NEED FOR EFFICIENCY IN PURCHASING MANAGEMENT IN A PUBLIC SECTOR
ABSTRACT
This project is primarily concerned with the need for efficiency in purchasing management in a public sector in the ministry of Agriculture and National resources Enugu State. In doing this, the researcher briefly explain some of the problems public sector can encountered without efficiency in purchasing management and went on to touch background of the subject matter where some of the action of the company were highlighted. The primary data were collected through survey methods using questionnaires and personnel interviews. The analysis of data collected was carried out using chi-square and show the rate at which each response occurs. Base on the analysis, the following finding were made that there are more unqualified purchasing personnel in government ministries than qualified personnel and also that attention has not been given to purchasing in public sector. There is need for efficiency in purchasing management in a public sector so that award given to incompetent contractors with a view to diverting government purse into their own private purses will eliminated.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO STUDY
Stripped of an excess verbiage, business can be defined as the striving for profit by adding value. Based on the above statement, no organization is self sufficient. Procurement is therefore, one of the basic common functions of every organization? The purchasing function is taking an increasing importance in today’s industrial economy. Profit minded management has turn to professionally operated purchasing department to make sure it is getting full value for its outlays on materials and services, which constitute the largest single percentage of its naira. All business and organisation, including non-profit and government institution, rely to a large extent upon an influx of materials and supplies into their plants or offices so that they can do something further with these materials thus producing a product or performing a service. And organizing the materials function to obtain the appropriate contribution to objective is one of the challenge of management since they involves cost. This cost can be for more than just the naira value of the mission material, for its inventory is not maintained in sufficient quantity to meet production schedules the efficiency of the production line will drop. If the production line lacks materials, be they raw materials or component parts, the line may have to shut down, and this will force the company to lay off workers.
Frequent or extended lay offs will encourage skill workers to seek jobs in more stable companies. Once laid off, workers may be difficult to retire. Some will have found other positions, some will have moved away, others will have withdrawn from the work force for one reason or another. When production returns to full volume, new workers will have to be hired and trained, there will be additional training costs and a temporary loss in efficiency until the new workers became fully proficient in their jobs. This was exactly what happened with Diamond Breweries Ltd, Enugu, producers or Monarch beer, the production time were often interrupted intermittently at times producing at very low capacity due to shortages of essential raw materials like maize, malt, corks etc. This is because most f their raw materials used in production were imported, thereby leading to mass retrenchment of their workers in 1983.
A more insidious sources of increasing costs due to delay in the arrival of incoming materials is inefficient production. In the event of a shortage in a particular material or plant manufacturing operation may have to adjust to production of some other item during the waiting periods. Instead of making a straight production run. Basically then, the function of purchasing in this: to obtain the right material, in the right quantity, from the right source, at the best price, at the correct time, and to do this with a minimum of overhead expense. It is an important function, and it is growing more important each year. Over 70 percent of the sales naira of our manufacturing industries is expended and on the purchase of goods and services. This is almost twice the amount expended on labour, the next largest category. Purchasing is extremely important to the profit picture of the company. This is because purchasing is one of the few remaining areas where the opportunity exists for extensive reduction of the cost involved.
Labour contracts have been negotiated to a point where little can be done to reduce costs. But purchasing, with its high percentage of company naira to be spent, is in a position to effect substantial saving through more intelligent purchasing is a full naira of profit to the company equivalent to many naira of additional sales. Purchasing job sound simple enough to get the proper materials at the lowest overall cost. Theory is wonderful only if it does not work out quite so easily in practice. For not all managements recognize the full importance of the purchasing department the lacking it deserves and needs to do a good of procurement. Terms like procurement, purchasing, supply logistics material material management are used almost interchangeably. No agreement exists on the definition of each of these terms, it is possible to find a manager in public or private institutions with intentional responsibility substantially different titles. Recognizing that this linguistic confusionentos exist, the following definition may be pertinent and also helpful in sorting out the more common understanding of the various terms.
In general usage, the term purchasing describes the process of buying leaving the needs locating and selecting suppliers, negotiating prices and other pertinent terms, and following up to ensure delivery. Procurement covers wider areas and may includes the duties performed by purchasing as well as additional functions of materials supervision and management as inventory control, traffic, receiving, incoming inspection and salvage operations. Where the procurement definition is extended to include production planning and materials handling. The term materials. Occasionally, shipping and management of finished stores are also included in the definition. Supply is often used in North American by industrial concerns to cover the stores function of internally consumed goods like stationery and office supplies. In the united Kingdom and Europe the term supply has a broader meaning to include at least purchasing, stores and receiving.
