Asian Journal of Business Management 2(4): 82-88, 2010
ISSN: 2041-8752
© M axwell Scientific Organization, 2010
Submitted date: October 01, 2010
Accepted date: November 01, 2010
Published date: December 10, 2010
Procurement Practices and Supply Chain Performance of SMEs in Kampala
1
Sarah Eyaa and 2 Joseph M. Ntayi
Departm ent of Procurement and Logistics M anagem ent,
2
Faculty of Computin g and M anagem ent Science, M akerere U niversity B usiness School,
P.O. Box 1337, Kam pala, Uganda
1
Abstract: The study sought to examine the relationship between the components of procurement practices
which are purchasing risk taking, purch asing knowledge and skills and strategic purch asing and supply chain
performance of SMEs in Kampala District in Uganda. The motivation for the study was the fact that SMEs
suffer poor supply chain performance and there was need to identify the extent to which unprofessional
practices like procurem ent practices, explain supp ly chain performance. Findings revealed that the com ponents
explained 19.4% of the variance in supply chain performance, purchasing risk taking was a significant predictor
of supp ly chain performance while purchasing knowledge and skills and strategic purchasing were not. These
findings raise implications for SME managers, owners and policy makers which have to be addressed if the
competitiveness of SMEs in Uganda is to be enhanced in light of increased global competition.
Key w ords: Procurement practices, SMEs, supply chain performance, Uganda
INTRODUCTION
In today ’s highly com petitive environme nt, supply
chain performance is very vital for the survival of firms
because customers judge the performance of firms basing
on their sup ply ch ain performance . Com petition is no
longer between firms but between entire supply chains
(Veludo et al., 2004). Worldwide, national econ omies are
faced with the challenge of improving their supply chains.
Given that majority of the firms in economies today are
Small and M edium E nterprises (SM Es), they are the ones
that are most affected by the daunting task of improving
the performance of their supply chains. Small and
Medium Enterprises (SME s) play very fundamental
function in the economies of many developing countries
through the creation of employment and provision of
support services to larger firms (UNC TAD , 1993)
implying the efforts should be made to imp rove their
performance and that of their chains in order to foster
national developm ent.
In Uganda, SM Es acco unt for 90% of the private
sector with 80% of these SMEs in urban areas
(Hatega, 200 7). Th ey pro vide e mplo yme nt to
approxim ately 2.5 million peo ple, contribute 75% of the
Gross Domestic Product and are major players in the
supp ly chains of large manufacturing firms as buyers,
suppliers or intermediaries. SME supply chains in Uganda
are characterized by late deliveries, poor quality products
or no deliveries at all, which are indicators of poo r supp ly
chain perform ance . This poor su pply chain performance
negatively impacts on their performance given that
customers today eva luate firms basing o n the perform ance
of its chain given that competition has shifted from
between firms to between entire supp ly chains
(Ntayi et al., 2009). W hen the supply chain of a firm fails
to perform , it is competed ou t of the m arket and is
therefo re likely to “die”.
SMEs face a num ber of challenges w hich are likely
to explain the performance of their supply chains and their
survival. A study on SMEs in Nigeria by Onugu (2005)
found out that that less than 5% of the SMEs survive
beyond their first year of existence because of the
numerous challenges that limit their competitiveness. The
same case applies to Uganda w here m ajority of them die
within the first five y ears w hile only 5 to 10% survive and
make it to maturity (Private Sector Foundation Uganda,
2006). Constraints faced by SMEs in Uganda that
negatively impact their performance and that of their
supply chains include limited access to information
(Okello-O bura et al., 2008), limited information about
financing options, inadequate and expensive supply of
power and telecommunication (Hatega, 2007), limited
experience, limited access to business networks
(Kigozi, 2006), unprofessional practices, information
technology accessibility and collaborative constraints
(UNCCI Report, 2005). This position is supported by
Onugu (2005) who in his study on SMEs established that
some of the problems of SMEs in developing countries
include inadequate knowledge and skills in accounting,
marketing, information technology, international trade
and other areas of man agem ent.
