CHAPTER ONE

INTRODUCTION

1.1  Background to the Study

The world class has embraced the phenomenon of sourcing and companies have adopted its principles to help them expand into other markets. Strategic management of sourcing is perhaps the most powerful tool in management and sourcing of innovation is its frontier.

Sourcing is a management strategy by which an organization delegates major, non-core functions to specialized bodies. Sourcing is nothing less than the wholesale restructuring the corporation around core competencies and outside relationships. The traditional sourcing emphasize on tactical benefits like cost reduction (for example, cheaper labour cost in low-cost countries); have more recently been replaced by productivity, flexibility, speed and innovation in developing business applications, and access to new technologies and skills. Successful implementation of a sourcing strategy has been credited with helping to cut cost, increase capacity, improve capacity, improve quality, increase profitability and productivity improve financial performance, lower innovation costs and risk, and improve organizational competitiveness.

The aim of every purchasing manager is to find out suitable sources of supply and ensure that the quality and quantity of materials are obtained at the right price, expanding time and effort in investigating and evaluating prospective suppliers that will lead to profitability.

Selection of the right source of supply is the acid fresh sound and efficient purchasing, its careful planning and implementation can be jeopardized or even unified in a poor selection of prospective sources of supply. Some suppliers may not be able to deliver the quantity required as when the need arises. While still others who may be able to meet with the quantity requirement may not do it well at the right place, or when it comes to quality they could fumble let alone the price.

Unlike buying, sourcing is more than ordinary procurement, a peripheral corporate function with less strategic importance. However, strategic sourcing opens up brand new sources of competitive advantage; elevating importance as part of the organization’s overall strategic planning process. Sourcing is no longer optional, rather is a strategic approach which has become a precondition for business success and in some industries; a prerequisite for survival.

In other words, sourcing in the strategic sense no longer refers to getting materials at desired prices, but a decision incorporated into the operating strategy of the firm, allowing procurement to support or even improve the firm’s competitive advantage.

In designing sourcing strategy, firms have choices on how they integrate their suppliers into their procurement procedures either via systematic sourcing or spot sourcing. Systematic sourcing involves negotiating contracts and a long-term relationship between buyer and seller. Spot sourcing addresses a buyer’s objective to fulfill an immediate need at the lowest possible cost; therefore, it does not require any long-term relationship between buyer and seller.

Therefore, combinations of these approaches, in the form of strategic sourcing, can lead to sound relationship with suppliers that can provide improvements in the firms performance in many areas, such as total cost reduction, better product quality, reducing-time, faster delivery and above all boost profitability. Not just buying or negotiating with sales representatives or visiting exhibitions or real trade journal, sourcing reflect much more than picking a supplier. It involves series of strategic endeavor ranging from investigation of market before placing orders to suppliers, market research to mention but few.

1.2  Statement of Problem

In recent time, there are significant changes in the concept of sourcing within procurement function of not just informal but also formal business entities. The role of procurement has changed considerably due to advances in information technologies and information systems. As organizations become increasingly involved in cost reduction projects, the impact of sourcing has become evident. The procurement function is shifting its focus from daily procurement activities to long term, value adding procurement initiatives which can only be achieved via strategic sourcing. But many have relegated this important function (sourcing) to background; this makes it severe, rigorous and dangerous for firms that attempt to achieve profitability through sourcing. The consequences of this negligence will be the supply of inadequate or substandard materials and often than not, the organization may also experience delay in the supply of materials as well pay excessive amount for materials supplied.

This study attempt to examine the impact of raw materials sourcing in respect to organizations profitability, with focus on Nigeria Breweries Plc. Kaduna. The choice of this organization for the study was prompted by two important factors. Which are:

The negligence of the organization to recognize procurement function which will handle the function of material sourcing and acquisition in all respect and in totality, which involves a search for and finding credible sources of supply for materials, projects, components, consumables and services while guaranteeing continuity of their supply, ensuring alternative sources of supply are available, and fostering an enduring relationship with the suppliers.

In addition, holding a big number of preferred and potential suppliers including those that will not add to value of the organization, this constitutes treat to the organization’s undertaken. The organization’s profitability is also facing a major hindrance due to the problems stated above among other problems, which needs to be reassessed and solutions profound.

1.3  Objectives of Study

The main objective of this study is to assess the effect of raw materials sourcing on the profitability of Nigerian Breweries plc. Kaduna. Other specific objectives are to:

       i.            To determine raw material sourcing process in the organization.

     ii.            To examine raw material sourcing policies in the organization.

  iii.            To determine the criteria for supplier selection.

  iv.            To examine suppliers performance evaluation techniques used in the firm.

     v.            To determine the impact of raw material sourcing on profitability in the firm.

1.4  Research Questions

For the purpose of this study, the following research questions are formulated and answered.

       i.            What are the materials sourcing process in the organization?

     ii.            What are the sourcing policies adopted by the firm?

  iii.            What are the criteria for supplier selection in the organization?

  iv.            What are the suppliers performance evaluation techniques adopted by the firm?

     v.            What are the effects of raw material sourcing on profitability of Nigerian Breweries Plc Kaduna?

1.5 Significance of Study

As a test of knowledge, the study will help the researcher with more understanding on the subject matter, while it is the pre-requisite qualification for award of Post Graduate Diploma, if carried out will enable the researcher to obtain the certificate.

As a guide, the study will help future researchers, student and making organizations to develop theories and taking actions on any future related problems associated with sourcing, make reliable suggestions on how sourcing can be carried out effectively and efficiently which will enhance buyer/supplier relationship and subsequently boost profitability of the organization.

Specifically, it will be significant to student graduating from purchasing and supply department for information and reference in related field when writing another project.

1.6 Scope of the Study

In order to achieve the objectives of this study, is restricted to effect of raw materials sourcing on profitability of Nigerian Breweries; Kaduna plant at kakuri industrial area, Kaduna south, Kaduna State.

1.7 Definition of Key Terms

Sourcing: sourcing is a process and procedure by which buyers seeks survey, evaluate and determine policies relating to suppliers and procurement suitable for production undertaken.

Evaluation: evaluation is an assessment or establishment of idea of the amount of value for sourcing.

Negotiation: negotiation is mostly a term of verbal communication which the participants seek explain their bargaining position to achieve explicit and implicit objective within the overall purpose.

Specification: this is the complete and accurate description of goods or services required by the purchaser or user department.

Expedition: this is the process of ensuring ordered goods are promptly delivered to the right place, this process also known as follow-up.

Purchasing: this term is mostly used in commerce and industry, it is usually used to connote the act of that function responsible for procuring every material inputs, suppliers or services in an organization.

Materials: this refers to anything tangible offered to market for attraction and acquisition with the aim of transforming it to finished product.

Buyer: a buyer is that person who buys goods or services at a particular price without due consideration of being technically involved in the provision but rather just to buy.

Quality: a quality is the decree of goods or services or it excellence appropriate to particular purpose or as a totality and characteristics of product or services that bears its ability to satisfy it given need.

Lead-time: lead-time is the total time taken from need identification up to the time when that need is fulfilled.

Appraisal: appraisal is a technique purchaser use to ascertain the merit of any supplier or project.

Delivery: this is a term commonly used by suppliers and purchasers to express that goods or services acquired have been passed and received by the buyer.

Vendor: this means an individual seller of goods required by organization.

Supplier: this refers to any person or organization which; through contract agrees to supply buyer or buyer firm with goods or services for a given period.

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