CHAPTER ONE

INTRODUCTION

1.0 Introduction

Negotiation is a necessary tool when acquiring capital equipment in many industries. Negotiation

when adapted as a tool in the acquisition of capital equipment in mining sector particularly

Sankofa Gold Mines can help the company ensure exchange for value when acquiring capital

equipment, eliminate unnecessary effort associated with the acquisition of capital equipment and

assist both the buyer (Sankofa Gold Mines) and the seller to do business more efficiently. Hence,

the effect of negotiation in the acquisition of capital equipment in the mining sector is the topic

under study.

This chapter is the introduction aspect of the study. It comprises the background of the study,

statement of the problem, objectives of the study, research questions, significance of the study,

limitations to the study ,research methodology with the research process and last but not the least

the organization of the whole chapter under study.

1.1 Background of the study

According to Kennedy (1991), negotiation is the process by which we search for terms to obtain

what we want from somebody who wants something from us. Therefore negotiation is a verbal

communication in which participants seek to exploit the relative strengths of their bargaining

position to achieve explicit or implicit objectives within the overall purpose of seeking to resolve

the identified areas of disagreement. Perhaps the important tool of many companies when

acquiring capital equipment is the ability to successfully negotiate agreements of all types be it

domestic or international. A buyer who cannot negotiate effectively is therefore of little value to

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the company since negotiation is tool and nothing more nor nothing less. Its purpose is to secure

the best possible long-term or short- term agreement for the buying company, consistent with the

concept of lowest total cost. Negotiation forms an integral part to bargain for individual or

collective advantage and to craft outcomes to satisfy various interests. The acquisition of capital

equipment by companies comprises of several costs such the overall total cost and other related

cost of acquisition. This cost could reduce to its barest minimum when negotiation is adapted to

ensure exchange for value and help the buying company to in cooperate with the selling

company ways of doing business more efficiently. The choice of Sankofa Gold Mines as the case

was prompted by the firm’s inability to negotiate well when acquiring capital equipment and this

was observed during the researcher’s industrial attachment.

1.2 Statement of the problem

Careful observation of the case study area (Sankofa Gold Limited) has shown that, the institution

does not use purchasing professionals in undertaking negotiations in their purchases. They

undermine the impact that it has on the purchases made for these equipments. This is because

they do not recognize purchasing as a top management function. They rather use managers or

personnel with very little or no knowledge about negotiation practices to purchase the capital

equipment which must be negotiated for before their purchases. This consequently result in the

wrong choices of contract prices, and the over-emphasize on only the price element of the items,

neglecting other factors such as quality, delivery date and other related issues such as legal issues

and warranties. So therefore having an abysmal effect on the organization when procuring capital

equipment, since it is a mining company in which in their line of operation are involved in the

use of capital equipment.

Hence, if this equipment is not effectively negotiated have an impact on the business success.

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1.3 Objectives of the study

This will be basically aimed at affecting the case study area and will include:

1. To examine effective ways of planning effective negotiation.

2. To ascertain the effective roles of purchasing at Sankofa Gold Mines.

3. To identify the various procedures engaged in the purchase of capital items at Sankofa

Gold Mines.

4. To establish the benefits associated with effective negotiation in acquisition of capital

equipment.

5. To determine the challenges associated with negotiation for capital equipments

6. To generate recommendation(s) to Sankofa Gold Mines on the impact negotiation when

acquiring capital equipment.

1.4 Research Questions

The research would dwell on the following questions to serve a guide for the researcher;

1. What are the ways for planning effective negotiation?

2. What role does the purchasing profession perform at Sankofa Gold Mines?

3. What are the procedures necessary in purchase of capital items at Sankofa Gold Mines?

4. What are the benefits associated with effective negotiation in the acquisition of capital

equipment at Sankofa Gold Mines?

5. What are the challenges involve with negotiation for capital equipment at Sankofa Gold

Mines?

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1.5 Significance of the study

This study is aimed at finding out efficient negotiation methods Sankofa Gold Mines when

acquiring capital equipment. It is the researcher hope that this study will be of immense use in

the following ways:

Firstly, to enable Sankofa Gold Mines to the effects of negotiation on the purchase of capital
items.

The outcome of the study when put in the public domain will help companies and procurement
personnel in the mining sector to realize the effects associated with the acquisition of capital
items.

It will serve as a reference material for researcher who will conduct a study on the effect of

negotiation and the acquisition of capital equipment.

And to help the researcher to improve upon his knowledge on negotiation of capital equipments,

goods, works and services.

1.6 Scope of the Study

The study is focused on the effect of negotiation and acquisition of capital equipment at the
mining sector, the researcher chose Sankofa Gold Mines as the case study. Hence the research is
restricted to Sankofa Gold Mines as far as the scope of the work is concerned.

The researcher selected Sankofa Gold Mines as the case study due its closeness to the researcher

which would assist the researcher get access to certain information required from the company to

ensure the authenticity of the research.

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1.7 Research Methodology

The general method to be used in conducting the research is case study; this is because it will

help give the nature and kinds of processes to be followed in a concise procedure to attain the

objective and providing a constructive a generic frame work. The use of case study would aid the

sequence change of the research to ensure authenticity of the research to be at a higher level.

This study will cover two main research methods. These are:

Primary research also knows as field research which involved interviews visiting the site and
observing and information from the people working in an organization.

Secondary Research (desk research) secondary data can be gathered from internal and external
source. Secondary research also involves the use of relevant test books some of the
organizational document, lecture note among others.

1.8 Organization of the study

The organization of the study includes Chapter One, which comprises of the introduction of the

background of the study, statement of the problem, objectives of the study, research questions,

and significance of the study, limitations and organization of the study.

Chapter Two involves the literature review and aspects of negotiation functions.

The methods and tools used in the collection of the data are captured in Chapter Three.

The fourth chapter touches on the findings, analysis of the data presentation and testing of

hypothesis.

Finally, the last chapter involves summary of findings, conclusion and recommendations.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter deals with the review of relevant and related literature with respect to the project

topic, “Effects of Negotiation on the purchase of capital items in the Mining Sector”.

2.1 Negotiation

According to Maiese (2003), “negotiation is a discussion between two or more disputants who

are trying to work out a solution to their problem”.

This interpersonal or inter-group process can occur at a personal level, as well as a corporate or

international (diplomatic) level. A negotiation typically takes place because the parties wish to

create something new that neither could do on his or her own, or to resolve a problem or dispute

between them.

The parties acknowledge that there is some conflict of interest between them and think they can

use some form of influence to get a better deal, rather than simply taking what the other side will

voluntarily give them.

Mutual adjustment is one of the key causes that occur during a negotiation. Both parties know

that they can influence the other’s outcome and that the other side can influence theirs. The

effective negotiator attempts to understand how people will adjust and readjust their positions

during negotiations, based on what the other party does and is expected to do.

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The BBC English defines negotiation “as a process that speakers go through to reach a clear

understanding of each other”. For example, workers negotiate with their central government on

salary increment and both parties reaching a consensus in the issue at stake.

“Negotiation is the interactive process in which people engage when they aim at reaching an

agreement with another party or parties on behalf of themselves”, according to the researcher,

negotiation is primarily a common means of securing one’s expectations from others. It is a

form of communication designed to reach an agreement when two or more parties have certain

interest that are shared and certain others are opposed.

In addition to the above, negotiation has been defined by numerous writers among which

Lysons& Farrington (2006), whose definition is very much appreciated and is “any form of

verbal communication in which the participant seek to exploit their relative competitive

advantage and need to achieve explicit or implicit objective within the overall purpose of seeking

to resolve problems which are barriers to agreement”. Negotiation is sometimes regarded as a

bargain.

A bargain is defined by Webster’s Dictionary as “negotiation over the term of agreement or

contract haggle especially over the purchase price”. Bargaining is the process of incremental

conveyance in which the parties gradually move towards each other from initial position or end

of the continuum.

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2.2 Conditions for Negotiation

A variety of conditions according to Lysons et al (2000), can affect the success of failure of

negotiations. The following conditions make success in negotiation more likely:

Identifiable parties who are willing to participate: The people or groups who have a stake in the

outcome must be identifiable and willing to sit down at the bargaining table if effective

negotiations are to occur. If a critical party is either absent or is not willing to commit to good

faith bargaining, the potential for agreement will decline.

Interdependence: For effective negotiation to occur, the parties must be dependent upon each

other to have their needs met or interest satisfied. The parties need either each other’s assistance

or restraint from negative action for their interest to be satisfied. If one party get his/her needs

met without the cooperation of the other, there will be little impetus to negotiate.

Readiness to negotiate: People must be ready to negotiate for dialogue to begin. When parties

are not psychologically prepared to talk with other parties, when adequate information is not

available, or when negotiation strategy has not been prepared, people may be reluctant to begin

the process.

Agreement on some issues and interest: People must be able to agree upon some common issues

and interest for progress to be made in negotiations.

Generally, parties will have some issues and interest in common and others that are of concern to

only one party. The number and importance of the common issues and interests influence

whether negotiations occur and whether they terminate in agreement. Parties must have enough

issues and interests in common to commit themselves to a joint decision-making process.

Will to settle: For negotiation to succeed, parties must agree to settle. If continuing a conflict is

more important than settlement, then negotiations are of how he or she will behave in the future.

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Negotiators should understand the other parties alternatives. If the other party has strong

alternative, he or she will probably be willing to set high objectives and be willing to push hard

for these objectives during negotiation.

