Factors Affecting Supplier Selection Essay
This project has been a long and strenuous process. It would not have been possible thou friends and family to support me. I would like to thank my family, including my late father Augustine and my brothers Jeff, Nick and David who have been of great support to me throughout this process. I would like to personally thank Mrs.. Linda Nutria, my supervisor. Kenya Institute of Management. It has been of tremendous and unending assistance developing this project.
ABSTRACT The purpose of the study was to find out the factors that affecting supplier selection in Procurement process among international Nags. A case study of UN agencies in Kenya. This led to finding out to what extent quality, cost, competition, and genealogy affect supplier selection Process among International Nags. The study used descriptive research design, which was applicable for the study, as the study focused on describing independent variables. The target population for the study is the 40 employees in Red Cross a UN agency based in Nairobi.
Competition in any industry is healthy because it raises service standards and forces organizations o become efficient service providers for the customers’ benefit. Information communication Technology Information technology used refers to the tools and facilities involved in the processing, analyzing, storing and retrieving of information. Improving the ability of consumers to choose between competing suppliers of products depends mostly on the technology involved in service delivery. New information technology has brought about market flexibility for consumers in service products.
Procurement Procurement is the process of getting possession or obtaining by particular care and effort. The professional practice of materials and service procurement had been vital to the economy of several third world countries, which are underdeveloped and/or lacking in domestic resources. 1. 1 Introduction This chapter entails the background of the study, statement of the problem, objective of the study, research questions, and significance of the study, limitation of the study and the scope of the study. This will guide the researcher in conducting the study accordance with the laid procedures. . 2 Background of the Study Supply chain management and supplier selection have become the fastest growing reas of management especially in the last few years. Although study in the area started in sass, it is in the ass that scholars gained much interest in the area of supplier selection. The reason is that with heightened global competition that has reduced the profit margins of most companies, hence cost cutting has become the option and is being focused in logistics which has become the single largest and most important activity of most firms, both in the for profit and not-for-profit sectors.
As such, quite a significant portion of organizations’ budgets is spent in these activities. Supplier selection in particular is crucial in management of a supply chain. The decision is one of the most fundamental and important decisions made by buyers and organizations. This is because supplier selection and management can be applied to a variety of suppliers throughout a products’ life cycle from initial raw materials acquisition to end-of-life service providers (ABA and Saris, 2009).
Internationally, purchasing is a major exercise. In USA, the total dollar magnitude of all purchases by businesses exceeded the gross national product in 1995. Purchasing transactions take 55% of the organization’s revenue. Supplier selection becomes important thus because it involves large cash flows (Cheering, Deadheads& Submarine, n. D). The United Nations, including its many affiliated agencies, represents a vast global market for suppliers of virtually all types of goods and services.
In line with General Assembly resolutions, and decisions by other UN Agency Executive Boards, all organizations of the UN system are making great efforts to identify new sources of supply, particularly from developing and under-utilized donor countries, in order to create an expanded and more equitable geographical striation of procurement. Globally, the total volume of goods and services procured by the UN system is quite staggering. In 2003, for instance, was over US $billion (GIN, 2006), and during the 2004-2008 period, UN procurement globally more than doubled in volume from US $ 6. Billion to IIS$ 13. 6 billion. Before a vendor is selected by UN agencies prior performance is one of the key issues considered. Another criterion used is also in accordance with the UN Financial rules and regulations, particularly FRR No. 110. 21, “Contracts shall be awarded to the lowest acceptable bidder… Other criteria include “compliance with specifications, technical acceptability, compliance with delivery schedules, and local servicing and availability of spare parts. ” Quality and reliability are also supplier selection determinant for most UN agencies (ibid).
Globally, supplier selection decisions are intricate due to the fact that multiple criteria must be considered in the decision making process. Multi-criteria approach is used in selecting suppliers, however (Weber & Current, 1991). Although there are numerous criteria used in selecting suppliers depending on organizations, literature suggests that the most important are price, delivery, and quality. Locally, the procurement procedures pretty much follow the international standards to a large extent.
This meaner that even supplier selection determinants are more or less similar to those considered by purchasers everywhere else. 1. 2. 1 The Profile of the UN and her agencies The UN formally came into existence on 24th October, 1945 when 50 countries met in San Francisco at the United Nations Conference on International Organization to draw up the United Nations Charter. China, France, the Soviet Union, the USA, the United Kingdom and a host of other nations ratified the charter.
Tasked with maintenance of world peace and security, developing friendly relations among nations and to be a centre for harmonize different nations’ action in attaining solutions to economic, social, cultural and humanitarian problems; and in promoting respect for human rights and fundamental freedoms, the larger UN family has 1 5 agencies and several programmer and bodies (UN). The various UN agencies are located in disparate countries of the world where their operations engender a lot of procurement for both goods and services.
