The Role Of Negotiation In Attaining Purchasing Objectives (A Case Study Of Nigerian Bottling Company)

The Role Of Negotiation In Attaining Purchasing Objectives (A Case Study Of Nigerian Bottling Company)

Abstract

This project is made up of five chapters, which contains different information about the project.

The basic objective of this research project is to explain the role of negotiation in an organization attainment. A special reference was made Mobile producing Nigeria Plc, Port Harcourt.

Although the work is intended to be of academic importance to me, it is hoped that it will equally be of immense value not only mobile producing Nigeria Plc, Port Harcourt, but also to other firms of business organization, nonprofit organization corporation etc globe wide.

Student in other related course of studies or specific discipline will also fined the project work of great value as it tries to encroach and possible encompasses the importance of planning and budgeting of any purchasing function.

I am grateful for being fortunate to have at any disposal a great number of books/paper written and presented by seasoned scholar, professionals and others that make things happen.

Table Of Contents

Preliminary Page(s)

• Title
• Approval
• Dedication
• Acknowledgement
• Abstract
• Table of contents

Chapter One

1.0 Introduction

• 1.1 Background of the Study
• 1.2 Statement of the Problem
• 1.2.1 Lack of Competent Staff
• 1.2.2 External Circumstances
• 1.2.3 Unreliable Suppliers
• 1.3 Purpose of the Study
• 1.4 The relevance of the Study
• 1.5 Research Questions
• 1.6 The scope of the study
• 1.7 The Limitation of the Study
• 1.7.1 Non Disclose of Information
• 1.7.2 Inadequate Finance
• 1.7.3 Time Constraint
• 1.8 Definition of Terms

Chapter Two

2.0 Literature Review

• 2.1 Introduction
• 2.2 Definition of Negotiation
• 2.2.1 Published Price Lists
• 2.2.2 Competitive Bidding
• 2.2.3 Competitive Bidding Verses Negotiation
• 2.3 Objectives of Negotiation
• 2.4 When to Negotiate
• 2.5 Types of Negotiation
• 2.5.1 Price Analysis Negotiation
• 2.5.2 Cost Analysis Negotiation
• 2.5.3 Sole-Source Negotiation
• 2.5.4 Competitive Negotiation
• 2.6 Planning for Negotiation
• 2.7 Reaching Negotiation Objective
• 2.8 Negotiation Strategy
• 2.8.1 Seller’s Bargaining Strength
• 2.8.2 Buyer’s Bargaining Strength
• 2.8.3 Tactics Techniques of Negotiation
• 2.10 Use of Non-Verbal Signals in Negotiation
• 2.11 Attributes of a Good Negotiator

Chapter Three

3.0 Research Design and Methodology

• 3.1 Introduction
• 3.2 The research design
• 3.3 The questionnaire Design
• 3.4 Sampling and Selection of Respondents
• 3.5 Other Techniques
• 3.6 Data Sources-
• 3.7 Validity and Reliability of Measuring Instrument
• 3.8 Method of Data Analysis

Chapter Four

4.0 Presentation and Analysis of Data

• 4.1 Introduction
• 4.2 Presentation of Data
• 4.3 Analysis of Data
• 4.4 Discussion of Major Findings

Chapter Five

5.0 Summary, Conclusion, and Recommendations

• 5.1 Summary of Finding
• 5.2 Conclusion
• 5.3 Recommendations
• Bibliography
• Appendix
• Questionnaire

Chapter One

1.0 Introduction

The basic goal of any industrial activity is the development and manufacture of products that can be marketed at a profit. This goal is accomplished by the appropriate blending of what many management authorities called the five M’s – machine, man, material, money and management, materials today are the life blood of industry.

No industrial organization can operate without them. They must be available at the right time, in the right quality, at the right quantity, at right price and at the right place. Whether in periods of inflation or price stability or recession, obtaining materials at the right price can literally mean the difference between a firm 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 the both the buyer and seller, unfortunately no single set of pricing principles or criteria exist for calculating precisely what constitutes a fair and reasonable price.