2.3 Objectives of Negotiation

There are many objectives negotiators seek to achieve, five of such objectives common to both

parties are listed below in which Lyson and Perlman ( 2000) had the same view;

The negotiator must be able to obtain a fair and reasonable price for the quantity requested.

He or she must be able to persuade the supplier to give maximum co-operation to the buying

organization.

Also the negotiators must be able to ensure that the contract is performed on time

Both parties must exert necessary control over manner in which the contract is performed.

Negotiator must be able to develop a sound and continuing relationship with competent

suppliers.

2.4 Elements of Negotiation

The definition of negotiation by Lysons et.al. (2006) stresses on three key elements in

negotiation; these are:

Negotiation involves communication, that is, the exchange of information between parties

involved.

Negotiation takes place in a context in which the participants use their comparative competitive

advantage and perceived needs of the other party to influence the outcome of the negotiation

process.

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Each participant has implicit as well as explicit objective which determines the best price but

implicitly, will be seeking a contribution to fixed overhead and enduring to keep the plant and

work force employed.

2.5 When to Negotiate

It is indeed important to know the circumstances under which negotiation needed. Though it was

stated earlier that negotiation is ideal when considering high value/volume items, it is therefore a

practice in Sankofa Gold Limited to undertake negotiation practices in the purchase of almost all

equipment needed for the institution. At the beginning of every financial year, the suppliers for

the various supplies, some of which they have been dealing with over a period are invited for

negotiation. This is done after they have submitted their quotations and the necessary analysis

has been done on them, and the suitable ones selected. The institution practices the pool

Purchasing system whereby the total quantity of supplies needed for the whole year is shared and

supplied quarterly. At the end of every quarter, the various suppliers are again invited for a

relook into the agreement to see if there can be some modification in the price, terms of payment

and delivery, quality etc of the supplies before the next quarter. At their stage, the suppliers are

given fair details of their product performance of the necessary correction if any to be made.

The product that the institution purchases are high value/volume and especially unique items

which have standard terms and condition applying to them and therefore necessitate the use of

negotiation to ensure that the necessary term factors are effectively negotiated for. In my view,

the circumstances, under which the institution resort to the practices of negotiation is indeed in

line as written by Zenz (2001) who is of the view that negotiation is necessitated by the

following circumstances:

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When competitive bidding is impossible.

When the item is of a high value or volume.

Many prices delivering services (cost of ownership or total cost of supply) factors are involved.

Specialist unique items (capital equipment).

When standard terms and conditions apply etc.

The above factors highlighted by Zenz (2001) in my view are applicable to the institution’s need

to undertake negotiations for their supplies or equipment such as medical supplies and laboratory

equipment.

2.6 What to Negotiate

There is a saying that in negotiation everything but everything is negotiable. It is important to

understand that negotiation for an item extended far beyond the price of the items. Indeed the

institution (Sankofa Gold Limited) undertakes negotiation but there is an issue with regards to

what to negotiate for. There seems to be the issue of over emphasis on the price element and

consequently the wrong choices of contract price.

According to Lysons and Leender (2006), negotiating for an item exceeds the price element

alone. These two great authors had the same view on these already agreed factors: price

modification, acceptable quality level, time of delivery and installation, terms and method of

payment, packaging requirement, basis upon which prices is allowed to rise, legalities and or

force majeure and method and place of inspection, etc

2.7 Phases or Process of Negotiation

These centers on the processes involved in undertaking effective negotiation. In negotiation, it is

important for the buyer or negotiator to evaluate all information and access his/her own strength

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 and weakness as well as those of the suppliers. From this assessment, negotiators develop the

factors and strategies of negotiation.

According to Barley et.al. (2005) negotiation falls under three distinct phases or processes which

when followed and understand buyers will negotiate favourably for their organization: Pre-

negotiation phase, Actual negotiation (meeting) phase and the Post negotiation phase.

2.8 The three phases of Negotiation

Fig. 2.1: The basic phases of negotiation

Pre-negotiation The meeting Post-negotiation
phase phase phase

Fig. 2.2: The phases of negotiation (multi-meeting)

Pre-negotiation Introductory Discussion Agreement Post-negotiation

Phase meeting meeting meeting meeting

Preparation for Preparation for

discussion agreement
meeting meeting

The meeting phase

Fig.2.3: The phase of negotiation (single meeting)

Pre-negotiation The meeting phase

phase
Introductory stage Discussion stage Post-negotiation
phase
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Source: Baily et. al.:(2001) Purchasing Principles and Management. Pg.

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2.9 Pre-negotiation phases

It is often quoted in the legal field that “cases are won in chambers”. When this maxim is

brought into the purchasing arena, it is equally true that the success or otherwise of the negotiator

would depend largely on how well he prepares for it.

The absence of a Purchasing section staffed with qualified professionals in the Sankofa Gold

Limited reduces the level of attention that should be placed on this stage. The level of effort

which needs to be channeled into this stage is low because there are no Purchasing officers who

will undertake the necessary market research and analysis. The institution in my view must have

a Purchasing department with qualified professionals, to ensure that the various phases/stages of

negotiation are given absolute attention for the benefit to be experienced.

According to Lysons (2006), the preparation covers several areas such as analyzing the nature of

the market, which negotiate, define preferred strategy and tactics, find out the benefit to be

enjoyed from negotiation at home and away, set your objectives, gathering of relevant

information and analyzing the information gathered.

The above listed factors are by no means static or exhaustive since preparation has a bearing on

the buyer to ensure that anything and or area deemed relevant should be analyzed.

However, the buyer must understand that is by account appraisal of relative bargaining strength

and weakness of both parties that they can skillfully demand and concede to the right things at he

right time. Setting a clear cut objective for the process is crucial to the buyer. These objectives

are often defined in terms of the LIM model by Lysons (2006)

L – Those objectives you would like to achieve

I – Objectives you intend to achieve

M – These objectives you must achieve.

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Having identified the objectives, it is important for negotiators to develop strategies and tactics,

strategies comprises the overall tactics designed to achieve as nearly as possible the objectives of

the negotiation. According to Lysons (2006) among the tactics are:

The order in which the issue to be negotiated shall be dealt with

Whether to speak first or allow the opponent to open the negotiation

What concession to make should the need arise.

The timing of concession, etc

These various strategies and tactics in my view needs to be adhered to and adopt properly to

achieve a successful negotiation.

2.10 Negotiation/Meeting phase

This stage is where the actual or talk takes place. This stage is undertaken creditably the

institution. Attention is paid to every detail at this stage. This stage is further divided into

stages, i.e. introductory stage, discussion stage and agreement stage. Each of these stages

comprises of distinct activities aimed at achieving a successful negotiation.

2.10.1 Introductory Stage

In the introductory stage, experts suggest that conducive to agreement, i.e. easing tension and

given the psychological impression that you are willing to work toward mutually advantageous

goals, negotiator must:

Test the other party’s position, their readiness to collaborate and potential to oppose test/verify

and or validate your assumptions.

Find out if anything is likely or will be introduced by the other party.

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2.10.2 Discussion Stage

This stage may be considered the most important one. This is because it is the stage for

discussion and agreement where each party put his case across and persuades the other party to

concede. At this stage, it is important for the buyer to observe the following points to be

successful:

Debate while promoting the negotiations i.e. not negotiate argument.

Concentrate on the central theme.

Listen with rapt attention and ask question if you are not clear.

Focus on key people.

Anticipate counter argument and articulate them.

Aim for a win.

2.10.2.1 Things Not To Be Done At This Stage

According to Lysons (2006), there are some things which are not to be done at the negotiation

stage to be successful:

Do not use irritating phases

Do not use weak argument

Do not adjourn for too long

Do not respond to personal attack

Do not insult the opposite party, etc.

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2.10.3 Agreement Stage

This is the final stage of the meeting phase. If a bargain accepted, there is agreement and the

negotiation process concluded. Once there is agreement, the parties are advised to record full

details of what has been agreed upon to circulate these to all interested parties.

2.11 Post negotiation phase

This stage concerns the activities that are done after the discussion stage and, at this stage

negotiation must:

Produce the first draft of agreement reached and issues discussed for all to read at this stage, the

buyer may deem as having finished with the negotiation and what is left is implementation which

is equally crucial.

Prepared official contract in line with the agreement for signature

Ensure the commitment of your own people to make the agreement work, and bear in mind that

no negotiation is successful and /or complete until what has been negotiated for is implemented.

Here a sub-committee may be set up to see to the implementation and evaluation of performance.

2.12 Qualities of a good negotiator

According Lysons (2006), for one to be judged as a good negotiator, he or she must exhibit some

of the following qualities:

Must be patience and tolerance, intelligent, have confidence and knowledge of the subject, be

good in communication, be able influence, have creditability, and be empathy.

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2.13 Advantages of Negotiation

In my view it is very important to consider the advantages of negotiating so that Sankofa Gold

Limited in particular can benefit since it is a new approach yet to be considered.

The advantages according to Emmet and Crocker (2008) are as follows:

Relatively expedient

Value for money when single sourcing

Unclear requirements can be clarified

Inexpensive

Flexible and not prescriptive

Confidential

2.14 Benefits of effective negotiation

Having effective negotiation can be the difference between success and failure in the business

world. Those that know how to negotiate tend to rise to the top of whatever industry they are in.

