AN EVALUATION OF THE FACTORS AFFECTING SUPPLIER PREQUALIFICATION BY
PUBLIC ENTITIES ON PROCUREMENT PERFORMANCE A CASE STUDY OF KISII
UNIVERSITY
LYDIA KEMUNTO NYABINGE
A Research Project Submitted to the Board of Undergraduate Studies in Partial
Fulfillment of the Requirement for the Award of the Diploma in Purchasing and Supplies
Management of School of Business and Economics, Kisii University
NOVEMBER, 2017
DECLARATION AND RECOMMENDATION
DECLARATION
This Research Project is my original work and has not been presented to any other examination
body.
Signature………………………….. Date ….………………
LYDIA KEMUNTO NYABINGE
CB05/10120/16
RECOMMENDATION
This Research Project has been submitted for examination with my approval as University
supervisor.
Signature………………… Date……………………
MR. PETERSON SANG’ANIA
Lecturer,
School of Business and Economics
Kisii University
2
DEDICATION
I dedicate this project to my parents Mr. and Mrs. Nyabinge who has been my guardian angel in
every way to success and their endless support that they have accorded me to the total
completion of this work.
3
ACKNOWLEDGEMENT
I would like to acknowledge the efforts of my supervisor, Mr. Sanga’nia, for his supervision and
professional expertise during the preparation of this Research Project.
4
ABSTRACT
The general objective of study was to evaluate the factors affecting supplier prequalification bypublic entities on procurement performance specifically Kisii University. The study was guidedby the following specific objectives: to establish the extent to which supplier qualitycommitment influences procurement performance, to assess the influence of supplier’s financialstability on procurement performance and to examine the influence of suppliers’ competence onprocurement performance in Kisii. Interested researchers would find this work a basis on whichto build further research on. The findings of the study may be of benefit to the followingstakeholders; management of Kisii University and the government of Kenya in managingprocurement matters. The study adopted a case study design. The target population of the studyincludes all employees of Kisii University whose population is 1141. According to Mugenda andMugenda (1999) a population comprises the total number of cases/items featured in the study.The sample of the study was 114 staff of Kisii University who was given questionnaires to fill.The sample was 10% of the target population and was suitable for this study as recommended byScooper and Schondler (2001). For the purpose of the study, the researcher used questionnaireswith both open and closed ended questions to collect data. Validity was ensured by theUniversity Supervisor’s cross-checking the questionnaires to ensure that they are correct andaccurate Dooley (2003). Reliability of the questionnaire was determined by test-retest runmethod in the area of study by using respondents who are not be part of the study sample butwho work in Kisii University. After collection of data with questionnaires, editing was done. Theedited data was organized and coded. This was done by considering similar views and responsesand grouping them together. The data was tabulated according to variables where each tablerepresented a variable. The data was analyzed using descriptive statistical methods of weightedaverage and percentages. Then the results were presented in form of tables. The study found outthat; conformance is one of the influences of supplier commitment on procurement performance;similarly, the study found out that reliability and procurement responsiveness are also otherinfluences of supplier commitment on procurement performance. Capacity management is one ofthe influences of supplier’s financial stability on procurement performance; similarly, the studyfound out that quality of end product, cost efficiency and profitability are also other influences ofsupplier’s financial stability on procurement performance. Effective procurement solutions is oneof the influences of supplier’ competence on procurement performance, on the other hand, thestudy found out that service delivery and performance are also other influences of suppliercompetence on procurement performance. The study recommends that; Kisii University shoulddeal with the issue of excess documents needed during supplier prequalification, excess timetaken in processing orders in the hospital and luck of skills needed to execute supplierprequalification process to minimize the challenge of supplier prequalification. Kisii Universityshould provide training to other employees on supply prequalification process to enhanceeffective procurement procedures and effective record keeping and management. The studysuggests the following topic for further studies; to examine the impact of supplier outsourcing inan organization.
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TABLE OF CONTENTS
DECLARATION AND RECOMMENDATION.........................................................................ii
DEDICATION..............................................................................................................................iii
ACKNOWLEDGEMENT...........................................................................................................iv
ABSTRACT....................................................................................................................................v
LIST OF FIGURES....................................................................................................................viii
CHAPTER ONE............................................................................................................................1
INTRODUCTION.........................................................................................................................1
1.1 Background to the Study...........................................................................................................1
1.2 Statement of the Problem...........................................................................................................3
1.3 General Objective of the Study..................................................................................................4
1.4 Research Questions....................................................................................................................4
1. 5 Significance of the Study..........................................................................................................5
1.6 Limitations of the Study............................................................................................................5
1.7 Scope of the Study.....................................................................................................................5
1.8 Assumptions of the Study..........................................................................................................5
1.9 Operational Definition of Terms................................................................................................6
CHAPTER TWO...........................................................................................................................7
LITERATURE REVIEW..............................................................................................................7
6
2.1 Theoretical Review....................................................................................................................7
2.1.1 Agency Theory........................................................................................................................7
2.1.2 Resource Dependency Theory................................................................................................8
2.2 Empirical Literature Review......................................................................................................9
2.2.1 Supplier Quality Commitment and Procurement Performance..............................................9
2.2.2 Supplier’s Financial Stability on Procurement Performance................................................13
2.2.3 Supplier Competence on Procurement Performance............................................................14
2.2.4 Procurement Performance....................................................................................................16
2.3 Research Gap...........................................................................................................................16
2.4 Summary..................................................................................................................................18
2.6 Conceptual Framework............................................................................................................19
CHAPTER THREE.....................................................................................................................21
RESEARCH METHODOLOGY...............................................................................................21
3.1 Research Design......................................................................................................................21
3.2 Study Area...............................................................................................................................21
3.3 Target Population.....................................................................................................................21
3.4 Sample Size and Sampling Techniques...................................................................................21
3.5 Data collection Instruments...................................................................................................21
3.5.1 Validity of the Instruments....................................................................................................21
3.5.2 Reliability of the Instruments...............................................................................................22
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3.6 Data Analysis and Presentations..............................................................................................22
CHAPTER FOUR.......................................................................................................................23
DATA ANALYSIS INTERPRETATION AND PRESENTATION..........................................23
4.1 Response Rate..........................................................................................................................23
4.2 Bio-Data...................................................................................................................................23
4.2.2 Gender...................................................................................................................................23
4.2.3. Age Bracket.........................................................................................................................24
4.2.4. Level of Education...............................................................................................................24
4.2.5 Duration................................................................................................................................25
4.3 Influence of Supplier Quality Commitment on Procurement Performance............................25
4.4 Influence of Supplier’s Financial Stability on Procurement Performance..............................26
4.5 Influence of Suppliers’ Competence on Procurement Performance........................................27
CHAPTER FIVE.........................................................................................................................29
SUMMARY OF THE FINDINGS, CONCLUSIONS AND RECOMMENDATIONS..........29
5.1 Summary of the Findings.........................................................................................................29
5.2 Conclusions..............................................................................................................................29
5.3 Recommendations....................................................................................................................30
5.4 Suggestions for Further Studies...............................................................................................30
References.....................................................................................................................................31
Appendix I: Letter of Introduction............................................................................................34
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Appendix II: Questionnaire........................................................................................................35
LIST OF FIGURESFig. 2.1 Conceptual Framework …………………………………………………………………19
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Prequalification is the process of up-front identification of top-quality suppliers able to compete
for specific types of contract opportunities. Prequalified suppliers are those whose record of
performance in the marketplace, whether commercial or governmental, demonstrates their ability
to perform to consistently high standards of quality and reliability (Abdi, 2014).
