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FACTORS AFFECTING PROCUREMENT IN THE RETAIL SECTOR: A CASE STUDY OF NAKUMATT LIFESTYLE SUPERMARKET, NAIROBI
BY
MAHEA TIMOTHY KIMANI
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DIPLOMA IN PURCHASING AND SUPPLIES MANAGEMENT TO THE KENYA INSTITUTE OF MANAGEMENT.
AUGUST 2011
DECLARATION Declaration by the student This research study is my original work and has not been presented to any other examination body. No part of this research should be reproduced without my consent or that of Kenya Institute of Management.
Name__________________ Sign________________
Date_____________
NRB/DPSM/29594
Declaration by the supervisor
This research has been submitted for defence with my approval as The Kenya Institute of Management Supervisor.
Name____________________Sign________________
Date_____________
Lecturer Supervising
For and on behalf of Kenya Institute of Management
Name__________________ _Sign________________ Branch Manager – Nairobi Branch ii
Date_____________
DEDICATION I wish to dedicate this research project to my parents for their inspiration, motivation, patience and their support in climbing the academic ladder.
iii
ACKNOWLEDGEMENTS I register my profound gratitude and sincere acknowledgements to my informants, my fellow students who have assisted me in diverse capabilities. I appreciate the efforts of Robert Nyanjui who inspired me to begin this course. I also express my indebtedness and special gratitude to Mr. John Mwangeka my supervisor who guided me through this project. His insightful criticism, scholarly comments, academic challenges and constructive dialogue were an invaluable inspiration in the completion and quality of this Research Project.
iv
ABSTRACT Procurement is one of the vital functions in an organization and it plays a vital role in acquiring the needed resources at the time required. However, in an effort to achieve this objective, the procurement staff experience various challenges that hinder the effective performance of their activities. Most importantly, retail organizations, by the nature of their operations, they are highly involved in procurement activities in order to be able to deliver the required products and services to their customers. Some of the major retail organizations are supermarkets and this study intention was to identify what factors affect their procurement function in terms of how it delivers efficiency and effectiveness to the organization. In order to achieve this objective, the researcher reviewed literature in the procurement field with a bias to the tendering process and its relevance to retail organizations, storage, the necessary skills required by procurement staff, the use of Information and Communication Technology (ICT) in procurement and also information on product specifications. Nakumatt Lifestyle was selected due the population it serves and the record sales in comparison with other branches within the country. A semi-structured questionnaire was used to collect the primary data. The questionnaire was divided into two parts, where the first part was used to determine general information of the shoppers and the second part was used to determine the factors affecting procurement in retail organizations. The data collected, analyzed and thereafter data was presented using frequency tables and graphs. The findings revealed that 91% of the respondents were of the opinion that staff skills affect procurement. A further 96% of the respondents felt that the use of proper material storage and the application of ICT in procurement contributed significantly to the success of the procurement function. From the findings, the researcher concluded that the procurement function in retail organizations play a critical role in ensuring that there is proper acquisition of materials of the required nature takes place when needed and within the right timelines. The research recommendations were that; there is need to periodically train the procurement staff in order to equip them with the necessary skills, create ICT awareness and develop a proper supplier selection procedure and establish proper lead times in order to streamline procurement activities. v
TABLE OF CONTENTS DECLARATION ................................................................................................................ ii DEDICATION ................................................................................................................... iii ACKNOWLEDGEMENTS ............................................................................................... iv ABSTRACT........................................................................................................................ v LIST OF TABLES ........................................................................................................... viii LIST OF FIGURES ........................................................................................................... ix LIST OF ABBREVIATIONS ............................................................................................. x OPERATIONAL DEFINITION OF TERMS ................................................................... xi CHAPTER ONE INTRODUCTION TO THE STUDY 1.1
Introduction .......................................................................................................... 1
1.2
Background of the Study ...................................................................................... 1
1.3
Statement of the Problem ..................................................................................... 5
1.4
Objectives of the Study ........................................................................................ 6
1.5
Research Questions .............................................................................................. 7
1.6
Significance of the Study ..................................................................................... 7
1.7
The Limitation of the Study ................................................................................. 8
1.8
The Scope of the Study ........................................................................................ 9 CHAPTER TWO LITERATURE REVIEW
2.1
Introduction ........................................................................................................ 10
2.2
Review of Theoretical Literature ....................................................................... 10
2.3
Review of Analytical/Critical Literature ............................................................ 16
2.4
Summary ............................................................................................................ 17
2.5
Conceptual Framework ...................................................................................... 17 CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY
3.1
Introduction ........................................................................................................ 21
3.2
Study Design ...................................................................................................... 21
3.3
Target Population ............................................................................................... 21
3.4
Sampling Design ................................................................................................ 22 vi
3.5
Data Collection Procedures/instruments used .................................................... 23
3.6
Data Analysis Methods ...................................................................................... 24 CHAPTER FOUR DATA ANALYSIS, PRESENTATION AND INTERPRETATION OF FINDINGS
4.1
Introduction ........................................................................................................ 25
4.2
Presentation of Findings ..................................................................................... 25
4.3
Summary of Data Analysis ................................................................................ 44 CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 5.1
Introduction ........................................................................................................ 46
5.2
Summary of Findings ......................................................................................... 46
5.3
Conclusions ........................................................................................................ 48
5.4
Recommendations .............................................................................................. 49
REFERENCES................................................................................................................ 51 APPENDICES APPENDIX 1: Authorization Letter APPENDIX 2: Questionnaire
vii
LIST OF TABLES Table 3.1
Target Population ………………………….…..
22
Table 3.2
Sample Design………………………….………
23
Table 4.1
Response Rate………………………….………
26
Table 4.2
Respondents Gender……………………………
26
Table 4.3
Respondents Age…………….…………………
27
Table 4.4
Procurement ……………………………………
28
Table 4.5
Effect of Staff Skills on Procurement……….…
29
Table 4.6
Staff Prior Experience.…………………………
30
Table 4.7
Staff Skill Effects on Procurement……………
31
Table 4.8
Material Storage……………………………….
32
Table 4.9
Benefits of Storage..……………………………
33
Table 4.10
Use of ICT in Procurement……………………
34
Table 4.11
System Integration……………………………
35
Table 4.12
Benefits of ICT Technology………….………
36
Table 4.13
Use of Tenders in Supplier Selection…………
37
Table 4.14
Effectiveness of Tenders……….………………
38
Table 4.15
Extent of Efficiency of Tenders.………………
40
Table 4.16
Existence of Specifications.……………………
41
Table 4.17
Extent of Specifications Effectiveness.…………
42
Table 4.18
Use of Specifications……………………………
43
viii
LIST OF FIGURES Figure 2.1
Conceptual Framework……………………………
18
Figure 4.1
Response Rate…………………………...………
26
Figure 4.2
Gender………………………………….….……
27
Figure 4.3
Respondents Age Group…….…………………
28
Figure 4.4
Procurement Method……………………………
29
Figure 4.5
Effect of Staff Skills on Procurement……….…
30
Figure 4.6
Staff Prior Experience.…………………………
31
Figure 4.7
Staff Skill Effects on Procurement……………
32
Figure 4.8
Material Storage……………………………….
33
Figure 4.9
Benefits of Storage..……………………………
34
Figure 4.10
Use of ICT in Procurement……………………
35
Figure 4.11
System Integration……………………………
36
Figure 4.12
Benefits of ICT Technology………….………
37
Figure 4.13
Use of Tenders in Supplier Selection…………
38
Figure 4.14
Effectiveness of Tenders……….………………
39
Figure 4.15
Extent of Efficiency of Tenders.………………
40
Figure 4.16
Existence of Specifications.……………………
41
Figure 4.17
Extent of Specifications Effectiveness.…………
42
Figure 4.18
Use of Specifications……………………………
43
ix
LIST OF ABBREVIATIONS ICT
-
Information and Communication Technology
NCBDA
-
Nairobi Central Business District Area
QR
-
Quick Response
DSS
-
Devising Support Systems
CIPS
-
Chattered Institute of Purchasing and Supplies
IT
-
Information Technology
AI
-
Artificial Intelligence
EDI
-
Electronic Data Interchange
DTI
-
Department of Trade and Industry
JIT
-
Just –In-Time
E-SCM
-
Electronic Supply Chain Management
ECR
-
Efficient Consumer Response
x
OPERATIONAL DEFINITION OF TERMS Procurement
- Procurement is the process of acquiring goods, works and services.
Information Technology
-
Is
the
acquisition,
dissemination
of
processing,
vocal,
pictorial,
storage
and
textual
and
numerical information by a microelectronics-based combination of computing and telecommunications. Retail Organizations
- Are Businesses that have a physical premises that retail to the public, for example supermarkets, health food stores, hairdressing salons, kiosks, large markets, expos and professional services.
