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PRODUKTIVm
SUPPLIER DEVELOPMENT IN THE
MALAYSIAN AUTOMOTIVE INDUSTRY:
CURRENT PRACTICES, OUTCOMES AND ISSUES.
By Rail Mohd Nor (pg 1 - 29)
M
JUST-IN-TIME (JIT)
PRINCIPLES AND SYSTEMATIC LAYOUT PLANNING
AS TOOLS TO IMPROVE
PRODUCTIVITY AND QUALITY (P8.Q).
By Che Razali Che Ismail (pg 30 - 62)
PRODUCTIVITY CHANGE AND TECHNICAL EFFICIENCY
IN THE MALAYSIAN CHEMICAL AND RELATED PRODUCTS
MANUFACTURING INDUSTRIES.
By Alias Radam and Shazali Abu Mansur (pg 63 - 92)
I
•
,1
I
PUBLIC SECTOR SERVICE QUALITY:
AN EMPIRICAL STUDY IN THE ROAD
TRANSPORT DEPARTMENT OF MALAYSIA.
BySharifuddin Zainuddin (pg93 - 114)
SYMBOLISM AND BUSINESS
By Edgar ].Rldley(pg 115-124)
^9
0000053860
Junwl Produktiviti - [Journal].
53360
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pRODUKnvm
PENASIHAT
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Nik Zainiah Nik Abd. Rahman
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Shezlina Zakaria, Fatimah Zainuddin,
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111
BIODATA OF RALIMOHD NOR
Rali Mohd Nor is the General Manager of Proton Parts Centre Sdn. Bhd., a
subsidiary company of Perusahaan Otomobil Nasional Berhad (PROTON),
Shah Alam. Prior to his current position, he was a Senior Manager of
Production Planning in PROTON for seven years and a Senior Executive of
Production Planning in Dunlop Malaysian Industries Berhad for 8 years.
Currently he is a part time research associate with Henley Management
College, England. His current research interests include materials
management, supplier development and purchasing. He holds a Master of
Business Administration degree from Brunei University, England as well as
an Advance Post Graduate Diploma in Management Consultant from Henley
Management College.
Supplier Development in the Malaysian Automotive
Industry: Current Practices, Outcomes
and Issues.
ABSTRACT
This article presents the results of a study on supplier development in the
Malaysian automotive industry which focused on Proton and its
suppliers. The study indicates that through Proton and its vendor
development programme, plays a very crucial role in developing and
extending comprehensive support to its supplier firms such as matching,
contact, R&D, financing, marketing and promoting continuous
performance improvement programmes. The relationship is one of
cooperative and long term in nature. However, there are existing
problems, especially in the areas of new product development, product
quality, delivery of parts, costs and financing. The lack of technical
capability, reliance on bought-in technology, the protected environment
and limited volume for economies of scale are factors that rendered the
industry to be not so competitive at international level.
1.
INTRODUCTION
Increasing competition in global market characterised by shorter
product life cycles, higher product quality, cheaper prices and shorter
delivery times to satisfy demanding consumers are likely to prevail
stiffly. Firms worldwide have responded to this competitive
environment with various strategies and activities such as downsizing
or concentrating on core competencies. Whichever way firms take,
either downsizing or concentrating on core competencies, it means
firms have to rely heavily on outside suppliers to provide high quality
inputs, on-time delivery, lower cost and constant innovation. Firms,
therefore, must continuously involve in supplier development to
ensure that their suppliers have the same capabilities and at the same
time sharing similar policies and objectives as theirs in order to
compete in such competitive environment.
The supplier development concept has been around for many years in
the Malaysian automotive industry, however, little has been
documented about the actual practices of the programme in terms of
the objectives, key factors, characteristics and effectiveness.
Consequently, this study will investigate and analyse the roles played
by the primary buyer firm (Proton) in developing its suppliers and also
its roles in spearheading the development of component parts industry
in Malaysia. Specifically, this study will, therefore, determine: What
supplier development programmes are being undertaken by Proton?
How are these programmes affecting the suppliers? What are the
outcomes and issues?.
For the purpose of this study, supplier development is defined as an
organisation's efforts to create and maintain a network of competent
suppliers to meet the organisation's short and long-term supply needs
(Leenders, 1989; Krause, 1997). It involves a long-term co-operative
effort between a buying firm and its suppliers to upgrade the suppliers
technical, quality, delivery, and cost capabilities and foster on-going
improvements (Hahn, et. al., 1990). The ultimate goal of these
programmes is to form a mutually beneficial relationship that will help
both firms compete more effectively in the marketplace (Watts and
Hahn, 1993).
2.
LITERATURE REVIEW
The supplier development literature mostly consists primarily of indepth case studies (Krause, 1997; Gait and Dale, 1991; Hahn, et. al.,
1990). Much of the supplier development literature focuses on the
automotive industry, either in the United States, Europe, Japan or
elsewhere and performed primarily by large firms (Krause, 1997; Gait
and Dale, 1991). Recent writings have begun to recognise the
importance of supplier development in formulating corporate
competitive strategies (Watts et al. (1995). This is especially true in the
automotive manufacturing in view of the fact that in automotive
industry, up to 75 per cent of cost of a vehicle comes from parts
sourced from outside suppliers (Smith, 1995). Hence, the auto firms
cannot be competitive in the world market unless they deal with their
suppliers who share similar objectives and have the same level of
performance (Watts et al., 1995; Womack et al., 1990; Helper, 1987).
The literature reviewed appears in agreement on issue that concerns
this study, i.e., the traditional posture, one of adversaries, adopted by
buyer and seller in buyer-supplier relations, is being replaced by a
much different stance-cooperative relations. In this respect, there is
still a contrasting difference between Western and Japanese model of
buyer-supplier relationships. Most of the suppliers in the Japanese
automotive industry have and continue to maintain stable business
relationships with their primary auto firms over long periods of time
(Womack et al., 1990; Harrison, 1994). The link between the auto firm
and its supplier serve to promote the growth of both firms in mutual
interest of both parties (Odaka et al., 1988). These elements led the
Japanese auto manufacturers to be highly regarded as the most
efficient and highest-quality producer of the motor vehicles in the
world (Womack, et. al., 1990; Cutts, 1992; Harrison, 1994).
3.
METHODS AND PROCEDURES
The author has carried out a fieldwork in two stages. The first stage
involved the extensive interviews with Proton's managers/employees
to examine the purchasing and vendor development practices in
Proton. In the second stage, the author had examined Proton's supplier
firms through: 1) personal interviews with the owners or senior
executives of the selected vendors; 2) to further verify the accuracy of
the analysis and interpretations, the author has collected additional
data from a larger sample of suppliers through mail questionnaire
exploratory survey which were sent to 140 suppliers (87 per cent
response rate) and these data are used to validate the prepositions
developed during the exploratory interviews; and 3) plants tours and
site visits were also carried out for direct observation on processes and
activities carried in the plants. In addition, the author had investigated
and examined Proton's documents such as vendors data base,
management committee's meeting papers, board of directors' meeting
papers, all routine records of production, marketing, financial, etc. and
any other published and unpublished documents generated by or for
the programmes. The data and information collected through this
exercise would further verify the accuracy of the analysis and
interpretations carried out in the first and second stage of the
fieldwork.
4.
SCOPE AND LIMITATIONS OF THE STUDY
This study was conducted in Perusahaan Otomobil Nasional Berhad
(Proton) and its suppliers (component parts manufacturers). The scope
of the study has been delimited in a number of ways. First, the study
is confined to the passenger car industry only. This is considered very
representative as the passenger cars dominate more than 70 per cent of
the total product mix of the industry while the rest were commercial
vehicles such as buses, lorries, taxi & hire cars, etc. Second, the study
will be delimited to Proton and its vendors (140 firms). It is
considered to be well represented as Proton produces and sell about 70
per cent of the total production and sales of passenger cars in Malaysia,
thus, it is the back-bone of the industry. In order to seek answers to the
research questions, this study will only cover the area of supplier
development between Proton and its primary or first tier suppliers (see
Figure 1).
FIGURE 1
Scope and Focus of the Study
PROTON
(Primary Buyer Firm)
In house + Local + imported Parts
= Proton Car
Supply
System
Supply of
Component Parts
Supplier Development
• Identification & Selection
• Matching
• Contact
• Research & Development
• Financing
Primary Suppliers (1st Tier)
Component Parts Manufactuers
(Complete Components and Sub-assemblies)
Product & Producing
Technology Required
Body parts, Engine Parts, Drive, Transmission Parts,
Steering Parts, Suspension Parts, Electrical Parts, Trim
and Upholstery Parts, Paints, Sealents, General Parts,
etc
Specification
Secondary Suppliers (2nd Tier)
Raw Materials and Small Parts Suppliers
Ferrous, non-ferrous, plastic resins, rubber
compound, textiles, ceramics, forging, casting, bolts,
nuts, screws, etc.
5.
THEORETICAL FRAMEWORK: PROTON SUPPLIER
DEVELOPMENT MODEL
In Proton, the component parts supplied by its primary suppliers are
considered strategic products because the parts represent about 50 per
cent in the total cost of end product and most of them are sourced from
only one supplier (see Appendix 1), As Kraljic (1983) suggested,
"Strategic products are generally obtained from one supplier, which
the short- and long-term supply is not guaranteed and represent a high
value in the cost price of the end product. The strategy is to strive for
a partnership-like relationship with the suppliers in order to obtain
significant improvements in quality, costs, delivery, product
development and innovation."
Before the establishment of Proton, the component parts manufactured
locally were initially few and catered basically for the replacement
market. However, with the introduction of specific localisation
programme by Proton through its Vendor Development Programme
(PVDP) for the industry in the mid of 1980's, more components were
produced to cater for the original equipment and replacement parts
market for domestic as well as export markets. As the President of
Proton Vendors Association (PVA) said;
"....many vendors were born, nurtured, and later developed
and grew solely as a result of this VDP. There were only 17
vendors supplying 52 parts when Proton commenced
operations in 1985, most of which were low-tech traditionally
local parts like batteries, tyres and etc. To date there were 140
vendors supplying more than 4,000 parts to Proton." (From
interviews with the President of Proton Vendors Association).
In 1986, Proton has established the Procurement and Vendor
Development Division (PVD) which an objective to develop its own
group of suppliers in order to formulate and implement the local
content programme for the national car. It was envisaged that with the
implementation of this local content programme the automotive parts
industry would expand. This expansion was much needed not only by
Proton in its endeavor to build a strong industrial base to depend on,
but also by the Government as a source of employment absorption and
reduction of imports. The supplier development programme achieved
quick results. In 1985, the local content of Proton car was only 18
percent in terms of value. By 1988, this ratio had climbed to 60
percent, touching 65 percent in 1991, and 70 percent in 1992. (see
Appendix 2 and 3). The programme is illustrated in the theoretical
framework as shown in Figure 2.
FIGURE 2
Proton's Supplier Development Model
KEY FUNCTIONS/ACTIVITIES
Selection of
selecting the
locally in
component
(suppliers).
Annual Master Plan (AMP)
Long Range Product Plan (LRPP)
Engineering Cost Estimates
Cost Estimates Review
4M Assessment (S.W.O.T).
Harnessing available facilities
Indigenous participation
Single Sourcing
No displacement of investment
Identification
&
Selection
Process
Parts: Identifying and
parts to be produced
Malaysia by local
parts manufacturers
2. Selection of suppliers: Identifying
and selecting the potential local
suppliers based on the company's
policies to produce the selected parts
in Malaysia.
3. Matching: Shaping and fitting the
products to Proton's requirements.
This includes such activities as
manufacturing, designing, specification, drawings, grading, assembly,
Designing & Specification
Training & Development
Productivity Improvement
(QCD, 4M, TCA, etc.)
packaging, agreement on price, order,
delivery, risk taking and other terms of
the offer.
Contact: Searching out necessary
input (technical assistance, capital and
other resources) and initiate a match
making programme between local
Searching for technical assistance
Matchmaking programme
Trade/investment promotion
suppliers and reputable overseas technical collaborators to expedite the
transfer of technology.
Technology transfer
Research centre
Product development
Testing and verification
Technology "bridging "
Equity participation
Arranging Grant Scheme
leme
Banking arrangementt
Purchasing arrangement
nent
'
Advertising & promotion
tion
Distribution
Export programme
After-sales services
Research & Development: Gathering
Ongoing
Assistance
of information necessary for product
planning, product development and
modification.
6. Financing: Acquisition and dispersal
of funds to cover the costs of
producing and distributing the
products.
7. Marketing: Market development and
dissemination
of
persuasive
communications about the products.
6.
SUPPLIER DEVELOPMENT PRACTICES IN PROTON
The succeeding sub-sections will describe in detail the Proton's
supplier development model (as exhibited in Figure 3). The suppliers'
performance has a greater impact on the productivity, quality, and
competitiveness of Proton. The company has offered and performed
various functions (activities) to develop the component parts
manufacturers more than they can usually achieved on their own. The
key functions/activities that were carried out by Proton in developing
its suppliers are described below.
