Negotiation as A Cost Reduction Technique In Material Procurement at Nigerian Bottling Company Plc Enugu Plant
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Negotiation as A Cost Reduction Technique In Material Procurement at
Nigerian Bottling Company Plc Enugu Plant
ABSTRACT
Negotiation as a
reduction technique in material procurement is to ensure that high cost
incurred in material procurement is manage hence the negotiation is one of the
tool in spend cost management to optimise profit in every organization. Lack of
knowledge to some guide when negotiating by procurement manages lead to high
cost of finished product and it makes the product not to compete well with its
competitors in the market. The impact expected at the end of negotiation is to
minimize cost and maximise profit of the organisation. In both private and
public sectors between 50% to 80% of the total expenditure is spend on
acquiring either materials or services. The high percentage of charges by
company’s agent could lead to additional cost of production over invoicing and
overpayment. What else can be done, and what other mean can be used to acquire
raw materials without incurring high cost. To reduce high cost, negotiation is
one of the technique of spend cost management to arrive at a mutually
acceptable bargain by planning. Objectives and strategy in order to arrive at
an agreed pace term and condition of service between a procures and supplier.
To ensure prudence and judicious utilization of the limited resources available
in an organization. To expose ideas to procurement manager on how to achieve
the objectives and enhance the profitability of organization as materials
procured when adequately negotiated reduce cost incurred in acquisition of
material for production process. To expose purchasing manager to possible tools
of spend and cost management. The major research question of what re the
techniques for negotiation the strategies for effective negotiation, the rate
of material availability, how coordination and management of suppliers to
ensure cost reduction and constant flow of materials to avoid interruption at
the point of production. The research Design would be descriptive and
analytical in nature. Interview would be conducted on selected staffs of
Production, Stock Control section, Human Resources and Procurement Department.
The Instrument for data collection are Questionnaire, Record, Interview,
Observation. This work also comprise of summary of findings, conclusions and
recommendation.
TABLE
OF CONTENTS
Title i
Approval ii
Declaration iii
Dedication iv
Acknowledgement v
Abstract vi
Table of contents vii
List of table’s viii
CHAPTER ONE:
Introduction
1.1 Background
of the Study 1
1.2 Statement
of the Problem 1
1.3 Objectives
of the Study 2
1.4 Significance
of the Study 3
1.5 Scope of
the Study 4
1.6 Research
Questions 5
1.7 Definition
of Terms 6
CHAPTER
TWO: Literature Review
2.1 Negotiation 8
2.2 Preparation
for Negotiation 10
2.3 Negotiation
Techniques 11
2.4 Objectives
of Negotiation 13
2.5 When to
Negotiate 15
2.6 Importance
of Negotiation in Relation to Procurement 16
2.7 Cost
Reduction 18
2.8 Negotiation
Process. 19
2.9 Qualities
of a Good Negotiation. 22
2.9.0 Material
Procurement 23
CHAPTER
THREE: Research Methodology
3.1 Area of
Study 24
3.2 Research
Design 25
3.3 Population
of the Study 27
3.4 Sample,
and Sampling Technique 27
3.5 Instruments
for Data Collection 28
3.6 Administration
of the Instrument 28
3.7 Techniques
for Analysing Data 28
CHAPTER FOUR : Presentation
and Analysis of Data
4.1 Presentations
of Results 30
CHAPTER FIVE: Summary, Discussion, Conclusion and
Recommendations
5.1 Summary
of Procedure 39
5.2 Discussion
of Findings 40
5.3 Implication
of the Findings 43
5.4 Conclusion 43
5.5 Recommendations 44
5.6 Suggestions
for further Studies 45
5.7 Delimitation
of the study 46
Bibliography
Appendix
CHAPTER I:
Introduction
Every human being needs water to
survive, so also every organization needs materials to survive. In the private
and public sector, their total expenditure is mainly spent on acquiring either
materials or facilities or services. There is no way business operations can be
effectively carried out without them. Negotiation is vital to organizations so
as to reduce cost or minimize cost and to maximize profit.
1.1 Background of the study
Negotiation as a cost deduction
technique in material procurement is for efficiency of any business, and also
contingent upon obtaining the right materials and have it available in the
right quantity from the right source, at the right price, delivered at the
right place at the right time, whereby failure to any of these adds to costs
and decreases the profit level of any organization.
There has been procurement fraud
because of the idea of speed money in the mind of some of the procurement
managers or officials who buy materials or items for the organization. Lack of
transparency has lead to excess spending, increasing cost of production, losing
a lot of money through the inflating of prices, over invoicing and overpayment
of materials procured.
High cost incurred in material
procurement is as a result of procurement manager not doing his home work well
that is by planning his objectives and strategy before hand and he enters the
session without a positive attitude of success.
Lack of knowledge and not been
conversant to some guide when negotiating by the procurement manager in respect
to issue such as, when to negotiate, the agenda, negotiation technique and
behaviour, some attribute of a good negotiator, the team leader to negotiate
term of payment not stipulated and followed add to the cost of production.
These could also lead to high cost of finished products and make it not to
compete well with its competitors in the market, and calls for extra expenses
on promotions and advert, renovation and so forth, just to improve sales in
order to make profit or keeps the organization living.
Hence procurement being a process
whereby all classes of resources such as materials, facilities, people required
to render services are obtained procurement covers a wider range of supply
activities than buying alone. Negotiation as cost reduction technique in
materials procurement is embarked on to solve some of the problem earlier
mentioned. Negotiation is a very vital and essential technique in every
organization in both private and public sector to reduce high cost incurred in
material procurement, the role in negotiation and all that it takes to
negotiate effectively. The impact expected at the end of these is to minimise
cost and maximise profit of the organization, and also to ensure that the end
products stand in the competitive market, to satisfy the taste of consumers and
promote the standard of living economy and the society at large.
