Volume 6, Issue 5, May – 2021 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

The Pros and Cons of Outsourcing Logistic Functions

among Manufacturing Firms in Southwest, Nigeria
Iborida, Emmanuel*, Ifediora, Chuka., Ekoja Geoffrey., Mogoluwa Shedrack.
Department of Marketing, Faculty of Business Administration, University of Nigeria, Enugu Campus, Enugu, Nigeria

Abstract:- This study examined the benefits and risk economic hardship and intense competition. Companies then
involved in outsourcing logistic function among used outsourcing to achieve flexibility in business operations
manufacturing firms in South West, Nigeria. The study and reclaim their competitive edge (Handfield, 2006). The
was guided by two research objectives which include to; similar trend has found its ways into Nigerian companies,
determine the organisational efficiency gained through where firms are now successfully implementing outsourcing
outsourcing the logistics functions by manufacturing plan as an imitation of foreign companies.
firms in South-West Nigeria, and to identify the
challenges faced by manufacturing firms through A good example is the UK telecommunications
outsourcing logistic function in South-West Nigeria. The companies outsourcing their customer call centres to India.
study randomly 154 top management members from total Nigeria-based telecoms operator, Airtel and Etisalat also has
257 in three purposively sampled manufacturing its customer call centres been operated by external
industries in south-west Nigeria. The study used a companies. This enables them to concentrate their resources
structured questionnaire for data collection. The data on providing improved telecommunication service to
were analysed using simple percentage, and the weighted customers while entrusting their customer call centres to
average for research question while linear regression was companies that can deliver the services with more efficient at
used for hypotheses. The results of the analysis show that a reduced cost.
there is a significant influence of outsourcing on a
reduction in operational and project management cost. A recent survey by Wan, Wang, Lin and Dong (2015)
Also, it leads to competitive advantages, the flexibility of found that the CEOs of third-party logistics companies
operation, and sufficient time for process planning. Also, perceived growing customer interest in outsourcing as the top
it was revealed that the manufacturing firms are facing industry dynamics. This awareness of contract logistics’ role
associated risks during outsourcing logistics function, has been instrumental in compelling the logisticians to learn
most especially when monitoring from manufacturing end to adapt to this new intrusion into their territory. Since firms
is reduced, the challenges include; chances for losing can often replicate or improve on a competitor’s offering with
control of product management, conflict of culture and relatively little difficulty, gain. Sustainable advantage through
hidden cost, chances for poor improvement in the aspect product differentiation is rare. Also, it is harder to compete in
technological development and adoption of modern manufacturing excellence alone. Outsourcing can contribute
techniques. The study concluded that all the negativities to profits by enabling users to gain competitive advantage,
that trail logistic outsourcing are avoidable with adequate adding measurable value to products, enhancing customer
planning and organisation monitoring. The study service, assisting in opening new markets, and providing
recommends that the management of manufacturing dedicated resources (Ho, He, Lee, and Emrouznejad, 2012).
firms should ensure proper monitoring of the activity of Third-party logistics providers can enhance value creation for
sub-contractor firms handling their firms’ logistics customers leading them to become more competitive and
functions to ensure the quality of the products and sustain profitable through speedy and superior customer service
their customers nationwide. Also, manufacturing firms in (Jurevicius, 2013). Value creation is also involved; when part
south-west Nigeria should also improve on their of the business is outsourced, there is all likelihood that the
technological application through liaising with other firms firm will get ample time to understand the dynamism of
in advance nations and affording to contract all their interaction within the customer’s supply chain. Tele-guiding
logistics services outside the firms. the trends of business interaction become natural and
objective since the firms are not involved directly.
Keywords:- Logistic functions, Outsourcing, Manufacturing
firm, Merit and Business Risks. Statement of problem
Some literature reviewed has revealed that logistics
I. INTRODUCTION outsourcing has far-reaching consequences and effects, and
hence should be carefully considered to avoid difficulties
Historically, the term outsourcing was first used by top such as loss of control, employee insecurity and supplier
manufacturing personnel in the 1970s, since then, it has been dependence. The decision to outsource is complex and often
repeatedly used in the field of business. It became a involves the use of conflicting criteria. The recent trend
prominent business strategy in the 1990s, notably in the toward the outsourcing of logistics has given importance to
United States at a time when businesses experienced the concept of 3PL. A good logistics service will prove to be

