Freight Forwarding Outsourcing and Supply Chain Efficiency ...oaji.net/articles/2016/351-1457853885.pdf · Outsourcing is the contracting out to an external firm of the ongoing management

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*Corresponding author: Samuel Pule Lecturer, Department of Procurement & Logistics, Cavendish University Uganda.

E-Mail: [email protected]

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International Journal of Operations and Logistics

Management Volume 4, Issue 1

Pages: 72-90

March, 2015

e-ISSN: 2309-8023

p-ISSN: 2310-4945

Freight Forwarding Outsourcing and Supply Chain Efficiency among Manufacturing Firms in Uganda: The Case of Mukwano Industries Ltd.

Grace Makumbi1, Peter W. Obanda2, and Samuel Pule3*

1. Business Manager Logistics, Kenlloyd Logistics (U) Limited 2. Lecturer, Department of Procurement & Marketing, Kyambogo University 3. Lecturer, Department of Procurement & Logistics, Cavendish University Uganda

This article examines the influence of freight forwarding outsourcing on supply chain efficiency. Specifically, the paper analyses the influence of freight forwarding outsourcing decision making, planning and administration on supply chain efficiency in Mukwano Group of Companies. The researchers employed case study and cross sectional designs, which used the researchers’ made questionnaire and interview guide for data collection. Data was analyzed using means, correlations and regression models computed using the Statistical Package for Social Scientist (SPSS). Finding revealed that freight forwarding outsourcing does not influence supply chain efficiency, owing to supplier profit margins, supplier deficiencies in the human resource composition, and neglect of the strategic dimension in outsourcing, among others. The researchers therefore recommend that, outsourcing initiatives should emphasize outsourcing planning and administration in a strategic dimension and consider inter-organizational mapping to identify areas of complementation and cohesion within the outsourcing relationship. Strategies like partnerships and outright acquisitions can also be explored. Keywords: Freight Forwarding Outsourcing, Outsourcing Decision Making,

Outsourcing Planning, Outsourcing administration, Supply Chain Efficiency

INTRODUCTION

As businesses evolve over the years, it has become apparent that sustainable competitive advantage can only be achieved by a combination of two business aspects: the quality and marketability of the product being delivered and the efficiency and

effectiveness of the delivery process (Razzaque and Sheng, 1998; O’Riordan & Sweeney, 2007; Baluch, 2004). Since Supply chains control 60-70% of a firm’s costs (Dittmann, 2010), organizations have placed greater emphasis on supply chain

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Int. j. oper. logist. manag. p-ISSN: 2310-4945; e-ISSN: 2309-8023 Volume: 4, Issue: 1, Pages: 72-90

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management practices (SCMP) that drive organizational cost efficiency and shareholder value. One of the SCMP globally acclaimed to deliver efficiency gains and sustainable competitive advantage is Outsourcing (Mazlan and Ali, 2006).

According to Arnold (2000), outsourcing is an abbreviated version of “outside resource using”. Outsourcing is the contracting out to an external firm of the ongoing management and delivery of a defined set of services to a prescribed level of performance (Cohen & Young, 2006). It is believed that by outsourcing non-core activities, the outsourcing organization will save on time, space and resource costs and focus its efforts on the strategically important aspects of the business (Greaver, 1999), while leveraging the outsource partner’s economies of scale and efficient cost structures (C.H Robinson Worldwide Inc, 2011). Freight forwarding on the other hand, is a key trade facilitating role involving a range of services including but not limited to carriage, consolidation, storage, handling, packaging and distribution of goods, as well as ancillary and advisory services like customs clearing, procuring of shipping documents and arranging insurance of the goods (Levett & Bayley, 1997). This is because every need to move goods or consignments from one point to another presents a need for the services of a transport expert, which is case we are calling Freight Forwarder. In Europe and countries like USA, for instance, many firms concentrate on their core business functions while sub-contracting this freight forwarding function to experts.

Outsourcing of the freight forwarding function has taken centre stage in realizing cost savings for organizations; the Freight Forwarder’s transportation role has been recognized as a critical strategic element within the supply chain (Stank, 2010). Freight forwarding outsourcing can therefore be broadly defined as the contracting out, to a logistics network expert, of the management and coordination of a series of logistics activities that are involved in the movement of goods by sea, air, land, pipeline or rail within and across territorial boundaries. As a construct of Freight forwarding outsourcing, Outsourcing decision-making is a bold strategic direction with far-

reaching consequences that involves a binding commitment of an organization in a permanent or semi-permanent working relationship with another organization. It is the outsourcing decision as a strategic decision that has the potential to transform the operations strategy of an organization (Islam and Sobhani, 2008), while Outsourcing Planning is a phase in the process of outsourcing starting with the development of strategic plans and implementation plans that aid in managing the relationship with the vendor and monitoring and evaluating the performance of the outsourcing project (Drakeley, Undated), and lastly, Outsourcing administration as an engagement that involves the implementation and control of tasks as set out in the strategic plan and the implementation plan to ensure that they meet the outsourcing strategy’s objectives (McIvor et al, 2010).

