AN ASSESSMENT OF THE EFFECT OF OUTSOURCING DECISIONS ON MATERIAL
AVAILABILITY: A CASE OF ALMASI BEVERAGES LIMITED, KISII COUNTY
LORINE ACHIENG MISARE
A Research Project Submitted to the School of Undergraduate Studies in Partial
Fulfillment of the Requirement for the Award of Diploma in Stores and Supplies
Management, School of Business and Economics, Kisii University
NOVEMBER, 2017
DECLARATION AND RECOMMENDATION
DECLARATION
This research project is my original work and has not been presented for examination in any
other University or institution.
Signature…………………………………. Date………………………….
Lorine Achieng Misare
CB05/10420/15
RECOMMENDATION
This research project has been submitted for examination with my approval as University
supervisor.
Signature…………………………………. Date……………………………..
Mr. Dennis Nyamasege
Lecturer,
School of Business and Economics
Kisii University
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DEDICATION
This research project is dedicated to my dear parents; Mr Misare Elly and Mrs. Elsa Akinyi for
their financial support and encouragement throughout my study.
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ACKNOWLEDGEMENT
First I would like to thank the almighty God for giving me strength during research project
period. Many thanks to my supervisor Mr. Dennis Nyamasege who guided me tirelessly and
dedicated his time to ensure that i complete this research project more successfully. I also give
thanks to all who contributed to the success of this research project. I am thankful to Kisii
University for providing me with learning facilities that facilitated the success of this research
project. Lastly, I thank all my friends who have given me support in one way or the other.
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ABSTRACT
Outsourcing is still at its developing phase in Kenya and has brought numerous benefits to
companies practicing it. Never the less, wastages of raw materials and human resource have been
a major challenge with companies outsourcing. The general objective of this study was to find
out the effect of outsourcing decisions on material availability. Specific objectives of the study
were; to find out the effect of cost reduction on material availability in Almasi Beverages
Limited, to determine the effect of innovation on material availability in Almasi Beverages
Limited and to establish the effect of outsourcing decision for core competencies on material
availability in Almasi Beverages Limited. The independent variable in this study includes cost
reduction, innovation and operational efficiency while independent variable is material
availability. Descriptive research design was used in this study. The target population of the
study was 120 employees from Almasi Beverages Limited. Stratified random sampling
procedure was used to select a sample size of 36 employees which is 30% of target population.
Questionnaire was used as tool of collecting data. Collected data was analyzed by use of
weighted average and percentages then presented inform of frequency tables and charts. The
researcher found that, Almasi Beverages Limited in Kisii county base outsourcing on cost
reduction. The company equates the cost of outsourcing to cost of acquiring additional resources.
This indicates that the company is committed towards availability of materials. The major
challenge facing adoption of innovation in outsourcing is the existence of risk exposure. The
company needs new products and services to maintain its competitiveness. Almasi Beverages
Limited outsource on operational efficiency to increase material supply. It was concluded that
there is relationship between outsourcing decisions and material availability. The researcher
recommended that, manufacturing organizations should employ strategic and well thought out
outsourcing to further reduce operating and overhead costs for further firm growth. The
organizations should carefully consider the issue of outsourcing to ensure that while outsourcing
helps in new innovations, no product quality is compromised and no money is lost. They should
also outsource some value chain activities to generate operational efficiency.
TABLE OF CONTENT
v
DECLARATION AND RECOMMENDATION.........................................................................ii
DECLARATION...........................................................................................................................ii
DEDICATION..............................................................................................................................iii
ACKNOWLEDGEMENT...........................................................................................................iv
ABSTRACT....................................................................................................................................v
LIST OF FIGURES......................................................................................................................ix
LIST OF TABLES.........................................................................................................................x
ACRONYMS/ ABBREVIATIONS..............................................................................................xi
CHAPTER ONE
INTRODUCTION.........................................................................................................................1
1.1 Background of the Study.......................................................................................................1
1.2 Statement of the Problem.......................................................................................................2
1.3 Objective of the Study...........................................................................................................3
1.4 Research Questions................................................................................................................3
1.5 Significance of the Study.......................................................................................................4
1.6 Scope of the Study.................................................................................................................4
1.7 Limitations of the Study........................................................................................................4
1.8 Assumptions of the Study......................................................................................................4
1.9 Operational Definition of Terms............................................................................................5
CHAPTER TWO
LITERATURE REVIEW..............................................................................................................6
2.1 Concept of outsourcing decisions..........................................................................................6
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2.2. Theoretical review................................................................................................................6
2.2.1 Resource dependency theory..........................................................................................6
2.2.2 Diffusion of innovation theory.......................................................................................7
2.3 Empirical review....................................................................................................................8
2.3.1 Effect of cost reduction on material availability.................................................................8
2.3.3 Effect of operational efficiency on material availability..................................................10
2.4 Conceptual Framework........................................................................................................12
CHAPTER THREE
RESEARCH METHODOLOGY...............................................................................................13
3.1. Research Design.................................................................................................................13
3.2. Study Area..........................................................................................................................13
3.3. Target Population................................................................................................................13
3.4. Sampling Procedures and Sample......................................................................................13
3.5 Data Collection instruments................................................................................................14
3.6. Research Instrumentation...................................................................................................14
3.6.1. Reliability of the Instrument........................................................................................14
3.6.2. Validity of the Instrument............................................................................................14
