Project Materials

NEGOTIATION AS A COST REDUCTION TOOLS IN MATERIALS PURCHASES

Chapter one

INTRODUCTION

1.1 Background of the Study

Source selection is a vital responsibility of the procurement function in an organisation. It addresses the complete process of surveying prospective suppliers, evaluating them, and determining policies for those who can best satisfy the needs of the organisation before they are considered for a buyer-supplier partnership. However, this assessment is based on a variety of key indicators, one of which is pricing.

Price, in general, refers to the amount offered for the purchase of an item. It can also be the value paid for obtaining something; it is important to consider while purchasing because pricing influences product manufacture and sales value.

Negotiation, among other relevant source selection tools, is used by purchasing to help an organisation achieve its goals and make the best decision on which suppliers to choose.

Negotiation typically needs the buyer to have a face-to-face discussion with the suppliers in order to get a common understanding on the substance of a purchase/sale contract, one of which is pricing. In fact, price determination is the primary subject of negotiations.

Buyers and suppliers typically address such elements as production costs, overhead, and market circumstances while negotiating purchase prices.

Speeds up the buyer and supplier’s demands, resulting in a joint price that both provides the greatest value of item at a lower cost to the buyer while also favouring the supplier’s fair interest to secure a continuous supplier-buyer relationship.

This study set out to investigate some connected challenges associated with purchasing a high-cost commodity. It also looks at how bargaining, as a method for effective material pricing, can be used to establish the best price of supply.

1.2 Statement of the Problem

Most problems involved with bargaining, particularly where price is the pivot, occur when buyers disregard the components that drive the price. This usually results in a much higher price for the purchase or contract.

Furthermore, a lack of proper planning prior to approaching the negotiation table is extremely fundamental and necessary for any successful negotiation.

Other negotiation exercises include sourcing information and ideas, delivery time, supplier quality, and a fair and reasonable deal.

As a result, since negotiation precedes any purchase or contract, what happens if a purchase is made without agreement on specifications and has a multiplier effect on payment conditions, etc.

Furthermore, the negotiation must not be dominated by one element or one principle, as this will result in failure to achieve the goal.

One can benefit from solving problems, gathering information, gaining expertise, providing quality at a reasonable price, maintaining control, and managing relationships.

1.3 Objectives of the Study

The objectives of this research, among others, are as follows:

i) Identify the negotiation’s objective.

ii) Determine the approaches to bargaining.

iii) Identify the requirement for negotiation.

iv) To assess the impact of negotiation on material prices.

1.4 Research Questions.

When dealing with the research question, the following questions will be answered or addressed:

i) What are the objectives of the negotiation?

ii) What are the ways to negotiation?

iii) What are the conditions for successful negotiation?

iv) What impact does negotiation have on material prices?

1.5 Significance of the Study

The study will benefit the organisation under investigation, as well as serve as a guide for relevant organisations with similar departments or problems. It will also serve as a reference to a similar topic and as a reference for future studies.

Furthermore, it will benefit future research, as the organisation will widen the researcher’s expertise; it will also support the research, particularly in partial fulfilment of the requirements for the award of the Higher National Diploma in Purchasing and Supply at Kaduna Polytechnic.

1.6 Scope of the Study

The research will examine the relationship between the carious department and the store function, as well as the negotiation process and its impact on material pricing at Peugeot Automobile Nigeria Ltd.

Furthermore, the study covers several departments with a total population of 65 and a sample size of 30-49 employees. It will be carried out within the departments of procurement, administrative production, quality control, and material inspection, as well as the close department.

It will also look at the requirements for effective negotiation and the methods used in negotiation. It will also discuss how they conduct negotiations from 2010 to 2012, as well as quality control.

1.7 Definition of Terms

Negotiation is the process of bringing people together to reach an agreement.

Procurement: This phrase is usually used in the military and the public sector to denote purchasing; it is an activity that involves logistics, procurement, transportation, and distribution.

Lead time is the time between placing an order and having it fulfilled or delivered.

Expediting: This is the process of continually pursuing orders with suppliers to ensure that items arrive on time.

Inspection is the process of examining incoming things to ensure that they meet the quality and quantity specifications.

Quality: This is the standard feature of an item that make it different from item of the same characteristics.

Effective: This is the ability of producing a sound and successful result.

Purchasing: This is the process of buying stuff or item especially for a firm.

Price: This is the amount of money to be paid for obtaining an item or items.

Suppliers: A supplier can be individual or company whose sole business is to supply items for people or companies.

Specification: This is a detailed explanation of how something is or should be.