6.1
Selection of Parts
A critical strategic decision for any organisation centres on the
issue of make or buy. Proton's management support the
philosophy of sourcing from outside suppliers. The main reason
was the challenges of maintaining long-term technological and
economic viability for a noncore activity. It is, therefore, the
company's responsibility to search for or develop capable
suppliers suitable for strategic needs of the organisation.
Proton's supplier development programme starts with the
identification of parts to be localised and potential local
suppliers to undertake the manufacturing of the parts locally.
The decision to place a certain volume of business with a
supplier was based on a reasonable set of criteria. Normally, the
decision is governed by the perception of the supplier's ability
to meet satisfactory quality, quantity, delivery, price, service,
etc.
The potential parts for local production are selected from the list
of CKD parts imported from Japan.
These parts are then
included in the long range product plan of the company (LRPP).
The LRPP is for the period of three to five years. The parts
selected for localisation would be tabled in the Annual
Management Plan (AMP) of the company for the top
management approval prior the implementation. Upon approval
of the AMP, the parts selected will be analysed in the
Engineering Cost Estimates for further consideration for local
production. Finally, the parts that meet the cost estimate review
will then be considered for implementation. For example, 690
parts were approved for localisation in the Annual Management
Plan for 1996.
6.2
SELECTION OF SUPPLIERS
The suppliers are identified and selected based on Proton's
policies. The company's supplier selection policies are: single
sourcing; no displacement of investment; harnessing or
optimizing available/existing facilities; and Bumiputra
participation. The appointment of suppliers are carried out in
two stages. First, the feasibility study stages, where the supplier
are assessed and evaluated based on the 4M's assessment (Man,
Machine, Material and Method) and SWOT analysis (Strength,
Weakness, Opportunity and Threat). Second, the cost and price
evaluation of the component parts based on the target cost as
suggested in the Cost Estimate Review Table. The suppliers that
meet the above two criteria will be appointed as Proton supplier
for the particular component parts. When the suppliers are
appointed, the assistance programme for the supplier will
commence, beginning from the development stage until mass
production stage and continuously then.
The evaluation of suppliers is a continuing purchasing task.
Current suppliers have to be monitored to see if expected
performance materialised. New suppliers need to be screened to
see if their potential warrants future consideration.
Proton
separate the suppliers into two categories. The first category
constitutes established suppliers who over the past have proved
to be reliable and good sources. The second category is the new
supplier group that needs constant assistance and guidance. The
company establishes supplier rating schemes which track
vendor performance on management, financial, technical
capability, quality, delivery, service, price, etc.
6.3
Matching: Shaping and Fitting the Products to Proton's
Requirements
By matching, it means shaping and fitting the products to
Proton's requirements which includes such activities as
manufacturing, designing, specification, drawings, grading,
assembly, packaging, agreement on price, order, delivery, risk
taking and other terms of the offer. Proton provides design and
specifications of component parts or manufacturing services to
be produced/provided by the component parts suppliers. Proton
expects that the suppliers would supply components or services
of the highest quality. Appendix 4 shows the departments in
Proton that are responsible to support the development of
component parts manufacturers.
For long term, as an "on going assistance" Proton has introduced
several productivity improvement programmes to assist its
component parts manufacturers (suppliers) in developing
efficient operation system to improve their productivity. The
measures emphasized by Proton such as: factory layout;
equipment and processes; process control; production planning
and control; utilisation of manpower; materials handling and
inventories; and most important of all is the product quality. The
results achieved are in the form of efficient delivery, reduction
of manufacturing cost, shorter lead-times, better management of
inventories and better quality of products. Among the
programmes implemented are QCD Programme (Quality, Cost
and Delivery), 4M Programme (manpower, material, machine
and method) TCA Programme (Target Cost Achievement).
The author has carried out a study at four selected supplier firms
to find out the results achieved from the productivity
improvement programme conducted by Proton at these supplier
firms. The results are tabulated in Table 1.
10
TABLE 1
Productivity Improvement Programme Conducted
At Selected 4 Supplier Firms
Results of the Improvement
Cases/
Improvement
Company
Activities
Company A
Items
Improved
Before
Improvement
After
Improvement
* Production Method
• Manpower
! 5 Persons
9 Persons
• Dies Improvement
* Modification of Jigs
* Re lay ou I Production
• Cycle Time
• No. of Process
• Working Area
58 Seconds
15 Processes
63 m2
55 Seconds
* Scrap Reduction
• Productivity
Improvement
• Monthly Cosi
• Saving/Month
RM44.400
0
RM39.180
RM 5,220
• Review Test Method
• Revise Specification
• Rejection Rate
90%
1%
9 Processes
5 Processes
8 Processes
36 m2
Line
Company B
Company C
Company D
• Revise Procedures
(S.O.P.)
* Production Method
* Deburring
• Eliminate Deburring
• Modify Jigs
• Tag Weld
• Tapping Nut
• Relayout Production
(Reduced
processing time
by 35%)
Line
Note: Exchange Rate: US$1.00 = RM 2.60 (1996)
Due to confidentiality, the company's name is not mentioned in this study. However, readers who are
interested in a more detailed account of the study methodology including a brief description of their
characteristic, can consult the writer.
11
6.4
Contact: Searching out technical assistance, capital and
other resources
By contact, it means searching out necessary input (resources)
such as technical assistance, capital, skills, etc. and
communicating with prospective suppliers and buyers. The high
level of technical know-how and large capital required for
manufacturing automotive component parts may not be able to
be provided by small and medium-sized component parts
manufacturers. However, this constraint would generally be
made possible through joint venture with large firms or with
foreign firms for technical assistance.
Proton has made several arrangements to matchmake local
component parts manufacturers especially the small- and
medium scale industries (SMI) with reputable foreign vendors
to participate in the development of automotive component parts
in Malaysia. From this matchmaking programme, many of the
high-tech and high-value components, which may not be
produced by SMIs, were made possible for localisation through
various forms of cooperation with large firms or with foreign
firms for technical assistance. These efforts are proven to be
successful with the involvement of several reputable automotive
parts suppliers such as GKN (United Kingdom), Robert Bosch
(Germany), etc. To date, over 80 technical agreements have
been concluded between some 70 local companies and 76
foreign firms localizing almost 170 parts resulting in transfer of
technologies, know-how and technical skills in automotive parts
manufacturing (see Appendix 5).
6.5
Research and Development
By research and development, it means searching and gathering
of information necessary for product planning, product
development and modification. Since its inception, Proton has
served as an anchor facility to bring about a coherent localisation of the Malaysian automotive industry. Completed facilities
at Proton's Research and Development Centre, the most
sophisticated in South East Asia today, provide full scale model
making, computer-aided engineering design and manufacturing
and include component and engine emissions testing
laboratories that are accredited with the United Kingdom
department of transport.
12
Proton inherited the automobile technology from Japanese technology- Mitsubishi Motor Corporation of Japan. In the past ten
years, Proton has played its parts to "bridge" the gap between
the sophisticated technology required for automotive parts production and the general low level industrial technology of most
of the Malaysian automotive parts manufacturers. To keep pace
with the technological advancement, Proton has acquired new
technology and training in the various fields of automobile technology. Expansion of its Research and Development Centre (R
& D) are given a special priority by the company in a move
towards being innovative, stable and independent organisation.
6.6
Financing
The Government and Proton have jointly assumed the duty in
accelerating the growth of automobile industry. A special Grant
Scheme has been introduced by the Government through the
Ministry of International Trade and Industry (MITI) to increase
participation of small and medium-scale enterprises (SME) in
the automotive components industry. In the Fifth Malaysian
Plan (1986-1990), Proton secured a RM7.0 million grants earmarked for the government Technical Assistance Scheme (to
produce Proton parts) to assist small and medium-sized entrepreneurs to venture into local automotive parts manufacturing.
Under the Sixth Malaysian Plan (1991-1995) an additional
RM15.0 million was allocated for the similar purpose.
Management of this Special Grant Scheme is entrusted to Proton
based on the guidelines set by MITI. The utilisation of the Grant
Scheme is emphasized on development of components for
Proton new models, and upgrading/expansion of vendors manufacturing facilities. Up to end of 1996, a total of RM14 million
grant assistance was awarded to 19 small and medium-sized
Proton vendors producing 135 parts.
6.7
Marketing
By marketing here it means ensuring that the products produced
by the local vendors can be marketed and sold to the consumers.
The component parts manufacturers aware of the benefits of
becoming Proton suppliers and one of them is easy accessible to
the market. Their markets are highly dependent on Proton,
which was confirmed by the President of Proton Vendors
Association (PVA), Proton guarantees long-term market for us
13
and makes our business easy in the long run. In this way our
business is more secure rather than if we have to compete every
year in a tender bidding system.'
Proton has successfully positioned its products from other
competitors' products as value for money buy, i.e. to
differentiate its product as a cost advantage. As such Proton has
strived to get the overall public perception that the car is cheaper
and economic to own. In doing so, the company has to maintain
its productivity level of its plant and its component parts
suppliers so that it can produce cars at lower cost. Proton has
entered the export market, which has achieved significant
success in a number of countries. Penetration into the
international market is an achievement to Proton as well as the
component parts manufacturers in view of the small size of
domestic market. This export venture would enlarge the market
size, thus, widen the scope and activities of the component parts
industry in Malaysia. These are some of the marketing
functions that are being carried out by Proton. Such functions
and factors work against the possible success of small and
medium-sized component parts manufacturers to enter the
business without the assistance of large firm - like Proton.
7.
OUTCOMES AND ISSUES
In the Malaysian automotive industry, much of the recent change in
philosophy towards manufacturing and towards quality is strongly
influenced by the Japanese model of auto firm and suppliers relationships - a recognition of the importance of 'network sourcing'. The
study found that almost similar relationship has been developed
between Proton and its component parts suppliers in Malaysian automotive industry, however, it does not closely resemble yet the manufacturer-supplier relationship characteristics in the Japanese automotive industry. The development pattern of ancillary or supplier firms
grew more or less after, or dependent of, Proton. The outcomes and
issues are highlighted and discussed in the succeeding sub-sections.
7.1
Supply Structure
Many of the suppliers deal exclusively with Proton by supplying every piece of their products to the latter. The supplier firms
receive assistance and support from Proton in the various forms
14
such as of technical know-how, supply of raw materials, equipment, marketing, financing, training of personnel, etc. Proton
maintains some equity holdings in seven supplier firms.
Compared to Nissan in Japan, Proton's equity participation in its
supplier firms is considered small. Nissan has an average of 33
per cent equity ownership in its 29 direct supplier firms (Dyer
and Oichi, 1993).
The Proton supply system is vertically structured - organised in
a pyramid-like structure (see Figure 3 below). It is a two-tier
structure, primary and secondary suppliers. The level is shorter
than that in Japan where in the Japanese automotive industry, the
second-tier companies may have a third or even fourth tier of the
supply pyramid. As at the end of 1996, Proton has 140 primary
suppliers and about 500 secondary suppliers that supply parts
and raw materials to the primary suppliers. Proton directly
manages its relationship with the primary suppliers, whose
member firms in turn take responsibility for managing the
secondary suppliers or those lower down in the hierarchy.
7.2
Technical Capability and Product Quality
The lack of capability lead to collaborative arrangement with
foreign firms who act as technology provider. Proton viewed
these as strategy alliances, with foreign companies extending
technical knowledge and expertise to Proton's vendors. Hightech items produced under these collaborative arrangements
include engine and transmission parts, oil pumps, pedal assembly, brake assembly, clutch assembly, instrument panels and
door-trims. The main issues here are: one, whether the "match
making" activities are effective in transfer of technology?; and
two, whether the alliance is strategic and result in value added
partnership? The transfer of technology is known to be extremely difficult and complicated. In many cases, the principal is not
sincere in the relationship and there are no equitable return in
which case that the principal benefits more (Awang, 1997). One
of the reasons is due to lack of ability and experience of the local
vendors in framing out the scope of agreement resulting in
shortfall thereby only one party benefits.
15
FIGURE 3
Proton Hierarchical Supplier System
PROTON
First Tier Suppliers (140)
2nd Tier Suppliers
(About 500)
A point worth noting in the Malaysian experience is the
relatively high adaptability of the production workers and
engineers to new machinery and technology. The technology
gap was naturally wider in early days of their development,
however, the Malaysian workers of the local firms managed to
master the operations of the imported technology with
assistance from their foreign counterparts. The quality of the
automotive parts and components as a whole has risen
substantially over the last ten years as a result of improvements
in existing technology as well as the introduction of new foreign
technology. As at middle of 1997, 63 supplier firms have
achieved ISO 9001/9002 certification. The fact that Proton cars
have exported to more the forty countries and seven of Proton
supplier firms have exported their parts to Japan, Australia and
Europe for OEM requirements implied that the quality has
reached the international standard.
7.3
Product Development
Proton selects all the necessary suppliers at the early part of their
product development and involves the companies supplying the
same parts to Proton and are long-term members of Proton's
supplier group. They are not selected on the basis of bids, but
rather on the basis of past relationships and a proven record
performance. In early part of product development, shortly after
the planning process starts in Proton, the suppliers assign staff
members to the development team of the Proton development
programme.
