Relationship Between Procurement Strategies and Performance of Hotel
Relationship Between Procurement Strategies and Performance of Hotel
Procurement refers to the acquisition of goods, services and works by a procuring entity,
while public procurement, means the acquisition of goods, services and works by a
procuring entity using public funds (Kipkorir, 2013 ) The evolution of procurement dates
back to between 2400 and 2800 B.C. (Thai, 2001), with a procurement order of fifty (50)
containers of oil (Coe, 1989). Other historical evidence of procurement activities was the
development of the silk trade that involved China and Greek in 800 B.C. (Thai, 2001).
Global Perspective
2012). In the United States, the public sector procures between $1.4 and $1.6 trillion
annually. The Federal government alone procured $231.08 billion and made 33.19
Executives Council (2011), the federal government made a purchase card payment every
.31 seconds, and issued a standard form 281 every .77 second and a standard form 279
These procurement objectives and policies are implemented either by non-legal means
1
(in the United Kingdom, and those countries under the U.K.’s relationship between such
countries and the U.S.). Over the last decade, a significant number of countries,
particularly the transition countries, have adopted public procurement rules and
regulations for the first time or have reformed their existing procurement legal provisions
(Arrowsmith, 1998,).
service delivery (Basheka, 2010 cited in Kipkorir 2013). It accounts for a high proportion
of total expenditure. For example, public procurement accounts for 60% in Kenya (Bhatt,
2000), 58% in Angola, 40% in Malawi and 70% of Uganda’s public spending (Wittig,
1999). This is very high when compared with a global average of 12-20 % (Froystadet
al., 2010).
Due to the colossal amount of money involved in government procurement and the fact
that such money comes from the public, there is need for accountability and transparency.
Consequently, various countries both in developed and least developed countries (LDCs)
have instituted procurement strategies to make the activity both efficient and effective.
Procurement strategic is the process of creating alignment and consistency of action that
establishes the long range objectives and overall strategy or course of action by which
function and coordination of purchasing with other functions within the firm, and efforts
organization with the potential to; save cost, improve operational efficiency, access to
trusted suppliers, and improve in quality of product or service, sharing of best practices
among others (Magnus, 2006). There are various procurement strategic practices that
affect organizational performance. However, the main approaches discussed in this study
procurement strategic are able to deliver their products and (for this study), services.
3
In both developed and developing countries, procurement is increasingly recognized as
the most essential in service delivery and it accounts for huge proportion of total
and the fact that such money comes from the public, substantial resources have been
However, as Leni et al. (2012) notes, there is a growing concern among the citizenry and
instance, has not been able to adequately distribute electricity services to the public and
this can be attributed to lack of proper strategic procurement. It is against this backdrop
that this study would like to establish the relationship between of procurement strategic
1. Establish the extent to which Kenya CBD has adopted strategic procurement
strategic procurement
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1.4 Research Questions
2. How has the adoption of procurement strategic influenced the performance of Kenya
CBD ?
That the employees in the study area are professionals and therefore were to give
5
That all the employees in Kenya CBD , head office, Eldoret understood what
The study findings are important to Kenya Power Company which is the institution
tasked with distribution of power not only to the public but also to the private sector. The
findings shed light on how procurement strategic can assist procurement department
perform its functions cost effectively and how this might relationship between on the
Apart from Kenya Power Company, the findings are important to other public entities
and other government units since its findings will shed light on the importance of
procurement strategic in the public sector. The public agencies would therefore use these
findings to enable them weather down the storm and formulate policies and strategies that
would enable the public sector to play a positive role in enhancing government
The study also provides scholars and academicians with a repertoire of knowledge on
how procurement strategic might play a role in enhancing cost effective functions that
research raises more questions than it sought to answer, it is hoped that the limitations
from study would assist in generating research interests in the phenomenon of strategic
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1.7 Limitations and delimitations of the Study
However, since the phenomenon of procurement strategic has a universal application, the
researcher relied on a review of relevant literature, some of which have been carried out
2. Secondly, since the study was conducted exclusively among the employees of Kenya
Power company headquarters, the findings of the study was limited to, and could only be
applicable to the study organization and research population. Due to this, the findings can
confidentiality. This problem was solved by assuring the employees that the information
was to be treated with confidentiality and only used for academic purposes.
