Abstract
This study aimed to establish how procurement systems practices impact on performance of oil and gas producing firms in Nigeria. Ex-post survey approach was adopted for the study with emphasis on the use of secondary data sourced from financial statement of selected companies. The result of the study showed that there exists positive but insignificant relationship between procurement systems practices performance of oils and gas companies in Nigeria with a coefficient value of 6.45 and sig. value of 0.589 which is higher than 0.05 level of significance. In conclusion, the study supports that when organization invest adequately in acquisition of assets, the evidence of such investments is a growth in the returns in the form of increased profits to the organization. The study recommend that there is a need to integrate the whole system and departments of companies in indigenous oil and gas company in Nigeria in the procurement systems process in order to have a balanced activities in the goals and focus of the departments. Furthermore, top management are also required to always communicate the future plans about assets procurement to all subsystem managers and heads of department to maintain a high level of goal congruency in their operation and to reduce rivalries that emanates from departmental evaluations.
Keywords: Procurement, Procurement systems Practices, Asset Procurement, Return on Capital Employed.
CHAPTER ONE
Introduction
1.1 Background to the study
Extraction of oil and gas, prudent however, has significant social, political, economic and environmental implications for society. In the modern world, Hydrocarbon extraction has become integral to every aspect of life as suggested by Bridge and Le Billon. (2013). In 1956, Nigeria announced the discovery of commercial quantities of oil and gas at Oloibiri in the Niger Delta after exploration for about half a century. Shell-BP made the discovery. Nigeria started production in 1958 with its first oil field that came up on stream producing 5,100 barrels per day.
Necessary mechanisms must be in place so as to overcome scourges that might arise with the discovery of oil in Nigeria. Thus, various policies are instituted to capture more gains from Nigeria’s oil and gas sector and this includes the Petroleum (Local Content Policy).
In order to address challenges in the oil and gas sector, LC policy was implemented in Nigeria in 2001 and was passed into law 10 years later. A regulatory act known as the Nigerian Oil and Gas Industry Content Development Act was introduced in 2010 as proposed by Ovadia (2013), cited in Abdulkabir et al., 2016. The policy is designed to build the capacity of indigenous firms and to provide more opportunities for participation in business. The targets for LC policy in increasing local content development were set progressively with 45% local content in 2007, 70% in 2010 (Ihua et al., 2011, Ariweriokuma, 2009 cited in Abdulkabir et al., 2016.), and more than 80% by 2020 (Bakare, 2011 cited in Abdulkabir et al., 2016).
The policy is also expected to increase backward linkages in terms of procurement and utilization of locally produced input materials, creating more employment opportunities for the locals (Esteves et al., 2013, Ihua et al., 2011, United Nations Conference On Trade And Development (UNCTAD) / CALAG, 2006, Ariweriokuma, 2009 cited in Abdulkabir et al., 2016). Supply of input materials to the commodity sector that links the sector to other sectors in the local economy is backward linkages. On the other hand, activities that involve processing of the sector's output prior to export through are forward linkages, for example in the oil and gas industry, the establishment of refineries, petrochemical industry, and production of fertilizers (Tordo et al., 2013.).
Most Organizations around the world, are embarking on new approaches that would enable them reduce cost of doing business, so as to pay adequate attention to the area they have more comparative advantage and that would create more opportunity for the entity in view of high productivity, return on investment, payment of dividend to the shareholders, better remuneration to their staff and other welfare packages and the discharge of her social responsibilities. As a result of the above, organization management has undergone and has continued to undergo reform processes from time to time (Anowor & Agbarakwe, 2015).
Procurement is a strategy by which organizations and institutions reduces waste, allows for competitiveness, more efficient and effective ways of running both private and public institutions for the benefit of the stakeholders. There seem to be a consensus among scholars that procurement systems entails building alliance and consistency of actions that corroborates wide range of objectives and robust strategy through which the mission of procurement function is fulfilled (Obodo, 2018; Aliyu, 2016; Muiga & Kwasira, 2016). Procurement systems is an essential operations tool that includes budget control and finance management. It can be viewed as transformation of an organization‘s mission, goals and objectives into measurable activities which can be used in budget planning and managing the procurement function. The challenge as noted by Aliyu (2016) is that most organizations have not been able to apply the required procurement principles and practices that enhance the actualization of organizations ‘set goals. This informs the assumption that situation such as this and others have the potentials to make organizations turn counter-productive and can also affect records procurement systems practices such as records management, cost management, and relationship management.