Procurement encompasses the whole process of acquiring property and/or services. It begins
when an agency has identified a need and decided on its procurement requirement.
Procurement continues through the processes of risk assessment, seeking and evaluating
alternative solutions, contract award, delivery of and payment for the property and/or services
and, where relevant, the ongoing management of a contract and consideration of options related
to the contract. Al Manaseer, E. (2013).
Procurement also extends to the ultimate disposal of property at the end of its useful life (Waters
2004). Sound public procurement policies and practices are among the essential elements of
good governance (KIPPRA, 2006). (Otieno 2004) notes the irregular procurement activities in
public institutions provide the biggest loophole, through which public resources are
misappropriated, (Otieno 2004).
According to Thai (2001), the basic principles of good procurement practice include
accountability, where effective mechanisms must be in place in order to enable procuring entities
spend the limited resources carefully, knowing clearly that they are accountable to members of
the public; competitive supply, which requires the procurement be carried out by competition
unless there are convincing reasons for single sourcing; and consistency, which emphasizes the
equal treatment of all bidders irrespective of race, nationality or political affiliation.
In Kenya, the government does not use state-owned enterprises to manufacture goods and
services that public authorities require to perform their duties. Therefore the government has to
purchase various goods and services from the supply market.
This purchasing process is regulated by the Public Procurement and Disposal Act (PPDA) (2005)
that provide for the conclusion of contracts between public entities and the providers of goods,
works and services. The act also sets out required standards and procedures, while oversight
transparency and accountability mechanisms are provided by the Public Procurement Oversight
Authority (PPOA) (2007).
Public procuring entities as established in the act include the Government or any department of
the Government, the courts, commissions established under the Constitution, a local authority
under the local government, state corporations, the Central Bank of Kenya, co-operative society,
a public school, a public university or an entity prescribed as a public entity.
Voordijk, H. (2015), contends that procurement systems contribute significantly to national
productivity growth through the removal of non-value added activities in acquisition and
disposal of goods and services. Adoption of pre-qualification of suppliers in Kenya has been
slow with practical difficulties experienced in getting the system up and running according to
Waweru, L. (2015).
There is still discussion on implementation and management models of pre-qualification of
suppliers and perhaps the inter-link of the models with suppliers, customers and other
stakeholders. In fact, there appears to be little consideration for the management or
organizational issues associated with pre-qualification of suppliers.
An assessment of the Procurement System in Kenya by the PPOA (2007) revealed that Public
Procurement and Disposal Act (PPDA) 2007 and the Regulations established procuring entities
were allowed to apply pre-qualification procedure from which quotations were raised for
potential supplier in procurement contracts.
Procuring Entities (PEs) were however required ensure a “fair and equal rotation” of supplier.
However, the concept of “fair and equal rotation” was not adequately explained and illustrated,
and may therefore result in misinterpretation among the PEs. Further, the report revealed that the
procuring entity has a mandate to register contractors and maintaining registers categorizing
these depending on capacity and qualifications.
Further neither the PPDA nor the Regulations elaborates on evaluating the technical capacity of
suppliers and contractors. The lack of clear procedures causes some confusion as to when and
how to apply technical capacity as a key criterion in prequalification and selection of suppliers.
There has been also excessive use of quotations rated at 89.2% of all public procurement
contracts as opposed to 1.3% open tenders. There have been also significant differences in PE
procurement practices as well as lack of mechanism providing structured incentives for sound
and efficient procurement among the system’s key players (PPOA, 2007).
Being a public entity, being part of the, Kisii University is bound by the public procurement laws
of Kenya which require public institutions to prequalify suppliers and contractors of services
periodically and ensure fair award of contracts.
However, previous evaluation reports have indicated weaknesses in the prequalification
processes that affect the outcome of the procurement process such as the technical capacity of
contractors, the selection criteria applied and the competency of the contractors (PPOA, 2007).
There is however scanty empirical research examining the performance effects of supplier
prequalification (Petersen, Handfield & Ragatz, 2005). This study therefore seeks to assess the
factors affecting supplier prequalification by public entities on procurement performance
specifically Kisii University.
