The Role Of Supplier Development On Improving Organizational Performance On Manufacturing Industries (A case study of EABL)
The Role Of Supplier Development On Improving Organizational Performance On Manufacturing Industries (A case study of EABL)
Chapter One
Introduction
1.1 Background to the Study
As more and more manufacturing firms have realized the importance of supplier performance in establishing and maintaining their competitive advantage, purchasing research has tended to focus on supplier development programs and explore how these initiatives impact on buyer and supplier performance (Humphreys, 2001) which eventually leads to organization improvement.
Supplier development is the process of working collaboratively with suppliers to improve or expand their capabilities (Charles Dominick, 2006). Supplier development contributes to the companies in terms of “creation and maintenance of appropriate suppliers, quantity, technicality, cost capability and delivery with continuous improvement” (Rajput and Bakar, 2012). It is a bilateral effort by both the buying and supplying organization to jointly improve the supplier’s performance or capability in one or more of the following areas: cost, quality, delivery, Time to market, environmental responsibility and managerial capability and financial viability (Krause & Handfield, 2011).
According to Lascellas and Dale (2008) there are reasons why supplier development has become a key element in maintaining or improving a company’s competitiveness which in turn leads to organizational improvement. Firstly, technological and competitive pressure has resulted in a great trend towards specialization. Secondly, the nature of competition itself has changed. Feigenbaum, among others postulates that effective international competition is a combination of competition in its traditional and visible form (product versus product) and an equally powerful, but less visible, form of competition involving companies skill in implementing and managing a process of total quality management of which suppliers are vital parts.
As an international company EABL recognizes that achieving high standards are aspirations presents unique challenges in different countries. Therefore EABL understands that while there will be varying degrees of performance, they strive for continuous improvement with their suppliers and they consistently drive up standards together to achieve excellence. They also appreciate that the they work will consistently offer support to their suppliers in achieving minimum standards thus the supplier development program (Ireland, 2014).
1.2 Statement of the Problem
Facing up to the challenge of stiffer competition and having to supply the global markets, manufacturers have quickly learned the importance of improving productivity and quality (Erasmus, 2006) suppliers play a very vital role in the production value chain. They indirectly determine the quality of the final product. There is therefore need for the manufacturing firms to put in place measures to develop and equip suppliers with prerequisite skill in order to ensure quality supplies and this is done through supplier development EABL face a major challenge in its production processes because of the increasing cost of barley and hops.
There is a constant spike in the commodity price of barley which is sorghum based (Ogunda, 2013). This is reflected in the slow improvement in its profit margins which is seen in the EABL 2013 annual report. Between April and July 2012, the price of barley increased by 26.06%. This exposes EABL to a significant rise in the price of the inputs used in producing beer (Euromonitor, 2012). According to Ireland, (2013) managing Director, East Africa Breweries Limited, on raw materials, EABL has a strategy which is supplier development that maximizes the amount of raw materials, EABL has a strategy which is supplier development that maximizes the amount of raw materials from the beer that is sourced locally and the benefits of this, is reducing the exchange rate risk, reducing the exposure to imports, security of supply, lowering costs thus the success in the supplier development is not a foregone conclusion.
While many researchers in Kenya like Ochieng 2914 and Ritich, Abura & Kihava 2014 have researched on supplier development, there is limited research on the role of supplier development on the organizational performance of manufacturing industry specifically in Kenya a factor that requires extensive research. Again many researchers like (Krause, 2007) and Humphreys 2003 have dealt with supplier development and specifically on how it impacts on the buyer – supplier performance thus little has been researched on its impact to organization performance.
It’s in this reference above that the researcher investigated the role of supplier development on organizational performance in manufacturing industry in Kenya and with specific focus on East African Breweries.
1.3 Objectives of the Study
1.3.1 General Objectives
The general objective of this study was investigating the role of supplier development on improving organizational performance on manufacturing industries. A case study of EABL
1.3.2 Specific Objectives
- To establish the role of training suppliers on organizational performance of East African Breweries Limited.
- To determine the role of rewards on organizational performance of East African Breweries Limited.
- To establish the role of financial support on organizational performance of East African Breweries Limited.
- To establish the role firm involvement on organizational performance of East African Breweries Limited.
1.4 Significance of the Study
The researcher hopes that the findings of this study will form the basis on which future researchers could be built and most importantly the practices of manufacturers with respect to supplier development and supplier performance evaluation will help EABL to provide supplier development as value added services to their potential customers and finally the study will contribute to the body of knowledge in the field of manufacturing industry.
1.5 Scope of the Study
This research work will cover purchasing for organization thus its scope will be based only on international purchasing aspect.
Theoretical Scope:
This refers to the area to be covered during the period of research work. The area to be discussed shall be limited to purchasing and supply.
Geographical Scope:
The researcher shall offer useful suggestions where necessary so that the organization could be able to advice much for progress and make valuable contributions to see the economic depression of this great nation.
