THE EFFECT OF INSOURCING/OUTSOURCING DECISION ON THE PRODUCTIVITY OF AN ORGANIZATION ( A CASE STUDY OF PZ, CALABAR)
The Concept of Insourcing and Outsourcing
According to Hassan (2010), the insourcing or outsourcing decision is a sourcing policy decision which addresses the question faced by the Purchasing Manager, whether to produce to consume or to buy from outside suppliers (i.e. insourcing or outsourcing), and while most organizations make what they consume, not all can.
And the decision to outsource or insource is generally a sort of sourcing policy decision (p. 107). Therefore, a trade off must be made between what the organization can make internally and what it had to obtain from external sources, since they (business) are not compete in all areas; and even when the business is good in all respects, it may not be of advantage in terms of costs.
Lysons and Gillingham (2003) concur with Hassan when he observed that insourcing or outsourcing decision compares the cost of producing a component or providing a service internally with the cost of purchasing the component or service from an external supplier. They therefore, identify three levels of insourcing or outsourcing decisions.
Criteria for Selecting Suppliers for Outsourcing Contracts
When outsourcing large numbers of parts were formerly produced in-house, purchasing must first upgrade its supplier control systems, such as supplier selection and qualification, performance measurement, and supply-base optimization processes. Once the firm has committed to outsourcing a key subsystem, it should also attempt to develop or enhance its competence in other critical subsystems, particularly if the technology is relatively new or not readily available outside the firm (Monczka, Trent and Handfield, 2002, p. 218, 219).
Hassan (2010) on his part stated that deciding to outsource is one thing, getting the right suppliers or contractors to outsource too is entirely another. He gave seven (7) criteria that managers should assess before outsourcing. These include among others:
- Knowledge and skills that suppliers possess which the buyer values.
- Breadth and depth of experience of supplier.
- The skills and experience of the suppliers personnel and their unique service capabilities.
- Financial solvency, to ensure that the supplier can provide the desired service over the length of the outsourcing relationship.
- Good reputation, including the willingness to offer customer references and performance guarantees.
- Commitment to working with the buyer to help the relationship to succeed.
- Commitment to technological innovation quality improvement and customer satisfaction (p. 111).
The Outsourcing Process
According to Van Weele (2005), the outsourcing process can be structured around different elements. Three distinctive phases can be identified. A strategic phase (why outsource, what to outsource and to whom to outsource), a transition phase (how to outsource), and an operation phase (how to manage the outsourcing relationship) (p. 124).
Monczka, Trent and Handfield (2002) identified the outsourcing process in terms of steps namely: Assess Technology and Demand Trends, Access Strategic Alignment and Core Competencies, content total cost analysis of all insourcing/outsourcing alternatives, and finally consider non-factors and reaching consensus on the decisions (p. 201-11).