ABSTRACT
Inappropriate tool to connect
procurement unit with other parts of the organization has resulted to poor
co-ordination and leakage of important information which has turned out to be
costly component to the whole management process of the procurement function.
Production schedule are often obstructed due to shortage of raw materials
caused by delayed delivery as a result of slow procurement cycle time. Manual
way of approving purchase documents has not only been seen as delay of process
but caused organizations to incur cost on salaries and other allowances of
additional employees that move the documents from one office to the other for
approvals. Traditional procurement process negatively affects employees (job)
performance since it requires time to perform the calculations manually. This research
therefore sought to examine Enterprise
Resource Planning (ERP) and procurement process efficiency in selected oil and gas servicing companies
in Lagos State.
A survey research design was adopted. The
population of the study consisted of staff that uses ERP on their various job
functions in the four selected oil and gas servicing companies in Lagos.
Purposive sampling technique was adopted for this study. The population size of
315 was used as provided by the information technology (IT) department of the
understudied companies. Total enumeration method was adopted to select the
sample for the study. A validated questionnaire was used as the research
instrument. The results of the reliability test for questions on ERP system,
information integration, timely procurement cycle, cost reduction and
employees’ performance using the Cronbach’s alpha statistics were 0.845, 0.879,
0.766, 0.787 & 0.811 respectively. A total of 315 copies of questionnaire
were distributed. Out of 315 copies administered, 297 copies of the
questionnaire representing about (94.3%) were returned, and 18 questionnaires
representing (5.7%) were not returned.
The findings
revealed that ERP has significant influence on information integration (P=.001<0.05)
and significant
effect on timely procurement cycle in organizations (P=.000<0.05). The study further
revealed that ERP has significant impact of ERP on cost reduction in
organizations (P=.000<0.05)
and there is significant relationship between ERP and employees’ performance in
the organizations (P=.000<0.05).
The study concluded that ERP has
significant influence on procurement process efficiency. It is therefore
recommended that the implementation of ERP
should be adopted in procurement processes in all oil and gas servicing
companies in Lagos state. This study also recommended that the adoption of the
implementation of ERP should not only be limited to procurement department
alone but should be adopted in all units of the organizations to enhance the integration
of information, timely procurement cycle, reduction of cost and to enhance
employees’ performance towards profit maximization for the organizations.
CHAPTER ONE
Introduction
1.1 Background
to the Study
Procurement
is seen as very important section in every organization hence, it requires a
tight system on its processes(Sylvia
& Willy, 2015). Procurement is a complex process that contributes
tremendously to the competitive advantage of an organization (Novack &
Simco, 1991; Knudsen, 2003). According to Makabira and Waiganjo (2014), up to seventy percent (70%) of
organizational budget is expended through procurement of goods and services. With the fast development of
industries and the need to competitively manage procedures and resources, it has
become important to have a tool which can help the organization coordinate
several activities (Spathis & Constantinides, 2004).
According
to Puja, Hitesh, Parag, Gauray and Ajinkya (2013) and Kravos (2008),traditional procurement process is problematic because
most of the operations were done manually vis-Ã -vis using application such as
Microsoft excel spreadsheet. The traditional method is associated with several
disadvantages such as time consumption, less accurate results, less efficient,
lot of excel sheet work, slow data processing, unfriendly user environment and
difficult to keep old record (Puja et
al., 2013). Kravos (2008) further
revealed that the use of traditional method in procurement process causes
duplication of records because the tasks performed are not synergized thereby
causing different entry points of the same data in the same organization. There
was essentially loss of information between the departments within the
organization because the mode of communication was mainly through face-to-face
interactions, telephone and e-mail and also, excessive time is consumed in
calculating the purchase requirements to payment of the supplier invoice (Kravos, 2008).
