TRADE PROJECT

TITLE : THE EFFECT OF CENTRALIZED PROCUREMENT STRUCTURES

ON FINANCIAL PERFORMANCE IN MANUFACTURING FIRMS.
A CASE STUDY OF KAPKOROS TEA FACTORY.
SUBMITTED BY : ABIGAEL CHEBET
NUMBER : 5330020062
CENTRE NAME : SOTIK TECHNICAL TRAINING INSTITUTE

CENTRE CODE : 533002

COURSE NAME : CERRTIFICATE IN SUPPLY CHAIN MANAGEMENT

COURSE CODE : 1903

PAPER CODE : 208

SUBMITTED TO: THE KENYA NATIONAL EXAMINATION COUNCIL IN PARTIAL

FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF CERTIFICATE IN

SUPPLY CHAIN MANAGEMENT.

SUPERVISOR : MR. KORIR

EXAMINATION SERIES -NOVEMBER 2023

DECLARATION
This research project is my original work and has not been presented by anyone before.

Name……………….Sign………………Date……………

This research report has been submitted for examination with my approval as Institution
supervisor

Signature.............................. Date..............................

MR KORIR

PROJECT SUPERVISOR

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DEDICATION
I dedicate this research study to my parents, coleages and friends for supporting me throughout
the course.

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ACKNOWLEDGMENTS
The process of undertaking this research project has been and will be challenging and therefore I
owe lots of gratitude to many whose undying efforts and support has exposed me to realities
hitherto unknown to me.

Most importantly, owe my success to God’s grace for good health and unending hope. I express
my sincere gratitude to Mum, my family and friends whose undying support and positive energy,
efforts and encouragement are worth my achievements.

I also thank my supervisor, Mr. Korir for the support and guidance to make sure that the research
project becomes a success.

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ABSTRACT
The centralization of procurement operations refers to events handled by a factory for proper
management of the supply chain. Manufacturing firms should readjust their procurement
structures with the aim of enhancing efficiency and promoting environmental conservation. This
research will focus on achieving efficiency and effectiveness within the procurement department
so as to improve overall organizational financial performance. This study`s objective will be to
determine how organizational financial performance will be affected by centralized procurement
structure. Questionnaires will be used as a form of data collection. This research will embrace a
descriptive design, which depicts participants in an accurate way; it describes the people who
will take part in the study. A survey will be used and staff from the procurement, operations and
finance departments will be asked to fill out questionnaires through a brief interview about
specific topics. The study will cover a target population of 48 employees from the procurement,
operations and finance departments. Data collected will be presented using tables and pie charts.

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LIST OF FIGURES
Figure 2.1: Conceptual framework……………………………………………………………. 11

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TABLE OF CONTENTS
DECLARATION......................................................................................................................ii

DEDICATION........................................................................................................................iii

ACKNOWLEDGEMENTS....................................................................................................iv

ABSTRACT..............................................................................................................................v

LIST OF FIGURES................................................................................................................vi

CHAPTER ONE.......................................................................................................................1

INTRODUCTION....................................................................................................................1
1.1 Background of the study....................................................................................................................................1
1.1.1. Centralized procurement structure..........................................................................................................2
1.1.2. Organizational financial performance.....................................................................................................2
1.1.3 Manufacturing firms...................................................................................................................................3
1.2. Statement of the problem..................................................................................................................................4
1.3. Objectives of the study......................................................................................................................................5
1.3.1 General objective.........................................................................................................................................5
1.3.2 Specific objectives.......................................................................................................................................5
1.4. Research questions............................................................................................................................................5
1.5. Significance of the study...................................................................................................................................5
1.6. Limitations of the study....................................................................................................................................6
CHAPTER TWO.....................................................................................................................7

LITERATURE REVIEW........................................................................................................7
2.1. Introduction.......................................................................................................................................................7
2.2. Theoretical review.............................................................................................................................................7
2.2.1. Game theory...............................................................................................................................................7
2.2.2. Resource based theory...............................................................................................................................8
2.2.3. Transaction Cost Theory...........................................................................................................................8
2.3. Empirical review................................................................................................................................................8
2.4. Conceptual framework...................................................................................................................................10
2.5. Research gaps...................................................................................................................................................11
2.6. Summary of literature review........................................................................................................................12
CHAPTER THREE...............................................................................................................13

