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An Assessment of Challenges Associated With Centralized
Procurement System in a Quasi-Government Company
MUDENDA COLLINS
Head of Department-Operations and Supply Chain
Copperbelt University
Email: [email protected] , [email protected]
Tel: +260977 846337
MWALE IDAH
Supply Chain Graduate
Email: [email protected]
Tel: +260978 986045
Abstract
Purchasing activities in todays’ world are arranged using Centralized and Decentralized purchasing in
both Private and Public organizations. The drive is to achieve economies of scale in purchasing. However,
each one of the models comes with merits and demerits some of which adversely affect operations. This
study was aimed at assessing challenges associated with Centralization of procurement at the case
company. The purchasing design in the company follows the Centralized model. The current situation at the
case company is that operational sites away from Headquarters in Ndola, experienced late delivery of
requested items, delivery of wrong items and high costs of transportation. The research therefore undertook
to assess the challenges and ascertain the real challenges affecting operations. The research design was
based on a combination of descriptive and explanatory methods. A census was used to collect data in which
seventy (70) potential respondents made the population. A semi-structured questionnaire was used to
collect data from members of staff in the supply department as well as End-users from various departments.
The researcher targeted to analyze data using Mean, Standard Deviation and Pearson’s r because the data
was Likert scale. The study recorded a 70% response rate and the data was normally distributed thus the
target tools were used for analysis. The researchers identified twelve challenges which were subjected to
analysis and only six challenges proved to negatively affect operations. The six variables were ranked to
determine the most severe. Further, the researchers found the average response between requisition and
receipt to be 2.9 weeks for branches away from the headquarters.
Keywords: Centralise, Decentralise, Procurement, Model, Management.
Introduction
The Procurement function is vital to any organization and procurement strategies have become part of a
business’s success than ever before. Lysons and Farrington (2006) argued that the primary purpose of
purchasing is to contribute to the profitability of an undertaking by obtaining the best quality products and
services in terms of fitness for use. This study focused mainly on Centralized Procurement which is defined
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as a process where one branch (usually Headquarters) of an organization, representing the collective needs
of other branches carries out procurement functions (Dutton, 2006). Parikh and Joshi (2005) on the other
hand argued that Centralization is defined by the degree of hierarchy of authority. A similar view was
presented by Stanley (1993) who determined buying center centralization as the degree to which authority,
responsibility and power are concentrated within an organization or buying unit; centralized purchasing
implies that purchases are made from either the company headquarters or some regional or divisional level.
Purchasing is transforming from a part time activity conducted by many to a more specialized function. The
trend has been towards a stronger, more centralized function and greater participation in the firm’s strategic
planning process (Stanley, 1993; Cousins and Spekman, 2003; Dubois, 2003). The combination of focusing
more on collaborative relationships and increasingly strategic role of purchasing has resulted in a rise in
prominence of strategies of supply base reduction (Harland et al. 1999) and the quest for global efficiency
and effectiveness has led to increased centralization and coordination of purchasing function (Faes et al.,
2000). According to Joyce (2006), centralized purchasing may be able to obtain lower prices than
decentralized purchasing units if the higher volume created by combining orders to a common supplier
enables it to take advantage of quantity discounts. This can be achieved with centralized framework
agreement where volumes of all units are combined under one agreement event though ordering still occurs
at a local level. Many others (Arnold, 1999; Tella and Virolainen, 2002; Corey 1978) refer to the increased
negotiation power, which leads to better prices and terms.
The opposite of centralization is decentralized purchasing, where purchasing is done by individual plant or
division managers (Stanley, 1993) or where individual departments or separate locations handle their own
purchasing requirements (Joyce, 2006). Arnold (1999) further explains that centralization does not
necessarily refer to all procurement functions but at least to a centralized supplier management and contract
handling. Munson and Hu (2010) alluded that most companies in fact seem to practice some combination of
centralized and decentralized purchasing. Decentralized procurement is preferred due to the ability to
reduce incentives for corruption via large-scale protectionism or favoritism, users are able to ensure that
goods or services delivered match their needs and they are increased opportunities for local Small and
Medium-sized Enterprises (SME’s) to compete for contracts, flexibility, local specialized knowledge, speed
and responsiveness; an understanding of local needs; product development support; and ownership
(Monczka et al., 2010).
Analysis of the Current Situation
The company is geographically organised with operations in Ndola, Kitwe, Kalulushi/Lufwanyama,
Kawambwa and Shiwangandu. It is administratively divided into five (5) departments which include
Plantations, Corporate Services, Administration, Audit, Finance and Human Resources. The department of
interest in the current study is the procurement department which is headed by the procurement manager.
The Procurement Manager is in charge of the Procurement Department which falls under the Corporate
Services Department with the Corporation Secretary as the overall head. After the Procurement Manager
are two Assistants; the Purchasing Officer (in charge of all purchases made) and the Stores Officer (in
charge of the stores).
