The Impact Of Sourcing As A Supply Chain Function On The Profitability Of A Company

Project and Seminar Material for Purchasing and Supply PS

The Impact Of Sourcing As A Supply Chain Function On The Profitability Of A Company


Abstract


A visit to most production company as shows that sourcing now have a great impact on the profitability of a company. Such as lowering cost structures, maintaining the product quality of a company, ability to meet customer requirements, and lot of other benefits.

This study attempts to evaluate the impact of sourcing in the profitability of company using ZARTECH LIMITED as a case study. It seeks to examine the responses of the procurement department on how suppliers are selected during the process of procurement of materials, which will eventually help to increase the company’s profit.

This study drew literature on sourcing strategies and its benefits from several sources. Data were gathered from Zartech limited and also from other sources like internet, text books, journal e.tc. Results of analysis of the data collected show that the company contacted are convinced that sourcing is a necessity for the profitability of any company however they agreed that sourcing strategies should be effectively carried out. Other facts were elucidated by the study but generalization of the study findings cannot be total, due to certain limitations.


Chapter One


Introduction

1.1 Background of Study

Over the years, procurement function contains activities that have attracted the attention of many researchers and companies worldwide. However, most studies conducted focused only on the manufacturing industries and associated with functional indicator.

This research presents and discusses some key points and noticed important changes recording the ways business are carried out. In connection with the market worldwide process managerial models have been customer constantly reviewed and improved, as well as new concepts and paradigms, such as the contemporary business and mass customization, have quickly emerged. It is this competitive context that the supply chains management (SCM) should be understood.

A supply chain can be represented by a group of integrated logical process that originates from source of raw materials and comprises several companies, until products are delivered to final customers in form of goods and aggregated services.

In the past, every layman in Nigeria were ignorant of what exactly purchasing and supply is all about. Most people believe that procurement of raw materials is non-task or a non-issue matter.

Foremost, most manufacturing companies of which ZARTECH LIMITED MAYA happens to be one of them, dispose more than half of its income on materials, supplies and services. We would bear in mind that intensive sourcing is the rudiments of purchasing.

Sourcing comprises of the identification or development of suitable sources. Sourcing decision indicates which supplier to patronize. How many suppliers are needed to supply a given item?

How to allocate available business and in what term to do the business, the continuing relationship both with preferred sources which are still in the running although they have been passed over for the present.

For its proper performance, sourcing requires supply market research. This is often undertaken informally by the buyers as part of their buying work, when they interview salesman, visit exhibition, read trade journals, obtain catalogues and research the market before placing an order. It is sometime undertaking formally by research personnel, in a purchasing services section as a support function to the buyers. Supply market research identifies the set of actual and potential supply sources which contribute the market, investigates their capabilities analyses the structural features of the market trends and long term supply prospects, and generally keep on ear to the ground.

Purchasing does not mean buying raw materials Only, but it involve determining the needs, selecting the supplier (S), arriving at affordable price, terms and condition issuing the contract or order and following basic elements involved in performing the purchasing function which are: Obtain the procurement of materials, goods and services of the right quality, in the right quantity, from the right source at the right price and at the right time.

Infact, purchasing was formally regarded purely as function, where the purchasing department acts on behalf of all department in its organization which requires an item to be purchased, and also hand all contracts and orders between its organization and the supplier.

But now, purchasing is seen as a major impact on profitability. Expediting action in finding better or cheaper new sources of purchasing and quality responsible for the entire ranges of materials and commodities required by the company for efficient maintenance of adequate stock levels at the central store.

From the above introduction, it is clearly shown that it is impossible for any organization to achieve its full goals objectives without a successful sourcing and procurement activities. Therefore, the success of business enterprises greatly depend on sourcing and procurement of raw materials for the organization’s objectives.


1.2 Statement of the Problem

The challenge of demand for quality service and upcoming competitions for most of the firms has realized the need for quality service delivery and efficiency. Sourcing plays a key role in ensuring that this is achieved, therefore there is a need for firms to ensure that they don’t only source but source strategically.

