EFFECT OF INSOURCING OR OUTSOURCING DECISION ON THE PRODUCTIVITY OF AN ORGANIZATION (A CASE STUDY OF PZ IN CALABAR)

CHAPTER ONE

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 competition.

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 productivity.

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 this study.

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 (overall productivity).

However, PZ 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 sharesand 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 factorsor 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 (PZ) Kaduna.

The main objective is built around a number of specific objectives, among these are:

1. To determine the process the organization follows in outsourcing of contracts.
2. To identify criteria for insourcing or outsourcing.
3. To examine the benefits of insourcing or outsourcing.
4. To identify the cost involved in Insourcing or outsourcing decision.
5. 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 an organization using PZ in calabar as the case study. The focus will be on purchasing, store and production departments of the organization.

1.6   Research Questions

1. What are the processes the organization follows in outsourcing of contracts?
2. What are the criteria used for outsourcing or insourcing?
3. What are the benefits of outsourcing or insourcing?
4. What are the cost involved in insourcing or outsourcing?
5. 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 buying organization.

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 faster.

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 performance.

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 resources.

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.