When product planning is completed, the component parts of the
car are turned over to that area's supplier specialist to conduct in
detailed development and engineering (based on the design and
specifications given by Proton). The supplier, then have full
responsibility for making component systems that perform to
the agreed-upon specification in the completed car. The study
found that many of the vendors do not have the capability to
design new parts/products. They can only develop the product
based upon specification control drawings provided by Proton
and/or MMC. Proton, for the development of new models, is
almost entirely dependent on its joint venture partner MMC.
Such dependency has placed Proton in a weak position for rapid
development unless a good cooperation with MMC is
maintained at all time.
17
7.4
Relationships, Assistance and Market Dependency
Proton and local vendors have maintained stable business
relationships. About 60 per cent of the suppliers have more than
5 years business relation with Proton and almost all of them
have experienced continuous subcontracting relationship since
the establishment of their formal contacts with Proton.
Assistance in continuous improvement consists of working with
established suppliers with systematic programmes for raising
efficiency and making other improvements. The average market
dependence of Proton's created suppliers is about 74 per cent as
compared with transactional dependence of Japan which is 69
per cent, Britain 26 per cent (Sako, 1992; Awang, 1997). The
market dependence of Nissan's suppliers is 50 per cent (Dyer
and Ochi, 1993). As such Proton has created a cluster of
dependent suppliers whose existence, management, technical
capability and market rested on Proton.
7.5
Price Determinant and Delivery System
Proton will set first a target price for the parts and then, with the
suppliers, works backwards, how the parts can be produced at
the set-up price while allowing a reasonable profit for both the
auto firm and the suppliers. The cost of the parts makes up of
material costs, supplier purchases of child parts and processes
from other firms (such as plating, ED-coating, etc.), direct
manufacturing costs, tooling costs, and gross margin (overhead
plus profit margin). The price is negotiated every year and this
would give both parties a chance to adjust the price accordingly
so that whatever adjustment made it would benefit both parties
in long term. The spirit of negotiation is based on long-term
partnership that is more concerned with good quality at
reasonable price rather than forcing the price to go down.
About 50 per cent of the parts are delivered to Proton plant
ranging from 2 to 4 hour per day, 40 per cent twice a day (one
delivery in the morning and another one in the evening), and the
balance 5 per cent are delivered twice a week (mostly small
parts). Though the delivery concept is based on the JIT system,
however, it is yet to resemble the JIT concept practised by the
Japanese auto firms. Neither Proton nor its vendors practise
perfect JIT and zero inventory. Both, Proton and its suppliers
hold excessive stocks, either in raw materials, CKD kits or
18
finished products. In short, the JIT system does not really work
perfectly here due to the large amount of raw materials have to
be imported from overseas, which requires a long lead time.
7.6
Suppliers Association
Proton has initiated the formation of Proton Vendors
Association, which was officially launched on July 9,1992. The
main objective is to foster relationship amongst members, and
between members and Proton. Currently, 107 out of 140 Proton
vendors are members of the association. Vendors' association
has played an indispensable role in the development of both
vendors and Proton. It has served not only as primary firm's
channel of assistance to ancillary firms, but also as an effective
instrument for the cultivation of loyalty between both parties.
The idea of suppliers association was put forward by the former
Managing Director of Proton, Mr. Kenji Iwabuchi, who believed
the Japanese style of supplier cooperative association or
kyoryokai kai would help in developing suppliers in Malaysia.
The establishment of such cooperative association is crucial for
generating and maintaining trust, as well as for disseminating
management innovations. In Japanese automotive industry, all
the first tier suppliers (primary suppliers) are members of the
suppliers association of their automotive customers.
7.7
Overall Performance: Benchmarking Against MMC and
Others
Since Proton is closely related with Mitsubishi Motor
Corporation (MMC), it will be most appropriate, to benchmark
Proton against MMC's associate companies outside Japan in
term of production performance. Comparing the productivity of
the assembly plants are by no means easy due to the differences
in several controlling factors such as production models, degree
of automation, extent of in-house manufacturing, sales
organisation and economic/market conditions. To have a feeling
of Proton's efficiency in relations to Mitsubishi's associate
plants overseas, .a 'productivity index' assessment was
conducted as exhibited in Table 2.
19
TABLE 2
Productivity Index of MMC's Overseas Related
(Associate) Companies
Company/
Production
Volume
(Country)
Manpower
(1993)
As at End
1993
Production
Vol. Per
Employer
Remarks
1,362,447
27,603
49.4
Reference
DSM (USA)
135,610
3,569
37.7
Without Sales
CMC (Taiwan)
85,079
2,453
34.7
Without Sales
Proton (Malaysia)
118,140
3,914
30.2
With Sales
MMAL (Australia)
54,600
4,993
10.9
With Sales
NMMNZ (N. Zld)
6,200
595
10.4
With Sales
MSC (Thailand)
71,849
2,809
25.6
With Sales
PAMCOR (Phil.)
23,730
1,397
17.0
With Sales
KRM (Indonesia)
25,100
545
45.9
Contract
KKM (Indonesia)
13,400
536
25.0
Assembler
Eicher (India)
3,370
630
5.3
MMC (Japan)
Note:
Without Sales = Excluding sales personnel
With Sales = Including sales personnel
Source: Mitsubishi Motors Corporation, Overseas Operation Office, 1995.
20
Taking Mitsubishi, Japan, as reference, Proton with 30.2
units/employee lies third after Diamond Star Motors, USA and
China Motors Corporation, Taiwan. Taking a step further, on a
globally competitive basis, Proton still lag behind the American
and European manufacturers in main plant characteristics (see
Appendix 6). The local car industry, spearheaded by Proton, is
still a long way from becoming a world class car manufacturer.
Against Mitsubishi and other Japanese auto firms, the current
status of Proton and the Malaysian automotive parts industry is
as plotted in the scatter diagram in Figure 4 below.
FIGURE 4
Current Status of the Malaysian Automotive Industry
© Reverse
Imports
MM
c& \Y
( Gibers Japanese 1
W Overseas
Production
Firms
© Export
\
© Local
Production
t
Shift to
Mass
Production
t
KD Operation
t
© Import of CBU
(No. Assembly
Plant)
c•••-.
f
,--~~
"A
Malaysia )
-~—__—--
Perodua ^
Malaysia
Qfavt-^.
J
^/
Assemblers ~)
Car
Assembly
Production
©
REM
Parts
Start-up
_^^-
©
©
Local Production
Export
Expansion
^
Shift to
mass pro.
Component Parts Production/manufacturers
21
0
Q
Overseas
Production
"Reverse
Imports
L
8.
Conclusion
The research, conducted in the Malaysian environment, focused on
Proton and its vendors operations with the objective of obtaining a
better understanding of the current practices, outcomes and issues in
the total supply system of the Malaysian automotive industry. It was
found that Proton, the primary car manufacturer, through its vendor
development programme, plays a very crucial role in developing and
extending comprehensive support to its supplier firms such as
matching, contact, research & development, financing, marketing and
promoting continuous performance improvement programmes. The
relationship is one of cooperative and long term.
However, there are existing problems, especially in the areas of new
product development, product quality, delivery of parts, costs and
financing. The lack of technical capability, reliance on bought-in technology, the protected environment and limited volume for economies
of scale are factors that render the Malaysian automotive industry to be
not competitive on an international level. The local parts were developed, in most cases, with cost penalty. To compete in the global marketplace, a considerable cost reduction is needed. And, since about 80
per cent of the production costs are due to the costs of components and
materials, with labour and sundry costs the remaining 20 per cent,
reduction of cost of component parts is certainly more important than
cheaper labour and sundry costs.
The rapid progress of component parts industry in Malaysia was made
possible, to a great extent, by close collaboration through supplier
development efforts
between Proton and its suppliers.
Besides
assistance from Proton and also the Government, the component parts
manufacturers themselves have made most extensive effort over the
past twelve years under the entrepreneurial and leadership of the own-
ers and the key executives of the firms. For as long as such efforts and
cooperation are sustained, the local component parts industry is
expected to grow for a brighter future to cater for Malaysian as well as
the international market.
22
Appendix 1:
Cost Breakdown of Proton Car and Focus of the Study
Proton Wira 1.3 Litre M/T
Local Parts
represent
major portion
of the cost and
is the main
focus of the
study
In house Parts
(4%)
Others
Fix Overhead
(10%)
(7%)
Source: Proton, Finance Division, September 1996
23
Appendix 2:
Locally Produced Parts Initiated by Proton
Parts
Classification
Main Parts/Items
Body Parts
Body stamped-parts, fuel tank, exhaust system, safety glass,
whether strips, moldings, etc.
Engine Parts
Filters, radiator hoses, air filter housing, spark plug, piston, piston
liners, etc.
Drive, Transmission
and Steering Parts
Wheel rim, wheel nuts and studs, control cables, rack and pinion
steering assembly, etc.
Suspension Parts
Coil and leaf spring, U-bolt and shackle assembly, shock absorber,
disc pad, etc.
Electrical Parts
Battery, horn, wiring harness, alternator, starter motor, voltage regulator, wiper and washer assembly, instrument cluster, relays, fuses
box, etc.
Trim and Upholstery
Carpet, floor mat, rear parcel shelf, seat assembly, safety belt, melt
damping sheet, etc.
General Parts
Paint and thinner, underseal, tyre, air conditioner, radio, screw jack,
etc.
(Source: Proton, PVD Dept, December, 1996)
Appendix 3
Proton's Supplier Development and Localisation Achievement
Year
No. of
Suppliers
In-house
Parts
Local
52
102
161
180
382
490
649
1057
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
17
176
33
40
46
67
78
99
106
125
134
137
140
223
519
524
528
259
394
394
394
394
Total
140
394
Parts
237
345
Total
3050
3640
4300
228
325
398
525
901
1014
1167
1316
2899
3444
4034
4694
Saga
Saga
Saga
Saga
Saga
Saga
Saga
Saga
Saga/Wira
Saga/Wira
Saga/Wira
Saga/Wira
4,300
4,694
Saga/Wira
2505
(Source: Proton, PVD Dept., December, 1996)
24
Model
Appendix 4
Departments in Proton that Support the Supplier
Development Programme
Departments
Support Activities
Procurement &
Vendor Development
a. Plan, implement and monitor the development
b. Identification of parts and vendors
c.
Window of communication & coordination
d. Close relationship from feasibility to production
Quality Control
a. Assist in identifying testing & requirement
b. Product identification & qualification
c. Assist in establishing of quality system
Research &
Development
a.
Production
a. Assist in fitting trial
b. Feed back as end user
c. Line trial for assembly verification
d. Assist in designing/improving plant layout
Engineering
a. Assist on tooling concept
b. Die trial & modification
c. Advise on process planning
Production Planning &
Control
a. Monitor part development
b. Provide volume forecast
Release drawing for development
b. Prototype build up design approval
c. Special testing & homologation
d. Engineering order
c.
Coordinate part supply
d.
Assist on material handling & inventory
Source: Proton, PVD Dept., December 1993
25
Appendix 5
Matchmaking Activities up to December 1996
Source
to
ON
Country
Joint
Venture
Technical
Assistance
Purchase
Agreement
Wholly
Own
No. Foreign
Companies
No. of Local
Vendors
Japan
15
33
5
3
56
48
Germany
3
0
0
1
4
5
Taiwan
4
1
0
0
5
5
South Korea
3
0
0
0
3
3
Australia
2
1
0
0
3
3
Others
3
2
0
0
5
6
30
37
5
4
76
70
TOTAL
(Source: Proton, PVD Dep., December, 1996)
Appendix 6
Benchmarking on Assembly Plant Characteristic
Japan
USA
Europe
Proton
Average ration of share parts
18%
38%
28%
40%
Productivity (hours/vehicle)
16.8*
24.9
35.5
15.0*
Quality (assy. Defect/ 100.00)
60
82.3
97.5
60
Return to normal productivity
after new model (months)
4
5
12
12
1.4
11
12
12
Return to normal quality
after new model (months)
Note:
*Productivity at MMC Plant is 12.5 hours/vehicle
Source: Womack et al., (1990); Proton, Corporate Planning Div., 1996
27
BIBLIOGRAPHY
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Ph. D. Thesis, University of Aston, United Kingdom.
Cults, R. L., (1992), "Capitalism in Japan: Cartels and Keiretsu," Harvard
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28
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29
BIODATA OF CHE RAZALI CHE ISMAIL
Che Razali bin Che Ismail is a consultant at National Productivity
Corporation, Petaling Jaya. He obtained his Master of Science in
Manufacturing Systems Engineering and Management at University of
Bradford, UK in 1997. His first degree is Bachelor of Science in Civil
Engineering from University of Nebraska Omaha, USA in 1988. His main
areas of expertise are ISO 9000, 5S, 7QC Tools, Process Q and JIT.
Previously he was a Civii Engineer and also Chief Designer Engineer in two
companies in USA and Malaysia.
30
JUST-IN-TIME (JIT) PRINCIPLES AND
SYSTEMATIC LAYOUT PLANNING AS TOOLS
TO IMPROVE PRODUCTIVITY AND QUALITY
(P&Q)
By Che Razali Che Ismail
ABSTRACT:
This article discusses a case study on a factory called Birkbys Plastics
Limited, United Kingdom. The objective of the study was to analyse the
current production system in a manufacturing cell called Gemini with
regards to people, machines, tools and material. Based on the data collected, several new layouts were suggested to improve the efficiency and utilisation of people and machines. Several Just-in-Time (JIT) elements were
also suggested to eliminate waste while improving the present production
and quality system. Comparison was made between the existing and the
proposed layout of the cell. This is to show the advantages of the new layout.