At the same time, those that do not know how to negotiate tend to stay where they are or fall

backwards.

If you want to be successful in the industry, a study of developing effective negotiation should be

at the forefront of your mind. Here are a few things to consider about the importance of effective

negotiation to business success.

One of the primary benefits of having effective negotiation is that you will be able to save

money. If you represent your business or if you are negotiating for yourself, you will be able to

negotiate a cheaper price when buying something. When making large purchases, you need to be

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able to negotiate with the sales representative and get a better price. If you simply take the price

that is being offered to you, it is very possible that will get taken advantage of. Learning how to

negotiate will allow you to save substantial amounts of money over a period of time.

Another important reason for developing effective negotiation is that you will be able to make

more money for your business as well. If you are trying to sell a product or secure a contract, you

need to be able to negotiate in order to make it happen. By doing this, you will be able to secure

a larger selling price and increase your profit margins. Increasing profit margins is one of the

biggest objectives for most businesses. If you can learn how to do this, you will be invaluable to

your employer and this will be directly related to your business success.

In addition to being an effective negotiation, one will also develop several other traits that are

essential in business. Many of the same skills that you use in negotiation will translate over to

other areas of the business.

For example, when learning effective negotiation, one will learn how to be an effective listener.

In order to be successful in negotiation, you have to be able to listen to the other person to see

what they want. This skill will be very valuable to you in other areas of the business. If you are a

manager, you will need to be able to listen to your employees to see what motivates them. If you

are dealing with customers, you need to be able to listen to what they are telling you so that you

can find a product or service that match their needs.

When you are aiming to achieve business success, developing good negotiation skills should be

at the top of your priority list. This is by far one of the most important skills that you can develop

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as a businessperson. It can easily take you from where you currently are to where you eventually

want to be. ( Maiese 2003)

2.15 Challenges associated with effective negotiation of capital equipment

There are few challenges to negotiation and one must try his level best to overcome them. Let us

study them in detail:

The biggest challenge to negotiation is when individuals are not ready to understand the second

party at all. There are individuals who only think about their interests and tend to ignore the

interest and needs of the other.

Try to find out the expectations of the other party as well. For business negotiation, you will

definitely be appreciated if you save your organization’s money but remember the other party is

also doing business. Quote something which will save your company’s money as well as earn

some profits for the other party as well.

Lack of time: is also a major challenge to effective negotiation. One should never be in a hurry.

You need time to convince others. Never be in a rush to purchase things or close a deal. Analyse

things carefully and then only come to conclusions.

Going unprepared for a negotiation is unacceptable: Don’t underestimate the second party. One

should do his homework carefully. Check out even the smallest details before going for a

negotiation. Don’t think that the other person is not as smart as you, he can ask you anything and

remember even he will try his level best to convince you. You need to have valid answers for his

questions.

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Lack of patience also leads to a bad negotiation: Every individual has the right to express his

views and one should not interfere in his speech. You might not agree to him but at least listen to

him first. Sit with the second party and make him realize how the deal would benefit you as well

as him. If possible take a note pad and a pen with you to explain things in a better way. Carry all

the necessary documents which you might require at the time of negotiation.

Criticism, sarcasm, derogatory remarks: are the biggest threats to an effective negotiation. Never

ever say anything which might hurt others. Remember everyone is here to do business and make

profits, so be logical and justified. Don’t get too involved and over emotional. One should be a

little diplomatic and intelligent for an effective negotiation.

Avoid last minute changes as it result in confusions and misunderstandings: The two parties must

be very clear on what they expect from each other, and must stick to it. Don’t change statements

every now and then. Once a conclusion is reached or a deal is cracked, it’s always better to sign

an agreement in presence of both the parties.

Being too rigid: is one of the biggest challenges to an effective negotiation. Be a little flexible.

Compromise to your best extent possible and don’t crib always. One should adopt a positive

attitude and try his level best to adjust with each other and find out a solution which will satisfy

all. Only price is not important, other factors like quality, brand name, durability must also be

taken into consideration. Stay alert while you are negotiating. Don’t accept any terms and

conditions without carefully studying them. You might create problems for yourself later. Keep

your ears and eyes open while negotiating.

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Lack of confidence: is again one of the major threats to negotiation. Don’t forget to make an eye

contact with the person sitting on the other side of the table. It’s important to be serious but that

does not mean you will not even greet the other person. Be straightforward and crisp in your

communication. Take care of your dressing and appearance as well. ( Lyson 2006)

2.16 Purchasing of Capital Equipment

Capital equipments or items are items with high value and their purchase are mainly done

internationally. Because acquisition of capital equipment is a high –risk, high cost issues, the

decision about which several possible suppliers to accept is normally undertaken by a buying

centre.

In general, the greater the technical nature, and complexity of an item, the greater will be the

influence of the technical staff as both the users and deciders. This will apply to the acquisition

of new equipments and purchase decisions.

2.17 Factors to consider when buying capital items

Apart from the mode of the purchase, finance and the return on the investment made. In the case

of the Sankofa Gold Limited, the following factors should be considered critically before making

the purchases since negotiation is new to their management.

Purpose: What is the prime purpose of the equipment? For example in the purchase of their

laboratory equipments.

Flexibility: How versatile is the equipment. Can it be used for purposes other than those for

which it is primarily being acquired?

Spares cost and the ease of existing equipment

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Life: This usually refers to the period the equipment will have to be written off due to

depreciation or obsolescence. It is however not necessarily linked to the total life span of the

item if it is indeed that the asset will be disposed off before it is obsolete or unusable.

Reliability: Breakdowns mean greater costs, and possibly a high investment in spares.

Durability: Is the equipment sufficiently robust for its intended use?

Standardization: Is the equipment standardized with any already installed, thus reducing the cost

of holding spares?

Compatibility and existing equipments.

Cost: does it include cost of maintenance, cost of installation and other related costs? ( Baily et.

al. 2005)

2.18 Secondary factors to consider when buying capital items (equipment)

Legal issues: on capital items

Attention also should be directed to the legal questions that arise in connection with equipment

buying, including the risk of liability for patient infringement or employee accidents. Equipment

sales contracts and purchases agreements are often long and involved, offering many

opportunities for legal controversies. Various forms of insurance coverage are used and are

often subject to varying interpretations. Purchased machinery must comply fully with the safety

regulations of the state, province or country in which it is operated and these safety regulations

vary greatly in different locations. Federal government OSHA (occupational safety and health

Act) requirements have to be followed. The question of consequential damages is a particularly

touchy one. Should the seller of a key piece of equipment be responsible for the loss of sales

when the machine fails because of a design or fabrication error? Such losses may be huge for the

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buyer. For example in one company, gross revenue of $ 1 million per day was lost for six

months because of the failure of a new piece of equipment costing $800,000! Many equipments

acquisitions need careful scrutiny and interpretation by qualified legal counsel.

2.19 Procedures engaged in purchasing of capital equipment

When buying capital equipment there a number of procedures that ought to be followed

systematically and they are as follow;

1. Statement of Need/Specification of Requirement

The need to acquire equipment should wherever possible be identified as early as possible and a

Statement of Need (SON) / Specification of Requirement (SOR) prepared. Even when a need

arises suddenly and funding is sought either from Chest, the Research Councils or other grant

funding organizations, a thoroughly prepared SON or SOR stands the best chance of securing the

funding required. A Statement of Need (SON) or Requirement (SOR) should set out:

1. the benefits expected from the equipment.

2. the total costs of ownership over the whole of its operational life, covering acquisition

costs, running and disposal, and

3. how the acquisition will promote the institution’s objectives.

2. Specification of Requirement (SOR)

Good research depends on the right choice of equipment. A well-drafted specification of

requirement not only sets the quality and performance standards for the equipment, but also

provides the greatest scope for maximizing value for money (VFM). A good specification

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should be functional e.g. describing the equipment in terms of its intended function and the

required level of performance, rather than by a generic description or brand name. It should be

concise, but sufficiently detailed to enable bidders to take all costs into account, and also to offer

alternative solutions. In particular it should:

1. state the criteria for acceptance of the equipment

2. abide by international and national quality requirements

3. include health and safety requirements

4. if brand names are unavoidable, qualify these by adding “or equivalent”

5. Comply with the law.

Specifications for leading-edge equipment may be developed in conjunction with one or more

suppliers and the focus of the requirements should be on research needs rather than what the

supplier can offer. No commitment should be made to any supplier prematurely, nor should a

resulting specification be so detailed as to eliminate any effective competition.

Specifications may be refined using such techniques of value analysis and value engineering

(VA/VE). In value analysis an existing product is dissected and its components modified or

omitted where this will reduce lifetime cost without compromising performance. Value

engineering is a similar process applied to new equipment.

When considering VA/VE as part of defining a SON or SOR, it is recommended that a small

team consisting of key stakeholders (internal and external) conduct a brainstorming session,

identifying major cost elements and components parts of the equipment (examples below) to

assess whether or not such component parts may be modified or omitted etc:

1. What are its basic functions?

24
 2. Are they all necessary?

3. Can they be simplified?

4. Can they be performed in some other way?

5. Are performance requirements and tolerances too stringent?

6. Can standard methods and off-the-shelf equipment be used?

7. Can operations be combined?

8. Where can waste be reduced?

9. What is the environmental impact, including costs of waste disposal?

10. What are the staff cost implications in terms of numbers, expertise, etc?

Involvement of suppliers at this stage can help implement the results of the investigation by

modifying their equipment so as to reduce cost or improve performance. In doing so they will

hope to share in the cost savings and gain additional business, but care should be taken not to

favour one supplier unduly, particularly if the purchase subject to the EC directives.