RESEARCH METHODOLOGY.........................................................................................13

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 3.1. Introduction.....................................................................................................................................................13
3.2. Research Design...............................................................................................................................................13
3.3. Target Population............................................................................................................................................13
3.4. Sample size.......................................................................................................................................................13
3.5. Data collection instruments............................................................................................................................13
3.6. Reliability and validity of research instruments...........................................................................................13
3.7. Data collection procedures..............................................................................................................................14
3.8. Data Analysis Technique................................................................................................................................14
APPENDIX.............................................................................................................................17

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CHAPTER ONE

INTRODUCTION
1.1 Background of the study
In recent years, procurement has been in a profound and rapid yet steady acceleration towards
being a discipline and a fully pledged profession. This has seen the establishment of a record
number of tertiary institutions that are now offering procurement academic programmes due to
expanded knowledge as well as foundation of procurement-related professional bodies have also
come into existence. As a result, the imperative for the development of professional code of
ethics, standard terminologies, and best practices has developed in equal measure. As suggest,
there has been increased pressure for purchasing integration. This is the integration of purchasing
practices and goals with a firm’s objectives.
Purchasing integration has been found to link centralised purchasing structures and
organizational financial performance. In recent times, procurement has come out as a
representation of human evolution and so is centralized procurement structures which has proved
to be core in an organization’s endeavour to build competitive advantage by yielding benefits in
terms of cost savings through effectiveness and efficiency of sourcing operations. However, in
order for centralized procurement structure to work effectively and efficiently, it should be
implemented in such a way that it reflects the efforts of other functions of an organization. While
studying the role of procurement structures in an organization noted that; Purchasing structures
should "be congruent with the overall organisation of the enterprise of which purchasing is part
and are determined to some degree by an organisational external and internal environment”.
In today’s competitively-harsh environment, most manufacturing companies are continuously
looking for ways to gain competitive advantage. One of the main ways of doing this is by cost
cutting and minimizing organizational spend. Over the past decade purchasing structures have
gradually shifted from informal modes of procurement to the modest procurement structures to
capture the purchasing savings from consolidating organisational spend. Procurement structures
represent a stage in evolution of civilized human relationships since they enable a desired object
to be obtained by training rather than conquest, plunder or justification. High speeds of
responsiveness and handling of demand have been attributed to adoption and implementation of
centralised procurement structure.
Kapkoros Tea factory is located in rural area, Enosaen, it was founded some years and has over
the years grown into a full-scale manufacturing unit for tea leaves products in Kenya and
beyond. The factory has overtime built a brand that has stood the test of time.The core values
from which they develop their culture, brand and their business strategies are; embrace and drive
change, be adventurous, creative, and open minded, pursue growth and learning, build a positive
team and family spirit, be passionate and determined. The factory’s vision is to be an integral
part of a child’s education-from the time a child starts holding a pencil, at school, university, and
when stepping into the professional world. Kapkoros tea will always be the right companion.

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Manufacturing industries have simplified yet effective procurement structures which consolidate
the entire procurement process by improving the responsiveness of the procurement structure.
This research carried out a case study; of tea leavescane manufacturing Industries LTD in order
to find out the effect of centralized procurement structures on the financial performance of
organizations in the manufacturing industry.
1.1.1. Centralized procurement structure
A centralized procurement structure refers to procurement system in which all the
departments/functions of a factory with a wide geographical distribution can make purchases
through a common purchasing organization. The development of a procurement structure
blueprint that may be applied to all organizations, irrespective of the contexts in which they
operate has been quite a challenge. Indeed, no such conclusive blue print may claim to be
applicable in all environments or organizational operational contexts. This is because of the
existence of a myriad of ‘objective realities’ and “conceptual lenses” from which different
observers may perceive their own realities, even on issues that may rely on hard or empirical
data. Procurement is a key area of focus in order for an organization to reap the benefits of
capital and assets put into business investment. In the words of procurement provides an
opportunity for all stakeholders to meet and discuss procurement requirements and objectives
that can help to improve the organizational developments.
Centralization of the operations of procurement structures is a dynamic and continuous rapid
movement and at times may involve benchmarking; where an organization measures itself
against other ‘best-in-class’ organizations in order to facilitate smooth adoption transition by
getting familiar with operations and benefits surrounding the same. However, several
characteristics of procurement structures are identified across many high performing
organizations and theoretical data introduced by scholars through formulation and evaluation of
contingencies and hypotheses regarding procurement structures and best practices regarding
sourcing structures. There are three key structural dimensions that drive the thinking on
designing the procurement operating model: supplier market, user needs, and purchasing stakes.
When it comes to centralized procurement structures, the driving factors include bulk buying in
order to realise the benefits of economies of scale, better supplier management and more
favourable pricing due to high purchasing power.
1.1.2. Organizational financial performance
Currently, there is no performance independent to targeted objectives. Reaching the objectives
translates with achieving the performance. Since the objectives of an organization cannot be
defined precisely and are more and more numerous, the performance is more and more difficult
to define, as it is a relative measure. Ion Elena, (2016) believes that the performance consists in
ʺachieving the goals that were given to you in convergence of enterprise orientationsʺ. In his
opinion, performance is not a mere finding of an outcome, but rather it is the result of a
comparison between the outcome and the objective. Unlike other authors, considers that this
concept is actually a comparison of the outcome and the objective. The author’s definition is far
from clear, as both outcomes and objectives vary, most often, from one field of activity to
another.

