Project Materials

THE EFFECT OF LEASE AS A MEANS OF PROCUREMENT IN MANUFACTURING ORGANIZATION

ABSTRACT

The goal of this research is to thoroughly explore the consequences of leasing as a mode of procurement in manufacturing organisations. Some selected companies were used as case studies, such as Studio Press Nigeria Plc in Lagos and Aluminium Extrusion Industry Plc. While conducting this research, the researcher examined the extent to which various businesses have used leasing and the impact of leasing in addressing these businesses’ logistical and financial issues. It was also carried out to investigate the issues with leasing. To fully study this topic, an extensive literature review was conducted, and several types of questionnaires were sent. The researcher used stratified random selection to select a sample of forty-eight (48) respondents from two concentration zones. Based on the questionnaire responses, a study was guided by some predetermined hypotheses, which were later examined using a distribution known as the chi-square (X2) technique. Some conclusions were drawn from the tested hypothesis, one of which was that leasing is more profitable than outright buying. Based on these observations, recommendations were made and conclusions formed.

Chapter one

INTRODUCTION

1.1 Background of the Study

Purchasing is a managerial function that deals with the procurement of raw materials, component parts, equipment (heavy and light), and services that an organisation needs for production.

Organisations’ material procurement strategies can take numerous forms, such as hire purchase, outright purchase, and leasing. This is highly dependent on the company’s financial situation. In the past, many financially distressed organisations used leasing to acquire capital equipment.

Leasing dates back hundreds of years before Christ (Stanley L.M.C Michael and Paul T.O Kege; 1959 p1); for centuries, the lease was virtually entirely associated with agricultural land.

According to Busko (1959:24), many of the commercial buildings built during the early stages of urban development were built on land made available through long-term leases.

However, with the rise of the industrial revolution and the subsequent urbanisation movement, lease expanded beyond its original scope.

Today, leasing has dominated all aspects of the Nigerian economy as an alternative to purchasing capital goods.

Today, it is uncommon to discover a capital good that is not available for lease. This growth has coincided with a fundamental shift in the character of the leasing contract.

It is no longer just a technique of purchasing properties that are not available via normal legal means; it has also become an important source of funding.

Most importantly, a lease is a contract between a lessor and a lessee to hire a specific asset (Ami 1922:13). A lease is a legal arrangement or transaction in which the owner of property, a building, or a piece of equipment agrees to let another person use it for a set length of time in exchange for a fixed sum of money.

The concept of leasing revolves around the separation of ownership from users. Under this agreement, the user (lessee) pays an agreed-upon sum of money to the owner (lessor) at predetermined intervals throughout the lease’s duration.

The installment nature of this payment allows the lessee to operate a better cash flow system, ensuring that no significant capital is ever locked down to a certain piece of equipment.