Research consultancy

CHAPTER ONE: INTRODUCTION

1.0 INTRODUCTION

The study is about the Effect of Cooperative purchasing on the performance of Kasana Health Centre IV between 2013&2015.

The research proposal consists of three chapters’ namely General introduction, Literature Review and methodology. This ongoing chapter will comprise of the General introduction, Background of the study, Statement of the problem, Purpose of the study, Objectives of the study, Research questions, Scope of the study, significance of the study, conceptual and theoretical framework of the study and definition of the key terms.

1.1 BACKGROUND OF THE STUDY

Strategy is an action plan that organizations pursue to achieve the set goals and objectives over long term period of time (Lynch, 2009).Both profit and nonprofit organizations develop strategies that can enable them advance their business objectives and goals. Determining the choice of strategy is one of the functions of top management of an organization (Pearce and Robinson, 2011). Cooperative purchasing is defined as any formalized partnership arrangement committed to work within a given timeframe bringing together diverse competencies to better accomplish mutual objectives (Gonsalves, 2014). Cooperative purchasing as a strategy is built around the principle of synergy which if not well implemented will be of no value to organizations (Hargrove and Hill, 2014). Like other strategies, consortium strategy faces different challenges at implementation because of the unique environments and conditions under which the implementation is done.

Strategy implementation is based on various theories like Contingency theory (Fiedler, 1964) Stakeholder theory (Freeman, 1984), Institutional theory (Scott, 1995) and the Mc Kinsey 7S model (Peters & Waterman, 1982). Let’s focus on the Mc Kinsey 7S model (Peters & Waterman, 1982) and Stakeholder theory (Freeman, 1984) for the study because they are easily applicable.

The McKinsey 7S model provides a useful visualization of key components managers consider in ensuring that strategy permeates the day to life of an organization. These components are structure, strategy, systems, skills, style, staff and shared values. Structure relates to the organization chain of command. Strategy is the plan devised to maintain and build competitive advantage. Systems are the daily activities that staffs engage in to get work done. Shared values are the core values and beliefs of the company that can be seen in the corporate culture and general work ethics. Style relates to the leadership style adopted. Staffs are the employees and their general capabilities. Skills are the competencies possessed by employees working for the company (Lynch, 2009).

Stakeholder theory shows that an organization has a moral relationship with individuals, groups other than shareholders which possess moral status (Sternberg, 2004). Managers should explicitly articulate the shared sense of the value they create to stakeholders, clarify relationship regarding stakeholder’s engagement, and create an enabling environment where everyone strives to deliver value (Ritchey, 2010) Contingency theory postulates that that there is no one best way to organize an organization, however, contingent factors such as technology, culture and the external environment influence the design and function of organizations (Luthans, 2011). There is no single type of organizational structure equally applicable to all organizations, rather, organizational effectiveness and outcomes are the consequences of a fit or match between technology, environmental dynamism, the size of an organization and the information landscape.

United Building and Transportation Services’ Company is a private entity whichhas been in operation since 2002. It deals in construction work (buildings, pavers, culverts et cetera, transportation and road maintenance. Recently it has been trying to implement cooperative purchasing as a strategy in its purchasing operations in order to reduce costs, increase on product availability. Though the company considered the implementation of cooperative purchasing strategy as the best strategy in reducing costs et cetera, it is also exposed to certain challenges which are premised on the changing organizational environments, policies and procedures et cetera. These have deterred the company from achieving its set objective of cost reduction.

Worldwide, Cooperative purchasing has its roots in the cooperative movements of early 19th century in England and USA (Wooten, 2003). The idea started when several smaller organizations interested in similar items realized that aggregating their requests together will lead to emergence of one large organization procuring the same item. This was so common in case where the supply manager would go through the competitive process to award the bid. This competition among the competing bidders would expose them to readily available products and other benefits. Not only that, Wooten also stated that these cooperatives were roughly designed to gather power of many small voices which were being exploited in the market to make one big voice which wouldn’t be exploited in the market. Their formation and daily operations were based on democracy, equality, equity& solidarity, responsibility and values of self-help (Wooten, 2003).Tella et al, (2004) stress that cooperatives have been widely used in the public sector and also in the retailing sector, but recently also the industrial sector has adopted it. All this can be seen in the business purchasing operations of the world’s biggest economies like USA, China, Britain, Germany, Japan, Russia et cetera. Cooperative purchasing and its programs are not so much self-help groups, they are rather methods supply managers’ use to more efficiently acquire materials Tella urges. Cooperative purchasing world widely has been employed in various areas like in but majorly in the schools, offices et cetera to procure school and office supplies, large ticket items; cars, services and insurance et cetera (Bishop, 2003).However, The Hendricks study reveals that most buying groups target MRO items (54% of respondents), followed by services (46%), direct materials used in production (42%), and capital goods(35%). This is logical as MRO, or commodity type purchasing is the least threatening and presents the slightest resistance from members and supply base to initially target. The area with the most potential return, but correspondingly the highest degree of risk is direct materials. Although significantly more difficult to attack, nearly half of these alliances target direct materials and, when successful, reap tremendous rewards. Most consortiums have focused on “low hanging fruit” for MRO and general services initially.

