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CHAPTER ONE
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INTRODUCTION
1.0 INTRODUCTION
An increased number of manufacturing companies that are purchasing labour-intensive items turn their attention towards reducing their costs by sourcing from various geographical places. The price of goods and services purchased from the emerging or low cost countries represents an excellent reason for considering international purchasing as an efficient solution.
A low price for materials purchased from a foreign supplier can be counterbalance by company’s loose in quality standards or even financial instability. On the other hand, more technologically advanced products, which are sourced from international suppliers, can carry high purchasing costs and excessive tariffs.
In these given conditions, besides the actual cost of an acquired item, it is a question regarding the complexity of the purchasing process in the international trade context since factors like availability of suppliers, substitute source of supply, market uncertainty or other major changes in the international environment are able to influence the involvedness in international purchasing activities.
As a consequence, it is a matter to examine these problems in order to understand what the key factors for a successful international sourcing process are.
1.1 BACKGROUND OF THE STUDY
During the last decades, purchasing has received special attention in many companies. The multitude of actions, like mergers and acquisitions, outsourcing and off shoring to low-cost countries have been considered by organizations in order to search for new ways of achieving competitive advantage.
All these measures have changed the role and objective of purchasing function inside companies and increased its importance in firms’ overall strategy. As a result, the complexity of the purchasing function evolved from an operational function to a strategic source of cost reduction and increased competitiveness.
Traditionally, the supply chain of the firm incorporates a network of functions such as product development, marketing, operations, distribution, finance, customer service, all involved directly or indirectly in fulfilling the customers’ requests (Bozarth & Handfield 2007).
But in order to fulfiLkl these requests, firms must create value by tailoring their value propositions to clients’ expectations. The activities developed inside the companies range from the procurement of raw material to the distribution of the final product to the customer and after sales service.
Lysons and Gillingham (2005), define purchasing from the standpoint of its objectives: “to obtain materials of the right quality in the right quantity from the right source, delivered to the right place at the right price”.
In order to achieve these objectives, companies must focus on activities associated with purchasing like: selecting qualified suppliers, rating suppliers performance, negotiating contracts, comparing price, quality, lead times, services and terms of sales, evaluating the value received, predicting prices and demand modifications, etc.
As an integrant part of a company’s value creation system, purchasing commands a significant position in the overall organization. De Boer, Labro and Morlacchi (2001), referring to the study of Telgen (1994), who has found out that in industrial companies, purchasing share of the total turnover typically ranges between 50-90%, stated that making decisions about purchasing and operations are the primary determinants of profitability.
The importance of purchasing function in the organization is also underlined by the increased amount of resources invested by companies in the purchasing process and as well as by the time allocated to strategic purchasing. It is already acknowledged that the goods and services purchased by companies have a key influence on costs, productivity and quality level.
Therefore, the sources of supply and the amount of time and money invested in the purchasing process have a capital influence on firms’ performance. One of the most important elements of the purchasing function is the selection of suppliers.
The goal of supplier selection and evaluation is to reduce the risks involved in transactions and to maximize the total value for the buying firm. Successful supplier selection processes are dependent on a series of strategic variables like the choice between domestic and international sourcing, type and the intensity of the relationship with the suppliers, the number of suppliers from which to source (single or multiple sourcing) and finally but not the least important, the type of the products supplied.
Throughout time, many researchers have identified numerous criteria for supplier selection and assessment such as net price, quality, delivery, supplier reputation, capacity, communication systems, services or geographic location. All these criteria represent critical issues in the supplier assessment procedures in view of the fact that they measure the performance of suppliers.
The main purpose of this research is to provide empirical evidence of the procedures and criteria used by small and medium-sized Doyin Investment Company when selecting international suppliers. In addition, the paper aims to investigate the types of relationships developed by Doyin Investment Company buying companies with their foreign partners as well as supplier-base structure options and types of products purchased from international suppliers.
1.2 STATEMENT OF RESEARCH PROBLEM
The present study has also several limitations, which will be further described. The first limit of the paper comes from its scope. According to Talluri & Sarkis (2002), the business processes of the purchasing function within organizations include supplier evaluation and selection, negotiation of supply contracts, monitoring supplier performance and creating an interface between company and its suppliers.
Therefore, inside the core process of sourcing, the study narrows its scope by analyzing only the supplier evaluation and selection process.
Secondly, the research will be limited to analyze the small and medium-sized manufacturing companies operating within Nigeria.
The main business sectors evaluated will be manufacturing of food products and beverages because the examined business categories are not comparable due to a range of legal and technical aspects.
1.3 OBJECTIVES OF THE RESEARCH
The thesis is based on the following hypothesis: “SMEs in a small country such as Denmark are highly import intensive and source not nly from regional suppliers, but also from suppliers far across the globe (Overby & Servais, 2005) ”.
As a result of the amplified interest in purchasing internationally, it becomes important to assess the sourcing practices among small and medium enterprises. In the context, the research question of the study will be:
What are the most important selection criteria that Doyin Investment Company Ilorin consider when choosing their foreign suppliers?
With the purpose of answering the research question, the following research objectives will be addressed:
- To identify the challenges to international purchasing along with the main strategic options available for purchasers.
According to this objective, the paper aims to investigate the drivers and barriers to purchasing from foreign countries. Furthermore, the strategic factors behind the sourcing process such as supplier-base structure, buyer-supplier relationships and types of products supplied will be explored in order to understand the tactical decisions related to purchasing.
- To analyze the supplier selection process and to identify the most important selection criteria in the international context.
In regards to supplier selection criteria, the aim of the study would be to describe the process of supplier selection by highlighting the most critical supplier selection criteria considered by companies when acquiring their products from international countries.
- To investigate the international purchase behaviour of Doyin Investment Company Ilorin and to find to find out what are the selection criteria that drive them in choosing their foreign suppliers.
The empirical objective of the study has the role to analyze the international purchasing practices developed by Doyin Investment Company Ilorin. Moreover, the influence of strategic options on selection criteria will be tested in order to understand the selection decisions according to different purchasing situations.
1.4 SIGNIFICANCE OF THE STUDY
The outcome of this study will provide on adequate understanding on the application of international purchasing in an organization which includes;
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