ABSTRACT
Inappropriate tool to connect procurement unit with other parts of the organization has resulted to poor co-ordination and leakage of important information which has turned out to be costly component to the whole management process of the procurement function. Production schedule are often obstructed due to shortage of raw materials caused by delayed delivery as a result of slow procurement cycle time. Manual way of approving purchase documents has not only been seen as delay of process but caused organizations to incur cost on salaries and other allowances of additional employees that move the documents from one office to the other for approvals. Traditional procurement process negatively affects employees (job) performance since it requires time to perform the calculations manually. This research therefore sought to examine Enterprise Resource Planning (ERP) and procurement process efficiency in selected oil and gas servicing companies in Lagos State.
A survey research design was adopted. The population of the study consisted of staff that uses ERP on their various job functions in the four selected oil and gas servicing companies in Lagos. Purposive sampling technique was adopted for this study. The population size of 315 was used as provided by the information technology (IT) department of the understudied companies. Total enumeration method was adopted to select the sample for the study. A validated questionnaire was used as the research instrument. The results of the reliability test for questions on ERP system, information integration, timely procurement cycle, cost reduction and employees’ performance using the Cronbach’s alpha statistics were 0.845, 0.879, 0.766, 0.787 & 0.811 respectively. A total of 315 copies of questionnaire were distributed. Out of 315 copies administered, 297 copies of the questionnaire representing about (94.3%) were returned, and 18 questionnaires representing (5.7%) were not returned.
The findings revealed that ERP has significant influence on information integration (P=.001<0 .05="" and="" nbsp="" span="">significant effect on timely procurement cycle in organizations (P=.000<0 .05="" span="">). The study further revealed that ERP has significant impact of ERP on cost reduction in organizations (P=.000<0 .05="" span="">) and there is significant relationship between ERP and employees’ performance in the organizations (P=.000<0 .05="" span="">).
The study concluded that ERP has significant influence on procurement process efficiency. It is therefore recommended that the implementation of ERP should be adopted in procurement processes in all oil and gas servicing companies in Lagos state. This study also recommended that the adoption of the implementation of ERP should not only be limited to procurement department alone but should be adopted in all units of the organizations to enhance the integration of information, timely procurement cycle, reduction of cost and to enhance employees’ performance towards profit maximization for the organizations.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Procurement is seen as very important section in every organization hence, it requires a tight system on its processes(Sylvia & Willy, 2015). Procurement is a complex process that contributes tremendously to the competitive advantage of an organization (Novack & Simco, 1991; Knudsen, 2003). According to Makabira and Waiganjo (2014), up to seventy percent (70%) of organizational budget is expended through procurement of goods and services. With the fast development of industries and the need to competitively manage procedures and resources, it has become important to have a tool which can help the organization coordinate several activities (Spathis & Constantinides, 2004).
According to Puja, Hitesh, Parag, Gauray and Ajinkya (2013) and Kravos (2008),traditional procurement process is problematic because most of the operations were done manually vis-à-vis using application such as Microsoft excel spreadsheet. The traditional method is associated with several disadvantages such as time consumption, less accurate results, less efficient, lot of excel sheet work, slow data processing, unfriendly user environment and difficult to keep old record (Puja et al., 2013). Kravos (2008) further revealed that the use of traditional method in procurement process causes duplication of records because the tasks performed are not synergized thereby causing different entry points of the same data in the same organization. There was essentially loss of information between the departments within the organization because the mode of communication was mainly through face-to-face interactions, telephone and e-mail and also, excessive time is consumed in calculating the purchase requirements to payment of the supplier invoice (Kravos, 2008).
