Definitions of terms
Procurement-the process of obtaining goods or services in anyway including borrowing and leasing.
Information technology-all forms of technology used to create, store, exchange, and use information in its various forms for example business data, voice conversations, still images, motion pictures, multimedia presentations, and other forms, including those not yet conceived.
Competency- the ability to do something successfully or efficiently.
Pareto Principle-this rule states that twenty percent of invested input is responsible for eighty percent of the result obtained
Learning curve theory– shows the rate of improvement in performing a task as a function of time, or the rate of change in average cost (in hours or dollars) as a function of cumulative output.
EDI-a technique based on agreed standards, which facilitates business transactions in standardized electronic form
E-procurement– The internet to operate the transactional aspects of requisitioning, authorizing ordering, receiving and payment process for the required services or products.
Skill-a learned ability to carry out a task.
Budget-a plan which sets out in money terms, the plans for income and expenditure in respect to a future period of time
Target population-The entire group of individuals, events or things of interest that the researcher wishes to investigate.
Abbreviations
B2B Business to Business
CBD Central Business Districts
CBK Coffee Board of Kenya
CIMA Chartered Institute of Managerial Accountants
CIPS Chartered Institute of Purchasing and Supply
CMB Coffee Marketing Board
EDI Electronic Data Interchange
EDIFACT Electronic Data Interchange For Administration, Commerce and Transport.
E-Procurement Electronic Procurement
FSD Financial Sector Deepening
IT Information Technology
ITTA Information Technology Association of America
GoK Government of Kenya
HRM Human Resource Management
KISM Kenya Institute of Supplies Management
PPOA Public Procurement Oversight Authority
P2P Purchaser to Payment
VAN Value Added Network
VFM Value for Money
FACTORS AFFECTING THE PROCUREMENT PERFOMANCE IN PARASTATALS IN KENYA: A CASE STUDY OF COFFEE BOARD OF KENYA
CHAPTER ONE
1.0 Introduction
This chapter introduces the topic which the researchers studied. It contains; background of the study, problem statement, research objectives, importance of the study and the scope of the study.
1.1 Background of the study
Procurement refers to the process of obtaining goods or services in anyway including borrowing and leasing (Lysons et al, 2006). Procurement can also be defined as all activities involved with obtaining items from a supplier, this includes the inbound logistics such as transportation, goods in and warehousing before the item is used (Kalakota et al,2000). However, we define procurement as an all-encompassing process for acquiring goods, services and works by an organization. It involves activities such as preparing procurement plans, market research, vendor evaluation and even negotiation of contracts.
According to Van Weele (2006) procurement performance is considered to be the result of two elements: purchasing effectiveness and purchasing efficiency. Performance provides the basis for an organization to assess how well it is progressing towards its predetermined objectives, identifies areas of strengths and weaknesses and decides on future initiatives with the goal of how to initiate performance improvements. This means that purchasing performance is not an end in itself but a means to effective and efficient control and monitoring of the procurement function (Lardenoije et al, 2005).
Parastatals are government owned companies, boards or organizations which help the government to run essentials functions of the government. And they provide very important services to the people of Kenya. The Parastatals are usually managed by board of directors who are appointed by the president of the republic of Kenya(Ekai Kaoo) .
The Public Procurement System in Kenya has evolved from a crude system with no regulations to an orderly legally regulated procurement system. The Government’s Procurement system was originally contained in the Supplies Manual of 1978, which was supplemented by circulars that were issued from time to time by the Treasury. The Director of Government Supply Services was responsible for ensuring the proper observance of the provisions of the Manual. The Manual created various tender boards for adjudication of tenders and their awards.
In 2003, the Government of Kenya (GoK) began to implement reforms to address inefficiency in the use of public resources and weak institutions of governance. Reforms included the development of anti-corruption strategies to facilitate the fight against corruption and the enactment of the Public Officer Ethics Act 2003, the Anti-Corruption and Economic Crimes Act 2003, the Financial Management Act 2004, and the Public Procurement and Disposal Act 2005. The latter will make the public procurement process more transparent, ensure accountability, and reduce wastage of public resources.
A 2005 Independent Procurement Review, conducted jointly by the GoK and the European Union, identified several critical problems with Kenya’s procurement system. The review found weak oversight institutions, a lack of transparency, poor linkages between procurements and expenditures, delays and inefficiencies, and poor records management. The GoK sought to improve its public procurement systems by enacting the Public Procurement and Disposal Act and creating the Public Procurement Oversight Authority (PPOA). Regulations implementing the Act were gazetted by the GoK on January 1, 2007.