Therefore, to obtain the right price, a buyer can use three methods.
These are:

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

When the buyer is not satisfied with the price after using published price list and competitive bidding he resorts to negotiation. According to the chambers 20th century dictionary “NEGOTIATION” means to confer for the purpose of mutual agreement.

The Webster dictionary defines it as conferring, discussing or bargaining to reach an agreement in business transactions.

In industry, “NEGOTIATION” is sometimes confused with happing and price chiseling while in Government it is frequently usual zed as a nefarious means of avoiding competitive bidding and of awarding large contracts surreptitiously to favoured suppliers.

According to Oyeoku (1993) negotiation is just but a process whereby representatives of the buying organization and the selling organization attempt to reach precise agreement on all terms conditions that make a contract come into being. In involves a thorough analysis of all aspects of purchasing, rational discussion, conferring and bargaining on each aspects and the arrival at a common understanding of what is best in the interest of both parties.

In successful negotiation both sides wins, the winning are seldom equally divided. Invariably one side wins more than the other does. This is as it should be in business “superior business skills merit superior rewards”. Negotiation is particularly useful though not always fully successful in dealing with sellers who are a sole source of supply or with sellers controlling. Multiple sources that behave in a monopolistic manner.

In cases where costs are not reliably determinable in advance, as in most research contracts and many contracts for items that have never been made before. These are no sound alternative to “NEGOTIATION”.

The importance of negotiation to purchasing is that, it is a method used especially when 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 is are not clear but vague, the supplier is a monopolist- where all these situations exist or prevail, the buyer has no alternative than to negotiate.

Hence, negotiation is a practical techniques arriving at a price to pay for goods and services.

On the other hand, material management is a total concept involving an organizational structure unifying into a single responsibility the systematic flow and control of material from identification of the need through customer delivery. Through negotiation, the material functions of planning, scheduling, buying, staring, moving and distributing of materials are met.

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

1.1 Background Of The Study

Mobile producing Nigeria unlimited (MPN) is the second largest oil producer in Nigeria. It started operating in the country in 1955 as Mobile Exploration Nigeria Incorporated (M E N I). In December 1981, after unsuccessful exploration efforts in the farmer western and northern regions, (M E N I) was granted two offshore oil prospecting licenses (O P L S) in the then eastern region. In early 1964 M E N I made its first discovery, the prospecting licenses were converted to four oil-mining licenses.

In 1968 and by the end of that year 50 exploratory wells 15 appraisal wells has been drilled. On June 11, mobile producing Nigeria was corporate to take over and continue the business of M. E. N. I. Early in 1991, in compliance with the requirements of the new companies and allied matters decree No 19 of 1990, the company’s name became mobile producing Nigeria unlimited (MPN). M P N began producing of crude oil on February 15, 1970 in the offshore area of the then Eastern region the areas are now in Akwa Ibom state.

In February 1885, after 15 years of production M P N unit one billion barrel mark. Ten years later specifically in May 1995, M P N made struck another landmark when long with its point venture partner, the NNPC. It signed loan agreements for about 900 million US dollars with international lenders to develop and produce its 080 field condensate reserves, estimated at about 500 million barrels.

The company’s overall contribution towards the countries economic and social development has followed closely in the wake of its production growth. It was in recognition of its contribution that it won, together with its parents and sisters companies – mobile oil corporation and mobile Nigeria plc, the 1985 honour award of the Nigeria – American chamber of commerce. M P N was also the first corporate citizen to win the honour award of the society of occupational health physicians of Nigeria (S O P N O N).

In 1989, M P N won the Energy press award for making notable contributions to the growth of Energy journalism in Nigeria and for pacesetting relationship with the media and thus emerged the first corporate body to win the award. While purchasing its business objectives, N N P C, Mobile joint venture also assist in various communities’ development projects and participates in the cultural life of the country.

In 1993, MPN initiated the four-year community action programme for community and has enhanced the company’s relationship with the communities, mobile has contributed to the development of human resources in Nigeria, it currently award 450 scholarships annually to Nigeria students studying in institutions of higher learning .The awards are competitive and all Nigeria students are eligible.

1.2 Statement Of Problem Of The Study

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 quality material at the right price.

