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NEGOTIATION AS A COST REDUCTION TOOLS IN MATERIALS PURCHASES

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

One of the fundamental responsibilities of procurement function in an organization is source selection. It deals with the entire process of how prospective suppliers are being surveyed, evaluated and determine policies relating to those who can most suitably meet the requirement of the organization, before they are being considered for a buyer and supplier relationship. However, this assessment is base on a number of essential instrument which price is one of the such.

Price in general term refers to the amount offered for the purchase of an item. It can also be value pay for obtaining something, it is quite crucial to purchasing as price play vital role on the product manufacturing and its sales value.

Negotiation among other relevant tools in sourcing selection function that purchasing employ in making an organization to actualize their goals to arrive at a most judgment on which suppliers are to be selected.

Negotiation usually requires that the buyer have a face discussion with the suppliers in order to arrive at a common understanding on essence of a purchase/sale contact among which is price. Infact, price determination is the main focus of negotiation.

In negotiation, to determine purchase price buyers and supplier usually discuss such element, as cost of production overhead market conditions. Speeds needs of the buyer and supplier eventually arrive at a mutual price, that both deliver the best value of item and at reduced cost to the buyer as well as favours the supplier fair interest to ensure a continued supplier-buyer rapport.

This study set out to investigate some related problems having to do with purchasing a high item cost also looks at how negotiation as a tool for effective material pricing can be deployed to determine the right price of supply.

1.2     Statement of Problem

Most problems associated with negotiation especially when the issues of price is the pivot, buyers tend to overlook the variables that determine the price itself. This most time leads to arriving at a very high price for the purchase or contract.

Moreso, lack of proper planning before approaching the negotiation table is very high fundamental and essential for any successful negotiation. The other negotiation exercise such as source of information and idea delivery time, quality of suppliers, fair and reasonable deal. Hence, since negotiation comes before any purchase or contract, what will happen to purchase without negotiation on specification and at multiple effect on terms of payment etc.

Also the negotiation must not over power by one part or one principles, dirty trick all they lead to failure in the objective. One can derive benefit as solving problem source for information learn some experience, quality fair and reasonable price, control and relationship management.

1.3     Objectives of the Study

The objective of conducting this research among others are as follows:

i)              To identify objective of negotiation.

ii)            To identify the approaches of negotiation.

iii)          To identify the requirement for negotiation.

iv)           To determine the impact of negotiation on material pricing.

1.4     Research Questions

In dealing with the research question, the following question will be answered or addressed:

i)              What are the objectives of negotiation?

ii)            What are the approaches of negotiation?

iii)          What are the requirements for successful negotiation?

iv)           What are the impact of negotiation on material pricing?

1.5     Significance of the Study

The study will be of benefit to the organization which the study is being carried an investigation, and also it will serve as guide for relevant organization which have similar departments or problems, also it will serve as reference to the similar topic and serve as reference for further studies.

Also, it will be beneficent to research in future, the organization also broaden the knowledge of the researcher; it will also assist the research especially in partial fulfillment of the requirements for the award of Higher National Diploma in Purchasing and Supply, Kaduna Polytechnic.

1.6     Scope of the Study

The research work will cover carious department with the store function and look at the process at which negotiation and its effect on materials pricing in Peugeot Automobile Nigeria Ltd. Furthermore, the research cover various departments with the total population of 65 and with the sample size of 30-49 staff. It will be carried out within department of procurement, administrative production, quality control and material inspection unit as well as close department.

Also, it will look at requirement for successful negotiation and the method employed in the conduct of negotiation also it will cover from 2010 – 2012 how they conduct their negotiation and we will look into quality control.

1.7     Definition of Terms

Negotiation: This is a process of where people come together to reach an agreement.

Procurement: This term is mostly used in the military organization as well as the public set up mean purchasing, it is activity which involve logistic, buying, transportation and distribution

Lead Time: This is the period between placing an order to its fulfillment or delivery.

Expediting: This is a continual progressing orders with suppliers to make sure that goods are received on time.

Inspection: This is a process whereby incoming items are examined so as to ensure that the quality and quantity conform with specification.

Quality: This is the standard feature of an item that make it different from item of the same characteristics.

Effective: This is the ability of producing a sound and successful result.

Purchasing: This is the process of buying things or item especially for a company.

Price: This is the amount of money to be paid for obtaining an item or items.

Suppliers: A supplier can be individual or company whose sole business is to supply items for people or companies.

Specification: This is the detailed description of how an item is or should be.

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