This procurement is done mostly locally within the countries the agencies might be located bringing substantial opportunities and lifeline to local suppliers. According to 2010 Annual Statistical Report on United Nations Procurement (201 1), the overall procurement volume of United Nations organizations during 2010 increased to IIS$ 14. 5 billion from $ 13. 8 billion in 2009 representing a 5. 4% increase. In Kenya alone, like in other developing and countries in transition, the share of UN trade value in Shillings rose to 7. 4 billion($ 91. 2 million).
The range of procures include goods and services such as audio visual equipment, averages, telecommunication equipment, foods, stationery, construction materials, Chemicals, furniture, machinery, freight services among many others(ibid). 1. 3 Statement of the Problem Determinants of supplier or vendor selection by UN Agencies have been quite a mystery among local suppliers. Few know the attributes the UN look out for in suppliers and consequently fail to bid for contracts from I-IN, yet only speculate that the UN agencies consider foreign suppliers once the latter hog all supply contracts.
All through, the procurement process, supplier selection is perceived to be riddled tit secrecy and favoritism. Certainly; this not only complicates the realization of the Nun’s stated objective of seeing increased participation of local suppliers and vendors in doing business with the UN hence spurring growth in employment opportunities across the country, but also raises concern over the social Justice in the spending of commonwealth funds given the massive amounts of money involved. The UN agencies in Kenya for instance spent $ 132 million (SSH. 1. 35 billion) on procurement within Eastern Africa region in the year 2010/11, the bulk of which was spent in Kenya-$91. 2 million (SSH 7. 4 billion). In 2012, the UN expects to spend $233 billion (SSH 20 billion) on procurement within the region with local suppliers set to get yet the largest share (UN, 2012. Doing business with the International agencies is one way of ensuring market for small and medium sized business enterprises hence Job creation and fulfilling one of the Nun’s broad objective of poverty alleviation.
Despite these obvious benefits of doing business with the I-IN, most Kenya small and medium sized enterprises do not fully benefit from the contracts because they do not know the requirements for supplier selection. A July 2008 study report commissioned by SKIMS titled, ‘Procurement and Supply in Kenya: The market for Small and Medium Enterprises’ notes that “donor and MONGO procurement systems work well though they tend to be over- bureaucratic which is itself a constraint to most Seems with potential to supply their procurement needs. Therefore, determination of determinants in supplier selection by the UN agencies is crucial. This study therefore focuses on the determinants of supplier selection in procurement process in the international nongovernmental organizations, with special focus on the UN agencies n Kenya. Although there are studies on supplier selection determinants in procurement, most of this focuses on government agencies. There are hardly any studies focusing only on supplier selection determinants in International non- Governmental Organizations and particularly, the UN agencies in Kenya, hence the need for this study. . 4 Objective of the Study 1. 4. 1 General Objective The general objective of this study is to investigate the factors affecting supplier selection in the procurement process among international nongovernmental organizations with special reference to UN agencies in Kenya. . 4. 2 Specific Objectives The specific objectives are: I. To determine the effect of cost on supplier selection decisions in international organizations in Kenya. It. To investigate the effects of quality on supplier selection decisions in international organizations in Kenya. Iii.
To establish the effect of competition on supplier selection decisions in international organizations in Kenya. ‘v. To investigate the effect of technology on supplier selection decisions in international organizations in Kenya. 1. 5 Research Questions The research questions for the study shall be: I. How does cost affect supplier selection decisions in international organizations in Kenya? It. To what extent does quality of supplies affect supplier selection decisions in international organizations in Kenya? Iii. What is the effect of quality on supplier selection decisions in international organizations in Kenya? V. What is the effect of technology in the supplier selection decisions in international organizations in Kenya? 1. 6 Significance of the Study This study is significant in the sense that it will put into perspective the exact effects for supplier selection by the international organizations in Kenya. The study will be of significant the following. 1. 6. 1 To The suppliers Especially in the small and medium size categories as it will shed light on what the International organizations in Kenya consider in a supplier before awarding a contract. 1. 6. To the Business consultants and entrepreneurship trainers The study will also be valuable to business consultants and entrepreneurship trainers as they will help businesses develop capacities in the key aspects that the International organizations consider before selecting suppliers. The study will enable more firms to do business with International organizations. . 6. 3 To the researcher The main purpose is to add the already existing knowledge in Kenya Institute of Management. The study will also provide direction to researchers in developing a theory of buyer behavior. . 6. 4 To the employees of the organization. Who will be guaranteed of work continuity and even good remuneration after their business volume increases due to good supplier selection. 1. 6. 5 To the competitors Who can use the information obtained to take advantage on the weak areas of the competitors. They can also use the same to learn new skills and concepts at no cost ND implement them in their organizations. 1. 7 Limitation of the Study The researcher envisages a number of limitations as explained below. 1. 7. Confidentiality There will be some of respondents who will be reluctant to provide information they thought to be confidential for fear of being reprimanded by their superiors. 1. 7. 2 Misleading Information There will be instances where some of the information given are misleading and distorted and as such, it will be difficult to analyze the truth from false. This will mainly be common on the part of the management officers who thought or were rear on the researcher as working on behalf other rival companies. 1 . 7. Financial constrains The study will be quite costly to the researcher as he has to meet the costs himself. 1 . 7. 4 Delay in response Some respondents might take a lot of time filling the questionnaires. The researcher will move around checking on the respondents. 1 . 7. 5 Time. The study is time consuming as the researcher has a tight schedule, that is, reading for his exams, attending lectures as well as carrying out research. 1 . 7. 6 The busy schedule of the employees The busy schedule of the employees will make the researcher to reschedule appointments now and again which may hinder the collection of data.
