Outsourcing is one of the most important business strategies that a large number of multinational companies have used for decades. In order to get work done more efficiently and increase flexibility to meet the changing business and commercial conditions, outsourcing for supply chain has drawn considerable attention in recent years.
It is evident that the outsourcing of activities traditionally performed internally by firms to third party partners has become increasingly important in recent years. While in the past outsourcing was primarily relegated to the procurement of non-core components and services, today the outsourcing trend has expanded to include virtually every activity of a firm, including core and non-core components, business processes, information technology processes, manufacturing and distribution activities, and customer support activities (Chamberland, 2003; Gottfredson, Puryear, and Phillips, 2005; Holcomb and Hitt, 2007; Insinga and Werle, 2000; Kakabadse and Kakabadse, 2000; Niezen and Weller, 2006; Venkatraman, 2004). Today's hyper-competitive environment, characterized by constant change, market unpredictability, and the pressure to reduce costs and cycle times, coupled with the globalization trend, has provided further impetus to the growth of outsourcing (D'Aveni, Canger, and Doyle, 1995).
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Outsourcing can be defined as "the strategic use of outside resources to perform activities traditionally handled by internal staff and resources". Sometimes known also as "facilities management", outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers, who become valued business partners (Adler, 2003).
Companies have always hired contractors for particular types of work, or to level-off peaks and troughs in their workload, and have formed long-term relationships with firms whose capabilities complement or supplement their own. However, the difference between simply supplementing resources by "subcontracting" and actual outsourcing is that the latter involves substantial restructuring of particular business activities including, often, the transfer of staff from a host company to a specialist, company with the required core competencies.
Outsourcing manufacturing to specialists who can provide unique value and drive down costs is now the business norm. While companies may be going about it with more caution and consideration, than perhaps in the early 2000s, the manufacturing outsourcing model itself is not in question. In fact, a 2006 AMR Research study of contract manufacturing trends found that 92% of companies outsourced some of their productions with 40% projecting they will outsource more in the next two years.
Today, most manufacturers especially mining sector have built very sophisticated, multitier and multi-enterprise supply chains consisting of distribution centers, contract manufacturers (CMs), suppliers and the like. The once simple, linear supply chains of yesterday now consist of a virtual network of interconnected players responsible for different pieces of the supply chain management operation.
The advantages for outsourcing are well know and are numerous. Projects and programmes that are outsourced have never been a part of the key activities of the firm, and the manufacturers know that they can be done cheaper and more efficiently by external suppliers. This can also be done for parts of the internal production process. Here also third parties can play an important role. Outsourcing is always based on the decisive choice, based on a clear analysis of the company and its environment. In a nut shell, manufacturing firms that have been successful in harvesting the benefits of outsourcing by reducing costs, improving speed and responsiveness, reducing cycle times, improving innovativeness and quality, increasing flexibility and agility, and improving overall competitiveness (Chamberland, 2003; Chan and Pollard, 2003; Garaventa and Tellefsen, 2001; Kakabadse and Kakabadse, 2000a; Sislian and Satir, 2000; Venkatraman, 2004).
Past research strongly advocates that to realize the potential for improved competitiveness, outsourcing decisions should be strategic and made in congruence with firm strategies (Chamberland, 2003; Gottfredson et al., 2005; Insinga and Werle, 2000; Merrifield, 2006). This requires that the factors driving outsourcing to be in alignment or congruence with the strategic goals and competitive priorities of the firm. The competitive priorities of a firm are the direct manifestation of the firm's competitive capabilities and competencies, and are thus generally regarded as the firm's manifesto for operations (Ward, McCreery, Ritzman, and Sharma, 1998). It is well established in the recent operations management literature that a firm's competitive priorities can be defined along the dimensions of cost, quality, time, flexibility, and innovativeness (Boyer and Lewis, 2002; Krajewski and Ritzman, 1999; Skinner, 1966, 1974; Ward et al., 1998; Watts, Kim, and Hahn, 1992).
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Interestingly, the operations literature is devoid of any research study, empirical or analytical, that assesses the link between firms' outsourcing drivers in the supply chain and their competitive priorities with key indicators of firm performance in the mining companies in Ghana.
So the thrust of this research work is to assess the role of outsourcing in the supply chain management in the mining sector, case study - AngloGold Ashanti.
AngloGold Ashanti is taking as a case study because as a multinational company, many of its inputs are outsourced from over hundred different companies, but the company has not been able to derive the optimal benefits in terms of comparative cost reduction advantage and tremendous increase in corporate performance and profit.
This research work is base on the five drivers of outsourcing as identified by Lacity and Willcocks (1998). These drivers include cost, flexibility, time, innovativeness and quality.
1.2 Problem statement
The outsourcing phenomenon has been increasingly receiving attention both from academic and practitioners communities. As mentioned earlier, the fundamental basis for outsourcing is the focus on core activities of a company. Core competence or core activities of the company are the basis of its competitive advantage in the marketplace (Prahalad and Hamel 1990). All businesses have their own core activities that form the basis of their business models. The rationale for outsourcing those activities that are outside of the core competencies has been to limit the activities management. The attention and focus of managers is a scarce resource that is seen as best utilized for the company's core activities. After identification of core activities, the organization can develop to support their management and utilization (May, 2008).
When outsourcing, organizations need to realize that the successful outsourcing depends highly on a lifecycle methodology where every stage of outsourcing is managed correctly. Outsourcing creates additional challenges for management because it requires commitment of resources from multiple functions and levels of organization.