3.7 Data Analysis and Presentation...........................................................................................15
CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION AND DISCUSSION...............................................16
4.1 Response Rate......................................................................................................................16
4.2 Demographic Characteristics of Respondents.....................................................................17
4.2.1 Age analysis..................................................................................................................17
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4.2.2 Educational Level.........................................................................................................18
4.2.4 Duration of Service.......................................................................................................18
4.3 Cost Reduction.....................................................................................................................19
4.4 Innovation............................................................................................................................21
4.5 Operational Efficiency.........................................................................................................23
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS..............................................26
5.1 Summary of Findings..........................................................................................................26
5.2 Conclusion...........................................................................................................................26
5.3 Recommendations................................................................................................................27
5.3.1 Recommendations for Policy and Practice...................................................................27
5.3.2 Suggestions for Further Studies....................................................................................27
REFFERENCE............................................................................................................................28
APPENDICES..............................................................................................................................31
APPENDIX I: LETTER OF INTRODUCTION......................................................................31
APPENDIX IV: QUESTIONNAIRE.........................................................................................32
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LIST OF FIGURESFigure 2.1: Conceptual Framework…………………………………………………………….12
Figure 4.1 Does the organization outsource based on cost reduction………………………… 19
Figure 4.1 Does the organization outsource based on operational efficiency………………….23
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LIST OF TABLES
Table 3.1 Targeted Population and Sample Size ………..……………………………………..14
Table 4.1: Response Rate………………………………………………………………………16
Table 4.2: Age Category of respondents……………………………………………………….17
Table 4.3: Level of Education …………………………………………………………………18
Table 4.4: Duration of serving the company…………………………………………………...18
Table 4.5: Effect of cost reduction on material availability……………………………………20
Table 4.7: Major challenge facing adoption of innovation in outsourcing……………………..21
Table 4.8: Effect of innovation on material availability……………………………………….22
Table 4.9: Effect of operational efficiency on material availability…………………………....24
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ACRONYMS/ ABBREVIATIONS
HR: Human Resource
IEA: International Energy Agency
NPD: New Product Development
RDT: Resource dependence theory
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CHAPTER ONE
INTRODUCTION
1.1 Background of the StudyMaterial 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
firms to invest directly in technology in order to generate electricity on site, or self generation.
By crowding out other investment opportunities, blackouts reduce productivity (Reinikka and
Svensson, 2002). In the early 2000s, industrial customers in nearly every province in China
experienced blackouts associated with resource scarcity (IEA, 2006). 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 African countries, it has benefited many
companies (Orji, 2002) as well as created jobs opportunities for many countries. 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 has been a major
issue. The in-ability of companies to effectively manage their outsourcing process is alarming.
Having identified non-core activities, Domberger (2008) emphasises the importance of
developing a “framework of analysis which provides a structured, systematic approach to
contracting decisions and outsourcing strategies. 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
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processes relative to external providers can be extremely difficult (Hayward & McDonagh,
2000).
Research on outsourcing has a long-standing history in economic research. Often, authors argue
that cost differences between make and buy are crucial for the outsourcing decision. For
example, (Burke, 2006) discuss the outsourcing of HR functions in the context of companies‟
cost pressures induced by the globalization of companies. Cánez et al. (2000) present a model of
outsourcing decisions and ascertain that cost effects are the most important element in the
decision. Walker and Weber (2004) analyze transaction and production cost effects of 60 make-
or-buy decisions in the U.S. automobile industry. While volume uncertainty and supplier market
competition have a small, but significant effect, production costs are the strongest predictor of
make-or-buy decisions in their analyses. Some authors argue that important benefits of
outsourcing need to be assessed against an increase in transactional cost and a decrease in
flexibility the benefits being, first, the ability to focus on the core business and strategic issues,
second, the utilization of expertise and economies of scale of the service provider, third, better
management of the cost structure.
In the words of Bennedsen and Schultz, (2005) outsourcing decisions are influenced by the
quality of information available, cost, profitability, strategic alliance, supplier quality, financial
evaluation, risk and efficiency. Bennedsen and Schultz, (2005) also suggested that
comprehensive use of outsourcing can provide organizational, technical behavioural benefits and
provide greater visibility of both issues and processes of all the functions affected. (Mukherji et
al 2007) discovered that drivers of outsourcing decisions are both internal and external to the
outsourcing organization as more processes are integrated with information systems. Effective
outsourcing decisions will allow an organization to focus on a limited set of strategically
important tasks and will in turn lead to continuous material supply (Dess et al. 2005).
1.2 Statement of the Problem Outsourcing is still at its developing phase in Kenya and has brought numerous benefits to
companies 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
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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. Many studies have been conducted on effect of
outsourcing. Masinga (2014), analyzed effects of outsourcing decision on organization
Performance in the manufacturing industry with reference to Unilever group limited in Kenya.
Nyangau(2014), evaluated the effects of outsourcing strategy on procurement performance
among Universities in Kenya. Caroline (2014) conducted study on the effect of outsourcing
decision on organizational performance in the manufacturing industry: a case of Unga Group
Limited, Kenya. Akinbola(2012) conducted a study on effect of outsourcing strategies on
performance of fast food industries in Lagos estate. From these studies it is evident that there are
limited studies on effect of outsourcing decisions on material availability. This study therefore
seeks to bridge the gap by assessing how outsourcing decisions affect material availability in
Almasi Beverages Limited
1.3 Objective of the Study
The general objective of the study was to assess the effect of outsourcing decision on material
availability in Almasi Beverages Limited. The specific objectives will be:
i. To find out the effect of cost reduction on material availability in Almasi Beverages
Limited
ii. To determine the effect of innovation on material availability in Almasi Beverages
Limited
iii. To establish the effect of operational efficiency on material availability in Almasi
Beverages Limited
1.4 Research Questions
i. What is the effect of cost reduction on material availability in Almasi Beverages
Limited.?
ii. What is the effect of innovation on material availability in Almasi Beverages Limited?