According to Wilding and Juriado (2004), about 40% of global logistics functions, including freight forwarding, are outsourced. Cost reduction has emerged as the topmost motivation for 48-76% of organizations seeking to outsource worldwide (Power et al, 2006; Aberdeen Group, 2008; Delloite, 2008; PWC, 2008; LSE/HfS, 2011). In Uganda’s case, freight transport accounts for up to 75% of the value of exports (Institute of Trade Development, 2011) and 30-40% of the CIF value of imports (Trademark East Africa, 2011); outsourcing the freight forwarding function in Uganda from this perspective would be seen to yield major significant cost savings.

However, research developments indicate that over focusing on cost-reduction in outsourcing decisions does not deliver full value (McIvor, 2000; Aberdeen Group, 2008; C.H Robinson, 2011; Xoriant Corp, 2011; Snapp, 2012) and many firms have not realized the savings envisaged at the time of entering the outsourcing engagement (Farrell, 1999; Ikeda, 2004; Snapp 2012). Particularly, Snapp (2012) contends that outsourcing initiatives that are driven by the desire for cost saving without considering technical and strategic factors do not succeed. Gartner Consulting Inc (2012), puts the current failure rate of outsourcing initiatives at 30%, most notable being the cases of J.P Morgan Chase, which involved much more than the loss of

Freight forwarding outsourcing and supply chain efficiency Makumbi et al.

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the 5 billion US Dollar outsourcing deal (CaseStudyinc.com, 2005), a 400 million US Dollar outsourcing deal between Sprint Nextel and IBM that went sour, with Sprint Nextel reporting that instead of realizing savings, it lost money (Xoriant Corporation, 2011), and Boeing’s outsourcing of the multi-million dollar 787 Dreamliner aircraft design with the hope of saving costs, which instead resulted in up to 18 billion US Dollars in additional costs, and a 3 year project lag (Gasparrini, 2011).

A study carried out by Waugh and Luke (2011) indicated that 45% of firms in South Africa that practiced logistics outsourcing did not realize any cost savings. NFT Consult, a firm that provides consultancy services in East Africa reiterates the dominance of cost reduction in outsourcing decisions in the region and contends that cost benefits should never be the rationale for outsourcing. According to Ahimbisibwe et al (2012), outsourcing in Uganda is particularly marred by supplier opportunism and lack of trust resulting in increased transaction costs contrary to the efficiency gains promised in Gartner Inc, (Xoriant Corp, 2011).

Statement of the Problem

Outsourcing of freight forwarding services in Uganda in general and Mukwano Industries in particular does not seem to be delivering the highly publicized efficiency gains. Mukwano industries, like many manufacturing entities in Uganda is realizing that on entering the outsourcing engagement, they are still grappling with rising costs in port storage and demurrage charges (Trademark South Africa, 2011), unrelenting cargo delays, unprecedented loss of cargo to Kenya Revenue Authority auctions(Africa Financial Markets, 13th Jan, 2009) and poor service delivery characterized by cargo congestion in Mombasa port (8,000 and 800,000 containers in 2006 and 2012 respectively) (Africa Business Pages, 2012; Business Daily, 13th December 2012). Mukwano Industries in particular was faced by a pile up of more than 150 containers in Mombasa in 2007, stuck for more than 60 days (Africa Business Pages, 2007), which resulted in huge demurrage costs and port storage charges. It is on this basis

that this study sought to examine the influence of freight forwarding outsourcing on supply chain efficiency in Mukwano Industries.

Objectives of the Study

The general objective of this study was to examine the influence of freight forwarding outsourcing on supply chain efficiency in Mukwano Industries Ltd. Specifically, this study sought to assess the influence of outsourcing decision making, planning and administration on Supply Chain efficiency in Mukwano Industries Ltd.

Research Hypotheses

From the above objectives, the study hypothesized as following: (1) there is a significant relationship between freight forwarding outsourcing decision making and supply chain efficiency; (2) there is a significant relationship between freight forwarding outsourcing planning, and supply chain efficiency; (3) there is a significant relationship between freight forwarding outsourcing administration and supply chain efficiency in Mukwano Industries Ltd.

RESEARCH METHODOLOGY

Research Approach and Design

A hybrid research approach that incorporated both qualitative and quantitative methods of data collection was used in order to collect in-depth data for the study, and also compare verbal and non-verbal responses, as recommended in Kothari (2003) and Mugenda & Mugenda (2003). In addition, case study and cross-sectional research designs were used to collect data from the same social setting within the same time frame without compromising the depth of it.