Cost analysis was also carried out to determine the expenses and savings.
INTRODUCTION
Manufacturing industries have had an interest in the Just-in-Time (JIT)
philosophy for the past two decades due to the significant reduction in costs
and inventory, improvement in quality of goods produced, increased
productivity and other manufacturing improvements. JIT concepts can be
used to reduce manufacturing lead times, increase utilisation and efficiency
of workers and equipment, reduce work-in- progress, increase work in
progress, inventory turnover, reduce raw materials, improve quality, reduce
finished goods inventory, reduce production space requirements, increase
flexibility in changing production mix, reduce scrap and increase
productivity [Schonberger (1982), Zipkin (1991)].
JIT philosophy, also known as 'Pull System' is a concept where goods are
manufactured when they are needed at the right quantity without wastage.
JIT has attracted a massive interest in the East and the West and has been
strongly recommended by Monden (1983), Schonberger (1982), Shingo
31
(1988), Suzaki (1987) and Voss (1989). According to Oliver (1991), a survey
carried out in 1987 64% from 132 manufacturing companies in the West are
implementing or planning to implement JIT programs, while a survey carried
out in 1988 found that, out of 1,000 manufacturing companies, approximately two-thirds were implementing or planning to use JIT.
1.1
Case Study Objective
Birkbys Plastics Limited is a polymer engineering company which
manufactures plastic injection moulding components and assemblies
for customers such as Ford, Toyota, Black & Decker, Rank Xerox,
Jaguar, VDO and Linkbuilder. In 1990, the Marubeni Corporation,
one of the largest trading companies in the world bought Birkbys
Plastics but, the Marubeni Corporation decided to allow Birkbys
Plastics Limited to continue their development programme so as to
serve their present customer.
Figure 1.1 shows the existing layout of the Gemini Cell situated at
Birkbys Plastics Limited.
Data were collected to calculate machine efficiency and utilisation on
the actual production from May 1997 to July 1997. Observations were
made on the tool set-up and changeover to determine the actual setup
time for the tool change. Records on product scrap and machine maintenance we collected to determine the frequency of service on the
machines.
Machine efficiency is defined as the percentage of time required for a
machine to carryout each task against the actual time taken to perform
that task. Machine utilisation is defined as the percentage of available
time less stoppage time against the available time for a machine to
carryout the task. Table 1.2 shows the summary of machine efficiency
and utilisation of the Gemini Cell for the actual production from May
to July 1997.
Based on the Birkbys method, machine utilisation and
efficiency are calculated as follows:
Efficiency: Birkbys has set the efficiency for all the machines in the
Gemini Cell to be 80% without doing any calculation. The reason for
Birkbys Plastics Ltd. doing this is 'unknown'.
Utilisation: Monthly Utilisation = (Monthly hours required to
produced parts)/(Hours available x 0.8)
32
13m
w
13m
QC inspection
& Parkina Area
dQ
["Assy. Insp.
—' & Parking
DD
UJ
UJ
e
ff
3
Area
a
Painting
Area
O
Q]
Q_
Paint
Store
O
^*
Nortell
Assembly
Figure 1.1: Existing Layout of
the Gemini Cell
V!
Paint Insp
Tech
TABLE 1.2
Summary of Machine Efficiency and Utilisation of the Gemini Cell (May-July 97 Production)
No.
Machine
Description
Number
Ma y-yi
Efficiency (%)
Utilisation (%)
Birkbys UOB
Birkbys UOB
Jul 97
Jun 97
Efficiency (%)
Birkbys UOB
Utilisation (%)
Birkbys
UOB
Efficiency (%)
Birkbys UOB
Utilisation (%)
Birkbys UOB
1
Al
TOSHIBA 350 E-17A
80
76.5164.1
74.34
80
90.38
64.1
92.92
80
79.66
83.2
84.13
2
A2
STORK 1000/250
80
82.00
81.5
84.24
80
81.64 81.5
94.65
80
54.65
88.3
71.32
3
A4
DEMAG250NC111
80
44.1524.3
50.96
80
88.42
24.3
93.77
80
55.21 10.7
42.08
4
A5
DEMAG400NC111
80
68.05
49.4
63.60
80
70.68
49.4
84.38
80
36.20
30.8
66.52
5
A6
STORK 2500/440
80
82.59
64.8
92.83
80
85.66
64.8
92.97
80
80.78
65.5
77.00
6
A7
STORK 1000/250
80
83.72
74.4
93.69
80
89.45
74.4
95.45
80
74.90
49.9
68.35
7
A8
STORK 1600/330
80
85.83
21.6
89.43
80
66.47
21.6
80,63
80
28.84
24.7
50.04
8
A9
STORK 2500/440
80
78.50
91.5
82.35
80
95.28
91.5
96.85
80
43.5188L1
49.82
9
AID
STORK 2500/440
80
85.45
91.5
83.61 80
80.41 91.5
80.26
80
82.77
74.41
AVERAGE
80.00
79.45
83.15
90.21 80.00
76.31 62.57
80.00
62.57
88.1
59.61 58.81
64.85
At the University of Bradford (UOB), machine efficiency and
utilisation is calculated as follows [Khan (1997)]:
Efficiency: Efficiency = [(Time required to produce parts)/(Actual
time taken to produced parts)] x 100%
Utilisation:
Utilisation = [(Available hours - Stoppage
hours)/(Available hours)] x 100%; where stoppage hours are shown in
Table 3,3.
Results of the calculation (shown in Table 1.2) shows that there are
differences between the figures derived from the Birkbys and the
University of Bradford's (UOB). The UOB calculation is based on the
industrial standard (Khan, 1997); As the data were all actual, it can
strongly be said that UOB calculation is more realistic than Birkbys
Plastics Limited's which used only estimated figures. The causes of
machine stoppages which resulted in the reduction of the machines
efficiency and utilisation are recorded in Table 1.3.
The most frequent stoppage with 26 cases was because the operator
was assigned to perform other work. An operator may be transferred
from one machine to another with higher priority leaving the first
machine without operator.
1.2
Tool Set-up and Changeover
Observations were made to determine the actual time taken for the tool
setup and changeover on only seven different machines and times. The
actual time taken for the tool set-up and changeover is three hours
which exceeds the company-targeted time of two hours. The result of
the seven observations are tabulated in Table 1.4.
1.3
Summary
Each worker such as operator, technician, QC personnel, material
supplier and fork-lift truck driver has only a limited number of tasks to
do. A technician has to wait for a fork-lift truck driver to deliver a tool
to be changed. When intact, the technicians could pickup the tool and
record themselves. During the tool set-up, time was also wasted due to
unnecessary movements and readjustments of the tool to fit into the
machine.
35
TABLE 1,3
Machine Stoppages and the Causes
Code
No.
Stoppage Code
Stoppage Description
0
Unauthorised Stop
Machines were stopped, no stop code entered
0
1
Tool Fault (Internal)
Tool undergone repair by tool room personnel
8
2
Inspection
Department
Waiting for first off sample
1
3
Electrical
Maintenance
Electrician worked on the machine
5
4
Mechanical
Technicians worked on the machine (mechanical
Problem)
3
Maintenance
5
No Material
(Internal)
Waiting for material to dry or problem
with material feed
2
6
Technician
Technicians worked on the machine
4
7 .
Setter
Tool was being fitted
2
8
No Operator
No operator available
26
9
Customer Packing
Ran out of customer returnable packaging
4
10
Sampling
Sampling department worked on the machine
5
11
No Work
No work was scheduled
2
12
Tool Fault (External)
This code is no longer applicable
13
Feeder
Feeder relieving operator for break
0
14
Bought Out
Shortage of infeed parts including materials
14
15
Engineering
0
16
Housekeeping
Engineering Department personnel worked on the
machine
Cleaning and painting floor
17
Try Out
Technician tried to get first off sample
11
IS
Wait Tool Change
Waiting for tool to be changed on the machine
8
19
Job end
End of production
6
36
No. of
Cases
1
Presently, tools for all the machines are stored in the Tool Storage Area
as shown in the Figure 1.1. Ocassionally a lot of time taken by the
forklift truck driver to deliver the tool from the tool storage area to
machine. In addition, files for tool allocation are kept in the tool
storage area only. One person is responsible to keep the tool. If the
Production and Planning controller (who determines the tool change
for all the machines in Birkbys Plastics Limited) wishes to assign new
production, and therefore the tool will be changed and he has to
contact the tool storage personnel. If the person is busy, the production
and Planning Controller has to go to the tool store himself. Time is
wasted due to unnecessary movement.
TABLE 1.4
Machine Set-up and Changeover
Date
Observed
Machine
No.
From Tool No.
To Tool
No.
Act Time Taken
30-6-97
A6
11275
11361
3hrs
17-7-97
A5
11312
10689
3 hrs 7 mins
18-7-97
A5
10689
11518
3 hrs 25 mins
8-8-97
Al
11309
11005-26
3hrs
12-8-97
A7
11481
11112
2 hrs 57 mins
18-8-97
A4
11088
11579
3 hrs 20 mins
21-8-97
A7
11481
11399
2hrs
Average
3hrs
37
Observations were made to determine the frequency of movements of
people, tools and materials within the cell. In order to be more accurate
in data analysis, the observations were made every working day for
four months from May to August 1997.
Table 1.5 shows 59% of the time was wasted due to waiting for the
parts to be produced and ejected from the machine. Table 1.6 shows
that in the month of August, the maximum number of machines, which
were running, was eight on 21 August 1997. It is also calculated that
the average machines which were running daily is four out of the total
of machines of nine (44%).
2.1
Proposed Gemini Cell Layout Improvement
The proposed Gemini Cell layout improvement was determined based
on two aspects. Firstly, workers spent 59% on average of the time
waiting for parts to be ejected from the machine. This leads to a
possible multi machine tasks by operator to reduce waiting time while
increasing working time on the parts. Secondly, some machines run
daily to produce parts while some are idle. This leads to a possible
grouping of machine with heavy and light load to level up the load
among the machines.
2.2
Proposed Layout Improvement No. 1
As shown in Figure 1.7. Group 1 (A2, A4, A7) are combined based on
two high frequency orders for A2 and A7 and one low frequency for
A4. It is also based on low size machine capacity of 250 tonnes for all
the three machines. The combination of Group 2 (Al, A5 and A8) is
also based on two high frequency order for Al and A5 and one low
frequency order for A8. It is also based on medium size machine of
330-400 tonnes.
The combination of Group 3 (A6, A9 and A10) is also based on two
high frequency orders for A6 and A10 and one low frequency order for
A9 It is also based on big machine of 440 tonnes. Two operators are
required to operate three machines each. If all three machines are
running, the two operators will increase their working time from 41%
(in the existing layout) to61%(41%x3 machines/2 operators). The
total number of operators can be reduced from ten to six.
38
2.3
Proposed Layout Improvement No. 2
The Figure 1.8 shows a combined conveyor belt system. Each time
machines in Group I & A2, A4 & A7, Group II (A 1, A5 and A8) and
Group III (A6, and A10) are producing parts, they will eject parts
which drop on the shared conveyor belt where they will flow down to
the operators for finishing work of the part.
2.4
Proposed Cell Layout
As shown in Figure 1.9, the'Group-of-Three° machines are arranged in
a U-Shaped layout but each machine has its own conveyor belt for the
product to flow to the operator. Two operators are needed to monitor
the Group-of-Three machines and they can remove the conveyor belts
in order to stand near the machine to insert and feed parts on the mould
as necessary.
In addition each group of machines will have its own tools store kept
within the cell. Group A2, A4 and A7 has fifteen tools, GroupAl,A5
and A8 has nineteen tools and Group A6, A9 and A10 has ten tools.
The overall dimensions of all the tools for these three groups of
machines ranging from 0.4m x 0.45m x 0.75m (smallest-175T) to
1.0m x 0.55m x 0,62m (biggest-440T); therefore, they will be kept on
a wooden platform with a single layer. Presently, each tool is stored
on a wooden pallet and put on a three-layer tool room. As the new
proposed tool storage doesn't require a forklift to transport it, single
layer is necessary, as an overhead crane will carry it to each machine
for tool changeover. The overall layout of the factory showing the new
design of the Gemini Cell is shown in Figure 2.0.
2.5
Multi-Skilled Workforce
Firstly the four main types of direct workers involved in the cell are
operators who perform their daily work mentioned earlier. Secondly
the QC inspectors who carry out final audit of the parts before they are
packed and delivered to the customers. Thirdly the tool technicians
who change tools and repair machines. Fourthly the Internal Raw
Material Supplier who supplies raw material to the machines.
However, these four different tasks with the appropriate training can
be combined. As a result, they will not only perform operator's work
but also audit the parts, supply their own raw material and change the
tool by themselves. The same principle is applied to the QC inspector
and tool technicians where it will then lead to the concept of Team
Work.
