REQUIREMENTS FOR NIGERIA’S CHARTERED INSTITUTE OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
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CHAPTER ONE
INTRODUCTION
Background of the Research
Understanding how the performance of industrial companies and public organizations is dependent on the interconnections between the flows of information, materials, money, personnel, and capital equipment is on the cusp of a significant management breakthrough (Forrester 1958).
Supply chain management is complex because 80% of their revenue consists of purchased goods and services (CIPS, 2013). Procurement is one of the supply chain components that has the greatest influence on the success or failure of public and commercial companies. Public institutions and state-owned businesses must acquire commodities, services, and labor in order to fulfill their responsibilities and obligations. Globally, the entire volume of public procurement, which is the government’s activity of purchasing goods, services, and construction projects, accounted for which. It is estimated that government procurement accounts for 10% to 30% of the gross national product (Callender G and Mathews D, 2000). In contrast, acquisitions of external goods and services have traditionally played a significant role in the corporate cost structure, accounting for as much as 80% or more of the total cost of items sold in certain industries (Matthew G. Anderson and Paul B.Katz, 1998).
Public procurement has evolved into a government function that encompasses a significant portion of public expenditures (which, according to numerous World Bank reports, reach 70% of total government expenditure) and procurement expenditures (or “spends,” a term found in numerous reports and publications). Public procurement is expected to account for 15% of the world’s Gross Domestic Product (GDP) (Development Assistance Committee, 2005). In addition, it is estimated that public procurement contributes for 9–13% of the GDP of emerging nations. In Angola, public procurement accounts for 58% of public spending, in Malawi for 40%, and in Uganda for 70%. (Thai, 2001). The majority of Nigeria’s annual government budget is devoted to expenditures on public procurement. It consumed 64% of the annual budget or 15% of the gross domestic product (PPD Report, 2014). Procurement is typically the primary driver in both public and private enterprises.
Currently, the majority of procurement processes in public and private enterprises are bid/tender-based. Even if one of the primary goals of procurement is to lower costs through competition, promote transparency, protect public and private funds, and reduce and eliminate corruption, the bid/tender system has many limitations that prevent it from meeting the demands of organizations.
The public and private sectors share a common value for money, but they differ in their approach to procuring goods and services through long-term supplier relationships, which are essential for acquiring high-quality items with a short delivery time at the lowest possible price without sacrificing transparency and accountability.
Today, however, every firm must build mutually profitable partnerships with strategically selected partners. The longer this partnership lasts, the better it is for everyone involved. The benefits include enhanced performance, higher cost efficiency, and the development of businesses. The ultimate objective of governmental procurement and private enterprises’ purchasing systems is to spend money efficiently and effectively to achieve the greatest value for money.
1.2 DESCRIPTION OF THE CHALLENGE
In order to buy goods and services that provide value for money, it is recommended to use a competitive bid/tender-based procurement method, however in practice, this idea is not followed. It takes the form of adversarial practice. According to the statements of (Shapiro, 1986; Amihud, 1976; Marquardt; 1988) cited by (Joseph P. Cannon Christian Homburg, 1988), adversarial techniques feature bidding rituals that pit several providers against one another in an attempt to lower prices. The conventional adversarial relationship is defined by a focus on price and brief contracts. This antagonistic relationship focuses primarily on cost breakdown.
Due to the absence of a long-term relationship between the buyer and the supplier, the majority of public and private organizations are compelled to use the competitive bidding system to acquire the necessary materials. It tends to emphasize the buying price and profit of a product rather than the long-term capabilities of its suppliers. This competitive bidding for the acquisition of goods and services may have an impact on the customer or buyer companies. The danger of purchase
The company’s market share, long-term profitability, and competitiveness are diminished when it acquires the wrong goods, services, and products from the wrong suppliers.
Public entities also acquire commodities and services for the development of the nation and the enhancement of public infrastructure. Poor procurement methods, however, result in the loss of public funds due to the delay of large and minor projects, affecting the cost, quality, and delivery time of government projects and health organizations. This competitive bidding approach does not let the buyer to use a small number of suppliers, hence increasing quality cost and delivery time uncertainties. This procedure necessitates re-tendering and renegotiation by the buyer. This increases the total cost of ownership and has an effect on the performance of the organizations.