Recent
changes in the business environment such as privatization and globalization has
resulted to increased competitions that have made organizations to signify the
need to search for new ways to survive and succeed
(Spathis & Constantinides, 2004). Arguably, information technology (IT)
offers the necessary tools for companies to respond effectively and efficiently
to these changes in the business environment. Also, in this high automated
IT-led business environment, companies are compelled to keep up to date with
the modern technologies to remain competitive (Al-Mashari, 2001; Palaniswamy
& Frank, 2000; Siriginidi, 2000). An example of such technologies is an
Enterprise Resource Planning (ERP) system (Nicolaou, 1999). According to Tanyani and Gilaninia, (2015), the world today is heavily
influenced by the customer, competition and change (3C). Companies have found
that in order to support their process effectively and gain a larger share of
the market, ERP should replace separate information systems. The application
enables the automation of daily tasks, reducing operational costs and sharing
of common data and thereby improves company performance (Davenport, 1998;
Nicolaou, 1999; Kumar & Hillegersberg 2000; Stefanou, 2002; Nicolaou, 2004;
Spathis & Ananiadis, 2005; Kanellou & Spathis, 2011).
According
to Evans and Fred (2014), ERP facilitates the flow of information between all
business functions inside the boundaries of the organization and manage the
connections to outside stakeholders. This software used by many enterprises
particularly by multinational corporations, has a critical role in ensuring
increased efficiency (Evans & Fred, 2014). ERP encompasses a set of
business applications (modules) used to carry common business functions such as
accounting, stock control, and logistics (Kavanagh, 2001). ERP system can
automate business processes; share common data across the organization and most
importantly produces real-time data. Although traditional information systems
(IS) offer managers transaction processing, reporting and information for
decision making, this appears insufficient in this modern business environment,
where automation, effectiveness and efficiency in operations and real-time data
remain essential factors for business success (Spathis & Constantinides,
2004).
The continuous growth and
development of the Information and Communication Technology (ICT) has resulted
in the appearance of different industries in the fields of electronics,
computer, telecommunication, and the likes. This has brought about number of
changes through its influence on the functions of the organizations. ERP has
been one of the main software that helps organizations to manage their
resources in the optimally effective fashion. ERP is a multi-module application
system which combines the key businesses and management processes in an
enterprise to enhance the efficiency level of the missions and tasks (Ali,
Noor, Hashem & Norizan, 2010).
In view of this and considering
the importance of procurement functions in the survival of organizations in the
recent globalized business environment, the needs to find out influence of ERP
on procurement process efficiency has become necessary so as to ensure the
survival of the organizations in this era of globalization.
In today’s
business environment, information is the key resource for organization
survival. The available information has to be reliable and relevant for the
decision makers to make decision at the right time. If the organization does
not have an effective mechanism that gives the decision makers the needed or
the right information at the appropriate time, then the chances of that
organization succeeding in the future will be difficult (Seyed &Dinesh, 2013). According
to Fisher, Raman and McClelland (2000), the time available for organization to
react to the change in the present market trend is limited. To stay stable with
the changing trends, organizations should review suitable tools that can
provide information that are accurate, relevant and timely. Any technology that
will help the gathering of information will enhance the chances of organization
to remain in the market (Fisher et al.,
2000).
ERP systems allow the firms to
manage their businesses with potential benefits reduction of cycle time; faster
transactions; better financial management; the laying of the groundwork for
e-commerce; and making implicit knowledge explicit (Yi & Chyan, 2010). ERP
has the required capability to decrease the level of inventory, reduce costs,
reduce lead-times, boost productivity and make corporate communication easier,
more feasible, and decision making capabilities. ERP provide organizations with
possibilities to raise the competitive advantage of their business and their
share in the market (Ketikidis, Koh, Dimitradis, Gunsekaran, & Kehajova,
2008).
The potential advantages of ERP have
resulted to its considerable growth in the market recently. In line with this
growth, an increasing number of Small-sized and Medium-sized enterprises (SMEs)
have tried to implement and operate these systems (Loh & Koh, 2004).
According to Huang and Palvia, (2001), there is wide acceptance
of ERP in developed countries such as the USA, Canada, UK, and Australia but
developing countries like Nigeria and Asia are still slow to its general
acceptance. According to Bashuna (2013) the old way of doing business using
fax, e-mail, spreadsheets and manual way of preparing reports are no longer
supporting today’s demand-driven enterprises to be competitive.
It is in view of this, this study becomes necessary to examine the influence of
ERP on procurement process efficiency in the selected Oil and Gas servicing
companies in Lagos State, Nigeria.