1.2 Statement of the Problem
The procurement function is one of the key pillars in any organization hence its contribution is
significant. The procurement function has changed conventional purchase and suppliers’ role in
public institutions to strategic management to optimize returns while cutting costs, enhancing
competition and accountability, fostering the culture of fair play in the business industry and
eradication of corruption. Since other studies on procurement in Kenya have focused on:
challenges facing procurement systems in manufacturing industries; total quality management
for purchasing management; the role of strategic purchasing in the efficiency of industries in
Kenya ; evaluation of the purchasing department in local authorities and factors influencing the
implementation of E-procurement among firms. The results of these studies, however, do not
explain the factors affecting pre-qualification of suppliers on organizational performance. The
available literature reviewed for the study outlined the various important elements of proactive
procurement but its main shortcomings are that the studies are confined to the general aspects of
Procuring Entity -Supplier Relationships and how to achieve them. None of the past studies
provides a detailed contribution and the specific effects of supplier prequalification on
procurement performance. Getting an insight of this unexplored relationship will bring a greater
meaning to the relationship between the Procuring Entity- Supplier Relationships while
achieving efficiency and effectiveness in procurement performance as a system. In order to fill
this gap and to resolve the current inefficiencies in the current relationship between organizations
and its prequalified suppliers, clarity is essential for the purposes of understanding the role of
proactive procurement prequalification on organizations performance. It is for this reason that the
research study will examine the factors affecting supplier prequalification by public entities on
procurement performance specifically Kisii University.
1.3 General Objective of the Study
The general objective of study was to evaluate the factors affecting supplier prequalification by
public entities on procurement performance specifically Kisii University. The study was guided
by the following specific objectives:
i. To establish the extent to which supplier quality commitment influences procurement
performance in Kisii University.
ii. To assess the influence of supplier’s financial stability on procurement performance in
Kisii University.
iii. To examine the influence of suppliers’ competence on procurement performance in Kisii
University.
1.4 Research Questions
The study was guided by the following research questions:
i. To what extent does supplier quality commitment influences procurement performance in
Kisii University?
ii. What is the influence of supplier’s financial stability on procurement performance in
Kisii University?
iii. What is the influence of suppliers’ competence on procurement performance in Kisii
University?
1. 5 Significance of the Study
Interested researchers would find this work a basis on which to build further research on. The
findings of the study may of benefit to the following stakeholders; management of Kisii
University. The study aims at benefiting the management of Kisii University by providing
information that may not readily available to them in coming up with the effective supplier
prequalification.
1.6 Limitations of the Study
During the course of the study the respondents was unwilling to respond due to fear that the
researcher may disclose the institution’s information in fear of victimization but the researcher
tried to convince them that any information given out was to be treated confidentially and is
purposely for academic.
1.7 Scope of the Study
The research study was restricted to Kisii University to establish the factors affecting supplier
prequalification by public entities on procurement performance during the month of September
2017. The study target a population constituted of supply chain management departments
workers mainly from the stores, logistics, procurement and finance departments in Kisii
University.
1.8 Assumptions of the Study
It was assumed that the respondents were available during the research period and provided
viable and reliable information for analysis.
1.9 Operational Definition of Terms
Procurement - The acquisition of good and service through purchasing or any other
means
Prequalification -Refers to the process of up-front identification of top-quality suppliers
able to compete for specific types of contract opportunities.
Performance -Refers to an act of staging or presenting a play, concert, or other form of
entertainment
Supplier - Refers to a person or organization that provides something needed such
as a product or service
CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical Review
The study was guided by the agency theory and Resource Dependency Theory of the Firm.
Agency theory is concerned with agency relationships.
2.1.1 Agency TheoryThe important assumptions underlying agency theory is that; potential goal conflicts exist
between principals and agents; each party acts in its own self-interest; information asymmetry
frequently exists between principals and agents; agents are more risk averse than the principal;
and efficiency is the effectiveness criterion. Two potential problems stemming from these
assumptions may arise in agency relationships: an agency problem and a risk-sharing problem
(Fathi, 2013).
An agency problem appears when agents' goals differ from the principals' and it is difficult or
expensive to verify whether agents have appropriately performed the delegated work (i.e. moral
hazard) (Makokha, 2013). This problem also arises when it is difficult or expensive to verify that
agents have the expertise to perform the delegated work (i.e. adverse selection) that they claim to
have.
A risk-sharing problem arises when principals and agents have different attitudes towards risk
that cause disagreements about actions to be taken (Xingxing, 2012). The assumptions and
prescriptions of agency theory fit naturally with the issues inherent in supply chain quality
management. In the process of managing supplier quality, buyers in agency relations are faced
with potential problems.
By their nature, buyers expect suppliers to provide good quality and to improve the quality of
supplied products and/or services, but suppliers may be reluctant to invest substantially in
quality, especially if they perceive that buyers are reaping all the benefits. The difference
between buyers and suppliers will result in the two parties concerning themselves only with their
self-interests (Githemo, 2012).
Agency theory determines how procurement managers execute procurement practices on behalf
of Kisii University. Existence of poor principle agent relationship leads to low level of top
management commitment and this also affects the relationship between institutions and the
suppliers (Ademan, 2014).
Existence of conflict of interest amongst the agents leads to execution of procurement practices
against the procurement the procurement policies and this leads to increased procurement budget
and loss of procurement funds. The study thus will use this model to determine the procurement
efficiency attributable to the prequalification exercise in Kisii University.
2.1.2 Resource Dependency Theory The Resource Dependency Theory (RDT) was originally developed by Pfeffer and Salancik
(1978) based on the idea that resources are key to organizational success and that access and
control over resources is a basis of power. Resources are often controlled by organizations not in
the control of the organization needing them, meaning that strategies must be carefully
considered in order to maintain open access to resources.
The RDT shows how firms and other organizations rely on each other’s resources in access to
raw materials, goods, services, finance, knowledge among others for their survival and success.
It is assumed, then, that buyers and suppliers are linked in a network through resource
dependency and that these linkages or relationships are characterized by the exchange of existing
resources and the creation of new resources. The theory draws from social exchange theory to
examine how buyer–supplier relationships operate and evolve over time, using concepts such as
expectations, co-operation, trust, commitment, communication and conflict behavior. Actors are
assumed to be self-interested rather than opportunistic, and to recognize that serving their self-
interest requires them to interact with others in a network context.
One of the key insights offered is that a single buyer supplier relationship can be characterized
by both competitive and co-operative behavior, either simultaneously on different levels within
each organization or at different times in the relationship. Firms are seen as organic and adaptive
rather than mechanistic and rational (Davis & Cobb, 2009). Suppliers are key resources in any
organization since competent suppliers enable it effectively discharge their duties. The strength
of organizations supplier base is determined at the prequalification stage in which supplier
identify that supplier with capability to meet organizational goals effectively. This theory would
therefore be used to explain how the supplier prequalification of Kisii University contributes to
the procurement performance..