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Organizational financial performance is the ability of an organization to fulfil its mission through
sound management, strong governance and a persistent rededication to achieving results in terms
of profits, return on investment(ROI), return on capital employed (ROCE) and return on
assets(ROA). Proposed that firms delivering services must broaden their examination of
productivity from the conventional factory-oriented perspective to a dual factory-customer
perspective. This broadened approach can help reconcile conflicts or leverage synergies between
improving service quality and boosting service productivity.

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Organizations that have adopted the modest procurement structures are able to deliver their
products and services effectively and efficiently. When defining Organizational performance, it
is important to consider a wide variety of potential organizational performance measures. This
research considered organizational performance relative to the competition from multiple
organizational perspectives including quality, productivity, market share, profitability, return on
equity, and overall organizational performance.
1.1.3 Manufacturing firms
After Kenya`s independence in 1963, it acquired a mixed economic framework that opened the
growth of its private sector that included the manufacturing industries. In the four decades that
followed, the government undertook various policies and regional strategies. The growth of the
manufacturing sector, specifically in food processing and other related sectors like fast moving
consumer goods remained important in the country`s overall agenda throughout (Kenya
Economic Recovery Strategy for Wealth & Employment Creation,2003).
In the 1990`s Kenya`s formal manufacturing sector had a relatively sluggish employment growth
rate averaging at 2 per cent annually (Kenya Manufacturing Enterprise Survey,2000). The
sector’s contribution to the national Gross Domestic Product (GDP) in the period between 2003
and 2007 was an annual average of 5.5 per cent. In 2008 this figure dropped to 3.8 per cent. The
drop was attributed to overall slowing down of the global economy, the post-election violence
experienced in the country, depreciation of the Kenyan shilling, and low levels of productivity
and high costs of production.
The manufacturing sector in Kenya grew at the rate of 3.5 per cent in the year 2015, this was an
improvement from year 2014 of 3.2 per cent. Its contribution to GDP was at 10.3 per cent
(Kenya National Bureau of Statistics,2016). This growth is however much slower than the
country`s economic growth which was at 5.6 per cent in 2015.The implication of this is that the
Kenyan manufacturing industry is relatively still underdeveloped.

Kenya firms have resulted to looking at ways to cut costs as a solution to curbing these
challenges. Identifying ways of increasing their productivity, increasing their market shares and
drive up their competitiveness in both the global and local industry are some of the solutions to
these challenges. There is a concern that the productivity in this industry is stagnant, the reason
for this is the companies are using obsolete technologies in their operations, the lack of access to
financial resources and the lack of ability to attract and retain skilled manpower (Were 2016).
There is therefore a need to improve productivity in Kenyan manufacturing industries because of
the key role this sector plays in the economy.
1.2. Statement of the problem
Procurement is a key determinant of the organization’s financial performance since it is
detrimental in giving the organization an edge in terms of competitive advantage. This is brought
about by the fact that procurement operations take up the majority of an organization’s budgetary