According to (Presutti, 2003; Lo &Yueng, 2004; Tayles and Drury, 2001) 70 per cent of an organization’s sales revenues or total manufacturing costs is spent on purchasing raw materials, components, finished goods or services hence if sourcing costs can be reduced, this can improve returns on investment by increasing both profit margins and asset turnover rate. Zartech Limited faces a major challenge in controlling the overall operating cost because of the constant increase of sourcing cost;

Studies relating to sourcing have been done but a few deals with impact on organizational performance. A study done by Odhiambo (2013) on sourcing practices and factors influencing sourcing practices of manufacturing multinational corporations in Nigeria, he found that the most outstanding sourcing practice were purchasing, internal integration, and information sharing. Nyagariet.al. (2014) have looked at the relationship between sourcing and the triple bottom line in commercial banks in Nigeria. (Chiang, Hillmer & Suresh 2012), has conducted a study on the impact of sourcing and flexibility on firm’s supply chain agility, which the study found out that strategic supplier partnership, supplier evaluation, sourcing flexibility and trust in supply chain members are the key dimensions of strategic sourcing. With all this studies it implies that little research have been conducted on its effects to profitability itself. With these knowledge gaps this study therefore tended to investigate the impact of sourcing as a supply chain function on profitability in the manufacturing industry specifically looking at Zartech Ltd.


1.3 Objectives of the Study

General Objective

The main objective of this study is to examine the impact of sourcing, as a supply chain function on the profitability of a company and its importance in the manufacturing industries in Nigeria and to identify problems and difficulties in sourcing and procurement of these materials with a view to finding possible solutions to the problem.

Specific Objectives
  1. To determine the impact of Supplier Development on profitability of Zartech Ltd.
  2. To establish the impact of contract management on profitability of Zartech Ltd.
  3. To determine the impact of Supplier relationship management on profitability of Zartech Ltd.
  4. To establish the impact of early supplier Involvement on profitability of Zartech Ltd.

1.4 Research Questions

  1. To what extent does supplier development affect profitability of Zartech Ltd?
  2. How does Contract management affect profitability of Zartech Ltd?
  3. To what extent does supplier relationship management affect profitability of Zartech Ltd?
  4. How does early supplier involvement affect profitability of Zartech Ltd?

1.5 Significance of the Study

Strategic sourcing is an important aspects in today’s firms, for organizations to achieve competitive advantage, most of organizational costs is spend on purchasing of raw material, finished goods and even services, with this important aspect the researcher is positive that the findings of this research will be of a great help to procurement professionals in all sectors especially for manufacturing industry. It will enlighten various procurement managers in understanding how sourcing if properly done can immensely cut down on organizational cost, hence improving the overall profitability.

The researcher is also positive that the findings of this study will form a basis of which future research can be developed, mostly with practices of manufacturing entities with respect to sourcing and also it will help Zartech Ltd recognize that sourcing can be of advantageous to organizations in terms of total cost reduction, hence affecting profitability in general. Lastly it will highly add to the pool of knowledge in the field of sourcing in manufacturing entities in general.


1.6 Limitations of the Study

The study was conducted in Zartech Ltd which is a manufacturing firm and thus the findings of this study may not be generalized to reflect the practices of other non- manufacturing firms.

As data for this study was collected via questionnaire, the sincerity of the respondents in expressing their opinions in the questionnaire may be questionable. The researcher assumed that all the answers to the items in the questionnaire would reflect their true feelings and views.

The statements in the questionnaire could not be fully comprehended by the respondents. This might have led to inaccurate responses and thus findings. However the researcher explained to the respondents so as to understand the questions clearly.


1.6 Scope of the Study

This study was to investigate the impact of sourcing as a supply chain function on profitability of Zartech Ltd. The target population of the study comprised of all 35 staff working in procurement department at Zartech Ltd who responded to the questionnaire.


Chapter Five


Summary of Findings, Conclusions and Recommendations

5.1 Summary of the Findings

General Findings

The study findings show that Zartech Ltd has achieved gender parity of 1/3 of either gender as stipulated in the constitution of Nigeria. This was shown by 57% of the respondents who were male while 43% were female.

The company has employees of all ages with majority being of age 20-49 years. This was indicated by 31% of the respondents who were between the ages of 40-49 years, 26% was of age 30-39 years and 20% were of ages 20-29 years.

