Effect Of Outsourcing Services On Efficiency Of Value Chain Of Milk Firms In Murang’a County In Kenya

Abstract

The outsourcing concept has gained widespread attention in the recent past. As benefits of outsourcing non-core functions of a firm get apparent, it has become necessary to investigate various industries to evaluate whether these gains apply across the board. The research was guided by two theories, the transactional cost theory which posits that cost in a great extent guides the decision to produce goods and services in-house or to acquire them in the open market and the resource based theory which views firms as bundles of assets and resources. The nature within which firms deploy this assets and resources distinctively offers avenues for gaining competitive advantages giving them desirable edges in the markets. The researched focused on all the milk firms in Murang’a County where the sampling frame comprised on employees in procurement, production, marketing departments that primarily deal with collection, processing and distribution of milk. Since the sampling size was small, the researcher followed the census sampling design capturing the entire population of the study. Questionnaires were structured to cover all the research questions, pretested and administered to the population of study with a response rate of 82%. This study evaluated the effect of outsourcing on the efficiency of dairy value chain, with a specific focus on four milk firms that operate in Murang’a County, Kenya. The study particularly investigated the effect of outsourcing of milk collection, milk processing, and distribution on the value chains of the sampled firms. The research used regression analysis to investigate the relationship between the three independent variables and the dependent variable. The results showed the relationship between outsourcing of milk collection, outsourcing of milk production and outsourcing of milk distribution on value chain to be positive and significant. A unit increase in outsourcing of milk collection would increase value chain efficiency by 0.359 units while a unit increase in outsourcing of milk processing would increase value chain efficiency of milk firms by 0.181 units. Finally, a unit increment in outsourcing of milk distribution resulted in an increment of 0.162 in value chain efficiency. The study therefore recommends that firms should embrace the concept of outsourcing since it is beneficial in enhancing the efficiency of their value chains.