Ambo University Woliso Campus School of Business and Economics
Ambo University Woliso Campus School of Business and Economics
The major objective of this study will be focus on improving purchasing mechanism of
challenges enriching practice with the most relevant information and assessing the department.
To do this both primary and secondary data is needed for successful achievement of the study.
Primary data will be collected from purchasing department committee and the manger though
open and closed ended questioner. But secondary data will be gathered from different document,
books, reports of purchasing department. The study will use judgmental or purposive sampling
techniques. After the required data collect from both primary and secondary source it will be
analyze using descriptive analysis for logical conclusion.
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Table of Contents
CHAPTER ONE..............................................................................................................................................3
1.1 Background of the study....................................................................................................................3
1.2 Background of the organization.........................................................................................................3
1.3 Statement of the problem.................................................................................................................4
1.5 Objective of the study........................................................................................................................5
1.5.1 General Objective of the study...................................................................................................5
1.5.2 Specific Objective of the study....................................................................................................5
1.6 Significance of the study....................................................................................................................5
1.7 Scope of the study.............................................................................................................................6
1.8 Limitation of the study.......................................................................................................................6
1.9. Organization of paper.......................................................................................................................6
CHAPTER TWO.............................................................................................................................................7
Review of Related Literature.......................................................................................................................7
2.1 Material management Definition......................................................................................................7
2.2 Purchasing Definition.........................................................................................................................7
2.3 Types of purchasing Approaches.......................................................................................................8
2.3.1 Speculative buying......................................................................................................................8
2.3.2 Hands to mouth buying..............................................................................................................9
2.3.3 Forward Buying...........................................................................................................................9
2.4 Significance of purchasing...............................................................................................................10
2.5 The scope of purchasing..................................................................................................................10
2.6 Objectives of purchasing..................................................................................................................10
2.6.1 From top managerial prospective.............................................................................................10
2.6.2 Functional cooperation level objectives...................................................................................11
2.6.3 from the detail level objectives................................................................................................11
2.7 Purchasing policy.............................................................................................................................12
2.8 Purchasing procedures....................................................................................................................12
2.8.1 Organization of Purchasing Regulation.....................................................................................13
2.8.2 Verification of purchasing Regulation.......................................................................................13
2.8.3 Request for Bidding (Quotation)...............................................................................................13
2.8.4 Evaluation and selection of suppliers.......................................................................................14
2.8.7 Receiving and Inspection..........................................................................................................15
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2.8.8 Payment....................................................................................................................................15
2.9.1 Centralization versus decentralization......................................................................................16
2.9.2 Merits of centralization purchasing..........................................................................................16
2.9.3 Merits of decentralization purchasing......................................................................................16
2.9.4 Demerits of centralization and decentralization purchasing....................................................17
2.10 International purchasing................................................................................................................17
CHAPTER THRE..........................................................................................................................................18
Research Design and Methodology...........................................................................................................18
3.1 Research Design...............................................................................................................................18
3.2 Source of Data.................................................................................................................................18
3.3 Method of Data collection...............................................................................................................18
3.4 Sampling Techniques.......................................................................................................................18
3.5 Sample size......................................................................................................................................19
3.6 Method of data analysis and interpretation....................................................................................19
3.7 Work Plan and Budget Plan.............................................................................................................19
Bibliography...............................................................................................................................................21
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CHAPTER ONE
1.1 Background of the study
Purchasing is one of the basic functions of common to all type of business enterprise. These
functions are basic because no business can operate without them. All business administered or
managed by coordinating and integrating these functions (Donald Widowers 1994).
Creation the idea or design function, finance the capital questions and financial record, personnel
the human resource and labor, relation, purchasing the acquisition of required material, service
and equipment. Conversion the transformation of material into economic good and distribution
the marketing and selling of goods produced, purchasing the basic and integral part of business
management for a business to be successful. It is impossible for any organization to achieve its
full potential without successful purchasing practice. In the long run the business enterprise
depends every bit as much on the purchasing and supply executives at it does on the executive
who administer the other function of the business (Dobler, Burt 1996).