Recent changes in the business environment such as privatization and globalization has resulted to increased competitions that have made organizations to signify the need to search for new ways to survive and succeed (Spathis & Constantinides, 2004). Arguably, information technology (IT) offers the necessary tools for companies to respond effectively and efficiently to these changes in the business environment. Also, in this high automated IT-led business environment, companies are compelled to keep up to date with the modern technologies to remain competitive (Al-Mashari, 2001; Palaniswamy & Frank, 2000; Siriginidi, 2000). An example of such technologies is an Enterprise Resource Planning (ERP) system (Nicolaou, 1999). According to Tanyani and Gilaninia, (2015), the world today is heavily influenced by the customer, competition and change (3C). Companies have found that in order to support their process effectively and gain a larger share of the market, ERP should replace separate information systems. The application enables the automation of daily tasks, reducing operational costs and sharing of common data and thereby improves company performance (Davenport, 1998; Nicolaou, 1999; Kumar & Hillegersberg 2000; Stefanou, 2002; Nicolaou, 2004; Spathis & Ananiadis, 2005; Kanellou & Spathis, 2011).
According to Evans and Fred (2014), ERP facilitates the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. This software used by many enterprises particularly by multinational corporations, has a critical role in ensuring increased efficiency (Evans & Fred, 2014). ERP encompasses a set of business applications (modules) used to carry common business functions such as accounting, stock control, and logistics (Kavanagh, 2001). ERP system can automate business processes; share common data across the organization and most importantly produces real-time data. Although traditional information systems (IS) offer managers transaction processing, reporting and information for decision making, this appears insufficient in this modern business environment, where automation, effectiveness and efficiency in operations and real-time data remain essential factors for business success (Spathis & Constantinides, 2004).
The continuous growth and development of the Information and Communication Technology (ICT) has resulted in the appearance of different industries in the fields of electronics, computer, telecommunication, and the likes. This has brought about number of changes through its influence on the functions of the organizations. ERP has been one of the main software that helps organizations to manage their resources in the optimally effective fashion. ERP is a multi-module application system which combines the key businesses and management processes in an enterprise to enhance the efficiency level of the missions and tasks (Ali, Noor, Hashem & Norizan, 2010). In view of this and considering the importance of procurement functions in the survival of organizations in the recent globalized business environment, the needs to find out influence of ERP on procurement process efficiency has become necessary so as to ensure the survival of the organizations in this era of globalization.
In today’s business environment, information is the key resource for organization survival. The available information has to be reliable and relevant for the decision makers to make decision at the right time. If the organization does not have an effective mechanism that gives the decision makers the needed or the right information at the appropriate time, then the chances of that organization succeeding in the future will be difficult (Seyed &Dinesh, 2013). According to Fisher, Raman and McClelland (2000), the time available for organization to react to the change in the present market trend is limited. To stay stable with the changing trends, organizations should review suitable tools that can provide information that are accurate, relevant and timely. Any technology that will help the gathering of information will enhance the chances of organization to remain in the market (Fisher et al., 2000).
ERP systems allow the firms to manage their businesses with potential benefits reduction of cycle time; faster transactions; better financial management; the laying of the groundwork for e-commerce; and making implicit knowledge explicit (Yi & Chyan, 2010). ERP has the required capability to decrease the level of inventory, reduce costs, reduce lead-times, boost productivity and make corporate communication easier, more feasible, and decision making capabilities. ERP provide organizations with possibilities to raise the competitive advantage of their business and their share in the market (Ketikidis, Koh, Dimitradis, Gunsekaran, & Kehajova, 2008).
The potential advantages of ERP have resulted to its considerable growth in the market recently. In line with this growth, an increasing number of Small-sized and Medium-sized enterprises (SMEs) have tried to implement and operate these systems (Loh & Koh, 2004). According to Huang and Palvia, (2001), there is wide acceptance of ERP in developed countries such as the USA, Canada, UK, and Australia but developing countries like Nigeria and Asia are still slow to its general acceptance. According to Bashuna (2013) the old way of doing business using fax, e-mail, spreadsheets and manual way of preparing reports are no longer supporting today’s demand-driven enterprises to be competitive. It is in view of this, this study becomes necessary to examine the influence of ERP on procurement process efficiency in the selected Oil and Gas servicing companies in Lagos State, Nigeria.
