CHAPTER I: Introduction
1.1 Background of the Study
The Insourcing and/or Outsourcing decision is referred to in
purchasing as sourcing policy decision and it is one of the most
important decision points for any organization because it has a multiple
and web like effect on the life of the organization.
Managers of businesses most especially manufacturing organizations
faces a series of important and determining questions which must be
answered correctly if the organization is to succeed in midst of
The Purchasing Manager must first address the question of which
product or service best fits the needs of the organization and should
the organization produce (make or insource) what is consumed or buy from
outside suppliers? The questions arising from this is that, if they
decide to buy from outside suppliers, will the organization buy from a
single supplier (single source) or from several suppliers (multiple
source); even when that is answered, the questions will still be, should
we buy directly from manufacturers or use intermediaries or may be, the
organization should both insource and outsource simultaneously.
However, before an organization can come to any decision as to
whether to make what it consume inhouse or to buy from outside suppliers
(outsourced) several factors such as financial consideration, cost
consideration, core competence consideration and a way they will have to
be critically analyzed to see how they will affect the organization
Outsourcing therefore, is a purchasing policy where outside suppliers
are engaged to supply an organization with its materials requirements.
Insourcing on this other hand signifies a situation where what the
organization needs, it produces and consumes. Several factors as already
indicated will need to be explained before an organization could come
to any of these sourcing policy decisions. These shall be the fulcrum of
1.2 Statement of the Problem
In an attempt to enhance their competitiveness, organizations are
increasingly turning to outsourcing. The argument is that outsourcing is
a way of achieving strategic goals, reduce cost, improve customers
satisfaction and to provide other efficiencies and effectiveness
However, NOCACO has long been using outsourcing in the realization of
its needed materials, yet with the supposed advantages of outsourcing.
The organization has experience a tremendous fall in productivity, cost
of doing business has become almost exorbitant, quality has been falling
and market shares and sales have also fallen.
Another issue that calls for concern is that, the organization has
been using single sourcing policy which sometimes causes delays in the
supply of necessary materials used for production. The question that
emanates from these issues for this study is that, should the
organization continue with the outsourcing policy and examine other
factors or considers insourcing policy? Or should the organization
insource and outsource at the same time?
1.3 Objective of the Study
The researched is aimed at setting the effect of insourcing or
outsourcing decision on the productivity of Northern Cable Processing
and Manufacturing Company (NOCACO) Kaduna.
The main objective is built around a number of specific objectives, among these are:
- To determine the process the organization follow in outsourcing of contracts.
- To identify criteria for insourcing or outsourcing.
- To examine the benefits of insourcing or outsourcing.
- To identify the cost involved in Insourcing or outsourcing decision.
- To determine the effect of insource and outsource on productivity.
1.4 Significance of the Study
The research work is of immense significance.
First, the researcher will benefit from this study as it is a basic
requirement in partial fulfillment of the award of Higher National
Diploma (HND) in Purchasing and Supply Management in Kaduna Polytechnic;
and without which the researcher cannot graduate.
Again, as a store of knowledge, the research will serve as a guide
for other researchers who may want to do a further study on the same
problem. It will also benefit the organization understudied, to help it
make a better choices as to whether to insource an activity or outsource
it. The general public will also benefit from the explanation of this
five principle, other manufacturers and service providers will also find
it handy and helpful in deciding on the questions whether to insource
or outsourced; and the implications for each decision taken.
1.5 Scope of the Study
The exercise is centered on the effect of Insourcing and Outsourcing
on the Productivity of Northern Cable Processing and Manufacturing
Company (NOCACO), Kaduna located at B12 Maichibi Road, Kakuri, Kaduna
South. The focus will be on purchasing, store and production departments
of the organization.
1.6 Research Questions
- What are the processes the organization follows in outsourcing of contracts?
- What are the criteria used for outsourcing or insourcing?
- What are the benefits of outsourcing or insourcing?
- What are the cost involved in insourcing or outsourcing?
- What are the effect of insource or outsource decision on productivity?
1.7 Definition of Terms
Sourcing: This is a purchasing procedure through
which buyers seek, survey and evaluate suppliers and determine policies
relating to those who will most suitably meet the requirement of the
Insourcing: This is the process by which an
organization takes responsibility for providing services and conducting
its operations in-house or in other locations but by its own staff.
Outsourcing: This is the process by which an
organization contract out services and operations that are usually
conducted in-house to other firms that can do them better, cheaper and
Single Sourcing Policy: This describes a situation where the buyer places all orders with one single supplier.
Dual/Multiple Sourcing: This also describes a situation where the buyer shares the order among two or more suppliers.
Policy: This is a management guide that cause
managers to take action in certain ways, by exposing the organization’s
official strategies and attitude to various forms of behavior.
Supplier: This describes a person or company that can agree to supply or release goods or services to a buyer.
Materials: Anything that can be offered to the market for attention, acquisition, use or consumption that might satisfy needs.
Quality: This is the totality of features and
characteristics of a product that bears on the ability of the product to
satisfy stated or implied needs.
Competitive Advantage: This is the ability of an
organization to add more value for its customers than its rivals and
thereby attain a position of relative advantage.
Distinctive Competence: These are those capabilities
that are unique to an organization and which gives it competitive
advantage over its rivals and also gives them, above normal economic
Core Competencies: Are the activities that are central to the firms’ mission in which the organization excels, compared to other firms.
Production: This directly refers to the rate of units produced in terms of machines, labour, materials or any other effective basis.
Productivity: This is the attitude of the mine. It
is a mentality of progress of the constant improvement of that which
exists. It is the process of harnessing the capacity to increase
production by ensuring proper and efficient use of all types of
Efficiency: This implies using minimum amount of resources to reach the goals. That is, doing things right.
Effectiveness: This means pursuing and reading the appropriate goals. In other words, doing the right thing.
Cost: This is the amount of expenditure incurred on a given item.