For instance, Purchasing in a 2001 interview with a consortium founder reported, “…we needed to find a common buy, so we started with office products,” says Mylett, now CEO of

Corporate United. “In the office products buy, we did strategic sourcing with the six companies. We pulled individuals from each of those companies to create a committee with about people and we created baselines, wrote a request for proposal (RFP) as a group, analyzed the responses as a group, scored them based on agreed upon criteria and awarded business as a group.” The result of the endeavor was that each of the 6 Fortune 1000 members companies to save between 12-25% on their office products spend. Point to note is the pioneers of Group Purchasing Organizations was the Health Sector worldwide. For example let’s take a case of USA, the first healthcare GPO was established in 1910 by the Hospital Bureau of New York. For many decades, healthcare GPOs grew slowly in number, to only 10 in 1962.Medicare and Medicaid stimulated growth in the number of GPOs to 40 in 1974. That number tripled between 1974 and 1977. The institution of the Medicare Prospective Payment System (PPS) in 1983 focused greater scrutiny on costs and fostered further rapid GPO expansion. In 1986, Congress granted GPOs in healthcare “Safe Harbor” from federal anti-kickback statutes after successful lobbying efforts. By 2007, there were hundreds of healthcare GPOs, “affiliates” and cooperatives in the United States that were availing themselves of substantial revenues obtained from vendors in the form of administrative fees, or “remuneration.” 96 percent of all acute-care hospitals and 98 percent of all community hospitals held at least one GPO membership. Importantly, 97 percent of all not-for-profit, non-governmental hospitals participated in some form of group purchasing.

With healthcare costs rising sharply in the early 1980s, the federal government revised Medicare from a system of fee-for-service (FFS) payments to PPS, under which hospitals receive a fixed amount for each patient with a given diagnosis. Other insurers also limited what hospitals could charge. The result was a financial squeeze on hospitals, compelling them to seek new ways to manage their costs. Also in 1992 where the Peoria Area Labour Management Council (PALM) established a health care purchasing cooperative to harness the purchasing power of the many smaller organizations within PALM, in order to negotiate for better price rates from the suppliers. This later became a discipline that up to now it is in existence with a lot of empirical evidence. Generally world widely, organizations that have implemented consortiums have been exposed to cost reduction, increase in product availability et cetera. Nevertheless, they are also facing challenges like changing organizational environments, lack of trust, fear of parasites and sharing sensitive information et cetera which are greatly impacting on their performance..

According to Jürgen Schwettmann, (2014), cooperative purchasing in Africa owes its roots to the way of life of Africans from the beginning up to date especially to the clans and communities. For example they always embraced togetherness in every activity that they did.This continued interaction created informal cooperation can be further seen among the way the African farmers helped each other in carrying out agricultural activities like bush clearing, harvesting et cetera which made early agriculture possible because of the mutual aid among the farmers. This continued informal cooperation led to the birth of informal cooperatives which were characterized by solidarity, cooperation, reciprocity and mutuality. These traits are more vibrant up to date in the rural areas and the urban informal associations ROSCAS also referred to as “Tontines” in French. These ROSCAS can been seen today in all African countries like Uganda, Kenya, Tanzania, Nigeria, Ghana, Tunisia, Algeria and others which are performing wonders up to date. Formal cooperatives were later introduced in African countries in the 20th century by their colonialists respectively according to their patterns of rule, structure. Later on the colonialists brought in a new feel by making the their administration undertake systematic efforts to develop cooperatives into powerful businesses that through vertical structures, they controlled much of the agricultural production, marketing and processing in rural areas in particular regard to export crops which has been described as “United Cooperative Model). This experience enabled the Africans to learn how to relate with other people, not only that also it made them to value efforts of a group over an individual efforts. This experience laid down a firm foundation for the development of groups to buy and not to sale their products, for example these agricultural cooperatives enabled farmers to be exposed to relatively cheap farm equipment and tools due to the bulk purchases which earned them trade discounts. This lead was later adopted by the African governments mainly in the health sector, this vice started to be adopted in the official matters like mainly in the public sectors (Wanjiru, 2015; Gray, 2002; Tella et al, 2004). This was seen by the African governments sourcing third parties to be buying for the health centres supplies, this was because of the increase of the supply of counterfeit drugs which were endangering the citizens’ lives. For in Uganda there was formation of the Joint medical stores and National Medical Stores to be purchasing the medicine on behalf of both the private and public medical centres (Jacquiline Emodek, 2015). The strategy was also adopted by certain private entities most especially the business men who imported goods from outside, they came together to source from outside in the run to reduce on the costs incurred, attract suppliers due to bulk purchases, be exposed to quality goods et cetera( Schotanus& Telgan, 2007). The level of implementation of the strategy is relatively high in the public sector because of the uniformity in many variables like culture, values, reporting, mission, which is not the case in the private entities because of the challenges which face the implementation in private entities like; different cultures, values, limited resources, fear of parasites et cetera (Gray, 2002; Williamson, 1985)

In Uganda cooperative purchasing owes its excellence way back to the colonial period where the colonialists introduced formal agricultural cooperatives (Jürgen Schwettmann, 2014). According to Jacquiline Emodek, 2015’s New Vision article, the actual group purchasing activity was ushered in by 1979, after the Uganda-Tanzania liberation war that led to the overthrow of President Idi Amin’s regime, there were a number of donors supporting each health unit. However, they were doing this individually; some were supporting more than one, but without a distinct coordinated structure.

This realization led to the Roman Catholic Church and the Church of Uganda through their medical arms (the Uganda Catholic Medical Bureau and Uganda Protestant Bureau respectively), making the decision to set up the Joint Medical Stores (JMS).

“This was so that it could support the supply chain for the mission health units; to ensure that they get good quality products in time and also co-ordinate donations,” Dr Bilard Buguma JMS, the executive director, says.

Also previously each health centre in Uganda was purchasing its own drugs which proved too costly, the centres kept on running out of stock and they were also exposed to counterfeit drugs which were harmful to the lives of the citizens. Therefore in pursuit to mitigate those problems government decided to form National Medical Stores in 1993, to be responsible for sourcing the drugs for the health centres. From then JMS has become a third party which helps private medical centres to source drugs from outside the country. As for NMS it got the full authority to procure, store and distribute medical supplies and medicines to all public health facilities in the country, army, police and prisons in 2012. The use of the third parties to procure medical supplies and drugs was aimed at attaining cost reduction, increase the product availability, be exposed to quality goods and others (Schotanus&Telgan, 2007; Tella et al, 2004). The benefits accumulated and this also attracted the business men in Kikuubo who also adopted the vice in their importing of goods from outside. Putting aside the benefits accrued, the strategy is faced with facing challenges like differences in cultures, values, motives; fear of parasites and sharing of sensitive information, fear of loss of control et cetera ( Gray, 2002; Schotanus et al, 2005) which have influenced the performance of organizations.