Specifications
- Its an explicit set of requirements to be satisfied by a material, product, or service.
Tendering Systems
- Refers to the system through which the tendering is done in identifying various suppliers of desired products or services
Materials Handling
- Its the movement, storage, control and protection of materials, goods and products throughout the process of manufacturing, distribution, consumption and disposal.
Retail Sector
- retail sector is a market where there is organized methodology for the sale of goods.
xi
CHAPTER ONE INTRODUCTION TO THE STUDY
1.1 Introduction This study covers an investigation to the factors affecting procurement in retail organizations. The chapter consist of eight sections namely, the introduction, background of the study, statement of the problem, objectives of the study, research questions, significance of the study, scope of the study and finally the limitation of the study.
1.2 Background of the Study If there is any single word that that can best describe today’s business is ‘change’. Many forces are changing businesses and the nature of competition. In the words of Cravens (2000), the drivers of change include, deregulation, global excess capacity, global competition, changing customer expectations, demographic shifts and changing work and lifestyles. These changes have led organizations to embark on activities that will provide a source competitive advantage.
Organizations today are not only focussing on the generation of revenue but are also paying much attention to the reduction of costs. This calls for streamlining of the business operations to ensure that organizations operate optimally and efficiently. This has led to the organization focusing on the procurement function because it plays a key role in the retail organizations. Most executives are today very much aware of the contributions made by the procurement function and the impact it has in delivering value to the customers. Today’s consumers are much aware of the products they require unlike in the past where they did not have other sources where they could seek product information. In the recent past, the popularity of big retail stores has been on an increasing trend where a wide range of products are offered in one store. Also, hypermarkets have also been on the increase because customers want to have ease of access to the services 1
they need. Most of the retail store Retail organizations undertake a lot of procurement activities due to their nature of business. Their business heavily involves fast moving consumer goods where the products are low in value but high in demand. For them to maintain store traffic, they have to ensure that they have the basic products that customers want and also be able to offer variety to the consumers. The retail organizations play a critical role in the society and are irreplaceable in the supply chain. They deal directly to the users of products and make it easy for consumers to access the products easily. They play the role of breaking bulk, facilitating the flow of the channel of distribution, communicating feedback to the manufacturing organizations, and also carrying out promotions on behalf of the manufacturers. Retailers act as a link between the manufacturers and consumers where products and information flows. The major types of retail organizations are corporate chains, voluntary chains and retailer cooperatives, consumer cooperatives, franchise organizations, and merchandising conglomerates. The retail industry is a sector of the economy that is comprised of individuals and companies engaged in the selling of finished products to end user consumers. Retailing consists of the sale of goods or merchandise from a very fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Lewison (1989) States that a retailer is any business establishment that directs its marketing effort towards the final consumer for the purpose of selling goods and services. Weel (2005) states that a retail sale is one in which the buyer is an ultimate consumer, as opposed to a business or institutional purchaser. Retailers’ play a crucial role that benefits the consumers, wholesalers as well as the manufacturer’s themselves. Benton (2007) argues that if it were not for retailers consumers would be forced to go from manufacturer to manufacturer to purchase goods that they needed. Retailers perform the basic function of bulk breaking, assorting, storing, informing and serving (Monezka, Trant and Handfield, 1991).
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Some of the largest retail outlets is the supermarkets. Weel (2005) argues that supermarket is a term used broadly for all self-service retail outlets meeting minimum size criteria (150m2 in the case of Kenya) and with food lines representing an important percentage of sales (>50%). According to EAMRC Report (2008), the first supermarket to be established in Kenya were in the Westlands general stores (1945). Thee supermarkets started as self-service stores covering small trading areas. However with time, they increased their volume and assortment of merchandise as well as trading space to become supermarkets. Cravens (2000) argues that several supermarkets have been established in Nairobi and other towns in the recent years. Most supermarkets are owned by Asians of Kenya origin and are operated as family business. He further sates that in the recent year’s moderns supermarkets like Nakumatt Woolmart, Naivas, Ukwala and Tuskys have come up. Growing at the rate of 18% per year, supermarkets in Kenya have grown from a niche in the mid 1990s to 20% of the urban food market and 4% of the urban fresh fruits and vegetable market in 2003. Supermarkets have spread from the capital to intermediate and small towns with 44% of supermarket sales and 58% of supermarket stores located outside Nairobi in 2003 (Neven, 2003). The growth of supermarkets has stimulated the rise of new class of fresh fruits and vegetable farms in Kenya. These are most recent established medium size farms in Kenya
1.2.1 Profile of Nakumatt Supermarket Nakumatt began operations in 1965 as a family was concerned with dealing in furniture and bedding. In the 1970, the family business was incorporated as Nakuru Mattress Limited. The company extended in the rural areas selling consumer items to schools, hospitals and other organizations. Competitive pricing and the provision of excellent services led to an increase in demand for its product range thus creating the need for a retail outlet. There was need however, for a name that would suit all other branches, therefore Nakumatt was considered as an appropriate name. The first Nakumatt was Nakumatt Mega, which was founded by the father of Mr. Atul Shah in Nairobi in the year 1992, who is currently the Managing Director. The company considers its customers’ incomes and sets goals in relation to the range of income
3
people earn. Its customer base consists of an estimate of 800,000 people, which is basically less than 2% of the total population of the country. Nakumatt currently has nineteen branches in Kenya. fourteen of these branches are located in Nairobi, one in Kisumu, one in Kisii, one in Kakamega two in Mombasa and one in Eldoret. Nairobi branches include; Nakumatt Mega, Nakumatt Ukay, Nakumatt Junction, Embakasi, Village market, Highridge, Ngong road, Karen, Haile Selassie, Ronald Ngala, Nakumatt City Hall, Nakumatt Galleria, Nakumatt West Gate and Nakumatt Lifestyle. Nakumatt Lifestyle and Nakumatt City Hall are centrally located in the CBD and because of their strategic positions they have attracted the attention of many and also increased the consumer base of Nakumatt supermarkets. Nakumatt lifestyle was opened soon after the closure of Nakumatt Check point in late 2005. Recently, Nakumatt acquired one of the supermarket chains within the city centre called Woolmart supermarket and as a result the will be having four new branches within the CBD. One of the newly acquired is now operational which is Nakumatt City Hall, and the other three located along Hail Selassie Avenue, Ronald Ngala and Moi Avenue.
1.2.2 Nakumatt Lifestyle Nakumatt Lifestyle is located in Hazina Trading Centre along Moktar Daddar and Monrovia Streets. It was opened in the year 2005 and till to date is still the supermarket with the largest floor space within the Nairobi Central Business District. This branch was opened soon after the closure of Nakumatt Checkpoint which used to be located along Kenyatta Avenue next to Housing Finance. It occupies four floors of the building and has parking for over three hundred cars which are in the three basement floors. The management structures are centralized in a way that ensures efficient decision-making and execution of tasks. The structure consists of the managing director who holds the top position, followed by the financial controller. Below the financial controller is the operations director and the operations coordinator. The financial controller is the person who plays the most important role of inventory control and harmonizing the operations of the various branches. 4
Nakumatt experiences tough competition from its counterparts such as Tuskys Supermarket, Ukwala Supermarkets and Naivas Supermarket. Nakumatt has sustained itself as the market leader by incorporating innovation in its operations and hence achieving much efficiency in their service delivery. They were the first to introduce the point of sale technology where they are able to monitor the sale of products and determine the re-order levels as well as easily being able to calculate the daily stock movement. It has also however, tried to remain ahead of competition by strategically locating its branches all over the country and the latest is the introduction of the Nakumatt Smart Card, the first Smart Loyalty Card in Africa (Smart Lifestyle Magazine for Smart shoppers, issue April – June 2006. Pg. 8). The Card was introduced in August 2003 and is a loyalty card that earns points for purchases at Nakumatt and other participating outlets.
1.3 Statement of the Problem Retail organizations normally engage a lot in the procurement process. Due to the nature of their operations, their procurement function plays a key role in ensuring that consumers get what they want and whenever they need it. Organizations normally spend a lot of resources in acquiring goods, materials and services. As a result, the retail organizations have to ensure that they are able to provide what consumers want and ensure that they are able to offer them a variety that they can chose from depending on their tastes and preferences. The major retail organizations already have structures handling the procurement function, unlike the case of small retail organizations where all activities are handled by one person - the entrepreneur. Most retail organizations normally receive proposals from prospective suppliers or manufacturers and the challenge of agreeing with the requests comes in place. Concern for quality, consistency, competitive pricing and delivery time efficiency come in. The purchasing function performs many activities to ensure that it delivers maximum value to the organization. Purchasing is the process used to identify user requirements, effectively and efficiently evaluate the need, identify suppliers, ensure that payment 5
occurs promptly, ascertain that the need was effectively met, and drive continuous improvement. Purchasing policies fundamentally contribute to business success on several ways. First, purchasing and supplies can significantly improve sales margins through realizing substantial cost savings. A shilling saved in purchasing is a shilling added to the bottom-line. Second, through better quality and logistics arrangements with suppliers, purchasing can contribute to a higher capital turnover ratio. Third, suppliers may contribute, when addressed properly, significantly to the company’s innovation process. However, as companies become more dependent on their suppliers, the strategic value of purchasing lies in developing a world class supplier base which is more competitive than that of the company’s main competitors. Looking at the most competitive suppliers worldwide and developing effective relationships with them should be one of the most important concerns of any purchasing manager.
