ACCRA TECHNICAL UNIVERSITY

FACULTY OF BUSINESS

DEPARTMENT OF PROCUREMENT AND SUPPLY CHAIN

MANAGEMENT

PROJECT WORK PROPOSAL

TITLE: THE EVALUATION OF OUTSOURCING AND ITS

PERFFORMANCE MANAGEMENT RELATION TO PROFITABILITY
OF AN ORGANIZATION. THE CASE STUDY OF UNILVER GHANA

BY:
 INTRODUCTION

1.0 BACKGROUND OF THE STUDY

Various authors in various years have given their definitions on the concept of outsourcing. The
Chartered Institute of Purchasing and Supply (CIPS) define outsourcing as "the process of
identifying the most suitable expert third party service provider to undertake the management,
administration and provision of the service in question". In other words, outsourcing is the act of
one company contracting another to provide services that might otherwise be performed by in-
house employees. Also,Yingying Pang, Shishu Zhang and Albert Xin Jiang (2021) defined it as
“a business agreement, either domestic and international (known as offshoring), and strategic
management initiative for gaining a competitive advantage of a firm by contracting out their
existing internal or external non-value-added functions or core competencies to competent
supplier(s) to produce products or services efficiently and effectively for the outsourcing firm.”
They further stated that outsourcing is one of the current mainstream business strategies for firms
to earn more benefits from the global supply chain.

Alexandre Dolguia and Jean-Marie Proth in 2013 also defined outsourcing as the act of obtaining
semi-finished products, finished products or services from an outside company if these activities
were traditionally performed internally. The question many will ask therefore is why an
organization will give part of its operations to a third-party to perform on their behalf?

In an attempt to answer the above stated question, finding from the research by Aleksandre
Asatiani, Esko Penttinen and Ashish Kumar (2019) titled “Uncovering the nature of the
relationship between outsourcing motivations and the degree of outsourcing” suggests that
companies that outsource to acquire external expertise are more selective. Companies outsource
only a limited number of processes within a specific business function. Our main theoretical
contribution lies in uncovering the dynamic nature of outsourcing motivations, meaning that as
companies outsource a larger degree of their business processes, some motivation items become
more accentuated and others fade in importance.

Alexandre Dolguia and Jean-Marie Proth in 2013 again stated some benefits that come with
Outsourcing, namely;
  Cost saving, which requires choosing a vendor that performs the outsourced function
more efficiently than buyer could.
 Reduce staff, or minimise the fluctuations in staffing due to changes in demands.
 Free employees from tedious tasks in order to allow them to concentrate on core
activities.
 Gain benefit by taking advantage of external expertise or outsourcing non-core activities.
 Achieve greater financial flexibility by selling assets that were formerly used in the
outsourced activity in order to improve company’s cash flow.
 Gain access to external skills and technologies. Of course, this is only true if the ‘vendor’
brings new skills and innovative technologies and not only workforce.
 Vendors are assumed to provide quality activities: paying for service creates the
expectation of performance (in costs, quality, flexibility, etc.)

It is worth noting that just like other concepts and decisions, adopting outsourcing affects an
organizations profitability in so many aspects.

The results from the research by Dean Elmuti (2016) showed that organizations generally
considered themselves successful at outsourcing. However, while they achieved significant
improvement in organizational performance, they have not reached the magnitude of
improvements ascribed to outsourcing.

Ahmad H. Juma'h and Douglas Wood (2018) in their work revealed that, Outsourcing payments
are balanced by direct and indirect benefits received from outsourcing agreements. The direct
benefits include reduction in employment costs, research and development expenditures,
investments in long-term assets, while indirect benefits that include concentrating on more
productive functions to acquire competitive advantage. Rearranging the financial variables with
respect to the outsourcing year announcement, it is found that outsourcing companies'
profitability decreased in the outsourcing year and recovered in the subsequent year. This implies
a high cost of outsourcing associated with initial transaction costs. This may reflect and point to
a sound underlying logic for the outsource arrangement. On the other hand, there is very little
long-term evidence on outsourcing contracts and benefits and the figures are consistent with
rational opportunistic behaviour by the outsource contractor who may enjoy a major negotiation
advantage relative to the outsourcing company based on search costs and information
asymmetry. This advantage would enable the outsource contractor to negotiate advantageous
signing on fees as a result.
1.1 PROBLEM STATEMENT
It is clear that outsourcing is crucial based on the opinions and research produced by several
academics and researchers on the idea of outsourcing and its effects on businesses' profitability.
Therefore, even though the idea does not ensure an improvement in profitability in the short
term, it nonetheless plays a crucial role in the operations of many firms in the present period.
Hanafizadeh, Payam, Zare Ravasan, Ahad; Irani, Zahir; Kamal, Muhammad (2017) revealed in
their work titled “An empirical investigation on the determinants of outsourcing e-banking
services” that nine out of 11 assumed factors, (i.e., perceived complexity, perceived cost, service
observability to the client, cultural fit between client and supplier, perceived loss of
organizational knowledge, prior outsourcing experience, external pressure, market volatility, and
suppliers’ power) influence e-banking services outsourcing decision. The findings also
confirmed that the nature of the service and client IT capabilities did not exert any influence on
the outsourcing decision.