1.2.1 Lack Of Competent Staff

For material to be purchased at a reasonable price there is need for competent staff, who understands the various methods of pricing. There is lack of good negotiators in this organization; therefore this reduced the success of negotiation.

1.2.2 External Circumstances

External forces also contributed to the problems of the purchasing department, these are political, economic and social forces.

1.2.3 Unreliable Suppliers

The reliability record of some suppliers fell below the required level, this poses problems to the purchasing department.

1.3 Purpose Of The Study

The purpose of this research is to look at

1. The different method of pricing are published price list, competitive bidding, and negotiation.
2. The importance of negotiation against the other methods of pricing
3. The bargaining strategies used by the industries and how effective they are used.
4. The effect of the non-used of negotiation in the purchasing of goods.

1.4 Objectives 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 is used in industries to purchase at the right price.

1.5 Research Question

To test this assertion requires collecting responses from a group of question bidden in various parts of the questionnaires

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

1.6 Scope Of The Study

The research is on the importance of negotiation to purchasing and materials managements. However, ideas are deducted from many text books, journals, newspapers, lecture notes, data collected from purchasing and supply department and from experience.

1.7 Limitation Of The Study

The researcher encountered a lot of problems in the course of carrying this study effectively and efficiently prominent amongst them are:

1.7.1 Non Disclosure Of Information

Oil industries in the east particularly in the port Harcourt metropolises, do not find it easy disclosing their business particulars to aliens. Some of them saw it as a means of divulging their business secrets to outsiders, especially when it comes to finance and some saw it also as a way of unmarking their inefficiencies and in capabilities.

1.7.2 Inadequate Finance

The researcher being a student and thus dependent on relatives for financial assistances is greatly limited in his finance toply firm school to the industry under to obtain relevant information needed. This is rather difficult and tasking because of the huge transportation fare spent and the risk involved in roads in trying to get in touch with the purchasing manager who seemed not to be keeping appointments.

1.7.3 Time Constraint

Time contributed more to the problems the researcher encountered. Limited time was shared between scrambling for information, her regular pressing lectures and other academic works, etc. notwithstanding these problems, the researcher succeeded in getting the information’s required.

1.8 Definition Of Terms

Negotiation:

It’s just but a process whereby representatives of the buying organization and the selling organization attempt to reach precise agreement, on all terms and conditions which make a contract come into being. It involves a through analysis of all aspects of the purchases, rational discussions, conferring and bargaining on each aspect and the arrival at a common understanding of what is best in the interest of both parties.

Negotiator

Spend a lot of tome studying and perfecting in the application of this techniques

Strategy

concerns the planning and directing to achieve ones objective.

Bidding:

This involves a request for bids from potential suppliers with whom the buyer is willing to do business with. In evaluating the bidders, the bidder with the lowest price is awarded the contract.

Competitive:

This is s widely acclaimed form of purchasing is mostly used in local, state and federal government purchasing. It represents on of the three methods through which buyers can determine the price to be paid for goods and services it purchases.

Producing

1. Goods to make things to be sold especially in large quantities manufacture factory the produces microchips also mass produce not at making product.
2. Make naturally to grow or make something as part of a natural process. If a town or country produces.
3. Something with a particular skill or quantity.

Chapter Five

5.0 Summary, Conclusion, And Recommendations

5.1 Summary Of Finding

This research work is carried out to find out the importance of negotiation in purchasing and materials management and how effectively it is used in industries.

Mobil Producing Nigeria and its sister company, Mobil Oil Nigeria were the companies understudy. To fully understand what negotiation is all about, it was necessary to look at some methods of pricing. Also, considered were the types of negotiation, when to negotiate, how to negotiate and the effect of non-negotiation on the cost, standard and specification of goods.

The research into the purchasing activities of these companies showed that the ability of the personnel department to search for and employ the best and suitably qualified employee for this department is not an easy task. This is as a result of the fact that for negotiation to be successful, a negotiator should have the attributes of a good negotiator and these are generally hard to find in one single human being.

Though most individuals in the department are aware of the benefits and disadvantages of negotiation, it is not as effectively used as it should be. This is not limited to the company under study. Most industries in Nigeria used negotiation ineffectively.

