THE IMPACT OF OUTSOURCING DECISION ON MATERIAL AVAILABILITY (A CASE STUDY OF SEVEN UP BOTTLING COMPANY)
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THE IMPACT
OF OUTSOURCING DECISION ON MATERIAL AVAILABILITY (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
countries. 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 productivity
(Reinikka and Svensson 2002).2 In contrast to the literature, this paper
examines how the onset of blackouts affect 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 effects. In the early 2000s, industrial
customers in nearly every province in China experienced blackouts associated
with resource scarcity (IEA 2006).3 Despite efforts 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. Gopro (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. Nevertheless, 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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