Out sourcing, risk management, lean production and profitability in selected manufacturing firms in Uganda

Abstract

The aim of the study was to establish the relationship between outsourcing, risk management, lean production and profitability of 82 manufacturing firms of Kampala and Jinja in Uganda. A total of 164 questionnaires were issued and only 161 were responded to. This study was initiated by the fact that the trends in profits earned by manufacturing firms in Uganda is decreasing, thus lesser profits being earned over time. To be able to investigate this problem, the study objectives were to establish the relationship between outsourcing and profitability, to establish the relationship between risk management and profitability as well as to establish the relationship between lean production and profitability in manufacturing firms. Stratified sampling was used with large and small medium enterprises forming two strata. Simple random sampling as well purposive sampling methods were used in selecting manufacturing firms and respondents respectively. Self-administered questionnaires were used to obtain information from the selected manufacturing companies and respondents.

Net profit margin and Return on Capital Employed was used to measure Profitability, Outsourcing was measured in terms of value addition, cost /efficiency, quality and expertise, Risk management was measured in terms of risk management process of identification, estimation, analysis, evaluation and control and Lean manufacturing was measured in terms of cost, quality, time, and delivery. Results show that only risk management and lean strategies have significant positive influence on profitability of the selected manufacturing firms while outsourcing is insignificant. This implies that risk management and lean production strategies need to be understood and adopted by managers and business owners in order to increase on the firm’s profitability.

Whereas study findings indicate that risk management and lean production are the key predictors of the firm’s profitability, firms should not ignore outsourcing as it may form part of the lean strategies. Thus to improve profitability, manufacturing firms should embark on lean production, risk management and outsourcing strategies so as to reduce waste, minimize risks among other causes of lesser profits.