The Impact Of Purchasing In Capital Equipment Buying In An Organization

Project and Seminar Material for Purchasing and Supply (PS)

The Impact Of Purchasing In Capital Equipment Buying In An Organization


The purpose of this project work is studying the impact of purchasing in capital equipment buying in an organization and statement of problems that occur during purchasing function.

The work is divided into six chapters; one is introduction background of study, statement of problems, significance of the study, etc.

The chapter two is on literature review, the impact of purchasing in capital equipment buying in an organization, steps in capital equipment and in chapter three is on research methodology, introduction, research design, source, population and sample size, sample technique, validity and reliability of measuring instrument and method of data analysis.

The chapter four is on data presentation and analysis of finding, data analysis and chapter five discussion on major finding from the conceptual literature, introduction, negotiation method, the engineering department, the purchasing department, what capital criteria do you adopt in suppliers selection of capital items.

And chapter six is on recommendation, summary and conclusion, Bibliography and appendix, from the analysis and discussion in the project work, it shows that negotiation and competitive bidding methods are essential in order to enhance effectiveness and efficiencies in capital equipment buying in an organizations.

Table Of Contents

Preliminary Page(s)

  • Title
  • Approval
  • Dedication
  • Acknowledgement
  • Table of Content
  • Table of Content

Chapter One


  • 1.0 Background of the Study
  • 1.1 Statement of Problems
  • 1.2 Objective of the Study
  • 1.3 Significance of the Study
  • 1.4 Research Question
  • 1.5 The Scope of the Study
  • 1.6 Limitation of the Study
  • 1.7 The definition of Terms

Chapter Two

2.0 Review of Related Literature and Studies

  • 2.1 Attributes of Capital Equipment (expenditure)
  • 2.2 The Impact of Purchasing in Capital Equipment Buying
  • 2.3 Steps in Capital Equipment Buying
  • 2.4 Factors Affecting Capital Equipment buying

Chapter Three

3.0 Research Design and Methodology

  • 3.1 Introduction
  • 3.2 Sources and Methods of Data
  • 3.3 Population and Sample Size
  • 3.4 Sampling Technique
  • 3.5 Sampling Size
  • 3.6 Validity and Reliability of Measuring Instrument
  • 3.7 Method of data analysis

Chapter Four

4.0 Data Presentation and Analysis of Findings

  • 4.1 Introduction
  • 4.2 Presentation of data
  • 4.3 Analysis of data
  • 4.4 Interpretation of results (tests of Hypothesis)

Chapter Five

5.0 Conceptual Literature

  • 5.1 Introduction
  • 5.2 Negotiation method
  • 5.3 The Engineering Department
  • 5.4 The Purchasing Department
  • 5.5 Financial Department
  • 5.6 What Criteria do you adopt in Supplier Selection of Capital Item?

Chapter Six

6.0 Summary / Conclusion and Recommendation

  • 6.1 Summary
  • 6.2 Conclusion
  • 6.3 Recommendation
  • Bibliography

Chapter One


1.1 Background Of The Study

Capital goods include such items as plant and machinery, computers and buildings. Buying capital goods differs in several ways from the purchase of non-capital goods unlike merchandise, production materials or office supplies. Here, the impact of purchasing in capital equipment buying is very distinctive and sensitive.

The purchase of capital goods in any organization is a major expense because, it is usually bought at a high price and their prices are often not easily quoted accurately because of unforeseen aspects such as costly transportation, installation, and complimentary items that go with the main equipment.

The purpose of this work research is to know the impact of purchasing in the buying of capital equipment buying is therefore, the purchasing of those items of machinery and equipment whose long life and value requirement may be carried on the balance sheet and depreciate over a period. Capital goods are not bought for current needs to be used up in a short time, but are bought for long- term requirement to be used for the production of goods and services.

Specifically, therefore the purchasing department plays a distinctive role in the acquisition of capital equipment (items) as compared with the acquisition of production materials. In buying capital equipments the department acts primarily in a service capacity as it gathers information, a contract administrator and acts as purchasing consultant to top management.