39
TABLE 1.5
Percentage of Operators Doing Works Versus Waiting
Percentage of Operators
Doing Works
MC
No
Tool
Number
Daily
Frequency
No. Op.
Doing Works
Waiting
Al
11005-25
11309-01
11005-26
11005-24
292
156
150
30
1
1
1
1
47
31
47
47
53
69
A2
1120021
925
2
42
58
A4
1 1088-02
221
1
47
53
AS
11250-52
510
1
18
82
11165-01
10689-01
11312-04
10310-01
124
121
56
29
1
1
1
2
55
20
37
100
45
80
63
0
11275-11
1350
1
71
29
11361-01
272
1
40
60
11481-01
271
1
35
65
11170-01
182
152
65
45
1
1
1
1
48
20
60
38
52
11112-01
11399-01
11089-13
40
62
A8
10838-01
333
1
18
82
A9
11159-11
235
1
33
67
A10
1139231
11392-32
431
1
16
29
84
71
A6
A7
>
i
96
40
53
53
80
TABLE 1.6
Machines A1-A10 in Operation in August 1997
MC
NO.
Tool
Number
7
Al
11309-01
*
11005-26
9 11 12 13 14 15 18 19 20 21 22 26 27 28
29
*
*
11005-25
*
11005-24
A2
11200-21
A4
1IlUoo-Ui
ineo cfi
A5
11250-52
*
*
*
*
11165-01
*
*
*
*
11275-11
11481-01
*
*
*
*
*
*
*
*
11112-01
*
*
*
*
*
*
*
11159-11
A10
11392-31
*
*
*
*
*
*
*
*
4
4
5
5
11392.32
TOTAL
*
*
*
*
*
*
*
*
*
11399-01
10838-01
*
*
11089-13
A9
*
*
11170-01
A8
*
*
11361-01
47
*
*
10310-01
A6
*
*
*
11312-04
*
*
10689-01
*
*
2
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
5
6
6
6
5
8
7
5
6
6
7
Note: Plant was shut down from 1 to 6 August 1997
41
2.6
Set-up Time Reduction and Improvement
Time taken to change tools was approximately three hours. This
exceeds the company's target of two hours because work was carried-
out manually. Electrical or pneumatic tools would allow the work to
progress faster. There were two cases where the technicians were waiting for tools to be delivered. Tool storage near the machine is essential as the technician can collect the tool himself by using the overhead
crane without waiting for the forklift driver to deliver the tool.
Thirdly, the technician travelled back and forth three times from the
machine to the tool store to get the right size of hydraulic hoses. It
took 30 minutes for the unnecessary activities. The technicians should
make it a point'to check the size of nozzle to fit the right size of hose
before collecting it. In fact, the set-up time of two hours was achieved
during one of the observations because the above problems were
eliminated (except the manual adjustment which is still being used).
Therefore, it implies that the technicians have the capability of
reducing the set-up time and can reduce even further if electrical or
pneumatic tools are used.
2.7
Levelled/Mixed Scheduling
The most important aspects of JIT is levelled scheduling which is not
only planning a level of products but planning to produce the full mix
of models each day (or some other short interval, if volumes are not
high enough to warrant daily production). The benefit of full-mix production in short periods is that the level of inventory build-up remain
relatively low. This allows the schedule to be flexible and very easy
to respond to actual custom order conditions. To plan for level output,
the first step is to forecast demand for the product mix and convert the
forecast into daily production plan. As for the present production
planning in the Birkbys Plastics Limited factory, the machines are run
based on priority. The first priority production in the Gemini Cell was
priority number 8 for machine A10 to produce parts. This is one of the
reasons why most machines in the Gemini Cell were idle due to oper-
ators being transferred to higher priority machines outside the Gemini
Cell.
2.8
Tool Management Design
The tools for each machine group should be kept within the Gemini
Cell. However, it will be better for the Production and Planning
42
Controller who plans the production and instructs the technicians for
tool change to keep the tool storage record in his room.
Every time he assigns a new production run, there will be a tool
changes and he will update the tool movement and allocation in the
computer. By doing this, he will always have the up-to-date record
rather than having to go to the tool storage area office to check the tool
storage data which is what he is presently doing.
2.9
Maintenance System
Presently, the maintenance system which includes servicing the
machines at the required interval, repairing the machine when it breaks
down and checking the safety features of the machine are done by the
technicians. In the new system, it is proposed that the operators carry
out 'first-line* maintenance by cleaning and checking the machine
everyday against the specified criteria mentioned. This leads to one of
the JIT concept called 'Total Preventive Maintenance' which
maximizes the overall effectiveness of equipment through the people
that operate and maintain that equipment [Willmott (1994)]. Workers
who worked within the cell will be totally responsible for the machine
and work without relying on the technicians for maintaining the
machine. They must be properly trained in order to fulfill this JIT
principle.
2.10
Summary
As the number of machines in the Gemini Cell is fairly small, a manual
technique adapted from different methods such as 'Systematic Layout
Planning' of layout design was used to accommodate the JIT
implementation. In the previous chapter, data was collected and
extracted from actual measurement for the existing layout of the
Gemini Cell, records in the company's computer system and print-out,
daily observations, informal interviews and discussions with the direct
workers, executives and managers of the Birkbys Plastics Limited who
are working in the Gemini Cell.
3.0
EFFICIENCY OF THE NEW CELL DESIGN
The average time of the workers carrying-out value-added activities
was 41% while the remaining 59% was just waiting time. The average
number of machines in operation daily was only four out of nine. In
43
Figure 1.7: Proposed Layout Improvement No. 1
Group 1
Group 2
Group 3
•o
o
85
•o
3
1
B_
2
o
Figure 1.8 Proposed Layout Improvement No. 2
A4r
e
A n
—
A6
AAO
e
?
—
i
i
i
i
I
3
•o
o
w
ft
A
65
e
>\ 2
\l
A/
/
C
)
7
A.1
N/
/\9 \ /
Ai£
c}_
c)3 D<s
<
c3 n^:
3m
4m
4m
3m
f ^ 10
><
LUla]
4m
5G5rr
Group 1
'
Group 2
Grouo 3
QO
Figure 1.9 : Proposed Cell Layout
Group I
Walking Path Only
Tech.
Room
(Cage)
A8
A4
Tool
Store
for
A2,,
A4&
A7
Group 3
Group 2
A6
"0
3
•O
Tool
A2
A7
A1
A5
Store
for A1,
A5&A8
Tool
A9
A10
Store
Container Box
Fork-lift
Container Box A9&A10
Driveway & V 'a\\ in 3 Path
Container Box
O
Tool Repair Area
o
Tool Storage Area
Raw
Mat.
Store
Cft
Scrap Inserts
Area Store
A11 -A16
QC Inspection
& Parking Area
Delivery Area
Prod.
Office
Rework
Area
I Ass'y, Insp.
—' & Parking
LShop
Nortell
Assembly
Area
Painting
Area
Figure 2.0 : Detailed Layout of The Inproved Gemini Cell
3
n
a
O
s.
n
n
=
Paint
Paint |nsp
Store
Tech
addition, tool set-up and changeover time was three hours which
exceeds the company target time of two hours. Besides, the servicing
of machines has no proper records. With the new layout, coupled with
the appropriate manufacturing system, workers can increase their
value added activities. Machine usage can be increased leading to
better utilisation and efficiency (this will improve further with TPM)
and tools are stored within the cell; therefore, avoiding time wasting
due to the unavailability of the forklift truck driver to deliver the tool
to the machine. The new tool storage system proposes to use the
existing overhead crane in the Gemini Cell to transport the tool to the
machine.
3.1
Layout Comparison
The new layout as shown in Figure 1.9 and Figure 2.0 was based on
combinations of machines with two having high frequency demand
and one having low frequency demand so that the load on the three
machines can be levelled-up . Two operators handle the 'Group-ofThree' machines so that they can work together and lead to better
'teamwork'.
3.2
People Comparison
In the new proposed layout, the machines were laid-out in 'U-Shaped'
system and operated by two operators. A combined system will enable
operators to perform value-added activities rather than just waiting for
part to come-out from the machine. The new proposed system will also
require a three-in-one task by direct workers involved in producing
parts of the Gemini Cell. Three of the five main types of workers in
the Gemini Cell are operators, QC inspectors and technicians (setters).
In fact, these three tasks can be combined together provided that they
have proper training on each type of task.
3.3
Tool Management System Comparison
The present layout of the Gemini Cell has no room for tools to be
stored next to the machines. Several times technicians had to wait for
the forklift driver to deliver the tool from the tool store for the tool
change. As the forklift driver had to service three other manufacturing
cells for the tool delivery and change, delay should be expected at the
required machine's tool set-up. The new system offers the tools to be
stored next to the machines. Therefore, no forklift is necessary to
transfer the tool from tool store to the machine. The technicians can
pick-up the required tool by using the overhead crane. As mentioned
48
above, the forklift is not required to pick-up the tool for the tool
changes in the newly proposed system. There is less burden for the
forklift and its driver. This could also lead to less maintenance and
usage of the forklift.
3.4
Maintenance System Comparison
There was no record available on the machine maintenance. Daily
records show that safety checks were not carried out on a regular basis.
As observed, technicians were always busy changing the tool and also
fixing and adjusting the machines (for all the four manufacturing cells,
not just only for the Gemini Cell). A better maintenance system called
the Total Productive Maintenance, where the operators carry out some
maintenance works including safety checks, repair, cleaning and
servicing by themselves without waiting for the technicians to do it.
But, they need to be provided with proper training before they can start
doing the works.
3.5.
Summary
The improvements suggested above will cover all the major
manufacturing resources such as people, machines, tools and
materials. The implementation of the new system may not have a
immediate impact as some of the workers are likely to require a little
time to adapt. The changing process will need some efforts to go
through the learning process. Once the initial step is successful, the
consequent improvement programmes will be much easier to
implement.
4.0
COST ESTIMATION
4.1
Cost Incurred for the Improved Layout
There are three major expenses involved in implementing the new
layout; namely, relocating the nine machines, in-house training for the
direct workers and production stoppage due to machine relocation.
4.2
Relocating the Machines and Equipment
From the data supplied by the company, the cost incurred in moving
one machine to another place is £1000. The cost for nine machines
49
will be £9000. The cost includes transferring the machines to a new
place, reconections of electrical wiring, raw material pipes, exhaust
cylinder and computer system.
4.3
In-house Training
The new system requires the operators to be multi-skilled. They will
need to be trained to fulfill the role of QC inspectors and technicians.
The training for QC inspector's work, which will be done by the
present QC inspector, will take two days of eight hours per day. The
present wage for the QC inspector is £12.13 per hour. Thus, the total
cost for QC training will be £12.13/hour x 16 hours = £194.00.
Training of the technicians requires longer period because the contents
of the training are very technical. The participants need to learn in
detail about machine safety, maintaining them and changing tools. In
order to properly develop the operators to become technicians, the
training could take a whole year of working days which is 260 days at
eight hours per day. The present technicians will provide the training
to the operators and their present wage is £28 per hour. Thus, the total
cost for the training will be £28/ hour x 260 days x 8 hour/day =
£58,240. Therefore, the total cost for both types of training is £194 +
£58,240= £59,000
4.4
Production Stoppage Due To Machine Relocation
As estimated by the company, it will take 96 hours to relocate one
machine. (96 hours per machine x 9 machines = 864 hours of
stoppages). The standard price of parts produced by the Machines AlA10 (excluding A3) is shown in Table 2.2
In order to calculate the production loss due to stoppage of machines for
relocation process, it is more realistic to base on the higher frequency
production. For instance, to calculate the production loss for moving
Machine Al, it is based on the high frequency production (Refer Table 1.8)
where Product 11005-25 was highly produced from May to July 1997. The
loss due the stoppage for Machine Al is calculated as follows:Production Loss
= Stoppage Time/Product Cycle Time x Price x
Average Actual Efficiency (From Table 3.4)
= 96 hrs x 60 mins/hr x 60 secs/min/34 sec x 0.8507 x
[(76.31% + 83.15% + 59.61%)/3]
= £7420
50
The remaining of the production loss due to other machine stoppages are
summarised in Table 2.1 as follows:-
TABLE 2.1
Production Loss due to Machine Relocation
Machine No.
Production Loss (£)
Al
6,312
8,970
25,274
117,910
27,134
8,778
6,797
6,605
A2
A4
A5
A6
A7
AS
A9
A10
7,278
Total
216,000
51
4.5
Total Costs Incurred
The total costs incurred are £9000+ £59,000 + £216,000 = £284,000
4.6
Cost Savings
The savings are derived from the reduction of manpower, elimination
of forklift utilisation, reduction in space utilisation, reduction in set-up
time and an increase in workers' production and flexibility.
4.7
Rationalisation of Manpower
The present wage of an operator is £12.13 per hour. Each week, the
normal working hours are ninety-nine (99) hours. Therefore, the
weekly wage for each operator is £12.13/hour x 99 hours/week x 52
weeks/year = £62,445.24 per year. The new proposed system reduces
manpower from ten to six. Thus, the total savings per year is 4
operators x £62,445.24 = £250,000 per year.
4.8
Elimination of Fork-lift Truck Utilisation
Everyday, there are about four tool changes for machines Al to A10.