3. Aggregation of requirements

Aggregating similar requirements can substantially reduce purchase prices and costs relating to

maintenance, delivery, ordering and payment processing. For specialised equipment, other

departments and institutions should be approached to see if there is scope for a co-ordinated

approach to suppliers.

For regular purchases of common items, a framework agreement should be set up. Purchases

may then be made from designated suppliers at competitive prices and favourable terms, which

will cover all whole life costs:

25
 a) a fixed, or at least index-linked, purchase price

b) on-site tests and pre-negotiation trials

c) delivery, installation and commissioning

d) maintenance cover and costs

e) the price of consumables

f) spare part cost and availability

g) provision and updating of maintenance handbooks

h) training.

The use of existing framework agreements should be mandatory unless there are strong reasons

for not using them. A spot price may seem cheaper, but other factors must be considered:

1. time and cost of obtaining competitive bids and selecting the best value;

2. less leverage over the supplier in case of dispute;

3. handling additional invoices from different suppliers and making additional

payments;

4. reduced economies from scale;

5. Undermines the current framework agreement and weakens the negotiating

position.

4. Sharing equipment

Sharing may be possible when suitable equipment already exists in another department, or when

new equipment can be made available to other departments, perhaps on a repayment basis. This

arrangement can include the aggregation of requirements for maintenance, spare parts and

consumables, thus reducing cost through better purchasing. The controlling department’s

26
responsibility extends to applying procedures and security measures to ensure that the equipment

is protected and used in the proper manner.

An alternative may be to provide usage time to others on new equipment, since:

a) it may save other users having to purchase new equipment, or provide them with

improved performance;

b) There may be opportunities for rationalizing or improving the specification to the

benefit of the principal User.

Equipment for shared use or hire may have to be more robust, and may have a shorter life

expectancy, due to greater wear and tear. It may also need more security and safety features,

which may add to the price but overall should provide better value for money.

5. Funding

Estimates of purchase costs are needed when seeking funding for new equipment. Provision

should be made if possible for adjusting the final sum upwards or downwards, to cover the cost

of the most economically advantageous offer. Funding may be required for future years to cover

such costs as lease charges, consumables, overhauls or upgrading. Any costs relating to building

work, staffing, energy, waste disposal, and the eventual disposal of the equipment should also be

included.

Leasing spreads the costs of ownership over a period of years. Costs are more clearly known at

the outset and most of the risks of ownership remain with the lessee. It can ease maintenance

problems, reduce staff costs, and ensure equipment is kept up-to-date, but this comes at a price

27
and outright purchase will often be more cost-effective. Leasing should not be used to augment

departmental funds as it is probably cheaper to borrow within the institution.

6. Sourcing

The procurement of capital equipment ties up money for long periods of time, and the longer the

period, the greater the uncertainty and risk involved. It must be done correctly the first time, as

mistakes are not easily rectified.

Information on potential suppliers can be obtained from a wide range of sources such as

suppliers, peer contact, trade directories, exhibitions, conferences and consultants. Approved

suppliers will have met the institution’s selection criteria and there may already be a purchase

agreement in place. However, sticking to a small number of suppliers may not result in best

value for money, for new suppliers may bring in new ideas and increase competition. A thorough

market search may reveal opportunities to buy second-hand or ex-demonstration equipment.

8. Negotiation

Tendering in accordance with directives reduces the need to negotiate with suppliers. However,

negotiations may take place before the issue of invitations to tender, and after the receipt of

tenders, though not between these times. The aim of negotiation is to improve the terms of the

offer, while not putting other bidders at a disadvantage or restraining competition.

28
In negotiation, most suppliers will expect an honest and ethical approach. The relationship

should be based on mutual trust and the principles of fair competitive bidding should be

observed:

a) Be truthful with suppliers, without disclosing all commercially-sensitive information.

Details of one supplier’s prices, specifications or terms should not be revealed to another,

but the careful disclosure of more general pricing information is acceptable.

b) Negotiate with all suppliers who have a reasonable chance of winning the order.

However, if negotiations result in a significant change to the conditions included in the

original invitation to tender, the EC Directives require that all bidders be given the

opportunity to re-tender.

c) If possible, negotiate with decision makers; failing this, the supplier’s representative

should arrange for a rapid written response to questions raised in discussions.

d) Meetings are often preferable to phone calls or correspondence because body language

and reactions can provide valuable information. Minutes of meetings should be

distributed to all participants for agreement, giving suppliers the opportunity to correct

obvious mistakes.

e) Confidential notes of internal discussions may be recorded separately and distributed

internally only.

29
 f) Let the supplier worry about making a profit on the sale. The supplier may choose only to

cover fixed costs so as to break into a new market.

g) Do not commit to the outcome of a negotiation unless authorized. Be aware of the

advantage of taking the attitude “providing my superior agrees”.

h) Do not let a supplier know they will get an order, particularly when seeking information

or clarifying aspects of a bid.

Negotiations are likely to focus on any extra items to be included in the purchase, the elimination

of unnecessary costs, and additional contractual safeguards. Rather than offer discounts,

equipment suppliers are often more willing to offer extras such as:

1) free spares

2) free training

3) free maintenance cover

4) improved specification, or lower specification at a lower price

5) ex-demonstrator or refurbished equipment

6) more favourable payment terms

Maintenance is a key life-cycle cost. Even where carried out in-house at the expiry of the

warranty period, savings can be achieved by negotiating on such factors as training, manuals and

spares; it is important also to take account of the cost of energy, components and consumables.

30
After tendering, contact with potential suppliers should be through the buyer only. Post-tender

negotiation with successful or short-listed bidders should be used only to clarify and to improve

value for money by exploring ways in which both parties can benefit from reduced overall costs.

If such negotiations may be considered to have materially altered the contract, or to have

deprived another bidder of an equal opportunity to win the contract, then the tender process

could be invalidated.

9. Evaluating Quotations and Tenders

Selection must be seen to be done fairly, and written records should show how the decision was

reached. The best bid offers the best combination of life time cost and quality, together with any

other important factors such as delivery time or compatibility with current equipment. Where the

criteria for evaluating and awarding a contract is required to be stated in the tender documents

these would normally be the most economically advantageous taking account of such factors as:

1. purchase price

2. other whole life costs (running costs, obsolescence, resale value or disposal cost

etc.)

3. delivery time

4. quality

5. aesthetic and functional characteristics

6. technical merit

7. compatibility

8. after sales service and technical assistance

31
All costs and benefits which can be given financial values should be included in a financial

evaluation. If total estimated lifetime costs exceed £250,000, net present values should be

calculated for each cost item.

Some of costs and benefits are difficult to quantify financially e.g. a machine might be quieter, or

faster, or produce less toxic waste. Such non-financial factors can be quantified and combined in

a single measure, weighted in respect of their relative technical and commercial importance. It

aids understanding if the weights add up to a round number, such as 100.

Points to note include the following:

1. ensure that the weightings are explicit and unbiased;

2. do not give too much emphasis to the total scores as opposed to how they are made up;

10. Contractual Matters

A contract, whether written, oral or implied, is a legally enforceable agreement willingly entered

into by two or more parties. Clearly-written contracts help reduce risk and protect the institution

and the signatory. A standard purchase order form may sometimes be used for capital equipment,

but more often a specially drafted contract will be required. This should incorporate much of the

information stated in the specification and the invitation to tender, and so much of the content

will already have been agreed with the supplier.

The contract or order must be signed on behalf of the institution by a person with the appropriate

level of delegated purchasing authority. This commits the institution to taking delivery of, and

paying for, the equipment. Reference should be made to the tender submitted by the supplier, and

prices and other information must be as in the tender, or as subsequently agreed in writing during

32
post-tender negotiation. Attention should also be drawn on the front of the form to any

additional, or changed, terms and conditions.

Two originals should be printed (one marked “Buyer’s Copy” and the other “Supplier’s Copy”)

and both sent first to the supplier for signature and then returned to the User Department for

signature by the institution. The Supplier’s Copy can then be returned to the supplier.

11. Progressing, Receiving and Accepting the Equipment

Pre-delivery milestones should be checked to avoid delays in delivery, inspection and

installation:

Checks such as inspection of work in progress, or audit access to costings, have been

carried out

For overseas suppliers, check import procedures as early as possible. Appoint an import

agent, and ascertain whether import duty is payable.

At least 2 weeks before delivery, ensure that the delivery site is ready, with enough space

and floor-loading and a power supply.

Several days before delivery, check that the supplier will deliver on time and is aware of

considerations such as:

1. avoiding traffic in the early morning and late afternoon

2. the need for any extra labour or special lifting equipment

3. access to the site and to the designated delivery point

4. the need to contact a specific person at the time of delivery

33
 On delivery, check the consignment and sign the carrier’s delivery docket. Any obvious

damage to packaging or contents, or shortages, should be brought to the attention of the

driver and noted on the docket. Whenever possible the docket should be signed by someone

other than the Buyer or the person authorizing payment.

Within a few days thoroughly check that the delivery is in good condition and complies with

the specification and quantities in the contract. Any deficiencies must be reported to the

supplier in writing immediately.