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allocations in both the short run and long run. The development of an effective and efficient
procurement structure is therefore very critical to an organization. Schonberg (2007), posited that
organizations are increasing efficiency and professionalism in their procurement process.
Procurement constitutes a major part of expenditures in an organisation. In the manufacturing
industry, procurement functions are tasked with ensuring that their services offer cost effective
and efficient services in order to achieve financial performance; through efficient and
coordinated service delivery. Cost savings, better/strategic supplier management and; pricing
management are some of the benefits realised adoption of “objective realistic” procurement
structure. In the manufacturing industry, benefits such as economies of scale, satisfaction of
customer needs, development of expertise in procurement and cost savings in operation of multi-
site business units are realised from adoption of procurement structures. (Schonberg,2007)
However, in spite of manufacturing firms adopting the modest and “objective realistic”
procurement structures, most of them do not realise the benefits of the particular procurement
structure. (Oliver, 2017) noted that in order to realise the benefits of procurement structures, the
“operating system” of the procurement function should be consistent with the factory’s overall
structure, global organization, culture and the market structure as well. Organizations in the
manufacturing industry face challenges such as political framework, heavy taxation and
continuous change in technology.
Organizations in the manufacturing industry face challenges such political framework, taxation,
and change in technology, which has made the factory to focus their investment on development
and subsequent adoption of procurement structures as strategic option to gain competitive
advantage and achieve high organizational performance. Despite a rampant adoption of
centralized procurement structures by manufacturing organizations, studies focusing on the
effects of the same on organizational performance remain scarce.
Previous studies have dealt with the centralization of procurement operations while side lining
their contribution to the financial performance in organizations. For instance, Taslimul Ismail,
(2014) carried out a study on the effectiveness of procurement structures in public sector
enterprises of Bangladesh; a focus on the economic census 2013 and found out that although
both centralized and decentralized structures have an equal measure of advantages and
disadvantages, it is very difficult to comment about the effectiveness of centralised system of
procurement in public sector as a whole due the economic census objective of the study.(Fredrik
& Lasse, 2009)carried out a study on the effect of procurement structures on the performance of
construction projects and found out that “the different procurement structures differ from each
other in term of allocation of responsibilities, activities sequencing, process and procedure and
organizational approach in project delivery. (Kimanthi, 2017)carried out a research on factors
influencing procurement structures of firms in Kenya’s power sector and found out that there are
four factors that procurement structures which include: organizational factors, operational
factors, economic factors and quality. Organization factors, economic factors and quality were
found to have a positive relationship with centralized and decentralized procurement structures,
while quality has a negative relationship with decentralized structures.

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These differences have invariably affected the project performance” with an ever-changing
business environment, procurement managers are faced with new challenges of ensuring
procurement process influence the organizational performance in terms of product and service
delivery while at the same time realising profits. The study was carried out in order to determine
the relationship between centralized procurement structure and financial performance of
organizations in the manufacturing industry by answering the following questions. How does
cost control influence the financial performance of Kapkoros Tea Industries Limited? How does
supplier management affect the financial performance of Kapkoros Tea Industries Limited?
1.3. Objectives of the study
1.3.1 General objective
To assess the effect of centralised procurement structures on organizational financial
performance of Kapkoros Tea manufacturing firm .
1.3.2 Specific objectives
To establish the extent to which cost control affects financial performance of manufacturing
firms.
To ascertain the extent to which supplier management affects the financial performance of
manufacturing firms.
1.4. Research questions
This study seeks to find the answers to the following questions:
How does cost control influence the financial performance of manufacturing organizations?
How does supplier management affect the financial performance of manufacturing
organizations?
1.5. Significance of the study
The study will help the manufacturing companies analyse on how the instituted procurement
structure(s) has/have contributed to their performance as well as identify the loopholes that may
be of hindrance to performance. The study will also be useful to the government since it will
provide procurement-related policy makers and regulators with an insight of the operations of
centralization of procurement structures enabling them to come up with objective realistic and
all-inclusive policies regarding to procurement in the manufacturing firms. This study is useful to
procurement managers and organizational leaders as it enables them to gain insight on the extent
to which procurement structures affect organizational performance. The study is useful to
academicians and researchers by adding to the existing body of knowledge in procurement
structures and further, fill the existing gaps by as far as the move to value creation and its
contribution to the organization bottom line in a sustainable way as far as procurement
management is concerned.
1.6. Limitations of the study
The study was limited by factors such as lack of cooperation from the respondents who felt that
the information they were giving was confidential. Failure to disclose all the information led to
little information being collected. In addition, the study does not fully cover all cross sectional

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and longitudinal procurement entities, as National government procurement entities have been
left out which are also public. Future studies should consider being longitudinal in nature as well
as extending to the national government entities and Government Corporate.