7
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter presents the theoretical framework, empirical literature, conceptual frame
work, and gaps to be filled by the study. Specifically, the chapter discusses the
institutional theory, socio-economic theory and systems theory. It also presents in detail
concerning the current study are also presented in details in this chapter.
elements that, together with associated activities and resources give meaning to life. He
further explains the three pillars of institutions as regulatory, normative and cultural
cognitive.
The regulatory pillar emphasizes the use of rules, laws and sanctions as enforcement
mechanism, with expedience as basis for compliance. The normative pillar refers to
norms (how things should be done) and values (preferred or desirable), social obligation
being the basis of compliance. The cultural-cognitive pillar rests on shared understanding
strategic policy and practices in organizations that serve the public. This is a matter of
organizational culture and the degree to which the prevailing climate in an organization is
8
supportive of strategy and changes in general. In other respects, this dimension includes
the extent to which there is support for procurement strategic at senior levels in an
organization and the degree to which organizational processes and structures support, or
integrating economic theory with theories from psychology and sociology to account for
decisions on compliance
According to Lisa (2010) psychological perspectives provide a basis for the success or
failure of organizational compliance. Wilmshurst and Frost (2000) also add that socio-
economic theory postulates that the organization is responsible to disclose its practices to
the stakeholders, especially to the public and justify its existence within the boundaries of
society.
This theory, which focuses on the relationship and interaction between an organization
and the society, provides a sufficient and superior lens for understanding government
procurement system (Huietal. 2011). From this theory we can understand the policy,
planning and procurement strategic practices in public institutions and their relationship
9
This theory was first applied in the fields of science and engineering before finding its
way into management in the late 1950s.The roots of systems theory can be traced back to
such figures as psychologist Gestalt and Kurt Lewin, whose “field theory” of group
dynamics emphasized that the whole is more than the sum of its parts, (Nwabuzor, 2005).
According to this theory, an organization is viewed as a group of parts that are highly
the overall mission and major objectives of the total system in making decisions.
An organization requires the parts to add value to the overall performance. Value-based
traditional “buying” processes and obtain relevant information from the external
2005).
The relevance of this argument in this study is that, an organization receives inputs from
the outside world which it then transforms, (the process known as throughputs) into
output and takes it back to the world for use as consumables. An organization will need
suppliers to provide the input it requires. The inputs could either be materials,
understanding that the organization must obtain inputs from suppliers, the procurement
managers will be better placed to ensure that supplier selection is done thoroughly. The
result will be a highly efficient procurement function that serves the organization leading
to high performance.
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2.3 Empirical Review
For this study, five key success factors which characterize effective procurement strategic
The first step in the development of a procurement strategic plan is to develop a clearly
identified goal which is aligned with the organization's mission, vision and values. A goal
Measurable objectives should be clear and specific enough that at the end of the plan's
objectives. SMART stands for: specific, measurable, actionable, realistic and time bound.
These objectives are the basis upon which progress can be evaluated. Procurement
strategic activities should be tailored to those values that are in line with the overall
business goals (Kathama, 2012).This is important in giving the procurement function the
force it requires in gaining the competitive edge that makes it realize or achieve intended
have direction and rally its resources in pursuit of these corporate goals. (Swinder,
&Seshadri, 2001)
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2.3.1.2 Spend Analysis
According to Moore (2004), spend analysis, centers directly on the money spent to allow
management to make adjustments wherever they see fit. More specifically, spend
analysis has been defined as “an analysis of expenditures along dimensions such as type
of commodity or service and suppliers, number of contracts and expenditures, and other
variables showing how current money is spent on goods and services performance. The
data for spend analysis can take many forms and originate from various sources. As the
definitions above illustrate, spend data can be any money spent on the procurement of
goods or services, or even day-to-day business activities (Porter, 1985). The author
further argues that data could be taken from the personal expense accounts of senior
Moore et al. (2004 cited in Irvine 2005), writes that the data used for spend analysis can
to institute procedures and/or checkpoints that deter and control random spending.
