TABLE OF CONTENTS
CHAPTER
ONE
INTRODUCTION
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF RESEARCH PROBLEM
1.3 OBJECTIVES OF THE RESEARCH
1.4 SIGNIFICANCE OF THE STUDY
1.5 SCOPE OF THE STUDY/ LIMITATION OF THE
STUDY
1.6 RESEARCH QUESTIONS
1.7 FORMULATION OF RESEARCH HYPOTHESIS
1.8 HISTORICAL BACKGROUND OF THE CASE STUDY
1.9 DEFINITIONS OF TERMS
CHAPTER
TWO
LITERATURE
REVIEW
2.1 CONCEPTUAL
FRAMEWORK
2.2 THEORETICAL FRAMEWORK
2.3 EMPIRICAL REVIEW
2.4 GAP IN LITERATURE
CHAPTER
THREE
METHODOLOGY
3.1 INTRODUCTION
3.2 RESEARCH METHOD USED
3.3 SOURCE OF DATA
3.4 DATA COLLECTION TOOLS
3.5 RESEARCH POPULATION AND SAMPLE SIZE
3.6 SAMPLING PROCEDURE EMPLOYED
3.7 STATISTICAL TECHNIQUES USED IN DATA ANALYSIS
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1 DATA
PRESENTATION AND ANALYSIS
4.2 HYPOTHESIS
TESTING
CHAPTER FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
5.2 CONCLUSION
5.3 RECOMMENDATIONS
REFERENCES
CHAPTER
ONE
INTRODUCTION
1.0 INTRODUCTION
An increased number of manufacturing
companies that are purchasing labour-intensive items turn their attention
towards reducing their costs by sourcing from various geographical places. The
price of goods and services purchased from the emerging or low cost countries
represents an excellent reason for considering international purchasing as an
efficient solution. A low price for materials purchased from a foreign supplier
can be counterbalance by company’s loose in quality standards or even financial
instability. On the other hand, more technologically advanced products, which
are sourced from international suppliers, can carry high purchasing costs and
excessive tariffs. In these given conditions, besides the actual cost of an
acquired item, it is a question regarding the complexity of the purchasing
process in the international trade context since factors like availability of suppliers,
substitute source of supply, market uncertainty or other major changes in the international
environment are able to influence the involvements in international purchasing
activities. As a consequence, it is a matter to examine these problems in order
to understand what the key factors for a successful international sourcing
process are.
1.1 BACKGROUND OF THE STUDY
During
the last decades, purchasing has received special attention in many companies. The
multitude of actions, like mergers and acquisitions, outsourcing and off
shoring to low-cost countries have been considered by organizations in order to
search for new ways of achieving competitive advantage. All these measures have
changed the role and objective of purchasing function inside companies and
increased its importance in firms’ overall strategy. As a result, the
complexity of the purchasing function evolved from an operational function to a
strategic source of cost reduction and increased competitiveness.
Traditionally,
the supply chain of the firm incorporates a network of functions such as product
development, marketing, operations, distribution, finance, customer service,
all involved directly or indirectly in fulfilling the customers’ requests
(Bozarth & Handfield 2007). But in order to fulfiLkl these requests, firms
must create value by tailoring their value propositions to clients’
expectations. The activities developed inside the companies range from the
procurement of raw material to the distribution of the final product to the
customer and after sales service.
Lysons
and Gillingham (2005), define purchasing from the standpoint of its objectives:
“to obtain materials of the right quality in the right quantity from the right source,
delivered to the right place at the right price”. In order to achieve these objectives,
companies must focus on activities associated with purchasing like: selecting qualified
suppliers, rating suppliers performance, negotiating contracts, comparing price,
quality, lead times, services and terms of sales, evaluating the value
received, predicting prices and demand modifications, etc.
As an
integrant part of a company’s value creation system, purchasing commands a significant
position in the overall organization. De Boer, Labro and Morlacchi (2001), referring
to the study of Telgen (1994), who has found out that in industrial companies, purchasing
share of the total turnover typically ranges between 50-90%, stated that making
decisions about purchasing and operations are the primary determinants of profitability.