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iii. What is the effect of operational efficiency on material availability in Almasi Beverages
Limited?
1.5 Significance of the Study
The study would highlight various outsourcing strategies that would be beneficial to both
management and staff of Almasi Beverages Limited. The study would 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. This
study would be beneficial to the manufacturing industry in their bid to fully comprehend the
issues that are particularly inherent in outsourcing decisions and this would help them improve
on their performance and competitiveness. The study would also help outsourcing firms to
understand the main drivers of outsourcing decision in the manufacturing industry and how they
can then respond to the available opportunities. It would provide idea for organization and
enterprises in the aspect of outsourcing decisions. It could benefit other scholars and students of
finance and insurance who might use the findings for academic purposes.
1.6 Scope of the Study
The study focused on the effect of outsourcing decisions on material availability. The study
majorly focused on outsourcing decisions as strategy in ensuring material availability. The
researcher specifically assessed outsourcing decisions based on cost reduction, innovation and
operational efficiency.
1.7 Limitations of the Study
The study was limited to the effect of outsourcing decisions on material availability with
reference to Almasi Beverages Limited; therefore its findings were not generalized to other
organizations in Kenya. Some employees did not contribute to the study due to pressure from
work or inadequacy of knowledge in outsourcing decisions.
1.8 Assumptions of the Study
Almasi Beverages Limited has procedures to support their outsourcing decisions. Most of the
employees from the Company were at work during the study and therefore provided the required
information on effect of outsourcing decisions on material availability. All employees in from the
organization had knowledge about outsourcing decisions.
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1.9 Operational Definition of TermsCost reduction: This refers to the lowering or cutting of overhead operating
expenses in a company.
Innovation: Take information from diverse sources and find patterns in that
information which lead them to solve problems in a new way.
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.
Materials: 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.
Outsourcing decisions: Outsourcing is the act of one company contracting with
another company to provide services that might otherwise be
performed by in-house employees. The decision to outsource
usually stems from a focus on lowering costs and improving
the efficient allocation of resources within a company.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Concept of outsourcing decisions The term outsourcing decision has been used in this research to refer to the determination or passing
of judgment on whether to contract some business activities or processes necessary for the
manufacture of goods to higher capability firms or whether to perform the activities in-house with the
aim of improving competitive advantage. The general outsourcing model developed by Arnold
(2000) illustrates that there are four components which need to be reviewed when making
outsourcing decisions: outsourcing subject, outsourcing object, outsourcing partner, and outsourcing
design initially, organizations should focus on outsourcing the subject, which involves the decision
making process to determine if outsourcing is a viable option.
Organizations should then consider which internal activities might be outsourced. Outsourcing
objects refers to the activity which might be outsourced and is linked to the degree of manufacturing
penetration with respect to organization activities, including core activities, core-close activities,
core-distinct activities, and disposable activities. Arnold (2000) states that if the activity is a core
competency, highly specific and important for organizational strategy, it makes no sense to outsource
these kinds of activities. Next, organizations should consider an outsourcing partner from all possible
outsourcing providers. Finally, when outsourcing internal activities, organizations need to formulate
the most appropriate outsourcing design. In addition to this, Arnold (2000) suggests that
organizations should focus on three major governance structures when making outsourcing decision.
These include the price of external services, management control, and other governances, including
contracts or strategic alliances. Despite addressing specific decision making with regard to
outsourcing, this model places no regard on employee involvement.
2.2. Theoretical review
2.2.1 Resource dependency theoryResource dependence theory (RDT) is the study of how the external resources of organizations
affect the behavior of the organization. The procurement of external resources is an important
tenet of both the strategic and tactical management of any company. It was first argued by Pfeffer
and Salancik (2008). Resource dependence theory has implications regarding the optimal
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divisional structure of organizations, recruitment of board members and employees, production
strategies, contract structure, external organizational links, and many other aspects of
organizational strategy (Deckers, 2000). The basic argument of resource dependence theory can
be summarized as follows: Organizations depend on resources; These resources ultimately
originate from an organization's environment; The environment, to a considerable extent,
contains other organizations; The resources one organization needs are thus often in the hand of
other organizations; Resources are a basis of power; Legally independent organizations can
therefore depend on each other; Power and resource dependence are directly linked:
Organization A's power over organization B is equal to organization B's dependence on
organization A's resources. 8) Power is thus relational, situational and potentially mutual (Pfeffer
and Salancik, 2008).
Organizations depend on multidimensional resources: labor, capital, raw material, etc.
Organizations may not be able to come out with countervailing initiatives for all these multiple
resources. Hence organization should move through the principle of criticality and principle of
scarcity. Critical resources are those the organization must have to function. For example, a
burger outlet can't function without bread. An organization may adopt various countervailing
strategies it may associate with more suppliers, or integrate vertically or horizontally (Kloptick,
2001).
