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ENTERPRISE RESOURCE PLANNING AND PROCUREMENT PROCESSES EFFICIENCY IN FOUR SELECTED OIL AND GAS SERVICING COMPANIES IN LAGOS STATE, NIGERIA

10,000 3,000

Topic Description

CHAPTER ONE

Introduction

1.1       Background to the Study

Procurement is seen as very important section in every organization hence, it requires a tight system on its processes (Sylvia & Willy, 2015). Procurement is a complex process that contributes tremendously to the competitive advantage of an organization (Novack & Simco, 1991; Knudsen, 2003). According to Makabira and Waiganjo (2014), up to seventy percent (70%) of organizational budget is expended through procurement of goods and services. With the fast development of industries and the need to competitively manage procedures and resources, it has become important to have a tool which can help the organization coordinate several activities (Spathis & Constantinides, 2004).

According to Puja, Hitesh, Parag, Gauray and Ajinkya (2013) and Kravos (2008), traditional procurement process is problematic because most of the operations were done manually vis-à-vis using application such as Microsoft excel spreadsheet. The traditional method is associated with several disadvantages such as time consumption, less accurate results, less efficient, lot of excel sheet work, slow data processing, unfriendly user environment and difficult to keep old record (Puja et al., 2013). Kravos (2008) further revealed that the use of traditional method in procurement process causes duplication of records because the tasks performed are not synergized thereby causing different entry points of the same data in the same organization. There was essentially loss of information between the departments within the organization because the mode of communication was mainly through face-to-face interactions, telephone and e-mail and also, excessive time is consumed in calculating the purchase requirements to payment of the supplier invoice (Kravos, 2008).

Recent changes in the business environment such as privatization and globalization has resulted to increased competitions that have made organizations to signify the need to search for new ways to survive and succeed (Spathis & Constantinides, 2004). Arguably, information technology (IT) offers the necessary tools for companies to respond effectively and efficiently to these changes in the business environment. Also, in this high automated IT-led business environment, companies are compelled to keep up to date with the modern technologies to remain competitive (Al-Mashari, 2001; Palaniswamy & Frank, 2000; Siriginidi, 2000). An example of such technologies is an Enterprise Resource Planning (ERP) system (Nicolaou, 1999). According to Tanyani and Gilaninia, (2015), the world today is heavily influenced by the customer, competition and change (3C). Companies have found that in order to support their process effectively and gain a larger share of the market, ERP should replace separate information systems. The application enables the automation of daily tasks, reducing operational costs and sharing of common data and thereby improves company performance (Davenport, 1998; Nicolaou, 1999; Kumar & Hillegersberg 2000; Stefanou, 2002; Nicolaou, 2004; Spathis & Ananiadis, 2005; Kanellou & Spathis, 2011).

According to Evans and Fred (2014), ERP facilitates the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. This software used by many enterprises particularly by multinational corporations, has a critical role in ensuring increased efficiency (Evans & Fred, 2014). ERP encompasses a set of business applications (modules) used to carry common business functions such as accounting, stock control, and logistics (Kavanagh, 2001). ERP system can automate business processes; share common data across the organization and most importantly produces real-time data. Although traditional information systems (IS) offer managers transaction processing, reporting and information for decision making, this appears insufficient in this modern business environment, where automation, effectiveness and efficiency in operations and real-time data remain essential factors for business success (Spathis & Constantinides, 2004).

The continuous growth and development of the Information and Communication Technology (ICT) has resulted in the appearance of different industries in the fields of electronics, computer, telecommunication, and the likes. This has brought about number of changes through its influence on the functions of the organizations. ERP has been one of the main software that helps organizations to manage their resources in the optimally effective fashion. ERP is a multi-module application system which combines the key businesses and management processes in an enterprise to enhance the efficiency level of the missions and tasks (Ali, Noor, Hashem & Norizan, 2010). In view of this and considering the importance of procurement functions in the survival of organizations in the recent globalized business environment, the needs to find out influence of ERP on procurement process efficiency has become necessary so as to ensure the survival of the organizations in this era of globalization.

In today’s business environment, information is the key resource for organization survival. The available information has to be reliable and relevant for the decision makers to make decision at the right time. If the organization does not have an effective mechanism that gives the decision makers the needed or the right information at the appropriate time, then the chances of that organization succeeding in the future will be difficult (Seyed & Dinesh, 2013). According to Fisher, Raman and McClelland (2000), the time available for organization to react to the change in the present market trend is limited. To stay stable with the changing trends, organizations should review suitable tools that can provide information that are accurate, relevant and timely. Any technology that will help the gathering of information will enhance the chances of organization to remain in the market (Fisher et al., 2000).

ERP systems allow the firms to manage their businesses with potential benefits reduction of cycle time; faster transactions; better financial management; the laying of the groundwork for e-commerce; and making implicit knowledge explicit (Yi & Chyan, 2010). ERP has the required capability to decrease the level of inventory, reduce costs, reduce lead-times, boost productivity and make corporate communication easier, more feasible, and decision making capabilities. ERP provide organizations with possibilities to raise the competitive advantage of their business and their share in the market (Ketikidis, Koh, Dimitradis, Gunsekaran, & Kehajova, 2008).