The purchasing organization therefore endeavours to ensure that they are able to provide the organization with the required products at the right time. As a result they have to ensure that they work with the right suppliers to ensure that the orders are met as required and the right quality is maintained. They also have to offer variety and price competitiveness among their products and hence, the have to work with a variety of organizations, suppliers and partners. Often this is not an easy exercise and they are faced by challenges that prevent them from achieving their goals. The purpose of this study therefore was to establish the factors affecting procurement in retail organizations within the services sector.
1.4 Objectives of the Study 1.4.1 General Objective To determine the factors affecting procurement in retail organizations in Kenya in reference to Nakumatt supermarket, Nairobi.
6
1.4.2 Specific Objectives i.
To identify the extent to which staff skills affect procurement in retail organizations.
ii.
To examine the effects of material storage on procurement in retail organizations.
iii.
To determine how the application of Information and Communication Technology (ICT) affects procurement in retail organizations.
iv.
To identify how the application of tendering process affect procurement in retail organizations.
v.
To determine the effects of product specifications on procurement in retail organizations.
1.5 Research Questions i.
To what extent do staff skills affect procurement in retail organizations?
ii.
How does material storage affect procurement in retail organizations?
iii.
How does the application of ICT affect procurement retail organizations?
iv.
How does application of the tendering process affect procurement in retail organizations?
v.
What are the effects of product specifications in procurement in retail organizations?
1.6
Significance of the Study
The results of this study may be beneficial to various groups of people in various ways:The findings of this study will assist Nakumatt Supermarket in determining ways in which they can enhance the efficiency of their procurement function. The findings will also enable retail organizations formulate appropriate strategies to use in handling their procurement issues, thereby increasing efficiency. 7
Consumers are the main reason why most organizations exist and therefore, everything that the organization does is in the interest of the consumers. Consumers also benefit since increased efficiency by retail organizations will eventually lead to reduced costs of products. Procurement officers will gain information on how to fully exploit the cost saving aspects in their various functional areas.
The findings of the study will provide a
better understanding of the factors affecting procurement and provide insights on how they can be minimized. The general public who would like to gain knowledge on procurement issues, contribution of procurement to the final product or service offered by the firm and how the procurement function can be enhanced to increase its efficiency. Other beneficiaries of this research study are future scholars. The Research findings from this study will make contributions to the available information regarding the procurement in retail organizations. This will provide required information to future scholars as the carry out further studies.
1.7
The Limitation of the Study
The following were the potential limitations to this study and ways in which the researcher intends to counter each of them:1.7.1 Lack of Co-operation from Respondents The researcher experienced lack of cooperation from respondents. The information being sought required an individual to take some time off from his busy schedule and fill in the questionnaire. Also, some respondents were hostile and failed to assist the researcher in conducting the survey despite being in the right positions to respond on the issues of concern. The researcher overcame this by increasing the number of respondents. 1.7.2 Biased Information The researcher experienced challenges in situations where the respondents gave untrue information. This is because this had the potential of affecting the 8
validity of the research. The researcher surmounted this by approaching the respondents in a professionally, assured them of their confidentiality and engaging them in an interaction that ensured they did not introduce any bias. 1.7.3 Confidentiality Some of the information being sought was of confidential nature and some respondents were not willing to divulge such information. This was likely to prevent the researcher from accessing the required information for the study. The researcher subdued this by assuring the respondents that the information was to be used for academic purposes and that the information was going to be handled in strict confidence. 1.7.4 Misunderstanding Questions Some of the respondents also may have misunderstood the questions asked and ended up giving the wrong information. To overcome this, the researcher took the initiative of administering the questionnaire personally and ensured that clarification was offered when needed.
1.8 The Scope of the Study The study was confined to Nakumatt Lifestyle supermarket branch situated along Moktar Daddar Street and Monrovia Street in the Nairobi Central Business District. The branch has a hundred staff and for the purpose of this study, a sample of fifty employees was selected. The study was carried out in the July and August months of the year 2011. The target population included the procurement staff, supervisory staff and the management staff of Nakumatt Supermarkets. The hallmark of the study was to establish what factors affect the key procurement issues relevant to the procurement function in these organizations.
9
CHAPTER TWO LITERATURE REVIEW 2.1
Introduction
The main purpose of this chapter is to understand what other contributions writers have on the subject matter of the factors affecting procurement in retail organizations. This chapter will help to appreciate what other writers; both local and international have written about the field of study and assess what possibly needs to be researched further. Most importantly try and fill in the blanks the other researchers haven’t filled. The chapter concludes by critically analyzing the researcher’s reasons for carrying out the research and a summary of findings.
2.2
Review of Theoretical Literature
2.2.1 Staff Skills The performance of the procurement function in any organization requires that the individuals handling the procurement activity should have the necessary professional qualifications. Productivity in Procurement is a function of the value you add and the time you take to add it. Therefore, increasing the value, reducing the time to deliver value or a combination of both are the ways in which you can demonstrate how your productivity is on an upward curve. As a member of the procurement staff, it is important to identify where you add value.
Whatever role you play in the
Procurement department, the things you do will have a customer even if it is an internal one. It is important for one to how this customer uses your output and whether there are other things you could do to help them. Value often comes from doing things faster, better or cheaper. Also, the more people who use your output the greater the value to your organization so find out if there is anyone else who could use your services. According to Carter (2009) one should also find a more creative solution to each of the challenges you face in procurement by using each challenge to trigger ideas for how it could be done differently.
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In the field of procurement, it is important for one to be able to manage time effectively in order to provide timely solutions to the stakeholders of the process. The reality though is that no-one can manage time, it is what it is and we all get the same amount - all you can do is to manage yourself in the time available (Weele, 2005). It therefore becomes the initiative of the job holder to identify which are the most important tasks and allocate more time to them. To be effective in executing the necessary tasks, it is critical to precisely identify the most important tasks as well as the urgency and prioritize in execution. On the other hand, track the benefits of each of the activities that you do (Lysons and Farrington, 2006). Your efforts to improve your productivity will be wasted if you cannot show people the benefits you have achieved (Cole, 2004). As a procurement staff, make sure you quantify the benefits by asking how you have made things faster, better or cheaper and then quantify the change. By doing so, you are able to communicate on the improvements necessary in the procurement function as well as showing how helpful they are.
2.2.2 Application of Information Communication Technology (ICT) Globalization is driven in large part of Information Technology, or IT. IT is composed of computer and telecommunication, especially the internet-has already had a significant effect on purchasing process and procedures. By sharing information and processing electronic transaction over the internet, suppliers are bang converted into e-suppliers. Larger undertakings such afraid, have inducted that eventually all that suppliers will be e-suppliers. ICT has been applied in the procurement function to enhance the efficiency and effectiveness of the function through reduced lead times, enable better stock control, project sales, determine re-order levels and stock control management. Various benefits resulting from the application of ICT in procurement has led to its increased use and nowadays some of the retail organizations are making it mandatory to their suppliers due to the positive results it delivers (Chorafas, 2001). However, there are limitations that prevent its rapid implementation and use. The cost of acquiring such technology is at times prohibitive to some organizations and there is need for an
11
organization to train its Personnel adequately in order to equip them with the necessary skills (Kotler, 2003). E-commerce is defined by the UK Department of Trade and Industry (DTI) or any form of business transaction carried out electronically over public telephone system. E-commerce is usually concerned with buying and selling via the internet and World Wide Web. It relates primarily to transactions, or buying and selling of product and services over the internet. it usually refers to a website that has an online forefront or catalogue and the facility for electronic order processing. E-commerce may also be conducted via more limited forms of electronic communication, including e-mail, for and emerging use of telephone calls over the internet (Lysons and Farrington, 2006).