Purchasing as a process of buying, it involves as determining the needs, selecting the supplier,
arriving at proper price, specifying terms and conditions, issuing the contract and following up to
ensure proper delivery (Alumina 1984).
Purchasing is acquiring materials and part as a requisition to meet quality, quantity and time
specifications. Purchasing is responsible for acquiring raw material, component part, tools and
other items outside supplier. The fundamental purchasing activity includes selection of
accessible venders and negotiation of terms, revision quality level and other factor of purchasing,
placing purchasing order for new and recorded material. Parts and service consideration, priority
of order expediting, delivery of material and parts to meet inventory requirement and maintain
supply system data base.
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University located at the distance of 116 km to Addis Ababa. The annual average temperature of
the area is 14.4 degree centigrade and the average annual rainfall is 1331.6 mm. ambo University
Woliso campus was established in 2002 E.C. The University aims at delivering teaching and
learning; research and community services. Currently the University offers courses under four
faculties in undergraduate programs that includes Engineering and technology, Natural and
computational science, Business and economics and social science and humanities. The
University’s 2004/5 academic enrolment is over 2000 in regular program.
The University overall vision is to render the best in teaching learning, research and community
service possible, warmly and professionally to its customers within and outside the country,
serve all the public by improving not only academic knowledge and professional skills but also
promoting life-long study habits and striving to instill values of integrity, self-respect and respect
for others.
Purchasing is by itself incurring cost. The public organization follow purchasing practice of
minister of finance and economic development stated in purchasing and property administration
proclamation number 649/2001 Art 7/2. It states the key area requiring a particular attention that
is purchasing policy, procedure, plan, discount, and bidding and supplier selection.
Ambo University Woliso campus highly spends money for purchase of equipment, machinery,
spare part, stationary material, and student consumption food. The objective of purchasing
management is satisfying customer and user by making the available necessary material and
equipment so it gives good relationship with user department by providing material and
equipment at the right price and right quality, at right price and from right source.
Therefore, purchasing is one of focus area in organization attention to be given, to solve the
Ambo University Woliso campus purchasing problem and the society problem as a whole. On
the other hand, other researcher has given their own solution for the study problem like there
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must be given continuous training that much with the job, the government should improve
shortage of transportation, purchasing section should develop a mechanism to change and
improve a traditional and long purchasing practice (fuad, Abdi 2006).
• Does Ambo University Woliso campus apply necessary purchasing policies and
procedures?
• How much the policies and procedures apply competitively in Ambo University Woliso
campus?
The overall objective of the study will be entity the challenges and effectiveness of purchasing
practice and also provide possible solution for existing problem.
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1.7 Scope of the study
The study will be to assess the challenges and effectiveness of purchasing practice in all
organization is important. But the study will be delimited only Ambo University Woliso campus.
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CHAPTER TWO
Review of Related Literature
2.1 Material management Definition
Material management can be defined a confederacy of traditional material activates bound by a
common idea of integrated management approach to planning, acquisition, conversion, flow and
distribution of production on materials from the raw material state to the finished product state
the material management state advocates to the assignment of all major activities which
contribute to materials cost to single material management department. This includes the primary
responsibility which are generally fund in the purchasing department plus all other major
procurements responsibly including inventory management traffic receiving, warehousing
surplus and salvage and frequently production planning and control. (Donald and Dobler. 1964).
Purchasing the activity of acquiring good and services to accomplish the goal of organization.
Different scholars have given different definitions for purchasing.
The main objective of purchasing are: (1) to maintain the quality and value of company product
(2) to minimize cash tied up in inventory, (3) maintain the flow of inputs and (4) strengthening
the organization competitive position purchasing may also involve (a) developing and review of
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the product specialization, (b) receipt and processing of requisition, (c) advertise for bid, (d)
evaluation (e) award of supply contracts (f) inspection of gods received and (g
) their appropriate storage and release purchasing is the acquisition of goods and service in
exchange for something of value its material management function concerned with process of
buying the right type of material at the right price and time purchasing is essential to all
organization manufacturing, non-manufacturing, profit making, nonprofit making and
government (Eugene, Miranda and John, 1995, p. 247).
