Abstract
Background: Logistics outsourcing has been accepted as a strategy through which small and medium-sized enterprises (SMEs) can access the logistics capabilities they lack internally at a lower cost. However, the actual effect of logistics outsourcing on firm performance, especially among the SMEs in Nairobi, remains unknown. Aim: The study aimed to investigate the relationship between logistics outsourcing and firm performance of manufacturing SMEs in Nairobi. Setting: The study sampled manufacturing SMEs in Nairobi City County. Method: In this study, a convergent parallel mixed methods design was applied. Survey data were collected from 163 manufacturing SMEs. The data were analysed using structural equation modelling to test the relationship between logistics outsourcing and firm performance. Additionally, in-depth interviews were conducted in five manufacturing SMEs. Thematic analysis was used to analyse interview data to provide more insight in the quantitative data. Results: The anticipated direct link between logistics outsourcing and performance of manufacturing SMEs was not statistically significant. However, the study revealed a statistically significant indirect positive effect of logistics outsourcing on the performance of manufacturing SMEs through logistics outsourcing performance as a mediator variable. This article further highlights reasons and the process of logistics outsourcing and deduces a logistics outsourcing model for manufacturing SMEs to help improve their firm’s performance. Conclusion: The established relationship and deduced logistics outsourcing model is likely to guide SME managers as to how to manage logistics outsourcing to improve performance. The finding that logistics outsourcing has a positive indirect effect on the performance of manufacturing SMEs through logistics outsourcing performance makes a significant contribution to theory.
Highlights
Manufacturing small and medium-sized enterprises (SMEs) in Kenya have performed dismally over the years despite their significance to the economy (Government of Kenya 2012; Papadavid 2016)
The process followed in logistics outsourcing is critical in selecting the right logistics service providers (LSPs) that can help the SMEs achieve the objectives of outsourcing
Some of the reasons were identified as a lack of in-house capabilities, to reduce logistics costs, an aversion to risk and a desire to free management time to focus on core activities
Summary
Manufacturing small and medium-sized enterprises (SMEs) in Kenya have performed dismally over the years despite their significance to the economy (Government of Kenya 2012; Papadavid 2016). This can be attributed to the high levels of uncertainty in the business environment, high costs of production, as well as inefficient transport and logistics operations, which hamper the smooth movement of raw materials to site and finished goods to the market (Chege, Ngui & Kimuyu 2016; Kimuyu 2010). The actual effect of logistics outsourcing on firm performance, especially among the SMEs in Nairobi, remains unknown
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