Corresponding Author: Sarah Eyaa, Department of Procurement and Logistics Management, Makerere University Business
School, P.O. Box 1337, Kampala, Uganda
82
Asian J. Bus. Manage., 2(4): 82-88, 2010
One of the unprofessional constraints that Ugandan
SMEs face is unprofessional procurement practices which
can be explained by the fact that focus on procu reme nt is
in the in public sector in Uganda, where it is regulated by
the Public Procurement and D isposal of Pu blic A ssets
Authority (PPDAA ). Procurement in the private sector on
the other hand, is unregulated. Given that procurement is
a vital aspect of su pply chains, it is possible that the poor
performance of the SMEs is explained by the procurement
practices in the SMEs. According to Carr (1996), the
com ponents of procurement practices are purchasing risk
taking and purchasing kn owled ge and skills (Carr, 1996).
A number of studies have been undertaken in Uganda
on SMEs but none specifically addresses the impact of the
com ponents of procurement practices on SME supply
chain performance. Okello et al. (2008) studied the
impact of information access on the performance of the
SMEs in Northern Uganda. Ntayi et al. (2009) examined
the impact of procurement practices, information
technology flexibility and collaborative relationships on
supp ly chain swiftness. Ntayi and Eyaa (2010) studied the
relationship between procurement practices, collaborative
relationships and supply chain performance. Little is
known about the procurement practices of SMEs in
developing countries (Giunipero and Flint, 2001),
specifically Uganda. Studies have been carried out to
assess procurement practices in Saudi Arabia (Giunipero
and Flint, 2001), Botswana (Msimangira, 2003), Taiwan
(Carr et al., 2000) and United Kindgom (Pittaway and
Morrissey (2004). The Taiwan and United Kingdom
studies focused on SMEs. This study however focuses
specifically on explaining supply chain performance using
the com ponents of procu reme nt practices in o rder to
provide a new view point from which we can explain
SME supply chain performance. The performance of SME
supp ly chains is an area of concern in any economy
because they play a very key role to the economies of
most emerging nations from the viewpoint of generating
employment and economic growth as well as providing
supp ort services to large firms.
purchasing knowledge and skills looks at the extent to
which persons handling the procurement function exh ibit
high purchasing knowledge and skills. This includes
ensuring that persons handling the procurement function
are qualified, have the skills to monitor and interpret
supp ly mark et changes as w ell as handle aspects of
relationships with suppliers. Purchasing risk tak ing is
about the long term focus of the purchasing function on
issues that involve risk and uncertainty, eagerness of the
purchasing function to take on risks when appropriate
opportunities present themselves and relentless pursuit of
company objectives by purch asing professionals. Supply
chain performance is assessed in terms of cost, quality,
timeliness and customer respo nsiveness (Beam on, 1999 ).
There are a number of purchasing strategies that can
be adop ted by a firm. These may include but are not
limited to negotiation, sourcing, developing and
maintaining good relation ships with suppliers, developing
suppliers, protecting the cost structure of the company and
minimising costs (Kiser, 1976). These strategies when
well implemen ted have the ability on the performance of
a supply chain by reducing costs, improving quality,
ensuring timely deliveries and customer responsiveness.
H1: Strategic purchasing in SMEs improve s SM E supp ly
chain performance
Quayle and Quayle (2000) and Wheatley (1998)
assert that effective strategic purchasing requires that the
people involved in implementing the strategy are
knowledgeable, mak ing it possible to add v alue. T his is
upheld by the fact that majority of strategy management
teamsn are cross - function to ensure that there is a wealth
of knowledge and skills. The implication is that when the
purchasing strategies in a firm are operationalised by
persons who have the required purchasing knowledge and
skills, the desired outcom es w ill be realised, thus
improving supp ly chain perfo rman ce. H 2: Purchasing
knowledge and skills improve supply chain performance.
Taking risks in the purchasing function involves long
term focus and being able to take up opportunities when
they arise. When risk is taken and opportunities exploited
while applying the required purchasing knowledge and
skills, it is possible to gain adv antag es that w ill result in
improved supply chain performance. Ammer (1989)
supp orts this position by asserting that a purchasing
function will only be able to strategically contribute to a
firm when it learns to tak e the necessary risk s. People
acquire the knowledge and skills that make them be tter
decision makers from previous `experiences where they
took calculated risks (Neslin and Greenhalgh, 1983). H3:
purchasing risk taking improves supply chain
performance
LITE RA TU RE REV IEW AN D H YPO TH ESIS
According to Carr (1996), the constructs of
procurement practices are strategic purchasing,
purchasing risk taking and purchasing knowledge and
skills.