2.2.3 Tendering Process A tender is an unconditional offer made by one to another to enter into the contract of transaction of goods or services at certain specified cost. Various established organizations issues notices for their needs of specified goods or services from other businesses that they would require in a certain period, which is known as Invitation to Tender. Tendering system refers to that process that defines the guidelines through which this the tendering activities are conducted and managed. Tendering is one of the core components of purchasing and supplies management which are used in sourcing and acquisition of the necessary goods and services. In an effort to enhance efficiency of the procurement function, organizations make use of the tendering system to reduce procurement cycle time and provision of quality management information. Tendering also enables organizations to be able to identify reliable suppliers who are able to meet the products or services required according to the specifications(Lysons and Farrington, 2006). There are two main methods that are used in tendering which are e-tendering and the tender box method. The bidding organization demonstrate their capability in handling the assignments indicated in the tender and their costing for each of them. The main criteria used in selection of the winning bid involves identifying who among the bidders is able to supply the required products or services according to the 12
specifications and at the lowest cost. However, it is not always that the least bidder gets the job, in some circumstances, other factors are considered such as reliability and also previous assignments done are used as an influence (Hugos, 2003). The use of a tendering has a lot of benefits to the organization. One of the key benefits is that it provides fast and accurate pre-qualification and evaluation, which enables the rejection of suppliers that fail to meet the tender qualification. It also helps in reduction of labour intensive tasks of receipt, recording and distribution of tender submission (Weel, 2005). The tendering process creates fairness for all parties and enhances transparency levels. Though the process is very bureaucratic, it encourages competition from the bidders and there is a high chance of getting the best offer and reliable supplier. Organizations in the retail sector also make use of the tendering system in identifying potential suppliers of the various products for resale purposes or provision of services.
2.2.4 Material Storage Storage refers to the safe keeping of products in a way that prevents or reduces damage, reduction of value or any exposure to hazards. Various methods are used to ensure proper storage which includes; proper packaging, organizing of items in the store and keeping them in the right place e.g. a warehouse where there is the appropriate environment for storage. Proper storage also plays a key role in increasing space utilization, improve operating efficiency by reducing handling and minimize damage as well as hazards. Storage facilitates continuous running of production and at the same time experiences an organization is able to balance out the effects of fluctuations in demand. This means that irrespective of the increase or decrease of demand, the product supply in the market is maintained at the optimum to avoid lack of supply or oversupply (Lysons and Farrington, 2006). Material Handling is the movement, storage, control and protection of materials, goods and products throughout the process of manufacturing, distribution, consumption and disposal. The focus is on the methods, mechanical equipment, systems and related controls used to achieve these functions. The material handling 13
industry manufactures and distributes the equipment and services required to implement material handling systems. Material handling systems range from simple pallet rack and shelving projects, to complex conveyor belt and Automated Storage and Retrieval Systems (AS/RS). Material handling can also consist of sorting and picking as well as automatic guided vehicles.
Handling and storing materials involves diverse operations such as hoisting tons of goods with a crane, driving a truck loaded with heavy fragile goods, manually pushing trolleys, and stacking containers, barrels, lumber, or loose packaged products. The efficient handling and storing of materials is vital to every organization irrespective of the industry. These operations provide a continuous flow of raw materials, parts, resale items and assemblies through the workplace, and ensure that materials are available when needed (Lysons and Farrington, 2006). Yet, the improper handling and storing of materials can cause heavy losses or costly injuries. General safety principles can help reduce workplace accidents. These include work practices, ergonomic principles, and training and education. Whether moving materials manually or mechanically, employees should be aware of the potential hazards associated with the task at hand and know how to exercise control over their workplaces to minimize the danger, e.g. the recent fire incident at Nakumatt Downtown. These operations provide a continuous flow of raw materials, parts, resale items and assemblies through the workplace, and ensure that materials are available when needed. Yet, the improper handling and storing of materials can cause heavy losses or costly injuries. General safety principles can help reduce workplace accidents Burt, Dobler and Sterling (2006). These include work practices, ergonomic principles, and training and education. Whether moving materials manually or mechanically, employees should be aware of the potential hazards associated with the task at hand and know how to exercise control over their workplaces to minimize the danger, e.g. the recent fire incident at Nakumatt Downtown. Proper material storage enables organizations increase throughput, control costs, and maximize productivity. Storage and handling equipment is a category within the material handling industry. The equipment that falls under this description is usually 14
non-automated storage equipment. Products such as Pallet rack, shelving, carts, etc. belong to storage and handling. Many of these products are often referred to as "catalog" items because they generally have globally accepted standards and are often sold as stock materials out of Material handling catalogs. Where the recommended consultant procurement procedures are being followed, then the quality assessment will already have been carried out. If this is the case, then during the tender period the consultant will have only to review the level of resources required and submit the price. However, the price itself may have implications regarding resourcing. Since resourcing is a quality issue this aspect in particular may necessitate a re-appraisal of the quality score arrived at after completion of pre-tender interview.
2.2.5 Product Specifications Specifications refer to the detailed description of the measurable characteristics desired in an item to be purchased, such as quality, size, weight, performance parameters or safety requirements. A good specification is the single most important factor in achieving value for money. It is vital when inviting tenders, and the greater the financial commitment the more important it is that purchasing and supply management professionals ensure the existence of an appropriate specification. Generally, the specification should be output or outcome based i.e. what is to be achieved as opposed to how it should be achieved, or functional i.e. what the requirement should be able to do as opposed to its technical profile (Levison and McLaughlin, 2005). Such specifications enable suppliers to be innovative in their solutions. In some cases, a technical specification is useful but the purchasing and supply management professional must ensure the drafter of the specification is absolutely clear about the requirement and that they are capable of specifying it properly. Such specifications should be described in terms of European standards, British standards or, as alternative, American standards. When using a technical standard, care must be taken not to name proprietary items. When using a choice of standards, those standards must be comparable (Monezka, Trent and Handfield, 2005).
15
In simple terms, it’s an explicit set of requirements to be satisfied by a material, product, or service. Should a material, product or service fail to meet one or more of the applicable specifications, it may be referred to as being out of specification; the abbreviation (OOS) may also be used. A technical specification may be developed privately, for example by a corporation, regulatory body, or military organization, or it may be developed by standards organizations which often have more diverse input and usually develop voluntary standards (Voluntary standards may become mandatory if adopted by a government or business contract). Sometimes the term specification is used in connection with a data sheet (or spec sheet). A data sheet is usually used for technical communication to describe technical characteristics of an item or product. It can be published by a manufacturer to help people choose products or to help use the products. A data sheet is not a technical specification as described in this article.
2.3
Review of Analytical/Critical Literature
The use of information systems has brought positive changes in the function of purchasing and supplies. Management has also paid more attention to this area and they have come to understand it is very important to the organization. They are therefore investing a lot of resources to improve it. This is because it enhances decision making therefore the management needs not take a lot of time locking themselves into day long meetings.
The use of information systems generally improves the quality of decision because they quicken the process of decision making and facilitate proper monitoring of all the products brought in and also able to trace when they leave the organization therefore enabling organizations to plan when to purchase. Cox and Brittain (2000) argue that the use of integrated systems to monitor products that may go bad or get damaged before they are sold gives the management adequate information of the expected profit and tax to pay to the government. Modern methods or purchasing and sharing of information over the internet has made it easier for purchasers and the trend seems to be on that direction. Therefore, those who have not actually started using these 16
systems its just a matter of time and they start using it. The benefits of information systems technology for much out weigh the disadvantages and it is evidenced that proper use can result to cost saving measures.
2.4
Summary
Various authors tend to agree that despite in some cases it becomes challenging to use the systems, they are quite important and their use has a lot of benefits to the organization. The use of modern technology in other fields can also be combined in order to obtain a great deal of benefits, for instance the merger with various institutions. Information systems play a vital role in the organization and their use is very crucial to organizations due to the speed at which they execute tasks. They are also able to store large amounts of data and help in tracking information of interest and give you feedback as and when required.
2.5 Figure
Conceptual Framework 2.1
Conceptual Framework
Independent Variables
Dependent Variable
Staff Skills
Material Storage
Procurement in Retail organizations in Kenya
Application of ICT
Tendering Process
Product Specifications
Source: Author (2011) 17
Interpretation of Variables 2.5.1
Staff Skills
This refers to the skills required by the individuals handling procurement activities in the procurement function. Successful performance depends on ability of the individuals handling the tasks and how well they handle the tasks under that role. In order to handle and execute procurement tasks effectively, it is necessary for the respective staff to have adequate training in procurement, supplies and logistics issues.
2.5.2
Material Storage
Storage refers to the safe keeping of products in a way that prevents or reduces damage, reduction of value or any exposure to hazards. Various methods are used to ensure proper storage which includes; proper packaging, organizing of items in the store and keeping them in the right place e.g. a warehouse where there is the appropriate environment for storage. Proper storage also plays a key role in increasing space utilization, improve operating efficiency by reducing handling and minimize damage as well as hazards.
2.5.3
Application of ICT
As defined by the Information Technology Association of America (ITAA), ICT is the study, design, development, implementation, support or management of computerbased information systems, particularly software application and computer hardware. Application of ICT refers to the Integration of ICT in procurement activities, linking of procurement function with departments and also with supplier organizations. Information Communication Technology eliminates costs of overstocking and under stocking and the increased efficiency of just-in-time inventory systems. Sharing of information can provide participants with enhances d efficiency, flexibility and innovation to respond to the competition of global market.