Management of outsourcing does not stop when the outsourced function is already operating; the success of outsourcing comes from proactive management of the relationship, identification of current and future problems and risk mitigation. Outsourcing itself can be a core competency for a company in the current business environment.
Successful management of outsourcing projects is a key success factor for many leading world-class companies. Further motivation for this research is the argument that more standardization will lead to more effective BPO outsourcing (Wüllenberg et al, 2008). While research on business process outsourcing and other forms of outsourcing have been done during the last decades, outsourcing in today's actual business life is still often conduct with more ad hoc basis and without standardized, usable frameworks. As a result, companies have to deal with several challenges associated with their outsourcing drive. This study will investigate and assess outsourcing in general and its effects on supply chain management (SCM) in AngloGold Ashanti Company. Â Â Â Â Â
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1.3 Objectives of the study
General objectives of the study
The general objective of the study is to assess the role of outsourcing in supply chain management in the mining sector, case study - AngloGold Ashanti Ltd.
Specific objectives of this study include:
To identify various outsourcing drivers in the supply chain of mining company.
To identify the activities of supply chain in the company.
To find out the various challenges the company has been facing in its outsourcing venture in order to meet its operational needs.
1.4 Research Questions
What are the various outsourcing drivers in the supply chain of mining company?
What are the activities of supply chain in the company?
What are the various challenges the company has been facing in its outsourcing venture in order to meet its operational needs?
1.5 Significant of the Study
Competition, globalization, technology, pace and the capital markets have all had a major impact on business today. From the CEO to the warehouse operator, downsizing has resulted in fewer people in the organization, but even more work to accomplish. As organizations look for an alternative route through today's competitive world, many companies are turning to specialty providers to outsource their non-core functions. Audit, landscaping, payroll, food services, janitorial, security, etc. are functions that are typically outsourced. Although not as typical, it is reasonable to think that outsourcing strategic non-core functions such as logistics operations, information technology, marketing or manufacturing operations could result in significant savings. Today, as companies strive to do more with less and still compete, many are considering outsourcing a viable solution. Unfortunately, outsourcing of strategic non-core functions is often one of the most challenging types of outsourcing, frequently resulting in failure. As a result, many companies view this type of outsourcing as an organizational setback waiting to happen. The reason for these outsourcing failures is organizations' lack of a core competency in the process of outsourcing. The objective of this work is to assess the drivers of outsourcing in the supply chain of AngloGold Ashanti Ltd. This is because the development of appropriate strategies first requires an understanding of these drivers of outsourcing in the supply chain of mining companies in Ghana. This work therefore adds to our knowledge on the various outsourcing activities in the supply chain of mining companies with particular reference to AngloGold Ashanti Obuasi mine. This study is relevant since it assess the role of outsourcing in the supply chain and brings out various challenges in AngloGold Ashanti company Ltd, and various interventions and policy that can be employed to better manage outsourcing in the supply chain of AngloGold Ashanti, Obuasi mine.
1.6 The Scope of the Study
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This research aims at taking an extensive look at assessing outsourcing in the supply chain management practices of mining companies in Ghana with particular emphasis on AngloGold Ashanti, Obuasi Mine as the case study. This research work is base on the five thematic drivers in outsourcing identified by Lacity and Willcocks (1998). These drivers include cost, flexibility, time, innovativeness and quality. AngloGold Ashanti is taking as a case study because as a multinational company, many of its inputs are outsourced from over hundred different companies, but the company has not been able to derive the optimal benefits in terms of comparative cost reduction advantage and tremendous increase in corporate performance and profit.
1.7 Limitation of study
The study is supposed to cover mining companies in Ghana; nevertheless, the researcher chose Anglo-Gold Ashanti, Obuasi mines as a case study to represent mining companies in Ghana, because of time and financial constraints. Furthermore for geographical reasons, the data coverage of the research will be limited to the AngloGold Ashanti mines. However it is believed above mentioned shortfalls, will not hamper the credibility of information therein contained to any marked degree.
A simple survey was used in this research work. The researcher concentrated on assessing the role of outsourcing in the supply chain of mining companies in Ghana (particularly AngloGold Ashanti mines). A purposive survey method was employed in gathering information for the study. Both primary and secondary data were used for the study. Primary data was collected from respondents which consist of people in both managerial and supervisory positions of AngloGold Ashanti as well as major suppliers of AngloGold Ashanti Ltd. Data covered on general assessment of outsourcing in the supply chain of the company. Data was collected through direct visitation, observation, interviews and questionnaires. Secondary data was collected from the company's record on the value of total inputs that were outsourced by the company. This covered the period from 2000 to 2010.
1.9 Organization of the study
The study is divided into five chapters. Chapter one deals with the background, the statement of the problems, research question, justification of the study, objectives, methodology, scope, limitation as well as organization of the study. Chapter two provides an overview of existing literature. This chapter provided a review of already existing literature on this topic. Chapter three gives the profile of the selected district to be studied. It also describes the data that form the basis for the research reported in this paper and provides an overview of the methods or the methodology used in the study. Again it will deal with the theoretical framework and the empirical model that underpin the analysis of the data. Chapter four reports the results of the empirical analysis. That is, it deals with the presentation, analysis and discussion of the data collected from the field. Chapter five which is the last chapter look at the conclusion, recommendation and policy implications of the research.