THE EFFECT OF COOPERATIVE PURCHASING ON THE PERFORMANCE OF KASANA HEALTH CENTRE IV
CHAPTER ONE
1.0 Introduction
This chapter presents the background of the study, statement of the problem, purpose, objectives of the study, research questions, scope, significance and definition of key terms.
1.1 Background to the study
Many companies are turning to cooperative purchasing agreements or buying groups in order to lower procurement costs. Courts and the antitrust agencies acknowledge that many cooperative purchasing agreements are precompetitive because they allow companies to lower input costs and achieve other cost savings. These purchasing efficiencies, however, have to be balanced against the potential to create monopoly buying power and facilitate collusion through standardization of costs and information sharing, (Schotanus, 2007).
Cooperative purchasing arrangements can raise antitrust concerns if the arrangement accounts for so large a portion of the purchases of a product or service that the buying group can effectively exercise market power in the purchase of the product or service or the products or services being purchased jointly account for so large a proportion of the total cost of the products or services being sold by the participants that the cooperative purchasing arrangement may facilitate price fixing or otherwise reduce competition. Sensitive information has become a bottleneck between the cooperation of enterprises. So protecting the sensitive information of enterprises is an important problem to promote enterprises’ cooperation. Cooperative purchasing can decrease enterprises’ cost, but cooperative enterprises are unwilling to provide sensitive cost information, (Nicolaisen, 2004).
Cooperative 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/or bundling their purchasing volumes, information, and/or resources (Schotanus, 2007). Unlike in the public sector where the companies get assistance from the Government to boost their performance, private companies’ survival depends on the hard work of the owners. This therefore, creates the need to take up various competitive strategies; of which cooperative purchasing is one. Purchasing has assumed an increasingly fundamental strategic role, evolving from an obscure buying function into strategic business partner (Ellram & Carr,2002) and firms that emphasize cooperation are more likely to achieve greater economic benefits (Dyer, 2000).In Uganda few private firms engage in joint activities. Worse still such activities remain largely operational. This does not optimize benefits realized from cooperative purchasing.
Cram (2006) defined Cooperative purchasing as the cooperation between two or more organizations in a purchasing group in one or more steps of the purchasing process by sharing andor bundling their purchasing volumes, information, and/or resources (Schotanus, 2007). According to Rozemeijer (2000), cooperative purchasing brings about pooled negotiation power 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. Anumber 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, 2007). Based on a research project in Germany, Essig (2006) reports an average volume increase ranging between 800% and 1200% for the 13 companies participating in co-operative sourcing arrangement.
In East Africa, cooperative purchasing owes its excellence way back to the colonial period where the colonialists introduced formal agricultural cooperatives (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. Previously each health centre in Uganda was purchasing its own drugs and supplies 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. 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.
National Medical Stores got its 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 led cost reduction, increase the product availability, exposure to quality goods and others (Schotanus & Telgan, 2007). The accumulated benefits by the medical sector 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 faced with challenges like differences in cultures, values, motives; fear of parasites and sharing of sensitive information, fear of loss of control et cetera (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. Thus need for the study
1.2 Statement of the problem
With the growing modernity, flexibility and global village, embracing of cooperative purchasing has made purchasing operations real, convenient and easy for entities. Adopting cooperative purchasing helps to improve on effectiveness, reduce costs and duplication of roles, improve responses from vendors et cetera (Schotanus et al, 2005). Despite the fact that many organizations have succeeded in adopting cooperative purchasing in their operations, they still face challenges in their operations such as poor employee motivation, limited supply base, limited cooperation and trust, higher fees et cetera (Gray, 2002).
Kasana Health Centre IV, Luweero at 100 percent has implemented cooperative purchasing through a third party, NMS. However, the centre has faced challenges like limited involvement of its staff members in the process, delivery of wrong drugs, bureaucracy, and loss of existing relations with existing suppliers. In pursuit to mitigate the identified challenges, the health centre advocated for its procurement staff to take part in the process, made proper specifications and sent earlier orders. But according to the Observer article by Moses Talemwa on 23rd October 2013& 2014 annual procurement department report, there was persistence in delivery of wrong drugs, non-staff involvement in the process leading to performance characterized by poor service delivery, low levels of output from the employees, stock outs. It is therefore upon this that the researcher seeks to examine “the effect of cooperative purchasing on the performance of Kasana Heath Centre IV.
1.3 General objective
The study will be carried out to establish the impact of cooperative purchasing on the performance of Kasana Heath Centre IV.
1.4 Specific objectives of the study
- To establish the benefits of cooperative purchasing on organizational performance.
- To examine the factors used to measure organizational performance
- To establish the challenges faced in cooperative purchasing
1.5 Research questions
- What is the benefit of between cooperative purchasing on organizational performance?
- What are the factors used to measure organizational performance?
- What are the challenges faced in cooperative purchasing?
1.6 Scope of the study
1.6.1 Content scope
The study generally will investigate the effect of cooperative purchasing on the performance of Kasana Heath Centre IV. The subject matter will be specifically based on the benefits of cooperative purchasing on organizational performance, the factors used to measure organizational performance and the challenges faced in cooperative purchasing.
1.6.2 Geographical Scope
The research study will be carried out at Kasana Health Centre IV located in Luweero District along the Kampala-Luweero-Gulu Highway opposite MTN Service centre Luweero branch.
1.6.3 Time Scope
The study will be carried out for a period from April to October, 2018. The study will base on 2000-2016 as the period for the knowledge of related studies.
1.7 Significance of the study
The findings of the study is hoped to be helpful to the following stakeholders;
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.
The researcher will help to expose procurement managers the benefits of cooperative purchasing. This will help them 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 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.
1.8 Definition of key terms
Performance: is how competent, efficient, integrity and honesty the organizational members are at utilizing the existing resources and procedures to carry out tasks, duties and responsibilities and operations to achieve organizational goals.
Organization Performance: the ability to operate efficiently, profitability, survive, grow and react to the environmental opportunities and threats.
Cooperative purchasing: the cooperation between two or more organizations in a purchasing group in one or more steps of the purchasing process by sharing and or bundling their purchasing volumes, information, an