The forklift has to travel about 0.25 km to transport the tool from the
store and deliver to the machine and return to its station. The cost of
diesel for forklift is £0.65/litre for every kilometer movement. Thus,
the cost of forklift consumption is 0.25km x 4 times/day x 1 litre/km x
£0.65/litre = £0.65 per day x 5 days/week x 52 weeks/year = £170 per
year.
4.9
Floor Space Saving
The new layout provides tool storage next to the machines. It is
calculated the floor saving will be 4.5 metres x 13 metres = 58.5
square metres. Due to a strict cofidentiality of the monetary value for
the floor space, Birkbys Plastics Limited decided not to reveal its
figure for this project.
52
4.10
Set-up Time Reduction Saving
There were two cases where it took less than two hours for the
technicians to change the tool. Firstly, the technicians took 85 minutes
to change the tool but had to wait for 95 more minutes for the raw
material to be supplied to the machine for production. Secondly, the
technicians took exactly two hours to change the tool. In other words,
the technicians .have a capability of achieving the company target of
two hours for changing the tool by proper planning. This could be
improved further if electrical or pneumatic tools were used as opposed
to the current manual tools.
If the set-up time is reduced from three to two hours, the machine can
start producing part one hour early. Average cycle time for producing
each part is one 49 seconds and there are four tool changes everyday.
Therefore, the saving will be {[(4 tool changes per day x 1 hour per
tool change) x 60 mins/hour x 60 secs/min]/ 49 sees} x £4.494 (Table
6.1) = £1,320.69 per day x 260 days per year = £344,000 per year.
4.11
Higher Productivity and Higher Flexibility of Workers
With the higher productivity and higher flexibility of workers in the
new production system coupled with the new layout, it is expected that
overtime can be eliminated. The overtime records for May to July
1997 production is as listed in Table 2.3.
The company record also shows that the average number of machines
run every weekend for the overtime production was four with one
worker per machine. Therefore, total overtime saved during the
weekend is calculated as follows:
Saving = 122.4 hours/week x 52 weeks/year x 4 workers x
(24.26/hour (double pay during the weekend) = £618,000 per year.
4.12
Total Savings
From the four aspects mentioned above the total savings for Birkbys
Plastics are £250,000 per year + £170 per year + £344,000 per year
+ £618,000 per year = £1,212 ,000 per year.
53
4.13 Summary
The summary of financial costs involved and savings gained from the
new layout are given as follows:-
Cost incurred from
Relocating machines and equipment
=
In-house training
=
Production stoppage due to machine relocation =
£9,000
£59,000
£216,000
Total
-
£284,000
Rationalisation of Manpower
Set-up Time Reduction
Higher productivity and flexibility
=
=
=
£250,000
£344,000
£618,000
Total
= £1,212,000
Savings from,
It must be stressed that training of the new multi-skilled workforce is
the key factor for the success before forming the new cell.
5.0
IMPLEMENTATION OF THE NEW LAYOUT
The new layout is considered as practical, viable and flexible for future
operation with the workers developing from single skill to multiskilled. In most manufacturing operations, the company always rely
on the '4M + IE' concept which stands for Manpower, Machines,
Method, Material and Environment. In the case of Birkbys Plastics
Limited, the workers didn't utilise their capabilities to their maximum
capacity.
Workers can optimise their working time by operating more than one
machine and carrying other tasks such as checking and cleaning the
machine without assistance from the technician.
54
TABLE 2.2
Standard Price List for Parts Produced by Machines A1-A10
M/CNo.
Al
Al
Al
A2
A2
A2
A2
A2
A2
A4
A4
A4
A5
A5
A5
A5
A5
A5
A5
A5
A5
A6
A6
A7
A7
A7
A7
A7
AS
A8
A8
A9
A9
A9
A9
A10
A10
A10
A10
A10
A10
Part Code
11309-01
11005-21+35
11308-12
11002-21
11200-21
10328-11
10848-01+02
10859-01+02
10861-11+212
11088-02
11089-13
10307-01
11250-52
10689-01
10310-01
10314-01
Cycle Time
(seconds)
Std. Price (per part)
26
0.733
0.850
2.085
2,130
1.600
34
60
50
45
60
50
52
51
45
55
60
55
40
57
60
51
47
11164-01
11165-01
11312-04
10306-01
10312-01
67
60
69
22.5
45
60
50
10
51
12.5
55
40
48
55
48
11275-11
11156-41
11112-01
11111-01
11399-01
11160-11
11170-01
10838-01
11163-01
11456
11392-31
11159-11
11032-11
11392-32
11392.31
10054-01
(£)
2.740
0.626
0.360
0.785
55.10
30.12
1.253
25.70
1.532
1.944
2.705
1.124
1.135
1.717
2.030
1.544
2.420
2.445
2.088
2.138
0.848
0.755
0.333
1.482
0.939
39.61
1.587
1.257
11035-11
11159-11
11392-32
53
55
55
55
51
43
48
55
4.813
1.587
1.587
2.643
1.052
4.813
1.257
1.587
Average
49
4.494
10055-01
55
With regards to the material, scrap exceeds the targeted amount. This
shows that there is still a significant amount of non-standard quality
product produced. In term of the environmental factor, Birkbys
Plastics Limited has implemented good housekeeping concept called
'5S' to ensure well organised environmental condition around the
factory. However, there were times where irresponsible workers threw
rubbish into the container box instead of the trashcan. This type of
attitude can be rectified through proper training and disciplanary
reinforcement.
5.1
Summary of New Cell Layout and Its Practicality
Even though substantial work has been carried out in this project, it
only involved nine machines. This contribute only a little improvement to the company. However, as the continuous improvement will
normally start with small and gradual activities (which is referred as
Kaizen), this project is considered as one of a most significant step
towards the success for implementation of JIT principles. With the
new layout, the operators time of carrying-out value-added activities is
increased from 41% to 62%. They can also carry-out 'first-line'
maintenance by cleaning and checking the machine by themselves and
keep the records in a safe and locked place within the cell. Control,
Updating and Keeping the Quality Record and Corrective and
Preventive Maintenance are two of the quality standard elements set
by the International Standard Organisation. [ISO 9000 Manual
(1994)]. The tools are stored within the cell. By eliminating time
waste due to waiting for the fork-lift truck driver to deliver the tool to
the machine, set up time will be reduced.
5.2
Conclusion
Birkbys Plastics Limited has a tremendous amount of manufacturing
resources available in people, machines, tools and materials but they
are not utilised as efficiently as they should. Machine operators spent
more than half of their time waiting for the parts to come out from the
machine rather than carrying out value-added tasks. Machines were
under utilised, tool were changed inefficiently and material scrap
exceeds the targeted amount.
56
5.3
Project Achievements
The proposals developed in this project have yet to be implemented;
however, the data generated on the existing Gemini Cell has given the
company much useful information about the present state of the
production system. The company has estimated that two hours are
required for tool set-up time and changeover, but from the seven cases
observed the technicians actually took three hours to change the tool.
All the machines in the factory were claimed to be serviced regularly,
but no record was available to support this fact. This is a noncompliance according to the International Standard Organisation
(ISO) quality element (ISO 9000 Manual (1994). In order for Birkbys
Plastics Limited to retain their ISO 9000 accreditation, this noncompliance needs to be addressed. Birkbys Plastics Limited may lose
£225,000 within four working days for machine and relocation and
production stoppage for implementing new layout in the Gemini Cell
but they will also start saving by a reduction in the number of workers
required (£1,000 per day), reduction of set-up time (£1,400 per day)
and elimination of overtime hours (£2,400 per day). In comparison,
the amount of loss of £225,000 can be recovered within 47 working
days with the total amount of savings of £4,800 per day (£1,000 +
£1,400+ £2,400).
TABLE 2.3
Average Overtime for Works carried-out During the Weekends
Overtime
May
1997
June
1997
July
1997
Average
Total hours
418.61
742.8
307.13
489.5
Average hours per week
104.65
185.7
76.78
122.4
57
5.6
Summary
Finally, this project has helped the company to understand what is
actually happening to their manufacturing resources such as people,
machines, tool and materials. The recommendations made are based
on the actual data taken from beginning of May 1997 until the end of
August 1997 using JIT concepts and the successful implementations of
JIT in other industries. The JIT concept as suggested by many great
thinkers, practioners and 'gurus', has been proven to be a useful and
practical as pursued by Birkbys Plastics Limited. Even though all the
suggestions and recommendations may not be implemented by
Birkbys Plastics Limited immediately, they can be implemented in
stages with success provided all employees are committed to put in the
effort required.
58
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62
BIODATA OF ALIAS RADAM
Alias Radam started working with the Faculty of Economics and
Management in 1990. He obtained his MBA from the Universiti Pertanian
Malaysia. He has taught courses on Operation Research and Mathematical
Economics. Currently he is the coordinator of Bachelor Economics for
-Executive Programme at the faculty. He is the Secretary of the Malaysian
Agricultural Economics Association for 1998/9 session.
His research topics and consultancies include productivity analysis and
production economic in agricultural and manufacturing sectors. Some of the
research projects and consultancies have been funded by various agencies
including NPC, Department of Agriculture, Johor Tenggara, MIER and
IRPA.
63
PRODUCTIVITY CHANGE AND TECHNICAL
EFFICIENCY IN THE MALAYSIAN CHEMICAL
AND RELATED PRODUCTS MANUFACTURING
INDUSTRIES
By Alias Radam and Shazali Abu Mansor
ABSTRACT:
This article examines the productivity and technical efficiency in the
chemical related industry by employing the Malmquist and Farell index
respectively. The results show the productivity and technical efficiency of
this industry have improved significantly in accordance with the growth of
the industry. Thus this finding suggests that policy should be directed
towards expanding its world market share to further reap the benefits of
economies of scale which is closely associated to this type of industry.
INTRODUCTION
The performance of the Malaysian economy during the Sixth Malaysian Plan
period was impressive. The strong economic fundamentals resulting from
sound macroeconomic policies and the increasing competitiveness of the
economy contributed to high growth with relatively stable prices. The
economy was propelled by the strong upsurge in private investment which
was supported by large inflows of foreign investment, high domestic savings
and privatization. The export sector performed remarkably well, despite the
sluggish growth of the major industrial economies during the first half of the
Plan Period.
With the rapid growth, the economy also faced supply constrains such as
infrastructure inadequacies and labour shortages while the current account
deficit of the balance of payments persisted throughout the period. In
addition, large short-term capital inflows affected the management of
monetary policy in the middle of the Plan period. However, pragmatic policy
measures were instituted and conscientious efforts were undertaken to
overcome these developments.
Recognizing that there are limitations to sustaining high levels of investment
to support high growth, the Seventh Malaysian Plan will shift the focus from
64
an investment-driven strategy towards a productivity-driven strategy, by
enhancing the contribution of total factor productivity (TFP) growth from
28.7 percent of Gross Domestic Product (GDP) in the Sixth Malaysian Plan
to 41.3 percent in the Seventh Malaysian Plan. Among others, emphasis will
be given on increasing the rate of innovation, skill development and
managerial efficiency. Since the private sector is the main engine of growth,
it is expected that strategies for productivity increase will be crucial
ingredients in their operations. This shift in strategy will further strengthen
the fundamentals of Malaysian economy and contribute to its continued high
growth with price stability.
This study enlists data envelopment analysis (DBA) to measure technical
efficiency, technical change and factor productivity. A technical efficiency
index measures the efficiency with which inputs are utilized in the
productivity of outputs. DEA has been widely used to calculate and compare
technical efficiency across individual firms. Among others are Arnade
(1994), Fare et al (1992), Fare and Grosskoft (1994), Carifell-Tatje and
Lovell (1995), Piasse, Thirtle and Van Zyl (1996), Chavas and Cox, Chaves,
Alibe, Prices and Weimen-John (1996) and Cox (1994), and others. This
study applies DEA to chemical and related product manufacturing industry
data to compare the technical efficiency and productivity of each
manufacturing sectors from 1983 to 1993.
CHEMICAL AND RELATED PRODUCT MANUFACTURING
The industrialization strategies of the Sixth Malaysian Plan incorporated the
principal recommendations of the Industrial Master Plan (IMP) which
emphasized export-led growth through industrial diversification, provision
of a liberal investment climate and the promotion of intra-industry linkages.
The government will provide a conducive environment to further foster the
development of the manufacturing sector as the leading sector of growth in
the economy. During the period, the sector achieved high rates of growth in
output, surpassing the target set. This was largely attributed to strong domestic and sustained external demand for the country's manufactured products.
With the expansion of the sector, there was a corresponding increase in its
contribution to Gross Domestic Product (GDP), employment and export
earnings.
To sustain this high growth, policies and strategies have been formulated in
the Seventh Malaysian Plan to accelerate the diversification of industries and
develop a more resilient industrial base towards the achievement of Vision
65
2020. In meeting the challenges arising from increased globalization and
continued tightness in the labour market, priority will continue to be
accorded to improving the competitiveness of industries through increases in
productivity, research and development as well as the provision of adequate
supporting infrastructure. A more concerted and coordinated approach will
also be undertaken to broaden and strengthen the manufacturing base
through the development of capital and intermediate goods industries.