In Kasana Health Centre IV, cooperative purchasing is a practice evidenced by the use of the third party, NMS. The HCIV greatly benefited through cost reduction, increased product availability, improved efficiencies, better compliance with the statutory laws et cetera (Schotanus& Telgan, 2007; Kivisto, 2003). However, putting the benefits aside, the HCIV is also faced with many challenges like trust and cooperation issues, delivery of wrong drugs, stock outs, bureaucracy, limited staff involvement, conflicting motives, different organizational cultures; values et cetera (Gray, 2002; Williamson, 1985). These have negatively influenced the performance of the HCIV.

1.2 PROBLEM STATEMENT

With the growing modernity, flexibility and globalization, Cooperative purchasing has proven to be one of the best procurement strategies which has greatly made business purchasing operations easy, real, fast and convenient enough. (Bishop, 2003). Adopting cooperative purchasing has become prominent in the public sector business. (Tella, et al, 2004). In Uganda some organizations have already embraced cooperative purchasing mainly in the public sector like Ministry of health, and others because of benefits like cost reduction, increased product availability, improved efficiencies and others making entities eager to join group purchasing. (Gray, 2002; Schotanus&Telgan et al, 2007). However, despite their vigor to join cooperative purchasing, majority of the organizations are facing challenges in adopting cooperative purchasing like; limited supply base, different motives among members, trust and cooperation issues and others. (Williamson, 1985; Gray, et al, 2002). United Building &Transportation Services Company is facing great challenges in adopting/ implementing cooperative purchasing in its daily purchasing operations. According to Ms. Apolot Juliet’s (the managing director) speech dated on 1st July 2013 at the company’s offices, she explained that the company once upon a time tried group purchasing with a certain company in 2011, things didn’t turn out as expected because they were faced with problems like conflicting motives, trust issues during the process. They tried to solve them by coming up with a common goal, signing a confidentiality agreement but all that was in vain because the same problems persisted until the end of the contract. Basing on the experience, the company decided to abandon group purchasing for a while because of the challenges it experienced back in the day. It is therefore, upon this that the researcher is basing to explore the “Challenges faced in the Adopting/ Implementing Cooperative purchasing in United Building& Transportation Services’ Company between 2010 &2013”.

1.3 PURPOSE OF THE STUDY

The study is intended to explore the challenges faced in adopting cooperative purchasing in the business purchasing operations.

1.4 OBJECTIVES OF THE STUDY

To identify measures to mitigate the challenges facing the implementation of cooperative purchasing in United Building and Transportation Services’ Company.

To determine the benefits of embracing cooperative purchasing in United Building and Transportation Services’ Company.

To determine the current status of cooperative purchasing in United Building and Transportation Services’ Company.

1.5 RESEARCH QUESTIONS

What are the challenges faced in the implementation of cooperative purchasing?

What measures can be used to mitigate the challenges of implementing cooperative purchasing?

What are the benefits of embracing cooperative purchasing in the daily purchasing activities of an entity?

What is the current status of cooperative purchasing in United Building &Transportation Services’ Company?

1.6 SCOPE OF THE STUDY

According to Wangusa (2007), the scope of the study demarcates the area to be covered by the study, the area could for instance a specific period or a geographical territory or particular texts, themes or data.

1.6.1 Subject Scope

The researcher will restrict the study on the Challenges faced in implementing cooperative purchasing in United Building & Transportation Services’ Company. However it will specifically look at the challenges faced during implementation, benefits, short comings of cooperative purchasing and strategies to mitigate the shortcomings.

1.6.2 Geographical Scope

The research study will be carried out at United Building &Transportation Services’ Company located in Luweero District along the Kampala-Luweero-Gulu Highway opposite Bukenya Foundation Motel.

1.6.3 Time scope

The research will cover the literature review of 3 years that is to say between 2010& 2013. However the researcher intends to use 5 months of field work study that is to say from May to September 2018. This time frame will be enough to collect all the necessary data concerning the study.

1.7 SIGNIFICANCE OF THE STUDY

The study is expected to be of great significance to the researcher, public and private institutions and to other perspective researchers on the same topic in some of the following ways;

The researcher will help to expose procurement managers of various organization an understanding of the benefits of cooperative purchasing. This will help procurement managers to lay a foundation for the basis to advocate for the adoption of cooperative purchasing so that they can enjoy the benefits.

The study will help to show the challenges that are hindering the adoption of cooperative purchasing to both the procurement and top level managers of an organization.

The study will avail procurement managers with the shortcomings of using cooperative purchasing in the daily purchasing operations of a company.

The study will help to show the various strategies to mitigate the shortcomings of using cooperative purchasing in organizations.

To the academicians, the study will assist future researchers and students willing to undertake research on the Challenges faced in the adoption of cooperative purchasing. For example, it may be used as a reference book as it will add to the existing literature on the challenges faced in the implementation of cooperative purchasing.

The study will help the government and policy makers in guiding them on formulation of policies concerning cooperative purchasing. Not only that, but also come up with cooperative agreements, this is because the study will avail the required information which can be consolidated to establish the challenges hindering the adoption of cooperative purchasing. Basing on that they can develop policies and agreements to encourage adoption of cooperative purchasing.

The study will also aid the researcher to fulfill the requirement for the award of a bachelor’s degree of Procurement and Logistics Management from Kyambogo University.