The research indicated that the meaning of negotiation was clearly understood by most employees and unlike government institutions, they do not agree that it is a form of haggling on price slashing but a means of confirming, discussion or bargaining to reach agreement in business transaction.

If negotiation is properly used, a fair price for the desired quality to get the highest profit if the price agreed at is suitable.

Negotiation as it was discovered does not necessary reduce fraud. This is because members of both negotiating teams might be fraudulent and mighty have concluded amongst themselves to defraud that company.

Overall, it was agreed that planning for negotiation is very important, the objective of the negotiation should clearly stated and the negotiating team should work towards achieving these objectives. Important information on materials and suppliers alike should be kept for use and reference. This will ensure the avoidance of incompetent supplier. The research shared that negotiating on home ground has a psychological advantage and that negotiation should be used when any of the prerequisite criteria for competitive bidding are missing and also when a seller is a sole source of supply or who controls multiple sources that behave in a monopoly manners.

5.2 Conclusion

From the research carried out, it was found that one of the most key function of a professional procurement is that individuals aspiring to managerial position should be allowed to develop general administrative and managerial skill for benefit of the company by making materials available at the required quantity at the required quality of the right time and at the right price.

Competitive bidding and negotiation are mutually exclusive as technique for arriving at the price to pay. This reflects an attitude long held by traditional theorist that competitive bidding and negotiation are separate techniques; each used under different circumstances for different reasons. This is true but there is nothing unethical or unprofessional about using negotiation as a follow-up to competitive bidding techniques. Competitive bidding techniques is used to determine price that is “obtaining the best value for every naira spent. Negotiation on the other hand is used in all situation where one or more of this prerequisites is certain where competitive bidding does not exist. This method is used especially when the time that is required 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 situations exist or prevail, the buyer has no alternative than to negotiate. Hence, negotiation helps in arriving at a price to pay for goods and services.

It can therefore be concluded that within the limits of the law and ethics of good business, the buyer is obligated by his position to aggressively go after the best price that will means the least cost under the most favourable conditions available to his firm.

5.3 Recommendations

Based on the findings listed above, some recommendations are made, which if adhered to, would hopefully benefit the organization in question and the industry in general.

1. Purchaser and supplier need to establish a price mechanism, which will protect them against changing circumstances such as economic, social and political factors.
2. Purchasing strategy calls at al times for a sound basis of updated information, technical, economic and commercial and it needs the support of appropriate techniques such as cost and value analysis. For tender approval and negotiation to be effective in all branches of its work, it has to be backed up by good recruitment and a programme of education and training.
3. A buyer should know his suppliers, prepare a profile of each supplier from whom materials have been purchased over the past few years. This should show the types of raw materials purchased, the quantity and quality. Record the time elapsed from the date of purchase order to delivery. Note any rejections because the materials delivered did not meet specifications. Especially not any short delivers and the results of raw materials how have not been used to date. Have the controllers department prepare financial stability analysis for each important supplier. All these will equip the buyer when going into negotiation with a particular supplier.
4. Objective of negotiation should be clearly stated and the team should work towards achieving these objectives.
5. Planning for negotiation is very important after all relevant information needed has been collected. The team negotiating should meet to familiarize itself with plans for negotiation and the issues, objectives and date upon which such plans were based. The team may conduct a diary-run to develop the final negotiation strategy and techniques and to conditions the team for the actual negotiation proceedings.

When negotiating, the following guidelines might be useful: –

1. Aim to persuade, not cajole
2. Remember the importance of mutual respect and most negotiation have a futurity.
3. Try to exclude emotion from the proceeding.
4. Neither underestimate nor overestimate the other party’s skill, information or intelligence.
5. Do no fall into the trap of thinking that the other party’s desires comply with the same norms as yours.
6. Reinforce positive progress enroute through the negotiation by recapitulating mutual gains and defying the effect of those gains.
7. Clearly indicate the potential mutual benefit of the position which you have taken.
8. Toughness, competitiveness, and firmness are attributes which increase creditability.
9. Do not hurry to sign agreement.
10. Information is the currency of negotiation. Dispose off yours with interest.
11. Persistence and determination can tip the balance even when the power advantage is in the hands of the other party.
12. Try to always negotiate in home grounds.

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