiation tactics and how effectively negotiation used in industries to purchase at the right price.

1.4 Research Questions

To test this assertion requires collecting response from a group of question, bidden in various part of the questionnaires

  1. Do you think purchasing has a role in the area of negotiation?
  2. Is purchasing department a separate entity or under another department?
  3. If you have no purchasing what department is responsible for purchasing or procurement?
  4. Does you organization policy permit the buyer in purchasing decision?

1.5 Scope and Delimitation of the Study

The research is on the importance of negotiation to purchase materials, management, however ideas, lectures, notes, data collected from the purchasing and supply department and from experience.

1.6 Limitation of the Study

The researcher encountered a lot of problems in the cause of carrying out this study effectively and efficiently, prominent among them are:

i. Non- Disclose of Information:

Some of the staff of Nigerian Bottling Company, Owerri do not find it easy to disclosing their business particulars to aliens. Some of them saw it as a means of dividing their business secrete to outsiders, especially when it comes to finance and some saw it as a away of unmarking their inefficiencies and incapability.

ii. Inadequate Finance:

The researcher being a students and thus depends on relatives for financial assistance is greatly limited in their finance from the school to the industry under study in order to obtain relevant information needed. This is rather difficult and taking because of the huge transaction fare spent and the risk involved in roads in trying to get in touch with the purchasing managers who seemed not be appointment.

iii. Time constraints:

Time contributed more to the problems. The researcher limited time was shared between scrambling from information, her regular pressing lectures and other academic works etc not withstanding these problems, the researcher was successful in getting information.

1.7 Definition of Terms

1. Negotiation:

This is legal/formal discussion between people who are trying to reach their agreement.

2. Quality:

Feature of something good especially one that makes it different from something else.

3. Specification:

It is a detailed description on how something is or should be designed or made.

4. Strategy:

It is the basic plan of activities chosen to achieve an objective.

5. Tactics:

It means plan which is implemented or the means to be used to ensure that the negotiation is able to follow the chosen strategy.

6. Competitive Biddings:

It represents one of the three methods through which buyers can determine the price to be paid for goods and services it purchases.

7. Purchasing Objectives:

Roles and functions of a purchaser

8. Negotiation Techniques:

It means the tactics and skills used by a purchaser in negotiation.

9. Negotiation Tools:

It is a guide on how to prepare and conduct in negotiation.

10. Price Analysis:

It means the process of examining and evaluating a proposed price with out evaluating its separate cost elements and proposed profit/fee.

11. Quantity:

The number of goods or materials purchased

12. Price:

These may include all the sacrifice made to acquire a given produce both monetary and non monetary.

13. Pricing:

This is the activities involved in setting the price for which a product will be said.

14. BID:

The executed document submitted by a bidder in response to an invitation for bids, a request for annotation.

15. Bidding Competitive:

The submission of prices by individuals or firms competing for a contract, privilege or right to supply merchandise or services.

16. Manufactured:

The process of making a product suitable for use from raw materials by hand or by machinery.

17. Supplies:

Items that are consumed or expanded in the course of being used.

18. Suppliers:

Someone who is responsible for the buying or purchasing of materials or goods.

1.8 Organization of the study

The study is divided into five chapters. Chapter one deals with the study’s introduction and gives a background to the study. Chapter two reviews related and relevant literature. The chapter three gives the research methodology while the chapter four gives the study’s analysis and interpretation of data. The study concludes with chapter five which deals on the summary, conclusion and recommendation.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary of the Findings

The findings indicate that effective negotiation is a significant purchasing strategy in the Organization with an overall mean score of 3.88 which means that more respondents agreed with the questionnaires statement.
The findings reveal that there is a positive relationship between effective negotiation and realization of purchasingobjectives whose beta coefficient is 0.802. The results also indicate that effective negotiation had a statistically significant impact in realization of purchasingobjectives as it had a probability of 0.000 which is lower than the probability conventional of 0.05.

5.2 Conclusion

The study concluded that preparation prior to negotiation impact positively on the outcome, preknowledge of suppliers costs, delivery and delivery time makes negotiation effective. Suppliers should be categorized based on their capacity for effective negotiation. Both parties must win in negotiation and negotiation works better when focus is on agreement rather than differences and team based approach to negotiation is better than individual approach. Effective negotiation has an impact in realization of purchasingobjectives. From the results it is evident to conclude that the purchasingobjectives are realizable with the effective negotiation strategy.

5.3 Recommendations

The study recommends that Organization purchasing objectives could be realized using purchasing strategies such effective negotiation. Companies had tried to make savings from staff reductions or internal re-organisation. Now they are increasingly turning to purchasing and strategic sourcing as a means for cost reduction. When they do, they find that by analysing and rationalising their external spending, they can make considerable savings and consequently achieve their purchasing objectives. The Organization management should sensitize the Organization community on the various purchasing strategies and purchasing objectives of the Organization as stated in the Organization tender board (Oguntola, 2017).

The Organization should maintain continuous improvement on effective negotiation to allow for good structure for purchasing management. This structure will reduce wastage. Monczka et al. (2004) noted that Negotiation is an ultimate value to implement the purchasing strategies that an organization developed. Negotiation will be used as a path to bridge the gaps between purchaser and supplier (Oguntola, 2017).

Finally, the study recommends that Organization should organize regular training and seminar on purchasing objectives and purchasing strategies for all staff involved in purchasing in the Organization both at the departmental or committee level. Staff training is another key strategy in realization of organizational purchasing objectives (Oguntola, 2017).

5.4 Areas of Further Research

The gap created by this study that other researches or academic students can address includes impacts of other purchasing strategies, not examined in this research, in realization of organizational objective in a Nigeria private Organization, this study concentrated on effective negotiation.

Further research could also be carried out on impact of purchasing strategies in realization of organizational objectives in a public Organization or a non-academic organization.

Other further research could also be on comparative studies of purchasing strategies in private Companies in Southwest Nigeria.

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