Procurement Practice In A Small Scale Business

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Procurement Practice In A Small Scale Business


Abstract


The study to examine procurement practice and it impact on cost management and delivery, the study has the following objectives, to identify various procurement practice commonly used by SMEs, a case study of construction industries in Owerri, to examine challenges encountered when employing various procurement practice for construction projects and to examine the impact of procurement practice on construction cost.

Concerning methodology for this study, data was obtained from primary source that is standardized structured questionnaire and secondary source which include textbooks, journals, relevant literature, peer reviewed journals, government official publications, newspapers, magazines, and internet sources. The descriptive survey research design was used in this study. Stratified random sampling technique was employed in reaching a sample size of fifty two (52) respondents drawn from the total number of workers in Marlum Construction Company. The data collected was analyzed using standardized methods. To this end, data gathered was analyzed using descriptive statistics.
Project stakeholders, especially clients, should strive to ensure that the proper procurement methods that would significantly reduce project cost are adopted to ensure efficient delivery and maximum outcome when such projects are completed.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses
  • 4.5 Interpretation of Result

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


Introduction

1.1 Background of the Study

Purchasing practices are imperative; enhances firms ‘ability to offer more effective and efficient goods and service delivery to clients. It supports effective goods and service delivery as the needed inputs of production or consumption will be availed on time (Mburu, 2011).

Procurement best practices can enable SMEs to operate on optimal level. This translates to noteworthy procurement cost savings that in turn improves on firm’s procurement performance. Whereas poor procurement practices result to poor procurement performance in firms; as a result, customers are dissatisfied, and market share lost. Modern day firms, strive to attain more efficiency, procurement cost effectiveness and accountability by undertaking to adopt vigorous and well-articulated procurement best practices (Shalle & Njagi, 2016).

The adoption of procurement best practices by firms/SMEs is meant to reduce the number of overall discrepancies realized because of contract awards, enhance optimal identification of suppliers’ opportunities and improve relationships with current firm suppliers. Procurement department undertakes to coordinate the purchasing and supplies of products and services with the intention of enhancing both cost savings and quality procurement that are always conflicting (Wanyonyi & Muturi, 2010).

Globally the failure by many SME to establish procurement best practices will give rise to biased and irregular assessments which are procurement costly to a business. The adoption of procurement best practices by SMEs globally that entail; the precise definition of actual business needs, thorough analysis and understanding of industry economics and business because of switching suppliers. This leads to firm capabilities to properly put their business requirements thus improve on procurement performance (Cousins & Spekman, 2009). Competition in the operating environment has called on organization to rethink all functions and see how they can exploit them for sustainable competitiveness. Procurement is important in firms’ terms of accuracy and completeness in order processing, cost minimization through market survey for goods and services and flexibility in delivery of quality supplies however, dependent on various factors for instance; green purchasing, supplier partnering, adoption of information technology and purchasing ethics.

Procurement is significant in the market where firms are able to deliver goods and services on time in order for customers to meet their needs. Therefore, effective and efficient procurement best practices are essential in firm’s procurement performance in terms of accuracy and completeness in order processing, cost minimization through market survey for goods and services and flexibility in delivery of quality supplies to customers (Kihara, 2012).
Firm’s procurement performance is achieved through the development of procurement best practices which is a blueprint that may be applied to all firms/SMEs, irrespective of the contexts in which they operate, however, this has been quite a challenge. Indeed, no such conclusive blue print may claim to be applicable in all environments or organizational procurement contexts. This is because of the existence of a myriad of ‘objective realities’ and conceptual lenses from which different observers may perceive their own realities, even on issues that may rely on hard or empirical data (Erridge, 2001). As Turner (2011) posits, the adoption of procurement best practice is shift away from traditional procurement practices and must therefore be approached from a ‘value opportunity’ standpoint rather than a process standpoint. There must a shift away from the rudimentary procurement practices to procurement best practices. Procurement best practices its continuous and rapid movement as well as benchmarking, where firms measures itself against other ‘best-in-class’ organizations (Guth, 2010). However, several characteristics of procurement best practices are identified across many high procurements performing firms. They include: green purchasing; supplier partnering, adoption of information technology and purchasing ethics (Arawati, 2011).


1.2 Statement of the Problem

Procurement firms are under considerable pressure to deliver quality goods and services, this can be done through adoption of procurement best practices which include green purchasing, supplier partnering, adoption of information technology and purchasing ethics to bring value in procurement performance in firms in goods and service delivery to customers (Schonberger, 2007).

There are some SMEs in Kenya that have embraced procurement best practices however they are still facing various challenges as they try to propel economic growth. Procurement challenges are not the same in all SMEs, but they vary depending on firm’s procurement practices, though several challenges ranging from economic, technological and environmental tend to affect the SMEs efficiency and effectiveness in procurement function (Njuki, 2013).
A detailed analysis of the procurement practices in the small scale industry regards both in its internal and external environment will indicate the following problems:

  1. The purchasing as an organization function has always been associated with neglects by management, thus it is yet to be given its pride of place in industries.
  2. There is a tendency of fewer and often large sources of supply.
  3. The imposition of high impact duties on purchasing abroad and the need to exploit alternative sources of supply pose a lot of uncertainties to the profession. The above outlines problems are however not exhaustive as others may exist hence the aim of this research not is not only to identify problems but most important to find out alternative sources with the organization constraints and yet accomplish the set objective use to solve them.