Ensure that other contract clauses relating to installation are complied with. For more

expensive or sophisticated equipment these may include:

1. erection and installation by the supplier

2. testing

3. training of staff

4. performance standards to be achieved before formal acceptance

When all contractual obligations have been met concerning quality, delivery, installation,

acceptance testing, commissioning and initial training etc, payment should be authorised by

someone with the appropriate level of delegated authority. Wherever possible this should be

someone other than the Buyer or Budget Holder. Invoices should be checked to see that :

1. the price and any other costs payable match the corresponding purchase order or contract

2. any special contract clauses relating to delivery and installation have been met

3. the person checking the equipment confirms that the quality and quantity are correct

34
12. Records

Records should be kept for at least 6 years after the start of a contract, or two years after its

expiry, whichever is longer. Good records can help sell the equipment at the time of disposal,

and will include:

1. invitation to tender

2. successful tender

3. Tender Control Sheet

4. Tenders/Quotations Record Sheet

5. institution’s original copy of the contract (or purchase order)

6. Invoices and receipts.

35
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

In this chapter, the researcher seeks to give out the frame work of the methods and procedures

that was employed in getting the required information for the research work. This chapter also

focuses on data needed and how such data was collected.

3.1 Research Design

For the purpose of this research work, the researcher designed the research in order to suit the

objectives of the research. The research was scheduled and adapted the research design that

would best answer the research questions that governs the study. The researcher then procured

both assessment and evaluation, since the researcher need to find all facts pertaining to the study

that exist at a point in time and also make judgement about the effectiveness, relevance,

efficiency or desirability of the study.

3.1.1 Population and Sampling

The population of the study was the workers ofSankofa Gold Mines Limited and was made up of

the top management, middle management and the lower management (junior staff).

Purposive sampling was a sampling technique which was used in selecting appropriate sample to

meet the objectives of a research. Purposive sampling was used in selecting the sample size of

fifteen (15) of which ten (10) emanated from the procurement department and the five (5) from

36
finance department. This technique was used because it is a procedure which would ensure in

reaching the target related to the research.

The researcher as well focused much on the use of purposive sampling to help the researcher

select the appropriate sample for the research. The sole objective of the use of purposive

sampling is to focus on particular characteristic of the target population that were of interest and

best motivated and enabled in the answering of the research questions. Purposive sampling

provided the researcher with several justifications to make necessary generalization for the

sample that was studied. But despite its merits, the use of purposive sampling was prone to

researchers’ bias.

In this study, only one set of questionnaire were presented to Sankofa Gold Mines Limited. A

total of fifteen (15), thus ten (10)procurement department and five (5) for finance department.

These questionnaires in some case were used as interview guide for the staffs and assisted the

researcher extract vital information needed to aid the research.

3.1.2 Data Collection Methods

The researcher used both the primary and secondary method of data collection to acquire a vivid

response from respondents to the problem identified.

3.1.3 Primary Data Collection

Primary data is the original and first-hand information gathered and recorded for the purpose of

the current research work embarked on by the researcher.

37
Due to the nature and scope of the population the researcher considered using interviews and

questionnaires in assembling and gathering of data for the sample.

Informal Interviews

This was the technique used by the researcher to extract information via informal interview on

the respondent. Here the researcher communicated directly with respondent for all vital

information required and also the respondent were able to clarify questions which was unclear

too them and did not understood to get a well detailed and concise explanation to such issues.

The interview happens to be the most effective way to solicit the co-operation of respondent and

also the means of establishing a rapport with them.

Also with this form of interview the researcher clarified all questions and also made a follow-up

to unclear or incomplete answers. Interviews also permitted more time to be spent with

respondents.

Interviews sometimes take long time in the collections of data as a result of detailed explanation

and the time that was spent with each respondent.

Questionnaire

To enable the researcher obtain information on the topic, questionnaire were designed and

distributed to selected number of employees at Sankofa Gold Mines Limited. The main aim of

designing the questionnaire was to enable the researcher to obtain responses from the various

respondents. The selection of the respondent was done through target people. This technique was

used because it is a procedure in which all the individuals in the target population can be

reached.

38
There was the use of structured questions to gather specific data for mainly quantitative research,

and on certain instances qualitative analysis. The structured questions are close-ended in nature,

which would prompt the respondents to give specific answers and not deviate too much from the

query. The scope of giving generalized answers to the structured questions is very little.

In the case of unstructured questions, the questionnaire has close-ended questions. The replies on

this kind of questionnaire are well utilized to construct the frame of the qualitative study with

theoretical analysis of a particular situation or event. To obtain valid responses, the researcher

combined both open ended questions and closed ended questions. With the open-ended

questions, the questions were left blank for respondents to provide answers in their own words

and that there were no alternate answers to select from. But as in the case of the closed ended

questions, alternates or options were given to select from. It must be stressed that almost all the

questions in the questionnaires are closed ended questions. The reason been that, the respondents

are known to be literate and can understand and answer the questions in the least time.

Questionnaires are more objectives and are relatively quick to collect information. Respondents

may be reluctant to answer the questions and takes a lot of time in the gathering responses.

3.1.4 Secondary Data Collection

The secondary data collection placed much emphasis on the use of the literature review which

was used to capture a lot of information about the research topic. The literature review was also

considered under the secondary data since it contains detailed research information about

effective negotiation in the acquisition of capital equipment.

39
Also articles, books, internet, journals and other study objects that capture information to the

related problem will be considered for gathering such data for the studies.

3.1.5 Pilot Studies

A pilot study was conducted on eight (8) employees at the procurement and finance departments,

that is four (4) for each department. This was done to ensure the efficient and effective use of the

data collection methods.

Questions were asked in the form of questionnaires for which respondents were given the pace to

air their views and perceptions about the project work by responding to questions provided in the

questionnaire. The questionnaires in some cases were also used as interview guide, especially for

the staff who felt reluctant to answer the questions which was given in the in writings.

Informal interview was used in the pilot study to have a close relation with respondents to

explain complex questions and clarify all cumbersome issues that would pose out.

After the pilot studies it was realized that some of the questionnaires administered was not fully

answered, since some respondents felt reluctant to answer the questions in the questionnaire.

Hence, the pilot studies assisted the researcher to test, discover and solve problems before the

full implementations on the research activity and administration of the questionnaires to target

population.

40
3.1.6 Triangulation

There was the need to ensure validity and reliability of the data. Both questionnaire and

interview employed in the research activity provided the same result. The researcher used

questionnaire to acquire detailed information from the respondents and used interviews to clarify

some unclear and imprecise responses. This ensured validity and reliability of responses from

respondents and also proved the efficient and effective use of the research instrument employed.

3.1.7 Data Analysis Procedures

The data will be analysed based on the research questions and collected data will be presented

using Microsoft excel. Data collected from the research question will be analysed by the use of

tables and charts. This will make the presentation concise and accurate for anybody to decipher

the interpretations. It will also be used to facilitate the understanding of complex numerical data.

In addition, the analyses are intended to attract attention to produce pleasing outlook and make

them easier for readers to understand the tables and other related statistical tool used in the

analysis at a glance.

3.1.8 Rigour

There was the need to see to trustworthiness in the data collection. The criteria for ensuring

trustworthiness and exacting standards will include credibility, transferability, dependability and

confirmability.

41
Credibility is comparable with internal validity. It has to do with ensuring a fit between the views

of the researcher and those of the respondents. The authors suggest a presentation of final

transcriptions to participants for them to determine that what has been captured is consistent and

in line with their (participants’) views. Independent recorders could also be used in association

with the researcher. In this study the researcher proposes to use pilot studies to run the

questionnaires to ensure that the questions are really measuring what they are intended to

measure.

To ensure dependability there is the need for independent auditing. In this study, the data,

methods, decisions and results will be given to independent individuals such as supervisor,

independent readers, friends and the likes for authentication.

Confirmability is proved that the data was not fictitious. The researcher intended to use the

evidence of data collection activities such as manuscript and data records to prove the credibility

of the data collected as a result of the research. In as much as, triangulation can also prove

confirmability it as well ensures its uniqueness and potency of the data collected.

Transferability is similar to generalizability. The findings from the questionnaire survey will be

used to establish the extent to which the findings are reproducible under similar rules, principles

and conditions. The fact that different sets of participants will be used for each of the two data

gathering activities can also be a way off establishing the generalizability or otherwise of the

data and emerging theory of the research work.

42
3.2 Organizational profile ( Sankofa Gold Limited)

Prestea Sankofa Gold Limited is a Ghanaian gold mining company established in 1994 to extract
gold mainly from gold tailings and waste ore dumped as a result of 100 years mining activities in
the Prestea Gold belt of Ghana. Since inception ,however ,operations have been marginal as a
result of high administrative costs and certain constraints such as the devastating effects of heavy
Prestea rains on production .This situation has been a major setback in operational capabilities
and accounts for the company’s inability to achieve design capacity ,as the plant has only
managed 73% of its design capacity since inception.

In spite of the forgoing ,Prestea Sankofas potential cannot be overlooked . The design flaw could
be curtailed by upgrading existing plant facilities. In addition the company holds 90 square
kilometers prospecting license comprising two non contiguous areas located to the east and west
of the historic Prestea mine, now operated by Gold Star Resources ,with areas of 54 square
kilometers and 36 square kilometers respectively.