Target Population, Sample Size and Sampling Techniques

A population target of 40 respondents was used for the study. This was mainly composed of Line Managers, including among others, Operational Supervisors, Procurement officers, Stores Managers, Sales and Marketing Executives who were presumed knowledgeable in the aspects of the study. From this, a sample size of 37


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respondents was drawn using Krejcie and Morgan (1970) sample size determination formula. These were selected using a combination of simple random and purposive sampling methods. Simple random methods for instance, were used to select a sample of respondents who possessed similar job-role qualities within departments and each had an equal chance of being selected from the population (Cohen et al, 2007), while purposive methods were used to select respondents who possessed specialist knowledge in the field of study. This enabled obtain in-depth knowledge and information on the subject matter (Kumar, 1996; Cohen et al, 2007; Trochim & Donnelly, 2008) and helped save time (Kothari, 2004).

TABLE 1 HERE

Data Quality Control and Management

Both validity and reliability tests were conducted in order to have data which depicts a true picture of the study phenomenon. To ensure validity, for instance, questionnaires in this study were subjected to scrutiny prior to being administered. This also helped eliminate vague and ambiguous questions through streamlining their content, flow and conciseness (Saunders et al, 2003). On the other hand, reliability test were conducted to provide a high feedback from respondents. This took to two major forms namely; the simple and the instrumental reliability test. The sample reliability test was ensured through choosing a sample which was then subjected to the Friedman’s Chi square statistic test (Cohen et al, 2007).Results indicated a statistically significant simple reliability test of p-value of 0.00 (X2 = 1506.717, p =0.00).This was then subjected to the Cronbach’s Alpha Reliability test using SPSS software to measure internal consistency of responses (Amin, 2005).Results were acceptable, that is to say; Outsourcing Administration with an Alpha test statistic of 0.931, followed by Outsourcing planning with an Alpha of 0.918, and lastly Decision making with an Alpha of 0.645. On the dependent side supply chain efficiency depicted an Alpha of 0.605. All of these are acceptable according to Kothari (2004) who maintains that an Alpha is equal or greater than 0.5 is reliable enough for any given study.

Data Analysis

Qualitative data, especially the semi-structured interviews was sorted and responses grouped by theme and then by feedback to enable easier interpretation. The responses were checked for completeness and accuracy and conclusions made on the basis of responses by research objective. On the other hand, quantitative Data which was mainly in form of close-ended questionnaires relating to outsourcing variables were checked for completeness and accuracy. The data collected was categorized, coded and then fed into SPSS (Statistical Package for Social Sciences in Research) software and analyzed to determine the extent, relationships and trends between the freight forwarding outsourcing and supply chain efficiency in Mukwano Industries. The researchers specifically used means to measure the extent of freight forwarding outsourcing and level of supply chain efficiency in Mukwano Industries (as indicated in table 2). The Pearson’s coefficient of determination/ regression and Pearson’s correlation coefficient was on the other hand used to analyze the “cause and effect” relationship between freight forwarding outsourcing and supply chain efficiency, and the relationship between the variables as recommended in Saunders et al (2003). Pearson correlation coefficient tool in SPSS was used to examine the influence of each independent variable (decision-making, planning and administration) on the dependent variable (supply chain efficiency), that is, to assess the relationship between the independent variable and the dependent variable. Pearson’s regression coefficient tools in SPSS, on the other hand, were used in the study specifically to examine the extent to which each independent variable influences supply chain efficiency, in relation to other independent variables (Saunders et Al, 2003), that is, which independent variable is the most significant predictor of supply chain efficiency in Mukwano Industries, and to which extent it does. In explain further, data was analyzed with the help of numerical values and response modes used to interpret the Means as indicated in table 2

TABLE 2 HERE


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RESEARCH FINDINGS

Freight Forwarding Outsourcing

This constituted three major dimensions namely: outsourcing decision making, outsourcing planning and outsourcing administration, as discussed below.

Outsourcing Decision Making

A high level of outsourcing decision making at Mukwano Industries was depicted with an average mean of 3.76. This was due to high responses on the dimensions of outsourcing decision making, which included; financial, technical, and strategic drivers, as indicated below:

Financial Drivers

TABLE 3 HERE

High levels of financial drivers were indicated at Mukwano Industries with an average mean of 3.99. This was due to high responses over the following issues: freight rates are offered by the freight forwarder (mean = 4.5); the credit terms offered by the freight forwarder are fairly important (mean = 4.09); the demurrage or storage free time offered by freight forwarder are important (mean = 3.56); and lastly, the demurrage or storage and handling tariff of freight forwarder are fairly important (mean = 3.79).

Technical Drivers

TABLE 4 HERE

Results showed high levels of technical drivers at Mukwano Industries with an average mean of 3.51, which was attributed to the following: professional experience of the freight forwarder in handling similar projects is good (mean = 4.24), the ability of freight forwarder to manage risks is high (mean = 3.91), the geographical coverage of the freight forwarders network of offices is fairly composed (mean = 3.76), the statutory compliance of the freight forwarder is good (mean = 3.65), service quality assurance of freight forwarding is high (mean = 3.56), the ownership or possession of facilities for handling cargo is good (mean = 3.56), the state of art technologies possessed by freight forwarder is good (mean = 3.50), adherence of the freight forwarder to health, safety & the

environment is high (mean = 2.97), the human resource composition of the freight forwarder is proper (mean = 2.68), and lastly, accreditation of the freight forwarder to professional bodies is high (mean = 3.21).