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a source of competitive advantage and prove to be a key in compared to other types of outsourcing (Mclvor, 2013).
delivering active customer service. However, different Organisations employ some models which are dictated by the
results, findings and conclusion have been drawn regarding level of control needed. External vendors can be used on a
the merits and demerits of outsourcing logistic functions. contractual basis; this is prevalent in the area of software
Though, industries are persistently increasing in extending development and customer call centres operations in the
their involvement in various outsourcing logistics functions telecommunications industry (Mclvor, 2013). Another model
to the third party or qualified firms. It is evident from the is the creation of a strategic alliance or joint venture with
evidence from previous empirical studies that a gap exists vendors to share risks, rewards and develop new knowledge
with regards to 3PL implementation and its success in for the client.
Nigerian companies. This raises the question, “What are the
associating benefits and demerits of outsourcing logistics In most cases, organisations foster the establishment of
functions for manufacturing firms in South West Nigeria?” a supplier company which they will outsource to and this way
they can achieve a higher level of control more than they
Objectives of the Study would if they outsource to multiple vendors (Urquhart, 2002).
 To determine the organisational efficiency gained through Another model employed by organisations is the Build-
outsourcing the logistics functions by manufacturing firms Operate-Transfer (BOT) model. This is gaining popularity in
in South-West Nigeria some industries as it enables leveraging vendors' capabilities
 Identify the challenges facing manufacturing firms to establishing operations overseas for these operations to be
through outsourcing logistic function in South-West later transferred to the client at an agreed period for full
Nigeria. control (Mclvor, 2013).

II. LITERATURE REVIEW Merits of outsourcing logistic functions

Outsourcing in Business Organisations a.) Cost Reduction

Since the 1990s, outsourcing of business activities Many works of literature on outsourcing have identified
necessary for the production of goods or provision of services cost reduction has one of the key benefits of outsourcing. The
to vendors with superior capabilities for their execution has motive of cost reduction has also been identified as the main
become a widespread phenomenon (Wan et al., 2015). reason behind companies outsourcing decision before
Various activities being outsourced by business organisations focusing on core, better service quality, and improved
range from human resource function, manufacturing of performance. Outsourcing helps to reconfigure the supply
components used in manufacturing operations, information chain and this result in increased process efficiency. Through
technology service, logistics function, accounting function, supply chain reconfiguration, processes are streamlined, and
employees feeding and procurement service (Qing, Meng and costs are saved (McLennan, 2011).
Goh, 2014). In the early 1990s, most of these activities were
outsourced because organisations lack the capabilities to b.) Higher Flexibility
perform them effectively, but as time goes on outsourcing of Outsourcing provides firms with a higher degree of
these activities has been compelled by the motive to focus on flexibility to meet increasing market competition and
core competence and reduce cost (Watt, 2014). For this study, changing business conditions. When firms outsource, greater
outsourcing of logistics function will be discussed. flexibility is also achieved in meeting changing requirements
of customers. Also, outsourcing also provides access to new
Outsourcing to Local Vendors technologies which will help meet changing design need and
This occurs when an organisation sources the execution changing volume need. This is possible because vendors
of one or more of its business functions which used to be providing outsourcing services possess the required resources
performed in-house from an external entity within the border to achieve the needed degree of flexibility (McLennan, 2011).
of the country where it operates (Varadarajan, 2009). This
can be in the form of total business process outsourcing or c.) Reduced Investment
multi-sourcing which is increasingly being utilised by Outsourcing helps organisations to free up the capital
organisations globally (Mclvor, 2013). Multi-sourcing is less investment which ought to be invested in specific
concerned with forming a strategic partnership with vendors. technologies and thereby enabling organisations to invest the
It aims to promote continuous innovation and bring about freed up capital in developing new businesses that will fetch
competitive bidding. A portfolio of services is coordinated by more revenue for the organisation (McLennan, 2011).
the firm from various vendors. Outsourcing contract is
usually short-term and with the motive of retaining strategic d.) Improved Service Quality
control of the outsourced function (Urquhart, 2002). A survey conducted by (Somuyiwa, 2010) revealed that
companies' logistics functions are better performed when
Outsourcing to Foreign Vendors outsourced to third-party logistics companies compared to
This is a sourcing arrangement where an organisation performing it in-house. Outsourcing contracts also make it
entrusts a business function which used to be performed possible for organisations to agree with vendors in the
internally by a vendor abroad that is not part of the outsourcing contracts tighter standard of performance more
organisation (Varadarajan, 2009; Mclvor, 2013). This is the than possible with employees in-house or hiring employees to
most used type of outsourcing by firms as its risks are lower perform the outsourced business functions. This way,