18
2.5.4
Tendering Process
A tender is an unconditional offer made by one to another to enter into the contract of transaction of goods or services at certain specified cost. Various established organizations issues notices for their needs of specified goods or services from other businesses that they would require in a certain period, which is known as Invitation to Tender. Tendering system refers to that process that defines the guidelines through which this the tendering activities are conducted and managed. Tendering is one of the core components of purchasing and supplies management which are used in sourcing and acquisition of the necessary goods and services. In an effort to enhance efficiency of the procurement function, organizations make use of the tendering system to reduce procurement cycle time and provision of quality management information. Tendering also enables organizations to be able to identify reliable suppliers who are able to meet the products or services required according to the specifications.
2.5.5
Product Specifications
A specification is a document that specifies, in a complete, precise, verifiable manner, the requirements, design, behaviour, or other characteristics of a system, component, product, result, or service and, often, the procedure for determining whether these provisions have been satisfied. In other terms a specification is an explicit set of requirements to be satisfied by a material, product or service Specifications form what is called a purchase description. Proactive development of specifications and standardization can aid an organization in reducing total cost of a product or service developed either in-house or externally.
2.5.6
Procurement in Retail Organization
According to Lysons and Farrington (2006) Procurement is the processing acquiring materials and services to ensure the operating effectiveness of the firm’s manufacturing and logistics processes. The procurement function in retail organization plays a vital role. For the function to be able to deliver the desired 19
results, there are other factors that affect the way procurement is done. The goal of the retail organization is to ensure that these factors contribute effectively in ensuring that what the customers want is available when they need it.
20
CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY 3.1
Introduction
This chapter highlights the methodology and procedure that will be used in collecting and analysing the data in the study. Research design refers to the logical and systematic planning and directing a piece of research. The plan structure and strategy that the researchers intend to use in their study are discussed in this chapter. It contains information concerning the approaches that will be used to facilitate the study. It also contains details concerning the arrangement, collection and data analysis methods to be used in order to come up with the most relevant and valid findings.
3.2
Study Design
In this research, a descriptive study was used since some key information was available about the phenomena of interest. According to Cooper and Schindler (2001), a descriptive study is a design that is concerned with the answering the questions who, which, what, when, where and how of a topic. A descriptive study if carefully designed ensures complete description of the situation, making sure that there is minimum bias in collection of data and reduce errors in interpreting the data collected (Boyd, 1989). Descriptive studies present data in a meaningful form, thus help to offer ideas for further probe and research, and help make certain simple decisions.
3.3
Target Population
Gubbins (1998) defines target population as the totality of objects or individuals under consideration of which the statistical attributes may be estimated by the study of a sample or samples drawn from it. In this study, the researcher targeted the Nakumatt Lifestyle supermarket which is located along Monrovia and Mokta Daddar Street, within Nairobi Central Business District. The branch was chosen since it registers high customer visits, its convenient location for most shoppers and it offers a wide 21
range of products. Since the branch also registers the highest sales as compared to the other Nakumatt Branches within the Nairobi Central Business District, that also means they are largely involves in purchasing and supplies activities as compared to other branches. This information is further tabulated in Table 3.1 below:
Table 3.1 Target Population Category of population components
Target Population
Percentage
Procurement Staff
20
20
Supervisory Staff in supermarkets
30
30
Management Staff of Nakumatt
50
50
TOTAL
100
100
Source: Nakumatt (2011)
3.4
Sampling Design
Bryman and Bell (2003) define a sample as the segment of the population that is selected for investigation. On the other hand, sampling is the procedure used in selecting the population units that constitute a sample. Stratified random sampling was used since each unit of the population has an equal probability of inclusion in the sample and there is no opportunity for human bias. Also, this method was not dependent on employee availability. Since there are about one hundred employees directly involved in procurement activities, a total number of fifty employees were chosen. The researchers made use of the table of random numbers in order to choose the respondents. With this method, each member had an equal opportunity of being chosen hence bias reduced. Table 3.2 shows a tabular analysis of the sample size and sample percentage of the study as per the identified strata.
22
Table 3.2 Sample Size Category of population components
Target Population
Sample Size
Sample Percentage
Procurement Staff
20
16
32
Supervisory Staff in supermarkets
30
10
20
Management Staff of Nakumatt
50
24
48
TOTAL
100
50
100
Source: Author (2011)
3.5
Data Collection Procedures/instruments used 3.5.1
Data Collection Procedure
Both primary and secondary data were utilized in this study. Primary data refers to data collected for the first time specifically for the issue under investigation (Sekaran, 2004). The primary data in this case included interviews and questionnaires to source crucial information from Nakumatt’s employees in the management level, tactical level and purchasing department. 3.5.2
Secondary Data
Secondary data is the data already existing having being collected for some other reason, other than the one under investigation. Under this study data was drawn from the review of existing literature, published reports, internet, industry analysis offered by the media, documented materials on the subject on the subject such as journals, newspapers, company records, magazines and abstracts. 3.5.3
Questionnaire
Survey method was used to collect data where respondents were asked questions relating to the factors affecting procurement in retail organizations. The data was 23
collected using a personally administered structured questionnaire, consisting of both open ended and closed ended questions. The questionnaire consisted of two main parts; part A consisted of questions aimed at obtaining general information about the respondents, while part B consisted of questions aimed at obtaining data for the objectives of the study. 3.5.4
Reliability and Validity
A pilot study will be carried out on a small number of respondents to detect any weaknesses in the design and instrumentation. Since the study involves self administered type of data collection questionnaires will be revised to reduce cases of ambiguity.
3.6
Data Analysis Methods
Data analysis is the process of packaging the collected information in a form that can be understood by the person undertaking the research. In this study, descriptive statistics was used to analyse the data. This explained and described what the data showed about the factors affecting procurement in retail organizations. Before analyzing the data, it was edited, coded and entered into excel worksheet, where the researcher was able to use Statistical Package for Social Scientists (SPSS) to analyse the data. This ensured accuracy of the data. Frequency tables, graphs and measures of central tendency were used to present the results for easier understanding and interpretation. In addition, common themes were captured through content analysis.
24
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND INTERPRETATION OF FINDINGS 4.1
Introduction
This chapter discusses data analysis, presentation of findings and interpretation. After collecting data from the respondents, the data was edited, classified, coded and tabulated. The data analysis was based on the research objectives and questionnaire items which were analysed using statistical tools like frequency distribution tables and graphs as presented in the results. The first section contains an analysis of information on quantitative terms while the other part details findings that form the judgemental opinion held by majority of the respondents. This chapter is concluded through a summary of the data analysis.
4.2
Presentation of Findings
This section details findings as analysis from the feedback received from the respondents. The quantitative analysis and results have been presented in form of tables, figures charts and graphs as well as percentages of the response rate.
4.2.1 Response Rate From the findings on Table/Graph 4.2, Out of 50 questionnaires that were administered to the respondents, 47 of them were returned for analysis. This translated to 94% response rate was achieved which was considered to be moderately high and good enough for the analysis. Only three of the questionnaires issued which were not returned which accounted for 6% of the total number issued. These findings are shown in table 4.1 and Figure 4.1.
25
Table 4.1
Response Rate
Population category
Frequency
Percentage
Actual Response
47
94
Non - Response
3
6
TOTAL
50
100
Source: Author (2011)
Figure 4.1
Response Rate
100
Percentage
80 60 40 20 0 Actual Response
Non - Response
Category Source: Author (2011)
4.2.2 Gender Table 4.2
Respondents Gender
Gender
Frequency
Percentage
Male
39
83
Female
8
17
TOTAL
47
100
Source: Author (2011) 26
Figure 4.2
Gender
100
Percentage
80 60 40 20 0 Male
Female
Category
Source: Author (2011) From table 4.2, the findings indicate that 83% of the respondents were male where as those who were female constituted 17%. This indicates that there were more male respondents as compared to their female counterparts.
4.2.3 Respondents Age Group Table 4.3
Respondents Age
Age Bracket
Frequency
Percentage
21 – 30 Years
6
13
31 – 40 Years
27
57
41 – 50 Years
12
26
51 and Above
2
4
TOTAL
47
100
Source: Author (2011) 27
Figure 4.3
Respondents Age Group
60
Percentage
50 40 30 20 10 0 21 – 30 Years
31 – 40 Years
41 – 50 Years
51 and Above
Category Source: Author (2011)
From the findings on table 4.3 and figure 4.3, the researcher established from the analysis that majority of the respondents who constituted 57% fell into the age bracket of 31-40 years, 26% of the respondents fell within the age bracket of 41-50 years, 13% of the respondents were aged between 21-30 years and 4% of the respondents were51 years and above.