2.2 Empirical Literature Review
2.2.1 Supplier Quality Commitment and Procurement Performance
The supply chain is a set of approaches utilized to efficiently integrate suppliers, manufacturers,
warehouses and stores so that merchandise is produced and distributed at the right quantities, to
the right locations, and at the right time in order to minimize system wide costs while satisfying
service level requirements Simchi-Levi et al. (2009).
Numerous studies have addressed how a supplier effectively improves the performance of its
purchasing units in a dynamic environment as far as consumer expectations are concerned. These
studies have discussed how supplier quality management (SQM) can enhance organizational
performance across the supply chain by minimizing operational costs, shortening process cycle,
refining quality performance and enhancing customer satisfaction (Shin et al. 2000).
Supplier quality management is a set of activities in most cases initiated by the management to
improve organizational performance. Such activities include measuring and tracking the cost of
supplier quality, using performance based score cards to measure supplier performance,
conducting supplier audits and establishing effective communication channels with suppliers
among many more, with an aim of achieving customer satisfaction (Carr and Pearson, 1999).
Forker (1999) argues that the impact of supplier quality on an organization’s performance is large
and direct, and the general understanding is that a firm’s quality performance (output) can only
be as good as the quality performance of its suppliers (input). An increasing tendency towards
supplier development by organizations as supplier quality integration is found to be a critical
dimension of quality excellence. Supplier Quality Management (SQM) The concepts of SQM
can be viewed as an integration of strategic practices, and such practices need to stretch across
inter-organizational boundaries to satisfy both existing and new customers (Harland et al. 1999).
Accordingly, Yeung and Lo (2002) view SQM in terms of the managerial efforts necessary for
creating an operating environment in which a manufacturer can integrate its supplier capabilities
into its operational processes. These managerial efforts can be clustered into several components,
namely management responsibility, supplier selection, supplier development, supplier
integration, quality measurement and conducting supplier audits. (Fernandez, 1995) state that
supplier selection, supplier development and supplier integration can be regarded as forming an
SQM system, with management responsibility seen as the driver of the system. Measuring and
Monitoring the Performance of the Supplier Measuring supplier performance is an important
means of modifying managerial behavior, and aligning the relationship with the strategic and
operational goals of the buyer firm (Paul et al. 2008).
Performance measures provide the information necessary for decision makers to plan, control
and direct the activities of the organisation. They also allow managers to measure performance,
to signal and educate suppliers on the important dimensions of performance, and to direct
improvement activities by identifying deviations from standards. Many well-known frameworks
have been developed to aid in these goals, including the balanced scorecard (Kaplan and Norton,
1992).
Paul et al. (2008) explains that for purchasing managers, the evaluation and monitoring of
supplier performance is also a critical responsibility. Price has been traditionally considered as
the single most important factor in evaluating and monitoring suppliers. Changes in competitive
priorities have also seen other dimensions of performance, including quality, delivery and
flexibility become increasingly important. Consequently, in order to maintain effective
partnerships, the buyer must continuously monitor supplier performance across multiple
dimensions and provide feedback for improvement.
Chris and Adam (2007) on the other had argued that convenient performance measurement
structure for suppliers is encompassed in the concept of the “perfect order”. The perfect order has
three elements: delivery of the complete order; on time; and, an error-free invoice. Many
supermarkets extend this concept to include: delivery to correct address; the product being
undamaged; and, conformance to quality standards. To achieve these six customer focused
targets the supplier will need to measure a wide range of other related internal aspects. Supplier
Audits Another supplier quality activity is conducting supplier audits. This is a very time
consuming exercise but it is important since it adds value to a business. In modern organizations,
the role of a quality auditor is that of an adviser who identifies areas of improvement for mutual
benefit. Many firms are also adopting the non conformance audit where the auditor lists all the
cases he has observed where things are not being done in accordance with procedures and
whether they make sense or not. It should however be noted that supplier audits should not be
regarded as an exercise to give the suppliers „homework‟ to do, but should be aimed at
improving the relationship between the customer and supplier. This is because after the audits,
the payback should come in the improved understanding of each company‟s requirements which
develops from the audit process (Andrew, 1994).
Supplier commitment refers of activities taken to improve supply quality with assistance to
operations improvement in supplier side. Buying firms may use a variety of activities to develop
suppliers‟ performance and/or capabilities. Previous researchers described activities that take
place within the context of supplier development. These activities include introducing
competition into the supply base, supplier evaluation as a prerequisite to further supplier
development activities, raising performance expectations, recognition and awards, the promise of
future benefits, training and education of the supplier‟s personnel, exchange of personnel
between the buying firm and the supplier, and direct investment in the supplier by the buying
firm (Monczka et al. 1993).
Literature shows that firms may engage in supplier development as a reaction to competitive
markets. Seeking competitive advantage from supply initiatives such as supplier development
because of competitive pressures such as short product life cycles, innovations in technologies
and demand for increased quality levels from customers. It is therefore apparently clear that
those firms operating in highly competitive markets put more efforts in their supplier
development programmes (Hahn et al 1990).
Supplier commitment can be a tremendous undertaking requiring resources of money, capital,
and people by both the customer and the supplier. Therefore commitment from both parties is
necessary. It also requires trust because it involves risk. It is risky for two reasons. First, success
is not guaranteed. Second, the companies will have to share confidential and strategic data.
Supplier development also requires cooperation and compromise. The companies have to come
to agreements about very important matters, such as performance metrics. Sako, (2004) points
out that the companies also must have “distinctive organizational and governance structure that
facilitates long-term cumulative learning”. So commitment and trust are not enough, the
companies must be able to support learning on the organizational level. Supplier development
should be about partnership, where both customer and supplier are committed to working
together for the long-term benefits (Quayle 2000).
Supplier Integration Supply source integration (SSI) consists of firms collaborating to leverage
strategic positioning and to improve operational efficiency. The opportunity to improve product
design performance by involving suppliers in the product development process identifies a
definite need to understand better the basic structure of buyer-supplier relationships. In effect,
environments that are conducive to highly co-operative relationships between buyers and
suppliers are more likely to lead to supplier involvement in the product development process. By
contrast, highly confrontational buyer-supplier relationships are less likely to result in early
inclusion of suppliers in the product development process (Laura and Stanley 1994).