According to the study, most of the employees had acquired post-secondary levels of education. This was indicated by 32% who had acquired diploma level of education while 17% had acquired degree level. Only 11% had acquired secondary level of education.

More than half of the employees at Zartech Ltd had only worked for less than 5 years. This was shown by 57% of the respondents who had worked in the company for less than 5 years, 40% had worked for between 6-10 years, and 3% had worked for between 11-20 years.

Majority of the employees hold the view that sourcing as a supply chain function at Zartech Ltd was good. This as indicated by 51% of the respondents who felt sourcing as a supply chain function was good, and 23% felt that it very good as well as fair.

How Supplier Development affect profitability of Zartech Ltd According to the study findings, supplier development affected profitability of Zartech Ltd. This was shown by 61% of the respondents who held the opinion that suppliers’ development affected profitability of Zartech Ltd with only 28% holding a contrary opinion. most (54%) of the respondents were of the opinion that Supplier Development affected profitability of Zartech Ltd to a high extent and 30% were of the opinion that it affected to a very high extent.

According to the findings of the study, Supplier Development affected profitability of Zartech Ltd in the following ways; it Improves supplier performance, Reduces costs, Resolves serious quality issues, Developing new routes to supply, Improving business alignment between supplier and the buying organization, Developing a product or service not currently available in the marketplace, and Generating competition for high price product dominating the marketplace.

How Contract management affect profitability of Zartech Ltd According to the study, contract management affected profitability of Zartech Ltd. This was shown by majority (66%) of the respondents who said that contract management affected profitability of Zartech Ltd while 29% were of contrary opinion.

The findings show that Contract management affected profitability of Zartech Ltd to a high extent as shown by slightly half (51%) of the respondents who said that Contract management affected profitability of Zartech Ltd to a high extent, while 23% said that it affected to a very high extent.

The findings show that Contract management affected profitability of Zartech Ltd by; Leading to completion of projects within set budget and period, enabling organization to achieve their competitive advantage, and Leading to reduction on supply chain cost.

How Supplier Relationship Management affect profitability of Zartech Ltd

According to the study, Supplier Relationship Management affected profitability of Zartech Ltd. This was indicated by majority (70%) of the respondents who wereof the opinion that Supplier Relationship Management affected profitability of Zartech Ltd with only 21% having the contrary opinion.


5.2 Conclusions

The study findings show that Zartech Ltd has achieved gender parity of 1/3 of either gender as stipulated in the constitution of Nigeria. The company has employees of all ages with majority being of age 20-49 years. Most of the employees had acquired post-secondary levels of education and had only worked for less than 5 years. Majority of the employees hold the view that sourcing as a supply chain function at Zartech Ltd was good.

Supplier development affected profitability of Zartech Ltd to a high extent in the following ways; it Improves supplier performance, Reduces costs, Resolves serious quality issues, Developing new routes to supply, Improving business alignment between supplier and the buying organization, Developing a product or service not currently available in the marketplace, and Generating competition for high price product dominating the marketplace.

Contract management affected profitability of Zartech Ltd to a high extent by; leading to completion of projects within set budget and period, enabling organization to achieve their competitive advantage, and Leading to reduction on supply chain cost.

Supplier Relationship Management affected profitability of Zartech Ltd to a high extent in the following ways; Leads to reduction on lead time, Enables take advantage of the best available prices; Leads to improve customer service and Long term relationship has led to supplier complacency.

Early Supplier Involvement affected profitability of Zartech Ltd to a high extent in various ways which include; improving the customer service delivery, Improving chances of selecting competent suppliers and Leading to reduction on supply chain cost.


5.3 Recommendations

Supplier development is an important factor in enhancing profitability of floricultural industries, the integration of the organization should enhanced for maximization of the output Contract management should be enhanced in all floricultural industries to enable them achieve their competitive advantage.

Manufacturing industries should ensure Supplier Relationship Management is enhanced to improve on customer service satisfaction to achieve a leading edge in the growing manufacturing industry.

Manufacturing industries should ensure early Supplier Involvement in coming up with new products or new technologies. The lead time in the procurement of material in the production line will be definitive as well as minimum errors in the production.


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