1.2 Statement
of the Problem
Today's
high competitive business environment and technological changes has led
investors to seek new ways to the success of their organizations (Stefanou
& Athanasaki, 2012). Information technology (IT) offers
various tools for companies to respond effectively and efficiently to these
changes in the business environment and an example of such technologies is
Enterprise Resource Planning (ERP) system (Nicolaou, 1999). Organizations
could derive several benefits adopting the use of ERP (Markus,
Axlin, Petrie & Tanis, 2000). Some companies in Nigeria have been seen
adopting ERP especially in accounting processes but relatively few companies
have adopted it in their procurement processes. It is in view of this, this
study becomes necessary to examine the influence of ERP on procurement process
efficiency in selected oil and gas sector servicing organizations in Lagos
state, Nigeria.
Inappropriate tool
to harness procurement unit with other parts of the organization has resulted
to poor co-ordination and leakage of important information, which turns out to
be costly component to the whole management process of the procurement function
(Sylvia & Willy, 2015). ERP seems to be a potential solution to the problem
of information leakage between procurement and other units of the organization
internally and externally. In view of this, there is need to examine
the influence of ERP on integration of information between procurement
department and other parts of the organization internally and externally. Production
schedule are often obstructed due to shortage of raw materials caused by
delayed delivery as a result of slow procurement cycle which in turn causes
loss in business (Seyed &Dinesh, 2013). Considering the
numerous functions of ERP, it is therefore necessary to examine the influence
of ERP on timely procurement cycle.
Furthermore,
for survival of business in today's dynamic environment, organizations have to
speed up its operational process, improve its quality and be flexible so as to
competitively reduce their costs (Seyed &Dinesh,
2013). In conventional procurement process, there is delay inprocessing documents
such as purchase requisitions and purchase orders are approved manually and
additional staff are required to take the documents from one office to the
other for approvals. Despite the fact that manual process of approving document
takes time, organizations incur cost on salaries and other allowances for the
employees that performs this duty over years. With ERP, documents could be
approved electronically immediately it has been prepared and it does not
require moving document from one office to the other. In view of this ERP
function, it is required to examine the impact of ERP on cost reduction in the
organizations.
Traditional
procurement process is associated with many disadvantages which include lot of
manual calculations (Puja et al.,
2013). It could therefore be asserted that
traditional procurement process reduces employees (job) performance since it
requires time to perform the calculations manually. Employees with poor
background on mathematical calculations are not expected to perform high with
traditional procurement process. The adoption of ERP seems to be a motivation
to employees’ performance. In view of this, it is also important to find out
the relationship between ERP and employees (job) performance.
1.3 Objective
of the Study
The main
objective of the study is to determine the influence of ERP on procurement
process efficiency. The specific objectives are to:
1.
investigate the influence of ERP on
information integration between procurement department and other units of the
organizations;
2.
examine the effect of ERP on timely
procurement cycle in organizations;
3.
determine the impact of ERP on cost
reduction in procurement of process in organization and
4.
find out the relationship between ERP and
employees’ performance in procurement department in the organizations.
1.4 Research Questions
Following the above problems and
objectives, this study intends to address the following research questions:
1.
How does ERP influence information
integration between procurement department and other units of the
organizations?
2.
How does ERP affect timely procurement
cycle in the organizations?
3.
To what extent does ERP impact cost reduction
in the organizations
4.
What is the relationship between ERP and
employees’ performance in the organizations?
1.5 Hypotheses
The following hypotheses stated in a
null form were formulated and tested
H01: ERP has no significant influence on Information
Integration between procurement department and other parts of the organization.
H02: ERP
has no significant effect on timely procurement cycle in the organizations
H03: ERP
has no significant impact on cost reduction in procurement processes in the
organizations.
H04:
There is no significant relationship
between ERP and employees’ performance in procurement department in the
organizations.