This will be overcome by making appointments within busy schedule. 1. 8 Scope of the Study The study will confine itself only to the UN agencies in Kenya. The focus of the study will be on establishing the effects of supplier selection in the procurement process among the International Organizations in Kenya. The researcher shall take Red Cross located in Nairobi South C, as the main focus. 1. 8. 1 Geographical scope To carry out a study on factors affecting supplier selection in procurement process mongo the International Organizations in Kenya, a case study of UN agencies in Kenya.
The target population will be 40 employees of Red Cross in Kenya and it will take the researcher exactly three months to complete the researcher. 2. 1 Introduction This chapter covers the following: theoretical review, empirical review and conceptual framework. Literature review is the process of identifying, evaluating, synthesizing and presenting relevant information from other resources like publication Journals and magazines (magenta and magenta, 2003). The purpose of this literatures radical review was to examine previous studies regarding contracting in the construction sector and identifying the gaps that needed to be fulfilled.
This chapter comprised the critical review of past studies, summary and conceptual frame work. 2. 2 Theoretical Review Consumers buy products based on a combination of cost, quality, availability, maintainability, and reputation factors. The companies along with their supply chains, which can provide these desired things, will ultimately be successful (Wisher, J. Et al, 2008). But when confronted with risky purchase decisions, most firms consider iris and foremost, sellers or suppliers with proven track record with the firm are favored as familiar suppliers help reduce perceived risks (Hut and Esp., 2009).
Quantitative approaches used in supplier selection range from simple linear weighting models to complex mathematical programming models. Linear weighting models are essentially scoring models which place a weight on subjectively a determined criterion and provide a total score for each supplier. Mathematical programming models use linear programming, mixed-integer programming and goal programming to determine supplier selection (Chauncey et al. s cited in Weightlessness’s, 2007).
NUNS contracts for purchase and rental equipment are awarded in accordance with United Nation’s Financial Regulations where competitive tendering is done and the selection determinants include the lowest offer, meeting technical requirements, quality, delivery and standardization (UN, 2006). According to Bell (2009) supplier selection assists organizations in identifying, evaluating and contract with suppliers for strategic partnership. Organizations will only achieve their sourcing objectives once they get the right suppliers who will deliver goods and revise on time.
Weber et al (1993) considered supplier selection to be long term process and suggests that suppliers should be evaluated based on core competences and strategic needs. 2. 2. 1 costs Cost is an amount that has to be paid or given up to in order to get something. Samson (2007) price is very important, not only for financial reasons but also for marketing. A fair price will give a reasonable profit and motivates a customer to buy the commodity compared to other firms price should be observed as closely as possible to match the value of the product being distributed and also with the cost a Oregon during the construction process.
Today’s organizations use an expanded concept of value. As result, managers need to constantly look for opportunity to reduce cost and improve efficiency. As Raja (2005) points out, managers need to make sure that they are supplied with raw materials and services at lowest possible total cost of ownership. For example. In performance based supplier partnership strategy, strategic products and leverage products make up to 80 per cent of total turnover. Minor changes in price levels will immediate impact on the end product’s cost price.
According to Courtier, (2001) cost represent money measurements of efforts that a firm has to take to achieve its objectives. These are generally referred to as input costs. Input cost influences the efficiency of production in construction decisions. These costs are divided into fixed cost incurred by the business even when the plan is idle, total fixed costs including salary and rent, variable costs, costs which change with change in input and operations for example wages and electricity. Marginal costs which are incurred when a firm produces an extra unit of production ND total costs which is the sum of the fixed and variable costs.
A competitive product must address factors such as cost, performance, aesthetics, schedule or time-to-market, and quality. The importance of these factors will vary from product to product and market to market. Over time, customers or users of a product will demand more and more, e. G. , more performance at less cost. Cost will come a more important factor in the acquisition of a product in two situations Emmer, Cattish, and Inman (2004). First, as the technology or aesthetics of a product matures or stabilizes ND the competitive playing field levels, competition are increasingly based on cost or price.
Second, a customer’s internal economics or manufacturing resource limitations may shift the acquisition decision toward affordability as a more dominant factor. In either case, a successful product supplier must focus more attention on managing product cost. The management of product cost begins with the conception of a new product. Typically sixty to seventy percent of a product’s cost or life cycle costs are committed based on decisions made during concept or architecture development.
Eighty-five to ninety percent of a product’s cost or life cycle cost is committed by the time that the product has been designed and its manufacturing process has been developed (Billing et al 1986).. Potential actions related to manufacturing initiatives, automation, overhead reductions, and general and administrative expenses may only affect the remaining ten to fifteen percent of the product’s cost.