ROLE OF PURCHASING IN COST REDUCTION AND CONTRIBUTION TO PROFITABILITY - AN APPRAISAL OF A MANUFACTURING COMPANY (CASE STUDY OF NIGERIA DISTILLERIES LIMITED)

CHAPTER ONE

INTRODUCTION:  ROLE OF PURCHASING IN COST REDUCTION AND CONTRIBUTION TO PROFITABILITY - AN APPRAISAL OF A MANUFACTURING COMPANY (CASE STUDY OF NIGERIA DISTILLERIES LIMITED)

Purchasing is a relatively new profession in Nigeria, in comparison with other professions like Accounting, Administration, Banking, Law and Business Administration. Its acceptability by many organizations is slow and gradual. In many organizations, the buyers are not professionals; they do not therefore know the principles and techniques involved in purchasing. The trained professionals are now finding it difficult to find jobs in most organizations, as their positions have been occupied by the administrators, accountants and other allied professionals. To be a practicing buyer, one has to be trained in the art and science of buying effectively to the profitability of the organization.

Many people even in other disciplines think that casual or domestic buying is the same as organizational purchasing. Buying is, however not the same as purchasing. Obtaining quotation, placement of purchase orders or contracts after negotiation and scheduling of deliveries constitute a composite professional practice. Buying is a static concept and does not imply fostering of economies of scale.

 PROBLEM STATEMENT OF THE RESEARCH

It is very clear that in most organizations, non- professionals are the one occupying purchasing position. This is expected to result in sub-optimization and loss of profit in most cases, because non-professionals are neither well trained in buying skill nor skilful in the cost reduction and profitability decision- making, which are major contributory factor to mismanagement of the purchasing departments in most organizations. It is very clear that the ethics of the purchasing and supply management are not often followed and this shall have negative effects on the organizational concern.

In most organizations, there is the need to achieve continuous process improvement, in order to produce products or services more effectively, which would enable them to give their customers better value, in an efficient and cost effective manner. According to Fearon et al (1997:25), "one of the keys to accomplishing this, is working with key suppliers to help them provide high quality, faster and more reliable delivery, innovative design, production, distribution ideas and a lower total product or service cost".

According to Court et al (1997: 1) in many organizations, purchasing remains the least understood and most ineffectively managed of all the business processes. Quite apart from the loss and devastating effect on profit forecasts, mistakes can consequently threaten the viability of the enterprise by allowing costs to rise or delaying the introduction of new products or services into the marketplace, leading in tum to a loss of competitiveness. He further explained that, 'in spite of this, management in most organizations still persists with outmoded and out of place theory.

BRIEF BACKGROUND OF COMPANY OF STUDY:  ROLE OF PURCHASING IN COST REDUCTION AND CONTRIBUTION TO PROFITABILITY - AN APPRAISAL OF A MANUFACTURING COMPANY (CASE STUDY OF NIGERIA DISTILLERIES LIMITED)

Nigeria Distilleries Limited (NDL) was the first company set up by Lexcel Group in the year 1973 to manufacture alcoholic and non-alcoholic beverages. LEXCEL group comprises of six companies under the Chairmanship of Mr. Ola Rosiji, one of the sons of the founder, Late Chief Ayo Rosiji and a six member Board of Directors headed by the Group Managing Director, Mr.Anil Aluwaliya. NDL is an ISO 9001: 2000 certified Company committed to creating a total quality environment for manufacturing and delivery of both alcoholic and non­alcoholic beverages.

The company endeavour to be the preferred manufacturer of quality products meeting international standards. NDL started business by bottling imported "bulk products" and through its extensive Research and Development, developed its own formulation and processes for a variety of alcoholic drinks (Schnapps, Gin, Liquor, etc). NDL is the largest company in the wine and spirits industries in Nigeria, manufacturing fourteen (14) brands in thirty five (35) pack sizes. The company brands includes; Seaman Schnapps, Bacchus Tonic wine, Calypso Coconut Liquor, Dark sailor rum, Regal and Lord's Dry Gin etc. The company started the manufacturing of non-alcoholic beverages in the year 1999 and all manufactured products are registered with the National Agency for Food and Drug Administration Control. Its manufacturing plant is located on a large expanse of land in Sango Ota, Ogun state of Nigeria.

NDL is focused on sustaining its leadership position by introducing more products and pack sizes. It strongly believes in providing quality services to its consumer and safe environment for its staff by following regulation and safety training on a regular basis.

STAFF STRENGTH/STRUCTURE

Nigeria Distilleries Limited's staff strength stands at approximately one thousand five hundred (1,500). With one Managing Director, and a six (6) member Board of directors who constitute the policy maker; then the divisional heads and Managers who are the policy operators; and then the Assistant Managers and Principal Officers below who are the policy recipients.

VISION AND MISSION STATEMENT

Vision Statement

Our company shall service the growing economies of Africa and beyond by producing international quality drinks for the mass market whereby creating value for our stakeholders.

Mission Statement

To be Nigeria's foremost manufacturer of quality beverages by employing best people, using modern technology and equipment’s for producing products of unsurpassed value to the consumers.

PURPOSE OF THE RESEARCH:  ROLE OF PURCHASING IN COST REDUCTION AND CONTRIBUTION TO PROFITABILITY - AN APPRAISAL OF A MANUFACTURING COMPANY (CASE STUDY OF NIGERIA DISTILLERIES LIMITED)

The purpose of this research is to however, describe how purchasing can contribute to cost reduction and impact on the profitability of Nigeria Distilleries limited.

SIGNIFICANCE OF THE RESEARCH:  ROLE OF PURCHASING IN COST REDUCTION AND CONTRIBUTION TO PROFITABILITY - AN APPRAISAL OF A MANUFACTURING COMPANY (CASE STUDY OF NIGERIA DISTILLERIES LIMITED)

This research work would be of importance to the management of manufacturing firm like Nigeria distilleries limited and other service providers which deals in industrial purchasing. The research will also give suggestion towards the improvement of purchasing activities, cost reduction and hence improve on the profitability within the organization.

 RESEARCH QUESTIONS

The following questions will be answered by the research study:

What pricing method does the company use?