The main objectives therefore of a proposed rehabilitation and expansion programme enshrined
in Prestea Sankofa Gold Limited’s Five Corporate Plan are to :

1. Build up an ore resource base by exploring and defining economic reserves on PSGL”S
concession areas.
2. Upgrade existing plant facilities at PSGL to be ready to accommodate expected increase
in exploitable deposits.
3. Create and sustain efficiency –based high yield low cost production culture to boost
shareholder value and confidence

The achievement of these objectives would enable the company shift from its current level of
tight and marginal operations to one of profitability. This would be done concurrently with
intensified exploration for the development of satellite open pits within eight to twenty-four
months.

Vision

To be the Lowest cost Gold producer in Ghana surviving and growing together with the
community.

43
Mission

The Companys mission is to :

1. Build and operate essentially all- Ghanaian gold mining company into a world class
mining house through low cost oriented management cycle style.
2. Promote success –linked growth for the benefit of shareholders ,employees and the
community.

44
 CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION

4.0 Introduction

This chapter deals with the analysis and interpretations of data. The data obtained was critically

examined to know the views of procurement officers, procurement manager, assistant

procurement manager, and the head of finance and finance officers in relation to the effect of

negotiation in the acquisition of capital equipment in the mining sector.

The data collected was analyzed to really find out what is pertained on the ground.

Objectives of the study

This will be basically aimed at affecting the case study area and will include:

7. To examine effective ways of planning effective negotiation.

8. To ascertain the effective roles of purchasing at Sankofa Gold Mines.

9. To identify the various procedures engaged in the purchase of capital items at Sankofa

Gold Mines.

10. To establish the benefits associated with effective negotiation in acquisition of capital

equipment.

11. To determine the challenges associated with negotiation for capital equipments

12. To generate recommendation(s) to Sankofa Gold Mines on the impact negotiation when

acquiring capital equipment.

45
Research Questions

The research would dwell on the following questions to serve a guide for the researcher;

6. What are the ways for planning effective negotiation?

7. What role does the purchasing profession perform at Sankofa Gold Mines?

8. What are the procedures necessary in purchase of capital items at Sankofa Gold Mines?

9. What are the benefits associated with effective negotiation in the acquisition of capital

equipment at Sankofa Gold Mines?

10. What are the challenges involve with negotiation for capital equipment at Sankofa Gold

Mines?

4.1 Data Analysis

Fifteen (15) questionnaires were administered to respondents. Out of that, ten (10) questionnaires

went to the procurement department and the other five (5) went to the Finance department. The

analysis has been presented in a tabular and graphically represented where necessary.

Table 4.1 A Summary of questionnaires administered and collected

Department Number Issued Number Retrieved

Procurement Department 10 10

Finance Department 5 5

Total 15 15

Source: Field survey, (2013)

46
Table 4.2 Responses on Gender

Gender Responses Frequency Percentage (%)

Male 11 73.33

Female 4 26.67

Total 15 100

Source: Field survey, (2013)

Table 4.2 shows responses of gender indifference in the organization, the data collected from

respondents shows that, 73.33% were males and 26.67% were females, representing 11 and 4

respondents respectively.

7
AGE GROUP
6

Source: Field
5
survey, (2013)
4

Series1
3 Figure 4.1 A Bar
chart showing age
2 5 6 group responses
2
1 2 Figure 4.1 Shows

0
collected data on
18-25yrs 26-35yrs 36-45yrs 46 & above
the ages of the

respondents. Out of the total of fifteen respondents, five were within the age range of eighteen to

twenty five years, six were within the range of twenty six to thirty years, two were also within

the range of thirty six to forty five years and another two were also in the range of forty above,

representing 33.33%, 40.00%, 13.33% and 13.33% respectively.

47
 EDUCATIONAL BACKGROUND
1
2

SSCE/WASSCE
0' LEVEL
A' LEVEL
6 HND
DEGREE
MASTERS
6

Source: Field survey, (2013)

Figure 4.2 A Pie chart showing Educational Background

Figure 4.2 Solicited information on the educational background of the respondents, Out of the

total respondents that took part in the study, two were SSCE/WASSCE holders, none of the

respondents were both ‘O’ and ‘A’ levels holders, six were HND holders, other six respondents

were also degree holders and one respondent was holding a masters degree which represented

13.33%, 0%, 0%, 40%, 40% and 6.67% respectively.

48
 POSITION
8
7
6
5
4
7
3
2 4
Series1
1 2
1 1
0
S R ... ER E
ER GE M IC NC
IF C A T FF A
OF AN M
EN
EO FIN
T M E C O F
EN T R
M EN CU N AN AD
E E M O FI E
R PR H
CU CUR T
O O AN
PR PR
S IST
AS

Source: Field survey, (2013)

Figure 4.3 A Bar chart showing Position

Figure 4.3 collected data on the positions of the various respondents included in the study. From

the total respondents, 46.67% reflecting seven respondents were procurement officers, 6.67%

which represents one respondent was a procurement manager, 13.33% which represents two

respondents were also assistant procurement managers, 26.67% which represents four

respondents were finance officers and another 6.67% representing one respondent was the head

of finance in the organization.

49
 How long have you
1 been employed in the organization

ONE TO TEN YEARS

ELEVEN TO TWENTY YEARS
TWENTY ONE TO THIRTY
6 8 YEARS
THIRTY ONE TO FOURTY
YEARS

Source: Field survey, (2013)

Figure 4.4 A Pie Chart Showing how long you been employed.

Figure 4.4 indicated that majority of the respondents representing 53.33% and also eight

respondents had been in the organization between the periods of one to ten years. Six

respondents representing 40% had been in the organization between eleven to twenty years and

one respondent had been in the company between the periods of twenty one to thirty years but

none had been in the company between the periods of thirty one to forty years. This outcome

establishes that the organization retains their staff for longer periods and therefore they can give

relevant or accurate information to improve the credibility of the research findings since they

may know much about the organization.

50
 PLANNING NEGOTIATION EFFECTIVELY
14
12
10
8
13 Series1
6
4
2
2
0
YES NO

Source: Field survey, (2013)

Figure 4.5 A bar Chart Showing how the Institution Plan Negotiation Effectively

Figure 4.5 establishes that the organization plans their negotiation effectively as majority

representing 86.67% and also 13 respondents said that the organization plans their negotiation

effectively whiles 13.33% representing 2 of the total respondents said the organization does not

plan their negotiation effectively.

Table 4.3 What Negotiation Style Does the Institution Use

Responses Frequency Percentage (%)

Adversarial 15 73.3

Power 0 0

Positional 0 26.7

Benevolent 0 0

Total 15 100

Source: Field survey, (2013)

51
Table 4.3 establishes that the company uses the adversarial style to negotiate with their suppliers

as the total respondents representing 100%, 73.3% of the population sample agreed that the uses

the adversarial style to negotiate with their suppliers and four (4) of the respondents representing

26.7% choose the positional style as a means of negotiating with suppliers. This indicates that

the organization uses the adversarial style in negotiating with suppliers as majority of the

respondents went for that.

Table 4.4 Does thorough Investigation at the Negotiation Phase Eliminate Extra Cost to be

Incured

Responses Frequency Percentage (%)

Yes 11 73.33

No 4 26.67

Total 15 100

Source: Field survey, (2013)

From the data collected in table 4.4, it was established that the organization is able to eliminate

extra cost to be incurred through thorough investigation at the negotiation phase as 73.33%

which represents 11 respondents agreed to the fact that the organization is able to eliminate extra

cost to be incurred through thorough investigation at the negotiation phase whiles 26.67%

representing four respondents said the organization is not able to eliminate extra cost to be

incurred through thorough investigation at the negotiation phase. This information establishes

that the organization is able to eliminate extra cost to be incurred through thorough investigation

at the negotiation phase.

52
 WHAT ARE SOME OF THE ACTIVITIES ENGAGED IN DURING
THE NEGOTIATION PHASE
9 Source: Field
8
7 survey, (2013)
6
5
4 8
Figure 4.6 A
3
Series1 bar chart
2 4
1 2
0
1 showing

IN
G SS ES NG
D ECE ENC INI Activities in
FIN R ER RG
A
CT
S IFF A
A D B during
F W RD
RRO HA
NA Negotiation

Phase

Figure 4.6 discusses some of the activities that the organization engages in during the negotiation

phase. It was established from the data collected that the organization engages much in narrow

differences than any other activities as 53.33% of the entire population representing eight

respondents ought for narrow differences as against the other activities such as facts findings,

recess and hard bargaining which had percentages of 26.67%,13.33% and 6.67% respectively.

53
 WHAT NEGOTIATION IS USED IN THE PLANNING OF
EFECTIVE NEGOTIATION
12

10

Series1
6
10
4

2 4

1
0
AGGRESSIVE ASSERTIVE MANIPULATION

Source: Field survey, (2013)

Figure 4.7 A bar chart showing what negotiation used in Effective Planning

Figure 4.7 focuses on the type of negotiation used in the planning of effective negotiation.

From the findings of the data collected, it was revealed that the organization uses the assertive

style or type of negotiation in their planning of effective negotiation as majority of the entire

population included in the study representing 66.67% and 10 respondents said the organization

uses the assertive style or type of negotiation in their planning of effective negotiation. Four

respondents representing 26.67% said the organization uses the aggressive style or type of

negotiation in their planning of effective negotiation whiles 6.67% said the organization uses the

manipulation style or type of negotiation in their planning of effective negotiation.