2.2.2 Diffusion of innovation theoryThe diffusion theory, also known as the diffusion of innovations theory, is a theory concerning the
spread of innovation, ideas, and technology through a culture or cultures (Rodgers, 2002). Diffusion
theory states that there are many qualities in different people that cause them to accept or not to
accept an innovation. There are also many qualities of innovations that can cause people to readily
accept them or to resist them. According to diffusion theory, there are five stages to the process of
adopting an innovation. The first stage is knowledge, in which an individual becomes aware of an
innovation but has no information about it. Next is persuasion, in which the individual becomes
actively interested in seeking knowledge about the innovation. In the third stage, decision, the
individual weighs the advantages and disadvantages of the innovation and decides whether or not to
adopt it. After the decision comes implementation, in which the individual actually does adopt and
use the innovation. Confirmation is the final stage. After making adopting the innovation, the
individual makes a final decision about whether or not to continue using it based on his own personal
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experience with it. These same stages apply, to varying degrees, to groups of people in addition to
individuals (Rogers, 2002).
2.3 Empirical review
2.3.1 Effect of cost reduction on material availabilityStudies from the Resource Based View perspective suggest that firms base their decisions on
whether outsourcing reduces costs or builds strategic advantages (Sharpe, 2007). This has
generated much research on how using outsourcing to cut costs or gain strategic advantages
affects firm performance. A review of the literature reveals that most empirical research and
discussion examine cost cutting and strategic advantages as mutually exclusive motives for
outsourcing (Quinn, Doorley, and Pacquette, 2000). Moreover, news releases and the business
press often cite both motives as influencing a firm's decision to outsource. In fact, 27.5% of the
outsourcing announcements in Sharpes (2007) study's sample explicitly cite both motives for
outsourcing. For example, Unilever announced outsourcing its data network operations to cut
overhead and increase efficiency in the short run, while enhancing product development and
marketing in the long run (Keller, 2002).
Similarly, Kodak announced that it anticipated immediate cost reduction and long-term gain in
market share by outsourcing certain components in digital camera manufacturing (McWilliams,
2005). Further, firms cite specific reasons for how outsourcing motivated by cost reduction can
improve short-term performance. As a baseline for assessing advantages, firms equate the cost of
outsourcing to the cost of acquiring additional resources to do work internally (Kavan, Saunders,
and Nelson, 2000). Leveraging a vendor's ability to reduce clients' operating costs provides a
comparable level of service at lower cost. Vendors' relative cost advantages may arise from scale
and scope economies, which they achieve, respectively, by aggregating expertise and capacity
across a large number of clients and by simultaneously undertaking a variety of projects across
which they share or transfer capabilities (Loh and Venkatra-man, 2001; McCarthy and
Anagnostou, 2004).
Outsourcing can also generate needed cash when firms sell assets or transfer employees to
vendors (Juma'h and Wood, 2003). Cost advantages may come from reducing or eliminating new
investments or investment renewals (Gilley and Rasheed, 2000; Kakabadse and Kakabadse,
2005). This occurs, for instance, when vendors offer services using technologies that are more
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efficient than the client's or skills that are unjustifiably costly for client develop in house
(Abraham and Taylor, 2006). In addition, outsourcing may reduce internal cost inefficiencies
associated with administration, bureaucratic procedures, and politics (Gilley and Rasheed, 2000).
2.3.1 Effect of innovation on material availability
Outsourcing of innovativeness or New Product Development (NPD) or introduction refers to the
outsourcing of development activities for developing new products (goods and/or service), where all
or the innovative part of the NPD process is purchased externally according to a contract from
organizational units separate from the outsourcing firm (Rundquist, 2006). This definition implies
that the activity shall be an innovative (strongly contributing to the newness) part of the NPD
process, the activity shall earlier have been conducted internally, and the activity shall be purchased
in a contractual agreement between the organizations. The focus here is the outsourcing of activities
in the NPD process, where an activity is a part of a process, with a limited scope, starting with an
input and delivering an output.
The unit to be outsourced is therefore the effort and competence needed to develop the substance
from an input to an output. This is important to understand as most research on outsourcing deals
with outsourcing of the production of the products (artifacts). In the automotive industry 75% of the
product development hours for a new Toyota are undertaken by suppliers (The Economist, 2008).
Toyota is a multinational company and supplier involvement is a well-known phenomenon.
However, not only in multinationals but also in medium-size firms, as many as 67% outsourced their
product development activities (Rundquist 2006). In the above study of medium-size Swedish firms,
the partner was as often a consultancy firm or a university as it was a supplier. It could therefore be
appropriate to pinpoint that outsourcing of NPD has a broader meaning than just collaborating with
suppliers in the construction phase. The result from the study (67%) is likely to be lower when it
comes to development of new products as opposed to minor improvements or re-engineering. For
example, Wasti and Liker (2007) indicated that in automotive industry most activities in product
development object to outsourcing were smaller designs for manufacturability improvements.
Medium-size firms in manufacturing industries in Sweden have difficulties staying competitive
today. They often lack resources due, for example, to higher costs in comparison with competitors
abroad or higher costs compared to larger firms. Therefore it is hard for medium-size firms to
perform competitive product development on their own. To increase resources, to share risks or to
lower costs, many firms choose to collaborate with other firms or organizations in product
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development. This collaboration can be in the form of, for example, partnership, joint ventures,
networks, research contracts or alliances (Chiesa et al., 2000).
Outsourcing is one of many ways to reach the goals in NPD. Firms use outsourcing of NPD to lower
costs, to cut peaks in NPD efforts, or to get access to resources which did not previously exist within
the firm. NPD is a knowledge-intensive activity that requires a lot of ability to handle insecurities and
which is very dependent on the individuals involved in the process. That makes it different from
production, which (especially when producing standard items in large scale) is easier to control,
monitor and to evaluate costs of. Therefore, some considerations connected with knowledge
acquisition and insecurity needs to be addressed (Chiesa et al., 2000). Cost reduction has been the
dominant motive for outsourcing (Ford et al., 2010), and outsourcing of NPD can be a method to
reduce costs for new product development. If, for example, a firm can find product development
competence with an external partner at a cheaper price, the in-house product development
department could be smaller and costs could be saved on salaries and appliances. A present example
of this phenomenon is development of new software products that is today frequently outsourced to,
for example, Indian companies while in-house software departments become less common (Wright,
2001)..
