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:
1. To
evaluate the criteria used when making the outsourcing decision in seven up
bottling company, Lagos.
2. To
identify outsourcing challenges of seven up bottling company.
3. To
examine the effect of outsourcing decision on material availability in seven up
bottling company, Lagos.
4. 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:
1. What
outsourcing process does the management of seven up bottling company pass
through before outsourcing?
2. What
outsourcing challenges do seven up bottling company face?
3. 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:
1. 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.
2. 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;
1. 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.
2. 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.