Strateg ic purch asing involv es plan ning, evaluating,
implementing, and controlling the operational activities of
the purch asing function in an effort to meet the objectives
of the firm (C arr and Smeltzer, 19 97). Strategic
purchasing ensures that a firm has a strateg ic procurement
plan, strategies are develo ped to realise the plan and a re
often review ed in order to take into account changes in
the strategic plan of the company. The construct of
METHODOLOGY
The study was carried out in 2007 and adopted a cross
sectional and quantitative study design. Data was
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Asian J. Bus. Manage., 2(4): 82-88, 2010
Tab le 1: C ron bac h alp ha c oeff icien ts
Item
Cronbach
Purchasing risk taking
Purchasing k now ledge and sk ills
Strategic purchasing
Supply chain performance
-50 peop le (sma ll) and 51- 500 people (medium) (Schiffer
and W eder, 2 001; Uganda Bureau of Statistics, 2003).
Beyene (2002) and M utula and B rakel (2006) howe ver,
dispute that there is no generally established classification
for Small- and Medium-Scale E nterprises (SM Es) in
Africa. Measures for the variables were obtained and
adapted from studies undertaken by previous scholars.
Supply chain performance scales were obtained from the
works of Beamon (1999) while scales for procurement
practices were obtained from Carr (1996). Scales were
tested for reliability using the Cronbach Alpha
Coefficient. The overa ll co-efficient was 0.7749 which
according to Nu nnally (1967) is good. The coefficients of
the individual items are shown in the Table 1.
alpha coefficient
0.70
0.64
0.66
0.81
collected from respondents who were persons in charge or
overseeing purchasing manageme nt or procurement
related activities using a self - administered questionnaire.
The responses in the questionnaire were hinged on a 4
point Likert Scale with these responses 4 - strongly agree,
3 - agree, 2 - disag ree, 1 - strongly disagree. An even
number responses was preferred because an odd number
gives room for responses of “neither agree or neither
disagree” which can be easily confused for “I do not
know” by respon dents (Raaijmakers et al., 2000). The
study population was 1,500 SM Es tha t are registered in
Nakawa Division, Kampala District. The list of the SMEs
was obtained from the Uganda Small Scale Industries
Association. Basing on the Krejcie and Morgan (1970)
sample size de termination criteria, a sam ple of 306 is
appropriate for a population of 1500. We however took a
sample of 300 in ord er to make it possible to random ly
sample the firms. The firms were listed in alphabetical
order and after the first SM E was chose n random ly, every
fifth SME was chosen to give the total sample size. 250
usab le questionnaires were collected, giving a response
rate of 83% . Collected data w as analysed using the
Statistical Package for Social Scientists (SPSS). The
correlation analysis was used to establish the nature and
strength of the relationsh ip betw een the variables w hile
the regression analysis was used to determine the variance
in supply chain performance that is explained by the
procurement practices. In this study, we took on the
classification of SME s by the Government of Uganda
basing on the number of peo ple emp loyed by the firms; 5
RESULTS
In order to determine the strength and direction of the
relationships between the dependen t variables and
independent variable, correlation analysis was carried ou t.
To determine the impact of each of the independent
variables on the variation in supply chain performance, a
hierarchical regression an alysis w as carried ou t.
Correlation analysis results: The results of the
correlation analysis are presented in the Table 2.
There were positive and significant relationships
between the variables; purchasing risk taking and supp ly
chain perform ance (r = 0.444, p-value < 0 .001),
purchasing knowledge and skills and supp ly chain
performance (r = 0.257, p-value < 0.001) supporting
hypothesis H2 and H3. H2: Purchasing knowledge and
skills improve supply chain performance; H3: purchasing
risk taking improves supply chain performance. An
improvement in purchasing risk taking and purchasing
knowledge and skills improves supply chain performance.
Tab le 2: C orrela tion c oeff icien ts
Mean
Purch asing risk taking (1 )
2.45
Purch asing k now ledge a nd sk ills (2) 2.28
Strategic p urcha sing (3)
2.36
Sup ply cha in perfo rman ce (4)
2.79
**: Correlation is significant at the 0.01 level (2-tailed)
S .D .