The procurement department has six (6) Purchasing Clerks who are spread out across all the branches. The
company has a total number of fourteen (14) employees working in the procurement department broken
down into five (5) general workers and nine (9) procurement professionals. The table below illustrates the
staffing situation in the procurement department.
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Table 1: Summary of employees in the procurement department
Site Procurement
Manager
Purchasing
Officer
Stores
Officer
Purchasing
Clerks
Total
Ndola 1 1 1 3 6
Ichimpe 1 1
Chati 1 1
Lamba 1 1
Total 9
Source: Authors, 2017, Based on the existing organizational structure.
The plantations offices are found in Ndola, Mufulira, Kitwe, Kalulushi, Lufwanyama, Chingola,
kawambwa and shiwanga’ndu districts and are divided into six (6) administrative plantation groups namely
Ndola, Chati, Ichimpe, Kawambwa, Shiwanga’ndu and Lamba. All these station are wide apart and far
from from the central station especially Kawambwa and Shiwanga’ndu which are located 700km and
800km, respectively, from the headquarters in Ndola. The purchasing process is similar in all branches; the
first step is for End-users to generate a demand note and send it to the main stores at the headquarters with
the assumption that all items are available in the stores. If the requested items are not available, the stores
clerks prepare a purchase requisition document which is authorized by the stores officer or purchasing
officer and later approved by the procurement manager. The second step is to collect a minimum of three
(3) quotations from potential suppliers and a purchase analysis form is prepared by the purchasing officer.
The purpose of the purchase analysis form is to enable all interested parties to analyze the quoted items
according to the commercial and technical specifications.
In the third step, a purchase order document is prepared and the original copy is taken to accounts to
process payment while a copy is sent to the supplier in order for them to supply the goods and the final
copy is kept in the stores in preparation for receipt of materials. Upon receipt of goods, a goods received
note (GRN) and materials entry note (MEN) are prepared to acknowledge the receipt of the goods at the
headquarters. For branches away from the headquarters, goods are only transferred to site after receipt by
the main store, thereafter a transfer document is prepared to allow goods to go to various destinations. The
figure 1 below shows the purchasing process at headquarters and figure 2 shows the one at branch offices.
Purchasing process at Headquarters
Figure 1: Purchasing process flow chart at head office
Source: Authors, 2017, based on company procedure.
Comparatively, the purchasing process is longer outside the headquarters by two additional processes both
of which consumes time to perform. This length elongates the entire process creating a bureaucracy to the
End-users.
DEMAND
NOTE
PURCHASE
REQUISITION
GOODS
RECEIPT PAYMENT
PURCHASE
ANALYSIS
ORDER
STORES
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Figure 2: Purchasing process flow chart at branch offices
Source: Authors, 2017, based on company procedure
The resulting predicament from this difference is longer time between requisition and supply, supply of
wrong items and increase in delivery costs as well as associated costs. Tables 2 and 3 below exhibits a case
variance between requested and supplied goods as well as identified costs due to centralization.
Table 2: Variance analysis of orders
Items Requested
For By Branch
Office
Items Purchased
By Head Office Corrective Action Implication
Moisture meter Multi meter Taken back to supplier and
the supplier was asked to
supply correct item
Lost use time,
Disc plough Rotary plough Taken to the mechanical
workshop for modification in
order for it to meet
specifications
Risk of
mis-modification,
Compromised product
performance,
Operational safety risk
Source: company procurement report, 2016.
Table 3: Summary of cost changes due to centralized problems between 2014 and 2015
Description 2014 2015
Fuel and lubricants 5,555,855 6,426,821
General expenses 1,327,166 1,415,761
Repairs and maintenance 4,550,160 5,413,551
Source: Zambia forestry and forest Industries Corporation limited report and financial statement for the
year ended developed from company financial statement for 2015
The company has been losing considerable amounts of money on fuel (transportation) and other expenses
therefore decreasing the profit margins to some extent. This predicament has a direct link to centralized
procurement among other reasons because decentralized procurement would shift the transportation cost to
the supplier of engage some cost sharing mechanism. The organization is very rigid and involves a lot of
paper work. This results in lot of wastage of time, effort and money and therefore extends the lead time.
There is somewhat unnecessary delay in decision-making resulting from formalities and rules. The
DEMAND
NOTE
PURCHASE
REQUISITION
GOODS
RECEIPT
PURCHASE
ANALYSIS
PAYMENT ORDER
STORES MATERIAL
EXIT NOTE TRANSFER
NOTE
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researcher therefore undertook to ascertain the challenges associated with centralized procurement in order
of severity and determine the average response time between requisition and response from distant sites.