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organisations enjoy improving service quality (Urquhart, paying 50% more than the cost budgeted on outsourcing
2002). Mclvor (2013) also, adopts a similar view, he transactions, and they achieve cost saving of between 15%-
identified that vendors often provide a higher level of service 25% in the first year. Research by (Kern et al., 2002 as cited
compared to the level of service provided by employees in- in Mclvor, 2013) discovered that many organisations whose
house due to specialisation. outsourcing decisions were driven by cost reduction do not
achieve cost saving in their outsourcing contract.
e.) Improved Operational Efficiency
In general, various forms of operational improvements Political factors in the location of the vendors are also
such as improve capacity, increase capacity, improve quality, risks beyond the control of the client. Social unrest in
improve financial performance and improve competitiveness countries like Syria, Egypt, Palestine, Ukraine, Somalia,
are achieved when companies outsource one or more of their South-Sudan and North Korea will disrupt the smooth
business activities (Elmuti, 2003). A survey by IBM operations of vendors operating in these countries and
researchers to measure the impact of outsourcing on 56 thereby affect the operations of their clients. The risk of
government-owned companies over a 25 year period revealed vendors failing to deliver the agreed standard of service can
that companies that outsource their IT records better also be experienced by any outsourcing organisation (Mclvor,
improvement in business performance than their counterparts. 2013).
Their general administrative expenses are lower, and they
realise a higher Return on Assets (ROA). The survey also b.) Internal Risks of Outsourcing
discovered that outsourcing does not only improve financial There are some risks of outsourcing that are internal to
performance but also helps in realising more funds needed for the outsourcing organisation which is controllable compared
the achievement of business transformation and innovation to risks which are external to the organisation. The
(McLennan, 2011). outsourcing organisations will face these external risks if
outsourcing contracts are poorly managed by its management
Risks of Outsourcing such as failing to establish standard performance appraisal
Many works of literature have identified some risks measures to measure the performance of vendors which will
which are likely to be faced by organisations outsourcing one likely to result in poor quality of service being rendered by
or more of their business activities. While outsourcing comes vendors (Mclvor, 2013). According to (Sanchez, 2010), a
with many benefits, it also comes with some risks which have poorly managed vendor relationship can also result in the
to be well managed; to enjoy its full benefits. Research by PA disruption in the flow of communication between the client
Consultants discovered that 66% of outsourcing contracts and the vendor. Sanchez (2010) also identified the problem of
provided outsourcing firms with partial benefits while in most the language barrier which is likely to occur in offshore
cases none are realised (Watt, 2014). The risk of outsourcing outsourcing arrangements. This can result in a break in
contracts failing has also been identified by (Watt, 2014) they communication.
state that up to 70% of outsourcing contracts are
unsuccessful. The preceding indicates that there exist some When organisations outsource the performance of one
risks which have to be well managed in every outsourcing or more business functions which used to be performed in-
contract. Some of these risks are external to the organisation, house, existing staff whose skills are employed for the
and they are less controllable. They include risks associated performance of these functions will have to be reallocated or
with selecting the most appropriate vendor, economic and freed. Deciding on how these employees will be reallocated
political situation in the location of the vendor and much can constitute problems for the management, and when
more. There are also some risks to be faced internally which employees' contracts are terminated, the organisation is
are within the control of the outsourcing organisation such as portrayed as an organisation with poor handling of
risks relating to employees of the company, weak employees’ welfare (Sanchez, 2010). As identified by
communication with vendors and poor supplier relationship (Belcourt, 2006) employees morale and performance are
management (McLennan, 2011). affected, and they begin to have the notion of job insecurities
due to their colleagues who have been fired as a result of
a.) External Risks of Outsourcing outsourcing.
One of the less controllable risks of outsourcing is
finding a suitable vendor that possesses all the necessary Outsourcing can cause companies to lose critical skills
resources to service the organisation considering outsourcing needed for future innovation. Many companies unknowingly
one or more of its business functions (Sanchez, 2010). outsourced their core competencies with the thought that they
According to (Mclvor, 2013), some limited vendors are are reducing costs but in favour of the vendor. In the long-
capable of providing firms with the desired level of service. run, their innovative capabilities depreciate causing them to
In most cases, firms can find suitable vendors but economic be unable to explore new opportunities in the market
conditions in their locations such as general inflation (Mclvor, 2013; Shukla, 2010). If the client fails to fully
(decrease in the purchasing power of the client's currency to specify the services to be rendered by the vendor, in a case
the vendor's currency, improvements in the standard of living where there is a change in the client’s needs, outsourcing
of employees in vendor's location, and so on) increases the contract will need to be changed and some new features
total cost of transaction (Sanchez, 2010). This risk is about added, thus reducing the flexibility of incorporating these
offshore outsourcing (Shukla, 2010). As identified by new features in the contract (Mclvor, 2013).
(Shukla, 2010), outsourcing companies in most cases end up