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CHAPTER TWO

LITERATURE REVIEW
2.1. Introduction
This chapter presented an overview of centralized procurement structure and a review of studies
relating to the effects of centralization of procurement operations on organizational financial
performance of manufacturing organizations.
2.2. Theoretical review
The financial performance of a firm depends on how a purchasing entity relate with supplier
organizations. Theory is central to the scholarly credentials of any discipline. Within the public
procurement field little is known of the role that theory has played to date. (Ketchen&Hult,
2011). For both single-site and multi-site organisations, procurement structures are notably the
key determinants of three procurement aspects of an organization therefore, this study will adopt
three theories: the socio- system theory because his study seeks to tackle the interrelation
between a whole (an organization) and its subsystems (an organization’s branches); the
contingency theory which stipulates that there is no single best organizational structure and game
theory which outlines methods for understanding the ‘rules’ of an interaction and for finding the
best strategy in that setting.
2.2.1. Game theory
According togame theory is the study of how individuals make decisions. This theory is a model
that not only features benefits less cost but also the participants and the ability to predict their
decisions. The parties involved are known as players and the different decisions they make are
referred to as strategies. Negotiations play a key role in communication between the players
when they come together to seek mutual agreement over an issue.
The outcomes of these negotiations result in benefits referred to as pay-offs. These pay-offs
include cost reduction, warranty, lead-time and liability in terms of conditions of an agreement.
The negotiation is underpinned by the ability of the buying organization to increase pay-offs as
much as possible in their favour. Attitudes towards decision making by players are determined
by the following factors namely; information through adequate preparation and consultation,
commitment to stand firm in negotiation and; sufficient time to negotiations resulting to better
pay-offs since there is enough time to understand each other’s motives.
The function of the procurement function is to generate instant returns on investment through
directing and influencing interactions between the players for organizational-value addition. This
study seeks to adopt this theory to explain the relationship between centralized procurement
structure and financial performance; because one of the basic reason for adopting centralised
procurement structure is in order to consolidate purchasing power from several business units/
functions. The purchasing power of an organization is the key determinant of stakes obtained by
the purchasing organization during a negotiation.

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2.2.2. Resource based theory
The resource-based theory examines the link between a firm’s internal characteristics and
performance. As the basis for a competitive advantage, the resource-based theory considers the
application of a bundle of tangible and intangible resources. In order to make to competitive
advantage sustainable, resources (materials, services and works) are required to be
heterogeneous and immobile. Moreover, to create a competitive advantage, resources need to
fulfil the criteria of being valuable, rare, in imitable and non-substitutable. Resource based theory
contends that the possession of strategic resources provides an organization with an excellent
opportunity to develop competitive advantages over its rivals.
The tangibility of an organization’s resource is an important consideration within resource-based
theory. Tangible resources are those that are physically present such as an organization’s
property, plant, equipment as well as cash. Intangible resources are not physically present. An
organization’s reputation, knowledge and skills of employees are intangible. Capability refers to
what an organization can do. According to David and Gary, (2018) The competitive advantage of
firms is seen as resting on distinctive processes, shaped by the firm's asset positions, and the
evolution path(s) it has adopted or inherited.
The adoption of this theory was prompted by the idea that for an organization to be profoundly
capable of performing its duties then it has to have resources in place. Acquisition of resources is
one of the core operations of procurement structures.
2.2.3. Transaction Cost Theory
Transaction cost economics states that organization encounter the challenge of opportunism
when they are in a situation bargaining with a small number of other organization. Hence then
having more suppliers reduces this risk and affords the organization the ability to negotiate better
procurement deals as the buyer is less dependent on any particular supplier (Dedrick et al..,
2008). states that the number of suppliers chosen by an organization encompasses an optimal
balance among the following key transaction factors: fit, coordination costs and risk
opportunism.
Information technology has the potential of reducing coordination costs as procurement
processes are standardized and automated, thus reducing the cost of working with more
suppliers. This mostly benefits the buying organization especially for commodity items such as
copper pipes. Information technology allows organization to reduce the number of suppliers and
focus on low cost suppliers of standard goods and consolidated their purchases to obtain volume
discounts.
2.3. Empirical review
Empirical review is a directed search of already published works, including periodicals and,
books that discusses theory and presents empirical results that are relevant to the topic at hand. A
number of studies have been conducted both locally and internationally on procurement
structures by academicians, scholars and research organizations; with the intention of
determining the effects of procurement structures on organizational performance. This study