Random spending refers to any expenses that have not been incorporated into a firm’s
expenses can be foreseen, and therefore, planned for, by utilizing this technique,
organizations are able to identify and improve their purchasing processes in areas where
the greatest benefit can be realized—where exactly the change occurs depends on the
particular company and their long-range goals, (Moore et al., 2004 cited in Irvine 2005).
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2.3.1.3Establishment of a Measurement Plan
Hendricks and Ruch (1998) noted that measurement plans are important elements of a
on an ongoing basis, of the progress being made toward the achievement of tactics and
strategies in support of objectives and goals. Further they argue that, to ensure that the
plan is actionable and used to achieve the desired results, it is important to establish
accountability for strategies and tactics, to assign measures to monitor success and to
increase focus on specific strategies, while not meeting goals may suggest the need for
modifications.
Strategic procurement, including the design and implementation of sourcing plans, should
be measured in terms of the benefits that they have delivered compared with what they
were expected to deliver as set out in the original procurement plan. This might take the
form of a post-contract audit perhaps one year after the contract had been let. The
findings should be reported to and discussed by the purchasing and supply management
professional(s) and their Sourcing Board in order to learn from experiences and build on
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2.3.1.4 Supplier Relationship Management (SRM)
Supplier relationship has been defined as “two or more chain members working together
to create a competitive advantage through sharing information making joint decisions and
sharing benefits which result from greater profitability of satisfying customer needs than
According to (Mac Neil, 2002) supplier relationship is departure from the anchor point of
supplier and buyer are no longer narrowly defined in terms of simple transfer of
ownership of products. By focusing on relational exchange entails the activities that are
requirements for effective collaboration are mutual objectives, integrated policies, joint
commitment is the belief that trading partners are willing to devote energy to sustaining
the relationship (Dion et al., 2004), whereas according to Moorman, and Deshpande
relationship. Through commitment partners dedicate resources to sustain and further the
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2.3.1.5 Technology Utilization
At the public sector level, technology enhances infinite and non-restricted access to
that public administration can get through a system like this are: costs and process
cutting, possible broadening of supplier’s base, easy access to preferred goods (pre-
suppliers and not restrictive selection criteria, in which public administrations can choose
goods and services offered by several suppliers (Petrie, 2001). The whole process is
Aberdeen Group (2006) noted that in comparison to faxed purchase orders and the use of
information for spend analysis and management. An integrated ERP system with an
strategic planning.
results clearly show that the use of new technologies for instance, Electronic Data
Interchange (EDI) increase the efficiency of the procurement as well as improve overall
15
occurring at a slower pace than expected and such delays will make an organization to
Kai (2006) has opined that, procurement strategic allows procurement officers to develop
strategies for dealing with suppliers to achieve ongoing value for money, and reduce the
argue that procurement strategic allows the procuring organization to focus effort on the
right suppliers and ensures they are not being managed by their supplier. He further
argues that strategic contracts, including enterprise approved terms and language in key
clauses such as liability, attrition, cancelation, confidentiality and more, will ensure that
public enterprises are assured that all legal, corporate and regulatory requirements are
met; reducing risk at all levels particularly the financial penalties that can result from
benefits from; an overall reduction of quality costs by ensuring that the selected suppliers
deliver a product or service that does not need extensive quality control, contribution to
product and service innovation as most innovations in public institutions come from the
suppliers and buyers, reduce stock levels by imposing a solid discipline on suppliers and
enforce it.
In public enterprises, this will reduce the operational cost emanating from stock holding
limits and other supplies thus helping to increase flexibility of service to customer by
demanding it from partnered supplier through the technological platform for example
Electronic Data Interchange( EDI) and synchronized data systems (Kiragu, 2012).
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From development point of view, procurement strategic policies are significant. Reducing
poverty and attaining health, education, and other objectives among the citizenry requires
that the limited public funds available for public procurement of goods, services, and
works are efficiently managed. Generally, the efficient, effective and professional
envision how governments can deliver significant improvements in the welfare of its
and efficient procurement policies. This recognition therefore accounts partly for the
increasing concentration on procurement strategic processes and practices and the likely
procurement strategic practices. For instance, procurement strategic issues are often a
central focus of programs to deal with corruption and to ensure that appropriate entrusted
power for private gain by public officials are curbed (Everett, et al. 2005).
