THE IMPACT OF OUTSOURCING DECISION ON MATERIAL AVAILABILTY (A CASE STUDY OF SEVEN UP BOTTLING COMPANY)
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THE IMPACT OF
OUTSOURCING DECISION ON MATERIAL AVAILABILTY (A CASE STUDY OF SEVEN UP BOTTLING
COMPANY)
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Material availability and input reliability shape
productivity, especially in developing coun-tries. For some resources like
water, storage devices can be used to manage unreliable services (Baisa et al.
2010). However, electricity requires that agents respond in other ways, as
power is prohibitively expensive to store. A common response to sustained power
supply issues is for .rms to invest directly in technology in order to generate
electricity on site, or .self generation..1 By crowding out other investment
opportunities, blackouts reduce pro- ductivity (Reinikka and Svensson 2002).2
In contrast to the literature, this paper examines how the onset of blackouts
a¤ect productivity in an immense and rapidly-growing economy, namely China.
Using enterprise-level panel data, we study how .rms respond to blackouts and
estimate the resulting lost productivity and environmental e¤ects.
In the early 2000s, industrial customers in nearly every
province in China experienced blackouts associated with resource scarcity (IEA
2006).3 Despite e¤orts to build new power plants at a rapid rate, double-digit
economic growth has led to a tight market. Furthermore, retail electricity
remains under price-cap regulation with limited price response to shortages.
Finally, residential and commercial electricity consumers
were given priority over industrial customers. While historic in the magnitude
of blackouts, this remains a major concern for China. As recently as the summer
of 2011, China faced substantial power shortages.
Although outsourcing is still at its developing stage in
Nigeria, it has benefited many companies (Orji, 2002) as well as created jobs
opportunities for many Nigerians as well. Firms outsourcing part of their
production process and services are benefiting from increased efficiency and
profits.
The decision to outsource comes with numerous
responsibilities and considerations by the company willing to outsource. The
need to improve and speedup the production process of a firm may lead to a firm
deciding to contract or outsource some of its production process to another
firm or vendor to handle. The issue of wastages in developing countries
including Nigeria has been a major issue. The in-ability of companies to
effectively manage their outsourcing process is alarming.
Having identified non-core activities, Domberger (1998)
emphasises the importance of developing a “framework of analysis which
provides a structured, systematic approach to contracting decisions and
outsourcing strategies†(p.9).
Farney et al. (2004) and Gay and Essinger (2000) describe the
importance of formal procurement procedures in creating a global vision for
outsourcing and selecting outsourcing providers.
However, even when organisations set out to carefully
evaluate an outsourcing opportunity, making accurate comparisons of internal
processes relative to external providers can be extremely difficult (Hayward
& McDonagh, 2000).
There is a huge variation in how organisations define
processes such as Order-
Entry or Accounts Payable and little standardisation in how
organizations deliver and manage these processes. Davenport (2005) argues it is
therefore very difficult to compare what happens internally to what is on offer
externally.
Davenport goes on to describe the benefit of establishing
business process standards for use in outsourcing decisions and to facilitate
improvement of internal capabilities.
Acknowledging that specific skill-sets are required to
outsource, then developing the expertise and supply of outsourcing skills is
likely to continue to gain momentum. Govpro (2005) discussed the changing role
of the Tim Collins procurement professional and Hazra (2004) describes how it
has become critical to take a longer term, balanced, strategic view of
outsourcing opportunities. Gay and Essinger (2000) suggest that a strategic
approach to outsourcing is most effective when organisations are prepared to
adopt a new perspective on management control with the focus on output rather
than inputs, these views are supported by Quinn in a recent interview;
Companies might have brilliant designers, lawyers etc., but might not have the
capability needed for managing outsourcing. They need to have the ability to
evaluate alternative cost structures and to understand the strategic risks of
outsourcing to one partner versus another. A good outsourcing manager must be
able to motivate partners to do what is needed. They must be able to monitor
the deal – through software and personal contact – without interfering; to
get lead signals they need to maintain strategic control. They need a totally
different set of management skills, and the real essence of these skills is a
learning capability and willingness.