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seeks to answer questions relating directly to the topic in question and evaluating the hypotheses
in line with the topic.
Over the years, the contribution of procurement structures to the performance of the organization
and has been an unproven theoretical result. This question has sparked debate among many
scholars and academicians both locally and internationally with parties at the differing ends
claiming both negative and positive contribution. This study seeks to use both primary and
secondary data to evaluate the contribution of procurement structures to the financial
performance; a case of Kartasi Industries Ltd.
In the recent past, several scholars and academicians have made immense contribution to the
body of knowledge by studying, evaluating and contributing to new information about
procurement structures. They have done so by studying procurement structures against other
variables in order to ascertain the acclaimed contributions/ extent of contribution of procurement
structures to key organizational attributes.
The financial performance of a manufacturing organization entirely lies in its ability to minimise
operational costs by embracing bulk procurement/ unifying procurement operations of different
units altogether. This is the very definition of a centralized procurement structure. carried out a
study in order to assess the operations of centralized procurement structures in a manufacturing
organization. His results indicated that the main aim of centralized procurement structure is to
capture the economies of scale by unifying the purchasing processes of an organization’s
different units. The study established that the operation of the centralized procurement unit of a
manufacturing organization was very effective and it is managed by professionals with qualify
skills on the job. Some of the challenges established by this study were: need for formal
contracting and commitments to suppliers, benchmarking process intimidating, environmental
challenges; and transportation.
Although the choice of a procurement structure entirely lies in the organization’s decisions.
There are several factors that influence the choice of purchasing structure, classified into context
related factors, information and power related factors, and purchasing related factors. Even with
the most suitable procurement structure, it may be difficult to determine the effectiveness of
centralised procurement structures in the manufacturing sector as a whole. However according to
the effectiveness of procurement structures is notable if there is a significant difference between
the previous and present systems of procurement. The quality and price have significantly
improved in centralized system but the lead time of the procurement has deteriorated. His study
reveals that the present process of purchasing is effective for organizations with a problem in
lead time which should be addressed
In order to realise the benefits of centralized procurement structure, then a manufacturing
organization must act accordingly in order to ensure a number of organizational factors which
have profound effect on procurement structures are in line with the procurement structures.
While studying the factors that influence procurement structures in the power sectornoted that
the factors include organizational operations, operational factors, economic factors and quality of

xviii
goods being procured. The research established that there are variances in the adoption of
procurement structures in Kenya’s power sector firms.
Variances arise based on subjects of availability of in-house competencies and the availability of
necessary policies to enact adoption of procurement structures. Therefore, until now majority of
the firms in the manufacturing industry adopt procurement structures based on ‘objective
realities’ while side-lining the benefits that acfactory procurement structures. The purchasing
organisational structure will affect the synergy benefits resulting from the category management
project.They also noted that top-level management should add value by determining a fit
between the approach for managing synergies and specific business situation.
Favourable structuring of the procurement and sourcing functions in the manufacturing
organization is inevitable if the benefits of procurement structures are to be realised. While
studying purchasing structures in a sporting goods retail business; a case study of Adidas Group
Western Europe, noted that sourcing and operational purchasing were separated and divided into
two different departments. The case factory was recommended to establish a procedure to
evaluate the financial impact of the restructuring of the sourcing and operations functions.
In order for the research to obtain be viable and obtain reliable results, the study assumes that
organizations in manufacturing industry can only adopt a single procurement structure. That is,
centralized either procurement structure, decentralized procurement structure or hybrid
procurement structure.
2.4. Conceptual framework
A conceptual framework is an analytical tool with several variations and contexts that can be
used to make conceptual distinctions and organize ideas. Conceptual frameworks are basic
structures representing the systematic characteristics of a system being considered. If one
variable depends upon or is a consequence of the other variable, it is termed as a dependent
variable and the antecedent to the dependent variable is termed as an independent variable. The
following is an illustration of the relationship between dependent and independent variables in
this study.