The purchasing of capital equipments usually involve substantial sum of money and therefore involved senior purchasing personnel. The purchase of a particular piece of capital equipment typically occurs only once in every five to 20 years. These capital equipments are purchased of infrequent interval. This infrequency of purchase necessitated careful evaluation and study of such transaction. In addition, purchasing personnel must be alert to change and new development in the field.

There is also possibility of purchasing many pieces of capital equipment from foreign firms, points in favor of domestic purchasing include the creation and presentation of buying power for domestic products and the payment of domestic faxes that otherwise, would have to be borne by fewer firms.

1.1 Statement Of Problems

There are several ways in which statement of problems are being stated in purchasing department. It is worth mentioning here, that unpredictable number of requisitions and changes in quality specifications of actual amount and time or delivery as specified by the user department, hinders the progress of purchasing (lead-time).

The ideas of employing those that are not qualified or technically unfit also hinders the progress of the departments, lastly, decision making, often lead to problems ill- fated investment and poor technical out-put plant in the progress of not passing through quality control is the most crucial situation because before any product can be said to be of good quality and standard, the idea of weighing and knowing the quality of the product should be encouraged. There are several reasons for this problem.

Inadequate Research Or Survey:

Inadequate research limits the progress of operations, where inappropriate surveying is carried out on a product, the risk will be abounded.

Poor Negotiation Approach:

Where negotiation is not properly met, it will lead to the problem of the study. A systematic approach is important in negotiation.
According to steel (1986:20) stated that you should know all about the goods or services to the crunch, you are out to negotiate by your supplier who have, knowledge of how to get the right items.

Lack Of Proper Equipment;

Where inappropriate equipment is brought, it will be a problem to the user organization, so care should be taken when buying capital equipment.

Technical Unqualified Personnel:

In a situation where technical unqualified personnel are involved, it will affect the progress of the department.

1.2 Objective Of The Study

The capital equipment buying, involves substantial huge of money according to A. M Uzor (2004) and therefore, it needs senior purchasing personnel to handle it effectively. The study of the impact of purchasing in capital equipment buying is to prepare potential buyers to buy wisely in future time.

Another objective it helps to bring up professionals who will apply the modern purchasing techniques in order to achieve right value for money.

To get the right quality at the right time, in the right quantity, at the right place and of course at the right price. Because, most piece of capital equipments are bought of infrequent intervals, typically it occurs only once every five to twenty years, so precautions must be taken for every one naira spent.

To develop effective and reliable sources of supply, this is an important objective because the quality of materials and services depend on the reliability of the supplier or sources. Negotiating properly before making steps in buying capital equipment, this will reduce the risk in buying poor quality capital equipment.

However, in order to avert poor purchase of capital equipment, there is need for identification of the equipment, investigation, selection and in same case development of suitable and responsive suppliers is a major responsibility of purchasing department.

Therefore, with this framework, one should be able to identify capital equipment and the impact of purchasing in capital equipment buying. According to Uzor (2004: 20) and Ben O. Nweke (2000: 92,193)

1.3 Significance Of The Study

The importance of this study is in many fields will expose us to know how to handle capital equipment and its significance to firms and industries.

It will also reveal of capital equipment and other industries suppliers, the problems encountered during its buying and its solutions, it will also enlighten us on the differences between capital equipment and others industrial materials.

1.4 Research Questions

  1. What procurement procedures do you operate?
  2. How do you see purchasing function in the organization?
  3. Who is responsible for the overall decision to buy?
  4. What methods do you employ on obtaining your components?
  5. Is efficient purchasing an important feature in contributing to your organization profitability?
  6. Is purchasing in charge of order placing and execution?
  7. Who initiate requisition for purchasing of capital equipment items?
  8. Does cordial relationship exist between the purchasing department and other department in the organization?

1.5 The Scope Of The Study

This work covers the impact of purchasing in capital equipment buying in an organization with reference to Nigerian Bottling Company Aba.