1.8 CONCEPTUAL FRAMEWORK

Odiya (2009) says a conceptual framework provides a model for linking categories of possible variables or concepts in the study as perceived by the researcher

Independent variable Dependent variable

(Challenges) (Adoption/Implementation)

Source: Research Catherine (2016)

1.9 THEORETICAL FRAMEWORK

Cooperative purchasing strategy implementation can be explained using Institutional theory (Scott, 1995) the Mc Kinsey 7S model (Peters & Waterman, 1982), Contingency theory (Fiedler, 1964) and Stakeholder theory (Freeman, 1984). But in regards to this study were to focus mainly on the Mc Kinsey 7S mode and Stakeholder theory.

CHAPTER TWO: LITERATURE REVIEW

2.0 INTRODUCTION

This chapter discusses the various pieces of existing theoretical and practical knowledge on concept of cooperative purchasing, challenges affecting cooperative purchasing implementation, benefits of implementing cooperative purchasing, shortcomings of implementing and measures to mitigate them. It will help to concretize, and integrate as well as give a summary on what is already known in cooperative purchasing implementation challenges.

2.1 CONCEPT OF COOPERATIVE/ CONSORTIUM PURCHASING

This is to consist of various definitions by various authors, implementation of cooperative purchasing strategy, broad categories and theoretical foundations of the study.

2.1.1 Definition & Descriptions of cooperative purchasing.

Cooperative or joint purchasing has so far been differently defined in the existing literature. It is referred to as consortium/ shared/ bundled/collaborative/ collective/horizontal/ group purchasing. (Schotanus, 2007). Joint purchasing is defined as the cooperation between two or more organizations in a purchasing group in one or more steps of the purchasing process by sharing and bundling their purchasing volumes, information and resources.

A purchasing group is defined as an organization in which cooperative purchasing processes take place. A purchasing group consists of dependent or independent organizations that share and/or bundle together in order to achieve mutually compatible goals that they could not achieve easily alone (based on Hendrick, 1997; Lambe et al, 2002)

A purchasing cooperative can compose of partners from a variety of sectors for example social enterprises with social enterprises or with voluntary organizations or involve a mixture of public, private sectors classified as single or multi sectorial. Single-sector consortia allows for activitiesto focus on member firms’ products which are homogeneous. Firms active in a specific sector are acquainted with each other and have greater knowledge of each other’s businesses. In multi-sector consortia a wider range of products can be offered as firms are heterogeneous though a common image should be portrayed in service and product delivery (Friedman et al., 2014). The main goal of these alliances is to leverage aggregated purchasing power of the group to optimize cost reduction and value added contractual terms and conditions from the external supplier relationships (Gray, 2002). Purchasing consortium is becoming more and more common practice. However, premature endings of existing purchasing consortia still occur regularly and other purchasing consortia do not flourish (Schotanus, 2004).

2.1.2 Implementation of Cooperative purchasing strategy

Cooperative purchasing strategy implementation defines the manner in which an entity should develop, utilize and amalgamate organizational structures, control systems and culture that support competitiveness and improved performance (Ronnie, 2014). It is about competitive moves and the business approaches that are highly dependent on resource allocation to the different identified portfolios that managers can employ to grow businesses, attract customers, and conduct operations efficiently and effectively through risk mitigation to achieve results (Abuya, 2013).

Typical Basic Steps in implementing a Cooperative Procurement (Ralph C. Nash Jr., Steven L. Schooner, Karen R. O’Brien, 2000).

The cooperative is formed when one or more parties identify a common requirement suitable for cooperative purchase and sign a written agreement to cooperate.

Lead party solicits proposals and awards contract(s).

Contract is available for use.

Participating entities sign an agreement (NASPO/WSCA) calls it a “participating addendum”) in the specific contract(s). This is necessary to get user’s statutory requirements included as well as for lead entity to administer efficiently.

2.1.3 Broad categories of cooperative purchasing

In the pursuit to implement cooperative purchasing, two broad categories (Hargrove et al. 2014) can be adopted which include;

Informal cooperative purchasing

This is where an agreement exist among the members to work together by setting out their legal rights and obligations. In this mode there is no intension of creating a legal entity and in most cases an already existing contract is used. This mode have been found so simple in its implementation. Nevertheless, before it is implemented, a person willing to join cooperative purchasing has to determine whether he/ she has the legal authority from an already existing contract and when it is okay to, then the person is rendered ready to join the agreement.

Formal cooperative purchasing

This is where the end intention is to create a jointly controlled legal entity. In this model there is existence of new features like a joint steering group which implies that integration is paramount that there is sharing of liability among the cooperative in case of a contract failure; lead contractor which implies that integration is unlikely to happen, liabilities are limited to the one who makes the mistake and there is individual operations among members; and prime contractor which implies no need of matching culture/ ethics since a third party is outsourced, there is an independent relationship and no need to integrate.. In formal these models can be further adopted depending on the nature of procurement which is to be carried out.

2.1.4 Theoretical Foundations of the Study

Cooperative purchasing implementation can be explained using various models/ theories. These theories base on the fact internal and external situations and competencies trigger organizations to adopt different mechanisms of doing things to attain stated goals and objectives. The theories include stakeholder, contingency, institutional theory and the Mc Kinsey 7S Model. But the stakeholder theory clearly explains and stresses out the success factors of a consortium and it is explained below;

Stakeholder theory argues that managers should make decisions that take the interests of the company’s stakeholders into consideration (Freeman, 1984). The stakeholders include individuals or groups who substantially affect the welfare of the firm. They include employees, customers, suppliers, debtors the government and distributors (Wharton et al., 2014). They stated that their interests must be integrated into the very purpose of the firm, with relationships managed in a coherent and strategic fashion to maximize on value which consortium strategy stands to achieve. There exist competing interests among the stakeholders and the theory fails to specify how managers can make tradeoffs among these competing interest hence making purposeful decisions to be abstract and, managers can be unaccountable for their own actions in an attempt to pursue a specific interest (Sternberg, 2004). Changes in the mix of stakeholders over time depends on the strategic issue, interest under consideration, changes in the operating environment and these attribute to diverse means of meeting the needs of the stakeholders (Carroll and Boletus, 2014). The design of an organization and its subsystem must fit with the environment and between its sub systems for an effective delivery of strategy in a partnership (Luthans, 2011). Therefore in designing an employee development training, communication and control systems (Anne and Tom, 2012), planning and decision making systems (Pearce&Robinson, 2011), motivating, leading and structuring the organization (Barney, 2010) the managers should bear in mind that situations under which the organizations exists coupled with stakeholders and societal influence may undermine pursuance of a strategy in a partnership. Consortium is inherently evolutionary in nature therefore subjective to the changes in the holistic environment (Updegrove, 2016).