The potential advantages of ERP have resulted to its considerable growth in the market recently. In line with this growth, an increasing number of Small-sized and Medium-sized enterprises (SMEs) have tried to implement and operate these systems (Loh & Koh, 2004). According to Huang and Palvia, (2001), there is wide acceptance of ERP in developed countries such as the USA, Canada, UK, and Australia but developing countries like Nigeria and Asia are still slow to its general acceptance.  According to Bashuna (2013) the old way of doing business using fax, e-mail, spreadsheets and manual way of preparing reports are no longer supporting today’s demand-driven enterprises to be competitive. It is in view of this, this study becomes necessary to examine the influence of ERP on procurement process efficiency in the selected Oil and Gas servicing companies in Lagos State, Nigeria.

 

1.2       Statement of the Problem

Today’s high competitive business environment and technological changes has led investors to seek new ways to the success of their organizations (Stefanou & Athanasaki, 2012). Information technology (IT) offers various tools for companies to respond effectively and efficiently to these changes in the business environment and an example of such technologies is Enterprise Resource Planning (ERP) system (Nicolaou, 1999). Organizations could derive several benefits adopting the use of ERP (Markus, Axlin, Petrie & Tanis, 2000). Some companies in Nigeria have been seen adopting ERP especially in accounting processes but relatively few companies have adopted it in their procurement processes. It is in view of this, this study becomes necessary to examine the influence of ERP on procurement process efficiency in selected oil and gas sector servicing organizations in Lagos state, Nigeria.

Inappropriate tool to harness procurement unit with other parts of the organization has resulted to poor co-ordination and leakage of important information, which turns out to be costly component to the whole management process of the procurement function (Sylvia & Willy, 2015). ERP seems to be a potential solution to the problem of information leakage between procurement and other units of the organization internally and externally. In view of this, there is need to examine the influence of ERP on integration of information between procurement department and other parts of the organization internally and externally. Topicion schedule are often obstructed due to shortage of raw materials caused by delayed delivery as a result of slow procurement cycle which in turn causes loss in business (Seyed & Dinesh, 2013). Considering the numerous functions of ERP, it is therefore necessary to examine the influence of ERP on timely procurement cycle.

Furthermore, for survival of business in today’s dynamic environment, organizations have to speed up its operational process, improve its quality and be flexible so as to competitively reduce their costs (Seyed & Dinesh, 2013). In conventional procurement process, there is delay in processing documents such as purchase requisitions and purchase orders are approved manually and additional staff are required to take the documents from one office to the other for approvals. Despite the fact that manual process of approving document takes time, organizations incur cost on salaries and other allowances for the employees that performs this duty over years. With ERP, documents could be approved electronically immediately it has been prepared and it does not require moving document from one office to the other. In view of this ERP function, it is required to examine the impact of ERP on cost reduction in the organizations.

Traditional procurement process is associated with many disadvantages which include lot of manual calculations (Puja et al., 2013). It could therefore be asserted that traditional procurement process reduces employees (job) performance since it requires time to perform the calculations manually. Employees with poor background on mathematical calculations are not expected to perform high with traditional procurement process. The adoption of ERP seems to be a motivation to employees’ performance. In view of this, it is also important to find out the relationship between ERP and employees (job) performance.

 

1.3       Objective of the Study

The main objective of the study is to determine the influence of ERP on procurement process efficiency. The specific objectives are to:

  1. investigate the influence of ERP on information integration between procurement department and other units of the organizations;
  2. examine the effect of ERP on timely procurement cycle in organizations;
  3. determine the impact of ERP on cost reduction in procurement of process in organization and
  4. find out the relationship between ERP and employees’ performance in procurement department in the organizations.

1.4       Research Questions

Following the above problems and objectives, this study intends to address the following research questions:

  1. How does ERP influence information integration between procurement department and other units of the organizations?
  2. How does ERP affect timely procurement cycle in the organizations?
  3. To what extent does ERP impact cost reduction in the organizations
  4. What is the relationship between ERP and employees’ performance in the organizations?

 

1.5       Hypotheses

The following hypotheses stated in a null form were formulated and tested

H01:    ERP has no significant influence on Information Integration between procurement department and other parts of the organization.

H02:    ERP has no significant effect on timely procurement cycle in the organizations

H03:    ERP has no significant impact on cost reduction in procurement processes in the organizations.

H04:    There is no significant relationship between ERP and employees’ performance in procurement department in the organizations.

1.6       Scope of the Study

This research focused on revealing possible how ERP enhanced procurement process efficiency. The study covered selected Oil and Gas servicing companies in Lagos State, Nigeria. Lagos State is chosen because the head offices of the selected companies in Nigeria are situated in Lagos State. The selected Oil and Gas servicing companies are: Nigerdock Nig Plc, Saipem Nigeria Ltd, Dorman Long Engineering Ltd and Pittsburgh Paints Nigeria Ltd. These companies are selected because they engaged in several procurement activities in efforts to provide required services to various Oil and Gas companies in Nigeria. The population of the study was 6,225 representing the total number of staff in the four selected companies. The sample size is 315 representing number of staff in the selected companies that uses ERP on their job functions. The decision to focus the study on only respondents that use ERP is to ensure that reliable information were gathered

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