In government sector supply also has this broader interpretation. In Canada, for example the department of supply and services is responsible for procurement in the Federal Government. There it included the optimum co-ordination of the in bound raw material movements, raw material storage work in progress handling, and of the out of bound packaging warehousing of finished product, and movement of finished products to the customers. In Enugu State, public sector likes any other organization. The objectives of management must be to maintain the procured stores at the lowest practicable level consistent with purpose for acquiring the stores being satisfactorily met. The primary function of stores management is to produce or provide for efficient storage and handling of goods to be redistributed to the ultimate consumer. Supply as the implication of store, it goes more with purchasing because one purchasing for the of replenishment. Then stores refer to stock and storage. Not all buyers in all purchasing department are infallible, either. Buyers make mistakes, in both judgment and turning.
The very pace of business tends to create confusion and error. In most purchasing situations there are a number of different considerations, pulling and having of one another that influence the final decision. Push deliveries cost more large quantity orders lower the unit cost, but they increase inventory. It is the task of the purchasing department to evaluate all these considerations and to come up with the proper buying decision. Finally, efficient management of materials and purchasing contributes significantly the success of most modern organizations including the public sector. In this standing the nature of this contributions, its need, efficiency and the management requirement will all be explored.
1.2 STATEMENT OF PROBLEM
The researcher attempts to highlight and critically analyse some of the main problems encountered by the buyer, particularly in a consultative capacity, when faced with the situation of purchasing. An appreciation and awareness of certain such undertaking can prove invaluable in respect of the problem of other involved in procurement. My research attempt to examine the more wide spread and complicated difficulties or problems encountered with this type of purchasing (public purchasing). The level of obstruction or hindrance afforded each aspect of the public purchasing personnel interviewed produced main and definitively separate sections: the financing of project, and day procurement and transportation problems.
Government always cry for shortage of this and that including lack of funds to finance its commitments without seeming to realize that a lot funds is normally saved through efficient purchasing and stores management. These are anomalies and as such one problem facing the public sector as a result of inefficient purchasing and stores management. Moreover, this paper is centred on improving the entire purchasing management system in the public sector with reference to ministry of agriculture and natural resources, Enugu. An again, the investigation and arrangement and the prefectness and efficiency of the purchasing management and their impact towards the profitability of the ministry of agriculture and natural resources, Enugu. With these and other numerous problems militating against efficient purchasing in the public sector, this research work is therefore, primarily designed to study low purchases functions, whether efficiently carried out, within appropriate responsibility and corresponding authority is extended to purchasing practice and personnels with a view to identifying problem are as a result of its inefficient performance and other short comings emanating from it.
1.3 OBJECTIVES OF THE STUDY
The need for this study is to determine the recognition of purchasing and supply as our indispensable tool for efficient management thereby avoiding purchasing being made an ordinary function in the public sector. The argument is perhaps best summed up by well used example where one percent saving on the cost of bought out goods and services produces 5 percent increase, in public purchases. The argument is accepted widely but not, universally. One flaw is that it confuse price with cost. Cost saving are valuable, but skilled negotiators deal with price and their performance is measured in terms of the prices they settle on. If we don’t buy at the lowest price now, there will be no tomorrow. This brings about a case of public purchasing of the U.K. producers, ford has gone the furtherest with it willingness to set up schools to train suppliers, staff, its commitments to longer term contract with fewer suppliers, and its investment in a new quality standard with more emphasis on quality management in depth. They understand clearly that quality in supplies is crucial to the other major right: the right price and the right time. In the organization where purchasing department is not defined, every body hussle to buy resulting in the interactions of other professions in the purchasing profession, in which it has resulted to misplacement of funds by some people leading to flagrant wastage and unscrupulous diversion of pubic fund into private purses. Some few months ago, we heard of justice Nnanna Nwachukwu contract review panels in which many contracts were inflated by the politicians.
Most of these contracts were awarded by other professionals in other fields who had no knowledge of the purchasing profession but that they were opportuned to be in that position only to inflate the contracts with a view of getting their own share of money from these contracts awarded. At time some of these contracts were awarded to incompetent contractors with a view to diverting government purse into their own private purses. This was due to public sector still deny purchasing and supply its recognition. The fight to see that their profession is given its rightful place in the society so as to save the government particular and generally of the people the inconvenience they will suffer from the hands of quacks and mediocres and also save them the money they could lose from the services of these usurpers.