54
4.2 Showing whether the institution have Purchasing Department

From the information gathered the entire respondents said that the organization have a

purchasing department in the organization which represents 100% of the study population. None

of the respondents deny the fact that the organization has a purchasing department. This indicates

that the organization has a purchasing department the under takes all the purchasing duties in the

organization.

4.3 A whether the Purchasing Department undertake Procurement of Items.

Information on whether it is the responsibility of the purchasing department to undertake the

procurement of items in the institution. It was established that it was the purchasing department

which is solely responsible for all purchases in the organization. This is because the entire

population representing 100% said that it is the purchasing department which is responsible for

all purchases in the company whiles none said otherwise.

55
 HOW DOES PURCHASING DEPARMENT UNDERTAKE ITS
PURCHASING
10
8
6 9
4 4
2 2
0
0 Series1
BASE ON FOLLOW BASE ON ANY OTHER
REQUEST ANNUAL BILL OF
BUDGET MATERIALS
ISSUED

Source: Field survey, (2013)

Figure 4.8 A Bar chart showing how Purchasing Department undertake its Purchasing

From figure 4.8 above, it was established that the purchasing department undertakes its

purchasing base on request as majority of the sampled population representing 9 respondents and

also 60% of the total population said the purchasing department undertakes its purchasing base

on request, four respondents representing 26.67% said the purchasing department undertakes its

purchasing by following their annual budget, 2respondents showing 13.33% said the purchasing

department undertakes its purchasing base on the bill of materials issued whiles none of the

respondents suggested any other way through which the purchasing department undertakes its

purchasing in the company.

56
4.4 Whether Purchasing is Strategic Competence in the Institution.

It was established that purchasing is a strategic competence in the institution as the entire

population said that purchasing is a strategic competence in the institution representing a total of

100% of the total population.

4.5 Procedures engaged in the Purchase of Capital Equipment

Data collected indicates that the organization have procedures engaged in the purchase of capital

equipment as the entire respondents said yes, the organization have procedures engaged in the

purchase of capital equipment indicating a 100% of the entire respondents and none said

otherwise.

4.6 Showing Procedures Employed in the Acquisition of Capital Equipment

Data collected indicates that there are purchasing procedures employed in the institution for the

acquisition of capital equipment as the entire respondents said yes, the organization have

purchasing procedures employed in the institution for the acquisition of capital equipment,

indicating a 100% of the entire respondents and none said otherwise.

57
4.7 Whether Negotiation is factored in the Purchasing of Capital Equipment

Data collected indicates that negotiation is factored in the purchasing procedures for the

acquisition of capital equipment as the entire respondents said yes, the organization factor in

negotiation in the purchasing procedures for the acquisition of capital equipment, indicating a

100% of the entire respondents and none said otherwise.

4.8 Whether it is Advisable for an Institution like this to Engage in Negotiation for the

Purchase of their Capital Equipment.

Data collected indicates that it is advisable for an institution like this to engage in negotiation for

the purchase of their capital equipment as the entire respondents said yes; it is advisable for an

institution like this to engage in negotiation for the purchase of their capital equipment indicating

a 100% of the entire respondents and none said otherwise.

4.9 Whether Negotiation help the Institution to reduce its Expenditure in Purchasing

Capital Equipment.

Data collected indicates that negotiation help the institution to reduce its expenditure in

purchasing capital equipment as the entire respondents said yes; negotiation help the institution

to reduce its expenditure in purchasing capital equipment, indicating a 100% of the entire

respondents and none said otherwise.

58
4.10 Whether Effective Negotiation Improves the Strategic Planning of the Institution

Data collected indicates that effective negotiation improves the strategic planning of the

institution as the entire respondents said yes; effective negotiation improves the strategic

planning of the institution, indicating a 100% of the entire respondents and none said otherwise.

4.11 How Negotiation of Capital Equipment Help Elevate quality

Data collected indicates that negotiation of capital equipment help elevate quality as the entire

respondents said yes; negotiation of capital equipment help elevate quality , indicating a 100%

of the entire respondents and none said otherwise

4.12 The Impact of Negotiation on the Purchase of Capital Equipment

Data collected that negotiation have impact on the purchase of capital equipment as the entire

respondents said yes; negotiation have impact on the purchase of capital equipment, indicating a

100% of the entire respondents and none said otherwise.

59
 DOES THE INSTITUTION ENCOUNTER PROBLEMS WHEN
RESORTING TO NEGOTIATION FOR THEIR PURCHASE OF THEIR
EQUIPMENT
14

12

10

8 Series1
13
6

2
2
0
YES NO

Source: Field survey, (2013)

Figure 4.9 A Bar chart showing Problems encountered in the Purchase of Equipment

Figure 4.9 establishes that the institution encounter problems when resorting to negotiation for

their purchase of their equipment as majority of the population representing both 13 respondents

and also 86.67% said yes the institution encounter problems when resorting to negotiation for

their purchase of their equipment whiles two respondents representing 13.33% said no the

institution does not encounter problems when resorting to negotiation for their purchase of their

equipment.

60
 HOW DOES THE INSTITUTION TREAT THE PROBLEMS OF THE
NEGOTIATION FOR THE ACQUISITION OF CAPITAL ITEMS
8
7
6
5
4
7 Series1
3
5
2
3
1
0

Source: Field survey, (2013)

Figure 4.10 A Bar Chart Showing how problems are been treated in the Negotiation of

Capital Items.

Figure 4.10 collected data on how the institution treats the problems of negotiation for the

acquisition of capital items. It was indicated that the company bring on outside expert negotiator

to mediate when they get problems with their suppliers during negotiation, reflecting a

percentage of 46.67 and also seven respondents. Five and three respondents also said the

organization redefine their objectives and also offer to trade concession, representing 33.33%

and also 20% respectively. This indicates that the company bring on outside expert negotiator to

mediate when they get problems with their suppliers during negotiation.

61
 CHAPTER FIVE

SUMMARY, RECOMMENDATIONS AND CONCLUSION

5.0 Introduction

This chapter comprises of the summary of the research findings made in the preceding chapters,

the general recommendations made and conclusions drawn from the research work. It is also the

final chapter of the study.

5.1 Summary of findings

The findings are based on what the researchers found by way of questionnaires responded by the

respondents as well observations made by the researchers at Sankofa Gold Mines. This enables

the researcher in making meaningful decision and the necessary recommendations.

The institution as a whole appreciates the importance of negotiation as a tool for cutting down

cost structure in the organization.

Despite this recognition, the institution however, have in place Procurement department staffed

with the qualified Procurement professional to deal with issues that has to do with negotiation to

achieve their mission.

Furthermore, the research revealed that despite the fact that the institution appreciated the

immense contribution that negotiation has on reducing expenditure, it was realize from the

research findings that the Adversarial style of negotiation is used to negotiate with suppliers to

achieve the right price, quality and delivery time. It was realized that it help them to eliminate

extra cost to be incurred

Also, the research reveals that effective negotiation planning helps the organization to reduce

expenditure thereby increasing the total rate of revenue for the organization. it was observed that,

62
the institution faces certain problems during negotiation ranging from, delay in Purchasing, paper

work and high resource involvement.

Furthermore, Data collected indicates that there are purchasing procedures are employed in the

institution for the acquisition of capital equipment but negotiation is factored in first before any

business transaction. It is advisable for an organization like this to engage in negotiation in the

acquisition of capital equipment.

5.2 Recommendation

The study has shown that a negotiation practice is a vital aspect of acquisition of capital

equipment. As a result, organizations and institutions must pay much attention to this practice

and utilize it to achieve their goal. The researcher therefore recommends to the management of

Sankofa Gold Limited to create a Procurement department with the qualified personnel needed

as the first step in addressing the problems of wrong contract prices and over emphasis on price

as the staff are professionally trained buyers.

The researcher recommends the choice of negotiation style selected by the institution would be

greatly influenced by the relative power of the parties concerned and the length of the trading

relationship.

According to Donald et al (1996), basically there are four styles of negotiation which the

researcher recommends to the institute in whenever they engage in negotiation.

63
Principled style

According to Donald et al (1996), the negotiator with this style admits the existence of

conflicting interest but he result the possible temptation of turning them into blur. Parties with

this style regards each other as problem solvers who;

Perceive the object of the negotiation to reach an agreement/outcome which is mutually

beneficial.

Separate the people from the problem, that is, they keep issue clear, tackle the issue and not

personalities.

Are soft o people but hard on the problem, that is, the problem is what counts.

Insist on objective criteria. Forget about argument, try to identify the fact and agree on them.

Precede independent of trust. Trust is not an issue everything should be in the open. If you can

find and agree on objective truth, there is no need for trust.

Hard Style

According to him, negotiators who adopt to this style regards the other as an adversary who;

Consider victory to be the good of the negotiation

Are hard on the people as well as the problem

Search for answers they will accept

Insist on their position entrenched, and,

Apply pressure and make threat.

Soft Style

Soft style negotiation considers each other as friends who;

64
View the agreement as the goal to the negotiation,

Accept losses so as to reach agreement,

Are soft on the people and the problem,

Search for answers the other will accept, and,

Change their position easily and quickly.

Pragmatic Style

This other style according to Donald et al (1996), regards each other as competitors who;

Are hard on the people and on the problem as and when the occasion demands, that is, if it is

tactically useful and safe to be hard, and then hard and vice versa, precede independent of trust

that is base your judgment on the best/most cost effective information you can obtain.

