1.0 INTRODUCTION: ECONOMIC INSTABILITY IN NIGERIA

The current high rate of economic and security instabilities in

Nigeria originated from the sustained pursuit of expansion and

fiscal and monetary policies experienced in the last four years.

The resort to regulatory policies in these years further

complicated the problem as the growth of domestic output

diminished inflationary pressures heightened and the Naira

exchange rate depreciated sharply. Since domestic production did

not expand as rapidly as the creation of incomes economic agents

have tended to intensify their demand for foreign goods and

services thereby putting on the available supply of foreign

exchange.

On the other hand foreign exchange constraint has been

strengthened by the expanding needs to service extended debts

and finance public sector imports of goods and services both of

which have consumed a substantial proportion of aggregate

foreign exchange in the past years.

The spillover of excess aggregate demand to the external

sector aggravated by deteriorating non-oil exports and slump in

the international demand for crude oil constituted the origin of the

instability of the balance of payments. The current account of the

balance of payment has fluctuated between small surpluses and

wide definite while the capital accounts in meeting external debt

obligations as well as large net out flow of external reserves.

The pressure in the external sector intensified owing to the

deterioration in the term of trade attribute to sluggish demand for

crude oil poor non-oil export performance the over valuation of

the naira exchange rate and the continued pursuit of expansionary

fiscal policy. Consequently the balance of payments remained

weak with overall deficit widening.

The performance of the economy deteriorated continuously

owing to misdirection and political instability. This led to the

following situations:

a. Neglect of agriculture which have resulted in food shortage

and hoarding while our major agricultural cash crops which

serve as export produce varnished.

b. Payment for goods and services that were not supplied.

c. Inflated invoices especially for imported goods.

d. An import dependent economy.

e. An outrageous misdirected and high public expense.

f. A debt-ridden treasury due to maladministration in

governmental offices.

All these call for economic adjustment a deliberate

programme must be formulated. To reactivate the economy into

becoming self-sufficient and reliant agricultural output and non-oil

exports should be encouraged.

1.1 Background to the Study

Flour Mills of Nigeria PLC was incorporated in September

1960 as a private limited liability company and commenced

operations in 1962 with an installed capacity of 600 metric tons

per day. The company was converted to a public limited liability

company in 1978 and its shares were subsequently listed on the

Nigerian Stock Exchange.

In its 50 years history Flour Mills has remained at the

forefront of wheat milling in Nigeria. The company’s Flagship

brand GOLDEN PENNY remains one of the best known and the

preferred brands amongst bakers confectionaries and consumers

in Nigeria. Flours Mills has invested over N25 billion in milling

infrastructures over the last seven years to maintain its

competitive advantage. Today Flour Mills has a rated milling

capacity of 6000 metric tons per day making it one of the largest

single site mills in the world.

The company’s flagship mill located in Apapa Lagos

comprises of 10 integrated mills. Each mill was designed as a

multilevel operation in order to optimize the use of gravity in the

sifting process thereby reducing the energy requirements. In

addition the company maintains dedicated mills to the processing

of different wheat varieties to produce different flour types. The

Apapa Mill also boasts of modern silos with a storage capacity of

191000 metric tons.

After some years later the company extends her tentacle

through embarking on maximum production of it’s products.

Unfortunately there arises a problem of distribution which disrupt

the activities of product circulations however this obstacle was

figured out and quickly arrested by the management through the

implementation of alternative distributive system such as field

sales and other sales tactics that could encourage successful

circulation of the products to the markets.

The Flour Mills has also made significant investments in

power generation. The company has 11 General Electric (GE)

Jenbacher gas generators at its Apapa Mills with a combined

capacity of 30 megawatts. This has enabled the company to

reduce the occurrence of production stoppages. In addition the

company has a 30 megawatt diesel plant at the same site to act as

a backup in the event of any shortage of feedback to the gas

generators.

As part of its diversification strategy flour mills also engages

in the importation and distribution of bulk cement (under the

Burnham name) and operates a cement joint venture (UNICEM)

with Holcim of Switzerland and Lafarge Cross River state. The

company also engages in the importation and distribution of high

grade fertilizer. Additionally in a bid to decrease their own

packaging cost while providing a valuable product to the Nigerian

market as a whole. The flour mills have taken a 70% stake in

BAGCO one of the largest suppliers of industrial sacks to many

industrial and agro-allied companies in Nigeria.