The
importance of purchasing function in the organization is also underlined by the
increased amount of resources invested by companies in the purchasing process
and as well as by the time allocated to strategic purchasing. It is already
acknowledged that the goods and services purchased by companies have a key
influence on costs, productivity and quality level. Therefore, the sources of
supply and the amount of time and money invested in the purchasing process have
a capital influence on firms’ performance. One of the most important elements
of the purchasing function is the selection of suppliers. The goal of supplier
selection and evaluation is to reduce the risks involved in transactions and to maximize the total value for the buying
firm. Successful supplier selection processes are dependent on a series of
strategic variables like the choice between
domestic and international sourcing, type and the intensity of the relationship
with the suppliers, the number of suppliers from which to source (single or
multiple sourcing) and finally but not the least important, the type of the
products supplied. Throughout time, many researchers have identified numerous
criteria for supplier selection and assessment such as net price, quality,
delivery, supplier reputation, capacity, communication systems, services or
geographic location. All these criteria represent critical issues in the
supplier assessment procedures in view of the fact that they measure the
performance of suppliers.
The main purpose of this research is to provide empirical evidence
of the procedures and criteria used by small and medium-sized Doyin Investment
Company when selecting international suppliers. In addition, the paper aims to
investigate the types of relationships developed by Doyin Investment Company
buying companies with their foreign partners as well as supplier-base structure
options and types of products purchased from international suppliers.
1.2 STATEMENT OF RESEARCH PROBLEM
The
present study has also several limitations, which will be further described.
The first limit of the paper comes from its scope. According to Talluri &
Sarkis (2002), the business processes of the purchasing function within
organizations include supplier evaluation and selection, negotiation of supply
contracts, monitoring supplier performance and creating an interface between
company and its suppliers. Therefore, inside the core process of sourcing, the
study narrows its scope by analyzing only the supplier evaluation and selection
process.
Secondly,
the research will be limited to analyze the small and medium-sized manufacturing
companies operating within Nigeria.
The main
business sectors evaluated will be manufacturing of food products and beverages
because the examined business categories are not comparable due to a range of
legal and technical aspects.
1.3 OBJECTIVES OF THE RESEARCH
The
thesis is based on the following hypothesis: “SMEs in a small country such as Denmark
are highly import intensive and source not only from regional suppliers, but also
from suppliers far across the globe (Overby & Servais, 2005) ”. As a result
of the amplified interest in purchasing internationally, it becomes important
to assess the sourcing practices among small and medium enterprises. In the
context, the research question of the study will be:
-
What are
the most important selection criteria that Doyin
Investment Company Ilorin consider when choosing their foreign
suppliers?
With the
purpose of answering the research question, the following research objectives will
be addressed:
1. To
identify the challenges to international purchasing along with the main strategic
options available for purchasers.
According
to this objective, the paper aims to investigate the drivers and barriers to purchasing
from foreign countries. Furthermore, the strategic factors behind the sourcing
process such as supplier-base structure, buyer-supplier relationships and types
of products supplied will be explored in order to understand the tactical
decisions related to purchasing.
2. To
analyze the supplier selection process and to identify the most important selection
criteria in the international context.
In
regards to supplier selection criteria, the aim of the study would be to
describe the process of supplier selection by highlighting the most critical
supplier selection criteria considered by companies when acquiring their
products from international countries.
3. To
investigate the international purchase behaviour of Doyin Investment Company
Ilorin and to find to find out what are the selection criteria that drive them
in choosing their foreign suppliers.
The
empirical objective of the study has the role to analyze the international
purchasing practices developed by Doyin Investment Company Ilorin. Moreover,
the influence of strategic options on selection criteria will be tested in
order to understand the selection decisions according to different purchasing
situations.