This is in agreement with the findings by (Andrew, 1994) that Suppliers working closely with
customers during new product development activities are the norm for successful Japanese
companies, and this typically applies to all suppliers. While the end producer may retain the
design of the key parts regarded as vital for product success, or core to the business, specialist
suppliers are used to provide leading-edge technology in their specific field, whereas general
component suppliers are expected to provide production knowledge, thus aiding design for
manufacture. Many companies today are using supplier integration to gain competitive
advantage. Suppliers are involved earlier in the design and development process. Their
involvement ranges from simple consultation on design ideas to making suppliers fully
responsible for the design of services they will supply (Melissa et al. 2004).
Some of the benefits that accrue from supply source integration therefore includes reduced
development lead times, better communication, substantial costs savings from higher
productivity, more reliable products with fewer recalls, enhanced customer satisfaction and
improved financial performance.
Before selecting suppliers, a firm must decide whether to use single sourcing or multiple
suppliers. The selection of suppliers is done using a variety of mechanisms including offline
competitive bids, reverse auctions, or direct negotiations. No matter what mechanism is used, the
selection should be based on the total cost of using a supplier and not just the purchase price.
Ghodsypour and O‟Brien, (2001) points out that supplier selection is one of the most important
decision making problems, since selecting the right suppliers significantly reduces the
purchasing costs and improves corporate competitiveness.
However, supplier selection decision-making problem involves trade-offs among multiple
criteria that involve both quantitative and qualitative factors, which may also be conflicting. In
other words, buyer supplier relationships based on only the price factor has not been appropriate
in supply chain management recently. Considerations have been given also to the other important
strategic and operational factors such as quality, delivery, flexibility, etc. Supplier selection
decisions must include strategic and operational factors as well as tangible and intangible factors
in the analysis. (Ferhan and Demet, 2003) Rainer and Christian (2005) explained that an ideal
supplier is defined by the procuring enterprise which fixes the ideal scores (e.g. the best
performing suppliers in the market) of every relevant criteria. The rating team should consist of
several departments of the enterprise (procurement, production, controlling, etc.).
He also agrees that the best suppliers should be selected on the main criteria of price, quantity,
quality, logistics and service. In accordance with relevant logistics literature, these criteria are of
great importance for supplier selection. The price i.e. the offer price including discounts and
payment terms. Quantity refers to the ability of a supplier to deliver small amounts as well as
large amounts of the goods, while quality focuses on the product attributes, e.g. failure rate and
durability. Logistics summarizes all delivery performances and service includes additional items
such as after-sales service.
2.2.2 Supplier’s Financial Stability on Procurement Performance
According to Lee, (2002), financial stability of the supplier affects organization’s supplies to a
great extent, is essential that procurement officers get to assess the financial stability of the
supplier firm any tender is awarded, the study also found that the Firm must find a low-cost
supply base where it can minimize manufacturing cost related to the production of the Product,
According to Choy (2002), the key objective of financial appraisal in the procurement process
is to analyze a supplier’s financial position and determine the level of risk that it would present to
the client having regard to the contract requirements, Appraising the financial stability of
suppliers provides information that enables sound decisions to be made either when sourcing
suppliers or when evaluating tenders, a firm always requires the minimum price of the product to
increase the profitability and consequently be financially stable and that cost management brings
a lot of business to suppliers who offer least cost, holding other factors constant. He further
argues that a financial analysis allowed for an assessment of the budgetary impact of projects by
looking at the pattern of project related cash flows.
2.2.3 Supplier Competence on Procurement Performance
Competence-based supplies are a way of thinking about how organizations gain high
performance in procurement process for a significant period of time. Established as a theory in
the early 1990s, competence-based supplying theory explains how organizations can develop
sustainable competitive advantage in a systematic and structural way. The theory of competence-
based strategic management is an integrative strategy theory that incorporates economic,
organizational and behavioural concerns in a framework that is dynamic, systemic, cognitive and
holistic (Sanchez and Heene, 2004).
This theory defines competence as: the ability to sustain the coordinated deployment of resources
in ways that helps an organization achieve its goals (creating and distributing value to customers
and stakeholders). Competence-based management can be found in areas other than strategic
management, namely in procurement management. Brian Squire, (2008).
First, competence must include the ability to respond to the dynamic nature of an organization's
external environment and of its own internal processes. Brian Squire, (2008) The requirement of
sustainability in the above definition of competence encompasses both forms of dynamics. To be
sustainable, a competence must respond to the dynamics of the external environment by enabling
an organization to maintain its ability to create value in the marketplace even as changes take
place in market preferences and available technologies.
Sustainability also requires overcoming internal organizational dynamics that result in various
forms of organizational entropy, such as a gradual loss of organizational focus, a narrowing and
increasing rigidity in the patterns of activity the organization can or does perform, a progressive
lowering of organizational expectations for performance and success, and the like. The notion of
organizational entropy reflects the concept of entropy in the laws of thermodynamics. The
essential feature of the law of entropy is that systems naturally tend to devolve to lower states of
energy, which takes the form of a loss of structure and information content. Ongoing inputs of
energy are required simply to maintain a system in its current state of structure and information.
Further inputs of energy are then required to increase the structure and information content of a
system. Analogously, in organizations as systems, managers must provide continuous inputs of
energy and attention to maintain or improve the order and structure in an organization's value-
creation processes. Kim, K.Y.(2010),
Second, competence must include an ability to manage the systemic nature of organizations and
of their interactions with other organizations. Callahan, T.J., (2013). The requirement of
coordination of resources addresses this dimension of competence. In the first instance,
competence requires an ability to coordinate an organization's own organization-specific
resources – i.e., the resources within the boundaries of the organization and thus under its direct
control – in processes of creating value through product creation and realization. In addition,
competence involves accessing and coordinating important organization-addressable resources
that lie beyond the boundaries of the organization. Providers of key organization-addressable
resources include materials and components suppliers, distributors, consultants, financial
institutions and customers. Cousins, P.D. (2009).
Third, competence must include an ability to manage the cognitive processes of an organization.
