Role Of Purchasing Function And It’s Contribution To Profitability

Project and Seminar Material for Purchasing and Supply PS

Role Of Purchasing Function And It’s Contribution To Profitability


Chapter One


1.0 Introduction

1.1 Background Of The Study

During the past few year, purchasing and supply function as a discipline has changed considerably in many companies.

This is reflected in the increased attention this function is receiving from manager and practioners. Considering the amount of money generally involved in the preparation and execution of purchasing and supply function decision, this is not so stranger. An effectively and efficiently operating purchasing and supply function can make an important contribution to the company result.

However, there is more. As a result of implementation of improvement programmes in engineering, manufacturing and logistics management, many companies feel the need for improved relationship with suppliers. These relationship necessary should result in lead time reduction in new product development and just-in-time delivering zero effect on components.

According to Uzor (2004) the function of purchasing is to insure that supply of raw material, product equipment fuel and power, consumerable and services for use resale by organization in the right quantities, right quality, right place right time and at the right economist cost for increase in profit. The role of purchasing also cover areas like suppliers development value analysis and harmonious relationship with other functional units like production design engineering, inspection, maintenances, finance, marketing, personnel and transport. Purchasing users some managerial tool like to achieve the objective of its function of uninterrupted or a constant flow of materials to meet the need of the user department.

The research therefore found that there is an important area to explore which to find what role purchasing has to play to justify it as a management function and its contribution to profit for the organization.


1.2 Statement Of The Problem

In recent times, several companies in Nigeria have reported shortage of materials, high cost of labour, ineffective scheduling problems and wrong specifications, and finally inventory control problems which lead to production stoppages and loss of sales. All these factors have greatly affected the operation of this organization.

It has further affected the staff and management of this organization. In view of the enormous in terms of money, materials and services, loss and non performance standard has been function in the day to day running of the industries. Specifically, this study will focuses on the following.

  1. The problem of high cost of labour, and increasing costs concerned with materials management.
  2. The problem of ineffective scheduling specifications and inventory control.
  3. How purchasing role affects the profitability of an organization.

1.3 Purpose Of The Study

Considering the ignorance of most top management executives and their attribute towards the dynamic business function (purchasing) as playing strategic role in an organization profit maximization, it is them imperative to determine the following;

  1. To conduct an important finding or research into the existing industries and institution to determine their level of knowledge and short coming with a view of bringing this is to focus visa a visa the role of purchasing management and its contribution to profitability.
  2. To further highlight these short coming to the benefit of those whose ignorance need to be remove through enlightenment means.
  3. To explore areas of purchasing function which are taking to management activities
  4. This research work also intend through the review of existing literary work to find out whether an in depth exposure has been made in this direction.

1.4 Research Questions

The research question inherent in this research study on the role of purchasing function and its contribution to profitability are as follows:

  1. What are the basic and functional areas of purchasing functional?
  2. How does purchasing contribute to the profitability of organization?
  3. What are the responsibilities of management of the organization in purchasing?
  4. What are the primary role of purchasing in the development of the organization and the economy?
  5. What are the problem associate with purchasing function in organization?
  6. What are the possible ways of making effective purchasing for more profitability in organizations?

1.5 Hypothesis

This research stands to clearly prove the subject matter of discussion which will serve as a stepping stone to potential researchers, planners, image maker (for purchasing) as regards to what is obtainable in the Nigeria at the moment. It therefore because imperative to formulate some hypothesis on which conclusion will be drawn. They include the following:

  1. H0: Purchasing has not been fully accorded its status in organization.
    Hi: Purchasing has been accorded its status in organizations
  2. H0: Most organization do not neglect the service of quantity of qualified professional buyers.
    Hi: Most organization reflect the service of professional.

1.6 Significant Of The Study

This research expects every organization to benefit it as far as their management is concerned. Therefore, if purchasing role is used in the rightful manure, it should contribute to profit and also harness the management activities in the following ways. It will go a long way to solving the problems of miss management in industries as it will private more room for efficiency and effectiveness by managers of purchasing organizations.