2.2 CHALLENGES FACED DURING THE IMPLEMENTATION OF COOPERATIVE PURCHASING

The potential benefits realized through collaborations in purchasing do not common without challenges. For example recent studies according to Hargrove and Hill, 2014 have shown that purchasing cooperatives have a potential of 50% success rate. But at the same time they have a 50% failure rate and which may be to the following challenges due;

Differing organization cultures

Carroll and Boletus (2014) identified organization’s culture as an impediment to consortium strategy implementation. They defined organization’s culture as the specific collection of values, norms, beliefs and attitudes that are shared by people and groups in an organization controlling their interaction with each other and with stakeholders. Culture is a key driver to organizational effectiveness and performance (Catherine and Tom, 2015). However, complexity in consortia breeds cultural diversity negating customer satisfaction and employee commitment to change (Friedman et al., 2014). They state that organizations carry along their individual history to the partnership, complicating integration and coordination which breeds rigidity to change amounting to conflict and lack of collective identity.

Internal resistance from cooperative members

Resistance refers to a tendency of not adopting a phenomenon, this habit is majorly common to small organizations who tend to be insecure of fully embracing cooperative purchasing due to their differences in size because they may end up losing their independence in making decisions concerning the running of their individual organizations leading to loss of control. This loss to another organizational members cannot be taken. Not only that, but also employees might get scared of losing their jobs that is why they tend to create all barriers to hinder the implementation of the strategy (Gray, 2002).

Lack of trust

This is a critical issue in several forms of inter-institutional cooperative arrangements. While this may have an impact on cohesion and level of commitment, it is a fundamental challenge that requires resolution in order for consortia to survive. Most often, lack of trust is a “side effect” of institutional autonomy and territorialism or competition. In fact, Johnson (1988) argues that “autonomy is a term that consortium directors hear frequently in connection with the failure of cooperative ventures to gain support” (p.194). According to Johnson (1988), trust can be resolved by members getting to know one another both professionally and personally. Trust can also be accomplished and competition diminished by focusing on the agreed upon mission and goals of the consortia (Gray, 1996).

Differences in the organizational environments

The variability in the environments of organizations provides opportunities as well as constraints for their behavior. This notion claims that the differences in the institutional environments where the organizations originate, can impact on cooperation in a negative way (Hargrove and Hill, 2014). These differences are frequently related to the historical conformance of organizations to their national institutional environment; organizational structures; procedures and routines that have emerged and have become institutionalized regarding adoption of ICT and innovations; procurement procedures and knowledge management (Chille, 2012). Poorly shared knowledge inhibits competency building and optimality of strategy. Beekens (2014) asserts that technology support institutional processes however structural arrangements in consortia impede its functionality.

Continuous changes in the external environment of the cooperative.

Changes can take place in areas such as economic, politico-legal, social, technological and environmental (Charity Commission, 2010) impede consortia operations. Purchasing power depends on current income, savings, prices and credit availability, any change in the direction of the economies in the public and not for profits sectors present changes in financial operations of an organization (Walther, 2015), affecting revenue streams in the partnerships (Maria et al., 2014). The changing social environment compels organizations to align their social values, behaviors, attitudes lifestyle, work ethics, gender and social responsibilities to meet societal expectation. Meeting social expectations influence compatibility in delivery of services in a cooperation (Jones et al., 2010; Beerkens, 2014). Difference in environmental and demographic characteristics coupled with unanticipated changes in the government policies regarding taxation, cooperation legislation, environmental protection, and affect complementarities in performance of cooperation (Alford and O’ Flynn, 2012).

Continuous change in specification and suppliers is so cumbersome and doesn’t look okay because it leads to exposure to new faces of suppliers every time a purchase is to be made. This is due to failure of the cooperative to specify on what products/ services that are to be purchased by the cooperative formed (Gray, 2002).

Fear of parasites and sharing of sensitive information has further hindered the implementation of the cooperative purchasing strategies. This fear is always triggered by the poor communication between the organizational members. This limited communication among some organizational members also ends up instilling that fear of sharing information which is taken to be sensitive to protect itself self from parasites who may end up selling the information to competitors which can lead to easy outcompeting of the victim. Poor communication also shows low levels of commitment among the organizational members which negatively in a great way hinders the implementation of the strategy because it demands high levels of commitment from the members (Williamson, 1985)

Limited supply base is yet another impediment in the implementation of the strategy, this is normally caused due to the turning down of orders by suppliers. For example when a cooperative is formed, it increases the bargaining power of the members which will always give it an advantage in negotiating for lower prices. Not only that but also their bulk purchases always will fetch them discounts. This combined together scares away suppliers from bidding for the offers because they take it as exploitation from the buyers because they stop registering the high level profits they earned when they were dealing with individual orders from the individual members compared to low profits when dealing with the cooperative. The limited supply base further exposes the consortium members to stock outs, halting of production in case there is delay in supply due to the limited supply base. (Gray et al, 2002)

Small Business Participation

Some small businesses may be able to handle business for one state or local government but may not be able to handle the combined requirements of multiple governments. This is mainly due to limited capacity among those organizations which hinders main aim of implementing the strategy that they fear that they may not up their game when it is their turn to procure on behalf of the consortium.