Fernandez, R.R. (2015) The requirement of deployment of resources – directing organizational
resources to specific value-creating activities – addresses this dimension of competence.
Organization's managers are ultimately responsible for deciding the ways in which an
organization will try to create value in its targeted product markets. Thus, achieving
organizational competence poses a twofold cognitive challenge to managers. Managers must be
able to ascertain and assure that an organization's operations meet at least the minimum
efficiency requirements needed to carry out the strategies of the organization, but they must also
be able to define and select strategies that have the potential to create value in targeted markets
when they are carried out efficiently. In other words, managers are responsible for both efficient
and effective use of an organization's resources. Dewhurst, (2007),"
Fourth, competence must include the ability to manage the holistic nature of an organization as
an open system. Cousins, P.D. (2009). The requirement of goal achievement addresses the
multiplicity of individual and institutional interests that intermingle in and are served through
any organization. To lead an organization in achieving goals requires that managers be able to
define organizational goals that promise a satisfactory level of goal achievement for all
individual and institutional providers of the essential resources the organization needs. Thus, the
definition of organizational competence recognizes the existence of multiple stakeholders and the
importance of meeting the expectations of all providers of essential resources in sustaining the
value-creating processes of an organization. Saunders, (2014).
2.2.4 Procurement Performance
Procurement performance measures provide the information necessary for decision makers to
plan, control and direct the procurement activities of the organization. They also allow managers
to measure performance, to signal and educate suppliers on the important dimensions of
performance, and to direct improvement activities by identifying deviations from standards.
Many well-known frameworks have been developed to aid in these goals, including the balanced
scorecard (Kaplan and Norton, 1992).
Procurement extends to the ultimate disposal of property at the end of its useful life (Waters
2004). Sound public procurement policies and practices are among the essential elements of
good governance hence procurement performance. (Otieno 2004) notes that the irregular
procurement activities in public institutions provide the biggest loophole, through which public
resources are misappropriated.
2.3 Research Gap
From the literature reviewed, it is evident that there are various benefits associated with an
effective supplier evaluation process such as mitigation against poor supplier performance or
performance failures. The benefits typically include sourcing from suppliers that provide high
standards of product and service levels whilst offering sufficient capacity and business stability.
Supplier evaluation can help customers and suppliers identify and remove hidden cost drivers in
the supply chain.
The process of evaluating performance can motivate suppliers to improve their performance,
thus, companies would be more interested to retain previous suppliers hence do not need to carry
prequalification procurement. This may be due to several challenges related to prequalification or
the operation models of the firm. Ratanya, E. K. (2013) suggested that such companies do so in
order to establish long term buyer-supplier relationship in order to achieve competitive
advantage through use of their supply base. Abdi, (2014) felt that adoption of modern techniques
such as Just in Time would make firms want to buy from few preferred suppliers.
In addition, it not only overlooked but failed to address associated shortcomings of the process as
challenges with supplier evaluation include resource and cost commitments in establishing and
maintaining a robust and effective system, challenges with specifying and gathering meaningful
and relevant information, data integrity, scorecards that do not get at the root causes of supplier
problems, and subjective or inconsistent scoring which may result in inaccurate assessment.
Another challenge is making sure that evaluation of current suppliers goes beyond measurement
to actual performance improvement by providing feedback to suppliers on their performance and
working on continuous improvement opportunities. it may increase procurement lead time,
although this can be minimized by good procurement scheduling, e.g., undertaking the
prequalification process while bid documents are being prepared; the Employer is required to
review all prequalification applications, whereas post qualification requires the review of the
qualifications of, normally, only one (the lowest evaluated) bidder; and collusion (and the
possibility of price-rigging) is easier among a limited number of identified bidders, particularly if
they are of the same nationality. Thus, management commitment to and support of a supplier
evaluation process is essential.
Organizations whether in private or public sector, business oriented or non-profit making cannot
down play the inherent challenges in the modern turbulent environment characterized by
competition, undercutting, downsizing, and economic meltdown among others. To be successful
in the current rapidly changing world, organizations need to understand the challenges facing
them and to maximize the productivity of all their resources; physical, financial, information and
human resources.
The nature of strategic management is so dynamic that no one particular description can explain
it since it is a process bound concept that depends on the environment, change, technology
among others. It is therefore a phenomenon that organizations embrace not only to gain a viable
fit but also seize a competitive advantage in the turbulent market.
Gordon (2008) did a study on prequalifying suppliers; he notes that selection of the right
suppliers is critical to the Postal Service’s success. Having the right suppliers augments the
Postal Service’s ability to deliver high-quality and innovative services to its customers and
reduces operational risks. Prequalifying suppliers enhances competition, ensures quality
performance, and can also shorten cycle time and strengthen relationships between the Postal
Service and its suppliers. The researcher had left a gap on the factors affecting supplier
prequalification on procurement performance on which the researcher concentrated on at Kisii
University.
2.4 Summary
From the reviewed literature none of the researchers has done a study on effects of supplier
prequalification on procurement performance. The study findings will provide information about
the factors affecting supplier prequalification on procurement performance on which the
researcher concentrated on at Kisii University.
2.6 Conceptual Framework
Independent Variables Dependent Variables
Supplier quality commitment
Enhances conformance
Leads to reliability
Enhances procurement responsiveness
Quality supply
Supplier financial stability
Enables capacity management
Quality of end product
Leads to cost efficiency
Enhances profitability
Procurement Performance
Efficiency
Service delivery Quality delivery
Source: Author (2017)
Fig. 2.1 Conceptual Framework
Supplier quality commitment
Supplier quality commitment is a set of activities in most cases initiated by the management to
improve organizational performance. Such activities include measuring and tracking the cost of
supplier quality, using performance based score cards to measure supplier performance,
conducting supplier audits and establishing effective service delivery with suppliers among many
more, with an aim of achieving customer satisfaction
Supplier financial stability
Financial stability of suppliers provides information that enables sound decisions, efficiency and
quality service to be made either when sourcing suppliers or when evaluating tenders, a firm
always requires the minimum price of the product to increase the profitability and consequently
be financially stable and that cost management brings a lot of business to suppliers who offer
least cost, holding other factors constant.
