ABSTRACT
Negotiation as a cost reduction tool in materials purchasing 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.
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.