0.72
0.72
0.79
0.40
(1)
1.000
0.526**
0.503**
0.444**
Tab le 3: H ierarch ical reg ressio n an alysis
M ode l 1
--------------------------------------Stan dard ized Be ta
Sig.
Strategic purchasing
0.229
0.000
Purchasing k now ledge and sk ills
Purchasing risk taking
F
Sig.
R
R S quare
R Square Chan ge
Adjusted R Square
A dependent variable: supply chain performance
(2)
(3)
(4)
1.000
0.756**
-0.257**
1.000
0.229**
1.000
M ode l 2
---------------------------------------Stan dard ized Be ta
Sig.
0.080
0.202
0.196
0.002
30.467
0.000
22.9%
5.2%
5.2%
5.1%
84
M ode l 3
-----------------------------------------Stan dard ized Be ta
Sig.
-0.026
0.663
0.050
0.411
0.431
0.000
20.386
45.434
0.000
0.000
26.2%
4 4.5 %
6.9%
1 9.8 %
1.7%
12.9%
6.5%
19.8%
Asian J. Bus. Manage., 2(4): 82-88, 2010
The relationship betw een strategic p urchasing and supply
chain performance was significant and negative
(r = -0.257). This result does not support hypothesis H1.
H1: Strategic purchasing in SMEs improves SM E supply
chain perform ance . The implica tion is that an
improvement in strategic purchasing creates a de cline in
supply chain performance.
DISCUSSION
Purchasing risk taking is a significant predictor of
supp ly chain performance because SM Es in Uga nda are
private firms that are willing to take risks as long as there
is a profit ad vantage attached. M ajority of the private
firms in Uganda are set up with very broad business
objectives and are therefore eager to exploit opportunities
that come their way even when their competences in these
areas are limited as long as they are assured of gains that
can guarantee their survival. This is evidenced by
instances where SMEs are willing to bid for contracts that
they have no competences in; what they do is contact
people that have competences in the area in which they
are bidding, mak e them consultants in their firms and use
their docu men ts to bid. This shows the extent to which
SMEs are willing to go in order to take risks in the area of
procurement in order to realise gains. C arr et al. (2000)
asserts that managers make concerted attempts in taking
calculated risks so that their firms can be able to advance.
Given that majority of the SMEs do take risks, the effect
of purchasing risk taking fe lt across the entire supp ly
chain, hence purchasing risk taking becoming a
significant predictor of supply chain performance. Our
finding on pu rchasing risk taking being the the variable
with the strongest impact agrees with Ammer (1989) who
asserts that the first stage towards develo ping strategic
purchasing is the willingness of the purchasing function
to take risk. This explains why the SM Es are increasingly
taking risks in the area of purchasing so that it can grow
into a strategic area so that they are guaranteed of
benefiting from procu rements in the p ublic sector. The
pressure for SMEs to make procurem ent a strategic
function and improve purchasing knowledge and skills
stems from the fact they (SMEs) are under pressure to
improve their procurement processes and given that
majority of sup pliers to the pub lic entixtties are SM Es. .
The finding that purchasing knowledge and skills and
strategic purchasing disagrees with the works of Carr and
Smeltzer (1997), Be amo n (1999), Q uayle and Quayle
(2000) and Wheatley (1998) implying that the assertion
that these two variables imp rove supp ly chain
performan ce cannot be generalise d to SM Es in K amp ala
District in Uganda. This study therefore provides a new
insight in explaining SM E supply c hain p erform ance in
the Ugandan context. The fact that purchasing knowledge
and skills and strategic purchasing are not significant
predictors can be explained by a numb er of reasons. First
and foremost, 56% of the respondent firms did not have
purchasing depa rtmen ts to oversee the purchasing related
activities. Purchasing was considered as part of
depart men ts like accounting and finance or
administration. A purchasing depa rtmen t in a firm is
charged with the responsibility of recruiting qualified
Regression analysis: In order to determine the impact of
each indep endent variable on supply chain performance,
each variable was entered, one at a time, creating three (3)
mod els to explain the variations in supply chain
performance. The results of the hierarchical regression are
show n in the Table 3.