1.2 Statement of the Problem
Today's high competitive business environment and technological changes has led investors to seek new ways to the success of their organizations (Stefanou & Athanasaki, 2012). Information technology (IT) offers various tools for companies to respond effectively and efficiently to these changes in the business environment and an example of such technologies is Enterprise Resource Planning (ERP) system (Nicolaou, 1999). Organizations could derive several benefits adopting the use of ERP (Markus, Axlin, Petrie & Tanis, 2000). Some companies in Nigeria have been seen adopting ERP especially in accounting processes but relatively few companies have adopted it in their procurement processes. It is in view of this, this study becomes necessary to examine the influence of ERP on procurement process efficiency in selected oil and gas sector servicing organizations in Lagos state, Nigeria.
Inappropriate tool to harness procurement unit with other parts of the organization has resulted to poor co-ordination and leakage of important information, which turns out to be costly component to the whole management process of the procurement function (Sylvia & Willy, 2015). ERP seems to be a potential solution to the problem of information leakage between procurement and other units of the organization internally and externally. In view of this, there is need to examine the influence of ERP on integration of information between procurement department and other parts of the organization internally and externally. Production schedule are often obstructed due to shortage of raw materials caused by delayed delivery as a result of slow procurement cycle which in turn causes loss in business (Seyed &Dinesh, 2013). Considering the numerous functions of ERP, it is therefore necessary to examine the influence of ERP on timely procurement cycle.
Furthermore, for survival of business in today's dynamic environment, organizations have to speed up its operational process, improve its quality and be flexible so as to competitively reduce their costs (Seyed &Dinesh, 2013). In conventional procurement process, there is delay inprocessing documents such as purchase requisitions and purchase orders are approved manually and additional staff are required to take the documents from one office to the other for approvals. Despite the fact that manual process of approving document takes time, organizations incur cost on salaries and other allowances for the employees that performs this duty over years. With ERP, documents could be approved electronically immediately it has been prepared and it does not require moving document from one office to the other. In view of this ERP function, it is required to examine the impact of ERP on cost reduction in the organizations.
Traditional procurement process is associated with many disadvantages which include lot of manual calculations (Puja et al., 2013). It could therefore be asserted that traditional procurement process reduces employees (job) performance since it requires time to perform the calculations manually. Employees with poor background on mathematical calculations are not expected to perform high with traditional procurement process. The adoption of ERP seems to be a motivation to employees’ performance. In view of this, it is also important to find out the relationship between ERP and employees (job) performance.
1.3 Objective of the Study
The main objective of the study is to determine the influence of ERP on procurement process efficiency. The specific objectives are to:
1. investigate the influence of ERP on information integration between procurement department and other units of the organizations;
2. examine the effect of ERP on timely procurement cycle in organizations;
3. determine the impact of ERP on cost reduction in procurement of process in organization and
4. find out the relationship between ERP and employees’ performance in procurement department in the organizations.
1.4 Research Questions
Following the above problems and objectives, this study intends to address the following research questions:
1. How does ERP influence information integration between procurement department and other units of the organizations?
2. How does ERP affect timely procurement cycle in the organizations?
3. To what extent does ERP impact cost reduction in the organizations
4. What is the relationship between ERP and employees’ performance in the organizations?
1.5 Hypotheses
The following hypotheses stated in a null form were formulated and tested
H01: ERP has no significant influence on Information Integration between procurement department and other parts of the organization.
H02: ERP has no significant effect on timely procurement cycle in the organizations
H03: ERP has no significant impact on cost reduction in procurement processes in the organizations.
H04: There is no significant relationship between ERP and employees’ performance in procurement department in the organizations.