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III. THEORETICAL REVIEW Adegoke and Henrietta (2013), "Outsourcing,
subcontracting-in and radical innovativeness: The moderating
a.) Resource-Based View (RBV) effect of manufacturing strategy", Journal of Manufacturing
The basis of Resource-Based View is that; there can be Technology Management. The researchers aim to develop
a significant variation of resources and capabilities across and test hypotheses that link outsourcing and subcontracting
business organisations, which can be substantial (Barney & in activities of small high-tech firms to their radical
Hesterly, 1996 cited in Perunovic & Pedersen, 2007). These innovativeness. Also, they seek to investigate how a firm's
resources and capabilities give a competitive business edge if strategy moderates the associations between their outsourcing
they are well utilised. This theory is mostly used in the and subcontracting in activities and radical innovativeness.
decision-making framework of the outsourcing process and They utilised regression analysis technique and categorical
the vendor selection stage (Perunovic & Pedersen, 2007). moderation analytical technique to test their hypotheses on
Helping firms achieve greater organisational performance is survey data from 579 firms. Their result shows that
the significant role of this model (Jurevicius, 2013). outsourcing has a positive association with radical
innovativeness.
b.) Resource Dependency Theory (RDT)
Under the Resource Dependency Theory, a firm's In contrast, subcontracting-in shows a negative
environment is almost as important as the firm itself because association with radical innovativeness. Finally, the influence
of the resources of other firms which are held in its of both outsourcing and subcontracting in activities on radical
environment and on which it depends on (Reiss, 2012). This innovativeness are contingent upon a firm's manufacturing
dependence on resources which are owned by other firms strategy. According to their study, there are potential
leads to external control of a firm's business by the owners of limitations relating to the researchers' use of secondary data.
those resources such as suppliers, shareholders and There is a need to investigate the processes through which
competitors (Reiss, 2012). There is an inter-organisational outsourcing and subcontracting about innovation
relationship between businesses because of dependence on performance.
each other for resources which are not available in one
organisation; but which another possesses. To ensure survival Somuyiwa (2010), in their paper titled ‘Firm’s
and be at peace with the external business environment, Competitiveness through Supply Chain Responsiveness and
organisations strive to maintain a more collaborative Supply Chain Management Practices in Nigeria, expressed
relationship with their external. that Supply Chain Management (SCM) is the management of
material, money, men, and information within and through
Empirical Review the supply chain to maximise customer satisfaction and to
Somuyiwa, Odepitan and Dosunmu (2016), in a bid to enhance competitive advantage. They stated that however,
study the Analysis of Outsourcing Logistics Service And the characterisation of the current business practices of
Customers Satisfaction In Manufacturing Companies in the variation in demands and differences in customer
southwest. In their study, they investigated Outsourcing as a requirements had motivated many firms to be responsive. In
growing aspect of supply chain management and is receiving the light of that, the paper examined how these firms respond
much attention from manufacturing companies globally. This to these changes so as sustain and further create competitive
is because there are stiff competition and the need to satisfy advantages. One hundred and fifteen (115) manufacturing
customers demand variability, reduced lead-time and improve companies, basically medium/large companies formed the
market share. The study established the extent manufacturing sample of the study and data was analysed using multiple
companies outsourced services and the influence on customer regression analysis. The result revealed a positive association
fulfilment. The research was carried out within between Supply Chain Responsiveness (SCR), SCM
manufacturing companies in southwestern Nigeria. The practices and Competitive Advantage. Finally, the study
population of the study consists of top management staff; this provides a suitable recommendation on the scope for
includes logistics, procurement and marketing managers. The improvement based on current levels of various predominant
sample of this study consisted 10 Manufacturing companies SCM practices and SCR criteria that directly impact
from the list of fifty (50) quoted companies on the Nigerian competitive advantage of a firm, to make the organisations
Stock Exchange modified by Manufacturing Association of more competitive.
Nigeria in 2005. The data collected was analysed using
regression analysis. The study indicates that manufacturing Bloem and Bean (2015) in the Journal of Transport and
companies outsource Transportation and Distribution to a Supply Chain Management carried out an empirical study
considerable extent. Procurement, Warehousing, inventory titled “The application of outsourcing decision-making
controls are also outsourced. The investigation also reveals methods in a logistics context in South Africa”. The study-
that outsourcing has a significant effect on customer specific objectives include determining how fast moving
satisfaction. Generally, outsourcing seems not only to show consumer good industry are competent in using various
positive benefits for cost reduction but also in service decision-making strategies to overcome logistics outsourcing
performance. Thus, the study suggests that by outsourcing problem. The study initially was based on the fact that in
logistics activities companies can provide better service most cases logistics outsourcing always brings the problem of
performance to their customers. a make-or-buy decision as well as a supplier selection
process. Thus, the study purposively focused on determining
how firms are arriving at the most suitable method in the case