Cherry Picking

This is a word which explains selecting/ choosing. For example with the with multiple cooperative contracts for similar products and services, governments/ cooperatives have the ability to avoid conducting the competitive process themselves and/or choose the cooperative with its preferred suppliers or brand names. This in the end makes the organizational members to drop their individual supplier lists because when a consortium is made, a new supplier list will be availed basing on needs of the cooperative. This in the end limits the supply base and leads to loss of authority among individual members.

2.3 MEASURES TO MITIGATE THE CHALLENGES FACING IMPLEMENTATION OF COOPERATIVE PURCHASING

Since a lot of challenges transpire in the process of implementing the cooperative purchasing strategies, measures have been deduced to mitigate them and they include;

The use of virtual collaboration tools should be embraced to combat rising operational costs when covering a wider geographical area (Maddrey et al., 2015).

A forum for sharing capabilities like online partner forums, in-person program reviews, conference presentations, and association meetings when adopted with relevant ICT adoption reduces cost.

Organizations considering forming or joining a consortium should spend time to learn and ensure compatibility of values and norms in working. A shared value base forms a culture that fosters performance. Brennan (2008) states that integration among partner organizations required can only be achieved through trust.

Determining the rules of engagement is yet another mitigation measure, during the planning phase collaborations are solidified and categorized (Wanjiru, 2014). For example, in cooperatives, partnerships can be informal and organic while others establish formal agreements using contracts for understanding individual roles and responsibilities which sets a good trend for mitigating potential conflict due the operation of the cooperative ( Douglas et al, 2009).

Managing change is yet another way to mitigate of challenges faced during implementation of cooperative purchasing. This can be done by making adjustments to adopt to the changing processes of managing the cooperative in order to keep the cooperative activities going in order to attain the purpose of forming it and therefore overcoming resistance leads to formation of a milestone for success.

Ensuring that the cooperative activities and goals should be greater than what any individual entities could achieve when it is alone (Maddrey et al, 2015). This will call for the total commitment from the cooperative members through regular communication with other members which later lays down a foundation for trust to emerge.This is because the individual members would want to enjoy the benefits given by a cooperative which are far better than being an individual.

Defining what products/ services the cooperative will be purchasing or developing and the benefits associated with it. This clarity will only attract the members who are in agreement with the terms and conditions of implementing the strategy. For example it will attract members who have the same motive hence doing away with differing motives among the cooperative members.

Fostering and institutionalizing of the exploration of diversity in consortiums (Webster, 2010). Therefore basing on that, understanding organizational restrictions and complexities in initiating cooperatives bring clarity of roles, goals and objectives fostering value creation and performance (Ronnie, 2014). This will greatly aid the cooperative members to lay down strategies to follow during the implementation of the strategy so that it can become a success in the end.

Organizations in the cooperative should be alert to the changes in the external environment affecting the stakeholder relationship. This they can do by continuous research of the external environment which will aid identify risks which can hinder the operations of the cooperatives. For example the cooperative can run a risk of having limited skills among the stakeholders which is greatly a disadvantage to the operations and capacity of the cooperative. Therefore through capacity development, it will aid implementing partners and stakeholders in developing organizational capacity.

2.4 BENEFITS OF IMPLEMENTING COOPERATIVE PURCHASING

There are very many benefits which were outlined by many scholars and they include;

Exposes members to quality products/ services

Joint purchasing leads to better quality and value for customers and stronger partnerships with suppliers through commitment to contracts (SCEP, 2005). This is because of the competition among the suppliers who would be working tooth and nail in order to attain the heavy contract. This struggle encourages suppliers to improve on the quality of whatever they are providing which is very advantageous for the customer. It further provides access to a wide array of high quality goods and services by leveraging the collective buying power and create economies of scale resulting in significant cost savings (PEJE partnership for excellence in Jewish education, 2006).

Cost reduction

Anderson and Katz (1998) identified three types of cost reductions for which joint -purchasing can generate benefits: price, administrative costs, and utilization costs. The prices are reduced due to the trade discounts which are dished out due to the bulk purchases. The discounts reduce on the prices spent on acquisition of the supplies compared to when an entity is purchasing alone. Administrative costs are reduced by the sharing of the costs amongst the organization members reducing on the amount the organization was to spend if it did an individual purchase. Vizjak (1994) estimates that unit cost reductions of up to 10% are achievable as a result of co-ordination of activities, exchange of information and concentration of buying power. Rumman and Blagojevich (2006), adds that joint purchasing results in reduced costs, derived from improved specifications and increased price competition.

By joining together in a consortia, organizations can (effectively) streamline procurement processes. This not only reduces unit cost, but also reduces the overall transaction costs since only one contract needs to be negotiated and implemented.

It exposes entities to lower prices

Cram (2006) says that, joint purchasing helps companies to obtain; lower prices and increased leverage. This is because of the increased bargaining power a consortium has compared to an individual buyer. For example, the bulky purchases to be made by the consortium attract many suppliers who come with offers which are in line with the terms and conditions of the buyer. This competition among the many suppliers gives the buyer chance to deploy competitive bidding which will end up exposing the consortium to relatively low priced quality goods leading to value for money.

It leads to increased efficiencies

Cram (2006) says that, joint purchasing helps companies to obtain increased efficiency, this is mainly due to the easy access to cross fertilization of information and ideas, innovation, access to better expertise. This is because the consortium is made up of different members leading to exposure to diversity in skills, sources of information. This diverse sources give a consortium an advantage to explain the abundance of the treasure presented to it. Not only that but the members are not the same therefore exposing the consortium to various sources of ideas and information whose integration may lead to an innovation leading to improvement in the efficiency of the cooperatives operation.

It brings significant and immediate value to the organization members.

According to Gray (2002) purchasing consortiums can be a valuable strategic initiative worth serious consideration by supply managers today. There is undeniable evidence that properly managed consortiums are bringing significant and immediate value to their members. Moreover, with today’s climate of “doing more with less” these purchasing alliances can help supply managers not only leverage the group’s spend for more competitive pricing but also leverage the group’s resources where he may be understaffed.

