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THE ROLE OF NEGOTIATION IN ATTAINING PURCHASING OBJECTIVES

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY

The basic goal of any industrial activity is the development and manufacture of products that can be marked at a profit. This goal is accomplished by the appropriate blending of what many management authorities call the five mis-machines, men, Material money and management, material today are the life blood of industry. No industrial organization can operate without them. They must be at the right time, in the right quality, at the right quantity, at the right price, and at the right place.

Whether in period of inflation, or price stability or recession, obtaining materials at the right place can literally mean the difference between a firm’s success and failure. Hence, the right price is prime importance to every buyer and seller. Unfortunately no single set of pricing principle or criteria exist for calculating precisely what constitutes a fair and reasonable price. Therefore to obtain the right prices, three basic methods can be used by buyers.

These are:-

a. Published price list

b. Competitive bidding

c. Negotiation.

When a buyer is not satisfied with the price after using published price list and competitive binding in resort to negotiation.

According to the chamber century dictionary “negotiation means to confer the purpose of mutual agreement.

The Webster dictionary defines it as “conferring discussing or bargaining to reach agreement in business transaction.’ In industry “Negotiation” is sometime confused with happening and dieseling while in government it is frequently visualized as a nefarious means of avoiding competitive bidding and of awarding large contracts to favored suppliers.

According to Oyeoku (1993) Negotiation is just but a process whereby a representative of buying organization and the selling organization attempt to reach precise agreement on all terms and conditions which makes a contact come into being. it involve all aspect of purchasing rationed discussion, conferring and bargaining on each aspect and the arrival at a common understanding of what is the best in the interest of both parties.

In successful negotiation both sides win, the winnings are seldom equally divided. Invariably one side wins more than the other. This is how it should be in business”. Negotiation is particularly useful though not always fully successful, in dealing with seller controlling multiple source that behave in a monopolistic manner, in cased where cost are not reliable determine in advance, as in most research contracts and in any contract for items that had never been made before there is no alternative to negotiation.

The important of negotiation of purchasing is that it is a method used especially were the time of purchasing of materials is too short the money value involved is too low, the number of bidders is made adequate, they are not willing to compete, specifications are not clear but vague, the supplier is a monopolist, where all these situation exist or prevail, the buyer has no alternative than to negotiate. Hence, negotiation is a practical technique arriving at a price to pay for goods and service.

On the other hand, materials management is a total concept involving an organizational structure, unifying into a single responsibility the systematic flow and control of materials from identification of the reed through customer delivery. Through negotiation, the materials functions of planning, scheduling, buying, stiring, moving and distributing of material are met. The objective is to contribute to increase profitability by co-operation of this function into a simple material management department with no doubt result in the reduction of operating cost.

Mobile producing Nigeria united (MPN) is the second largest oil producer in Nigeria. It started operation in the country in 1955 as Mobil exploration. In June 16, 1969, mobile producing Nigeria limited (MPN).MPN began producing crude oil on February 15, 1970 in The offshore area of the eastern region. The areas are now in Akwa Ibom state.

In February 1985, after 215v years of production MPN hit ONE BILLION Barrel mark. Ten years latter, specifically in may 1995, MPN made the TWO BILLION BARREL mark. In April 1991, MPN struck another land mark when along with its joint venture partner, the NNPC, it signed loan agreements for about 900 million us dollar with international lenders to develop and produce its 800 field condensate reserves, estimate at about 500 million barrels.

The company’s overall construction towards the country’s economic and social development has followed closely in the wake of its production growth. It was in recognition of this contribution that it won together with its parents and sister companies. Mobile oil cooperation and mobile Nigeria plc, the 1985 honor award of the Nigeria., America chamber of commerce. MPN was also the first cooperate citizen to win the honor award of the society of occupational health physicians of Nigeria (SOPNON).

In 1989, MPN won the energy press award for making notable contributions to the growth of energy journalism in Nigeria and for peace setting relationship with the media. NNPC mobile joint ventures also assist in various community development project and participates in the cultural life of the host community.

In 1993 MPN initiated the four year community action programs for community and has enhanced the company’s relationship with the communities. Mobile has contributed to the development of human resources in Nigeria it currently. Award 450 scholarships annually to Nigeria students studying in institution of higher learning.

1.2     STATEMENT OF PROBLEMS

Negotiation as an aspect of purchasing is not given prime place. It is an attempt to look at the various problems facing the purchasing department in purchasing the right quality materials at the right price. In some of the organizations, their tactic has given rise to a lot of problems. The negligence arises as a result.

LACK OF COMPETENT STAFF

For materials to be purchased at a reasonable price there is need for competent staff who understands the various methods of pricing. There is lack of good negotiation in this organization; therefore, this reduces the success of negotiation.

EXTERNAL CIRCUMSTANCES

An external force also contributes the problems of the purchasing department. These are political, economic and social force.

UNRELIABLE SUPPLIERS

The reliability record level, this poses problem to the purchasing department.

1.3 PURPOSE OF STUDY

The purpose of this research is to look at

a. The different method of pricing are published price list, competitive bidding and negotiation.

b. The importance of negotiation against the other method of pricing.

c. The bargaining strategies used by the industries and how effective they are used.

d. The effect of the non-used of negotiation in the purchasing of goods.

1.4     OBJECTIVE OF THE STUDY

The objectives of the study are to identify the different methods of pricing and by so doing state the importance of negotiation as one of the means of arriving at a price to pay for goods and services. It is also to high-light negotiation tactics and how effectively negotiation is used in industries.

1.5     RESEARCH QUESTION

To test this assertion requires collecting response from a group of question, bidden in various parts of the questionnaire.

1. Do you think purchasing has a role in the area of negotiation:

1. Is purchasing department a separate entity or under a department.

2. If you have no purchasing what department is responsible for purchasing.

3. Does your organization policy permit the buyer in purchasing decision? ,

4. Can effective negotiation help in the attainment of purchasing objectives?

1.6     STATEMENT OF HYPOTHESIS

Ho:     There is no significant relationship between effective negotiation and the attainment of purchasing objectives

HA:    There is significant relationship between effective negotiation and the attainment of purchasing objectives.

1.7     SCOPE OF THE STUDY

This study is focused on MNL as a case study and research on the importance of negotiation to purchasing and materials, management. However, ideas are newspaper, notes, data collected from the purchasing and supply department and from experience.

1.9   DEFINITION OF TERMS

ROLE: can be seen as a specific function, the usual or expected function of something plays in an organization.

NEGOTIATION: Resolving of disagreement, the reaching of agreement through discussion and compromise especially in business affairs.

ATTAINING: Reaching a particular point or achieving a particular goal.

PURCHASING: the ability to make purchasing according to income and saving.

OBJECTIVES: the desired aims or goals of a particular entity

PROCUREMENT: this means buying of materials, equipment etc that are used for production of finished goods.

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