4.2.4 Procurement Method Table 4.4
Procurement
Staff Skills
Frequency
Percentage
Centralized Procurement
44
94
Decentralized Procurement
3
6
TOTAL
47
100
Source: Author (2011) 28
Figure 4.4
Procurement Method
100 Percentage
80 60 40 20 0 Centralized Procurement
Decentralized Procurement
Category Source: Author (2011)
As table and figure 4.4 indicate, the centralized procurement method in commonly used in most units within the organization which accounts for 94% whereas decentralized procurement accounts for 6% of the procurement activities within lifestyle supermarket. This means that centralized procurement is their main mode of acquiring items.
4.2.5 Staff Skills Table 4.5
Effect of Staff Skills on Procurement
Staff skills
Frequency
Percentage
Staff Skills have an effect
43
91
Staff Skills do not have an Effect
4
9
TOTAL
47
100
Source: Author (2011)
29
Figure 4.5
Effect of Staff Skills on Procurement
100
Percentage
80 60 40 20 0 Staff Skills have an effect Staff Skills do not have an Effect Category
Source: Author (2011) Table 4.5 and figure 4.5 shows that 91% of the respondents believe that the skills of the staff are essential to their performance of procurement activities and 9% are of the opinion that the staff can still perform without the skills. This mean that majority of the respondents believe that the procurement staff need to learn the necessary skills before handling the procurement activities. Majority of the respondents who had the opinion that staff skills have an effect on performance said that staff skills help in quick execution of duties and efficiently.
4.2.6 Procurement Staff Prior Experience Table 4.6
Staff Prior Experience
Staff Prior Experience
Frequency
Percentage
Staff Having Prior Experience
32
68
Staff Not Having Prior Experience
15
32
TOTAL
47
100
Source: Author (2011) 30
Figure 4.6
Staff Prior Experience
70
Percentage
60 50 40 30 20 10 0 Staff Having Prior Experience
Staff Not Having Prior Experience
Category Source: Author (2011)
Table 4.6 and Figure 4.6 shows the respondents position on whether it is critical for procurement staff in retail organizations to have prior experience in the procurement function. 68% of the respondents were of the opinion that staff should have prior experience, while 32% had the opinion that prior experience is not necessary.
4.2.7 Procurement Staff Prior Experience
Table 4.7
Staff Skills Effect on Procurement
Staff Skills Effect on Procurement
Frequency
Percentage
Very Large Extent
13
28
Large Extent
22
47
Some Extent
11
23
Small Extent
1
2
TOTAL
47
100
Source: Author (2011) 31
Figure 4.7
Staff Skills Effect on Procurement
50
Percentage
45 40 35 30 25 20 15 10 5 0 Very Large Large Extent Some Extent Small Extent Extent Category
Source: Author (2011) As shown on table 4.7 and figure 4.7, the respondents who were of the opinion that staff skills have an effect on procurement to a very large extent were 28%, those who said it was to a large extent were 47% while those who believed it was to a small extent were 2%. None of the respondents had the opinion that to no extent do staff skills have an effect on procurement.
4.2.8 Material Storage Table 4.8
Material Storage
Material Storage
Frequency
Percentage
There is Material Storage
38
81
There is no Material Storage
9
19
TOTAL
47
100
Source: Author (2011)
32
Figure 4.8
Material Storage
90
Percentage
80 70 60 50 40 30 20 10 0 There is Material Storage
There is no Material Storage
Category Source: Author (2011) Table 4.8 shows information regarding material storage. From the feedback received from the respondents, 81% said that there is material storage in their procurement function, while 19% did not make use of material storage in their procurement units.
4.2.9 Benefits of Storage
Table 4.9
Benefits of Storage
Benefits of Storage
Frequency
Percentage
There are Benefits Accrued Storage
45
96
There are no Benefits Accrued Storage
2
4
TOTAL
47
100
Source: Author (2011)
33
Percentage
Figure 4.9
Benefits of Storage
100 90 80 70 60 50 40 30 20 10 0 There are Benefits Accrued Storage
There are no Benefits Accrued Storage
Category Source: Author (2011) From table and figure 4.9, the respondents whose opinion was that there are benefits derived from storage of products were 96%, while those who were of the opinion that no benefits are derived were 4% as shown above.
4.2.10 Application of ICT Table 4.10 below shows details of the application of ICT in the procurement function. From the findings, 96% of the respondents said they had applied ICT in their procurement activities and on the other hand, 4% said they had not applied ICT. Table 4.10
Use of ICT in Procurement
ICT in Procurement
Frequency
Percentage
ICT is Applied
45
96
ICT is not Applied
2
4
TOTAL
47
100
Source: Author (2011) 34
Figure 4.10
Use of ICT in Procurement
100 90
Percentage
80 70 60 50 40 30 20 10 0 ICT is Applied
ICT is not Applied
Category Source: Author (2011)
4.2.11 System Integration
Table 4.11
System Integration Frequency
Percentage
Integrated
44
94
Not Integrated
3
6
TOTAL
47
100
System Integration
Source: Author (2011)
35
Percentage
Figure 4.11
System Integration
100 90 80 70 60 50 40 30 20 10 0 Integrated
Source: Author (2011)
Not Integrated
Category
Table 4.11and figure 4.11 shows the findings of how ICT has been integrated with the procurement department within Nakumatt Lifestyle in order to deliver better communication. From the findings, 94% of the respondents said the ICT integration was in place while 6%said that in their areas there was no integration.
4.2.12 Benefits of ICT Technology in Procurement Table 4.12
Benefits of ICT Technology
Benefits of ICT Technology
Frequency
Percentage
There are benefits
45
96
There are no benefits
2
4
TOTAL
47
100
Source: Author (2011)
36
Percentage
Figure 4.12
Benefits of ICT Technology
100 90 80 70 60 50 40 30 20 10 0 There are benefits
There are no benefits
Category Source: Author (2011) As table 4.12 and figure 4.12 shows, 96% indicated that they had derived benefits resulting from the use of ICT technology in the procurement department and the remaining 4% said they had not derived any benefits resulting from the use of ICT.
4.2.13 Tendering Process In identifying the challenges affecting procurement, it was necessary to look into how the retail organizations carry out their supplier selection. This was done by identifying whether they make use of tenders and how effective they have been in enabling them attain efficiency. Table 4.13
Use of Tenders in Supplier Selection
Use of Tenders
Frequency
Percentage
Make use of tenders
37
79
Do not make use of tenders
10
21
TOTAL
47
100
Source: Author (2011) 37
Figure 4.13
Use of Tenders in Supplier Selection
80
Percentage
70 60 50 40 30 20 10 0 Make use of tenders
Do not make use of tenders
Category Source: Author (2011) As Table 4.13 shows, majority of the respondents who constituted79% of the respondents said they use tenders as part of the supplier selection while21% said they did not use tenders. The details are also depicted as shown on figure 4.13 above.
4.2.14 Effectiveness of Tenders
Table 4.14
Effectiveness of Tenders
Response
Frequency
Percentage
Tenders have been Effective
34
72
Tenders have not been Effective
13
28
TOTAL
47
100
Source: Author (2011)
38
Figure 4.14
Effectiveness of Tenders
80 70
Percentage
60 50 40 30 20 10 0 Tenders have been Effective
Tenders have not been Effective
Category
Source: Author (2011) From the findings on Table and figure 4.14, 72% of the respondents said that tenders have been effective in their supplier selection process. On the other hand, 28% said that the use of tenders has not been an effective method in determining the suppliers to rely on for the various required items by the retail organization.
4.2.15 Extent of Efficiency of Tenders Table 4.15 and figure 4.15 shows the findings of the extent of efficiency of the tenders in supplier selection. 15% of the respondents said that the use of tenders brought about efficiency to a very large extent, 51% to a large extent and 26% to some extent. On the other hand, 2% were of the opinion that to no extent did the use of tenders bring about efficiency.
39
Table 4.15
Extent of Efficiency of Tenders
Extent of Efficiency of Tenders
Frequency
Percentage
Very Large Extent
7
15
Large Extent
24
51
Some Extent
12
26
Small Extent
3
6
No Extent
1
2
TOTAL
47
100
Source: Author (2011)
Figure 4.15
Extent of Efficiency of Tenders
60
Percentage
50 40 30 20 10 0 Very Large Extent
Large Extent
Some Extent
Category Source: Author (2011) 40
Small Extent
No Extent
4.2.16 Existence of Product Specifications
Table 4.16
Existence of Product Specifications
Existence of Specifications
Frequency
Percentage
There Exist Specifications
43
91
There Exist no Specifications
4
9
TOTAL
47
100
Source: Author (2011)
Figure 4.16
Existence of Product Specifications
100
Percentage
80 60 40 20 0 There Exist Specifications
There Exist no Specifications
Category
Source: Author (2011) Table 4.16 above shows the findings of whether specifications exist on the respondents units. 91% of the respondents said that they made use of specifications. The remaining 9% said they did not make use of specifications in their procurement unit. The findings are also represented graphically as figure 4.16 shows above.