1.2 Statement of the Problem
In both the private and public
sectors, between 50% and 80% of their total expenditure is spent on acquiring either
materials or services, procurement is thus the biggest item of expenditure of
an organization. Excessive costs are incurred when enquiring these materials in
private sector about 60% to 75% of company’s procurement (purchases) of
materials examples raw material is done by the company agent or foreign
officials of the company based abroad , who usually charge certain percentages
for their work which could lead to additional cost of production,
over-invoicing and over payment. What else can be done, and what other means
can be used to acquire raw materials.
Further more, when there is a need
to render service that is the award of contract we know that every one is
interested in buying, although they call it purchasing but it has lead to
mismanagement and squandering of funds. What are the procedures, measures
technique to ensure that such contract or procurement of materials, goods and
services are carried out appropriately and so on.
To reduce cost, negotiation is one
of the techniques to use, since negotiation is an art of arriving at a common
understanding through bargaining on the essentials of a contract such as
delivery, price, terms and condition of service, payment. These communication
of inter-changing ideas and information as a result of which procurer and the
supplier arrived at a mutually acceptable bargain enhance the procurement
manager with a positive attitude of success, planned his objectives and
strategy before hand.
The procurement manager would have
to collect and study all relevant facts before meeting the supplier, and then
develop an agenda for the meeting to negotiate with the supplier. Adequate
arrangement or preparation would be made in respect to the negotiation team,
the leader with the technique that would be used to negotiate and when to
negotiate will be spelled out.
1.3 Objectives of the Study
The objectives of these study is to
ensure negotiation technique of communication for bargaining are well
understood so that the buying organization and the supplier will arrive at and
agreed price, terms and condition of service, payment and so on.
To ensure prudence and judicious
utilization of the limited resources available in an organization, all procurement
undertaken must comply with the principle of openness between the procurer and
the supplier, transparency, accountability, competition among suppliers, cost
effectiveness and value for money are monitored to enhance profitability of
organization. Between the procurer and supplier there should be an
understanding which leads to reducing cost involved in competitive bidding.
To also make room for meetings in
order to attain the desire goal of the organization, and to ensures that
suppliers perform according to the terms of the negotiation.
This study is specifically designed
to:
i.
Identify
the techniques for negotiation
ii.
Identify
the strategies for effective negotiation
iii.
Investigate
the current trend of materials availability in the organization under study
iv.
Identify
criteria for coordination and management of supplier, that can ensure cost reduction in material procurement
v.
Identify
means of constant flow of material negotiated to avoid interruption at the
point of production.
1.4 Significance of
the Study
This research work would be useful
or the beneficiaries of this research work is the management of the
organization under study, Nigerian Bottling Company Coca Cola Plc to re-address
the way and manner by which materials are procured with regard to cost
consciousness
The research work would also be of
benefit to private and public procurement entity when negotiating on either organization
or government contract. Negotiation is a trick to win supplier’s heart to
willingly enter into a business traction and not using authority or power.
The research work would add to the
findings of the previous and future researchers who intend to study or have
studied similar topic and will also help the other incoming researcher to build
up on their findings.
As a procurement manager the
knowledge acquired would be used at the field to practice the profession in
acquisition of materials to enhance profitability of the organization. To also
expose some development suppliers stand to benefit from the organization the
supply materials.
1.5 Research
Questions
i. What
are the techniques for negotiation?
ii. What are the strategies for effective
negotiation and how can negotiation enhance purchasing activity to function
effectively as purchasing in the organization?
iii. What is the rate or extent of materials
availability in the organization under study?
iv. How can coordination and management of
supplier ensure or enhance cost reduction in material procurement, and how does
negotiation team help the business in actualizing it cost reduction objectives.
v.
How
can constant flows of material negotiated avoid interruption at the point of
production?
1.6 Definition of Terms
Negotiation: this is the process of planning,
receiving, and analysing used by the buyer and the seller, to reach an
acceptable agreement or compromise is an aspect of business transactions of
payment and so on.
Purchasing: This is used as a process of
buying in the market, but in a broader sense, it is a professional term used
when buying goods and services by organisations, companies, industries,
commerce and corporation by a professional buyer.
Procurement: Is where large quantity of goods
and services are exchanged for money with the aim of reselling them to
industrial or ultimate consumer markets. Examples of these markets are
distributors, wholesalers, retailers and associations.
Bargaining: Is an agreement to buy,
sell or exchange made after discussions in order to arrived at compromise
Specification: a specification is a details
description of item, its dimension, analysis, performance or other relevant
characteristics in sufficient details to ensure that it will be suitable in all
respect for the purpose it is intended or wanted.
Buyer: a buyer is a person who buys goods
at a particular price without the technicalities involved being taken into consideration.
He is not regarded as a purchaser in real sense.
Purchaser: is anyone from the professional
to the top executive or any departmental member with the tag ‘Purchasing
Manager’ that select suppliers and also have the responsibility for implementing
the policies of the organization related to the acquisition of material,
services, and production equipments or assets.
Competitive
Bidding: is
calling for bids and evaluating the bids to arrive at the best price.
Tactics: is expedient means of achieving an
objective.
Service: it could be after sales services,
delivery dates, sellers meeting, and providing information on materials
availability.
Confrontation: is a situation where both sides
refuse to bulge, which often result to surrender or no deal.
Persuasion: is a situation where one party
knows best and will therefore subtly impulse his will on the other.
Dimension: this implies not only quoting the
sizes of the various parts of articles, but also indicating the amount of
tolerance which may be permitted in the sizes.
Material: Is an element of production that
is used to produce a product.
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