Literature Review
Centralized procurement is nowadays a common way to leverage the benefits of indirect purchasing in an
organization (Karjalainen, 2009). In centralized procurement, the procurement is coordinated and regulated
from the headquarters of an organization. The main aim of it is to capture the economies of scale by
unifying the procurement processes of an organization’s different units (Karjalainen, 2009; Lysons and
Farrington, 2012), which usually involves a corporate-wide frame agreement set for all the procurements to
be made from certain preferred suppliers, and the amount of suppliers per product category is kept low
(Karjalainen, 2009; Iloranta and Pajunen-Muhonen, 2012).
Consequently, spend per supplier can be maximized and hence the procuring power of the buying
organization increased. This can lead to a better negotiation position regarding prices, quality, compliance,
and strategy with suppliers (Van Weele, 2010). Centralized procurement should be considered especially
when the needs for procured materials between different business units are similar (Iloranta and Pajunen-
Muhonen, 2012). Lohrey (2016) further alluded that long-term business goals and purchasing department
objectives often link more directly with a centralized purchasing structure.
Kabaj (2003) contends that an efficient procurement system is vital to the advancement of African countries
and is a concrete expression of their national commitments to making the best possible use of public
resources. Equally, Kakwezi and Nyeko (2010) argues that the procurement departments of public entities
and quasi- government entities are faced with the problem of not having enough information about the
procurement procedure, its inputs, outputs, resource consumption and results, and are therefore unable to
determine their efficiency and effectiveness.
Rotich (2011) admits that the evaluation or measurement of procurement performance has always been a
vexing problem for procurement professionals. He asserts that traditionally, firms concentrate on analyzing
their own internal trends which does not portray the true picture on how they compare well with
competitors.
Mamiro (2010) concluded that one of the major setbacks in centralized procurement is poor procurement
planning and management of the procurement process which include needs that are not well identified and
estimated, unrealistic budgets and inadequacy of skills of procurement staff responsible for procurement.
Similarly, Kakwezi and Nyeko (2010) argued that procurement performance is not usually measured in
most Procuring Entities as compared with the human resource and finance functions.
Empirical Literature
Baidoo (2014) conducted a study in which he undertook to find out the challenges facing the centralized
procurement system. The findings were that short-term leverage view, uncoordinated approaches, slow co-
ordination and communication, lack of system commitment and increase in transportation costs affected the
procurement function. According to Rozemeijer et al. (2003) the purchasing organizational structure can be
determined by the level of purchasing maturity and corporate coherence. The authors further stated that
Decentralization is appropriate for organizations that have low purchasing maturity and low corporate
coherence, due to the few similarities in purchase specification between business units, the synergy
opportunities lie in the exchange of information on supply markets, suppliers, and prices. The figure below
exhibits their view:
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Figure 3: Corporate purchasing organizational approaches
Source: Rozemeijer, Weele and Weggeman 2003.
Gadde, et al. (2001) and Quayle (2006) in their studies revealed that it can be noted that total centralization
and total decentralization are both extreme value of centralization continuum. The majority of companies
lay somewhere between these two extremes to utilize advantages of both configurations (Johnson, et al.,
2004). In such hybrid structures responsibilities and control and local organizations are divided with
accordance to business environment.
Theoretical and Conceptual Framework
Several theories have been developed in this area of study for instance Henry Mintzbergs’ organizational
structure, Henri Fayols 14 principles of management with a focus on centralization and decentralization, the
structural contingency theory and Max weber’s Beauracratic theory.
According to Carlisle (1974), top managements are guided by contingency theory in choosing the
appropriate management tools for a given situation. The core of contingency theory according to Carlisle
(1974) is that management concepts are universally not applicable but are only right if the appropriate
conditions exist in a given situation. In other words, the deployment of a number of administrative tools or
concepts is contingent on the particular situation.
According to the Structural Contingency Theory, there is no organizational structure that is most effective
for all organizations (Karlsen and Tollefsen, 2009). This situation can influence the selection of the
organizational structure as it can be affected by a number of contingency factors. Some of the factors as
enumerated by Karlsen and Tollefsen (2009) are task uncertainty, technology, environmental change,
technological change, size and strategy. Donaldson (2001) reduced the factors to size, task uncertainty and
task interdependence. Size as a contingency factor relates to the size of the organization i.e. the number of
employees. The size as contingency factor affects the organizational structure in some way. According to
Federal
purchasing
Central-led
purchasing
Decentralized purchasing Centralized
purchasing
coordinated purchasing
High Low
Low
High
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Karlsen and Tollefsen (2009), when an organization has a small number of members, a simple centralized
structure is satisfactory. Since the top manager has capacity and enough overview of the organization,
decision authority rest entirely on him/her.
According to Max weber Bureaucratic management approach emphasized the necessity of organizations to
operate in rational way instead of following the “arbitrary whims” or irrational motions and intentions of
owners and managers. He found different characteristics in bureaucracies that would effectively conduct
decision-making, controlling resources, protecting workers and accomplishment of organizational goals.
