Project Materials

IMPACT OF OUTSOURCING DECISION ON MATERIAL AVAILABILITY

Chapter one

INTRODUCTION

1.1 Background of the Study

Material availability and input reliability influence productivity, particularly in developing countries. Unreliable services, such as water, can be managed using storage devices (Baisa et al. 2010). However, electricity necessitates that agents respond in various ways since power is extremely expensive to store.

A typical approach to long-term power supply concerns is for businesses to invest directly in technology to generate electricity on-site, known as self-generation. Blackouts impair production because they cancel out alternative investment opportunities.

In contrast to the literature, this research investigates the start of productivity blackouts in a massive and fast rising economy, specifically China.

Using enterprise-level panel data, we investigate how rms respond to blackouts and quantify the lost productivity and environmental impact.

In the early 2000s, industrial clients in practically every province in China faced blackouts due to resource scarcity (IEA 2006). Despite efforts to develop new power facilities at a rapid pace, double-digit economic expansion has resulted in a tight market.

Furthermore, retail electricity remains subject to price cap regulation, with little price responsiveness to shortages. Finally, residential and commercial electricity users received priority over industrial customers. While the scale of the outages is unprecedented, China remains deeply concerned.

As recently as the summer of 2011, China had significant power outages. Although outsourcing is still in its early stages in Nigeria, it has helped many businesses (Orji, 2002) and created work possibilities for many Nigerians as well. Firms that outsource a portion of their production process and services benefit from enhanced efficiency and profits.

The decision to outsource entails several duties and considerations for the firm seeking to outsource. A company’s need to improve and speed up its production process may lead to a decision to contract or outsource some of its manufacturing process to another firm or vendor.

Waste is a big concern in developing countries, especially Nigeria. The inability of firms to successfully manage their outsourcing processes is concerning.

Domberger (1998) highlights the necessity of building a “framework of analysis” that gives a structured, methodical approach to contracting decisions and outsourcing strategies (p.9).

Farney et al. (2004) and Gay and Essinger (2000) discuss the significance of formal procurement procedures in developing a global outsourcing strategy and selecting outsourced providers.

Even when an organisation intends to properly analyse an outsourcing possibility, reliable comparisons of internal procedures to external suppliers can be extremely challenging (Hayward & McDonagh, 2000).

There is a great deal of variety in how firms describe procedures like order entry and accounts payable, and there is little consistency in how these processes are delivered and managed.

According to Davenport (2005), comparing what happens inside to what is available outside is extremely challenging. Davenport goes on to explain how adopting business process standards can help with outsourcing decisions and internal capability improvement.

Recognising that specialised skill sets are necessary for outsourcing, the development and supply of outsourcing skills is anticipated to continue to grow. Govpro (2005) examined the evolving role of the Tim Collins procurement expert, while Hazra (2004) discusses how it has become necessary to take a longer-term, balanced, strategic approach to outsourcing options.

Gay and Essinger (2000) argue that a strategic approach to outsourcing is most effective when organisations are willing to adopt a new perspective on management control with a focus on output rather than inputs;

Quinn supports these views in a recent interview; companies may have brilliant designers, lawyers, and so on, but they may lack the capability required for outsourcing management.

They must be able to assess different cost structures and grasp the strategic implications of outsourcing to one partner over another.