DEBRE BERHAN UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF LOGISTICS AND SUPPLY CHAIN
MANAGEMENT

PROPOSAL ON IMPACT OF PURCHASING ACTIVITIES IN THE SUCCESS OF HABESHA BREWERY

FACTORY (IN DEBRE BERHAN)

PREPARED BY: GROUP-3

NAME IDNO.

1. Kalehiwot kone abera 3177

2. Aberham baye 2904

3. Tsion tafese 2632

4. Betelhem damene

5.Bezawit wubishet 2651

 BACK GROUND OF STUDY
First of all, any organization or individual firms must know the importance of purchasing in
order to achieve the overall total lowers cost and customer services, by providing the right
material at right price within right quality.

Purchasing can be described as the acquisition of required materials, services, and equipment
for the operation of the business and is one of the key roles in the management of all types of
businesses. The function of purchasing spread across the units of the organization by
procurement of the materials required to meet the customer demand and manufacturing
schedules (Olaore & Olayanju, 2013).

Every organization needs to purchase goods and services in order to carry out its mission and
goals (Zsidisin﹠Ellram, 2003). Purchasing is an important to any kind of organization as well as
in any activities which have been exercised by human beings. It’s one of the basic functions
which were very common to all organizations. It was the key factors which increase the profit,
productivity and quantity “David Burt, Prentice Hall, Englewood Cliff, N.J 1984”.It was common
to all types of the business operations “ Fearon, Harold E, Donald, Dobler, Kenneth, H.killen
:Purchasing hand book, M.C. Graw Hill NY 1992”.

Specialization needed to make the purchases, especially of items which have a high quality
control factor, etc., all go to determine the organization for purchase. Similarly, the procedures
adopted in the purchase department may vary from company to company in accordance with
the policies of the company. In some cases, there might be considerable amount of delegation
of powers to purchase manager and his subordinates. In other cases, purchase decisions might
be the prerogative to top management. In some companies, though delegation might exist on
paper, in practice there might not be much trust and confidence reposed in the purchase.
Department, and as a result, most cases may be decided by the senior bosses (Menon, 1979:
23).

Any human activities, organizations and companies were performed and become successful
very well due to the implementation as well as an applicable of purchasing activities. All
companies, Industries and others organizations would purchase the raw materials at the right
quality, right quantity, right price and right time from the right suppliers for their operations
“Leeder, Michael R, and Harold Fearon: Purchasing book, Irwin, Homewood 1993”.

Purchasing activities have been shown to contribute to and critically influence the financial
performance of firms (e.g. Chenet al., 2004; Ellram and Liu, 2002; Hendricks and Singhal, 2003).
Strategic integration and alignment of the purchasing function with overall corporate
objectives, also referred to as internal ‘‘fit’’ or purchasing competence, is a key element of
strategic purchasing activities (Baier et al., 2008; Gonza´ lez-Benito, 2007; Narasimhan and Das,
2001). Fit is referred to here as the congruency of the strategic goals of the entire company
with the strategic objectives pursued by the purchasing function. Purchasing strives to achieve
these objectives by engaging in specific purchasing activities and practices.

According to Smeltzer, et al. (2003), purchasing functions or activities are not just the matter of
price and delivery time, but they are aligned with the organization’s long-term goals.
Furthermore, Smeltzer, et al. (2003) also argues that in order to complete firm’s strategic goals,
selecting the right suppliers to ensure their dependable and flexible supply.

Purchasing has obtain popularity, is now seen as a key value adding function that viewed as
strategic to the firm’s successful performance (Cousins, 2005). As a result, organization can no
longer avoid the importance of purchasing function as every business striving hard to reduce its
cost of delivering most unique products and services to their customers and at meantime to
protect the interest of stake holders on current uncertainty and volatile business environment
(Monczka, Trend & Handfield, 2004). Many researchers on supply chain agreed commonly that
new millennium competition will be focusing on firms efficient and effective supply chains
(Carter & Ellram, 2003). Purchasing is prominent support activity in manufacturing process to
create value through purchase of inputs, services and facilities needed to produce a firm’s
product.