Similarly, the purchasing and supply profession is not a dumping ground, its functions should not be usurped by men of other fields whose sole purpose is to divert the tax payers, money into their private purses by crude, from unprofessional and unethical purchasing practices. A purchasing man is a cost conscious man. He is quality conscious and also conscious of delivery time to meet operational demands. He thinks a head of time and has it as a duty to help the public sector triumph in its efforts to meet the aspiration of the people. Realizing the necessity for efficient purchasing the researcher is dismayed at the non-realization by the public sector of the need for efficient purchasing management as such it is the purpose of this study to:
1. Identify the need for efficient purchasing management in the public sector.
2. Find out the purpose for the absence of responsibility and authority for the purchasing.
3. Find out the purpose for the scramble for purchase in the public sector.
4. Find out how the purchasing department of the ministry it managed.
5. Find out the cadre and quality of staff responsible for the purchase of goods and services within the ministry
6. Find out the type of inventory kept and know how they are controlled in the ministries covered in the study.
7. Find out how obsolete, absocensent, deteriorated, supplies, scrap and redundant materials are being taken care of.
8. Find over everything about material management from the originating of material requirements/requisition with a view of making recommendation that will be extremely beneficial to the public sector.
1.4 SIGNIFICANCE OF THE STUDY
Purchasing has been growing in recent times in developed countries but in a developing country such as ours, its development has been proceeding at snail’s speed. Therefore there is the need to pay more attention to its development and harness its required contribution to profit and cost and in fact, the general development of the country if Nigeria is to become a reckonable developed economy like the United States of America the United Kingdom, Japan etc. We have learned at the fact of our elders and have passed on to our juniors, that the job of procuring raw materials, components and service for an employing organizations consists in procuring the right goods, the right quality at the right time and for the right price. All these aimed at the efficient purchasing. It could all be achieved through the valuable knowledge of market and contract law, the valuable skills in negotiation.
The statement is perhaps best summed up by the well-brought-in goods and service producers a five percent increase in company profits. Good purchasing is essential to good profits. The difference between outstanding result and mediocre performance purchasing efficiently is a profit centre and a focal point for substantial cash savings. The relevance of purchasing, therefore, is that it saves costs, contributes to profit and profitability of any concern and this is why the function was originally performed by most of them.
Purchasing efficiency achieves the following:
1. The reduction of input quality
2. The improvement of input quality
3. The achievement of greater schedules flexibility
4. The reduction of brought out costs through long term co-operative contracts with suppliers.
1.5 SCOPE OF THE STUDY
This project work focuses it’s attention on the status of the need for efficiency in purchasing management in a public sector.
1.6 RESEARCH QUESTIONS/HYPOTHESIS
RESEARCH QUESTION
1. Is there any purchasing department in your company?
2. Is purchasing department gives its rightful place or position in your company or industry?
3. Who direct or manage a fares of this department?
4. Is there any relationship existing between purchasing department and other department?
5. Who makes the procurement or purchasing of materials to your industry?
6. Is there any problems encountered by your department to the pursuance of their objective?
7. Are there any problems peculiars to purchasing department only?
8. In what ways can the problems be solved?
9. What method of buying do you adopted in your industry?
10. Is the method effective and efficient in terms of meeting the company’s requirement?
11. Is there a need for purchasing department in your company?
12. To whom is the department answerable to the person in the charge of distribution department
13. Which department is in charge of distribution of the company product?
14. How does the need for efficiency in purchasing management being, useful, helpful and lead your company to a better financial studying adopted?
15. How much does your company losses if there any inefficiency in purchasing management?
HYPOTHEIS
1. HO: Attention has not been given to purchasing in the public sector
Hi: Attention has been given to purchasing in the public sector
2. Ho: There are more unqualified purchasing personnel in government ministries than qualified personnel.
Ho: There are more qualified purchasing personnel in government ministries than qualified personnel.
1.7 DEFINITION OF TERMS
The following words are defined to clarify their uses in the research.
L.P.O: Local Purchase Order that is issued to a supplier before supplies are made
O.P.O: Overseas Purchase Order
5R.S: The right quality, right time, right quantity, right source and right price
Enugu Urban: Comprising the city of Enugu
Profession: As used in this study, refers to an occupational group which can only be entered by these who have qualified by a training which can only be entered by these who have qualified by a training which includes a higher education and also a special test administered by members of that group.
G.R.N: As used in the research is in connection with stores work for recording receipts thus forming a confirmation of the work of purchaser/buyers.
I.P.S: Institute of purchasing and supply London. Performance: Activities of purchasing in government ministries
Population: The complete collection of objects, events or people about which data one obtained in survey.
Sample: A set of items from a population chosen for measurement during sampling.
Non-programmed decision: Novel, unstructured and consequential decisions which include questions of strategy.
Programmed decisions: Repetitive and routine decision
Survey; The activity of collecting standard items of data concerning each one of a number of defined objects, events of people (a population).