1.1.1 The role of procurement function in organizations.
First, One role of the procurement department is to procure all necessary materials needed for production or daily operation of the company or government organization. Secondly, the procurement department evaluates prices and is charged with continuously evaluating whether it is receiving these materials at the best possible price in order to maximize profitability. Procurement department staff may communicate with alternate vendors, negotiate better pricing for bulk orders or investigate the possibility of procuring cheaper materials from alternative sources as part of their daily activities. Thirdly, the procurement department is charged with the duty of paperwork and accounting. It handles all the paperwork involved with purchasing and delivery of supplies and materials. Procurement ensures timely delivery of materials from vendors, generates and tracks purchase orders and works alongside the receiving department and the accounts payable department to ensure that promised deliveries were received in full and are being paid for on time. Another role of the procurement department is policy compliance. The procurement department must ensure that it is complying with all company policies. Before making a purchase, the purchasing department must ensure that it heeds the proper protocols for purchase and budget approval and must ensure that any items are purchased in accordance with the overall purchasing policy of the organization.
1.1.2 Factors that may affect procurement performance in parastatals
Below are some of the factors that may affect the performance of procurement in the public sector:
1.1.2.1 Adoption of information technology
Information technology is a term that encompasses all forms of technology used to create, store, exchange, and use information in its various forms for example business data, voice conversations, still images, motion pictures, multimedia presentations, and other forms, including those not yet conceived (Rouse, 2005).
Most government departments, agencies and even parastatals are yet to adopt information technology in carrying out their procurement functions. As far as procurement is concerned, I.T can be utilized in the following ways: sourcing for suppliers electronically, electronic invoicing and even electronic payment to suppliers.
1.1.2.2 The competency of the procurement staff
It is vital that the personnel who work in procurement are well trained and qualified to carry out their functions. They need to be competent in the following areas: relationship management, negotiation skills, analytical skills and professionalism.
1.1.2.2 Resource planning and allocation
In every organization, the procurement department works under a tight budget. Sometimes the funds allocated in the annual budget are not sufficient to meet all the procurement requirements of the organization. This poses a great challenge to the functioning of the procurement function in all the public organizations. Most firms do not allow for budget reviews so they cannot adjust the initial budget to accommodate needs that arise that were not planned for.
1.2 The statement of the problem
Procurement in parastatals in Kenya is affected by several factors. Complaints have arisen from stakeholders who have termed the public procurement system as being inefficient and ineffective. Problems of longer lead times, receiving of poor quality items and poorly executed projects are a few of the problems that have been associated with public procurement in Kenya (“Speedy reform of public procurement law needed”, 2012).
A good example of this is the recent cancellation of the Laptop project which serves only to underscore this fact (Augustine Oduor & Kurian Musa, 2014). Another recent case that made headlines in Kenya was the impeachment of the governor of Embu. One of the charges that have been levelled against him was procurement related. A serious allegation made was the procurement of 16 tonnes of maize seeds at a cost of 3.52 million which failed to germinate ( Njagi, 2014)
Besides the above mentioned cases, normal procurement activities in most public organizations have been affected by lead-time. In many cases, when goods, services or works are ordered they are delivered but not in time. It takes several days or even weeks for them to be delivered. Sometimes the goods are delivered after the need has already escalated to a major problem. The prolonged lead times have led to loss of customers in the organization, increased costs both in time and idle resources which has led to poor performance hence reduced profits. Coffee Board of Kenya is not an exception. Cases of late delivery of coffee for marketing, late delivery of computers and late delivery of services which means they don’t meet the need for which they were meant.
The need to have an efficient public procurement system in Kenya stems from the fact that a huge sum of the government expenditure is usually channelled towards acquisition of goods, works and services that facilitate its day to day running. This study seeks to address the factors that affect procurement performance in parastatals in Kenya.
1.3 Main objective
To establish the factors that affect procurement performance in parastatals in Kenya.
1.3.1 Specific objectives
- To determine whether adoption of IT in procurement improves the procurement performance in parastatals in Kenya.
- To establish whether the level of staff competency improves the procurement performance in parastatals in Kenya.
- To examine if resource planning and and allocation affect the procurement performance in parastatals in Kenya.
1.4 Research questions
- How does information technology affect the procurement performance in parastatals in Kenya?
- What is the relationship between staff competency and procurement performance in Kenya?
- How does resource planning and allocation affect the procurement performance in Kenya?