Different scholars have given different definitions for purchasing. “Purchasing is disciplined
entrepreneurial activity directed toward providing profit” (parsons and W.J 1982).
In narrow sense the term purchasing simply describe the process of buying, however, in a broad
sense, the term involves determining the need selecting the supplier, arrive at proper price terms
and conditions issuing the contract or order and following up to ensure proper delivery (Aljian
George, 1973).
Speculative buying
• Forward buying
• The purchasing material in excess of foreseeable requirement. It anticipated that the need
on arise for material and the firm will profit by making the purchasing at the current
prices. (Donald and Dobler, 1984)
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2.3.2 Hands to mouth buying
Hands to mouth buying becomes sever popular method of purchasing during the great
depression of the 1930’s and it is a policy that may be expected to appear whenever supplier
of goods becomes plentiful and price decliner such imminent.
Advantage.
• If material service is purchased in un instable market and when price are dropping it saves
money.
• When introduction of new machinery or design which will pander a lot of materials is
anticipated.
Disadvantage
• It will lead to higher procurement and probing higher total inventory cost.
• Denier of running out of stock in case of supplier failure or late delivery (Donald and
Dobler 1984).
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purchasing all activates be assigned and that all individual be fully informed to their
responsibility (Eugene, Magadha John, 1995 p. 252).
The importance of purchasing is also a significant in-service giving companies they are able to
execute several activities more efficiently than the manufactures their added and therefore
purchasing storage transformation and marketing services material must be available at the
proper price, in the proper quality, at the proper time and at proper place. However, failure to
accomplish any of these responsibilities concerning materials and company cost it decrease
company sale.
• Right quality
• Right quantity
• Right time
• Right price
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• Right supplier
• To buy competitively involves keeping abreast of the process of supply and demand that
regulate price and availability of material in the market.
• To buy wisely buying wisely involves continual search for better value that yields the
best combination of quality, services and price, relative to the buyers need.
• To develop good relationship with the supplier, continuing relationship with active
supplier and good relationship with potential suppliers.
• To achieve maximum integrations with other departments of the firm this essential for
buyers to understand the major need of their using departments so that this needs can be
translated in to materials support to action.
• To handle the purchasing and supply management function in professional & cost-
effective manner. (Donald and Dobler 1964).
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• Policies limit an area with in which a decision is to be made and assure that the decision
will be consistent and contribute to objective.
• Full fill each task satisfactory with minimum of time effort and paper work
• Effectively communicate and coordinate the effort of one work group with another.
Nevertheless, the procedures given by different authors seem more comprehensive it can be also
using the flow chart prepared (J.H. Westign, 1985). The principal purchasing procedures are
listed as follows.
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The information in the purchase requestion form includes
Open bid: Prospective suppliers are incited for interact advertised in media the lowest tender
gradually being accepted although the advertisers usually stated that they are not bound to accept
the lowest or any tender.
Closed bid: Perspective suppliers are invited to complete for a contract the advertising of which
is restricted to selected suppliers who are invited to complete to the material. After the types of
bid are selected purchasing unit needs to prepare the bid documents which stipulate the
requirement and the manner in which bidders are required to complete.
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The development of new suppliers, also additional suppliers for existing purchased items will be
needed in order to lower cost, better quality, on time delivery, and improved technical service.
Some of the sources are.
Sales man contracts, purchasing contracts, Trade directors, scalawags, Trade shows and
conventions. (Eugene, Maganda and John, 1995).
Financial condition: Quality, capacity, service, plant visit, supplier rating, supplier certification
to obtain the needed amount without un interruption.
• Whether the work has been properly distributed and whether the staff has a broad
program of work
• Whether materials of correct quality are being purchased and incidence of rejection.
• Proportion of purchase department operating cost to value of total purchase cost per
order.
The contract is awarded to the best supplier candidate with the highest score on the criteria set of
purchase order is to be produced in several copies depending on who is to receive them.
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Follow-up and expediting
After purchase order has been made the purchaser a should not wait until the supplier delivers
the materials, we need to follow up to make sure that suppliers will deliver the materials on the
agreed data expediting requires a special type of agreement for it may require the supplier extra
effort and cost.