Industrial Scope:
The researcher will focus more attention on the purchasing department with particular reference to Nigerian Bottling Company, Lagos. As regard to their activities.
Time Scope:
This is where the researcher would use his time to spend for collecting data from the organization in order to get facts from them.
1.6 Research Questions
- To what extent does the role of training suppliers to improve organizational performance of East African Breweries Limited?
- How does the role of rewards improve organizational performance of East African Breweries Limited?
- To what extent does the role of financial support improve organizational performance of East African Breweries Limited?
- How does the role of firm involvement improve organizational performance of East African Breweries Limited?
1.7 Research Hypothesis
Ho: international purchasing does not have impact on organizational performance.
Hi: international purchasing has impact on organizational performance.
Ho2: international purchasing does not increase organizational growth.
Hi2: international purchasing increases organizational growth.
Hypothesis 3 (H3): Sp practices are positively related to quality and operational performance.
According to Walker et.al [9], organizations must look across their entire supply chains to effectively address social and environmental impacts. Publications over the last decades shows that SP has been seen as capable of delivering significant environmental benefits by practitioners, policy – makers, and academics, and SP practices have been seen as more powerful agents of change than any other corporate functions to reduce the environmental impacts caused by business actions [30]. It has also been reported that SP practices significantly impact and improved social wellbeing in the UK. This finding is aligned with the conclusions of other studies which reported a positive relationship between the adoption of green SP practices and improvements in social and environmental performances [2, 31]. For example, Guenther et.al [31] stated that green procurement implementation in Germany has reduced the sources of waste and promoted recycling and other environmental benefits; Adams et.al [32] found SP implementation a key enabler that alleviated environmental issues, and provided social benefits.
The BECD [33] also reported that sustainable procurement practiced in Switzerland resulted in high “environmental and social standards throughout the product lifecycle”.
1.8 Historical Background of the Case Study
Nigerian Bottling Company Limited: Background and Milestones.
As pioneer bottler in the group, NBC prides itself as the bedrock of coca – cola Hellenic. The company is head – quartered in Ebute – Meta, Lagos and operates 13 bottling facilities, 28 commercial territories and 57 distribution depots across the country.
As written earlier, Nigerian Bottling Company Limited was incorporated in November 1951, as a subsidiary of the A.G. Lenventis Group with the franchise to bottle and sell products of the coca – Cola Company in Nigeria.
Two years later, in 1953, the production of coca – cola began at a bottling facility in Ebuta – Meta, Lagos state. In the same year, the company opened its first Bottling plant in Apapa. In 1960, the year the Nigerians gained independence, the Nigerian Bottling Company exceeded the one million cases a year mark.
NBC in 1961 commissioned its second Bottling facility at Ibadan, oyo state and rapidly expanded its operation over the next couple of years which today stands at 13 facilities and 57 depots across the country. In 1972, NBC became a publicly quoted company and listed its shares on the Nigerian stock exchange. NBC acquired Eva premium water and Schweppes brands in 1991. In 2000, NBC became a member of the newly formed coca – cola Hellenic Bottling Company S.A. (an anchor Bottling group with operations in 28 countries worldwide).
The first ultramodern fully automated NBC plant was commissioned in Benin in 2001. NBC launched 5Alive juice brand in 2003; PET packaging for its sparking soft drinks category in 2004; and 33cl can in 2007. In 2008, NBC introduced the more environmentally friendly ‘ultra’ glass packaging for its Returnable Glass Bottle product segments.
In September 2010, NBC was recognized by the Lagos state government for its support of the ‘support our school’ project with the 2010 LASG CSR Award. In October 2011, NBC was awarded the Social Enterprise Reporting Awards (SERAs) for the ‘Best Company in Environment’ for its PET Recycling Project jointly implemented with coca – cola Nigeria Limited as well as for the ‘Most Socially Responsible Company in Nigeria’.
In November 2011, NBC became the first company in Nigeria to receive the food safety system (FSSC 22000) certification. In February 2013, NBC was voted by consumers as the Best in product Excellence at the Nigerian construction Awards organized by the consumer protection council (CPC). In April 2013, coca – cola Hellenic HBC AG was listed on the premium segment of the London Stock Exchange.
1.9 Definition of Terms
C.I.F:
This simply means cost Insurance freight which indicates that the seller is responsible for the goods until they get to the port of destination and the selling price includes ocean freight and insurance up to that point.
Duty:
Payment made to the government either for import or export.
C and F:
Cost freight this is similar to C.I.F except that buyer has to pay for insurance charges.
Bill of Lading:
This is document similar to delivery note used in shipping. The sender retains one copy which is held by the master of ship and not also for consignee.
Port of Entry:
This is importer buyer country port i.e. through which consignment will enter its country of destination.
E.T.D Estimated Time of Departure:
This is send to the importer stating the time the vessel leaves the port of the exporter.