Supplier competency
Competence-based supplies are a way of thinking about how organizations gain high
performance in procurement process for a significant period of time. To lead an organization in
efficient service delivery, quality service and achieving goals requires that managers be able to
define organizational goals that promise a satisfactory level of goal achievement for all
Supplier competency
Enhances effective procurement solutions
Leads to service delivery
Leads to performance
individual and institutional providers of the essential resources the organization needs. Thus, the
definition of organizational competence recognizes the existence of multiple stakeholders and the
importance of meeting the expectations of all providers of essential resources in sustaining the
value-creating processes of an organization.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research Design
The study adopted a case study design. A case study is a method that involves in–depth
collection of data and analysis in order to describe the characteristics of a given population. It is
a method used to narrow down a very broad field of research into easily researchable topic
Kothari, (2006).
3.2 Study Area
The study area was Kisii University and this was due to its convenience and cheap for the
research to collect data.
3.3 Target Population
The target population of the study includes all employees of Kisii University whose population is
1141. According to Mugenda and Mugenda (1999) a population comprises the total number of
cases/items featured in the study.
3.4 Sample Size and Sampling Techniques
The sample of the study was 114 members or staff of Kisii University who were given
questionnaires to fill. The sample was 10% of the total population and was suitable for this study
as recommended by Scooper and Schondler (2001).
3.5 Data collection Instruments
For the purpose of the study, the researcher used questionnaires with both open and closed ended
questions to collect data. Questionnaires are the most appropriate as it permits a greater response
from the respondent, thus enables more detail data on the subject to be obtained.
3.5.1 Validity of the Instruments
Validity refers to the ability of the data collection instruments to measure or provide accuracy
sought through the research questions. Validity was ensured by the University Supervisor’s
cross-checking the questionnaires to ensure that they are correct and accurate Dooley (2003).
3.5.2 Reliability of the Instruments
Reliability is the ability of the instruments to provide consistent information in order to draw
informed conclusions. Reliability of the questionnaire was determined by test-retest run method
in the area of study by using respondents who are not be part of the study sample but who work
in Kisii University. Pre-testing allowed necessary adjustment to be made on the instruments so as
to enable collection of data related to the study objectives, Mugenda and Mugenda (1999).
3.6 Data Analysis and Presentations
After collection of data with questionnaires, editing will be done. The edited data was organized
and coded. This was done by considering similar views and responses and grouping them
together. The data was tabulated according to variables where each table represents a variable.
The data was analyzed using descriptive statistical methods of weighted average and
percentages. Then the results were presented in form of tables.
CHAPTER FOUR
DATA ANALYSIS INTERPRETATION AND PRESENTATION
4.1 Response Rate
The study sought to find out the response rate of the respondents, table 4.1 shows the results.
Table 4.1 Response Rate
Instrument Frequency Percentage
Reached respondents 114 100
Not reached 0 9
Total 114 100
Source: Author (2017)
Table 4.1 shows that 114 questionnaires were administered. The completed questionnaires were
edited for completeness and consistency; this represented 100% total number of the respondents.
4.2 Bio-Data
4.2.2 GenderThe study sought to establish the gender of the respondents who were working in Kisii
University. Response rate from the field were recorded in Table 4.2.
Table 4.2 Gender
Gender Frequency Percentage
Male
Female
Total
69
45
114
61
39
100
Source: Field Data (2017)
Table 4.1 indicates that 61% of the total respondents were male while 39% were female in
gender. This shows that there was gender imbalance at in Kisii University.
4.2.3. Age Bracket
The study sought to establish the age bracket of the respondents who were working at the various
departments in Kisii University. Response rate from the field are recorded in Table 4.3.
Table 4.3 Age Bracket
Age Frequency Percentage
25-30 years
30-40 years
50 years and above
Total
56
37
21
114
49
32
18
100
Source: Field Data (2017)
Table 4.2 indicates that 49% of the total respondents had the age bracket of between 25-30
years, 32% had between 30-40 years and 18% had 50 years and above. This indicates that the
majority of employees working at in Kisii University are youths.
4.2.4. Level of Education
The study sought to establish the level of education of the respondents who were working the
selected departments in Kisii University. Response rate from the field were recorded in Table 4.4
Table 4.4 Level of Education
Education level Frequency Percentage
Masters
Bachelors
Diploma
O-level
Total
8
47
54
5
114
7
41
47
11
100
Source: Field Data (2017)
Table 4.4 indicates that 7% had masters level of education 41% had bachelors’ level of
education, 47% had Diploma level of education, while 11% had O-level of education. This
implies that the majority of employees who works at in Kisii University are Digree holders and
below.
4.2.5 Duration
The study sought to establish the duration in which the respondents had worked at the selected
departments of Kisii University. Response rate from the field were recorded in Table 4.5.
Table 4.5 Duration
Category Frequency Percentage
1 year and below
1-5 years
5-10 years
10-15 years
15 years and above
Total
8
65
20
14
7
114
7
57
18
12
6
100
Source: Field Data (2017)
Table 4.4 indicates that 23% of the respondents had worked at their departments in Kisii
University for duration of 1 and below years, 7 % had worked for duration of 1-5 years, 57% had
worked between 5-10 years, 18% had worked in Kisii University for a period of 10-15 years and
6% had worked for 15 years and above.
4.3 Influence of Supplier Quality Commitment on Procurement Performance
The study sought to find out the influence of supplier quality commitment on procurement
performance in Kisii University, table 4.6 shows the results.
Table 4.6 Influence of Supplier Quality Commitment on Procurement Performance
Influence of
Supplier
Quality
Commitment
Strongly
Agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
Disagree
1
∑fi ∑fiwi ∑fiwi
∑fi
Enhances
conformance
45 56 9 2 2 114 491 4.31
Leads to
reliability
40 60 9 2 2 114 482 4.23
Enhances
procurement
responsiveness
50 48 14 1 1 114 487 4.27
Source: Field Data (2017).
The study established that conformance is one of the influences of supplier commitment on
procurement performance this was supported by an average weight of 4.31 total number of the
respondents, similarly, the study found out that reliability and procurement responsiveness are
also other influences of supplier commitment on procurement performance , 4.23, and 4.27
average weight of respondents supported this respectively.