1.3 Objectives of the Study

The main aim of this study is to examine procurement practice and it impact on SME’S cost management and delivery. Specific objectives of the study are:

  1. To identify various procurement practice commonly used by SMES in Owerri.
  2. To examine challenges encountered when employing various procurement practice for construction projects.
  3. To examine the impact of procurement practice on construction cost.

1.4 Research Questions

To guide the study and achieve the objectives of the study, the following research questions were formulated:

  1. What various procurement practice are commonly used by SMES in Owerri?
  2. What are the challenges encountered when employing various procurement practice for construction projects?
  3. How do procurement practice affect construction cost?

1.5 Research Hypotheses

  1. Ho: Variations in procurement practice do not affect construction cost.
    Hi: Variations in procurement practice affect construction cost.
  2. Ho: Challenges encountered when using procurement practice contribute do not contribute to construction cost overrun.
    Hi: Challenges encountered when using procurement practice contribute to construction cost overrun.
  3. Ho: There is no significant impact between procurement practice and construction cost management and delivery.
    Hi: There is a significant impact between procurement practice and construction cost management and delivery.

1.6 Significance of the Study

This study will be of importance to personnel in the SMES and the general public because it would not only clarify but also create awareness of the extent to which inadequacies in cost management and procurement practice can adversely affect project performance. The study will also help contractors, clients, consultants and all parties involved in construction projects about ways of improving their current method of cost management and control.

The study will also be of great benefit for other student researchers’ who may want to venture into the same subject matter. Having gotten results-both empirically and theoretically, the study will serve as a foundation for future research studies.


1.7 Scope of the Study

The study will cover some selected contractors from Owerri. All findings and recommendations from the study may not reflect the true view of the traditional roles and changing roles of SMES as the researcher could not cover a wider area due to financial and time constraints.


1.8 Limitation of the Study

This research work is specifically on the procurement practice in a small scale business. In the limitation on research work of this magnitude or nature can be carried out without limitation. Hence, during the course, certain constraints were encountered.

Cost:

The cost of thorough research is not what can be afforded by a student. The prices of materials needed for this work has gone up and transport fee has also gone up.

Time:

The time was one of the limitations in the process of carrying out this research work.

Scarcity of Literature:

The research encountered some problems in collection of literature especially on the bank History and operations. This are hindered the smooth running of this work.


1.9 Definition of Terms

Procurement:

This is the acquisition of goods, services or works from an outside external source.

Procurement System:

Procurement system’ is a contemporary term, which is known to many practitioners and researchers of the SMES by different terms; these include terms such as project approach, procurement methods, procurement delivery methods or project delivery.

Project Procurement:

Project procurement has been described as an organized methods or process and procedure for clients to obtain or acquire construction products.

Open tendering:

This is a procedure that allows practically any contractor to submit a tender for the work. This procedure involves either the client or consultant (on behalf) of the client placing a public advertisement giving a brief description of the work.

Selective tendering:

It consists of the client drawing up a short-list of contractors that are known to have the appropriate qualifications to carry out the work satisfactorily.

Negotiated tendering:

This method is applied in several or different contexts, but the essence is that tenders are obtained by the client inviting a single contractor of his/her choice to submit a tender for a particular project.

Non-traditional procurement practice:

This is a diversified contemporary procurement system that not only considers design and construction, but also considers financing, operating and facility management.


1.10 Organizations of the study

The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.

The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.


Chapter Five


Summary, Conclusion and Recommendation

In the preceding chapter, analysis and interpretation of data were presented. This chapter however deals with summary and conclusion of this research.

Recommendations are also provided which will be aimed at improving and enhancing use of procurement practice for cost management and delivery.


5.1 Summary of Findings

The paramount purpose/objective of this research was to examine procurement practice and determine its impact on cost management and delivery in Nigerian SMES, a case study of Marlum Construction Company. With regards to Marlum Construction Company, a test of the formulated hypothesis based on data collected from questionnaire administered showed a statistically significant relationship between procurement practice used and effective cost management.


5.2 Conclusion

This study demonstrates the impact of various procurement practice on cost management and project delivery in the Nigerian SMES through a practical case study. Effective construction cost management, timely delivery of projects are unarguably important features of a good construction project. It has been stressed that in today’s highly competitive and uncertain business environment, clients are demanding for better value from their investments.

They want their project to be completed on time, within the estimated cost and with the right quality. The use of the various project procurement practice shows that the SMES is now trying to meet the clients’ needs. This is because the different procurement methods will have different effects on the cost, delivery time and quality of the project.

It has being revealed that it is very important at the outset of the project to carefully consider all factors when selecting the most appropriate procurement approach for a construction project. This is because each system has its own feature and peculiarity that will ultimately affect cost, delivery time and quality of the project.


5.3 Recommendations

  1. Project stakeholders, especially clients, should strive to ensure that the proper procurement methods that would significantly reduce project cost are adopted to ensure efficient delivery and maximum outcome when such projects are completed.
  2. The use of procurement methods for tendering must be complimented with incentive/disincentive forms of contracts to solve the problem of delays in projects execution.
  3. Government at all levels should ensure the transparency and sustainability of public procurement with full implementation of provisions of the Public Procurement Act to institute prudence at all levels of government and establishment of a more effective institutional framework for fighting and sanctioning corrupt practices.
  4. It is also recommended that adequate procurement methods with proper budget, timely issuing of information, finalization of design and project management skills should be the main focus of the construction firms bidding for construction jobs.

Procurement Practice In A Small Scale Business


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