The purchasing would direct and indicate the organizations to follow the right ways for the time
in which they purchase the materials and preparing themselves for objectives achievement.
Therefore, the basic objectives of any industry or company was the development and
manufacturing of the products which could be sold in the market and bring the profits. This way
could led the company or industry to purchase the raw materials, semi-finished materials and
processing of those materials in to out puts or finished products. Those objectives were
accomplished by appropriate blending and improvement of purchasing activities. The five MS
such as machines, manpower, materials, money and management could also combine
themselves with purchasing by measuring the possibilities in the company operations for
increasing the productivity. So materials today are the life blood of any company industry. An
availability of raw materials which have been purchased at the right quality, right quantity, right
price, right sources, right time and right place from acceptable suppliers would facilitate the
operational performance of the company and safe it away from the shortage of materials.
 2. Problem statement
Purchasing definitely played an important role in the companies in the beginning of this century
(and even before that) and purchasing was recognized as an important function in those
companies, this recognition gradually decreased towards the fifties and definitely during the
sixties and early seventies. This decline of purchasing’s recognition may be contributed to the
companies becoming larger (through vertical integration and diversification), more established,
bureaucratic and administrative and losing their true entrepreneurial founders (Farmer, 1995).
Farmer characterizes the fifties, sixties and early seventies as the era of ‘purchasing myopia’:
while the fundamental importance of a proactive purchasing function was at least as valid as it
is now, both the business community and the academics regarded purchasing an
administrative, clerical activity rather than a strategic function.

Professional purchasing (procurement) supply management personnel at least as much to the

success of their organization as other professionals in areas such as marketing, financing and
accounting, and engineering and operation (Dobler, 1996: 374).

In the light of globalized markets, general cost sensitivity, growing quality expectations and
security of supply the demands made of purchasing decisions and purchasing can effectively
contribute in most developing countries like Ethiopia, the agricultural sector’s product share is
largest portion of total production but other industries {manufacturing and service} are few and
are not so productive to the maximum possible efficiency. This is because of the efficiency in
different of such industries are maximize. In addressing efficiency among other is purchasing
department plays a greater role. However, the majority of the organizations do not give due to
consideration purchasing function and department. The Ethiopia procurement law is still at an
infant stage; in recent years the federal government have taken measures to revise the existing
laws so as to growth and expansion of the quantity, quality of provision of public service. Port
substitution and thus enable the saving of foreign exchange.

In manufacturing organization there are problems related to purchasing activity.

 Supplier or brand specifications: - Specifications are worked out in detail by the user, i.e.
a technical specialist, and written for one specific supplier. The use of a particular brand
or supplier specification seriously limits the buyer’s commercial latitude (in terms of
negotiations) with the supplier, who in most cases is well aware of the selection of his
product.
 Inadequate supplier selection:- Selecting a supplier is one of the most important
decisions in the purchasing process, particularly if the products delivered require many
years of maintenance and service (as in the case of many investment goods). Failure to
check the supplier’s (bank) references can produce very unpleasant surprises such as
 unexpected bankruptcy, inability to meet quality requirements or unwillingness to keep
up to warranty obligations.
 Lack of good contractual arrangements: - Contracts, when available, are stated in
general terms, they are not complete and have not passed legal scrutiny and a clear
description of the product or supplier requirements may be missing. Another problem
may be, that the contract is drafted by the supplier using its own legal terms and
conditions.
 Too much emphasis on price:-Especially when buying capital equipment, decisions need
to be based upon total cost of ownership (TCO) rather than price only. Many equipment
manufacturers (e.g. computer printers) have adopted a sales strategy where they
charge a fairly low price for their equipment. However, their warranties and service
contracts require the customer to source spare parts and all maintenance services from
the original equipment manufacturer (OEM).
 Poor administrative processes: - In some cases the supplier may have actually made the
delivery, and now the purchasing department is requested by the user to produce a
purchase order with a purchase order number to be issued to the supplier so that
payment can be made. Another administrative problem may be that invoices are paid
without proper matching with the original purchase order and delivery document.
Putting a sound administrative system in place could lead to significant savings.
 Delivery problems:- At the stage of delivery, problems occur: suppliers deliver too late,
deliveries are not complete, products are damaged or do not meet quality
requirements, packaging is unsound, and information labels cannot be read by bar code
systems (Van Wheeled, 1984).

In this regard, it is essential to assess the purchasing activities and its impact on the
organization success. Hence, the current study focus on the purchasing performance and
problems in Habesha brewery factory to help the attainment of purchasing objectives and to
increase the awareness of staff members to save the purchased materials of the organization
from unnecessary wastage.
 3. Objectives of the study

3.1 General objective

The general objective of this study concerned with to identify the impacts of purchasing
activities on the success of debre berhan Habesha brewery factory.

3.2 Specific objective

 to identify how the purchasing activities to be the basis for company success
 To identify the problem related to the purchasing performance on the organizational
productivity or success
 To identify the factors that affect the purchasing practices in manufacturing company
 To provide hints as to show the problem can be overcome and suggest possible solution
which may help to bring the factory at its best level of performance in its purchasing
activities.