Strategic Drivers

TABLE 5 HERE

Findings also indicated high levels of strategic drivers at Mukwano Industries with an average mean of 3.78, which was caused by high responses on the following: the need for Mukwano industries to focus on core business of production and marketing its products (mean = 4.38), the ability of the freight forwarder to quickly adapt to changing business needs of Mukwano Industries (mean = 4.15), the evidence of investment of the freight forwarder in the development of new ideas and logistics solutions (mean = 3.74), the compatibility of the freight forwarders vision and mission to the outsourcing strategy goals of Mukwano industries (mean = 3.38), and lastly, the compatibility of the freight forwarders work related norms and culture with that of Mukwano industries (mean = 3.24).

Outsourcing Planning

A relatively high extent of outsourcing planning was showed at Mukwano Industries with an average mean of 3.58. this was attributed to high responses on the following issues: the planning of freight forwarding out sourcing activities has enabled Mukwano industries improve shipment safety in transit (mean = 3.76), the planning of the freight forwarding outsourcing activities has helped reduce the time products take to reach the customer (mean = 3.74), freight forwarding outsourcing planning has increased product availability to customers at Mukwano industries (mean = 3.62), planning of freight forwarding outsourcing activities has enabled Mukwano industries improve shipment transit time (mean = 3.59), the planning of freight forwarding out sourcing activities has enabled Mukwano industries ensure full delivery as ordered (mean = 3.59), proper planning of the freight forwarding out sourcing activities has enabled Mukwano industries reduce demurrage and storage costs (mean = 3.56), the planning process of freight


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outsourcing activities has helped reduce response time to shipment orders (mean = 3.56), proper planning of the freight forwarding outsourcing activities has enabled Mukwano industries reduce inventory holding costs (mean = 3.50), proper planning of the freight forwarding outsourcing activities has enabled Mukwano industries to obtain lower freight rate offers (mean = 3.50), and lastly, planning of the freight forwarding outsourcing activities has resulted in favourable credit terms to Mukwano industries (mean = 3.38)

Outsourcing Administration

A moderate extent of outsourcing administration was portrayed at Mukwano Industries with an average mean of 3.52. This was as a result of the following: the transfer of freight forwarding functions from Mukwano Industries to the service provider has enabled Mukwano Industries reduce rental and overhead costs on some fixed assets and manpower (mean = 3.91), Setting up of clear contractual obligations of the freight forwarding outsourcing project has enabled Mukwano Industries reduce or eliminate commercial and legal disputes (mean = 3.76), Establishment of clear communication lines in the freight forwarding outsourcing relationship has resulted in smooth and faster flow of information between the service providers and Mukwano Industries (mean = 3.76), Effective management of the transition of freight forwarding functions from Mukwano Industries to the service provider has enabled Mukwano Industries reduce operational disruptions (mean = 3.38), Clear definition of roles and process ownership of the freight forwarding outsourcing processes has helped reduce the procurement process time at Mukwano Industries (mean = 3.38), Establishment of clear communication lines in the freight forwarding outsourcing relationship has helped in reducing the time products reach the market (3.38), Service Provider’s understanding of Mukwano Industry’s business needs in the freight forwarding outsourcing relationship has resulted in reduction in transit time of materials and products at Mukwano (mean = 3.56), Effective management of risks in the freight forwarding outsourcing activities has enabled Mukwano reduce its finance costs (mean = 3.53), Effective management of risks in the freight forwarding

outsourcing activities has resulted in an increase in complete delivery of orders at Mukwano Industries (mean = 3.50), Effective management of risks in the freight forwarding outsourcing activities has helped reduce the number of incidents at Mukwano Industries (mean = 3.50), Establishment of clear communication lines in the freight forwarding outsourcing relationship has helped increase materials and product availability at Mukwano Industries (mean = 3.32), and lastly, Clear definition of project deliverables and measurement metrics of the Freight forwarding activities has enabled Mukwano Industries attain or exceed their cost, quality and service expectations (mean = 3.24)

Supply Chain Efficiency

A very high level of supply chain efficiency was revealed at Mukwano Industries with an average mean of 4.30. This was attributed to very high responses over the issues of: outsourcing of freight forwarding helping to reduce the overall cost of freight of imports and exports at Mukwano Industries (mean = 4.68); outsourcing of freight forwarding helping to reduce capital costs as a result of credit offerings(mean = 4.61); outsourcing of freight forwarding helping to reduce the exposure to demurrage and storage costs on shipments at Mukwano Industries(mean = 4.59); outsourcing of the freight forwarding activities enabling Mukwano Industries reduce the cost of holding inventory(mean = 4.54); outsourcing of freight forwarding functions helping reduce legal costs(mean = 4.40); freight forwarding outsourcing at Mukwano Industries enabling the organization reduce on information costs(mean = 4.37); the process of freight forwarding outsourcing helping reduce cost of idle-time and overhead costs at Mukwano Industries(mean = 4.35); freight forwarding outsourcing at Mukwano Industries helping reduce the cost of finance in freight forwarding activities(mean = 4.35); freight forwarding outsourcing at Mukwano Industries enabling the efficient provision of products to customers(mean = 4.29); freight forwarding outsourcing resulting into lowered order response time(mean = 4.22); outsourcing of the freight