Apply pressure as the circumstances may demand and

Consider the goal to be the best possible long-term outcome of the organization.

Again, in choosing the appropriate style, the researcher resorted to S. Amemu and recommends

this to the institution. According to him, there is no appropriate style which is applicable to all

circumstances, but he suggested that the following guiding principle as to what style is

appropriate at what time.

If the buyer’s level of power is relatively low, to that of the supplier and the nutrition of the

relationship is short term, then the buyer may afford to risk the hard style in an effect to get a

more favorable outcomes.

In a situation where the buyer has a higher level of power then he stands a better chance of

success by using the hard style and any other style short of this may do him more harm than

good, and,

65
Lastly, when it is intended to enter into a long term relationship, and, buyer is having a high level

of power, he is advised to go for the principal style.

However, the underlying message is that, negotiators should above all, be flexible and capable of

adopting different styles to suit different occasions. Reliance on any one style is a handicap and

should be avoided at all cost.

Again, the researcher recommends that frequent workshops and seminars be organized for the

Purchasing staffs to abreast themselves with the current tactics and strategies in negotiation to

help them buy wisely to enhance the institutions’ profitability. Considering the immense

contribution of purchasing and its value adding activities negotiation on company’s profitability,

I recommended that the management function so as that it can contribute to the institution’s

profitability.

Also the researcher recommends that the institution uses some techniques in negotiation. The

purchasing professional should be prepared to use both traditional and psychological techniques

in the course of the negotiation. The buyer should be absolutely same as the suppliers

representative has all the authority to convey the buyer’s proposal to the home office for review.

If possible, the buyer should attempt to hold the negotiation session at the office in his plant.

Aside from strong psychological advantages at home, there is real information advantage to be

gained, that is, the availability of corporate council and access to company’s record.

The buyer may keep the supplier on the defensive by making justify his position. He should be a

good listener. The buyer can learn the basic needs of the supplier by listening. Suppliers may

talk themselves to the choice of words, phrase and tones of voices at the same time observing

and gesture of body language used, they can be revealing.

66
Furthermore, as indicated earlier on, an important aspect of preparing for a negotiation is the

development of tactics which the researcher recommends to the institution. There are various

approaches which are common to the following authors Karas (1970, 1977 and 1997), Fisher and

Ury (1981) and Masterbate (1989) which include:

Take-it-or-leave-it, where one party wants to impose it terms on the other party without

concession. It is sometimes used by buyers who are aware of their power position vis-à-vis

suppliers and it is intended to lower the party’s aspiration level.

Boey, in this tactics, the buyer approaches the supplier in very friendly way and comments on his

proposal positively. The buyer however, let the supplier know that, if there is to be any business,

the proposal will have to be slightly adjusted in the view of the very specific situation. With this

the negotiation atmosphere remains open and the supplier can utilize all his talents to develop a

better deal.

Good Guy-Bad Guy, where the purpose of this tactics is to deem the other party’s expectation

about the outcome of the negotiation.

Finally, apart from the internal training which management is to provide for the purchasing

staffs, it is recommended that they liaise with international professional bodies such as the

Chartered Institute of Purchasing and Supply (CIPS) to organize correspondence course for

purchasing or Purchasing staffs to increase their technical competence in the negotiation

discipline.

67
5.3 Conclusions

The purpose of the study is to throw light on the effects of negotiation. It aids organizations to

get the best value for money spent.

The analysis compiled revealed that negotiation contributes a lot to the supplies at the right

price, quality and at the right time. The department is mainly responsible for the effective

running of the institution in terms of acquiring needed materials, for the institution as a means of

achieving organizational objectives and profitability.

Since, nothing can be substituted for this negotiation practice, Sankofa Mining Limited makes it

a culture in all levels of materials acquisition not only does the practice help in reducing

cost/expenditure, it also works on partnership that can lead to the parties involved (buyer &

Seller) becoming an extension of each other’s business and therefore gaining access to financial

and technical support of each other.

68
 REFERENCES

Bailey, Farmer, Jessop & Jones, (2005),Purchasing Principles and Management (9th edition)
Pearson Education.

Baily P., (2001).Purchasing and Supply Management (6th edition).Pitman.

Doubler D. W & Burt D. N. (2000).Purchasing and Supply Management (7th

edition).McGraw-Hill.

Fearon H. E. & Leenders M. R., (2002), Purchasing and Supply Management (11th
Edition).Richards Publishers.

Lenders, Johnsons, Flynn & Fearson, (2006).Negotiation Management (13th

edition)McGraw-Hill.

Lyson K. & Farrington B., (2006).Purchasing and Supply Chain Management (7th
edition).Pearson Education.

Weele A.V. (2007). Procurement Management (2nd edition).Thompson learning.

Zenz G. & Thompson G. H., (2001), Purchasing and Management of materials (7th edition),
Paper back.

69
 APPENDIX 1

TAKORADI POLYTECHNIC

SCHOOL OF BUSINESS AND MANAGEMENT STUDIES

DEPARTMENT OF PURCHASING AND SUPPLY

RESEARCH QUESTIONNAIRE

PROJECT TOPIC: THE EFFECT OF NEGOTOATION IN THE ACQUISTION OF

CAPITAL EQUIPMENT IN THE MINING SECTOR

CASE STUDY: SANKOFA GOLD MINES LIMITED

These questions are designed as part of a project work required for the award of Higher National

Diploma (HND). As a purchasing and supply student conducting study on

‘‘The Effect of Negotiation in the Acquisition of Capital Equipment in the Mining Sector’’.

The researcher wish to solicit your help through your honest response to these questions.

All information will be treated confidential.

PLEASE TICK WHERE APPROPRIATE

PERSONAL DATA

1. Gender Male ( ) Female ( )

2.Age group

18-25yrs ( ) 26-35yrs ( ) 36-45yrs ( ) 46 and above ( )

3.Educational background

SSSCE ( ) ‘O’ level ( ) ‘A’ level ( ) HND ( ) Degree ( ) Masters( )

70
 4.Position.......................................................................................

5. How long have you been employed in the organization?

1-10 years ( ) 11-20 years ( ) 21-30 years ( ) 31-40 years ( )

MAIN DATA

6. Does the institution plan negotiations effectively?

Yes ( ) No ( )

6b. If yes what are some of the ways used in planning negotiation effectively?

Set negotiation objectives ( ) Get information from the selling party ( )

Know financial capabilities ( ) Determining entry and exit point ( )

7. What negotiation style does the institution use in their negotiation?

Adversarial ( ) Power ( ) Positional ( ) Benevolent ( )

8. Does thorough investigation at the negotiation phase eliminate extra cost to be incurred?

Yes ( ) No ( )

9. What are some of the activities engaged in during the negotiation phase?

Fact finding ( ) Recess ( ) Narrow differences ( ) Hard bargaining ( )

10. What negotiation is used in the planning of effective negotiation?

Aggressive ( ) Assertive ( ) Manipulative ( )

71
11. Does the institution have a Purchasing Department?

Yes ( ) No ( )

12. Does purchasing department undertake the procurement of items in the institution?

Yes ( ) No ( )

13. How does the purchasing department undertake its purchasing?

Base on request ( ) Follow annual budget ( ) Base on bill of materials issued ( ) Any

other ( )

14. Is purchasing a strategic competence in the institution?

Yes ( ) No ( )

14b. If no, why………………………………………………………………………………..

………………………………………………………………………………………...............

…………………………………………………………………………………………………

15. Are there procedures engaged in the purchase of capital equipment?

Yes ( ) No ( )

15b.If yes, what procedures are involved in the acquisition of capital equipment?

Specification ( ) Conformity to standard ( ) Comparism of purchase records ( )

Any other………………………………………………………….

16. Are the purchase procedures employed in the institution for the acquisition of capital
equipment effective?

Yes ( ) No ( )

72
16b. If no, why ?........................................................................................................................

………………………………………………………………………………………………..

17. Is negotiation factored in the purchasing procedures for the acquisition of capital equipment?

Yes ( ) No ( )

18. Is it advisable for an institution like this to engage in negotiations for the purchase of their

capital equipment?

Yes ( ) No ( )

18b.If yes, does the institution resort to negotiations before the purchasing of capital equipment?

Yes ( ) No ( )

19. Does negotiations help the institution to reduce its’ expenditure in purchasing capital
equipment?

Yes ( ) No ( )

20. Does effective negotiation in the acquisition of capital equipment improves the strategic
planning of the institution?

Yes ( ) No ( )

20b.If no, why?.....................................................................................................................

21. Does negotiation of capital equipment help elevate quality?

Yes ( ) No ( )

22. Does negotiation have impact on the purchase of capital equipment?

Yes ( ) No ( )

73
22b. If yes, what impact does it have on institution?

Help to purchase in a more efficient manner ( ) Remove unnecessary efforts ( ) Help in the

exchange of value ( ) Any other………………………………………………………….

23. Does the institution encounter problems when resorting to negotiations for their purchase of

their equipment?

Yes ( ) No ( )

23b.If yes, what problems do you normally encounter?

Issue of stalemate ( ) Difficulties to reconcile differing objectives ( ) Lack of expert

negotiators ( ) Any other ……………………………………………………………….

24. How does the institution treat the problems prone to the negotiation for the acquisition of

capital items?

………………………………………………………………………………………………….

………………………………………………………………………………………………….

74