Figure 2.1: Conceptual framework

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Independent variables Dependent variables
COST CONTROL

Standardization of
procurement practices
Economies of scale

Organizational financial
performance

Return on capital employed

Return on assets
Return on investment

SUPPLIER MANAGEMENT

Figure 2 Cross-functional skills

Cumulative procurement
Source: The New York Ti
expertise
Minimal errors

Source: Research data 2020

2.5. Research gaps
A study by Assail, et al. (2012) examined the effect of centralization on the profitability of
Nigerian food and beverage manufacturing firms by means of a case study in the bottling
industry. They concluded that there is a significant relationship between organization efficiency
and centralization of procurement functions and this has a positive effect on a firm’s
profitability, and that it can result in cost savings and increased profitability.
With reference to centralized procurement and organizational financial performance, very few
studies have been done and none has focused its attention on the effect of centralization on
organizational financial performance. This study differs from previous work in that it only
focuses on certain aspects of centralization, namely cost control and supplier management.
Further, this study is only concerned with the effects of centralized procurement structures on an
organization financial performance. It is worth noting that organization`s financial performance
in the broad sense and that it should be viewed in all aspects of management and not only
procurement.
The literature often cites material management, cost reduction and inventory control as the
primary advantage of centralized purchasing. The benefits of centralized procurement on the
other hand have not been covered as well by the literature. However, this study is interested in
the benefits that an organization can achieve through centralizing the procurement functions
therefore many studies were unable to find literature discussing this situation as it is over-
shadowed by the much more common situation and many different functions, of which

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centralization is one.(Leenders,2009).Therefore this study will fill this gap through establishing
the effects of centralized procurement and how they affect organization`s financial performance.
2.6. Summary of literature review
The second chapter entails a look at the existing literature works. It goes through theories on
which this study bases itself on. The theories discussed include; game theory, resource based
theory and the transaction cost theory. Moreover, the conceptual framework of the study is
captured diagrammatically, reflecting the variables to be explored in the study. There is also an
empirical review of past research studies on procurement structures. The research studies come
as close as possible to shed light on our independent and dependent variables. A critic was made
based on apparent shortcoming of the existing literature works. Therefore, research gaps
identified and a case for this study put forward as to what we aim to achieve through the study.

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CHAPTER THREE

RESEARCH METHODOLOGY
3.1. Introduction
This chapter gives a clear representation of the research methodology used in data collection. It
entails the research design, target population, sample size, data collection instruments, reliability
and validity of research instruments, and data collection techniques used to answer the question.
3.2. Research Design
This study will adopt a descriptive research design to identify the effect of procurement
structures on the financial performance of firms in Narok County. This approach will enable the
researcher to describe various factors relating to the effect of centralized procurement structure
on the financial performance of manufacturing firms.
3.3. Target Population
Population refers to the entire group of individuals, events or objects having common observable
characteristics (kisilu et al 2005). This study will target collecting information from 48
respondents who will be drawn from the procurement, finance and operation departments of tea
leavescane Industries Limited.
3.4. Sample size
In this study, the researcher will use a sample size of 25%. Kothari (2004) argues that a sample
size of at least 20% of the population is representative. A sample size is a smaller part of the
population that is carefully selected to represent all the main traits of the accessible population
(Mugenda and Mugenda 2003). A sample is a group of items taken from the population so that
needed information can be obtained for the purpose of analysis. The researcher will adopt a
stratified sampling technique because the number of respondents involved will be manageable
and information can be collected from them.
3.5. Data collection instruments
The study deductions will be pegged on both secondary and primary data. The secondary data
will form the basis for comparison with findings and as a building block to answering research
questions. This will be obtained through desk reviews of documented sources; on the other hand,
primary data will be collected using questionnaires. A structured questionnaire will be used to
collect data from the respondents who are staff members from the procurement department,
finance department and operation departments. The questionnaires will be administered on “a
drop and pick later” basis. The questions used in the study will be closed ended with few
exceptions in which there will be room for respondents to give their opinion if it was not among
the given choices.
3.6. Reliability and validity of research instruments
Donyei (2003) argues that research instruments are measurement devices that must possess
adequate reliability. He identifies pretesting as one comprehensive procedure towards enhancing
instrument reliability. This underlies the intent of this study to conducting a rigorous instrument