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of logistics outsourcing. The study applied various decision- which are companies with globally recognised brands. Thus,
making methods to a South African case study within the fast the total 154 top management staff were randomly sampled
moving consumer goods (FMCG) industry. The logistics from three firms. Above all, the sample size was determined
functions considered in the case study included secondary using
distribution and warehousing of finished goods. Each method
considered the same evaluation criteria and the results were
analysed and compared using Linear Programming (LP). The
study found that the method developed by Platts, Probert and
Canez (2000) on decisions making on, revealed that that the
logistics functions be insourced. However, the decision-tree
method suggested outsourcing both functions, with a unit rate
cost model. The results from the linear programming (LP) Where:
method indicated that the secondary distribution function n = the sample size
should be insourced and the warehousing function Z = Standard score corresponding to a given level which this
outsourced, with a fixed and variable cost model pending study given as 96% i.e. 1.96
further analysis of the demand trends. They concluded that p = the estimated proportion of an attribute that is present
outsourcing decision-making methods, such as the method in the population or % of the success rate = 50%
developed by Platts et al. (2000), the LP method and the q = the estimated proportion of an attribute that is not
decision tree method traditionally applied to a manufacturing present in the population or % of the failure rate = 1-50%
outsourcing decision problem, can be adapted and applied to e = Proportion of sampling error in a given situation i.e. 5%
a logistics outsourcing decision problem of a South African or 0.05.
FMCG company. N = population size (established at 257). Substituting in the
formula, we obtain
IV. METHODOLOGY
Research Instrument and Administration
Research Design The primary data collection instruments employed in
The study adopted a survey research design, which this study was a questionnaire. One type of questionnaire
based on primary data for both qualitative and quantitative (structured) was designed and used for this study.
research findings
The validity of the Instrument
Area of the Study the instrument was validated for content and surface
The south-western part of Nigeria lies between latitude validity; the initial draft questionnaire was given to a panel of
60N and 8½0N of the equator and longitude 30E and 50E of judges comprising of six management experts who examined
Greenwich Meridian Time (GMT). The zone consists of Six the items in line with the objectives of the study. The
States. These are Lagos State that stretches along the structure and language of the questionnaire were modified in
seaboard, Ogun, Oyo, Osun, Ondo and the Ekiti States. The light of their corrections.
South-Western Geopolitical Zone occupies an area of 79,048
Square Kilometers, with about 25 million population about Reliability of the Research Instrument
one-fifth of Nigeria population. To ensure the reliability of the instrument, care was
taken by the researcher to group questions on the instrument
The population of the Study that measure the same concept (internal consistency). The
The research population for this study is made up of all instrument was checked for reliability using the test-test
the 257 top management staff since the outsourcing of method, using Pearson Product Moment Correlation; the
logistics is majorly a strategic decision for a manufacturing result yielded a coefficient of 0.87 indicating a high degree of
company that takes places at the top management level. consistency.