E.T.A Estimated Time of Arrival:
It is a note sent to the importer giving him the time consignment will arrive at his country port.
C.R.F Clean Report of Finding:
Pre – shipment inspection of goods to be shipped to Nigeria must be ensured that they are of correct quality and that only normal contract material importer is shipped.
Carrier:
This company offering the service of transporting goods from one area to another.
F.O.B Free on Board:
This is a contract in which goods are delivery to the ship (no board).
Consignment Note:
A note accompanying consignment of goods indicating quality description, number of package in the consignment.
Consignee:
The person or company to when goods are addressed or sent.
Commercial Invoice:
The invoice is often employed as basis for custom clearance at the port importation.
Chapter Five
Summary of Findings, Recommendations and Conclusion
5.1 Summary of Findings
The study deducted that indeed supplier development play vital role organization performance where most respondent agree that most of the element of the supplier development strongly influenced the performance of the organization more so financial support, direct firm involvement and rewards but suppliers training not so much but it’s also an important element again supplier development results to increased profitability helps reduces product cost, helps to improve product quality and it help in producing products faster than before due to improved supplier quality thus supporting the statement above that supplier development plays vital roles in organization performance
The study deduced that has indeed the organization has a training program that train the supplier do attend those training offered by the organization however on the issues of funding most respondent didn’t agree that the training are well funded by the organization and this is something that is something that is very crucial. All in all the study found out that supplier training has no significant relationship with organization performance.
The study also revealed that rewards indeed are important element of supplier development as most respondent agreed that it act as a motivation tool to suppliers. The study also found that the organization indeed gives suppliers those incentives if they perform well example promise of future business deals and that the organization recognize suppliers progress in the form of awards. Also the organization performance and rewards
In relation to financials support the study deduced that again financial support is an important element in supplier development because it really support the suppliers gains a lot and producing good quality product. The study also found out that the organization provide the supplier with equipment or tool for process improvement, it also provide technical support (personnel)to help out key supplier to improve their operations and the organization provide the supplier with capitals for new investment at their facilities which are in line with improving the supplier development program and that will eventually help both firms to benefit equally dyer {19} noted that financially support could make suppliers more willing to make customized item for customers, allow both parties to communicate more efficiently and hence result in shortened product development cycles and reduced procurement costs. Finally the study established that there exist a strong significant relationship between organizational performance and financial support.
The study establishment that organization are directly involved with suppliers and that the organization conduct site visits to the suppliers premises to assess their facilities also suppliers are selected carefully and evaluate regularly and once the suppliers evaluated there are give feedback as soon as possible. This is a very importance aspect when it’s come to supplier’s development and it actually leads to organization performance which as the study deduced leads to profitability and so on and so forth. The study deduced an important factor that there exist a strong significant relationship between organization performance and firm involvement.
5.2 Conclusion
The study concludes that indeed supplier’s development is crucial in improving supplier performance and the organization performance .the study established a significant positive relationship between three elements of supplier development namely financial support, rewards and firm involvement and organization performance., therefore firms in manufacturing industry ought to engage more in activities that help improve the operations of their suppliers.
The study also established a significant negative relationship between supplier training activities and organization performance hence, thus organization performance
Also in conclusion this study suggests financial support is very important and that manufacturing firms should be able to provide financial support to their suppliers. How every there a challenges of finances as deduced from the study but all the firms need to do is work hand in hand with the financials institutes. This study also concludes that direct involvement in supplier activities should be considered paramount also offering rewards to the suppliers is very key as it surely acts as a motivation tool and end up to be loyal to their customers. Also offering training is also important since when suppliers are trained they intend to perform well.
And finally with globalization of the market and competition between firms, the issue of having capable suppliers becomes an important factor to be successful in business. Therefore for a firm is to remain globally competitive it needs to invest heavily in suppliers through the supplier development program to help improve on the quality of products or services, reduces on product costs and more so to increase profits and also to sustain customers.
5.3 Recommendations
In references to the findings and conclusion the study recommendation that the East African Breweries should work hand in hand with the financial institutes to curb the challenge of finance because providing funds to the suppliers is not easy but when money is available it becomes much easier.
Also the study recommends that the organization should further well the training programs that they administers to their suppliers this will indeed to better performance .
In addition, enhanced communication, another proven success factor, should be put into practices in the suppliers development program not just use Email and Telephone ever face to face communication are important. In firm involvement firms ought to evaluate and give feedback to their suppliers more often. This gives the suppliers an opportunity to know their weakness and shortfall as well as adjust their operation to meet the needs of the manufacturing firms, on rewards I would recommend that firms should be more vigorous in rewarding and recognizing their supplier as it’s a motivation tool.
Finally the study has clearly shown that supplier’s development plays a crucial and vital role on the organization performance and it lead to very good benefit thus they study recommends that the manufacturing firms short work closely with their suppliers. Have long term relationship with them so that they can end up having also collaborative relationship which in turns not only leads to win-win situation but to also a win more situations.
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