1.6 Scope of the Study
This research focused on revealing
possible how ERP enhanced procurement process efficiency. The study covered
selected Oil and Gas servicing companies in Lagos State, Nigeria. Lagos State
is chosen because the head offices of the selected companies in Nigeria are
situated in Lagos State. The selected Oil and Gas servicing companies are:
Nigerdock Nig Plc, Saipem Nigeria Ltd, Dorman Long Engineering Ltd and
Pittsburgh Paints Nigeria Ltd. These companies are selected because they
engaged in several procurement activities in efforts to provide required
services to various Oil and Gas companies in Nigeria.The population of the
study was 6,225 representing the total number of staff in the four selected
companies. The sample size is 315 representing number of staff in the selected
companies that uses ERP on their job functions. The decision to focus the study
on only respondents that use ERP is to ensure that reliable information were
gathered.
1.7 Significance of the Study
ERP
is a packaged business system that enables organisation to automate and
integrate majority of its business processes, share common data and practices
across the enterprise, produce and access information in a real-time
environment. In view of this, the
information provided in this study would contribute to knowledge in management
practice especially when planning to coordinate the activities of an
organization as a single system.
The
adoption of the implementation of ERP in the developing countries like Nigeria
seems to be slow as a result of lack of necessary information on the influence
of ERP on business success. This study would educate management of various
business organizations in the Oil and Gas industry in Nigeria, the need to
introduce ERP in various aspect of their business process especially in
procurement process.
Furthermore,
it is the researcher’s belief that the knowledge gained from this study
enhanced employees to willingly accept the adoption of ERP since it has the
capability to automatically perform the calculations that were done manually in
the traditional procurement process. Therefore, the outcome of this study will
enhance employees’ performance. The study encouraged prospective entrepreneurs
to consider the adoption of ERP as part of their competitive strategy.
1.8 Operationalization of Variables
The variables in this study are classified into two
namely; Dependent and independent variable. The independent variable (X)
is the ERP while the dependent variable (Y) is the procurement
processes. The parameters (sub-variables) used to determine the influence,
effect, impact and relationship ofERP (X) on Procurement process efficiency (Y)
are: information integration (y1); timely procurement cycle (y2); cost reduction (y3) and employees performance (y4).
Mathematically, it could be stated that;
Y = f(X)
i.e. Procurement process efficiency (Y) is a function of ERP (X).
Where:
Y = Dependent variable
X = Independent Variable
f = Function
and:
Y = Procurement Process
Efficiency
X = ERP System
Y
= (y1, y2, y3, y4)
y1
= Information Integration
y2
= Timely Procurement cycle
y3
= Cost Reduction
y4
= Employees Performance
Recall,
Y=f (X)
y1
= f (X) …………………………………Equation 1
y2
= f (X) …………………………………Equation 2
y3
= f (X) …………………………………Equation 3
y4
= f (X) …………………………………Equation 4
Regression Model
y1
= α0 +
β1X
+ µ………………………… Equation 1
y2
= α0 +
β2X
+ µ………………………… Equation 2
y3
= α0 +
β3X
+ µ………………………… Equation 3
y4 = f(X)
…………………………... Equation 4
Y=
α0 + β1X+ β2X+ β3X+ β4X
+ µ………..General Equation
Where;
Equations 1, Equations
2 and Equation 3 illustrated the effect of erp on the dependent variables i.e.
information integration (y1), timely procurement cycle (y2 )
and cost reduction (y3) while Equations 4 illustrated the
relationship between erp and employees’ performance (y4).
β1–β4 = Regression parameters, which measure the
coefficient of the independent variable, each measure the effect of a given
change in the dependent variable accounted for by the dependent variable.
α0 = constant or intercept of the
independent variable, this is the average value of the dependent variable when
the independent variable is equal to zero
µ = error term or stochastic variable, this is
included in the model to accommodate the influence of other variables that affect
the dependent variables but not in the model.
1.9 Operational Definition of Terms
Cost Reduction:
The cutting down of excessive expenditures thereby reducing procurement charges
such as lowering administration rates, decreasing direct and indirect labour
expenses.
Efficiency:
Efficiency implies a level of performance that describes
a process that uses the lowest amount of inputs to create the greatest amount
of outputs.
Employees
Performance:The job
related activities
expected of a worker
and how well and fast those activities are executed.
It is synonymously used as job performance.
Enterprise Resource Planning (ERP): ERP is a
standardized software packaged designed to integrate the internal value chain
of an organization.