2.8.8 Payment
There are different modes of payment depending weather the purchase local or international.
• Organization purchase
Purchasing is the function of buying machinery, tools, general supplies, raw material etc.
required by an organization (Nair, 1990). The work of the purchasing is performed by the
purchase sector and in the broader senses their functions and responsibilities including the
following:
• Obtain the right quality and quantity of material at the right time, so that production is not
hampered.
• Cost reduction
• See that purchase are made only against authorized purchase requisitions and proper
functions.
• Deal with the supplier regarding shortage, rejections etc, reported by the store.
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• In case of delay in obtaining suppliers against any purchase requisition keep the
department concerned informed of the progress.
• Suggest latest and more economical material for use by the manufacturing departments
this could be done because of its contract with the outside source of supply.
Decentralization purchasing provide authority of purchase to the lower unit in order to purchase
their own material (Nair, 1990) decentralization purchasing is the power to delegated to sub
group or subordinates. The power is not centralized within one party.
• Delegation authority to a various unit price moral of involved personnel and taken
advantage of their local acquaintance and knowledge.
• Enable local management to exercise control over it cost and selection of material in
addition to enhancing its relation with local suppliers and its social responsibility to the
local community.
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2.9.4 Demerits of centralization and decentralization purchasing
By and large the advantage of centralizing reflects the disadvantage of decentralization and the
advantage of decentralization indicate the main short coming or disadvantage of centralization.
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CHAPTER THRE
Research Design and Methodology
3.1 Research Design.
The study will be use descriptive research design to be conduct the challenges and
effectiveness of the purchasing ambo university Woliso campus. The reason why the
study uses descriptive research design is simple and helps to describe the challenges and
effectiveness of purchasing practice.
Secondary source of data will be collected from written materials like documents, books related
with purchasing, Journals, Internet sources and other relevant published documents.
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3.6 Method of data analysis and interpretation
The method of data analysis will be descriptive the rationale for choose of this method of data
analysis will be it allows describing. Finally, the student researcher interpreted the analyze data
in communicable and understandable way for the reader.
Month
S/N List of activity Nov Dec Jan Feb April May June
Title selection
1 Literature review •
2 Proposal writing •
3 Proposal approval •
Questionnaire &
check lists
4 preparation •
Primary, secondary
5 data collection •
Data editing and
6 coding •
7 Paper draft report •
8 Paper submission •
Work plan source:
Table2: budget
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No Items Unit Quantity Unit price Total cost (Birr)
(Birr)
1 Stationery material
Photocopy paper Packet 1 25 25.00
Printing paper Packet 1 50 58.00
Pencils NO. 6 2.00 12.00
Pen Doze 2 3 6.00
Marker No. 1 3 3.00
Shorthand note book No. 1 10 10.00
Sub total 114.00
2 Data storage materials
Re-writable CD disk No. 1 25 25.00
Flash disc No. 1 100 100.00
Sub total 125.00
3 Other expense
Printing cost Page 24 2 48
Binding No. 1 20 20.00
Sub total 68.00
Bibliography
Burt D.N (1984), Purchasing and materials management; Text and case, 6th ed. Mc
Grew hill new York.
Dobler, Dw, and Burt DN (1996), Purchasing and supply management; 5th ed. New York; mc
Griw hill inc
rd
George Alijan (1975), Purchasing handbook 3 ed New York mc griw hill inc ----------------
(1973),
Purchasing Hand book, 2nd ed. New York: MC Griw hill inc J.W parson (1982), Improving
purchasing performance; Londen; Gower Itd.
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Nair NK (1990), Purchasing and materials management 2nd ed. New York Delhi vikas
Publishing
Van Weele, Arjan J (2000), Purchasing and supply chain Management Analysis, Planning and
practice; 2nd ed, Australian business.
W, Dobler Donald (1984), Purchasing and Material management 4th ed. New York; M Griw
hill inc
Westign, J.H (1985), Purchasing management material in motion j. weng and sons inc new
Delhi.
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