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forwarding functions lowering the time to market final products(mean =4.16); outsourcing of the freight forwarding functions by Mukwano Industries shortening the procurement process time(mean = 3.98); outsourcing of freight forwarding at Mukwano Industries helping reduce the overall transit time of orders to ensure timely delivery(mean = 3.82); outsourcing of freight forwarding helping increase the number of complete order deliveries(mean = 3.78); and lastly, outsourcing of freight forwarding helping increase safety of orders while in transit and upon delivery

Correlation Analysis

This section measures the relationship between freight forwarding outsourcing and its dimensions against supply chain efficiency, as indicated in table 6.

TABLE 6 HERE

Table 6 presents results on the hypothesis of the study. Begging with the first hypothesis, which stated that, there is a significant relationship between outsourcing decision making and supply chain efficiency by Mukwano Group of Companies. Results indicated an insignificant relationship between this hypothesis (r = 0.075, sig = .674). This implies that the two variables are not in any way related. This result indicates that freight forwarding outsourcing decision-making has no impact on supply chain efficiency in Mukwano Industries Ltd. The second hypothesis stated that, there is a significant relationship between outsourcing planning and supply chain efficiency. The correlation coefficient index between the two variables was (r = .731**, Sig = .000 less than 0.01). This implied that there is a high and significantly positive relationship between freight forwarding outsourcing planning and supply chain efficiency in Mukwano Industries at the one percent level 2-tailed. Further this postulates that the more effective and streamlined the outsourcing planning is, the more supply chain efficiency will be realized, and the reverse is true. The third hypothesis stated that, there is a significant relationship between outsourcing administration and supply chain efficiency. Finding a very high positive level of significance (r = .822**, Sig = .000 less than 0.01).

This suggested freight forwarding outsourcing administration strongly relates with supply chain efficiency. With all the dimensions combined a high and strong influence between freight forwarding outsourcing and supply chain efficiency was found (r-value = .861**, Sig. 0.001), which result into concluding that a more streamlined freight forwarding outsourcing functions and administration in particular results in greater supply chain efficiency, short of it may instead impose a negative logistical implication to any given organization.

Regression Results

This section show how freight forwarding outsourcing and its dimensions predict supply chain efficiency in Mukwano Group of Companies.

TABLE 7 HERE

From table 7, the independent variable has an R2 = 0.689>0.50, implying that 68.9% of the dependent variable can be explained by a variance in the independent variables. The adjusted r2=0.647>0.50, which is a more accurate measure, implies that the independent variables accounts for 64.7% of the variance in the dependent variable. Since the adjusted r-square statistic is greater than 0.50, there is a significantly high level of variance in the dependent variable explained by a variance in one, some or all the independent variables.

Results from the Semi-structured Interviews

Over 16 middle and senior managers were interviewed in this study. There opinion over the themes in this study can be summarized as indicated in table 8

TABLE 8 HERE

DISCUSSIONS

Outsourcing Decision Making and Supply Chain Efficiency

Findings revealed a negatively and insignificant relationship between outsourcing decision-making and supply chain efficiency. This was in agreement with the opening remarks in the statement of the problem (in section 1.1) that “outsourcing of freight forwarding services….in Mukwano Industries does not


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seem to be delivering efficiency gains”. However, the level of importance of these outsourcing decision factors is varied, as indicated from the results, with diminishing importance values being registered in two technical factors- the human resource factor and the Health, Safety and Environment factor. The diminishing values in these two factors are an indication that there could be a human resource problem from the supply side, which could have negatively influenced supply chain efficiency, accounting for the negative regression coefficient (β), much as the impact is statistically insignificant.

Figures from descriptive results indicate that the financial factors registered the highest mean values at both the selection level and in the level of importance. However, the inferential results indicate that the same factors registered an insignificant correlation coefficient and the lowest coefficient of Beta, implying that the financial factors in outsourcing decision-making have no influence on supply chain efficiency in Mukwano Industries Ltd. This finding resonates with Snapp (2012), who contends that outsourcing initiatives that are inclined on the financial aspects of the outsourcing decision, without putting technical and strategic factors under consideration, do not succeed. Descriptive statistical and qualitative results on the strategic factors indicate that much as the two strategic factors related to cultural fit and strategic fit (compatibility factors in Table XIIIc) registered average indices above 3.0 on the 5-point Likert Scale; these factors have no influence on supply chain efficiency in Mukwano Industries Ltd.