According to him, bureaucracy is the most efficient form of organization because the organization has a
well-defined line of authority and clear rules and regulations which are strictly followed
Conceptualised Research model
The research depicts the relationships that exist among the variables. The conceptual model for the
challenges associated with centralisation of procurement was attributed to performance of the procurement
department.
Figure 4: Research conceptual model
Source: Authors, 2017
Operationalisation of concepts.
Quality as a variable represents the ability of the goods purchased by the central organization to satisfy
stated or implied needs. According to Juran (2010), quality means fitness for purpose. The following are the
adopted dimensions of quality in this study:
CENTRALIZED
PURCHASING
CHALLENGES QUALITY
1. Usable
2. Reliability
3. Standard
4. Function
5. Durable
LEAD TIME
1. Requisition vs receipt
2. Supplier service delivery
time
3. Time spent in identifying the
need
4. Vendor sourcing time
Supply Department
Performance
1. Department success
2. Cordial relationship
3. Commendable
EFFECTIVENESS
a) Supplier readiness (service)
b) Meet End-user request
c) System ability to serve End-
users
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a) Usability: The ability of the goods to be used to good effect and putting to purpose.
b) Reliability: The ability of the goods to function for the intended life time without failure.
c) Standardization: Established or acceptable level of achievement. The ability of goods to comply
with quality standards.
d) Functionality: The ability of the product to perform the function for which it was made.
e) Durability: The ability of the product to last long in the line of use.
Lead time is modelled to represent the time in which materials may be received. It is the amount of time
between the commencement and finishing of a process. Procurement lead time starts when the goods are
ordered and ends when they are received, this includes availability confirmation, ordering, order
acknowledgement, shipping notice, receipt of goods or services, invoice recording and payment.
a) Supplier service delivery time: The time taken for a supplier to deliver goods or services after
ordering.
b) Requisition vs receipt: The time difference between requesting for materials and products and
actual receipt of the requisitions.
c) Time spent in identifying the need: This is the time taken to identify materials and products needed
in the department and company. The model below shows the basic idea of automated store
ordering.
Figure 5: Basic idea of automated store
Source; Mikko Karkkainen, Group CEO, D.Sc. (Tech), 2016
d) Vendor sourcing time: The time taken to find, evaluate and engage suppliers for acquiring goods
and services.
Change in technology is a catalyst for change as well as an enabler across industries and the procurement
industry is no exception. New technology provides opportunities for procurement to boost market
coordination, introduce new suppliers, enable better compliance, increase capacity and speed, minimize risk
and increase trust by removing human error.
Effectiveness as a variable can be measured using the following terms;
a) Supplier readiness: The ability of the supplier to produce and deliver the required quality and
quantity of goods within the stipulated time.
b) Degree of success in procuring desired goods: How often procurement is undertaken successfully
without the need for corrections or modifications.
Order model and its
control parameters e.g safety stock levels
Forecast model History
Requisition data
Inventory balance
Demand forecast
Order suggestion
or order Order calculation
Goods received Stock Adjustments
Open orders
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c) Capability of procurement personnel: This includes technical knowledge (using new technology for
effective procurement decision-making), basic administrative skills (undertaking negotiations and
discussions) and advanced procurement process skills (essential skills for creating value and
strategic decision making).
Methodology
In order to attain the research objectives, the researcher adopted a combination of descriptive research
design (which entails collecting information by interviewing or administering a questionnaire to a sample
of a population) and explanatory research design and therefore applied these to the company as a case
study.
This research is a single unit case study. This means that, even though the company is one of the largest
parastatals in Zambia, the findings and results can neither be generalized to other similar companies. Due to
this, the case study approach has not always been recognized as a proper scientific method. However this
has changed during the recent years (Dubois and Gadde, 2002b). Despite these limitations, a case analysis
may provide good insights and explanations to a problem area and is aimed at analytical generalization
(Yin, 2003), and thus a qualitative single case is still a good research design for the current study because it
becomes an in-depth study of the case organization.
Target Population
The target population for this study was nine (9) procurement professionals and sixty one (61) End-users at
the company headquarters in Ndola and other operational stations outside Ndola. Procurement professionals
were targeted because they are responsible for implementing the procurement policies and procure for the
organization. Further, their perceived knowledge about procurement and problems affecting the processes
were additional attributes envisaged to contribute to the findings. The End-users were also important to this
research because they use and operate supplies on the front line hence were key to judge supplies from the
supply department. The table 4.1 below summarizes the target population.
Table 4: Summary of the target population
Description Target
Procurement Department 9
End-users 61
Total 70
Source: Authors, 2017.
The main data set was primary which was triangulated by secondary data. Primary data was collected using
semi-structured questionnaires while secondary sources included company reports and related literature.
The questionnaires were physically delivered to the sites and face to face interviews conducted with the
staff while others were couriered to heads of units for units located far off urban areas such as Chatti in
Kalulushi after which telephone interviews were conducted.
