A study on effect of outsourcing on cost reduction: A case study of tile industry

Abstract

During the past few decades, many organizations have attempted to reduce their costs through outsourcing of non-value added activities. This paper presents an empirical investigation to find important factors on reducing production expenses through outsourcing activities. The proposed study of this paper designs a questionnaire in Likert scale consists of 19 questions and distributes it among some experts. Using structural equation modeling, the study investigates different variables and the results indicate that outsourcing could reduce the production cost through time, inventory and human resources. The implementation of Freedman for ranking these factors indicate that time played the most influential factor followed by inventory and human resources. The results of structural equation modeling indicate that there are some positive and meaningful relationship between human capital and cost (β=0.78, t-value = 9.38), a positive and meaningful relationship between inventory and cost (β=0.81, t-value=10.54) and a positive and meaningful relationship between time and cost (β=0.89, t-value = 11.26).