The decision to either outsource is impacted by so many factors such as Skills needed, Tasks
vary in nature in so many aspects, Complexity of the task, Event Management, Business
reputation, Cost saving and Importance of the task to the company goals.

Constance Buah (2017) stated that, one of the fasters growing changes currently adapted by
organizations is to outsource non-essential but critical functions to a large-scale service provider
that is commonly referred to as Business Process Outsourcing. As the trends in outsourcing are
evaluated, it is realized that the benefits of outsourcing far outweigh its disadvantages. It is also
established from the research that security is the most outsourced function. Also, research by
Abdul Aziz, Javed Ahmed Memon, Ashfaq Ali Banbhan, Sadia Anwar and Azeem Akhtar Bhatti
(2021) found out that there is strong positive relationship between logistic and manufacturing on
doing business. Nowadays, a lot of businesses opt to use third-party outsourcing services in the
departments that have capacity issues.

Many studies over the years have attempted to examine the historical context of outsourcing, its
current trend, as well as the various benefits and drawbacks of incorporating it into a business
operation. However, relatively few of these studies have assessed the effect that the concept has
on an organization's profitability. Therefore, having discussed the various definitions, reasons
and advantages and disadvantages of outsourcing, our research will be focused on Evaluating
outsourcing and its performance management in relation to profitability of an organization by
using the case study of Unilever Ghana Limited.

1.2 RESEARCH OBJECTIVES

1. To identify the key outsourced activities at Unilever Ghana
2. To assess the impact of outsourcing on the firm’s profitability
3. To elaborate on some ways of increasing profitability through outsourcing

1.2.1 Research Questions

For the purposes of the research, the following questions will be asked;

1. What are some key activities that Unilever Ghana has outsourced?
2. What are the effects of outsourcing on the profitability of the organization?
3. What are some ways of increasing profitability of the firm through outsourcing?

1.3 BRIEF METHODOLOGY

The quantitative method to data collection and management will be used in the research. This
strategy will result in data collection that is filled with numbers, which will then be evaluated
with tables and graphs in Microsoft Excel. The population of this study will be made up of the
Unilever Ghana procurement department employees. A sample size of 30 employees from the
procurement department will be chosen from the population in order to save time, money, and
inconvenience. The chapter will also provide information on the questionnaire used to collect
data and the analytical approach, which uses Excel to examine the field data that has to be
gathered.

1.4 SIGNIFICANCE OF THE STUDY

Researchers, people, and organizations in Ghana and throughout the world continue to find the
study to be helpful. Even though measuring the effect of outsourcing on the Supply Chain
Management process is regarded as a fundamental task, researchers, people, and businesses,
particularly those in Ghana's manufacturing sector, find it to be exceedingly challenging. This
study will therefore shed light on the actual nature of how manufacturing industry organizations
locate, evaluate, and outsource in their field and how the notion influences their profitability.
The study's conclusions will allow a variety of people and organizations working in Ghana's
manufacturing sector the chance to learn how to implement outsourced management practices
into their business operations and increase organizational profitability. Finally, new research that
are similar to this one will be built on the study's findings.

1.5 ORGANIZATION OF THE STUDY

The essay will be divided into five distinct chapters. The first chapter serves as this study's key
introduction. It outlines the elaborate outsourcing that is a necessary part of the investigation and
provides enough background information for the reader to understand why the study is being
done and what we hope to achieve. The chapter provides a summary of the entire study.
The second chapter will analyse pertinent literature and provide a thorough analysis of earlier
research on the subject. This section has a thorough review of several crucial topics that provide
the study with a clear sense of direction as well as revisions to ideas, methods, and
methodologies employed by other researchers.
Research methodology will be covered in chapter three. The practice of gathering data—whether
primary, secondary, or both—as well as the technique of analysis used to do so are crucial
components of any research project.
A complete presentation, analysis, and discussion of the data gathered will also be taken into
account in chapter four of this study. The final chapter offers findings and suggestions for future
research that could be improved.