Data Analysis and Interpretation
The data obtained from questionnaires was Likert scale type of data of which the parametric statistics such
as mean for central tendency and standard deviation for variance became the best methods of data analysis.
For correlation analysis, only the r value to show the strength of the correlation was used and not the p
value which is related to random chance in sampling. This is consistent with findings by Boone and Boone
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(2012) in Subedi (2016) who postulated that Likert scales items are created by calculating composite scores
and use parametric statistics such as mean for central tendency and standard deviation for variance.
Additionally, Pearson’s r, t-test, ANOVA and regression procedures (Brown, 2011) in Subedi (2016) are
equally useful tools.
To compare responses from the two independent groups (End-users and Supply staff), means and standard
deviations were generated and correlations analyzed. The table 4.2 below provides a summary of data
analysis procedures for Likert scale data.
Table 5: Summary of data analysis procedures
Statistical Methods Data
Central Tendency Mean
Variability Standard deviation
Associations Pearson’s r
Other statistics ANOVA, t-test, regression
Source: Subedi, 2016. International Journal of Contemporary Applied Sciences.
Results and Discussion
The researcher targeted a population of 70 respondents stratified into two strata, supply respondents and
End-user respondents. The table below reveals the actual situation of retrieval of questionnaires
administered to employees in the Procurement Department and to the End-users from various other
departments.
Table 6: Overall response rate
Description Target Respondents Actual Respondents Response rate (%)
Procurement Department 9 8 89
End-users 61 41 67
Total Population 70 49 70
Source: Authors, 2017
The response rate from supply department stood at 89% because one questionnaire from one respondent
was not collected while a response rate of 67% was captured from End-user departments. This sums to an
overall response rate of 70%. The 30% of the respondents were on annual leave while others were out of
station on scheduled training programmes and other assignments. 82% of the total respondents were male
while 18% were female. The majority of the respondents were aged between 26 - 30years equivalent to
31%, followed by the ages between 31 – 35 years equivalent to 22%.
Education Level and Professional Memberships of Respondents in the Supply Department
In order for any institution to effectively perform, the level of qualification or education is very cardinal.
Education determines the quality of output and contribution a worker can make to the organization. In
procurement, this means that a worker must be educated enough to understand complex tendering issues
such as the bidding and bid evaluation, solicitation of bids, supplier selection, and contract administration.
These supply activities correlate very well with success in the supply function. An advanced supply
qualification should be associated with success during the sourcing and purchasing functions, further,
rightly trained graduates are expected to observe ethics and morality that goes with the field. It is also
required by law for every practicing procurement professional to have a valid procurement licence.
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The procurement and supply department was made up of 9 employees from which eight (8) participated in
this research whose average work experience was found to be 4 years. Additionally, from the data
collected, it was revealed that 13% of the respondents were high school certificate holders, 25% were CIPS
Certificate holders and 63% were CIPS Diploma holders. Considering the high number of staff with the
CIPS qualification (88%), it follows therefore that the members of staff should be able to practice supply
appropriately. Any action by the staff should be regarded as deliberate for or against the organisation and
that there should be efforts in the organisation to organise supply chain activities in a way that would
benefit the organisation. It is therefore expected that supplies arranged by the members of staff should be
appropriate to satisfy the internal customers and equally meet specifications.
In terms of professional membership, the findings were that 38% of the participants were not members of
ZIPS, 25% had student membership, 13% were professional members and 13% were associate members.
The rest of the 13% were not categorized in any case.
However, in Zambia, it is required by law for every practicing procurement professional to be a registered
member of the Zambia Institute of Purchasing and Supply (ZIPS) regardless of their experience in supply
activities. The ZIPS Act no. 15 of 2004, section 7 (1) and (2) states that ‘only procurement professionals
with a valid practicing licence are by law allowed to undertake purchasing obligations’.
As seen in the graph above, a large percentage of the procurement professionals in this organization are not
registered members of the ZIPS. Not only is this observation against the law but also disadvantages the
staff from receiving Continuous Professional Development (CPD) provided by ZIPS.
Education level of End-users
The education level of the End-users is important in order to assess the judgement made and operational
challenges stated. From the findings, 51% of the End-users were college diploma holders followed by 29%
who were university degree holders. High school certificate holders comprised 12% of the respondents and
others were 7%. From these findings, it can be concluded that the End-users have reasonable education
background and are well able to pass judgement and comment on the effectiveness of the procurement
department.
Descriptive statistics factors challenging Centralised Procurement
The following information was obtained using a seven-point Likert Scale as follows; one (1) = strongly
disagree, two (2) = disagree, three (3) = slightly disagree, four (4) = neutral, five (5) = slightly agree, six (6)
= agree and seven (7) = strongly agree.
