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The Effect Of Lease As A Means Of Procurement In Manufacturing Organization
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Purchasing as a management function deals with the procurement of raw materials, components parts, equipment (heavy and light) and services required by an organisation to be used for production purposes. Organizations material procurement modus operandi can take various forms like hire purchase, out right purchase and leasing etc. this depends largely on the companies financial status. In the past many organizations that are financially distressed adopt lease as a means of procuring capital equipments.
Leasing started is far back hundred years before Christ (Stanley L.M.C Michael and Paul T.O Kege; 1959 p1); for centuries the lease was used almost exclusively in connection with agricultural land. According to Busko (1959:24) many of the commercial buildings constructed during the period of early Urban development were build on land that was made available under long term lease. However with the emergence of the industrial revolution and the urbanization movement which followed it, lease has broadened beyond its initial bound.
Today leasing has dominated all facets of Nigerian economy as an alternative to purchasing of capital goods.
Indeed today, it is difficult to find a capital goods which is not made available through leasing. This growth has been accompanied by a fundamental change in the nature of the lease transaction. It is no longer soley means of acquiring properties which are not available by other legal means but has now become an important means of financing. Most importantly, lease is a contract between a lessor and a leasee for the hire of a specific asset (Ami 1922:13). It is a legal agreement or transaction by which the owner of land building or a piece of equipment agrees to let another person have the use of it for a certain period of time for a fixed amount of money leasing in effect is the performance of a lease transaction. The separation of ownership from the users is central to the whole concept of leasing. Under this agreement, the user (lesee) pays to the owner (lessor) an agreed sum of money at stipulated period during the life of the lease. The installmental nature of this payment, therefore makes it possible for lessee to operate a better cash flow system which ensure that at no time is much capital tied down to a particular equipment.
As a result of the introduction of the second tier foreign exchange market (SFEM) and the substantial devaluation of the Naira in 1996 prices escalated. Creditors because more reluctant to lend for fear of liquidity and when they were willing to lend high interest rate was charged in addition to straight collateral requested as security. Under this circumstances, most companies had problems findings their purchases as well as carrying out certain project. Consequently, they relief on leasing as the alternative sources of findings project with huge capital out lay. Before this time, most companies preferred to what until they could save towards purchasing them.
1.2 STATEMENT OF THE PROBLEM
It is fundamental concept in business that finance is the life wire of every business.
Ever before our political independence and until the beginning of 1970’s, never has there been witnessed any level of business activity. In our economy to warrant leasing at any appreciable scale as it is today. During the early 70’s, the period now referred to as the “petro dollar†era, our local currency was valued. The level of business activity then was relatively low and the naira high in value that quite a number of firms purchase rather than lease most of their operating equipments. Following the drop in the price of crude oil and subsequent decline in the value of our currency, Nigeria realized the need to properly harness her industrial economy through perfectly mobilizing resources in the area of manufacturing, distribution and above all in project financing. But insufficient capital with which to purchase equipments has posed a serious problem to this view. Leasing therefore, becomes the only way out.
In the more developed countries of the world, leases account for a very significant proportion of capital investment (United Nations 1984). The extent to which this is obtainable in Nigerian industries is yet to be determined. Therefore, it is pertinent at this time to ascertain the degree to which we have availed of this facility and the overall effect it exerts in addressing the very problems of logistics experience in supplying.
CHAPTER ONE -- [Total Page(s) 4]
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ABSRACT - [ Total Page(s): 1 ]The essence of this research work is to investigate carefully the effects of lease as a means of procurement in manufacturing organizations. Some selected companies were used as a case study like the studio press Nigeria plc at Lagos and Aluminum extrusion industry plc. While carrying out this research work the researcher reviewed the extent to which some firms have availed themselves to leasing and the effect of lease in tackling the logistic and financial problems of these firms. It was also ... Continue reading---