Information
Integration: The availability of on-time and
accurate information for every units of the organization for day-to-day
operational use through data synchronization which results to timely
availability of consistent procurement information and improved visibility into the procurement process.
Job
Satisfaction: This is the pleasure employees derives
when discharging certain procurement functions.
Job
Stress: This refers to the difficulties encounters by
employees when performing certain procurement functions manually.
Procurement:
Procurement
involves all activities required in getting goods or services delivered to the
organization or executed.
Procurement
Process: It is the procedures in preparing purchase
requirements from purchase requisition, bid comparison; purchase order,
material deliveries to invoice payment.
Procurement
Cycle: This the process of procurement of goods or services
from the time the request is raised from the user department to the time such
request is processed to purchase order, delivered / executed and the supplier /
contractor is paid for goods / services delivered or executed.
Procurement
Process Efficiency: The extent to which operational procurement
outcomes demonstrate high levels of improved performance in lead time, cost,
labour-productivity (employees performance), and capacity utilization.
Purchase order
(PO): This is a commercial document and
first official offer issued by a buyer
to a seller,
indicating types / scope of goods or services, quantities, and agreed prices
for goods or services.
Traditional
Procurement Process: This refers to any
methods of discharging procurement function that involves manual calculations
and record keeping. It is
used interchangeably as conventional procurement process.
1.9.1 Brief Synopsis of the selected Oil and Gas
Servicing Companies
1.9.1.1 Nigerdock
Nigeria Plc – FZE
Nigerdock
Nigeria Plc – FZE is West Africa’s Leading Industrial Corporation focused on
oil and gas construction and major marine services including offshore and
pressure vessel fabrication, ship building and repair, industrial training and
specialized Oil & Gas and Maritime support. It is strategically located on
Snake Island Integrated Free Zone, an impressive industrial free zone facility
and port development on an Island in the coastal waterways of Lagos, with
immediate access to the open seas.
The company is organized into four main divisions including
Offshore Fabrication, Pressure Vessels, Shipyard and the Training Centre. Each
one of these divisions is a stand-alone unit headed by a General Manager
reporting to the Managing Director. It also has a centralized Supply Chain
Division to ensure efficient procurement and distribution of materials to the
four operational divisions. Other administrative units of the company include
the Finance/Accounts, Admin & Human Resources, Security, Health, Safety,
Environmental & Quality
The company has an aggressive investment program into new
plant, equipment and technologies. It is also committed to the training of its
workforce and the constant improvement of its systems and procedures. Nigerdock
Nig Plc is totally committed to achieving the highest levels of success in the
areas of quality, delivery and value in the Oil & Gas and Maritime
Industries.
1.9.1.2 Saipem Nig Limited
Saipem
Nig Ltd is one of the global leaders in drilling services, as well as in the
engineering, procurement, construction and installation (EPCI) of pipelines and
complex projects, onshore and offshore, in the oil & gas market. The
company have distinctive competences in operations in harsh environments,
remote areas and deepwater. Saipem provides a full range of services with
contracts on an engineer Procurement & construction EPC and/or engineering,
procurement, construction and installation EPCI (turn-key basis) and have
distinctive capabilities and unique assets with highest technological content. The company operates in 60
countries including Nigeria with 45,000 employees across the world.
Over
60 years presence in the oil and gas business, Saipem
carry out oil & gas-related activities in remote areas and deep-waters
through four Business Units: Engineering & Construction(E&C),OffshoreandOnshore, Drilling andFloaters. Saipem excel in providing engineering, procurement, project management
and construction services, with distinctive skills and capabilities in the
design and execution of large-scale offshore and onshore projects. The company
offer cutting-edge technologies for the gas monetization and heavy oil
exploitation. Saipem fabrication yards have an essential role within EPCI
projects. Its yards are located in four continents. Each one has its own
distinctive specialization and features. Saipem yards are located in key oil
areas and they cooperate with local players contributing to the development of
the local economies.
Saipem
sees technologies as primarily enablers for achieving improved operational
performance and for reducing the environmental impact of construction
activities. The ability to innovate by developing new technologies and
differentiated know-how and methodologies and by subsequently bringing them to
industrial deployment is fundamental for Saipem.