1.6 Limitation Of The Study

A number of limitations are encountered on the process of writing this project. These include data availability, i.e. the Federal Polytechnic Nekede Library; I was able to get the Imo State Library two, for me to get information, which I need.

Time constraints at first I was about to start the project I felt that all was going to be easy for me and that I had enough data for it, but later I discovered that the time I had was not enough because I had to combine writing the project with the normal days activities.

Another limitation encountered could be seen as “fear” because most people surveyed were ignorant of which is called research. They fail to give elaborated information about their organization despite the fact that the research told them that the information given would be made confidential.

1.7 The Definition Of Terms

Capital Equipment Buying:

This is the aspect of obtaining capital equipment and obtaining of this equipment can be made through cash credit, etc.


This expatiates on the ideas of selling and buying and vendor supplies goods to the buying organization or department.


This is a conference with another person with a view of reaching to an agreement. According to Larmarlee and Dobbler (1983) see Negotiations as a process of planning, reviewing and analyzing used by a buyer and seller to reach acceptable agreement or compromises. In the course of buying capital equipments, the management considers many factors as follows


What actually is the prime purpose (aim) of the equipment this consists of the things the equipment can serve, as whether for production resale.


How versatile the equipment can be used for other purpose, other than those for which it was primarily acquired.


Is the equipment compatible with any already installed equipment, thus reducing cost of holding spares.


This usually refers to the period before the equipment will start to depreciate or become obsolescent. However, it is not necessary to link depreciation with the total life span. It is intended to be disposed before it is obsolete.


This is the ability of a product, to survive specific conditions within given period.


This concerns, it the equipment can sufficiently result for its intended use and if the equipment will be efficient in doing its job.

Product Quality:

British standard institution defines quality as the totality of features of a product or services that bears upon its ability to satisfy a given need.

Chapter Six

6.0 Summary/Conclusion And Recommendation

6.1 Summary

Capital equipment buying: This is the process of obtaining machinery and computers and equipment whose long – life span and high value require that they be carried on the balance sheet add depreciated over a period according to (A. M Uzor 2004).

Purchasing has vital role to play capital equipment buying, due to the huge of money involved in it.
Good information is required, specification, negotiation is very important.

The efficient impact of purchasing in capital equipment, it will therefore, be incomplete if the opinions and views expressed by other writers are not reviewed to be able to know how extensively, the subject matter has gone and used by both the private and the public sector.

The buying of capital equipment differs from that of other item in that each purchase involve substantial sums of money and is concluded after extended negotiations, because of huge amount involves in buying capital equipment, it needs a quality purchaser to be employed to performed the roles.

6.2 Conclusion

In order to maintain competitive advantage, an organization has to seek continuously information about its products, customers, competitors and other social legal and cultural factors that may affect business performance, any organization which constantly adhere to its government will not only survive but will also achieve rapid grow with and those who do not stagnate well, eventually be forced out of existence.

Purchasing management function, purchasing action should be the product of research, so analytical mind, therefore the purchasing role in buying capital equipment should be done by purchasing experts, to enhance the effectiveness in the purchasing department as the processes and the naira value involved in the buying of capital equipment is much.

6.3 Recommendation

The researcher after an in-depth study of the impact of purchasing in capital equipment buying in an organization, has indentified the impact and the study has to play in recognizing and promoting the purchasing functions in the day to day operations of companies, especially this time of global economic recessions.

There is consideration of the fact that after all said and done, the bulk of the work should be done by the purchasing department.

The researcher humbly recommend and believe that only potential buyers student in time to come together and play their parts and give the purchasing function its rightful position in the business field.

For the purchasing department to perform efficiently and effectively, it must be equipped with purchasing specialists who have some good sense of judgment, as well balanced negotiation, self restraint sound analytical mind with lucid expressions and patience, in fact purchasing professionals should be employed.

The idea of various department and personnel being involved with top management should be encouraged as the acquisition is not a mere industrial materials but capital equipment.

The method of negotiation and competitive bidding should be used in the purchase of capital equipments.

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