In model 1, strategic purchasing was entered and
results indicate that it (strateg ic purchasing) accounts for
5.2% of the variation in supply ch ain performance. Model
1 is statistically significant (sig. = 0.000, p<0.01, F =
30.467).
In model 2, purchasing knowledge and skills was
added and the R square increased to 6.9%, implying that
purchasing knowledge and skills account for a 1.7%
increase in the variation in supply chain performance.
Model 2 is statistically significant (sig. = 0.000, p<0.01,
F = 2 0.386).
In model 3, purchasing risk taking was added and the
R Square increased to 19 .8% , implying that purchasing
risk taking accounts for a 12.9% increase in the variation
in supply c hain p erform ance . Model 3 is statistically
significa nt (sig. = 0.000 , p<0.01, F = 45.43 4).
The overall model is significant at the 0.01 level (F =
45.434, sig. = 0.000, p<0.01) and the independent
variables (strategic purchasing, purchasing knowledge
and skills, purchasing risk taking) explain 19.4% of the
variation in supply chain performance. Strategic
purchasing (sig. = 0.663, p>0.01) and purchasing
knowledge and skills (sig. = 0.411 , p>0.01) are not
significant predictors of supply chain performance at the
0.01 level. Purchasing risk taking is a significant predictor
of supply chain performance (sig. = 0.000, p<0.01) at the
0.01 level.
Strateg ic purchasing has a negative impact on supply
chain performance (Beta = -0.026) implying that a unit
increase in strategic purchasing reduces supply chain
performance by 0.026 units. A unit increase in purchasing
knowledge and skills increases supply chain performance
by 0.05 (B eta = 0.050). A unit increase in purchasing risk
taking increases supply c hain perform ance by 0.4 31 (B eta
= 0.431). Purchasing risk taking and purchasing
knowledge and skills both have positive impacts on
supp ly chain performance with purchasing risk taking
having the strongest impact. Strategic purchasing on the
other hand has a nega tive imp act on supp ly chain
performan ce.
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Asian J. Bus. Manage., 2(4): 82-88, 2010
people to undertake purchasing related activities and
supervising purch asing related activities, of which
strategic purchasing is one of them. Secondly, majority of
the persons handling purchasing activities in the
respondent firms were not qualified in purchasing and
supp ly chain management, further explaining the fact that
purchasing knowledge and skills is not a significant
predictor. When the persons handling the purchasing
activities, do not have the required knowledge and skills,
then it is not po ssible for them to effectively undertake the
role of strategic purchasing that involves planning for the
purchasing function, designing and implementing
strategies to realise the plan. Strategic purchasing requires
high level knowledge and skills in purchasing in which
one has to be trained. Thirdly, the limited purchasing
knowledge and skills in SM Es wh ich are private is
possibly due to the fact that focus on developing
purchasing knowledge and skills in Uganda has been on
the private sector. The Government of Uganda through
the Public Procurement and Disposal of Public Assets
Authority (PPDAA) has expensed a lot of money and
effort towards improving purchasing knowledge and skills
in the Public and Disposing Entities (PD Es). Howev er,
the PPDAA Compliance Audit Report (2008) revealed
that there is still a shortage of purchasing knowledge and
skills in the public sector. If the public sector w here effort
is being placed is still limited in the knowledge and skills
area, what is exp ected in the private sector where there is
very minimal or no effort at all? Fourthly, many SMEs do
not consider pu rchasing / procurem ent to be of strategic
importance and because of this managers and owners do
not see w hy the re should be an entire departm ent in
charge of purchasing management. These departments are
also seen as cost centres that will require hiring of more
employees who will increase on the salary budget. In his
study of purc hasing ma nageme nt practices in Botswana,
Msimangira (2003) established that staff undertaking
purchasing activities were greatly uninspired by the fact
that managers do not realise and recognise the importance
of purchasing professionals. Lastly, purchasing
knowledge and skills and strategic purchasing are not
significant predictors of supply chain performance
because they are not enforc ed across an entire su pply
chain. One or two firms along a chain may employ
qualified purchasing professionals and undertake strategic
purchasing but if this is not done across the entire chain,
the effect is eroded such that the impact of those
undertaking these a ctivities on the performance of the
supp ly chain is not significant.
practices and SM E supply chain performance, which has
not been widely stud ied in U ganda. W hile strategic
purchasing had been found to be a significant and positive
predictor of SM E supply c hain performance, our finding
disagrees with this position because it was found that an
increase / improvem ent in strategic purchasing activities
instead creates a decline in SM E supply c hain
performance. We also contribute to an understanding of
the extent to which factors like procurement practices
explain the variation in the supply chain performance.