Results from the interview reveal that there is lack of synergy and compatibility between Mukwano Industries Ltd and the contracted service provider, with both organizations serving conflicting objectives, which has resulted in poor service delivery. This phenomenon on the impact of outsourcing is supported by Chopra &Meindl (2007) in the following words:

With the chain broken into many owners, each with its own policies and interests, the chain is more difficult to coordinate. Potentially, this problem can cause each stage of the supply chain to work only towards its own objectives, rather than the whole chain’s, resulting in the reduction of overall supply chain profitability.

In light of this, the researchers therefore conclude that, freight forwarding outsourcing decision making have an insignificant influence on supply chain efficiency in MukwanoGroup of Industries Ltd.

Outsourcing Planning and Supply Chain Efficiency

Results showed that outsourcing planning strongly influences supply chain efficiency in Mukwano Industries with an (r-value = 0.731, Sig. 0.000). Similar conclusion were drawn by Choi (2008) who analyzed effect of service provision in communities using the private sector, and found out that outsourcing planning plays a crucial role in setting up a framework of supporting supply chain efficiency. In the same way, Power et al (2006) points out that outsourcing initiative can be fruitful if they are properly planned. We therefore conclude that, freight forwarding outsourcing planning has a major influence on supply chain efficiency in organizations.

Outsourcing Administration and Supply Chain Efficiency

Findings indicated a positive and significant relationship between outsourcing administration and supply chain efficiency (r-value = 0.822, Sig. 0.000). Power et al (2006) also depicts similar results. He contend that the predominant reason for the failure of the US Federal Bureau of Investigations (FBI) outsourcing deal in 2004 was the “lack of effective management oversight of the project and external contractor”, indicating that if this function was streamlined through effective administrative measures, the FBI would not have scrapped the project after spending US$170 million. From this, the researchers conclude that, freight forwarding outsourcing administration has a significant influence on supply chain efficiency in Mukwano Industries.

CONCLUSIONS

From the study findings and discussion, the following conclusions were made, hypothesis by hypothesis. Beginning with the first hypothesis, it was concluded that outsourcing decision making


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insignificantly influences supply chain efficiency. Therefore, freight forwarding outsourcing decision making has no influence on supply chain efficiency. From the second hypothesis, it was concluded that there is a positive significant relationship between freight forwarding outsourcing planning and supply chain efficiency. This implies that a failure in outsourcing planning will result in inefficiencies in the supply chain, and vice versa. From the third hypothesis, it was concluded that outsourcing administration has a highly positive significant influence on supply chain efficiency in Mukwano Industries Ltd. It therefore signified that proper management and administration of the freight forwarding outsourcing project results in the attainment of efficiency in the organization’s supply chain; the reverse is also true. All in all, greater emphasis and resources should be put on outsourcing planning and administration for the organization to realize higher supply chain efficiency.

RECOMMENDATIONS

Basing on the study findings, the researchers recommend the following: (1) that Mukwano Group of Companies undertakes a thorough audit of the service provider(s) to ensure that the organization has the necessary skilled human resource to handle the freight forwarding function, and understands the business needs of Mukwano Industries Ltd. In an effort to close the human resource gap and create synergy, the researcher recommends that Mukwano Industries Ltd institutes cross-posting of staff, on-site training of service provider’s staff and knowledge transfer; (2) to bridge the gap between the service provider and Mukwano Industries Ltd, the organization could encourage the service provider to synchronize their working hours with those of Mukwano Industries Ltd by providing an extra bonus for overnight and off-duty deliveries, for example. A practice of aggregate planning with the service provider should be encouraged, and information transfer and knowledge sharing would go a long way in ensuring that there is synergy and compatibility; (3) Having one service provider for freight forwarding, inventory management and distribution under one roof, so that Mukwano

Industries Ltd concentrates on production and marketing. Thus would ensure supply chain visibility, and promote efficiency. However, the study recommends that this function be managed jointly to ensure synergy and control, by performing an inter-organizational mapping to include qualities that not only compliment the processes and objectives of Mukwano Industries, but also help create cohesion and synergy; (4) In the event that Mukwano Industries Ltd decides to back source the freight forwarding function, a lot of caution needs to be taken to ensure that the current human resource in Mukwano is well trained and have the necessary skills, remuneration and job security to manage the freight forwarding function well and to avoid loss of morale usually associated with back sourcing. Proper planning needs to be done to ensure that the transition is as seamless and painless as possible;and lastly, (5) Mukwano Industries Ltd could go for a merger with a freight forwarding company that has the necessary resources in terms of skilled labour, capital assets, global presence, and project experience, which will help bridge the strategic divide and foster efficiency.