1.6 Scope of the Study
This research focused on revealing possible how ERP enhanced procurement process efficiency. The study covered selected Oil and Gas servicing companies in Lagos State, Nigeria. Lagos State is chosen because the head offices of the selected companies in Nigeria are situated in Lagos State. The selected Oil and Gas servicing companies are: Nigerdock Nig Plc, Saipem Nigeria Ltd, Dorman Long Engineering Ltd and Pittsburgh Paints Nigeria Ltd. These companies are selected because they engaged in several procurement activities in efforts to provide required services to various Oil and Gas companies in Nigeria.The population of the study was 6,225 representing the total number of staff in the four selected companies. The sample size is 315 representing number of staff in the selected companies that uses ERP on their job functions. The decision to focus the study on only respondents that use ERP is to ensure that reliable information were gathered.
1.7 Significance of the Study
ERP is a packaged business system that enables organisation to automate and integrate majority of its business processes, share common data and practices across the enterprise, produce and access information in a real-time environment. In view of this, the information provided in this study would contribute to knowledge in management practice especially when planning to coordinate the activities of an organization as a single system.
The adoption of the implementation of ERP in the developing countries like Nigeria seems to be slow as a result of lack of necessary information on the influence of ERP on business success. This study would educate management of various business organizations in the Oil and Gas industry in Nigeria, the need to introduce ERP in various aspect of their business process especially in procurement process.
Furthermore, it is the researcher’s belief that the knowledge gained from this study enhanced employees to willingly accept the adoption of ERP since it has the capability to automatically perform the calculations that were done manually in the traditional procurement process. Therefore, the outcome of this study will enhance employees’ performance. The study encouraged prospective entrepreneurs to consider the adoption of ERP as part of their competitive strategy.
1.8 Operationalization of Variables
The variables in this study are classified into two namely; Dependent and independent variable. The independent variable (X) is the ERP while the dependent variable (Y) is the procurement processes. The parameters (sub-variables) used to determine the influence, effect, impact and relationship ofERP (X) on Procurement process efficiency (Y) are: information integration (y1); timely procurement cycle (y2); cost reduction (y3) and employees performance (y4).
Mathematically, it could be stated that;
Y = f(X)
i.e. Procurement process efficiency (Y) is a function of ERP (X).
Where:
Y = Dependent variable
X = Independent Variable
f = Function
and:
Y = Procurement Process Efficiency
X = ERP System
Y = (y1, y2, y3, y4)
y1 = Information Integration
y2 = Timely Procurement cycle
y3 = Cost Reduction
y4 = Employees Performance
Recall,
Y=f (X)
y1 = f (X) …………………………………Equation 1
y2 = f (X) …………………………………Equation 2
y3 = f (X) …………………………………Equation 3
y4 = f (X) …………………………………Equation 4
Regression Model
y1 = α0 + β1X + µ………………………… Equation 1
y2 = α0 + β2X + µ………………………… Equation 2
y3 = α0 + β3X + µ………………………… Equation 3
y4 = f(X) …………………………... Equation 4
Y= α0 + β1X+ β2X+ β3X+ β4X + µ………..General Equation
Where;
Equations 1, Equations 2 and Equation 3 illustrated the effect of erp on the dependent variables i.e. information integration (y1), timely procurement cycle (y2 ) and cost reduction (y3) while Equations 4 illustrated the relationship between erp and employees’ performance (y4).
β1–β4 = Regression parameters, which measure the coefficient of the independent variable, each measure the effect of a given change in the dependent variable accounted for by the dependent variable.
α0 = constant or intercept of the independent variable, this is the average value of the dependent variable when the independent variable is equal to zero
µ = error term or stochastic variable, this is included in the model to accommodate the influence of other variables that affect the dependent variables but not in the model.
1.9 Operational Definition of Terms
Cost Reduction: The cutting down of excessive expenditures thereby reducing procurement charges such as lowering administration rates, decreasing direct and indirect labour expenses.
Efficiency: Efficiency implies a level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs.
Employees Performance:The job related activities expected of a worker and how well and fast those activities are executed. It is synonymously used as job performance.
Enterprise Resource Planning (ERP): ERP is a standardized software packaged designed to integrate the internal value chain of an organization.