Strategies and programmes to further expand and upgrade small-and
medium-scale industries (SMIs) will also be actively pursued, in order that
they be more effective supporting industries to the larger establishments.
The manufacturing sector led in contributing to the buoyant growth of the
economy with expansion of output in most industries, brought about by the
strong demand in both the domestic and export markets. Private investment
increased substantially to support the expansion of the sector, reflecting the
private sector's confidence in the economy.
Rapid industrial development has increased the demand for new and
advanced materials made from petrochemical products. These advanced
materials will be the new frontiers of industrial development and efforts will
be geared towards producing such materials and keeping the petrochemical
industry abreast with the dynamics and needs of new markets. In view of the
policy to promote the utilization of the country's gas resources as feedstock
material, the petrochemical industry is in a position to better contribute to the
growth of capital- and technology-intensive as well as higher value added
products, especially in the plastics and fertilizer industries. This will ensure
the greater utilization of natural gas-based raw materials such as ethylene,
propylene and ammonia. In addition, following the expansion of the
domestic crude oil refining capacity, the country has another important
source of feedstock for a wider range of petrochemical products, such as
aromatics which is an essential element for the manufacture of downstream
products such as fibres, films, bottles and kitchenwares. This will provide
new opportunities for local private sector participation in both the primary
and downstream petrochemical industry.
The development strategies to spur the growth of the petrochemical industry
include expanding the local and regional markets through better market
information as well as encouraging manufacturers to produce niche products
at competitive prices and with a high standard of product quality. There is
also a need to develop the base for local raw materials to achieve a higher
level of production geared towards import substitution and help reduce the
66
country's dependence on chemical imports. As the technologies to produce
advanced materials are still in the domain of developed countries, it is
important for the petrochemical industry to form strategic alliances with
MNCs in order to acquire these technologies effectively.
THE MEASUREMENT OF PRODUCTIVITY CHANGE
Since Solow's (1956) paper on U.S. aggragate growth, productivity
measurement has an important role in applied economics. Theorists have
improved their understanding of the relationship between productivity and
other economic variables while applied economists have improved their
understanding of the components of productvity growth. This improved
understanding has coincided with data processing capabilities. Therefore,
numerous methodologies for measuring productivity have developed over
the last three decades. The three currently accepted indexes of productivity
change are the Tornqvist index (Toraqvist, 1936), the Fisher Ideal index
(Fisher, 1922), which is the geometric mean of the Laspeyeres and Paasche
indexes and the Malmquist index (Malmquist, 1953).
The popularity of the Tornqvist and Fisher Ideal indexes result from two
desirable features they share (Gritell-Tatje & Lovell, 1995). First, both can
be calculated directly from price and quantity data, and it is not necessary to
recover the structure of the underlying best practice production frontier and
how it shifts over time whether by using econometrics techniques to estimate
the parameters of functions characterizing the frontier or by using
mathematical programming techniques to construct the frontier. Second,
both are consistent with flexible representations of the frontier, i.e, both are
superlative indexes (Caves, et. al., 1982; Diewert, 1992).
The popularity of the Malmquist index stems from three quite different
sources. First, it is calculated from quantity data only, a distinct advantage if
price information is unavailable or if prices are distorted. Second, it rests on
much weaker behavioral assumptions than the other two indexes, since it
does not assume cost minimizing or revenue maximizing behaviour. Third,
provided panel data are available, it provides a decomposition of productivity
change into two components. One is labelled technical change, and it reflects
improvement or deterioration in the performance of best practice
manufacturing industries. The other is labelled technical efficiency change,
and it reflects the convergence toward or the divergence from best practice
on the part of the remaining manufacturing industries. The value of the
decomposition is that it provides information on the source of overall
67
productivity change in the chemical and related products manufacturing
industries. We implement the Malmquist index by solving a series of linear
programming problems to construct the distance function that make up the
Malmquist index. These distance function characterize the best practice
production frontier at any point in time, and they also charaterize shifts in
the frontier over time as well as movements of the producers towards or away
from the frontier.
The non-parametric approach, introduced by Farrell (1957) is used here
largely because it does not require prices and leads directly to simple
efficiency comparisons and the Malmquist index. The Farrell technical
efficiency measures is defined so that the isoquant, which is the locus of the
efficient points that form the boundry of input requirements set, designated
the minimal set of inputs, Xt, resulting in the unit level of output of yt. The
efficiency of the other firms is measured radially relative to this isoquant.
To set the scene for our productivity measurement we adopt the framework
set out in the papers by Fare et al. (1990) and Hjalmarsson and Veiderpass
(1992). Figure 1 show two observations on the input-output (x and y
respectively) bundles used by a firm in an industry at time and time t + 1.
The objective is to measure the productivity growth between the two time
periods in terms of the change from input-output bundle Zi to input-output
bundle z.+i. To do this we have to impose some prior structure on the
underlying production possibility sets and this is done in Figure 2.
In Figure 2, two forms of structure have been imposed on the production
bundle observations from Figure 1. Firstly, we have assumed that there is in
each period a production frontier representing the efficient levels of output
(y) that can be produced from a given level of input, and we assume that this
frontier can shift over time. Secondly, we assume that a given observation
need not correspond to a point on the frontier so that firms can at any time be
technically inefficient in the sense of using more than the minimal amount of
input to make a given level of output. The relative movement of a production
observation over time therefore depends on both its position relative to the
corresponding frontier and the position of the frontier itself. If an industry
shows productivity growth over time it may be because firms are catching up
with their own frontier or because the frontier is shifting up over time, or
both.
In terms of Figure 2, we begin by establishing the benchmark frontier as that
operating frontier (t). Measured relative to this frontier, the use of input x to
make output y at time t, i.e. the bundle & can be reduced by the horizontal
68
distance ratio: OB/OF in order to make production technically efficient. By
comparison the use of input x to make output y at time t + 1, i.e. Zttl should
be multiplied by horizontal distance ratio: OE/OD in order to achieve
comparable technical efficiency. Since the frontier had shifted in the
meantime OE/OD unity although z ltl is technically inefficient relative to its
own frontier (t + 1). The ratio of these two distance corrections, (expressed
as technical efficiency ratios), is the Malmquist index of productivity growth
between t and t + 1.
A useful feature of the total Malmquist productivity index, first noted by Fare
et al. (1995), is that it decomposes into the product of an index of technical
efficiency change and an index of technical change, as follows;
(1)
Mi(y , y , x , x ) = [E,(y , y , x , x )] [Ti(y , y , x , x )]
where Mi (y , y , x , x )
E(y,y,x,x)
= Malmquist productivity index
= an index of relative technical efficiency
change
T (y , y , x , x )
= Technical change of component of
productivity.
y = output at time period 0
y
x
x
=
=
=
output at time period 1
input at time period 0
input at time period 1
Productivity changes arising from changes in technical efficiency can be
measured as the ratio of two distance functions at different points in time, or
as:
(2)
E(y , y , x , x ) =
0
D (y , x )
An index of relative technical efficency index measures the ratio of technical
efficency at time period 0 and time period 1. This is a measure of a firm i
catching up to a frontier representing best-practice technology. This index is
greater than, equal, or less than unity according as the relative performance
of producer i is improving, unchanging or declining.
69
The second component of total Malmquist productivity index is an index of
technical change. Fare et. al (1995) calculated the technical change
component of productivity as the geometric means of two ratios of output
distance function as.
m
(3)
0
1
0
1
,
TV , y •, x•, x ">) =
T(y
L D'(y', x')
D'Cy , x )
The four distance functions defined the shift of the technical progress
frontier. The ratios are compare year t observations with the t + 1 reference
technology, or vice versa. For example, the first ratio, the numerator
measures the technical efficiency in time period 1 relative to technology in
time period 0. This is the mixed distance function. The denometors measures
technical efficiency in time period 1 relative to the technology in period 1 .
The technology index measures the shift in the frontier. This index shows
whether the best practice relative to which firm is compared is improving,
stagnant or deteriorating. This component greater than, equal to, or less
than unity according as technical change is positive, zero or negative, on
average, at the two observations (y ,x ) and (y ,x ).
The Malmquist productivity index and its two components are local indexes,
in the sense that their values can vary across firms and between different time
periods. Those same firms may exhibit an increase in technical efficiency,
and others may exhibit a decrease, and either can change over time.
Similarly, some firms may exhibit technical progress, and others may exhibit
technical regress, and either can change over time.
ESTIMATION OF MALMQUIST PRODUCTIVITY INDEXES
We develop the Malmquist productivity estimates from mathematical
programming models of the frontier production function. For a recent survey
of this approach see Fare, Grosskoft and Lovell (1994) and Seiford and
Thvell (1990).
Calculation and decompositions of the Malmquist productivity index
requires the calculation of four output distance functions, for each firm in
each pair of time period. We concentrated our attention on Malmquist based
70
productivity growth in the context of year by year improvements. The
Malmquist index are computed for each firm in each year of the data using
1993 as the base year for comparison. We follow Arnade (1994) by using
linear programming techniques to calculate these ouput distance functions
observations, the reference technology must be defined and the distance of
the K observation from the reference technology must be measured. The
programming problem used to calculate the Farrell measure of technical
efficiency for a specific observation; K', in time period 0 is set up as:
(4)
0 ,
0
0,
F (yk, ,x , ) = [D (y k, ,x k, ) ] = min y
subject to
ZkYJ
( m = 1,.....
< y Xk,n°
( n = 1,......
z*>0
*=/
(k- 1.......K)
Zk= 1
Superscripts on the data represent the time period 0. Supercripts on functions
represent the technology defined by the data. Subscript K1 refers to a specific
cross-sectional observation. Subscripts m and n refers to output and inputs.
Mixed-distance functions are estimated by comparing observations in one
time period with the best-practice frontier of another time period. For
example, set up a programming problem that calculates the shrinkage
required of inputs of observation K1 in time period 1 relative to the
technology of time period 0. The result is an estimate of the inverse of the
mixed-distance function for observation K1 that can be defined as:
71
(5)
[ r y ^ ^ ) ] = min y
subject to
*•
Yk.m° < I ZkYkm°
(m= 1,.....M)
k=l
K
X ZkXb," < y XM°
(n=l,......N)
K
£ Zk= 1
The technology is defined from data in time period 0, where the efficiency
of the specific observation k1 is defined using data from time period 1.
In this study, we evaluate the Malmquist Index of 11 Malaysian chemical and
chemical related products manufacturing industries according to 5-digit level
of Malaysian Industries Code (MIC) over the 1983 to 1993 period. We adopt
the Malmquist Index measures using a value of production as an output and
three inputs, namely cost of material, number of labour and value of capital.
The data are obtained from Industrial Survey, Department of Statistics.
RESULT AND DISCUSSION
Current Status and Trends
Production Trend
Gross output of the chemical and chemical products industry in current prices
grew from RM 7,006 million in 1983 to RM 18,279 million in 1993, giving
an average annual growth rate of 9.98 percent. The growth in actual chemical
output exceeds the projected IMP target by 2 percent. Table 1 shows the total
output in current prices of the whole industry from 1983-1993. The table also
includes the value added of output, employment, value added per employee
and the wage rates received during the time period.
Looking at all the chemical subsectors as a whole, the gross value of output
has increased significantly over the 1983-1993 period. Industrial chemical
72
registered the largest increase in monetary terms from RM 1,876 million in
1983 to RM 7,758 million in 1993, giving a 12.24 percent average annual
growth rate. Plastic products on the other hand, registered the largest increase
in percent average annual growth rate of 21.03 percent. Other chemical
products also showed a large increase in output increasing from RM 881
million to RM 2,601 giving an average growth rate of 12.52 percent. Crude
oil refineries had the lowest increase growth rate of 3.16 percent during the
study period. In terms of the industry's contribution to manufacturing
sector's output, it increased from 4.80 percent in 1981 to 4.93 percent in 1988
(Table 2).
From 1983 to 1993, the industry's output has shown a steady increase. A
breakdown of the industry's output in 1993 by subsectors according to the
MIC classification is given in Table 7, from the total RM 18,279 million of
output, crude oil refmeries(35300), plastics products(35600) and industrial
gases (35111) accounted for about 63 % of output. In other words, these
subsectors are very important contributors to the the total output of the
chemical industry. The other sub-sectors which include other chemical
products, fertilizer and pesticides, synthetic products, paints, drugs and
medicines, soaps, perfumes and chemical products are only minor
contributors to the whole industry.
Value Added Trend
Table 2 shows that the industry's value added trend has been increasing
steadily since 1983 except for a drop in 1986. Over the period 1983-1993 the
average annual growth rate was 12.80 percent in current prices. The
industry's value added contribution to GDP dropped slightly from 1981 to
1983, from 1.06 percent to 0.77 percent. From 1983 to 1988, it rose steadily
to 1.17 percent in 1988.
Taking the chemical industry as a whole, the value added has increased
significantly over the 1983-1993 period; from RM 1,625 million in 1983 to
RM 6,239 million in 1993, accounting for a 12.8 percent annual growth rate
(See Table 1). Looking at the subsectors, the industrial subsector had the
largest monetary increase in value added increasing from RM 811 million in
1983 to RM 3,372 million in 1993. Plastics products is next highest followed
by other chemicals and then the crude oil refineries. Comparing the
subsectors as a whole, plastics products showed the largest percentage
increase in value added of 22.04 percent, followed by industrial chemicals
(11.94 percent), other chemical products (11 percent) and crude oil refineries
(8.46 percent).
