Influence of Outsourcing Operational Functions on Product Manufacturing Performance:

Abstract

The purpose of this research was to study the influences of the outsourcing operational functions on product manufacturing performance at GlaxoSmithKline Limited in Nairobi, Kenya. The specific objectives of the study were to evaluate the influence of outsourcing materials management, human capital and vendor management on product manufacturing performance. The study also sought to identify the risks associated with outsourcing on product manufacturing performance. Study questions aligned with the study variables were first postulated. This study was anchored on four theories: the Core Competencies Theory, Transaction Cost Economics Theory, Resource-Based Theory and the Agency Theory. The study adopted an explanatory research design and targeted a population of one hundred and sixteen (116) employees working for the manufacturing division in the Nairobi plant. Using purposive sampling, a sample of sixty (60) employees working in various departments was selected. Data for the study was collected by the use of questionnaires. Reliability of the research instrument was tested by use of Cronbach’s Alpha method. Once the data was collected, Microsoft Excel was used for data analysis. The findings were presented in the form of descriptive statistics, percentages, tables, pie charts and graphs with attendant explanations. Qualitative data was also analyzed and themes generated. The study established a negative influence on product manufacturing performance occasioned by the outsourcing of materials management. As a result, the company was noted to have missed on some of its key performance indicators – conformance to plan (CTP), conformance to shipment (CTS), domestic shipment right first time (DSRFT) and out of stock (OOS). The outsourcing of human capital was also noted to have influenced product manufacturing performance as the findings showed that some of the outsourced employees had become demoralized by poor remuneration leading to poor ownership of processes. Vendor management was also noted to have negatively influenced product management performance since the findings established that some contracts had been terminated owing to vendor incompetence. The study further found out that the adoption of outsourcing had introduced some risks to product manufacturing performance including uninsured employees and failure to comply with required medical surveillance. Recommendations were made in view of these findings. It was recommended that GSK establishes a business continuity plan (BCP) to guard against supplier dependency in materials management. It was also recommended that training programmes, remuneration and staff insurance be discussed and embedded in the contracts of service. Regulators should also step in to ensure that government directives on minimum wage, staff insurance and medical surveillance are taken care of by employers to guard against employee exploitation. It was further recommended that a multi-functional team be formed to carry out supplier due diligence in order to include subject matter experts (SMEs) who have technical knowledge to gauge supplier capacity. Recommendations for further research by other academicians into other factors influencing product manufacturing performance at GSK and other pharmaceutical firms were also made.