Factors that influence strategic sourcing decisions in the selected nbc plc

Thesis Overview

<p> </p><p><b>Introduction</b></p><p><b></b></p><b><p><b>1.1 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br></b><b>Background<br>to the Study</b></p><p><b></b></p><b><p>Purchasing<br>departments are increasingly seen as highly valued strategic contributors to<br>the organisation because of their ability to impact product design and quality,<br>cost of goods sold, cycle time, and hence, the firm’s reputation,<br>profitability, and competitive position (Wisner, Tan &amp; Leong, 2008).</p><p>Searching<br>for the right sources of supply is often seen as one of the core responsibility<br>of procurement and supply managers. Because this purchasing function poses a<br>great deal of risk and reward if effectively executed, it represents one of the<br>most challenging of all procurement tasks.</p><p>Over<br>the past decades, a lot of factors have combined to drive the organisations to<br>approach sourcing more strategically. These factors include changing global<br>economic climate, increasing number of global competitors, demands by customers<br>and government for organisations to become more environmentally focused, rising<br>cost of materials and energy, and the desire to deliver new products quickly<br>and cheaply.</p><p>With<br>these trends, the recognition that tactical sourcing will not succeed in<br>developing a supply base that will yield the benefits of strategic sourcing<br>became clear. Strategic sourcing takes the concept of sourcing a step further<br>to go beyond just source identification and selection to include managing the<br>firm’s external resources in ways that support the long-term goals of the firm.<br>Its scope includes the make-or-buy decision, supplier identification and<br>selection, managing and improving supplier relationships and capabilities,<br>monitoring and rewarding supplier performance, and developing supplier tiers.</p><p>Effective<br>strategic sourcing decisions will only be made when all relevant factors have<br>been considered and weighed against the risks and opportunities which apply.</p><p>It<br>would be possible that the most important purchasing decisions is not only<br>concerned with selecting the right sources of supply; but also developing and<br>managing a collaborative relationship that is beneficial to both parties in the<br>long run.</p><p>If<br>the correct source decision is made in a particular instance, then the buying<br>company’s need should be met perfectly. In such circumstances, it would receive<br>the required goods and services at all times. However, the very simplicity of<br>this statement conceals the complexity of source decision making, for in<br>arriving at the right decision, many factors have to be considered.</p><p>Strategic<br>sourcing thus involves much more than simply picking a supplier or contractor<br>for each requirement in isolation. It involves continuing collaborative<br>relationships both with preferred and potential sources. It involves decisions<br>on how to allocate the available business, and what terms to do business on.<br>Development of collaborative relationships and eventually world-class supply<br>management requires concerted strategic planning.</p><p>Strategic<br>sourcing deals with planning, designing, and building a reliable and competitive<br>supply base, determining the strategy for procurement, defining pricing<br>strategies and supply chain requirements. The strategy involves integrating of<br>its objectives in line with or conforming to the objectives of stakeholders in<br>operations, finance, marketing and distribution. Operating at this level<br>requires procurement, manufacturing, and technology groups to work together to<br>establish the best possible supply network, and to develop optimal supplier<br>capabilities.</p><p>Strategic<br>sourcing decisions are not just made based on the procurement managers’ whims<br>and caprices. They represent astute business judgment and thus involve the<br>consideration of several factors.</p><p>Profitability<br>in simple terms is the ability to make profit. Profit is a function of cost minimization.<br>Finding the best suppliers means that an organisation will be able to get<br>greater value, lower prices, supplier involvement in production efficiency,<br>high quality materials, discounts, and better relationships. All combining to<br>reduce the costs of doing business and add to the profitability of the<br>organization. Also, by developing strategies that will make the organization<br>have fewer suppliers, purchasing costs can be reduced, saving some few coins<br>for the profit.</p><p>Organisations<br>that seek to acquire quality materials and services at reasonable costs or<br>produce quality products at affordable price must first develop strategies<br>that will help find credible sources of supply of materials, equipment and<br>services, and build strong sustainable relationships. Sourcing is a very<br>important part of procurement manager’s job. Most supply professionals espouse<br>the idea that the entire procurement function is string around sourcing.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; </p><p>The<br>risks of buying the wrong items, services or from the wrong supplier can have<br>major impacts and ripple throughout a business. Consequences can range from<br>late delivery to total service failure liability and can even affect market<br>competitiveness. In addition, if the selected suppliers cannot provide<br>opportunities to reduce costs, improve and upgrade product/service offerings or<br>provide other market-facing advantages, then an organization can quickly find<br>itself losing market share. To help solve this dilemma, businesses are<br>beginning to develop sourcing strategies that can create supply chain solutions<br>offering insights into the optimum approach to buying. Often known as strategic<br>sourcing, it begins the critical process and lays the foundation for creating<br>value through the purchasing process.</p><p><b>1.2 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br></b><b>Statement of<br>the Problem</b></p><p><b></b></p><b><p>For its<br>proper performance sourcing requires supply market research. It has however<br>been observed that a lot of organizations overlook the need to carry out market<br>research on supply, and if they do, it is not extensive enough to get a true<br>picture of the supply market structure and dynamics, identify potential and<br>actual sources, investigates their capabilities, examine market trends and<br>long-term supply prospects, and generally keep an ear to the ground. Successful<br>sourcing strategy requires sound market information. For lack of such<br>information, several failures have been recorded in terms of implementing the<br>right strategy.