It is noteworthy that flour mills runs profitably a seizes of

support or auxiliary businesses such as Golden Transport which

operates more than 500 trucks and the Apapa Bulk Terminal

which handles over 3 million MT of bulk cargo per annum such

businesses in addition to being viable and profitable in their own

right give flour mills a tremendous competitive advantage in terms

of agility efficiency and service delivery.

In addition to these ventures Flour Mills Nigeria Plc interest

in becoming the nation’s dominant food business company is

furthered by entities. Operating in agriculture livestock feed and

pasta manufacturing. As such the collective clout of flour mills of

Nigeria stands poised to help achieve the company’s objectives

whilst simultaneously improving the lives of untold numbers of

Nigerians employees and consumers alike.

1.2 Statement of the Problem

Generally an organisation that engaged in acquiring all it’s

materials abroad before the economic regression will inevitably

faced the problem of gating materials of close substitutes locally

for her continuous production activities most especially during this

period of economic instability. There could arise some obstacles

that mutilate against organisational buying purchasing and

sourcing activities. Among these problems that may likely disrupt

buying locally entails.

Organisation which had her larger parts of materials sourced

from abroad will however be forced with chains of problems like

quick identification of source of closely related raw materials

locally. This will ultimately result to acute shortage of materials

thereby hindering the effectiveness of production. There will be

disruption of buying activities also it will be faced with acquisition

of rightful materials low quality materials is inevitable to crown it

all these bottle-necks will prevent the organisation from operating

in its full capacity. If the above problem is not quickly arrested

the organisation stands a danger of production stoppages.

Considering the inwards sourcing for materials which had not

existed before will involve activities of setting up research and

development team who will look into an avenue of acquiring new

sources of supply constantly for the successful implement of this

programme. This will require an investment of large sum of

money and in the case where the company is financially

handicapped in carrying out this exercise it will lead to her

immediate closure. All these aforementioned problems are

recently encountered by most organisation whose major sources of

supply is from abroad at unstable economy which most

organisations are forced to turn inwardly for their materials.

Hence the international purchasing activities is reduced to the

lower level or rendered redundant.

1.3 Objectives of the Study

It is obvious that Nigeria economic problems emanated from

government policy changes and mismanagement of the revenues

generated during the oil boom periods. The aims of this study are

to identify the purpose for economic imbalance in the country

especially as regard the procurement of raw materials by the

production and manufacturing industries.

a. To highlight the sources of raw materials in an organisation

b. To examine the viability of suppliers in delivery of ordered

materials

c. To examine the relationship between the suppliers and the

buying organisation

d. To highlight the possible problems affecting suppliers and

buying organisation in an unstable environment.

1.4 Research Questions

The following research questions were discovered in the

course of this project

a. What are the sources of materials in an organisation?

b. What are the viabilities of suppliers in delivery of ordered

materials?

c. What are the relationship between the suppliers and the

buying organisation?

d. What are the possible problems affecting suppliers and

buying organisation in an unstable environment?

1.5 Plan of the Study

This study intends to reveal the impact of unstable economy

on buying activities thus broadening the knowledge as regard the

economic situation in relation to purchasing. It also enable an

indepth research into how unstable economy will affect the buying

functions and find alternative solution to how these problems can

be tackled. The readers of this research work tend to benefit the

following:

i) This project however shall deal and critically analyse how

organisation can cushion the effect of buying during

economic instability without wasting organisational resources

on materials.

ii) This project will be relevant to the top management in taking

decision on how to buy materials and avoid tying down

capital during inflation.

iii) This project will equally be of a great important to students

and organisations who might want to engage in any research

work like this.

1.6 Scope of the Study

This research is concerned with how Nigeria Flour Mills Plc

producers of Golden Penny Flours and other products procure their

raw materials during economic instability in the country.

The concept of this work will be arranged in five chapters:

The limitations cover the following problems: time limitation. The

time for this research work was limited. Adequate resources were

not made available for proper conduct of the research work.

The management was unable to give reasonable answer to

research questions due to the nature of their jobs. All these

limitations hindered the researcher from extending his work as

expected.

1.7 Definition of Terms

a. Organisation: It is the process of dividing work into

convenient tasks or duties by creating and

maintaining like-groups to achieve specific

objectives

b. Procurement: An act of acquiring materials and services in

an organisation at a particular time and price.

c. Sourcing: It involves the systematic investigation and

evaluation of suppliers and determines

policies relating to those who can most

suitably meet the requirements of the

organisation.

d. Production: An act of creation or making of products

(goods and services).

e. International

purchasing:

This is an act of buying goods or services

across borders.

f. Expedition: This is the process of follow-up of materials

ordered from the vendor so as to meet-up

the delivery data.