Information Integration: The availability of on-time and accurate information for every units of the organization for day-to-day operational use through data synchronization which results to timely availability of consistent procurement information and improved visibility into the procurement process.
Job Satisfaction: This is the pleasure employees derives when discharging certain procurement functions.
Job Stress: This refers to the difficulties encounters by employees when performing certain procurement functions manually.
Procurement: Procurement involves all activities required in getting goods or services delivered to the organization or executed.
Procurement Process: It is the procedures in preparing purchase requirements from purchase requisition, bid comparison; purchase order, material deliveries to invoice payment.
Procurement Cycle: This the process of procurement of goods or services from the time the request is raised from the user department to the time such request is processed to purchase order, delivered / executed and the supplier / contractor is paid for goods / services delivered or executed.
Procurement Process Efficiency: The extent to which operational procurement outcomes demonstrate high levels of improved performance in lead time, cost, labour-productivity (employees performance), and capacity utilization.
Purchase order (PO): This is a commercial document and first official offer issued by a buyer to a seller, indicating types / scope of goods or services, quantities, and agreed prices for goods or services.
Traditional Procurement Process: This refers to any methods of discharging procurement function that involves manual calculations and record keeping. It is used interchangeably as conventional procurement process.
1.9.1 Brief Synopsis of the selected Oil and Gas Servicing Companies
1.9.1.1 Nigerdock Nigeria Plc – FZE
Nigerdock Nigeria Plc – FZE is West Africa’s Leading Industrial Corporation focused on oil and gas construction and major marine services including offshore and pressure vessel fabrication, ship building and repair, industrial training and specialized Oil & Gas and Maritime support. It is strategically located on Snake Island Integrated Free Zone, an impressive industrial free zone facility and port development on an Island in the coastal waterways of Lagos, with immediate access to the open seas.
The company is organized into four main divisions including Offshore Fabrication, Pressure Vessels, Shipyard and the Training Centre. Each one of these divisions is a stand-alone unit headed by a General Manager reporting to the Managing Director. It also has a centralized Supply Chain Division to ensure efficient procurement and distribution of materials to the four operational divisions. Other administrative units of the company include the Finance/Accounts, Admin & Human Resources, Security, Health, Safety, Environmental & Quality
The company has an aggressive investment program into new plant, equipment and technologies. It is also committed to the training of its workforce and the constant improvement of its systems and procedures. Nigerdock Nig Plc is totally committed to achieving the highest levels of success in the areas of quality, delivery and value in the Oil & Gas and Maritime Industries.
1.9.1.2 Saipem Nig Limited
Saipem Nig Ltd is one of the global leaders in drilling services, as well as in the engineering, procurement, construction and installation (EPCI) of pipelines and complex projects, onshore and offshore, in the oil & gas market. The company have distinctive competences in operations in harsh environments, remote areas and deepwater. Saipem provides a full range of services with contracts on an engineer Procurement & construction EPC and/or engineering, procurement, construction and installation EPCI (turn-key basis) and have distinctive capabilities and unique assets with highest technological content. The company operates in 60 countries including Nigeria with 45,000 employees across the world.
Over 60 years presence in the oil and gas business, Saipem carry out oil & gas-related activities in remote areas and deep-waters through four Business Units: Engineering & Construction(E&C),OffshoreandOnshore, Drilling andFloaters. Saipem excel in providing engineering, procurement, project management and construction services, with distinctive skills and capabilities in the design and execution of large-scale offshore and onshore projects. The company offer cutting-edge technologies for the gas monetization and heavy oil exploitation. Saipem fabrication yards have an essential role within EPCI projects. Its yards are located in four continents. Each one has its own distinctive specialization and features. Saipem yards are located in key oil areas and they cooperate with local players contributing to the development of the local economies.
Saipem sees technologies as primarily enablers for achieving improved operational performance and for reducing the environmental impact of construction activities. The ability to innovate by developing new technologies and differentiated know-how and methodologies and by subsequently bringing them to industrial deployment is fundamental for Saipem.