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2.5 Challenges Facing Strategic Procurement
The changes are putting pressure on how the procurement function performs its internal
Kakwezi and Sony (2010), notes that, the ability of any organization to realize
procurement goals is influenced by internal force and external force. These Interactions
regulations, rules, and guidance, and internal control policies, all need attention and
relationship between the performance of the procurement function and the organization.
strategies may require considerable patience on the part of procurement managers. Lyons
and Farrington (2006), agrees that suppliers will take time to ride the learning curve in
terms of doing business with the firm which may include understanding the firm’s values,
18
According to Thai (2001), public procurement practitioners have always walked on a
tight rope. Their ability to accomplish procurement objectives and policies is influenced
very much by internal forces including: Interactions between various elements of the
agency and actors and Enterprises external to sub-agencies; types of goods, services and
actions) and budget resources; Procurement organizational structure such as the issue of
Internal controls and legislative oversight. Efficient public procurement is a good tool to
implement public policy in all areas, and should be an instrument for good governance
and therefore good government. In this sense, good procurement contributes to the
diverting funds away from the attention of social needs; it engenders bad choices,
burdening a government with financial obligations for purchases or investments that are
not needed and early repair costs to repair and maintain investments. Economic
19
20
investments/purchases and when capital investment levels decrease because of corruption
Value for money and reduction of waste and inefficiencies are important principles of
the best return and performance for the money being spent (Bauld& McGuiness, 2006).
The authors however, argue that overseeing and ensuring that wastage is minimized or
eliminated and the unit is given value for money can often be a challenge.
Lipchak (2002) argues that good governance based on transparency, accountability and
trust (and similar values) has become a shared goal among governments around the
world. He goes on to say, however, that achieving this goal requires a common approach
effective good governance. He stresses the fact that there is a need to explore the
relationship between information management and good governance and to identify key
issues, which governments in both developed and developing countries should consider
However, the ability to preserve records does not match the ability to create such records.
Electronic records for example can be fragile, easily lost, destroyed, or altered, and run
the risk of obsolescence as software and hardware age and are replaced (Aberdeen Group,
2001)
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Alternatively, recognizing that good supply management requires long-term perspective
(Tummalaet al., 2006), government procurement could take a more strategic perspective,
reduction of waste. In response to this, increasing number of governments all over the
world are adopting modern information communication technologies (ICT) as a tool for
faced with difficulties, such as resistance from the bureaucracies involved; lack of
decision making from the top; lack of motivation; weak human capital; corruption and
fraud; and, in the case of conflict-ridden countries, the instability and violence that
damage any efficient long-term work (Dobler, 2002). Moreover, ICT systems are knotty,
expensive, and difficult to manage and maintain. In summary, it is clear that procurement
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2.6 Summary of Literature Review and Research Gap
When it comes to the study of general procurement, there exist a number of studies in
Kenya. However, there is limited research in the area of procurement strategic and in
which focused on the water sector, while Obiero (2008), did a study on the challenges in
the implementation of the Public Procurement & Disposal Act 2005 in the Ministry of
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2.7 Conceptual Framework
According to Raps and Kauffman (2005) conceptual framework is a set of broad ideas
and principles taken from relevant areas of application and used to structure a subsequent
diagrammatically. Apart from showing the direction of the study, through the conceptual
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Figure 2.1: Conceptual Framework
Strategic Procurement
Organizational performance
Productivity increase
Independent Variables
Dependent Variables
The figure 2.1 above describes the relationship between the variables of study.
organizational performance is the dependent variable. For the purpose of this study,
dependent variable with indicators such as; procurement productivity, procurement cost
reduction, quality of deliveries and timely delivery of goods and services procured and
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CHAPTER THREE: RESEARCH METHODOLOGY AND DESIGN
3.1 Introduction
This chapter presents the research design and methodology of the study. It consist research
collecting and analyzing data in order to answer the research questions or the research
hypothesis. This study adopted a descriptive survey design. According to Orodho (2003), a
to describe part of the population (sample) on the basis of which data will be collected.
economical in terms of time, it is possible and easy for the researcher to obtain current
factual information from the employees in the organization and it is a cheaper method of
studying the organization and coming up with accurate and deeper findings.