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APPENDIX

Table 1: Population, Sample Size and Sampling Technique

Respondents Population Sample Size Sampling Technique

Line Managers(Operations Managers, Stores Managers &Finance Heads)

33 31 Simple Random & Purposive Sampling

Procurement Officers 4 4 Purposive Sampling

Sales & Marketing Executives 3 3 Purposive Sampling

Total 40 37

Source: Primary Data sampled using the Krejcie and Morgan Sampling Technique, (1970)

Table 2: Numerical Values and Response Modes used to interpret the Means

Mean Range Response Mode Interpretation

4.30 – 5.00 Strongly Agree Very High 3.50 – 4.20 Agree High 2.70 – 3.40 Neutral Undecided 1.90 – 2.60 Disagree Low 1.10 - 1.80 Strongly Disagree Very Low

Source: Mabonga (2012) as cited from Pule (2014)

Table 3: Importance of Financial Drivers in Outsourcing Decision-making

Indicators of importance of financial factors

Scale Frequency Percentage Mean Std. Dev

The freight rates offered by the freight forwarder

Not important 01 2.9

4.50

.862 Fairly

important 00 00

Not sure 02 5.9

Important 09 28.5

Very important 22 64.7

The credit terms offered by the freight forwarder


4.09

.996 Fairly

important 02 5.9

Not sure 03 8.8

Important 15 44.1


The demurrage/ storage free time offered by freight

forwarder


3.56

1.133 Fairly

important 05 14.7

Not sure 05 14.7

Important 16 47.1


The demurrage/ storage and handling tariff of freight

forwarder


3.79

1.200 Fairly

important 05 14.7

Not sure 01 2.9

Important 16 47.1


Source: SPSS Primary Data.


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Table 4: Importance of Technical Drivers in Outsourcing Decision Making

Indicators of technical factors Scale Frequency

Percentage Mean Std. Dev

Service quality assurance Not important 01 2.9

3.56

1.160 Fairly important 08 23.5

Not sure 03 8.8

Important 15 44.1


The ability of freight forwarder to manage risks


3.91


Not sure 02 5.9

Important 17 50.0


The state of art technologies possessed by the freight

forwarder


3.50


Not sure 04 11.8

Important 16 47.1


The ownership or possession of facilities for handling cargo


3.56


Not sure 03 8.8

Important 10 29.4


The geographical coverage of the freight forwarders network

of offices.


3.76


Not sure 01 2.9

Important 18 52.9


The professional experience of the freight forwarder in

handling similar projects

Not important 00 00

4.24

.781 Fairly important 02 5.9

Not sure 01 2.9

Important 18 52.9


The statutory compliance of the freight forwarder

Not important 00 00

3.65


Not sure 03 8.8

Important 19 55.9


The human resource composition of the freight

forwarder


2.68


Not sure 03 8.8

Important 10 29.4


Adherence of the freight forwarder to health, safety& the

environment


2.97


Not sure 09 26.5

Important 11 32.4


Accreditation of the freight forwarder to professional bodies

Not important 00 00

Fairly important 13 38.2


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Not sure 04 11.8 3.21 1.067

Important 14 41.2

Very important 03 6.8 Source: SPSS Primary Data.

Table 5: Importance of Strategic Drivers in Outsourcing Decision Making

Indicators of importance of strategic factors

Scale Frequency Percentage Mean Std. Dev

The ability of the freight forwarder to quickly adapt to changing business needs of

Mukwano Industries.


4.15


Not sure 03 8.8

Important 16 47.1


The evidence of investment of the freight forwarder in the development of new

ideas and logistics solutions

Not important 00 00

3.74


Not sure 05 14.7

Important 18 52.9


The need of Mukwano industries to focus on core business of production and marketing of its products

Not important 00 00

4.38


Not sure 06 17.6

Important 06 17.6


The compatibility of the freight forwarders work

related norms and culture with that of Mukwano

industries


3.24


Not sure 06 17.6

Important 15 44.1


The compatibility of the freight forwarders vision and

mission to the outsourcing strategy goals of Mukwano

industries


3.38


Not sure 05 14.7

Important 15 44.1


Source: SPSS Primary Data


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Table 6: Correlation Analysis of Freight Forwarding Outsourcing and Supply Chain Efficiency

Variables Correlated r – value Sig. Interpretation Decision on H1

Freight Forwarding Outsourcing 0.861 0.001 Significant Relationship

Adopted

Outsourcing Decision Making 0.075 .674 Insignificant Relationship

Rejected

Outsourcing Planning 0.731 .000 Significant Relationship

Adopted

Outsourcing Administration 0.822 .000 Significant Relationship

Adopted


Table 7: Shows the Regression Model Summary of Freight Forwarding Outsourcing and supply chain efficiency

Model Summary

Model R R

Square

Adjuste

d R

Square

F Sig. Decision on

H1

Freight Forwarding

Outsourcing and SC

Efficiency

.830a .689 .647 16.088 .000 Adopted

a. Predictors: (Constant), Admin, Decision, Importance, Planning


Table 8: Presentation of Interview Results from Key Personnel at Mukwano Group of Companies Ltd.

Nr. Question Responses

1.0 INTRODUCTORY QUESTIONS

1.1 What is Mukwano Industries and What do

they do?