1.9.1.3 Dorman Long Engineering Limited
Dorman Long Engineering Limited is a major player oil and gas servicing industries. It was founded in 1949 by a mechanical engineer named F. E. Turton Hart and Geo Cole operating as amalgamated Engineering Limited, one of the first structural engineering companies in Nigeria specializing in structural steel fabrication for bridges, factories and warehouses. In 1960 the company merged with British Steel’s Dorman Long and became Dorman Long & Amalgamated Engineering Limited with a much wider product range including water and fuel tanks, and commercial buildings. The company, then 100% owned by British Steel, played a major role in the general industrial development of Nigeria from the 60’s – 80’s including the spanning of the vast River Niger in the East, a bridge which today remains the main link between east and west Nigeria. The name changed finally to Dorman Long Engineering Limited in 2002.
The promulgation of the Indigenization Decree in 1977 by the Federal Government, saw the beginning of a significant reduction in foreign and an increase in Nigerian shareholding and today the company is 100% owned by Nigerian institutions and individuals. By the 90’s, the company moved into the manufacture of equipment for the rapidly expanding oil and gas industries starting with pressure vessels and to do so had developed the facilities and key state of the art skills required for a wide range of high precision heavy engineering products and services. The expansion of facilities and skills continues, most recently with the installation of Nigeria’s only large scale engineering quality hot dip galvanizing plant.
Today Dorman Long is the leading Nigerian engineering company, manufacturing products and providing services to the oil, gas and other industries previously only available from overseas. The company has its head office in 12/14 Agege Motor Road, Idi-Oro, Lagos and branch office at UTC Building, 16 Azikiwe Road, Port Harcourt. Major development and expansion over recent years has and continues to be facilitated by substantial ongoing further shareholder investment. The company uses SAGE ERP on its procurement process.
1.9.1.4 Pittsburgh Paints Nig Ltd (Formerly Known as SigmaKalon Nig Ltd)
Pittsburg Paints Nig Ltd is a Nigeria branch of Pittsburgh Plate Glass (PPG). It is a global manufacturer of paints, coatings, optical products, specialty materials, glass, and fiber glass. The industrial paints produced by PPG are now widely used in coating oil and gas fabricated structures. PPG has 200 companies with headquarters in Pittsburgh and operations in nearly 70 countries around the world. Found in 1883 as Pittsburgh Plate Glass by Captain John B. Ford and John Pitcairn in Pittsburgh, Pennsylvania. The enterprise focused on innovation and quality and 130 years later, PPG Industries is still dedicated to these priorities. Today, PPG is a global supplier of paints, coatings, optical products, specialty materials, glass and fiber glass.
PPG's vision is to continue to be the world's leading coatings and specialty products’ company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. During the company’s first decade, its flat glass production expanded rapidly through new facilities and acquisitions. In 1899, the business diversified with the construction of an alkali plant in Barberton, Ohio, to supply raw materials for glassmaking – the precursor to PPG’s chemicals businesses. A year later, PPG started building its coatings business by acquiring an interest in Wisconsin-based Patton Paint Co. which proved a good fit for the company because paint and glass products typically reach the customers through the same distribution channels.
PPG has increasingly remained in business over the years. During the 1900s, PPG becomes one of the first U.S. firms to expand operations in Europe, acquiring a glass plant in Belgium. Glass and paint provided continued growth in the 1920s, as the automotive industry and skyscraper construction expanded. In 2008, PPG makes the largest acquisition in its history by acquiring SigmaKalon Group, a worldwide coatings producer. SigmaKalon brought strong architectural paint, protective and marine coatings, and industrial coatings businesses, and it greatly expanded PPG’s footprint in Western and Eastern Europe, Asia, and Africa. PPG continues to accelerate the pace of its business portfolio transformation and to grow its position as the leading global coatings and specialty products’ company.
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