Consequently, Procurement systems function as argued by Muiga and Kwasira (2016) has increasingly recognized the advantages of strategic supply chain relationship that fosters competitiveness that generates positive effect on the firm‘s financial performance as well as business policy and strategic management. Strengthening this view, Aliyu (2016) contend that procurement has a long history, nevertheless its role as a strategic part of the organizational structure is recently identified. Procurement systems is seen as a critical function of an organization with the potential to save cost, improve operational efficiency, sharing of best practices, enhance access to trusted supplier, and to improve quality of products/services Kwasira (2016) in their postulation supported the above as they assert that procurement has evolved from a transactional function to one that is contributing to the current and future health of organizations. The dynamics of procurement requires that attention must be given to procurement plans, selection of tenders, consideration of comparative advantage, recognition of core competencies and expertise procurement cost consideration, various procurement prices and the likely procurement benefits which would make the organization a profitable one.
As the business environment keeps changing and becoming more complex, organizations search consistently for better means to remain relevant and competitive in their operations. Following the above statement, it therefore implies that end product/service delivery from firms to customers when they are needed and at a competitive price are imperative to ensure customers feel fair treatment. Since virtually every organization purchase goods and services to operate, supply chain has attracted more attention than before due to the massive potential that exist for improvement in gaining the competitive advantage thus reducing cost and better product or/and service performance.
This study is anchored on Resource Based View Theory. Not many scholars have researched on procurement systems practices especially in the Nigeria oil and gas sector. This study therefore, sought to examine this contemporary issue, thereby creating a knowledge gap.
1.2 Statement of Problems
Nowadays, business activities are getting more competitive and challenging, making firms to expand their business operations using certain procurement plans and strategies in other to gain maximum return from capital invested. Manager of business entities especially those in oil and gas sector, needs to embrace all those practices that will improve their performance. Procurement is not new in Nigeria, but the way and manner in which it has being conducted lacked the best international practices. This is seen where very few of the companies in the oil and gas industry operate with high returns on their capital employed, while others have low returns and even operate at a loss. Upon all factors seen to be responsible for this ugly state of affair, low investment in asset procurement is seen to be the most paramount among others.
Hencethe enactment by the National Assembly procurement act 2007 which took into consideration those factors that would make procurement to be integrity driven, efficient and profitable to the industry. Such factors include procurement plans, lowest evaluated responsive bid, sufficient fund in the annual budget of the oil and gas industry, open competitive bidding, economy or reduction of wastages and ethical business practices by the vendor and firm’s managers. In the light of the above, it becomes very paramount to investigate the procurement systems practices and its impacts on the performance of oil and gas industries in Nigeria.
1.3 Objective of the Study
The main purpose of this study is to investigate the procurement systems practices and its impact of oil and gas industries in Nigeria. Specifically, the study seeks to;
1. Evaluate the effect of assets procurement on returns on capital employed of oil and gas industries in Nigeria.
1.4 Hypothesis
1. There is no significant relationship between asset procurement on return of capital employed.
1.5 Significance of the Study
This study will contribute valuable knowledge to contractors’ in the oil and gas industries in developing countries, especially in Nigeria. The outcome of this research will be used to: enhance and facilitate indigenous contractors’ efficiency in project delivery in Nigeria; expose how contractors and other parties to a contract contribute to the failure or success of contractors’ project planning and; enrich literature within academia for the training of construction professionals, as well as eventually contribute to high performance in the NCI. The significance of the study stems from the contribution that accrues from the construction industry to the economy.
An efficient oil and gas industry, according to Oyewobi and Ogunsemi (2010), is a pre-requisite to effective national development. This is because, the products of the oil and gas industry are desired mainly for the services which they help to create, as most business, social, religious, economic and, industrial activities operate on her structural base (Nwachukwu, 2008). However, all these benefits can only accrue from the industry to the economy when construction projects are efficiently delivered. This study’s result and recommendations will contribute to the NCI’s attainment of best practice globally. The study result will be disseminated through: conferences, workshops, journal publications, and academia-teaching.
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