Sample Size Method of Data Analysis

The sample size for this study is total 154 top Data were analysed using simple percentage and the
management staff sampled from three consists of three firms weighted average for the research question, while linear
which were purposively selected due to their globalised brand regression analysis was used for research hypotheses
recognition. These firms are Guinness Nigeria Plc (GNPLC),
Nigerian Bottling Company Limited, Cadbury Nigeria PLC)

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V. RESULTS

a.) Distribution of Respondents by Manufacturing Industries

Table 1: Distribution of Respondents by Organisations

Management Staff
Company Frequency Percentage
Guinness Nigeria PLC 55 36%
Nigerian Bottling Company Limited 46 30%
Cadbury Nigeria Limited 53 34%
Grand Total 154 100%
Fx: frequency, (%): percentage in the parenthesis.

Table 4.2.1 presents the percentage of staff participating in the study from three selected manufacturing firms. The results
showed that 36% of respondents were top management from Guinness Nigeria PLC (GNP). Also, 30% of respondents were top
management from Nigerian Bottling Company Limited (NBC), while remaining 34% were management staff from Cadbury
Nigeria Limited.

B.) Results from answered research questions

Research Question 1: What are the organisational process efficiency gained from outsourcing the logistics functions?

Table 2: Efficiency Gained by Manufacturing Firms From Outsourcing the Logistics Functions
S/n Agree Undecided Disagree
Items Fx (%) Fx (%) Fx (%) Average Rmk
1 Production process efficiency is one area that has
112(73%) 20(13%) 22(14%) 2.59 Agree
improved when logistics function is outsourced
2 Cost efficiency and related charges has been improved
137(89%) 0(0%) 17(11%) 2.78 Agree
upon when logistics function is outsourced
3 There is a better brand repositioning of our products as
97(63%) 15(10%) 42(27%) 2.36 Agree
a result of outsourcing distribution logistics
4 There is an increase in the technological process since
25(16%) 25(16%) 104(68%) 1.48 Disagree
the company is using component outsourcing strategies
5 There is an improvement in efficiency of customers
relations and experience because customers’ receive 84(55%) 22(14%) 48(31%) 2.24 Agree
more firm attention
6 My company saves cost when logistics is outsourcing
to a subcontractor through freeing up capital in 118(77%) 14(9%) 22(14%) 2.63 Agree
acquiring trucks & lorries.
7. My company has more time to be used for the core
activities of providing quality products as a result of 113(73%) 11(7%) 30(20%) 2.56 Agree
outsourcing various logistic functions
8. It is profitable to outsource logistics function, the rest
116(75%) 0(0%) 38(25%) 2.50 Agree
tasks are lesser & manageable workers
Fx: frequency, (%): percentage in the parenthesis;
Source: Field Survey, 2017

The results in Table 2 revealed the perceptions of 68% of respondents unanimously disagreed with the
respondents on the efficiency gained by the manufacturing assertion that the outsourcing of logistics function does
firms from outsourcing the logistics functions. The results increase the technological processes in manufacturing firms.
showed that majority of respondents (73%) unanimously This showed that the respondents were of the opinions that
agreed that process efficiency is one of the benefits gained outsourcing logistics function does not necessarily improve
by the manufacturing firms from outsourcing of logistics the technological acquirement and implementation since
function (average = 2.59). Likewise, 89% of respondents most of the logistics are already supplied by sub-contractors
expressed that cost efficiency and related charges are among in the half-done process (average = 1.48). However, 55% of
the benefits deriving by manufacturing firms through respondents expressed that there is an increase in better
outsourcing logistics function (average =2.78). Also, 63% customers efficiency and experience because customers
of respondents expressed that the manufacturing firms are receive better attention from the firm, as a result of having
recording better brand repositioning as a result of fewer production activities (average = 2.24). There is also
outsourcing distribution logistic (average = 2.36). However, cost reduction as a result of logistics outsourcing through