Many factors that affect SM E perform ance in Uganda
have been analysed but the area of procurement has not
received adequate focus in examining the impact of its
com ponents on SM E performance. Given that purchasing
risk taking and know ledge and skills are significant
predictors of SM E supp ly chain perform ance, effort
shou ld be made tow ards im proving them in order to
impro ve the perform ance of the SMEs.
IMPLICATIONS OF THE FINDINGS
Man agement of SMEs should focus on developing
purchasing risk taking abilities before focusing on
purchasing knowledge and skills and strategic purchasing.
Ammer (1989) asse rts that before the strategic function of
procurement can develop, it has to first learn to take risks.
W hen the risk taking abilities have been developed, then
staff handling procu reme nt related activities w ill be able
to handle strategic purch asing activities. C apac ity in
purchasing risk taking can be developed by collaboration
amongst entities like Public Procurement and Disposal of
Public Assets Authority (PPDA A), U ganda Small Scale
Industries Association (USSIA), Ministry of Trade,
Industry and Tourism and Private Sector Foundation of
Uganda (PSFU). There is need to study further the other
factors explain the performance of SME supply chains
given that the comp onents of procurement practices
explain only 19.4%.
LIMITATIONS OF THE STUDY AND AREAS
FOR FUTURE RESEARCH
Our study is limited by a number of factors and we
discuss the factors in this section and also recommend
directions for studies in future.
Our sample was com pose d of SMEs found in
Kampa la District and leaving out SM Es in o ther districts
in Uganda. O ur findings cannot therefore be generalised
across the entire country. Stu dies in fu ture can extend to
other parts of the country, because the results may vary.
The classification of SMEs that was obtained from
the Uganda Bureau of Statistics for this study classified
the SMEs into only 5 sectors, namely construction,
manufacturing, education, hotels and restaurants, retail. It
CONCLUSION
Our study provides a unique finding on the
relationship between the components of procurement
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Asian J. Bus. Manage., 2(4): 82-88, 2010
is from this list that we selected the SMEs. The
classification ignore s SM Es in o ther sec tors, ma king it
hard to extend ou r findings to these sectors. It is
recommended that studies in futu re extend to some of
these sectors like agro - processing, garment, etc.
Respondents were persons in charge of handling
purchasing activities and yet there are other people in the
firms whose decisions affect procurement practices and
supp ly chain performance. These persons w ho w ere
excluded include purchasing committee members and
user departments. This study therefore missed out on the
vital information that these other groups of peop le wo uld
have provided. In future, stu dies sh ould take into account
all categories of people that should provide the
information needed to realise the objectives of the study.
Practices are gained over time, so in order to examine
the true nature of practices as well as supply chain
performance, a longitudinal study is nece ssary. W e
recommend that a longitudinal study to examine
procurement practices in Ugandan SMEs be undertaken
in future.
Our model explained on 19.4% of the variation in
supp ly chain performance. This is a low percentage
implying that we left out a number of other variables that
explain the variation in the supply ch ain performance of
SM Es. We recommend that other factors like macro –
environmental factors like regulations that govern
business operations, political factors, etc., be studied to
determ ine ho w the impact sup ply ch ain performance .
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J.R. Ikoja-Odongo, 2008. Sources of business
information and means of access used by SMEs in
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ACKNOWLEDGMENT
W e would like to extend our appreciation to the
Dutch Governmen t that funded this study through the
“NPT PROJEC T NPT/UG A/040 - Support for
Institutional Cap acity Develop men t in Pub lic and P rivate
Procurement Manag eme nt in Uganda”. The NPT Project
Manager, Ms. Astrid Ter - W iel and other project staff,
Proffessor Jan Telgen and Professor Gerrit Rooks for the
guidance given during this study. W e further
acknowledge the Managem ent of M akere re University
Business School for the supporting academic research.
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