Considering that only 70% of the population responded from the census, the researcher undertook to test for
normality of the data before subjecting it to further analysis. A descriptive statistical analysis was
undertaken as follows:
Quality Variables
The table 7 below shows the mean, median, mode, skew, kurtosis and standard deviation of the data
collected using a seven point Likert scale. The data in the table is a combination of responses from both the
supply department and end-user departments on the quality attributes of the supply.
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Table 7: Descriptive statistics of quality variables from all respondents
Source: Authors (2017), developed from SPSS version 21.
Standard deviation is a number used to tell how measurements for a group are spread out from the mean.
Basically, a small standard deviation means that the statistical data set is close to the mean of the data set,
on average, and a large standard deviation means that the values in the data set are further away from the
mean.
From the above table, the means range from 4.94 to 5.29 and the standard deviations range from 1.38 to
1.676. The skew and kurtosis of all variables range from -2 to +2 indicating that there is no much deviation
from normality. The distribution is therefore normal.
The majority of the respondents slightly felt that the supplies purchased into the organization are useable
(mean-5.29), functional (mean-5.18) and durable and reliable shared a mean of 5.02. However, the mean
response on whether supplies are standard was 4.94 which is strong enough to relate to slightly agree.
Further, the mode response for all variables was 6 which represents agree. It can be suggested therefore that
supplies into the organization are useable, functional, reliable, durable and of the right standard.
Lead Time Variables
Table 8 below shows the descriptive statistics of lead time variables from the combined responses.
Table 8: Descriptive statistics of lead time variables from all respondents
Source: Authors (2017), developed from SPSS version 21.
CQRELIABILITY CQDURABILITY CQSTANDARD CQFUNCTIONALITY CQUSEABILTY
Valid 49 49 49 49 34
Missing 1 1 1 1 16
5.02 5.02 4.94 5.18 5.29
5.00 5.00 5.00 5.00 6.00
6 6 6 6 6
1.534 1.601 1.676 1.380 1.404
-.866 -.988 -.785 -.940 -1.259
.340 .340 .340 .340 .403
.044 .061 -.197 .805 1.807
.668 .668 .668 .668 .788
Std. Deviation
Skewness
Std. Error of
Kurtosis
Std. Error of Kurtosis
N
Mean
Median
Mode
CLTGOODSDELIVERY CLTIDENTIFICATION CLTVENDORSOURCETIME
Valid 49 49 49
Missing 1 1 1
4.06 3.94 4.55
4.00 4.00 5.00
2a 2 6
1.676 1.941 1.646
-.128 .197 -.722
.340 .340 .340
-1.022 -1.558 -.761
.668 .668 .668
Skewness
Std. Error of Skewness
Kurtosis
Std. Error of Kurtosis
N
Mean
Median
Mode
Std. Deviation
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Table 8 shows the mean, median, mode, standard deviation, skew and kurtosis of all variables. Most of the
respondents were neutral on the ability of the supply department to source vendors on time and the delivery
of goods within the intended time for use. The respondents did not agree that identification of goods for
supply take long.
The However, goods delivery within the time frame obtained a mode of 2 indicating that goods delivery
takes long while goods identification obtained a mean of 2 indicating that it doesn’t take long to identify
goods. Vendor sourcing obtained a mode of 6 indicating that the respondents agreed that vendor sourcing
doesn’t take long. The skew and kurtosis of all variables range from -2 to +2 indicating that there is no
much deviation from normality. The distribution is therefore normal.
Effectiveness
Table 9 below shows the mean, median, mode, standard deviation, skew and kurtosis of all variables. Most
of the respondents were neutral on the ability of the selected suppliers to deliver goods in the stipulated
time (mean-4.06) and that the supply departments’ ability to meet requests (4.78). However, most
respondents slightly agreed that the procurement system has a great impact on the ability to serve its end-
users (mean-5.63). The skew and kurtosis of all variables ranged from -1.5 to +1.5 indicating that the data
did not deviate much from normality.
Table 9: Descriptive statistics of effectiveness variables from all respondents
Source: Authors (2017), developed from SPSS
End-user Satisfaction
Table 10 below shows the descriptive statistics of End-user satisfaction.
Table 10: End-user satisfaction variables of cordial, commendable and success.
Source: Authors (2017), developed from SPSS
CEUCORDIAL CEUCOMMENDABLE CEDPTSUCCESS
Valid 41 49 49
Missing 9 1 1
5.22 4.96 5.04
5.00 5.00 5.00
5 6 6
1.107 1.541 1.471
-.692 -.856 -1.055
.369 .340 .340
.863 -.107 .834
.724 .668 .668
Std. Deviation
Skewness
Std. Error of Skewness
Kurtosis
Std. Error of Kurtosis
N
Mean
Median
Mode
CESUPPLIERSERVICE CEUMEETREQUESTS CEUSERVICEABILTY Valid 49 49 49
Missing 1 1 1 4.06 4.78 5.63 4.00 5.00 6.00
5 5 6 1.547 1.418 1.253 -.106 -.453 -.976 .340 .340 .340
-1.031 .050 .574 .668 .668 .668
Mode Std. Deviation
Skewness Std. Error of Skewness
Kurtosis Std. Error of Kurtosis
N
Mean Median
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Table 10 shows the mean, median, mode, standard deviation, skew and kurtosis of all variables. Most of the
respondents slightly agreed that the relationship between the supply department and the End-users was
cordial (mean-5.22), and that the supply department is successful in procurement (mean-5.04). However,
the respondents were neutral on the aspect of commendable of the supply department (mean-4.96). The
skew and kurtosis of all variables ranged from -1.5 to +1.5 indicating that the data did not deviate much
from normality.