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validation exercise through pre-testing. Research questionnaire will be given to the supervisor
for professional judgement to be ascertained as accurately formulated.
To ensure reliability of the survey instrument a pre-test study will be carried out with a small
sample of the target respondents in Industrial Area where respondents will be picked. The data
collected will be analysed for consistency and corrective measures undertaken.
3.7. Data collection procedures
Data will be collected using questionnaires with structured and unstructured questions. A self-
administered questionnaire will be delivered by hand to the respondents. The questionnaire will
focus on issues of centralized procurement structure and will be structured into three sections.
The questionnaire is the most widely used method of data collection in social sciences. It’s
popular because the researcher has control over the types of data recorded at the time of data
gathering. The researcher also has the advantage of determining the data types of how data shall
be organized. The questionnaire method also helps the researcher to verify and or update
information or data from official or archival records. Since the questionnaire is standardized, it
will allow easy comparison.
3.8. Data Analysis Technique
The data will be collected sorted, coded and then entered into the Microsoft excel statistical and
data analysis package. The Microsoft excel data analysis software will be used to analyse and
interpret the collected data.
Content analysis will be used to analyse collected qualitative data. The study anticipated data in
of form range(s) obtained from data collected by the Likert scale, this was coded into code books
of survey and ultimately presented in form of pie charts.
The regression equation will be as follows:
Y=α+β1X1+β2X2+Ɛ
Where:
Y= dependent variable
α = constant 48
β1β2 = coefficient of all independent variables
X1X2=values of various independent variables and moderating variables
Ɛ-error term
X1= Cost control
X2=Supplier management

xxiii
REFERENCES
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from http://www.mypurchasingcentre.com/purchasing/industry-articles/centralize-or-
decentralize-procurement-no-longer-a-clear-cut
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procurement-no-debate-necessary
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Doaldson, L. (2001). The contigency theory.
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Johannesburg.

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Kimanthi, S. K. (2017). Factors influencing procurement structures of firms in Kenya's power
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APPENDIX
APPENDIX I: QUESTIONNAIRE FOR tea leavesCANE INDUSTRIES LIMITED STAFF

My name is Geoffery Kipyegon undergraduate student in Sotik technical institute pursuing

Supply Chain Management. I am carrying out an academic research on the ‘EFFECTS OF
CENTRALIZED PROCUREMENT STRUCTURES ON FINANCIAL PERFORMANCE
IN MANUFACTURING FIRMS. I am therefore requesting you to feel free in giving your
answers and all will be considered right. The information provided in this questionnaire will be
treated with top most confidentiality and results will be used to make recommendations which
will help the public sector at large. Please tick in the space provided and be honest in all
responses. Your cooperation and assistance will be highly appreciated

SECTION A: BACKGROUND INFORMATION

I. Gender:

Male [ ]

Female[ ]

II. Highest level of education attained

Certificate [ ]

Diploma Level [ ]

Degree [ ]

Postgraduate [ ]

Any other, kindly specify ……………………………………………….

III. Department you work in:

Procurement department [ ]

Finance department [ ]

Operations department [ ]

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IV. Years of experience in the department?

1-2 years [ ]

3-4 years [ ]

5- 6 years [ ]

Above 6 years [ ]

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SECTION B: FACTORS INFLUENCING FINANCIAL PERFORMANCE

The following table indicates the extent to which centralized procurement’ factors affect
organizational financial performance in the manufacturing industry.

To what extent does the following factors affect organizational performance?(1=very high,
2=high,3=neutral,4=low,5=very low)

Factors affecting organizational performance

Factors 1 2 3 4 5

i. The extent/level of effect of cost

control on financial performance

ii. The extent of effect of supplier

management on financial
performance

xxviii
SECTION C: THE EFFECT OF CENTRALIZED PROCUREMENT STRUCTURE ON
ORGANIZATION PERFORMANCE

i. What level of effect does a centralized procurement structure affect the profitability of
tea leavescane Industries Limited?( indicate whether high, average or low)

HIGH [ ]

AVERAGE [ ]

LOW [ ]

ii. How do you rate the extent to which the following factors affect organizational financial
performance of tea leavescane Industries Limited?(1=very high
2=high,3=neutral,4=low,5=very low)

Factors affecting organizational financial performance

Factors 1 2 3 4 5

i. Procurement practices have been

standardised

ii. Organization realises economies of scale

iii. Operations have been minimised

iv. There is mutual procurement

v. Organization has purchasing power

vi. Organization realises discounts and other

benefits of collective buying

vii. There is substantial growth in cross

functional skills

viii. There is substantial growth in cumulative

procurement expertise

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 ix. Errors in the procurement process have been
minimised

THANK YOU FOR YOUR TIME AND PARTICIPATION

xxx