41
4.2.17
Extent of Product Specifications Effectiveness
Table 4.17
Extent of Product Specifications Effectiveness
Extent of Specifications Effectiveness
Frequency
Percentage
Very Large Extent
5
11
Large Extent
16
34
Some Extent
21
45
Small Extent
3
6
No Extent
2
4
TOTAL
47
100
Source: Author (2011)
Figure 4.17
Extent of Specifications Effectiveness
60
Percentage
50 40 30 20 10 0 Very Large Extent
Large Extent
Some Extent Small Extent No Extent
Category Source: Author (2011)
42
Table and figure 4.17 shows the findings of how the respondents felt about the extent to which the use of specifications has brought about effectiveness in the procurement function. From the findings, 11% said that the use of specifications brought efficiency to a very large extent, 34% to a large extent, 45% to some extent. 6% to a small extent and 4% to no extent.
4.2.18 Use of Product Specification in Supplier Selection
Table 4.18
Use of Product Specification
Use of Specification
Frequency
Percentage
Specifications have been Effective
38
81
Specifications have not been Effective
9
19
TOTAL
47
100
Source: Author (2011)
Figure 4.18
Use of Product Specification
90
Percentage
80 70 60 50 40 30 20 10 0 Tenders have been Effective
Tenders have not been Effective
Category Source: Author (2011) 43
Table and figure 4.18 shows the findings of how the use of specifications has been effective in supplier selection. The findings show that 81% of the respondents believe that they have been effective while 19% believe that they have not been effective. The findings are also depicted as shown on figure 4.18.
4.3
Summary of Data Analysis
Below is a summary of the findings of this study. 4.3.1
General Information
From the data collected it is clear that the procurement function at Nakumatt Lifestyle has more men than women. Majority of them are between the age of 31-40 years and this happen to be an age group of mature and energetic team players. Their main mode of procurement is the centralized procurement, but however they also have some items that are sourced using decentralized procurement. Some of the reasons be hind this are perishability, availability of certain products at a lower cost than that which can be attained through centralized procurement. The other reason is that, there are some items that are highly demanded by the market where the retail store is located and this may not be the case for other retail stores located in other regions. 4.3.2
Staff Skills
The findings clearly indicate that the majority of the respondents stated that it is necessary for the members of staff handling procurement to be equipped with the necessary professional skills. Majority of the respondents also said that it is necessary for the procurement staff to have prior experience in working in a retail organization. Some of the reason they gave is that prior knowledge speeds up their decision making and also enables them to perform their duties efficiently. 4.3.3
Material Storage
From the findings most units within Nakumatt Lifestyle have storage provisions for their purchases. However, not all of them make use of storage due to perishability of some of the items dealt with, hence the need to purchase on a daily basis. Those 44
advocating for storage said that it helps them in maintaining the optimum level of stock and also avoid stock outs. Critically, it enables them provide the customers with a variety of products to match their preferences. 4.3.4
Application of ICT
Nakumatt has applied ICT in their procurement function as the findings indicate. The system is to some extent integrated with other functions and also to the head office through the use of an intranet. Majority of the respondents said that that helps them monitor the stock levels as well as the sales levels. The technology is also liked to the security department in order to monitor cases of theft and take appropriate measures. 4.3.5
Tendering Process
The findings indicate that Nakumatt Lifestyle makes use of a tendering system. However, in some of the areas where there are a few suppliers offering a product category, the organization may in some circumstances procure from all of them. The use of tenders has enabled them to consistently offer certain quality to the customers, which is not compromised. 4.3.6
Product Specifications
Majority of the respondents said that they make use of specifications in order to communicate to the potential suppliers, the expectations of the company in regards to the certain products that they do require. According to the findings, specifications help them in communicating to the suppliers, in terms of their product specifications. Specifications also help the procurement and the user departments determine what products they would define as quality and which they are willing to use, as well as determine what products are not acceptable.
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CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1
Introduction
In this chapter, the major findings of the research study were interpreted and explained the factors affecting procurement in retail organizations. These were explored deeper in the summary of findings, the research questions were answered from the findings of the study.
5.2
Summary of Findings
The summary of the study was based upon the findings obtained from the questionnaires that were distributed to the respondents. The study revealed that there is need to pay attention to the variables identified in this study since their contribution to a retail organization success is immense.
5.2.1 To what extent do staff skills affect procurement in retail organizations? From the findings of the study, it is clear that majority constituting 91% of the respondents felt that staff skills have a major effect on the success of the procurement function. The researcher also identified that experience was vital and that there was need to balance people with various key components like supply chain and logistics, depending on the tasks that require to be executed. The findings indicated that the procurement staff are heavily relied upon for delivery of key results for the organization.
5.2.2 How does material storage affect procurement in retail organizations? The findings indicated that storage plays a key role in ensuring that products are available for use or resale when needed. Majority of the respondents constituting 81% 46
were already making use of material storage in their units. However, those who were not making use of material storage had some specific reasons in that regard which were very relevant depending on the kind of products dealt with and the articulateness required in handling such products.
5.2.3 How does the application of ICT affect procurement retail organizations? From the findings, 96% of the respondents were of the view that, Information Communication Technology (ICT) was a vital link to enabling procurement activities run smoothly. One of the key factors identified is the challenge of linking procurement internationally. The effects of globalization have opened up the market and it has become increasingly much easier to get access to suppliers, but maintaining a good relationship and reliability has been a great challenge.
5.2.4 How does application of the tendering systems affect procurement in retail organizations? The researcher established that tendering process was relevant in supplier selection, especially for those items that are capital intensive. This was clearly elaborated by the findings which showed that consumers also spend more time evaluating alternatives before finally settling on a certain decision. The findings also indicated that the tendering systems were being relied upon in delivering quality to the required users or customers, as eluded by 79% of the respondents.
5.2.5 What are the effects of Product specifications in procurement in retail organizations? On the area of specifications, the findings showed that 81% of the respondents felt that it was critical to have them. Their effectiveness was to a large extent and it was clear that they play a big role in supplier selection. The findings indicated that, their use can be enhanced by constant review and to cater for the various product development that takes place and also the customer changing tastes and preferences. 47
5.3
Conclusions
From the study it can be concluded that the procurement function in a retail organization plays a critical role towards the smooth running of operations within the entire organization. The procurement function not only deals with procuring items for sale but also deals with procurement for internal users or user departments. The complexity of their activities is not well understood by customers but it plays a key role in making a retail store a preferred choice for customers. Staff skills and competence has a major contribution towards their excellent performances. As a result, they continuously need to sharpen their skills in order to better their performance and also to adopt the new practices in the market of doing business. Work experience also seemed to have a major contribution towards efficient execution of tasks of the members of staff. It also emerged from the findings that, when staff have inadequate skills, they in some occasions cause costly mistakes or hurt the relationship with the supplier. The findings also indicated that storage was vital in the stock management activities within Nakumatt Lifestyle. From the findings, some of the products require storage while others do not need storage due to the desire to provide fresh products to the customers especially for the perishable items. Methods of storage are need also to be considered critical to avoid damages and losses. Through storage, the retail organizations are able to ensure that they do not run out of stock and at the same tome plan adequately on the lead time and reorder levels. It was clear that application of ICT has had a huge positive impact on the organizations performance. Further, the integration of ICT from Procurement function to other functions with the organization has been vital. The study found out that technological changes occur often and therefore management must develop modern means of carrying out transactions in the procurement function. The study findings also indicated that the use of a tendering system is a clear-cut and precise way of supplier selection. Tenders have contributed immensely in bringing about transparency and in identifying the suitable suppliers who can be relied upon by the organization. Through tenders, buyers are also able to cushion themselves from 48
changes in the operating environment that are highly likely to affect the operations of the organization. On the area of specifications, the findings showed that they had a positive impact in the organization’s procurement activities. It’s the major ways in which the organizations are able to communicate to the suppliers about their expectations in relation to certain products or services. However, some argued that specifications restrict innovation.
