Logistics Outsourcing Risks and Performance of Manufacturing Firms in Kenya

Abstract

The study sought to determine the influence of Logistics outsourcing risks on performance of manufacturing firms in Kenya. In particular, the study attempted to achieve the following specific objectives: to analyze the outcome of contractual risk, cost risk, supplier relationship risk, management risk and information flow (moderating variable) on performance of manufacturing firms in Kenya. From the literature reviewed, there was necessity to evaluate the logistics outsourcing risks that face the integration, collaboration, flow of information and goods in manufacturing firms. This helped to determine whether the low performance in these firms was as a result of these risks. Both descriptive and explanatory research designs were adopted jointly. Stratified sampling was conducted on all the one thousand one hundred and twenty three manufacturing firms registered by KAM, simple random sampling was carried out on the strata to identify a sample size of 295 firms. The study relied on both primary and secondary data which was collected through structured questionnaires that were administered to administrators charged with the management of supply chain within the selected firms. Prior to the actual study, pilot test of the measures was conducted on thirty selected respondents drawn from the firms representing 10% of the sample population. The results revealed that the instrument was reliable and valid to carry out data collection. Descriptive statistics were carried out on the study variables using percentages, mean and standard deviation. The results showed that logistics outsourcing risks influence performance of manufacturing firms in Kenya. Diagnostic tests were carried out to assess whether the assumptions of the regression model were met. The tests included; normality test, test for autocorrelation, test for heteroscedasticity, multicollinearity test and linearity test. Regression analysis; correlation coefficient (r) and inferential statistics was done using SPSS version 24. The results revealed that contractual risk, Cost risk, supplier relationship risk and management risk individually and combined had a significant relationship on the performance of manufacturing firms in Kenya. Information flow had a significant moderating effect on the relationship between logistics outsourcing risks and performance of manufacturing firms. It was concluded that through a surge in logistics outsourcing risks such as contractual risk cost risk, supplier relationship risk and management risk, the performance of the manufacturing firms is negatively affected. Managing the logistics outsourcing risks would imply that the manufacturing firms are able to optimize operational costs and achieve the best out of outsourcing logistics, thus enhancing performance. The key recommendations are that management of the manufacturing firms through the supply chain and logistics departments should embrace key strategies of managing logistics outsourcing risks as a way of enhancing the continued performance of manufacturing firms. The study assists policy makers in coming up with better policies on mitigating logistics outsourcing risks. Future areas of study should also focus on other logistics outsourcing risks since the four that were identified did not account for 100% of the variation in firm’s performance and Study on how to mitigate these risks beyond information flow.