INTERNATIONAL PURCHASING AND ITS JUSTIFICATION

CHAPTER ONE

INTRODUCTION

1. BACKGROUNG 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. 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.