Correlation Analysis of Responses from End-users and Procurement Staff
The responses from the two populations were therefore correlated to determine if there were any significant
differences in the responses. Correlation refers to a technique used to measure the relationship between two
or more variables. When two things are correlated, it means that they vary together. Positive correlation
means that high scores on one are associated with high scores on the other, and that low scores on one are
associated with low scores on the other. Negative correlation, on the other hand, means that high scores on
the first thing are associated with low scores on the second. Negative correlation also means that low scores
on the first are associated with high scores on the second.
Correlation coefficients can vary numerically between 0.0 and 1.0. The closer the correlation is to 1.0, the
stronger the relationship between the two variables. A correlation of 0.0 indicates the absence of a
relationship. If the correlation coefficient is –0.80, which indicates the presence of a strong relationship. A
positive correlation coefficient means that as variable 1 increases, variable 2 increases, and conversely, as
variable 1 decreases, variable 2 decreases. In other words, the variables move in the same direction when
there is a positive correlation. A negative correlation means that as variable 1 increases, variable 2
decreases and vice versa. In other words, the variables move in opposite directions when there is a negative
correlation. Table 11 below shows the finding as follows:
Table 11: Paired correlation of the aspects of the Centralized purchasing
Pair No. Variables Correlation Sig.
Pair 1 EQREILABILITY & SQRELIABILITY 0.945 0
Pair 2 EQDURABILTY & SQDURABILITY 0.577 0.134
Pair 3 EQSTANDARD & SQSTANDARD 0.763 0.028
Pair 4 EQFUNCTIONALITY & SQFUNCTIONALITY 0.798 0.018
Pair 5 EQUSEABILTY & SQUSEABILTY 0.533 0.174
Pair 6 ELTGOODSDELIVERY & SLTGOODSDELIVER 0.564 0.146
Pair 7 ELTIDENTIFICATION & SLTIDENTIFICATION 0.348 0.398
Pair 8 ELTVENDORSOURCETIME &
SLTVENDORSOURCETIME 0.655 0.078
Pair 9 EESUPPLIERSERVICE & SESUPPLIERCERVICE 0.589 0.124
Pair 10 EEDPTSUCESS & SEDPTSUCCESS 0.743 0.035
Pair 11 EEUMEETREQUESTS & SEUMEETREQUESTS 0.928 0.001
Pair 12 EEUSERVICEABILITY & SEUSERVICEABILTY 0.898 0.002
Source: Author, 2017. Developed from SPSS
The table 11 shows agreement that supplies are reliable (sig. 0.00), are of a right standard (sig. 0.028),
supplies are functional (sig. 0.018), requests are met (sig. 0.001), the supplier service is good (sig. 0.002)
and the supply department is managing the function successfully (sig. 0.035). These variables were found
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positive and significant. A statistically significant relationship is one that is large enough to be unlikely to
have occurred in the sample if there's no relationship in the population and is represented by a p-value of
less than 0.05. Therefore, these aspects were found to be well handled by the supply department.
However, there were disagreements on a number of variables such as product durability (sig. 0.134),
product usability (sig. 0.174), product delivery (sig. 0.146), supplier identification (sig. 0.398), supplier
sourcing duration (sig. 0.078) and supplier service (sig. 0.124). These correlations were found positive but
insignificant because the p-values were above 0.05. This indicates that these aspects were not well handled
by the supply department in the centralized structure. This translates into the challenges that Centralized
procurement comes with at this company.
One of the objectives of the study was to enumerate some of the challenges facing the companys’
centralized procurement system. In order to develop good centralized procurement strategies, O‟Brien
(2009) suggests that the procurement team should match internal spends requirements with external market
places and make sure the strategy supports the overall purchasing objectives. This corroborates with the
findings above.
Rank of Severity of the Challenges
The researcher undertook to rank the challenges by rate of response from the End-user respondents. The
researcher used a comparison of the means to arrive at the finding. The table 12 indicates that Identification
of the need for goods within the organization was the most critical challenge with a mean of 3.94 followed
by goods delivery and supplier service delivery (mean – 4.06). Vendor sourcing time was ranked number
four (4) with a mean of 4.55 while Durability of the goods and Useability ranked 5 and 6 with means of
5.02 and 5.29 respectively.