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freeing up capital in acquiring trucks, lorries and other heavy management staff expressed that it is more profitable to
equipment. This fact was established by 77% of top outsource logistics to sub-contractors because it enables the
management from sampled manufacturing firms in firm to deal with less and manageable workers (average =
southwest Nigeria (average =2.63). Likewise, 74% of top 2.50).
management expressed strongly that their respective
company has more time to use for the core activities of Research Question 2: What are the areas of concern
providing quality products due to outsourcing other logistics resulting from outsourcing logistics functions?
functions (average = 2.56). Likewise, 75% of top

Table 3: Areas of Concern Resulting From Outsourcing Logistics Functions in Manufacturing Firms
Agreed Undecided
Disagreed Average Remark
S/n Items Fx (%) Fx (%)
1 Possibility of inefficient management 105(68%) 23(15%) 26(17%) 2.51 Agree
2 Conflict of firms culture 111(72%) 43(28%) 0(0%) 2.72 Agree
3 Latent information asymmetry 121(79%) 23(15%) 10(6%) 2.72 Agree
4 Loss of control over third party logistics provider 131(85%) 11(7%) 12(8%) 2.77 Agree
5 Hidden costs 78(51%) 51(33%) 25(16%) 2.34 Agree
6 Loss of logistics innovative capacity 121(79%) 21(14%) 12(8%) 2.71 Agree
Fx: frequency, (%): percentage in the parenthesis
Source: Field Survey, 2017

The results in Table 3 revealed the perceptions of More also, 85% of the respondents expressed that there are
sampled top management staff from participating high chances of losing control over third-party logistics
manufacturing firms in south-west Nigeria on the area of provider (average =2.77). Likewise, 51% of sampled top
concerns that are usually resulting from outsourcing logistics management staff from participating manufacturing firms in
function by manufacturing firms. The results showed that south-west Nigeria expressed that there are always issues of
68% of top management staff indicated the possibility of hidden costs as a result of engaging the third party for
inefficient management as one of the concerns of logistics functions (average = 2.34). More so, 79% of
outsourcing logistic (average = 2.51). Also, 72% of sampled top management expressed that the firms might lose
respondents expressed that the manufacturing firms do the innovative logistics capacity due to outsourcing logistics
experience a conflict of firms culture when outsourcing its functions to sub-contractors firms (average =2.71).
logistic functions (average = 2.72). Likewise, 79% of
sampled top management staff expressed that there are high Hypothesis One: Outsourcing order processing by
chances for the firm to experience asymmetry information manufacturing firms does not significantly influence a
system when outsourcing logistic functions (average =2.72). reduction in operational and project management costs

Table 4: Regression Analysis of the Influence of Outsourcing Order Processing by Manufacturing Firms on Reduction in
Operational and Project Management Cost
Model Unstandardized Coefficients Standardised t Sig.
Coefficients
B Std. Error Beta
(Constant) 8.426 .939 8.977 .000
1
Outsourcing Ordering Services .386 .076 .379 5.046 .000
a. Dependent Variable: Operational & Project Management Costs
R2= .143, Adjusted R2 = .138, ANOVA (F) = 25.462, df (1, 152), p-value =0.00
Source: Field Survey, 2017

The results in Table 4 revealed the results of linear south-west Nigeria. More so, the coefficients  =0.379, t
regression analysis on the influence of outsourcing =5.046, p-value 0.00, suggested that ordering outsourcing is
warehousing by manufacturing firm in south-west Nigeria significantly influencing a reduction in operational and
on efficiency business supply chain. The results showed project management cost by about 38%.
adjusted R2 =0.138, F =25.462, p-value =0.000. This showed
that the dependent variable could explain about 14% of the Hypothesis Two: Outsourcing inventory control by
variation in the reduction of operational and project manufacturing firms does not significantly influence
management cost for the product of manufacturing firms in efficiency services