Manufacturing firm dealing in a range of household fast moving consumer goods (FMCGs)

1.2 What role does Freight forwarding play in

Mukwano Industries?

More than 70% of raw materials used in manufacturing processes are imported (requires shipping, transport and customs clearance

Exportation of finished and semi-finished products (requires freight forwarding).

1.3 How does Mukwano access freight forwarding

Services?

Mukwano Industries used to perform the function in-house till 2011

Now outsources the function to Bollore Africa Logistics.

2.0 FREIGHT FORWARDING OUTSOURCING

DECISION-MAKING


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2.1 What were the reasons for Mukwano Industries to outsource the freight forwarding function?

Outsourcing as best practice motive

To concentrate on core business

Shedding off extra labour and other resources

Risk mitigation- transfer risk to the professionals- 3PL.

2.2 In your opinion, what do you think was the

most important reason among the ones you

have mentioned above?

Outsourcing as best practice motive

To concentrate on core business

Shedding off extra labour and other resources

2.3 What qualities were you looking for while

outsourcing the freight forwarding function?

ISO Certified firms-Quality assurance

HR composition- professionals

Service delivery levels- quality, cost and efficiency

Global representation(geographical coverage)

Communication/IT infrastructure Facilities(access to transport, handling equipment)

2.4 In your opinion, which qualities do you think

were most important in this decision?

Service delivery levels- quality, cost and efficiency

2.5 In your opinion, would there be anything else

you would have considered, apart from the

above, to select the right candidate for the job?

Financially sound, the ability to make arrangements for outlaying port charges on behalf of Mukwano Ind. (freight &port charges are in the range of USD3M/month)

With Credit facilities- 30 days, freight forwarder has to be financially sound.

2.6 At what level does Mukwano Industries view

its relationship with the third party logistics

provider(s)?

There is no control of the function at the moment, as this was outsourced completely.

Only a small team does routine follow-up to plan.

2.7 In your opinion, what do you think of such a

relationship?

There is a risk involved, as the service providers are unaware of the level of urgencyMukwano Industries attaches to specific orders.

There is also a proprietary risk as company information may be leaked to the competition by the freight forwarder.

3.0 FREIGHT FORWARDING OUTSOURCING IMPLEMENTATION


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3.1 During the implementation of the outsourcing

project, what were the phases Mukwano

Industries underwent to ensure success of the

project?

Phase 1: Had an implant office in Mukwano Industries

Phase 2: Employee transfer- key personnel were taken on by the freight forwarder.

Phase 3: Phased Information and project transfer to the freight forwarder

Phase 4: Full control of the project by freight forwarder.

3.2 In your opinion, in what ways did each of the

phases serve its purpose?

Ensured that there is minimum interruption during the phased implementation of the outsourcing deal.

3.3 How does Mukwano Industries know that

they have achieved their objectives as

anticipated at the signing of the outsourcing

deal?

Monthly review meetings between finance and operations departments

Internal and external key performance indicators are set and are measured on monthly basis against financial and operational service levels.

A service level agreement was signed between Mukwano Industries and the contracted freight forwarder, and is also reviewed on a monthly basis.

Results show that the performance has not been good.

3.4 In your opinion, under the circumstances,

would you have expected better results?

Yes, because the results we are getting are not good as compared to what we expected.

4.0 CHALLENGES

4.1 What are the challenges Mukwano Industries

faced before the company decided to outsource

its freight forwarding?

We did not have any challenges per se; we had a good in-house team, which understood the way we work.

4.2 How did Mukwano Industries deal with these

challenges?

Not applicable

4.3 What challenges does Mukwano Industries

face while implementing the freight

forwarding outsourcing project?

Higher costs (forwarder adds a markup on the cost price) than what Mukwano used to spend, yet service levels are lower.

Working hours of freight forwarder do not coincide with the operations of Mukwano Industries

Freight forwarder is not addressing the non-tariff barriers (police, customs, regulatory bodies, weighbridges, border stops) as a professional, and this is costing Mukwano Industries.

90% of the cargo handled in-house used to go though “green channel” (express release), now when the function is


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outsourced, all the cargo has to be verified first, which increases risk of damage and pilferage, transit time, and demurrage/storage costs, stock-outs.

Lack of compliance of the freight forwarder in terms of audits with regulatory bodies affects us directly, as it delays our shipments, yet we were 100% compliant when we used to handle the shipments ourselves.

4.4 How has Mukwano dealt with these challenges

now? How about in the future?

Mukwano is yet to rethink whether to sign a 5-year agreement with the contracted freight forwarder, as was initially planned.

Chances are that the freight forwarding function will be back sourced.

Mukwano still has a sound internal team which can take charge of the freight forwarding function if the company is to back-source the function.

Source: Primary Data from Interview at Mukwano Industries Ltd.

Documents

Freight Forwarding Outsourcing and Supply Chain Efficiency ...oaji.net/articles/2016/351-1457853885.pdf · Outsourcing is the contracting out to an external firm of the ongoing management