Evaluation of production outsourcing effectiveness in the rolling stock manufacturing sector

Abstract

Outsourcing is referred to as transferring an activity internally to external control. Production outsourcing is the contracting with a third party to produce goods or services (Valiyattoor and Bhandari 2020). This thesis studies production outsourcing and in-house production in the rolling stock manufacturing sector through a manufacturer and supplier perspective. On various occasions the organization experienced challenges in meeting monthly targets, as well as producing at a high cost. Some of the causes for this were not obvious to management, but production outsourcing was a suspected possible factor but the influence on overall production costs had to be investigated where it is positive or negative. The aim of the study was to evaluate the cost to outsource vs in-house production. Furthermore, assess production outsourcing influence in the changing demand patterns and its influence on customer satisfaction. A DMAIC (an abbreviation for Define, Measure, Analyze, Improve and Control) lean six sigma methodology was adopted in creating the framework design. The research study is quantitative that follows descriptive approach, where historical data from SAP (Systems, Analysis and Products in data processing) and data collected from survey was analyzed and evaluated. The sample size that was used for the first objective was a total of 36 components drawn from 6 various businesses data base, namely: coaches, wagons, rolling stock equipment (RSE), wheels, locomotives, and ports. The sample size used for the second objective was 40 respondents from AB Ltd manufacturing facility, where 440 responses were received. For objective two, the data was exported to Microsoft excel. A chi-square test method was employed to analyze the data, using both Microsoft excel and Statistical Package for the Social Sciences (SPSS) software. For the second aspect to address the second objective, 5-point Likert Scale technique to collect and gather responses was used. Data analysis method used was a t-test using both Microsoft Excel and Statistical Package for the Social Sciences (SPSS) software. Both tests completed were hypothesis test, one being chi-square and one being a t test. In addressing objective one, the study results aided the researcher to draw conclusions that the cost rate of insourced parts differs to that of outsourced part. This therefore means that production outsourcing does not necessarily reduce production costs for AB Ltd. The results show that in-house production is cheaper compared to outsourcing. In addressing objective two, the study results endorsed the researcher to draw another conclusion that production outsourcing does not have positive influence in managing and supporting increased customer demands. This was based on the null hypothesis that was rejected in both aspects; hence the study supported the alternative hypothesis. The recommendations were that; AB Ltd should outsource the right components; no outsourcing should be implemented for parts that will have direct impact on AB Ltd’s customers and lastly, not to consider cost only as a main reason to outsource.