1.4 SIGNIFICANCE OF THE STUDY
The
outcome of this study will provide an adequate understanding on the application
of international purchasing in an organization which includes;
1. Reducing
Costs
Many
business today final importing products, parts of the products and resources
more affordable than purchasing them locally.
There
are numerous cases when entrepreneurs final products of good quality which are
inexpensive even when the overall import expenses are included. So instead of
investing in modern expensive machinery, entrepreneurs choose to import goods
and reduce their costs. In most cases, they end up ordering large quantities in
order to get a better price and minimize the cost.
2. Becoming
a Leader in the Industry
One of the key importances of international
purchasing products is the opportunity to become a market leader in the
industry of interest. Since manufacturing new and improved products is a
never-ending process, many business worldwide use the chance to purchase new
and unique products before their competitors do. Being the first to purchase a
fresh product can easily lead to becoming a leader in a certain industry.
3. Providing
High Quality Products
A lot of successful entrepreneurs travel
abroad, visit factories and other highly professional suppliers in order to
find high quality products and purchase them into their own country.
Moreover,
manufacturers may provide informative courses and training as well as introduce
standards and practices to ensure the company abroad is well prepared to sell
their products.
4. Introducing
New Products to the Market
If
a product produced in China seems attractive/useful to organizations in
Nigeria, they can purchase it and intro duce
it to their potentials consumers, thanks to the internet expansion,
organizations can conduct purchase research prior to purchasing a certain product.
This will help them determine if there is an actual need on the organization
for such an international product, so they can develop an effective purchasing
strategy in advance.
1.5 SCOPE OF THE STUDY/ LIMITATION OF THE
STUDY
Scope
This
study focuses on the significance of international purchasing on the
organization productivity, the research was limited to the study of particular
company known as Doyin Investment Company, Ilorin, it examines the operation of
international purchasing activities in the industry.
Limitation
1.
The
attitudes of the respondents towards the researcher. Some of the respondents
who were given the questionnaire to complete did not give their full
cooperation, some were reluctant to collect the questionnaire while some gave
false information.
2.
Financial
constraint, the researcher was faced with problem of limited finance to
carryout detailed study on the subject matter.
3.
Time
constraint, the time allowed for the research study did not permit an indepth
study into the research topic.
4.
Lack of
access to standard purchasing library to get adequate information to carry out
the research.
1.6 RESEARCH QUESTIONS
In
this chapter the research questions will be answered one by one, suggestions
for the future research will also be given.
1.
What are
the main driving forces and challenges for companies conducting international
purchasing?
The main
driving forces for conducting internal purchasing are; cost, quality,
efficiency, increase competition in the domestic market and cut lead times.
Corporate Social Responsibility (CSR) ad sustainability can also be regarded as
driving forces since purchasing directly from suppliers instead of using a
reseller could create control over the supply chain. There is a shift going on
regarding the driving forces for internal purchasing.
Previously,
cost focus has been absolute dominant. Now it has replaced more and more by
other factors such as quality and Corporate Social Responsibility (SCR). The challenges
connected to international purchasing are language barriers, cultural
differences, documentations, transforming norms and standards, trade barriers, imposition
of tariff-quotas, exchange rates
caution, finding the best suppliers, potential resistance, CSR and
sustainability issues and logistics.
2.
What
factors determine which purchasing markets that are relevant?
The factors determine relevant purchasing
markets are varying depending on industry. in general the most important
factors are, cost-level, capability to produce the required products,
infrastructure and stability on the market. CSR (Corporate Social Responsibility)
and sustainability issues are getting increasingly important and will affect
these decisions even more in the future.
3.
How are
companies affected by CSR (Corporate Social Responsibility) in their work with
international purchasing?
The
importance of CSR growing and it definitely affects companies in their work
with international purchasing especially, it affects how they work with
suppliers. CSR have made it increasingly important to work more together with
the suppliers and by that increase the suppliers knowledge about these issues, strengthens
supplier relationship could also have positive effects on cost, quality and
efficiency. Companies are of course also affected by the challenges connected
to CSR, such as the definition and “how far should you go” problem.