The implication of this finding is that the supply department is mostly challenged by the inability to identify
products needed in the department and company. The next important challenge is the inability to deliver the
products within the intended time for use followed by poor supplier service delivery. The table 12 below
indicates the rankings of the various challenges.
Table 12: The ranking of the various challenges
Source: Authors, 2017
Effects of Centralization on Delivery Time
Later Delivery of Goods
The majority of the End-user who responded revealed that supply of requisitions takes longer than four (4)
weeks. The figure 5.8 below shows this perspective:
Description Mean Rank
Identification 3.94 1
Goods Delivery 4.06 2
Supplier Service 4.06 3
Vendor Source time 4.55 4
Durability 5.02 5
Useabilty 5.29 6
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Figure 6: Delivery period of requisitions
Source: Author, 2017
Response time to requirements is slow which leads to operational stoppages and many requisitions from
various departments pressures the work pace of the supply personnel. The operational branches away from
the headquarters wait for a long period of time before they receive the items requested for. This makes
these branches less effective and it leads to procurement of wrong goods because End-users are rarely
involved in the procurement process.
Consequently, they forego the opportunity to take advantage of the local purchases, payment processing
delays because invoices pile up. Additionally, demanded quantities pile up putting sourcing and supply
pressure on the suppliers.
The table below determines the average mean for the above grouped data which will indicate the average
delivery time for requested goods.
Table 13: Average delivery time for goods.
Number of order Frequency (f) Mid-point
(X) fX
Mean
(x)
1 - 2 weeks 6 1.5 9
2 - 3 weeks 13 2.5 32.5
3 - 4 weeks 21 3.5 73.5
40
115 2.9
Source: Authors, 2017.
Discussion
The challenges found by the study are similar to what other researchers have found on centralised
procurement system in government or parastatal institutions. Baidoo (2014) find out the challenges facing
the centralized procurement system of PPS and its effect on the main activities of the company and the
following were the challenges provided by the respondents in his survey : Need for formal contracting and
commitments to suppliers; Benchmarking process intimidating; Trust issues abound; Short-term leverage
view; Separate, uncoordinated approaches; Co-ordination and communication may be slow and difficult;
Lack of system commitment; and Increase in transportation costs.
0
5
10
15
20
25
1-2weeks 3-4weeks above 4weeks
Delivery Period
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After the challenges were determined, the researcher attempted to rank them according to the severity using
the means. It was established that identification of the need was the most severe factor followed by goods
delivery, supplier service, vendor sourcing time, durability and usability.
The third research objective was to determine the average response rate between requisition and receipt of
the products and it was found that response time to requirements was slow which leads to operational
stoppages and many requisitions from various departments pressures the work pace of the supply personnel.
The operational branches away from the headquarters wait for a long period of time before they receive the
items requested for which makes them less effective. The average response time was 2.9 weeks for
branches away from the headquarters.
Conclusion
The aim of this study was to highlight the main operational challenges associated with Centralized
Procurement in the company and the following were the objectives:
To ascertain the main operational challenges associated with centralized procurement at the
company.
To rank the challenges according to severity.
To determine the average response time between requisition and receipt of products.
Analysis of data with regard to the first objective shows that the goods procured by the central procurement
unit were not very durable but were somewhat useable. The central procurement unit takes a longer time to
find, evaluate and engage suppliers (vendor sourcing), Goods are not delivered within the intended time for
use, The central procurement unit faces challenges in identifying materials and products need in the
organization.
For the second objective, it was established that identification of the need was the most severe factor
followed by goods delivery, supplier service, vendor sourcing time, durability and useable.
The third objective was responded to by determining the average response time between requisition and
receipt and it was found that the operational branches away from the headquarters wait for a long period of
time before they receive the items requested for which makes them less effective. The average response
time was 2.9 weeks for branches away from the headquarters.
Recommendation
In light of the conclusion and findings above, the researchers recommended that the company:
Adopts a hybrid system were branches are allowed to buy non critical cheap items can work better
in order to improve operations in the procurement department.
Must ensure that appropriate candidates are employed on the basis of merit qualifications, skills,
and experience with their roles and responsibilities clearly defined to avoid role conflicts with
other professions and departments. Strategies must also be put in place to retain the employees.
Must pay for professional membership to the Zambia Institute of Purchasing and Supply for all
employees in the procurement department.
Adopts Procurement as a strategic functions were the Managing Director participates in the
procurement of specific materials).
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Procurement department must improve the way of identifying suppliers by establishing an up-to-
date supplier base and categorizing these suppliers according to what they supply. This will also
reduce the response rate between requisition and receipt.
Should procure goods that are durable in order for them to last long in the line of use.
Should procure goods that can be used for their intended purpose.
Acknowledgment
The researchers wish to thank management and the members of staff at the company for allowing the study
to be undertaken at the company and for active involvement in the data collection.
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