2.3.3 Effect of operational efficiency on material availability In their study of the manufacturing sector in Nigeria, Akewushola and Elegbede (2012) found
that outsourcing has operational advantages such as increased efficiency as a result of activities
being carried out by specialized firms, and reduction in permanent staff, which then became
variable costs related to the level of activity. They also noted the demerits of outsourcing being
the loss of control of activity done through outsourcing, the transfer of sensitive information, the
possibility of exorbitant price increase by the suppliers at a future date, along with fluctuations in
quality. Some firms have employed outsourcing as a short-term solution to avoiding the rigidities
caused by labor laws. Although outsourcing labor management to able providers may result in a
consistent pool of more professional and motivated workers, these firms limit themselves by
viewing outsourcing merely as a simple tactic of freeing themselves of permanent staff and the
legislative pressures associated with them (Mulama, 2012).
The volume of literary work in this area has demonstrated that in most cases the strategic
suppliers will beat the in-house team on cost. This is because the supplier will mostly offer
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substantially improved terms and conditions if the buyer is willing to enter into long-term rather
than short-term relationships, especially if these are single sourced (Contractor et al, 2011).
Nordin (2008) asserts that outsourcing of some value chain activities can generate operational
efficiency by reducing capital investment and commitment as well as ensuring maximum
utilization of the existing resources in a way that generates maximum value from the least
possible inputs. Therefore, if done well, the strategic outsourcing relationship can result in
increased operational efficiency.
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2.4 Conceptual Framework Orodho (2009), defines a conceptual framework as a model which diagrammatically shows the
relationship between variables in the study.
Independent Variable Dependent Variable
Intervening Variable
Source (Researchers 2017)
Figure 2.1: Conceptual Framework
In figure 2.1 above, the study conceptualizes of independent variables which include what the
researcher specifically assessed ie outsourcing decision based on cost reduction, innovation and
operational efficiency, the dependent variable is material availability in terms of supplier
reliability, on time delivery, lead time and the For Almasi Beverages Limited to ensure material
availability, they have to make outsourcing decisions based on effective cost reduction,
innovation and operational efficiency. However, this depends on the Outsourcing policies and
guidelines and procurement procedures.
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Cost reduction
Innovation
Operational efficiency
Material availability
i. On time delivery ii. Supplier reliability
Outsourcing policies and guidelines
Procurement procedures
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Research Design
According to Kothari (2004), research design refers to the plan and structure of investigating that
helps the researcher to obtain answers to research questions. The researcher used descriptive
research design in order to gather facts on the effects of outsourcing decisions on material
availability. This type of design was appropriate for gathering information, summarizing,
presenting and interpreting it for the purpose of clarifying outsourcing decisions and their effects
on material availability. Orodho (2004) recommended this as one of the best research designs.
The design also gave results immediately and therefore useful in fixing shortcomings realized in
the process of the study.
3.2. Study Area
The research was carried out in Almasi Beverages Limited in Kisii county. The county is
approximately 370 Kilometer from Nairobi the capital city of Kenya. The area was chosen
because it is convenient for the researcher and the required information for this study was
obtained due to its nature in large production of beverages hence embraces all procurement
practices.
3.3. Target Population
The study targeted a population of 120 employees from Almasi Beverages Limited. This
comprised of employees from stores and procurement, production and finance departments.
3.4. Sampling Procedures and Sample
This research used stratified random sampling procedure to select a sample to represent the entire
population. According to Mugenda and Mugenda (2003) recommendation of at least 10% of
target population to calculate the sample size, 30% of the targeted employees were selected and
that led to 36 employees working in Almasi Beverages Limited. The table below shows target
population and sample size for each respondent’s category.
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Table 3.1 Target Population and Sample Size
Respondents category Target Population Sample SizeStores and procurement 50 15Finance and accounting 10 3Production 60 18Total 120 36
(Source: Researcher, 2017)
3.5 Data Collection instruments The researcher administered the use of questionnaire as a method of data collection to the
identified set of respondents. Questionnaire is an instrument used to gather data, which allows
measurement for or against a particular viewpoint. Questionnaire is useful in that; it is efficient
use of time that is information can be collected from a large number of people and the questions
can be easily analyzed, anonymity is possible and everyone gets the same questions that is, it
is standardized (Orodho, 2009). Closed ended questionnaire was preferred because it is easy to
interpret and enables the researcher to get feedback according to the research objectives. The
questionnaire was physically dropped to the selected respondents and picked after two weeks.
3.6. Research Instrumentation
3.6.1. Reliability of the Instrument
Reliability is a measure of the degree to which research instrument yield consistent results or
data after repeated trials (Mugenda & Mugenda 2003). To ensure reliability of the instruments
researcher used test retest method in the study area using respondent from the target other
company.
3.6.2. Validity of the Instrument
Validity is a measure to the degree to which data obtained from research instruments
meaningfully and accurately, reflect or represent theoretical concept (Omollo, 2009). To ensure
validity of the questionnaire, the researcher sought the expert opinion of the University
supervisor before going to the field to collect data.
3.7 Data Analysis and Presentation
According to Mugenda and Mugenda (2003) data analysis is the process of bringing order,
structure and meaning of the data collected. The collected data was analyzed by use of weighted
xxv
average and percentages. It was then presented in form of frequency tables, charts. These
methods were used since they are easier for one to analyze, present and interpret the collected
data from the filled.
CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION AND DISCUSSION
4.1 Response Rate
Questionnaires were administered to 36 employees working in Almasi Beverages Limited. Only
30 respondents filled and returned the questionnaire, yielding a response rate of 83.3% with none
response rate of 16.7%.
xxvi
Table 4.1: Response Rate
Department Frequency Percentages
Response
Non response
rateStores and procurement 12 33.3% 8.3%Finance and accounting 2 5.6% 2.8%Production 16 44.4.8% 5.6%Total 30 83.3% 16.7%Source: Researcher, (2017)
Table 4.1 shows that the response was positive and conforms to Dixon (2012), a response rate of
50% is adequate while a response rate greater than 70% is very good. This agreed with Mugenda
and Mugenda (2003), that a 50% response rate is adequate, 60% good and above 70% very good.
This therefore implied the response rate of 83.3% is very good. The response rate of 83.3% is
therefore positive response to the study.
4.2 Demographic Characteristics of Respondents
The study analyzed age, educational level and duration of working in the organization then
presented them in the following tables as below.
4.2.1 Age analysis
Table 4.2: Age Category of respondents
Age Frequency Percentages18-27 5 16.7
28-37 8 26.7
38-47 14 46.6
Above 48 3 10.0
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Total 30 100
Source: Field Data, (2017)
From the table 4.2 above, age category of employees from Almasi Beverages Limited was such
that 16.7% of the employees were aged between 18–27 years, 26.7% of the employees were aged
between 28–37 years, 46.7% of the employees were aged between 38–47 years and 10% of the
employees were aged above 48 years. This implies that most of the employees in Almasi
Beverages Limited are age between 38-47 years. The information collected therefore reflected
more views from older employees.
4.2.2 Educational Level
Respondents were requested to indicate their educational level and the findings were presented
as below
Table 4.3: Level of Education Educational Level Frequency PercentagesMasters 3 10.0Degree 15 50.0Diploma 7 23.3Certificate 5 16.7Total 30 100 Source: Field data, (2017)
Investigations were made further to evaluate education levels of employees from Almasi
Beverages Limited and findings revealed that 10% of the employees were postgraduate, 50% of
the employees were degree holders, 23.3% of the employees had diploma and 16.7% of the
xxviii
employees had certificate. This shows that most of the employees in Almasi Beverages Limited
have attained degree level hence they have adequate knowledge to outsourcing decisions.
4.2.4 Duration of Service
Table 4.4: Duration of serving the company
Duration Frequency PercentagesLess than 1 year 3 10.01-5 4 13.36-10 6 20.011-15 7 23.3Above 15 10 35.7Total 30 100Source: Field Data (2017)
From table 4.4, it shows that, 10% of the employees have worked in Almasi Beverages Limited
for less than one years, 13.3% of the respondents have worked in the company between 1-5
years, 20% of the employees have worked in the company between 6-10 years, 23.3% of the
employees have worked in in the company between 11-15 years and 35.7% of the employees for
more than 15 years. This shows that most of the employees from Almasi Beverages Limited in
Kisii County have worked in the company for long period of time more than 15 years, indicating
that they have enough experience to effectively contribute to the study.
4.3 Cost Reduction
The aim of the researcher was to find out the effect of cost reduction on material availability in
Almasi Beverages Limited. The findings are presented as shown below;
Figure 4.1 Does the organization outsource based on cost reduction
xxix
90.00%
10.00%
Yes
No
Source: Field Data, (2017)
Figure 4.1 above shows that 90% of the employees agreed that Almasi Beverages Limited base
outsourcing on cost reduction while 7% of the employees do not agree with the statement. This
indicates that Almasi Beverages Limited in Kisii county base outsourcing on cost reduction.
Similarly, McWilliams (2005) noted that, Kodak announced that it anticipated immediate cost
reduction and long-term gain in market share by outsourcing certain components in digital
camera manufacturing. Further, firms cite specific reasons for how outsourcing motivated by
cost reduction can improve short-term performance.
Table 4.5: Effect of cost reduction on material availability
Strongly
agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
disagree
1
∑fi ∑fiwi ∑fiwi
∑fi
Outsourcing
based on cost
reduction is most
effective
12 8 5 3 2 30 115 3.8
Outsourcing
reduces both
14 10 5 1 0 30 127 4.2
xxx
overhead and
fixed costsOutsourcing for
cost reduction
creates
interruption in
material supply
0 5 7 8 10 30 67 2.2
Firms equate the
cost of
outsourcing to
cost of acquiring
additional
resources
15 12 3 0 0 30 132 4.4
Cost reduction is
major contributor
to improved
performance
3 5 10 8 4 30 85 2.8
Source: Field Data, (2017)
From table 4.6 above, it shows that firms equate the cost of outsourcing to cost of acquiring
additional resources was rated high of 4.4, Outsourcing reduces both overhead and fixed costs
rated 4.2, outsourcing based on cost reduction is most effective rated 3.8, Cost reduction is major
contributor to improved performance rated 2.8 and Outsourcing for cost reduction creates
interruption in material supply rated 2.2. This shows that, Almasi Beverages Limited in Kisii
County equate the cost of outsourcing to cost of acquiring additional resources. This indicates
that the company is committed towards availability of materials. This finding is supported by
Kavan, Saunders, and Nelson, (2000) that, firms cite specific reasons for how outsourcing
motivated by cost reduction can improve short-term performance. As a baseline for assessing
advantages, firms equate the cost of outsourcing to the cost of acquiring additional resources to
do work internally.