4.4 Influence of Supplier’s Financial Stability on Procurement Performance
The study sought to find out the influence of supplier’s financial stability on procurement
performance in Kisii University, table 4.6 shows the results.
Table 4.6 Influence of Supplier’s Financial Stability on Procurement Performance
Influence of
Supplier’s
Financial
Stability
Strongly
Agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
Disagree
1
∑fi ∑fiwi ∑fiwi
∑fi
Capacity
management
46 55 10 1 3 114 448 4.25
Quality of end
product
45 55 8 3 2 114 477 4.18
Cost efficiency 54 44 14 1 1 114 491 4.31
Profitability 50 48 14 1 1 114 487 4.27
Source: Field Data (2017).
The study established that capacity management is one of the influences of supplier’s
financial stability on procurement performance this was supported by an average weight of 4.25
total number of the respondents, similarly, the study found out that quality of end product, cost
efficiency and profitability are also other influences of supplier’s financial stability on
procurement performance, 4.18, 4.31 and 4.27 average weight of respondents supported this
respectively.
4.5 Influence of Suppliers’ Competence on Procurement Performance
The study sought to find out the influence of suppliers’ competence on procurement performance
in Kisii University, table 4.7 shows the results.
Table 4.7 Influence of Suppliers’ Competence on Procurement Performance
Influence of
Suppliers’
Competence
Strongly
Agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
Disagree
1
∑fi ∑fiwi ∑fiwi
∑fi
Effective
procurement
solutions
56 45 9 4 0 114 495 4.34
Service delivery9 60 40 0 4 114 409 3.58
Performance 14 48 50 1 1 114 415 3.64
Source: Field Data (2017).
The study established that effective procurement solutions is one of the influences of supplier’
competence on procurement performance this was supported by an average weight of 4.34 total
number of the respondents, similarly, the study found out that service delivery and performance
are also other influences of supplier competence on procurement performance, 3.58, and 3.64
average weight of respondents supported this respectively.
CHAPTER FIVE
SUMMARY OF THE FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary of the Findings
The study established that conformance is one of the influences of supplier commitment on
procurement performance; similarly, the study found out that reliability and procurement
responsiveness are also other influences of supplier commitment on procurement performance;
this was supported by the majority number of the respondents.
The study established that capacity management is one of the influences of supplier’s
financial stability on procurement performance; similarly, the study found out that quality of end
product, cost efficiency and profitability are also other influences of supplier’s financial stability
on procurement performance; the majority number of the respondents supported this.
The study established that effective procurement solutions is one of the influences of supplier’
competence on procurement performance, on the other hand, the study found out that service
delivery and performance are also other influences of supplier competence on procurement
performance.
5.2 Conclusions
The study concluded that; conformance is one of the influences of supplier commitment on
procurement performance; similarly, the study found out that reliability and procurement
responsiveness are also other influences of supplier commitment on procurement performance.
Capacity management is one of the influences of supplier’s financial stability on procurement
performance; similarly, the study found out that quality of end product, cost efficiency and
profitability are also other influences of supplier’s financial stability on procurement
performance. Effective procurement solutions is one of the influences of supplier’ competence
on procurement performance, on the other hand, the study found out that service delivery and
performance are also other influences of supplier competence on procurement performance.
5.3 Recommendations
The study recommends that;
Kisii University should deal with the issue of excess documents needed during supplier
prequalification, excess time taken in processing orders in the hospital and luck of skills needed
to execute supplier prequalification process to minimize the challenge of supplier
prequalification.
Kisii University should provide training to other employees on supply prequalification process to
enhance effective procurement procedures and effective record keeping and management.
5.4 Suggestions for Further Studies
To examine the impact of supplier outsourcing in an organization
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Appendix I: Letter of Introduction
KISII UNIVERSITY,
P.O BOX 408,
KISII.
DATE…………….
TO
THE ADMINISTRATOR,
KISII UNIVERSITY,
P.O BOX,
KISII.
Dear Sir/Madam
REF: REQUEST FOR DATA COLLECTION
I am a student of Kisii University pursuing a diploma course in purchasing and supplies
management, my topic of research is “EFFECTS OF SUPPLIER PREQUALIFICATION BY
PUBLIC ENTITIES ON PROCUREMENT PERFORMANCE SPECIFICALLY KISII
UNIVERSITY”.
I therefore kindly ask you to fill the given questionnaire providing relevant information to the
best of your ability to facilitate the study. This study is being undertaken purely for academic
purposes only and your responses will not be attributed to you as a person. The information you
provide will be treated with utmost confidentiality.
Thanks in advance
Appendix II: Questionnaire
Instructions
Please answer the following questions by ticking in the appropriate box
Section A: Background Information
1. Please indicate your gender
Male ( )
Female ( )
2. Please indicate your age bracket
18-28 ( ) 29-38 years ( )
39-48 years ( )
49-58 years ( )
Over 59 years ( )
3. What is your highest level of education?
Masters ( )
Bachelors Degree ( )
Diploma ( )
O- Level ( )
4. For how long have you worked Kisii University?
1 – 5 years ( )
6 – 10 years ( )
11-15 years ( )
16-20 years ( )
21 years and above ( )
5. To what extent do you agree that the following is due to the influence of supplier quality
commitment on procurement performance in Kisii University?
influence of supplier quality
commitment on procurement
performance
Strongly
Agree
5
Agree
4
Undecide
d
3
Disagree
2
Strongly
Disagree
1
Enhances conformance
Leads to reliability
Enhances procurement responsiveness
6. To what extent do you agree that the following are due to the influence of supplier’s financial
stability on procurement performance in Kisii University?
influence of supplier’s financial
stability on procurement
performance
Strongly
Agree
5
Agree
4
Undecide
d
3
Disagree
2
Strongly
Disagree
1
Enables capacity management
Quality of end product
Leads to cost efficiency
Enhances profitability
7. To what extent do you agree that the following is due to the influence of suppliers’ competence
on procurement performance in Kisii University?
influence of suppliers’ competence on
procurement performance
Strongly
Agree
5
Agree
4
Undecide
d
3
Disagree
2
Strongly
Disagree
1
Enhances effective procurement
solutions
Leads to service delivery
Leads to performance