1.2 STATEMENT OF THE PROBLEM
Outsourcing is still at its developing phase in Nigeria and
has brought numerous benefits to companies in Nigeria practicing it. Never the
less, wastages of raw materials and human resource have been a major challenge
with companies outsourcing. A study conducted by Farney et al (2004) revealed
that most companies in developing countries fail due to wastages leading to
scarcity of materials, poorly structured outsourcing process and decision. Low
labour cost countries like China and India have experienced huge growth
providing outsourced products and services to more developed Western economies
in recent years. However the internal infrastructures in developing countries
are often not adequate to cope with such rapid growth, therefore resulting in
the accumulation of waste products.
Companies might have brilliant designers, lawyers etc., but
might not have the capability needed for managing outsourcing. They need to
have the ability to evaluate alternative cost structures and to understand the
strategic risks of outsourcing to one partner versus another. A good
outsourcing manager must be able to motivate partners to do what is needed.
They must be able to monitor the deal – through software and personal contact
– without interfering; to get lead signals they need to maintain strategic
control. They need a totally different set of management skills, and the real
essence of these skills is a learning capability and willingness.
1.3 OBJECTIVES OF THE STUDY
The main aim of the study is to examine the impact of
outsourcing decision on material availability. Specific objectives of the study
are:
To evaluate the criteria used when making the outsourcing
decision in seven up bottling company, Lagos.
To identify outsourcing challenges of seven up bottling
company.
To examine the effect of outsourcing decision on material
availability in seven up bottling company, Lagos.
To suggest better outsourcing strategies that can be adopted
by seven up bottling company.
1.4 RESEARCH QUESTIONS
In-order to achieve the stated aim and objectives above, the
researcher developed the following research questions:
What outsourcing process does the management of seven up
bottling company pass through before outsourcing?
What outsourcing challenges do seven up bottling company
face?
What are the effects of outsourcing decisions on material
availability?
1.5 RESEARCH HYPOTHESIS
To validate findings from the study, the researcher
formulated the following hypothesis:
Ho: There is no significant relationship between outsourcing
strategy and the performance of an organization.
Hi: There is a significant relation between outsourcing
strategy and the performance of an organization.
Ho: Outsourcing decisions do not directly affect material
availability in the production process.
Hi: Outsourcing decisions directly affect material
availability in the production process.
1.6 SIGNIFICANCE OF THE STUDY
The study will highlight various outsourcing strategies that
will be beneficial to both management and staff of seven up bottling company.
The study will also show case outsourcing challenges to enable procurement
managers and officers in organizations to have a deep understanding of these
challenges and develop strategies to tackle them effectively.
1.7 SCOPE OF THE STUDY
The study will cover the impact of outsourcing decision on
material availability using seven-up bottling company, Lagos as a case study.
All findings and recommendations from the study may not reflect the true view
of outsourcing management and strategy in Nigeria, as the researcher could not
cover a wider area due to financial and time constraints.
1.8 LIMITATIONS OF THE STUDY
However, there were some constraints that impinged on the
research, these are;
Financial constraint:The cost of sourcing information and
collecting samples of bread was quite on the high side, which included visiting
various small businesses in the various towns that made up the local
government.
Time Constraint: The limited time frame given to achieve the
research was also a constraint to the study.
1.9 DEFINITION OF TERMS
Outsourcing: Outsourcing is the contracting out of an
internal business process to a third-party organization. Outsourcing sometimes
involves transferring employees and assets from one firm to another, but not
always.
Material: Material is anything made of matter, constituted of
one or more substances. Wood, cement, hydrogen, air, water and any other matter
are all examples of materials. Sometimes the term "material" is used
more narrowly to refer to substances or components with certain physical
properties that are used as inputs to production or manufacturing. In this
sense, materials are the parts required to make something else, from buildings
and art to airplanes and computers.
Material Management: Materials management can deal with
campus planning and building design for the movement of materials, or with
logistics that deal with the tangible components of a supply chain.
Specifically, this covers the acquisition of spare parts and replacements,
quality control of purchasing and ordering such parts, and the standards
involved in ordering, shipping, and warehousing the said parts.
Material Availability: Materiel Availability is a measure of
the percentage of the total inventory of a system operationally capable (ready
for tasking) of performing an assigned mission at a given time, based on
materiel condition.
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