4.4 Innovation
The aim of the researcher was to determine the effect of innovation on material availability in
Almasi Beverages Limited. The findings are presented as shown in the tables below where MC-
xxxi
most challenging, VC-very challenging, C-challenging, LC-Less challenging, NC- not
challenging
Table 4.7: Major challenge facing adoption of innovation in outsourcingEffect MC
5
VC
4
C
3
LC
2
NC
1
∑fi ∑fiwi ∑fiwi
∑fiIt is expensive method 10 8 6 4 2 30 110 3.7
There is a lot of risk
exposure
14 10 4 2 0 30 126 4.2
Requires competency 12 11 5 2 0 30 123 4.1Lack of constant
monitoring
3 3 6 8 10 30 71 2.4
Low employees morale 2 6 7 7 8 30 77 2.6Source: Field Data, (2017)
Table 4.7 above, shows that there is a lot of risk exposure was rated high of 4.2, requiring
competency rated 4.1, expensive rated 3.7, low employees morale rated 2.6 and lack of constant
monitoring rated 2.4. This shows that, the major challenge facing adoption of innovation in
outsourcing is the existence of risk exposure. According to Rundquist (2006) firms are spending
a lot of money as innovativeness demands a lot of investment. This differs with the findings.
Table 4.8: Effect of innovation on material availability
Strongly
agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
disagree
1
∑fi ∑fiwi ∑fiwi
∑fi
Outsourcing
based on
innovation is
most effective
11 8 6 5 0 30 115 3.8
The company
needs new
products and
services to
maintain its
12 9 6 3 0 30 120 4.0
xxxii
competitivenessThe company is
keen on
innovativeness in
outsourcing
10 7 6 4 3 30 107 3.6
The company
needs to
outsource its
innovativeness to
other companies
0 4 6 7 13 30 61 2.0
innovativeness is
a major
contributor to
improved supply
chain
performance
5 6 5 8 6 30 86 2.9
Source: Field Data, (2017)
Table 4.8 above, shows that the company needs new products and services to maintain its
competitiveness was rated high of 4.0, outsourcing based on innovation is most effective rated
3.8, the company is keen on innovativeness in outsourcing rated 3.6, innovativeness is a major
contributor to improved supply chain performance rated 2.9 and company needs to outsource its
innovativeness to other companies rated 2.0. This shows that, Almasi Beverage Limited in Kisii
county needs new products and services to maintain its competitiveness. According to Quinn et al
(2000), many firms in manufacturing industries have difficulties staying competitive today. They
often lack resources due, for example, to higher costs in comparison with competitors abroad or
higher costs compared to larger firms to engage in a much needed innovation and as a result require
strategic outsourcing to keep up.
4.5 Operational Efficiency The aim of the researcher was to establish the effect of operational efficiency on material
availability in Almasi Beverages Limited. The findings are presented as shown below;
Figure 4.1 Does the organization outsource based on operational efficiency
xxxiii
83.33%
16.67%
Yes
No
Source: Field Data, (2017)
Figure 4.1 above shows that 83% of the employees agreed that Almasi Beverages Limited
outsource based on operational efficiency while 17% of the employees does not agree with the
statement. Akewushola and Elegbede (2012) found that outsourcing has operational advantages
such as increased efficiency as a result of activities being carried out by specialized firms, and
reduction in permanent staff, which then became variable costs related to the level of activity.
Table 4.9: Effect of operational efficiency on material availability
Strongly
agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
disagree
1
∑fi ∑fiwi ∑fiwi
∑fi
Outsourcing
based on
operational
efficiency is most
effective
13 7 4 3 3 30 114 3.8
company
encourages
outsourcing based
on operational
efficiency
5 4 7 6 7 29 81 2.8
company
outsource on
14 7 6 3 0 30 122 4.1
xxxiv
operational
efficiency to
increase material
supplyOperational
efficiency is not
used frequently
by the company
0 5 7 8 10 30 67 2.2
company do not
only outsource for
operational
efficiency to
increase material
availability
0 3 6 8 13 30 59 2.0
Source: Field Data, (2017)
Table 4.9 above, shows that company outsource on operational efficiency to increase material
supply was rated high of 4.1, Outsourcing based on operational efficiency is most effective rated
3.8, company encourages outsourcing based on operational efficiency rated 2.8, operational
efficiency is not used frequently by the company rated 2.2 and company do not only outsource
for operational efficiency to increase material availability rated 2.0. This shows that, Almasi
Beverages Limited in Kisii County outsource on operational efficiency to increase material
supply. This is supported by Nordin (2008) who asserted that outsourcing of some value chain
activities can generate operational efficiency by reducing capital investment and commitment as
well as ensuring maximum utilization of the existing resources in a way that generates maximum
value from the least possible inputs. Therefore, if done well, the strategic outsourcing
relationship can result in increased operational efficiency.
xxxv
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary of Findings
The general objective of the study was to assess the effect of outsourcing decision on material
availability in Almasi Beverages Limited. The first objective of the study was to find out the
effect of cost reduction on material availability in Almasi Beverages Limited where the
researcher found that, Almasi Beverages Limited in Kisii county base outsourcing on cost
reduction. The company equates the cost of outsourcing to cost of acquiring additional resources.
