Effect Of Outsourcing Logistics To Third Party Providers on Performance Of Manufacturing firms In kenya

Abstract

Traditionally, large manufacturing organizations found it beneficial to vertically integrate supplier functions and distribution activities to maximize production and logistical control. However, today, many modern companies rely heavily on outsourced services and suppliers that contribute to the production process in one or more ways. Logistics outsourcing aims at meeting core objectives which are at the heart of an organization profitability and success. It follows therefore that Third Party logistics providers are important to these firms. This study was set to identify the effect of outsourcing to Third Party Logistics Providers on Firm Performance by manufacturing firms in Nairobi. It did so by investigating the effect of integrating operations, outsourcing warehousing Operations, outsourcing transport operations and outsourcing inventory operations on the performance of manufacturing firms in Kenya. The study’s target population was manufacturing firms in Nairobi and its environs. The study sample was generated using cluster sampling where both manufacturing firms were clustered into groups based on sectors. Generally, the researcher adopted a descriptive research design because it made it possible for the researcher to look into every form of data that is possible and also respondents were able to respond to all forms of data such as personal accounts, case studies or observations. Selfadministered questionnaires were used to collect data after which it was analyzed using SPSS (22). The results obtained from this analysis were then used to make valid conclusions and recommendations to all parties involved in manufacturing industries as far as the effectiveness of 3PL Practices is associated with Firm Performance. Based on the results the study, concluded that outsourcing logistics to third party providers has a positive effect on firm performance. This was derived from the fact that all the four components of logistics outsourcing sought by the study had a positive effect on firm performance. They included Integrating operations, Warehousing operations, Transportation operations and Inventory operations. The study therefore concluded that outsourcing these four components increases firm performance. The study recommends manufacturing firms to consider integrating operations with third party logistics companies in order to improve on firm performance. However, it is important to point out that study considered a qualitative measure of firm performance and recommends area of further research in the extent to which each component would affect firm performance.