Instead of strategic alliances, the majority of public and commercial entities in Nigeria currently employ transactional supplier-buyer relationships. The most common and transparent method of procurement is bid to purchase. Though this may enable securing the lowest price bid, it may not guarantee ongoing lower costs, quality, short delivery times, feedback sharing, better reliability, and innovation. Despite the fact that public procurement is viewed as a major government function, and despite the fact that government entities, policymakers, and public procurement professionals have paid considerable attention to procurement improvements or reforms, public procurement has been a neglected area of academic education and research (Thai, K.V, 2001).
Numerous academics have written about the supplier-buyer relationship inside various enterprises. (Carolyne Tangus C, Luke A. Oyugi, and Charles Rambo, 2015; Maram Roushdy et al., 2015; Rachel Duffy and Andrew Fearne, 2004; Mutie Brian Musanga, 2015); (Carolyne Tangus C, Luke A. Oyugi, and Charles Rambo, 2015; Maram Roushdy et al They attempted to convey the significance of supplier relationship management. They have emphasized business organization, such as the manufacturing sector, in particular. They did not, however, explain how to establish long-term supplier-buyer relationships in commercial and governmental organizations as a shared purpose.
As a result, the thesis examines a novel method of establishing long-term relationships for the procurement of goods and services in public and private organizations. The research focuses mostly on the analysis of issues that arise during bid/tender-based procurement of goods and services.
system and the development of long-term supplier relationship management in public and commercial companies utilizing a qualitative model of system dynamics.
1.3 RESEARCH OBJECTIVES
In this dynamic, technology-intensive, and short product cycle environment, it is challenging to raise the performance of public organizations and the competitiveness of the private sector in the bid/tender-based system for the procurement of goods and services. Existing tender/bid system procurement methodology has quality, delivery time, and pricing issues. This necessitates a search for improved approaches to the problem; hence, the following general and specific aims have been addressed in this work.
1.3.1 GENERAL OBJECTIVE
The overarching objective of the research is to investigate the gaps in the current bid/tender based procurement system and to develop a model for long term supplier relationship management between buyer and supplier that improves quality, reduces delivery time, and achieves optimal cost when procuring goods and services.
1.3.2 SPECIFIC OBJECTIVES
To investigate issues that arise during bid/tender-based procurement of goods and services.
To establish the elements that are significant for long-term supplier relationships in terms of enhancing quality, decreasing delivery time, and lowering costs, and consequently enhancing the performance of suppliers.
As a superior alternative, construct a model through qualitative system dynamics that facilitates the procurement of products and services by public and private entities.
1.4 RESEARCH QUESTIONS
What are the issues with Nigeria’s bid/tender-based system’s procurement procedure?
How can one determine the characteristics that are critical for long-term supplier relationships in order to raise quality, reduce delivery time and costs, and improve organization performance?
Using system dynamics to construct what kind of model is advised for long-term supplier relationships?
1.5 Outcomes and Significance of the Research
Ineffective procurement of products and services through a competitive bid/tender system indicates the necessity for a supplier relationship management system that is well-designed and effective over the long run. This long term supplier relationship management method is more effective than the tender system for minimizing quality, cost, and delivery time, as well as maximizing openness and accountability in both public and commercial companies.
In this research, a qualitative model of system dynamics is used to build a model for long-term supplier relationships. It also reveals places where bid/tender system difficulties exist in public and commercial enterprises. It is also beneficial as supplementary material for public and commercial organizations seeking to increase performance and market competitiveness in order to provide value for money by forming long-term partnerships.
This research fills a gap in the literature regarding the issues of the bid procurement process. In addition, it leads to the development of long-term supplier relationships, which boosts the overall performance of the business.
The challenge of a bid/tender-based procurement system is studied in this work using the system dynamics of a causal loop diagram. The requirement for a paradigm change from the competitive bid/tender system to the long-term partnership system is elucidated in great detail. The significance and system of creating long-term supplier relationships in public and commercial enterprises are highlighted. As a result, a number of organizations, including research and development organizations, traders, producers, policymakers, extension service providers, governmental and non-governmental organizations, will be able to assess their activities and redesign their mode of operations, thereby influencing the design and implementation of policies and strategies. It could also assist various actors in identifying and analyzing novel innovation-stimulating strategies.
REQUIREMENTS FOR NIGERIA’S CHARTERED INSTITUTE OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
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