It builds up the negotiation power

According to Rozemeijer (2000), joint purchasing brings about pooled negotiation power (‘buying together’) by combining their purchases, different companies can gain greater leverage over suppliers, reducing the cost or even improving the quality of the goods they buy. A number of companies have identified large benefits through common purchasing of inputs used by several of their businesses. Companies can also gain similar benefits by negotiating jointly with other parties, such as competitors, customers, governments, universities or other non-competitors. A lot of references of pooled negotiation power with other stakeholders can be found (Essig, 1998). Based on a research project in Germany, Essig (1999:183) reports an average volume increase ranging between 800% and 1200% for the 13 companies participating in co-operative sourcing arrangement. This volume increase resulted in savings ranging from 1% to 15% for the thirteen participating companies.

Vizjak (1994) estimates that unit cost reductions of up to 10% are achievable as a result of co-ordination of activities, exchange of information and concentration of buying power.

Other benefits by other scholars include;

According to Barton (2005), benefits of joint purchasing include; increased cohesion, access, and standardization within a high quality. Financial gains include a sharing of overhead costs and reduced administrative costs (Keim, 1999). Other than financial benefits, cooperative arrangements allow shared resources and expertise; enhanced quality and breadth of services

offerings; greater access to products and services; opportunities to build skills around cooperation; increased dialogue among colleagues in a network of different institutions/ organizations; greater diffusion of best practices; and mobilization for effective planning and control in organizations (Konrad & Small, 1986; Keim, 1999).As access is undoubtedly an important goal for all organizations, consortium arrangements can significantly increase access to services and programs to many of its member organizations.

2.5 CURRENT STATUS OF COOPERATIVE PURCHASING

2.6 LITERATURE GAPS

Studies on the concept of cooperative purchasing strategy implementation by Abuya, 2013; Barney, 2010; Alford and O ’Flynn, 2012; Walther, 2015; Charity Commission, 2010; Ronnie, 2014; Tinoco and Sherman, 2014; Hargrove et al., 2014; Lynch, 2009, Updegrove, 2016; Schotanus& Telgan, 2005,2007; Gray et al, 2002) have elaborated on how cooperative purchasing operates, benefits and challenges. Updegrove, 2016; Wooten, 2003 and Purchasing manual, 2002) focuses on the models of cooperative purchasing but fails to give substantial literature on the challenges of each model. Literature on the theories; Institutional theory (Scott, 1995; Luthans, 2011); Mc Kinsey 7S Model (Peters and Waterman, 1982; Ritchey, 2012); Contingency theory (Fielder, 1964; Luthans, 2011; Wanjiru, 2015); Stakeholder theory (Freeman, 1984; Wharton et al., 2014; Sternberg, 2004; relates to the study, however Mc Kinsey 7S model ignores power and politics which relates to leadership in a consortium as identified by Ritchie (2012).

Literature review revealed that inadequate financial resource, complex structure and diverse organizational culture (Alford and O ‘Flynn, 2012) coupled with lack of common standards of reporting and changes in the macro environment (Jones et al., 2010; Charity Commission, 2010; Walther, 2015) challenge consortia operations. However, there is no concrete evidence to form a clear understanding of the dimensions of diversity and cultural profile that affect consortia operations. Moreover the available literature fails to give evidence on how other factors interact and the consequences they have on performance of consortium. Little literature on mitigating challenges fails to bring on board the aspect of performance management as key factor to mitigation. Maddrey et al. (2015) emphasizes on joint planning.

CHAPTER THREE: METHODOLOGY

3.0 INTRODUCTION

This chapter discusses an outline of the methods that will be used in this study. It covers the research design, data collection methods and comes to a conclusion with the data analysis and presentation methods that were used in this study. Zikmund, Babin, Carr and Griffin (2010) describe a research methodology as a logical way of solving a research problem and a part that explains technical procedures in a manner appropriate for the audience. Dawson (2009) concurs with Zikmund et al. (2010) that research methodology deals with the way the methods used in carrying out a given research are described systematically.

3.1 RESEARCH DESIGN

The study will employ a case study design. A case study is appropriate as it will allow the researcher to focus wholly on the challenges facing cooperative purchasing strategy implementation narrowing to United Building & Transportation Services’ Company as the unit of analysis.

Yin (1994) as cited in Polonsky and Waller (2004), states that a case study is a method that allows an investigation to retain holistic and meaningful characteristics of real-life events such as organizational and managerial processes. It entails in depth investigation of an individual, group, institution or phenomenon and also analyzes comprehensively an institution with respect to the variables (Mugenda & Mugenda, 2007).

Case study design is preferred as it will bring empirical evidence of the theoretical assumptions that emerged during the literature review. Since this study is a contemporary phenomenon within a real-life context, it will provide an analysis of the context and processes that will illuminate the theoretical issues under study hence contributing to theory building. It is also a tool to study the dynamics present within single setting, therefore the data collected will be more valuable and current. It has also been used by researchers like Kagumba, 2014& Hargrove et al., 2014 in their study respectively.

3.2 RESEARCH APPROACH

The research will use qualitative methods. Qualitative research is exploratory by nature, and is normally chosen when the subject of the research or the theory base is not very well known (Creswell, 2003, 74-75). The research gap shows that in this case, the subject has not been very thoroughly researched earlier. The data is collected by interviewing key personnel in the target company. Interviews provide information on current cooperative purchasing implementation in the company.

Qualitative research will be chosen for this study, because it best matches the research situation. Marshall and Rossman (2010) note that qualitative research is used to study complex phenomena and processes, processes that are not very well known, phenomena whose variables have not been identified, and phenomena that cannot be studied experimentally. In this case, even though the elements of cooperative implementation strategy are known, the aim for the study is to gain knowledge about the case study, which encourages the use of qualitative methods. Usually, the purpose of a study can be either mapping, explanatory, descriptive or forecasting purpose (Hirsjärvi, Remes & Sajavaara, 2007, 134). Typically, a case study is selected in order to illustrate an issue (Creswell, 2013, 102). The issue that is illustrated here, is how the factors of the environment challenge the implementation of cooperative purchasing in various entities.