5.4
Recommendations
The following recommendations were based on the study findings: 5.4.1 Staff Skills From the findings, there is need for retail organizations to periodically train their staff on various skills that will enable them perform better on their job. The organization can achieve this by embracing a culture of continuous improvement, where it continuously identifies opportunities for growth and development in order to enhance the performance of the organization. 5.4.2 Material Storage On the area of storage, there is need to develop market intelligence for the purpose of ensuring that the organizations are able to determine the right quantities to stock of a product especially in view of shortages. Also, the use of modern equipment and storage methods ensure that the organization minimizes damages or breakages. 5.4.3 Application of ICT The use of ICT within the storage unit has been vital and more can be achieved through linking up the stores department of one branch to the other branches, especially the ones that are close to each other. This will greatly help in ensuring that challenges can be sorted with inter-branch support, instead of relying on the head office which may be further away as opposed to the neighbouring branch. 49
5.4.4 Tendering Process The tendering system currently implemented was found to be adequate, but the use of the system can be enhanced by making use of e-tendering, where organizations are able to source globally. This guarantees the organization quality which comes from the credible reference organizations which have had an interaction from the bidding company. 5.4.5 Product Specifications While dealing with specifications, it is vital to ensure that product features, purpose of use and fitness for purpose are clearly specified. This is because of the product variety available verses durability and performance. Certain products may be similar and may be used to serve similar functions but their performance and durability may totally different. Nakumatt prides itself as the home of quality and value, ant the expectations of the customers are no way below that. Retail organizations generally should consider the variables indicated in this study, in order to enhance their procurement function. Their contribution to efficiency can be immense and the retail organizations would benefit in a big way due to their heavy reliance on procurement in acquiring products for use and for resale to consumers of other organization.
5.5
Suggestions for Further Study
The findings of this study open up other research opportunities that can be explored by future scholars, particularly in identifying appropriate solutions or interventions that are necessary in enhancing the performance of the procurement function in retail organizations. Whilst the study was limited to factors affecting procurement in retail organizations, there is need for a step forward by looking at the in-depth look at the area of tendering especially with the change in trend to the e-tendering system. Further studies should also be carried out on the security requirements of eprocurement systems and how fraudsters can be dealt with. 50
REFERENCES Anold J. R. T., Chapman S. N., & Ramakrishna R. V. (2007) Introduction to Materials Management, 5th Edition, Pearson Education, New Delhi, India Assael H (1993) Marketing Principles and Strategy 2nd Ed Dryden Press, USA Benton W. C., (2007) Purchasing and Supply Management, McGraw-Hill/Irwin, Boston USA. Black, N. J., Lockett, A., Winklhofer, H., & Ennew, C. (2001). The Adoption of Internet Financial Services: A Qualitative Study; International Journal of Retail and Distribution Management. Vol. 29 (8), pp. 390-398. Bryman A and Bell. E. (2003). Business Research Methods, Oxford University press, New York. Burt. D. N, Dobler. D. N & Starling. S. L (2006) World Class Supply Chain Management: “The Key to Supply Chain Management”, 7th Edition, McGraw Hill, New Delhi, India. Chorafas D. N. (2001) Intergrating ERP, CRM, Supply Chain Management, and Smart Materials, CRC Press, Florida Cole GA. (2004), Management Theory and Practice, 6th Ed, Thomson’s learning, London Cox. R, and Brittain. P (2000) Retail Management: 4th Pearsons Education, Harlow, England. Cravens D. W., (2000), Strategic Marketing 6th Ed Mc Graw-Hill, Irwin Davidson. WR, Sweeney, DJ and Stampfl RW (1984), Retailing Management 5th Ed John Wiley and Sons New York. Etzel W and Stanton (2006), Marketing 14th Edition Mc Graw-Hill, Irwin Hugos M. (2003) Essentials of supply chain management, John Wiley & Sons, Inc., Hoboken, New Jersey. 51
Jairo.S W. (2006) Effects of Information Technology on Efficiency of Oil Industries: A Case Study of Kenol/Kobil. Kenya Gazette Supplement (2005) Public Procurement and Disposal Act, government printers, publishers. Kotler P (1999), Marketing Management Implementation and Control, 9th Ed Prentice Hall, Harlow, England Kotler P. (2003). Marketing Management 11th Ed Prentice Hall, New York Levinson J. C. & McLaughlin M. W (2004) A Guide to Guerilla Marketing for Consultants, Wiley Publishers. Lysons K. and Farrington B. (2006), Purchasing and Supply Chain Management, 7th Edition, Prentice Hall, Harlow England, pg 31-32 Monezka. R, Trent. R & Handfield. R (2005), Purchasing and Supply Chain Management, 3rd Edition, Thomson South-Western, Australia. Moore, G. C. & Benbasat, I. (1991), Development of an Instrument to Measure the Perceptions of Adopting an Information Technology Innovation: Information Systems Research. Vol. 2 (3), pp. 192-222. Nakumatt (2010) Company Profile, History. Web site: http://www.nakumatt.com Neven D. (2003) The Retail sector in Kenya, Management Journal, Kenya Institute of Management Publication, May to June Issue 2004. Ouma.J.I (2005) Effects of Information Technology on Management of Human Resources in Kenya: A Case Study of East African Breweries Stock J.R & Lambert D.M (2001) Strategic Logistics Management, 4th Edition, McGraw Hill, Boston. Pg 158-161. Shiffman. L and Kanuk. L (2004) Consumer Behaviour 8th edition, Prentice Hall, New Delhi India. Stanton W, J, Etzel, M J, and Walker, B, J (1994) Fundamentals of Marketing 10th Ed McGraw-Hill New York. 52
Weele A. V (2005) Purchasing and Supplies Management; Analysis, Strategy, Planning and Practice, 4th Ed Thompson, Australia.
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APPENDIX I: AUTHORIZATION LETTER
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APPENDIX II: QUESTIONNAIRE
SECTION A: GENERAL INFORMATION 1. NAME (optional) ………………………………………………………………….
Please tick where appropriate (
).
2. Gender Male Female
3. Age 21-30 years 31-40 years 41-50 years 51 and above
4. What method of procurement do you commonly use in your organization? Centralized Procurement Decentralized Procurement
55
SECTION B: STAFF SKILLS 5. (i) (a) Do the skills of the staff handling procurement activities in your organization have an effect on the performance of the procurement activities? Yes No
(b) If Yes, explain……..……………………………………..…………………………. ……………………………………………..………………………………… ………...……………………………………………………………………… …………………………………………...…………………………………… ..………………………………………………………………………………
(ii) Is there any effect of the procurement staff having prior experience in working in a retail organization? Yes No
Kindly explain ………………………………..………………………………… ………...……………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...……………………………………
(iii) What are the contributions of knowledge and skills in material storage by the staff have in enhancing the procurement function in your organization? …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… 56
..……………………………………………………………………………… …………………………………………...……………………………………
(iv) what are the negative effects of procurement staff not having the required skills in executing their responsibilities? …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...……………………………………
(v) To what extent do the staff skills affect the procurement function in your organization? Very Large Extent Large Extent Some Extent Small Extent No Extent
SECTION C: MATERIAL STORAGE 6. (i) (a) Do you have a material storage procedure in your organization?
Yes No
(b) If yes, how is material storage handled in your organization. …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… 57
..……………………………………………………………………………… …………………………………………...…………………………………… ..………………………………………………………………………………
(ii) What are the factors that you consider in determining where and how to store the products you deal with? …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..………………………………………………………………………………
(iii) Are there any benefits that accrue to the organization as a result of storage of products?
Yes No Explain……………………………………………………………………… ……………………………………………………………………………… ………………………………………………………………...……………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..………………………………………………………………………………
(iv) What are the effects of not having proper storage for products procured by the organization? …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… 58
..………………………………………………………………………………
SECTION D: APPLICATION OF ICT 7.
(i) (a) Have you applied any ICT technology in your procurement system or process? Yes No
(b) If yes, is the system integrated to other department, or branches? Yes No
(c) Do you think that the application of ICT in your organization would/plays a major role in enhancing your work efficiency and performance? ……….………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… …………………………………………………………………………………
(ii) Are there any challenges that have accrued to your organization as a result? Yes No Explain………………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… 59
..……………………………………………………………………………… …………………………………………...…………………………………… (iii) How has the application ICT in procurement enabled your organization in enhancing performance of the procurement function? …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...……………………………………
SECTION E: TENDERING PROCESS 8. (i) (a) Do you use tenders in selecting suppliers for retail purposes or for consumables within your organization? No Yes
Explain………………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...……………………………………
(b)
If yes, has the use of tenders enabled your organization in getting the best and the competent suppliers for your products?
No Yes
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What kind of tender system is used in your organization? Kindly give details…………………………………………………………………………………. …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..………………………………………………………………………………
(ii) To that extent do you think the use of tenders has brought about efficiency in your operations? Very Large Extent Large Extent Some Extent Small Extent No Extent
SECTION E: PRODUCT SPECIFICATIONS 9. (i) (a) Has your organization developed product specifications for the various products procured? No Yes Explain………………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..………………………………………………………………………………
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(b) If yes, to what extent has it been effective in aiding in selection of suppliers? Very Large Extent Large Extent Some Extent Small Extent No Extent (ii)
Does the use of product specifications help in acquiring the best suppliers? No Yes
Explain………………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… (iii)
What improvements do you think are necessary in making sure that the organisation is able to acquire products that meet the required standards? …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… …………………………………………...…………………………………… ..……………………………………………………………………………… THANK YOU FOR YOUR COOPERATION
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