4.
How
could NCC handle driving forces, challenges and Corporate Social Responsibility
(CSR).
Based on
their own capacity and their customer’s requirements they need to prioritize,
it is not possible to get anything, low price, high quality and full
traceability throughout the supply chain is a tough equation to solve.
1.7 FORMULATION OF RESEARCH HYPOTHESIS
The
following hypotheses were tested to guide the study.
Hypothesis One
Ho1:
There is no challenge to international
purchasing with main strategic options available for the purchasers.
Hi1:
There is challenge to international
purchasing with main strategic options available for the purchasers.
Hypothesis Two
Ho2:
Supplier selection criteria are not
important in the international context.
Hi2:
Supplier selection criteria are
important in the international context.
Hypothesis Three
Ho3:
International purchasing has no
significant effect on small scale industry.
Hi3: International purchasing has no significant
effect on small scale industry.
1.8 HISTORICAL BACKGROUND OF THE CASE STUDY
Doyin
investment limited Ilorin, was incorporated in as the first indigenous
manufacturer of soap and detergent, the company is situated along Asa-Dam road
Ilorin, Kwara State of Nigeria.
Doyin Group of Company started as a small
trading business, it has grown tremendously were the years consolidating its first
hold in the leadership of industry, the organization has received many national
and Africa accolades for the best practice and the production of consistently high
value brands, over the years, the group transformed from a trading concern to a
manufacturing outfit.
The company has consistently paired up with
existing multinational detergent manufacturing company in healthy competition
towards enhancing the growth of the Nigeria economy.
The enhancement of Kwara State, Doyin
Investment Company existence has provided employment opportunities for thousand
of Nigerians such as suppliers, manufacturer, contractors, transporters, distributors
etc.
In addition, necessary machineries have been
put in place and negotiations have also reached in advanced stage to introduce
the company’s products to countries within ECOWAS sub-regime as a way of
mobilizing foreign exchange into the country.
1.9 DEFINITIONS OF TERMS
Bill of
lading: A document which
provides the terms of the contract between the shipper and the transporter
company to more freight between started points at a specified charge.
Air way
bill: Bill of lading that
covers both domestic and international flights transporting goods to a
specified destination. It is a non-negotiable instrument of air transport that
serves as a receipt for a shipper, indicating that the carrier has accepted the
listed goods.
Certificate
of Origin (COO): It is a signed statement required in certain nations
attesting to the origin of the export.
Consular
Invoice: Document required in
some countries that describes the shipment of goods and shows information such
as consignee, and value of the shipment.
Cost,
Insurance and Freight (CIF): Cost, insurance and freight to a named overseas
post. In Cost, Insurance and Freight (CIF) the seller quotes a price for the
goods shipped by ocean (including insurance), all transportation costs, and
miscellaneous charges to the point of debarkation from the vessel.
Customs
Invoice: Document used to
clear goods through customs in the importing country by providing evidence of
the value of goods.
Certificate
of Inspection: A document in which certification is made as to the
good condition of merchandise immediate prior to shipment.
Tariff: A duty (or tax)
levied on goods transported from one customs area to another.
Carrier:
This is a company
offering the service of transportation of goods from one place to another.
Consignment
Note: A note accompany
consignment of goods indication quality, description, number of package in the
consignment.
Cost and
Freight (C&F) The exporter pays the costs and freight necessary to
get the goods to the named destination. The risk of loss or damage is assumed
by the buyer.
Free
Alongside Ship (FAS): The seller quotes a price for the goods that
includes charges for delivery of the goods alongside a vessel at the port. The
seller handles the cost of unloading and wharf age, loading, ocean
transportation, and insurance are left to the buyer.
Free on
Board (FOB): The goods are placed on board the vessel by the
seller at the part of shipment specified in the sales contract, the risk of
loss or damage is transferred to the buyer.
Letter
of Credit: An instrument issued by a bank on behalf of an
importer that guarantees an exporter payment for goods and services, provided
the terms of the credit are met.
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