The research was carried out at Kenya CBD head office, Eldoret . Kenya CBD head
26
3.4 Target Population
elements, and events, group of things or households that are being investigated. It is thus
characteristics.
The population on focus in this study comprised the employees of Kenya CBD ,
head office, which has a population size of one hundred and ten employees (110).
The employees are distributed in five (5) distinct departments. This target population
was picked purposively, based on departments since they have the knowledge on the
study area. The table below shows the stratification of each department.
Procurement 16 14.55%
Finance 12 10.91%
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3.5. Sample Size and Sampling Technique
Sampling refers to the process of selecting a number of individuals for a study in such a
way that the individuals selected represents the large group from which they are
selected (Mugenda & Mugenda, 2003). To constitute a structured sample, the researcher
researcher also used stratified sampling in order to provide greater precision geared to
bring forth proportionate stratification whereby each stratum had the same sampling
The population was stratified into a number of strata and sample item were selected
from each stratum. Stratification aims to reduce standard error by providing some
control over variance. The researcher used a sample of fifty -five (55) employees which
constituted 50%
of the whole population under the study which is one hundred and ten (110) employees.
The researcher selected (50%) of the target population to act as the sample size, since it
has been argued that a sample size of at least 10% of the target population is adequate
28
Table 3.2 Sample Design
Procurement 16 0.5 8
Finance 12 0.5 6
and marketing
Technical 30 0.5 15
department
Mbweza (2006) defines research instruments as the techniques or tools which are used
for data collection. A questionnaire was used in this research. Cohen et al (2004) opines
terms of time, energy and finance. Similarly, it yields quantitative data which is very easy
Validity is the degree to which a test measures what it targets to measure. Cook and
Campbell (1979), postulate that validity is the best available approximation to the truth
29
and falsity of a given inference, proposition or conclusion. In this study, the researcher
adopted two kinds of validity: content validity and face validity. In the first instance, for
research instrument to be considered valid the content selected and included in the
questionnaire must be relevant to the variables being investigated. Moreover, face validity
which is commonly used in research of this kind was applied to determine if the tool
measured what it was supposed to measure. To establish the validity of the research
instrument, the researcher sought opinions of experts especially the supervisors to give their
opinions as to whether or not the instrument met this criterion. This concurs with Carmine
and Zeller (1979), who have argued that validity can be assessed using expert opinion and
informed judgment.
On the other hand, reliability, according to Mugenda and Mugenda (2003), is a measure of
the degree to which a research instrument yields consistent results on the data after repeated
trials. In order to establish the reliability of the instruments the researcher used
Cronbach’s Alpha formula which measures the internal consistency. The value of the alpha
coefficient ranges from 0-1 and may be used to describe the reliability of factors extracted
shows a more reliable generated scale. Cooper and Schindler (2008) have indicated 0.7 to be
an acceptable
reliability coefficient. The Alpha test was run using SPSS software which gave 0.856,
30
3.8 Data collection Procedures
Data was collected using structured questionnaires. Structured questionnaires usually consist
themselves. First permission was sought from the: National Commission for Science,
Technology and Innovation, the County Commissioner and County Director for Education
in Eldoret County, the Kenya CBD head office Eldoret , and Kenyatta University.
After permission was granted, the researcher contacted Kenya CBD Eldoret , and the
intention to drop questionnaires was explained to the human resources manager. The
questionnaires were then delivered to the respondents and they were given two weeks to
fill. The researcher collected the filled questionnaire after two weeks
The analysis of data requires a number of closely related operations such as the
establishment of categories, the application of these categories or raw data through coding,
and tabulation (Orodho, 2012).The data was analyzed by applying descriptive statistics
which included frequencies, percentages and graphs through thematic discussions of issues
and themes for the study. Graphs were generated by use of statistical package for social
31
The results were presented on average percentages, frequency table distributions and graphs.
Before data collection, the researcher sought for introductory letters from Kenyatta
University and also National Commission for Science, Technology and Innovation. After
this, permission was sought from the management of Kenya Power Company for the
32