3.3 POPULATION AND SAMPLING

3.3.1 Study population

The study population will constitute of the company’s administrators and employees. These will be selected because they are thought to provide information relevant to the study because they know what transpires within the organization.

3.3.2 Sample size selection

The researcher will focus the attention on the procurement department of the company mainly the heads of department and the employees which totals up to 20. This is because they are the ones who carry out the purchasing activities hence making them be the perfect sample for the study. The 20 selected participants all have different takes on the implantation of cooperative purchasing organization. The diversity will expose the researcher to reliable information.

3.3.3 Sampling techniques

The participants will be purposively selected because they are deemed to have up to date information about the implementation of cooperative purchasing in the company

Simple random sampling will be used to select the employees from the procurement department. This will be used because it gives respondents equal chances of being selected to participate in the study.

3.4 SOURCES OF DATA

Data will be collected from both primary and secondary sources.

3.4.1 Primary sources

The primary sources will include the use of interviews. The researcher will ask open ended questions to collect data from the respondents.

3.4.2 Secondary sources

Under the secondary sources of data, the researcher will use documentary review which will include the use of various relevant materials such as the internet, newspapers, textbooks, journals, reports, magazines, recorded speeches and others to acquire more information to build the study further.

DATA COLLECTION METHOD

Data collection tools

The researcher will use interviews to collect information from the prospective interviewees.

There will be face to face interactions with the respondents. An interview guide will be used to collect data from the employees of the company. This is because interviews expose the researcher to accurate information which is required for the study.

3.5.2 Research procedure

Interview guides will be designed and reviewed by the researcher. Both open and closed ended questions will be used concurrently during the interview sessions will be used to collect easily analyzable data. A set of question guides will be prepared for reference by the supervisor and once accepted, the questions will be pre-tested before they are used to generate the interview guides.

After the approval of the data collection tools by the supervisor, the researcher will acquire an introduction letter from the office of the Academic Registrar of Kyambogo University. This will help the researcher to attain the cooperation of the respondents.

After that the researcher will meet the authorities of United Building and Transportation Services’ Company in order to seek consent to carry out the study within their area. At this point, it is important to prepare a plan for data processing and analysis based on aspects of data collection to generate qualitative analyzable data.

After meeting with the respondents’ company, the researcher will start with in-depth interviews with the key informants (heads of the department and the employees of the company) lasting 10-15 minutes. During all these sessions, the researcher will be the moderator and at the same time will be taking the notes down. The researcher will kin and careful while listening to the interviewee in order to capture accurate information.

After data collection, the researcher will continue to data analysis and presentation and after which a report will be compiled and presented to the researcher supervisor for approval.

3.6 DATA PROCESSING AND ANALYSIS

Qualitative methods will be used whereby Microsoft word will be used to tabulate all the findings for easy interpretation and completeness. Each question will be looked at to ascertain whether it has been answered and where this is impossible, the question will be regarded as a non-response. In regards to accuracy, the researcher will ensure that the responses given have a reasonable degree of internal consistency. Where consistency and logic are incompatible, the researcher will have to scrutinize the answers given further. At this stage, qualitative and quantitative data will be processed and analyzed differently

3.7 ETHICAL CONSIDERATION

The researcher will acquire an introduction letter from School of Management and Entrepreneurship from Kyambogo University which will help the researcher to attain cooperation from the respondents.

The researcher will verbally inform the respondents on the purpose of the study and ensure them that the research is only for academic purposes and that they will not be accountable for the findings.

Interviews will only be carried out on the consent of the respondents. Confidentiality and respect for the respondents will be highly observed during the study.

3.7.1 Limitations and Delimitations of the study

Some respondents will be very sensitive in giving out information concerning their status and information which is considered to be “confidential” due to security reasons.

However, the researcher will exhibit trust before the respondents and also ensure them that data obtained will be kept as confidential as possible and used purely for educational purpose.

Escalating financial costs in terms of transport, typing, printing, logistics and miscellaneous costs that will be incurred during the study.

However, more funds will be solicited from friends and family members to make the study successful.

APPENDICES

APPENDIX 1, INTERVIEW GUIDE

Dear respondent,

I am Adeke Rhita a student of Kyambogo University pursuing a Bachelor’s degree in procurement and logistics management. I am required to research on a topic in order to get an award for my bachelor’s degree. I have chosen to accomplish this through my study of “THE CHALLENGES FACED IN IMPLEMENTING COOPERATIVE PURCHASING IN UNITED BUILDING AND TRANSPORTATION SERVICES’ COMPANY”. I am kindly requesting you to answer the following questions. All responses are strictly for academic purposes as well as confidential.

Your co-operation in this exercise is highly appreciated.

Yours sincerely,

ADEKE RHITA (student)

Name………………..

Age

Between 25-30 between 36-40

Between 31-35 41 and above

Level of management

Top level

Middle level

Lower level

Is adopting cooperative purchasing in your company challenging at your level of management,

Agree disagree not certain

Strongly agree strongly disagree

Over the years has cooperative purchasing turned out to be necessary in the entity?

Agree disagree not certain

What is the process of implementing cooperative purchasing in your company?

………………………………………………………………………………………………..

How is cooperative purchasing of benefit to the organization?

………………………………………………………………………………………………..

What are the challenges faced in the implementation of cooperative purchasing in your company?

……………………………………………………………………………………………….

………………………………………………………………………………………………..

What measures can be adopted to mitigate the challenges faced in the implementation of cooperative purchasing in your company?

………………………………………………………………………………………………..

What is the current status of cooperative purchasing in your company?

………………………………………………………………………………………………..

APPENDICES

APPENDIX 1, INTERVIEW GUIDE

Wilbroad Oketcho

Leave a Reply Cancel reply