</p><p>Many<br>organizations fail to develop the right objective criteria which would help in<br>proper assessment of potential suppliers before final selection. Designing the<br>right set of parameters will help to properly evaluate suppliers and create a<br>basis for sourcing decision. When these criteria are not developed, these<br>organizations will eventually select suppliers who may not deliver the right<br>materials.</p><p>Companies<br>also fail to design their sourcing strategies in line with the objectives of<br>the organization. Supply managers must not lose sight of the corporate and<br>functional objectives their decisions can help to achieve. This important<br>aspect is in some cases not considered when strategizing, thus resulting in a<br>implementation of sourcing strategies that are suboptimal.</p><p>Purchasing<br>managers are often not given the autonomy to make sourcing strategies and<br>decisions in some organizations. It is observed that top management who are<br>rookies in the field, often interfere with the sourcing process because they<br>have selfish interests. Such practices are capable of reducing competition as<br>the contract may not be awarded to the best supplier.</p><p>Another<br>problem is the absence of cordial relationship between buyers and suppliers.<br>Many companies favour transactional instead of collaborative relationships with<br>their vendors. This will only result in short term benefits for both parties as<br>there won’t be free exchange of information, lack of trust, and one party<br>seeking to win at the expense of the other.</p><p><b>1.3 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br></b><b>Objectives<br>of the study </b></p><p><b></b></p><b><p><b>&nbsp;</b></p><p><b></b></p><b><p>The<br>general objective of the study is to measure the extent to which strategic<br>sourcing affects profitability in listed NBC Plc in Nigeria. Specific<br>objectives of the study are:</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To examine the factors that influence strategic<br>sourcing decisions in NBC Plc</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To identify the performance criteria used for<br>evaluating and selecting capable suppliers by NBC Plc</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To understand the strategies for improving supplier<br>relationships in NBC Plc</p><p>iv. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To establish the relationship between strategic<br>sourcing and profitability of NBC Plc</p><p><b>1.4 &nbsp; &nbsp; &nbsp; Scope<br>of the study</b></p><p><b></b></p><b><p>The<br>research work centers around the strategic sourcing and its impact on<br>profitability. The study is conducted among selected NBC Plc in Kaduna. The<br>researcher restricts the work on selected units of these firms whose operations<br>are relevant to the subject under study. <br>These departments include procurement, finance, stores and production<br>departments. The content scope of the study covers relevant areas such as: The<br>conceptual framework of strategic sourcing; the strategic sourcing process;<br>sources of supplier information; supply evaluation; supplier selection;<br>sourcing strategies; supply base rationalization and optimization;<br>collaborative procurement and supply alliances; and Profitability.</p><p><b>1.5 &nbsp; &nbsp; &nbsp; Significance<br>of the study</b></p><p><b></b></p><b><p><b>&nbsp;</b></p><p><b></b></p><b><p>The<br>study is expected to benefit the following groups and individuals. The study<br>will assist organizations whether manufacturing and service to understand,<br>appreciate and make decisions as regards sourcing and supplier selection. The study will reveal concepts that will be<br>helpful for organization in their sourcing polices by revealing the sources of<br>information of supply the various approaches to sourcing and sourcing polices,<br>the factors to be considered in making<br>sourcing decisions etc. The study will also identify the problems associated<br>with sourcing and proper solutions to them at the end.</p><p>For<br>students in Purchasing and supply and other related discipline, this study will<br>come in handy for them in their research works and will help broaden the existing<br>knowledge base for them. The project work can double as both a study material<br>and a foundation for further research.</p><p>Vendors<br>are also not left behind as this study will enable them understand the<br>importance that institutional, industrial or individual buyers attach to source<br>selection. Suppliers will also understand the criteria used to rate them by<br>these groups of buyers and how they can improve to meet the requirements of<br>buyers.</p><p>For<br>future researchers in business, management, and financial studies and other<br>related areas of study, this work can be used as a reference material for their<br>research. Other individuals who are not students but are in one way or the<br>other involved in research, will also find this work useful.</p><p>This<br>study is also a requirement for the partial fulfillment for the award of Post<br>Graduate Diploma in Procurement and Supply Chain Management from Kaduna State<br>University.</p><p><b>1.6 &nbsp; &nbsp; &nbsp; Research<br>Questions</b></p><p><b></b></p><b><p>For<br>the purpose of guiding the researcher into finding workable solutions to problems identified some questions have been developed, answers<br>to which will form <br>the basis for solving the<br>problems.</p><p>1 &nbsp; &nbsp; &nbsp; <br>What are the factors that influence strategic sourcing<br>decisions in the selected NBC Plc?</p><p>2 &nbsp; &nbsp; &nbsp; <br>What are the performance criteria used for evaluating<br>and selecting capable suppliers by the selected NBC Plc?</p><p>3 &nbsp; &nbsp; &nbsp; <br>What are the strategies for improving supplier<br>relationships in selected NBC Plc?</p><p>4 &nbsp; &nbsp; &nbsp; <br>What is relationship between strategic sourcing and<br>profitability of NBC Plc?</p></b></b></b></b></b></b></b></b></b> <br><p></p>