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Table 5: Regression Analysis of the Influence of Outsourcing Inventory Control by Manufacturing Firms on Efficiency
Services
Model Unstandardized Coefficients Standardised t Sig.
Coefficients
B Std. Error Beta
(Constant) 5.047 .843 5.990 .000
1
Outsourcing inventory control .695 .060 .629 9.967 .000
a. Dependent Variable: Efficiency Services
R2=.395, adjusted R2 = .391, ANOVA (F) = 99.345, df (1, 152), p-value =0.00
Source: Field Survey, 2018

The results in Table 5 revealed the results of linear outsourcing remaining the best way for the manufacturing
regression analysis on the influence of outsourcing inventory firms to reach out to the customers scattered across the
control by manufacturing firms in south-west Nigeria on country at the time of their need. Thus, the aspect of
efficiency services. The results showed adjusted R2 =0.391, F outsourcing can only influence the manufacturing activities
=99.345, p-value =0.000. This showed that the dependent and enhance their customers’ satisfaction as well as
variable could explain about 39.1% of the variation in the promotion competitive advantage among firms. These
efficiency of services in manufacturing firms in south-west findings are by the submission made at the end of the study
Nigeria. More so, the coefficients  =0.629, t =9.967, p-value conducted by Somuyiwa et al. (2016) that manufacturing
0.00, suggested that inventory outsourcing is significantly firms stand benefit of timely delivery, evenly distribution of
influencing a reduction in operational and project products, image promotion, competitive advantages as well
management cost by about 62%. as customers satisfaction when engaged the right sub-
contractors for outsourced services.
VI. DISCUSSION
VII. CONCLUSION
The findings from the first research hypothesis
established that there is a significant influence of ordering This study has also established that the manufacturing
outsourcing on a reduction in operational and project firms are facing associated risks during outsourcing logistics
management cost. This agreed with the conclusion drawn by function, most especially when monitoring from
Marina (2017) that order processing is an essential link in any manufacturing end is weak. The study indicated the chances
sales process and doing it right ensures that such a firm is one for losing control of product management, conflict of culture
step ahead of the competition in generating new business and and hidden cost, most specifically, the chances for poor
also strengthening existing client relationships while reducing improvement in the aspect technological development and
great managerial cost. Also, Vakulich (2015) argued that adoption of modern techniques due to outsourcing logistics,
whenever the ordering process is taken care of by logistic since manufacturing firms may end-up contracted all the
firm, then the transition can have time to diverts its attention, logistics outside the firms.
time and funds to some other things related to production and
reduced usual excessive spending on the coordination of Above all, this study has demonstrated that the all the
ordering, inventory and haulages. negativities that trail logistic outsourcing are avoidable with
adequate planning and organisation monitoring. Supervision
The results from the second research hypothesis showed allows the firms to monitor the trends of their business.
that inventory control outsourcing is significantly influencing Likewise, firms must deploy strategies to get adequate and
efficiency services. This shows that inventory outsourcing by independent reports on how their brand is fair in markets, to
manufacturing firms enhanced the quality of services triangulate the reports sent by outsourced firms.
rendered to the consumers. This result is by the results made
by Odepitan (2015) that majority of standard organisations in RECOMMENDATIONS
order to maintain the standard and quality of their products;
they put up the agreement with sub-contractors’ firms to Based on the findings and conclusion of this study the
handle their logistics functions such as inventory control. following are the recommendations:
Likewise, Negi (2009) found in his study that outsourcing 1. The management of manufacturing firms should also
inventory control can keep the standard and maintained the ensure proper monitoring of activity of sub-contractor
quality of services for any organisation that monitored the firms handling their firms’ logistics functions to ensure
activities of sub-contractors’ firms. More also, the study by the quality of the products and sustain their customers
Adegoke et al. (2009) linked the quality, customers nationwide.
relationship, time delivery and image promotion with the rate 2. Manufacturing firms in south-west Nigeria should also
of outsourcing services in any organisations. improve on their technological application through
liaising with other firms in advance nations and affording
The general findings from research hypotheses have to contract all their logistics services outside the firms
shown that even though there are challenges and some risk
while outsourcing the logistic function by organisations, the

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Volume 6, Issue 5, May – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
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