1.9.1.3 Dorman Long Engineering Limited
Dorman
Long Engineering Limited is a major player oil and gas servicing industries. It
was founded in 1949 by a mechanical engineer named F. E. Turton Hart and Geo
Cole operating as amalgamated Engineering Limited, one of the first structural
engineering companies in Nigeria specializing in structural steel fabrication
for bridges, factories and warehouses. In 1960 the company merged with British
Steel’s Dorman Long and became Dorman Long & Amalgamated Engineering
Limited with a much wider product range including water and fuel tanks, and
commercial buildings. The company, then 100% owned by British Steel, played a
major role in the general industrial development of Nigeria from the 60’s –
80’s including the spanning of the vast River Niger in the East, a bridge which
today remains the main link between east and west Nigeria. The name changed
finally to Dorman Long Engineering Limited in 2002.
The promulgation of the Indigenization
Decree in 1977 by the Federal Government, saw the beginning of a significant
reduction in foreign and an increase in Nigerian shareholding and today the
company is 100% owned by Nigerian institutions and individuals. By the 90’s,
the company moved into the manufacture of equipment for the rapidly expanding
oil and gas industries starting with pressure vessels and to do so had
developed the facilities and key state of the art skills required for a wide
range of high precision heavy engineering products and services. The expansion of facilities and skills
continues, most recently with the installation of Nigeria’s only large scale
engineering quality hot dip galvanizing plant.
Today Dorman Long is the leading
Nigerian engineering company, manufacturing products and providing services to
the oil, gas and other industries previously only available from overseas. The
company has its head office in 12/14 Agege Motor Road, Idi-Oro, Lagos and
branch office at UTC Building, 16 Azikiwe Road, Port Harcourt. Major
development and expansion over recent years has and continues to be facilitated
by substantial ongoing further shareholder investment. The company uses SAGE
ERP on its procurement process.
1.9.1.4 Pittsburgh Paints Nig Ltd (Formerly
Known as SigmaKalon Nig Ltd)
Pittsburg Paints Nig Ltd is a Nigeria
branch of Pittsburgh
Plate Glass (PPG). It is a global manufacturer of paints,
coatings, optical products, specialty materials, glass, and fiber glass. The
industrial paints produced by PPG are now widely used in coating oil and gas
fabricated structures. PPG has 200 companies with headquarters in Pittsburgh
and operations in nearly 70 countries around the world. Found in 1883 as Pittsburgh Plate
Glass by Captain John B. Ford and John Pitcairn in Pittsburgh, Pennsylvania. The
enterprise focused on innovation and quality and 130 years later, PPG
Industries is still dedicated to these priorities. Today, PPG is a global supplier of
paints, coatings, optical products, specialty materials, glass and fiber glass.
PPG's
vision is to continue to be the world's leading coatings and specialty products’
company. Through leadership in innovation, sustainability and color, PPG helps
customers in industrial, transportation, consumer products, and construction
markets and aftermarkets to enhance more surfaces in more ways than does any
other company. During the company’s first decade, its flat glass production
expanded rapidly through new facilities and acquisitions. In 1899, the business
diversified with the construction of an alkali plant in Barberton, Ohio, to
supply raw materials for glassmaking – the precursor to PPG’s chemicals
businesses. A year later, PPG started building its coatings business by
acquiring an interest in Wisconsin-based Patton Paint Co. which proved a
good fit for the company because paint and glass products typically reach the
customers through the same distribution channels.
PPG
has increasingly remained in business over the years. During the 1900s, PPG
becomes one of the first U.S. firms to expand operations in Europe, acquiring a
glass plant in Belgium. Glass and paint provided continued growth in the 1920s,
as the automotive industry and skyscraper construction expanded. In 2008, PPG
makes the largest acquisition in its history by acquiring SigmaKalon Group, a
worldwide coatings producer. SigmaKalon brought strong architectural paint,
protective and marine coatings, and industrial coatings businesses, and it
greatly expanded PPG’s footprint in Western and Eastern Europe, Asia, and
Africa. PPG continues to accelerate the pace of its business portfolio
transformation and to grow its position as the leading global coatings and
specialty products’ company.
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