Where purchasing role is given a full autonomy in an organization, it should be able to co-ordinate with other related departments such as account, personnel, production etc which lead to profitability. This research will save as reference material for students of purchasing and supply department carrying out research in the purchasing functions and its contribution to profitability.

This research study will provide an educating material that will help companies to train their staff in ways of conducting effective purchasing activities.


1.7 Scope And Delimitations Of The Study

The research work has being limited to purchasing department has to carryout detailed investigation on the role of purchasing function and its contribution to profitability with special reference the purchasing department of consolidated breweries Nigeria Plc, Owerri Imo State. After this investigation has been carried out on the purchasing function and its contribution to profitability of the above mentioned company, the result carried out on it will be implementation by purchasing department of other organization whenever they are carrying out this vital role of their organization.


1.8 Limitation Of The Study

This research has used elementary statistical methods like pie charts, bar charts table and hypothesis to the present adopted to enable researcher to follow, thereby enhancing the utility of research. Direct experiment was not made use of because if was perceived that the data needed could not be arrived at by using any conferment and control methods as it is the case in physical sciences. This does not in invalidate the research claim of scientific objectivity.


1.9 Definition Of Terms

1. Profit:

A percentage of sales.

2. Profitability:

Ability contribute to the profit making of an organization.

3. Sample:

A set of terms measurement when conducting survey involving population.

4. Purchasing and buying:

They are used interchangeable but refer to similar process.

5. Co:

This is the short form of writing “company”.

6. Ltd:

Short form of writing “limited’.

7. Follow-up:

Chasing supplied contracting vendors and expediting deliveries.

8. Inventory control:

A functional activity the objective of which is to minimize the total cost of maintaining inventories and of acquiring them in order to render a stipulated level of service. This activity includes receiving, storing, issuing and recordering.

9. Ex-work:

A contract term where the buyers arranges for the whole movement of goods from sellers factory, at his own expense.

10. C.I.F:

It means cost, insurance and freight which holds the sellers responsible for the freight, cost and insurance cover so that, in general the main cost incurred by the buyer starts when the ship clocks at the end of the voyage.

11. F.O.B (free on board):

This term holds the seller responsible for all charges up to the point where goods have been loaded onto the ship to its destination. At the location specified the titles of the goods passes to the buyers. The sellers risk begins.

12. Delivery:

Period of time between the date of issue of a purchase order and the date the materials are received delivery schedule: The time span or delivery of goods during a future period as per term of the contract.

13. Resource gap:

The difference between the amount of materials requirement of an organization and the quantity likely to be available if current supplying arrangement remain unchangeable.

14. Management:

The act or skills of directing and organizing the work of a company or organization. Management activities-those activities the are destined to management such as directing, planning, staffing, and coordinating.

15. Sourcing:

Identification or development of suitable sources of supply.

16. Negotiation:

It means conferring, discussing or bargaining to reach agreement in business transaction.

17. Price:

It means determination and the basis to be used.

18. Fair price:

A fair price is the lowest price that makes it possible for a continuous supply of the right quality material by the supplier where and when needed.

19. Fair profit:

It means a profit that is sufficiently high to encourage an efficient supplier to accept the order from the buyer.

20. To buy wisely:

Buying wisely involves a continual search for better values that yield the best combination of quality, service and price relative to the buyer’s needs.

21. Quality:

The standard of some thing when it is compared to other things like it.

22. Quality control:

The practice of chacking goods as they are being produced, to make sure that they are of a high standard.

23. Vendor analysis:

Paul Humphrey contributing further says that vendor grading analysis is another way of adding to the company’s profit. By ensuring that vendors are acting efficiently, (according to Paul Humphrey).

24. Lead time:

This is the interval between when a need is perceived and the fulfillment or satisfaction of that need. In order words it represents the time which will elapse between initiating an action for purchase and that action being completed or executed.

25. Expediting:

This is an order follow up activity which involves various types of supplier liaison work, such as reviewing the status of orders, writing letters, telephoning and telegraphing suppliers and occasionally visiting suppliers plant in bid to ensure that delivery is made on time.

26. Contract:

This is an agreement between two or more persons which is intended by the theme to have legal consequence.


Role Of Purchasing Function And It’s Contribution To Profitability


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