This indicates that the company is committed towards availability of materials. The second
objective of the study was to determine the effect of innovation on material availability in Almasi
Beverages Limited where it was found that, the major challenge facing adoption of innovation in
outsourcing is the existence of risk exposure. The company needs new products and services to
maintain its competitiveness. The third objective of the study was to establish the effect of
operational efficiency on material availability in Almasi Beverages Limited where the researcher
xxxvi
found that, Almasi Beverages Limited outsources based on operational efficiency. The company
outsource on operational efficiency to increase material supply.
5.2 Conclusion
From the findings, it can be concluded that, manufacturing companies base outsourcing on cost
reduction. The company equates the cost of outsourcing to cost of acquiring additional resources.
Secondly it was concluded that, the major challenge facing adoption of innovation in outsourcing
is the existence of risk exposure. The company needs new products and services to maintain its
competitiveness. Thirdly, it was concluded that, Almasi Beverages Limited outsources based on
operational efficiency. The company outsource on operational efficiency to increase material
supply. Lastly it was concluded that, there is relationship between outsourcing decisions and
material availability.
5.3 Recommendations
5.3.1 Recommendations for Policy and Practice
Based on the second objective on effect of cost reduction on material availability, manufacturing
organizations should employ strategic and well thought out outsourcing to further reduce
operating and overhead costs for further firm growth.
Based on the third objective on effect of innovation on material availability, manufacturing
organizations should carefully consider the issue of outsourcing to ensure that while outsourcing
helps in new innovations, no product quality is compromised and no money is lost.
Based on the third objective on effect of operational efficiency on material availability,
manufacturing organizations should outsourcing some value chain activities to generate
operational efficiency by reducing capital investment and commitment as well as ensuring
maximum utilization of the existing resources in a way that generates maximum value from the
least possible inputs.
5.3.2 Suggestions for Further Studies
The study mainly focused on the effect of outsourcing decision on material availability in Almasi
Beverages Limited. Similar studies could be carried in other manufacturing organizations in the
xxxvii
country. Further research could also be conducted to establish factors affecting outsourcing
decisions in manufacturing organizations.
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APPENDICES
APPENDIX I
LETTER OF INTRODUCTION
KISII UNIVERSITY
P.O. BOX 408 – 40200,
KISII.
TO
BRANCH MANAGER
ALMASI BEVERAGES LIMITED,
P.O.BOX ………………………..
KISII
Dear Sir/Madam,
RE: REQUEST TO COLLECT DATA FROM YOUR EMPLOYEES
xli
I am a student at Kisii University, pursuing a Diploma in Stores and Supplies Management as a
partial fulfillment of the requirement for Award of a Diploma. I am to carry out a research
entitled; ‘An assessment on effect of outsourcing decisions on material availability with
reference to Almasi Beverages Limited in Kisii County. I am seeking your permission to
collect data in your organization in order to complete my studies. The information obtained will
be treated with utmost confidentially and the result of the research will be for academic purpose
only.
Yours faithfully,
Lorine Achieng Misare
APPENDIX IV
QUESTIONNAIRE
Dear respondent,
I am a student of Kisii University taking diploma in Stores and Supplies Management. I am
undertaking a research on assessment on effect of outsourcing decisions on material
availability with reference to Almasi Beverages Limited in Kisii County. The information
gathered during this research study is for learning purposes and it’s totally private, confidential
and anonymous.
SECTION A: BIO-DATA
1. Indicate your age bracket?
a) 18- 27
b) 28- 37
c) 38- 47
d) Above 48
2. Indicate your highest education level?
xlii
a) Certificate
b) Diploma
c) Degree
d) Masters
3. How long have you worked in the organization?
a) Less than one year
b) 1-5
c) 6-10
d) 11-15
e) Over 15
SECTION B: COST REDUCTION
Please tick (√) where necessary
4. Does your organization outsource based on cost reduction?
a) Yes
b) No
5. To what extent do you agree with the following statement on the effect of cost reduction
on material availability?
Cost reduction Strongly
agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
disagree
1Outsourcing based on cost
reduction is most effectiveOutsourcing reduces costs, both
overhead and fixed costs
xliii
Outsourcing for cost reduction
creates interruption in material
supplyOur firm equate the cost of
outsourcing to the cost of
acquiring additional resources to
do work internally
Cost reduction is a major
contributor to improved
performance
SECTION C: INNOVATION
6. Which is a major challenge faced in adoption of innovation for outsourcing in the
company?
Most
challenging
5
Very
challenging
4
Challenging
3
Less
challenging
2
Not
challenging
1It expensive
method There is a lot of
risk exposure Requires
competency Lack of constant
monitoring Low employees
morale
xliv
7. To what extent do you agree with the following statement on the effect of innovation on
material availability?
Innovation Strongly
agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
disagree
1Outsourcing based on
innovation is most effective and
efficientThe company needs new
products and services to
maintain its competitivenessThe company is keen on
innovativeness when
outsourcingThe company needs to outsource
its innovativeness to other
companies that can do the work
innovativeness is a major
contributor to improved supply
chain performance
xlv
SECTION D: OPERATIONAL EFFICIENCY
8. Does your organization outsource based on operational efficiency?
a) Yes
b) No
9. To what extent do you agree with the following statement on the effect of operational
efficiency on material availability?
Operational efficiency Strongly
agree
5
Agree
4
Undecided
3
Disagree
2
Strongly
disagree
1Outsourcing based on
operational efficiency is most
effective and efficientThe company encourages
outsourcing based on
operational efficiencyThe company outsource on
operational efficiency to
increase material supplyOperational efficiency is not
used frequently by the company
To achieve increase in material
availability, the company do not
only outsource for operational
efficiency
xlvi
Thanks for your co-operation
…………………
xlvii
