Effect of Supply Chain Processes Outsourcing on the Performance of Manufacturing Firms in Kenya

Abstract

This study sought to examine the effect of supply chain processes outsourcing on the performance of manufacturing firms in Kenya. The manufacturing sector is a major contributor of Kenya’s GDP, constituting 70 per cent of the industrial sector contribution to GDP. The general objective of this research was to examine the effect of supply chain processes outsourcing on the performance of manufacturing firms in Kenya. The study adopted a cross sectional survey research design. The study used descriptive and inferential data analysis. The findings of the multiple regression analysis the outsourcing of all supply chain processes, primary supply chain processes outsourcing has the greatest effect on the improvement of performance for manufacturing firms in Kenya, followed by the outsourcing of steering activities, outsourcing of secondary supply chain processes, outsourcing of communication processes and decision supply chain processes, respectively in order of decreasing effect on performance. Overall, this study concludes that if a firm is keen on improving its supply performance it should outsource all of its supply chain processes but only those functions of the various supply chain processes whose outsourcing leads to the significant improvement of its performance. While those activities within the supply chain processes whose outsourcing does not lead to the improvement of the performance should be undertaken in-house. This study recommends that if a firm intends to improve its performance by outsourcing it primary supply chain processes it should outsource its manufacturing activities, inbound logistics and outbound logistics which provide substantial improvements to the performance. Product development should be undertaken in-house since the consequent gains in performance arising from its outsourcing are minimal. In order to improve a manufacturing firm’s performance as a result of outsourcing its secondary supply chain processes, the firm should only outsource its HRM, procurement management and ICT. Returns management outsourcing would not yield a substantial improvement in performance. With regards to steering supply chain processes the firm should outsource it’s planning and budgeting functions only since it will yield a substantial improvement in performance. While coordination and monitoring activities should be undertaken in-house since their outsourcing will not yield substantial improvement in performance. It is recommended that if a firm intends to improve its performance by outsourcing its decision processes, it should only outsource it layout decisions, location decisions and inventory management decisions. Technology decisions should not be outsourced. In outsourcing the communication processes, the firms should outsource internal communication, competitor communication, and supplier communication while conducting customer communication in-house. The implication to practice of this study is that the management of manufacturing firms must therefore strategically link the supply chain processes outsourcing to superior performance. The implication to theory and knowledge of this study is that supply chain models theories and frameworks developed elsewhere are also applicable to firms in developing countries with minimal or no modification at all.