73
As seen in Table 3, in 1993, industrial gases contributed the most to total
value added within the industry (35.52 percent) followed by plastics products
(23.15 percent), other basic industrial chemicals (9.14 percent) and crude oil
refineries (7.73 percent).
Employment Trend
The chemical industry is one of the largest employers in the manufacturing
sector. In 1983 the total number of persons engaged in the industry was
31,294, and this increased to 82,897 in 1993 giving an average growth rate
of 11.14 percent. About 66 percent of the workforce is employed in the
plastic factories (Tables 4). Employment in the industrial chemical and other
chemical products subsectors in 1993 was 13,316 and 13,526 persons
respectively, contributing to about 16 percent each of total manufacturing
employment. Crude oil refineries only accounts for about 1,296 persons or
1.56 percent employment sources for the industry.
Looking at the subsectors according to their MIC classification, plastics
products accounted for the biggest share or 66 percent of the employment
sources.The salaries and wages paid in this subsector accounted for 44.46
percent of the total wage bill. The next several largest employment was
generated by companies associated with chemical products, other basic
industrial chemical, synthetic resins and industrial gases which contributed
on average of 4 percent each and this sub-sector accounted for a total of
about 30 percent of the industry's wage bills. Crude oil refineries and
perfumery plants are the lowest in terms of employment generation and also
in its share of salaries and wages contribution to the industry as a whole.
Factor Productivity Trend
Table 5 shows the four measures of factor productivity for the chemical
industry. Labour productivity (VA/L) has been increasing steadily through
1983 - 1993. The average growth rate was 1.66 percent. This trend is also
similar for the wage labour ratio as measured by the W/L. It increased on
average of 2.43 percent anually. The capital intensity indicator on the other
hand registered a negative rate of 1.43 percent. This means that capital
investment per labour had on average experienced negative growth. Finally,
the value added per capital registered the highest growth rate over the years
studied. Its rate of 3.09 percent is the highest if compared among the factor
productivity indices.This shows the value added process through capital
investment which are on an increasing trend. It is interesting to note that the
largest growth is registered by the VA/K but the largest monetary amount is
recorded by VA/L.
74
Productivity Growth Measurement
Two primary issues are addressed in our computation of the Malmquist
indices of productivity growth in the Malaysian chemical and related product
manufacturing industries. The first is how to measure productivity and
technical efficiency over a time period. The second is how such productivity
change if it exists, can be decomposed into a catching up effect and frontier
shift effect.
We begin by looking at the whole production possibility set consisting of
observed inputs and related outputs produced in the manufacturing industries
over the period of 1983 to 1993. In Table 6, the constructed frontier is shown
by the average Farrell efficiency index for each industry. The production
possibility set consists of 121 observations in total but only 42.14 percent of
these comprise the frontier. The average technical efficiency for Malaysian
chemical and related product manufacturing industries for the period of this
study is quite high, that is 90.76 percent. Only 45.50 percent of the industries
have a technical efficiency less than average. Industries which experiences
high levels of technical efficiency include Industrial gases (35111), Paints,
varnishes and lacquers (35210), Drugs and medicines (35220), Soap and
cleaning preparations (35231), Perfumes, cosmetics and other toilet
preparations (35239) and Crude oil refineries (35300).
Industries on the production frontier can be labelled as "best practice" and
demonstrate optimum efficiency in resource utilization. An index measure of
1.0 indicates that an industry lies on the best-practice frontier while an index
measure of less than 1.0 indicates inefficient resource utilization compared to
those on the best-practice frontier. An inefficiency index substracted from
one represents the largest proportional amount of input that can be reduced
without reducing output (Chavas and Aliber, 1993).
Annual technical efficiency results are summarized in Table 7. It shows that
chemical and related products manufacturing industry provides on average
about 85.93 to 95.35 percent of the output by the best-practice industry over
the period 1983 to 1993. The slight increase in this range over time could be
due to a gradual narrowing of the gap between the normal practice and best
practice industries.
Table 8 shows the average estimate of Malmquist index, technical efficiency
index and technical change index of chemical and related product
manufacturing industry. Indices representing productivity growth due to
technical change are calculated by estimating technical efficiency in one time
75
period against the best-practice technology of another period. This study's
estimates represent the inverse of the technology index defined by Equation
(3), so a number greater than 1.0 represents an improvement in productivity
due to technical change (Arnade, 1994). Index numbers are defined so that
the 1983 observation equals 1.0. A Malmquist productivity index are
calculated from a combination of technical efficiency change indices and
technical change indices. The estimated indices represent the inverse of
Malmquist index described in Equation (1), so production improvements are
greater than 1.0.
The Malmquist index indicates a 2.83 percent annual productivity growth
rate. This suggests that in 1993, chemical and related product manufacturing
industries produce about 28.9 percent as much output per unit of resource
consumed as they were produced 11 years earlier. The decomposition of
Malmquist index helps to guide the measured productivity increase. The
results indicate that during the overall period under investigation, an
improvement in productivity efficiency occured. Over the period the
technical change increased productivity by 2.80 percent per annum.
However, there appears to be no trend in the rate of technical efficiency
change. Figure 3 plots the weighted mean Malmquist index over the period
and further disaggregate into output weighted technical efficiency change
and technical change indices. It is immediately apparent that virtually all of
the observed productivity growth is associated with the technical change
effect as the industry moves out to a new frontier. From the illustrative trend
in Figure 3 it appears that the trend rate of productivity growth accelerated
significantly after 1988, that is after recession time.
Table 9 shows the productivity and its component indices for the chemical
subsectors according to their MIC codes. The annual average productivity as
measured by the Malmquist index for all subsectors in the chemical
industries recorded an improvement in productivity. This increase of 1.13 per
cent showed that production processes in the chemical industry had increased
by 113 per cent if compared to the base year. Looking at the individual subsectors, it can be seen that drugs and medicines (35220) showed the highest
productivity by registering an index of 1.39. Next is the plastics products
(35600) with 1.25, chemical products (35290) with 1.21 and crude oil
(35300) with an index of 1.14. All the other sub-sectors were on average
productive at an index of 1.0 with the exception of industrial gases which
registered 0.88. Thus, industrial gases declined in productivity by as much as
20 per cent if compared to the base year.
76
CONCLUSION
Chemical related industry has recorded high value added and export growth
rates during 1990-95. In fact, it is among the highest in the country. As
production and export increase, the demand for petrochemical products will
also increase, and this will ensure greater use of domestic resources. There
are basically two major issues in production : productivity and efficiency. In
this paper we tackled both issues by estimating the Malmquist Index and
Parrel Efficiency Index. We used input-output data from the Department of
Statistics over 1983-93 period.
We can say that chemical related industry is technically efficient with an
average efficiency of almost 91 percent. This is realistic in high growth
industry and it suggests substantial scope for development with available
technology. The industry as a whole is also experiencing increased
productivity through the years with average productivity growth of 2.8
percent. All of the observed productivity growth is associated with the
frontier shift and almost none of the productivity growth appears to be
attributable to catching up effect. High technical efficiency and productivity
growth were the likely explanation for the strong industry growth over the
1990 - 95 period.
The results also implied several policy recommendations. Large scale
production in petrochemical industry should be encouraged to take
advantage of the economies of scale which is closely associated to this kind
of industry. This will lead to greater efficiency in chemical industry, and
consequently forcing production points closer to the frontier. Economies of
scale in petrochemical industry coupled with latest technology acquisition
will further develop downstream activities in chemical related industry.
Increase production could also lead to economies of scope and increasing the
market share of the industry. Although presently, the industry is capable of
capturing the world market, aggressive marketing is still needed to ensure
the country's competitiveness in chemical related industry does not
deteriorate.
77
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82
TABLE 1
TYend in Production, Employment, Value Added and Wage Rate
of Chemical and Chemical Product Manufacturing Industries,
1983 -1993
Year
Output
1 KM mil)
Value added
(KM mil)
Employment
Value added
per employee
(RM)
1983
7006.09
1625.54
31294
51944.11
8237.91
1984
8151.11
2206.89
31997
68971.78
9512.58
1985
9046.77
2474.54
32208
76830.01
10298.06
1986
7196.96
2362.15
33863
69755.93
10645.19
1987
8006.68
2492.31
35620
69969.40
10526.61
1988
9040.50
2922.41
39384
74202.98
10469.33
1989
10991.31
3553.49
48030
73984.78
10065.15
1990
13363.49
3893.98
60004
64895.37
10068.23
1991
16071.35
5321.22
71720
74194.34
10596.57
1992
16855.04
5566.46
77472
71851.30
10957.22
1993
18279.06
6239.65
82897
75269.95
12724.59
9.98
12.80
11.14
1.66
2.43
Growth (%)
Source: Industrial Survey
Department of Statistics. Various issues
83
Wage rate
TABLE 2
Output and Value Added of Industrial Chemical, Other Chemical Products,
Crude Oil Refineries and Plastic Products Sub-sectors, 1983-1993.
Industrial Chemical
Year
Output
(RMmll)
VA
(RMmil)
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1,876.95
3,006.23
3,435.05
3,006.50
3,441.71
4,066.68
4,431.23
4,859.12
6,364.45
6,865.41
7,758.70
811.12
1,440.37
1,528.75
1,300.06
1,537.72
1,840.05
1,879.88
2,022.38
2,982.76
2,985.31
3,372.81
Growth (%)
12.24
11.94
Source:
Industrial Survey
Department of Statistics. Various issues
Other Chemical Products
Output
(RM mil)
881.49
839.64
935.28
1,006.95
1,043.71
1,285.46
1,540.59
1,794.68
2,182.95
2,443.47
2,601.72
12.52
Crude Oil Refineries
VA
(RMmil)
Output
(RMmil)
370.09
347.60
378.88
396.73
416.93
469.05
569.17
627.10
823.64
917.62
940.06
11.00
Plastic Products
VA
(RM mil)
Output
(RMmil)
3,666.18
3,724.33
4,053.33
2,504.67
581.48
232.55
338.52
420.44
581.48
580.91
623.12
2,698.37
2,558.18
260.50
273.23
614.58
538.33
582.94
493.44
678.83
822.89
1,130.18
1,528.39
2,038.11
2,738.68
3,070.44
186.37
228.39
244.92
277.16
340.07
489.89
706.17
931.88
1,170.09
482.54
3,668.19
1,444.24
8.46
21.03
3,491.11
4,671.57
4,785.27
4,475.72
4,250.45
3.16
VA
(RMmil)
195.72
22.04
TABLE 3
Output, Value Added, Employment and Value of Capital by Sub-sector, 1993
Value
MIC
Code
Industry Description
35111
No. of
Wage and
Capital
Salaries
(RMOOO)
%
%
Share (RMOOO) Share
Share
Share
Added
(RMOOO)
Share
Employment
3,633,242
19.88
2,216,245
35.52
3,473
4.19
91,855
8.71
5,682,776
39.22
Other basic industrial chemical, except fertilizer
1,703,440
9.32
570,167
9.14
3,919
4.73
77,563
7.35
2,442,898
16.86
35120
Fertilizer and pesticides
1,029,670
5.63
257,890
4.13
2,215
2.67
58,088
5.51
476,705
3.29
35130
Synthetic resins, plastic and materials and manmade fibres - except glass
1,392,351
7.62
328,503
5.26
3,709
4.47
73,697
6.99
1,579,530
10.90
35210
Paints, varnishes and lacquers
630,937
3.45
213,299
3.42
2,352
2.84
48,941
4.64
167,351
1.15
35220
Drugs and medicines
312,169
1.71
139,151
2.23
3,296
3.98
39,395
3.73
164,937
1.14
35231
Soap and cleaning preparations
754,146
4.13
246,284
3.95
3,090
3.73
59,898
5.68
216,964
1.50
35239
Perfumes, cosmatics and other toilet
preparations
149,497
0.82
71,155
1.14
835
1.01
11,743
1.11
27,720
0.19
35290
Chemical products, n.e.c.
754,970
4.13
270,173
4.33
3,953
4.77
71,196
6.75
347,230
2.40
35300
Crude oil refineries
4,250,454
23.25
482,543
7.73
1,296
1.56
53,528
5.07
1,181,447
8.15
35600
Plastics products, n.e.c.
3,668,185
20.07
1,444,243
23.15
54,759
66.06
468,926
44.46
2,203,613
15.21
Total
18,279,061
100.00
6,239,653
100.00
82,897
100.00
1,054,830
100.00
14,491,17
100.00
Output
(RM'OOO)
Industrial gases
35119
Source: Annual Statistics of Manufacturing Industries, Part A: 1993
%
%
%
TABLE 4
Employment of Manufacture of Industrial Chemical, Other Chemical Products,
Crude Oil Refineries and Plastic Products Sub-sectors, 1983-1993
Industrial Chemical
Year
No. of
Employment
%
Other Chemical Products
No. of
%
Employment
Crude Oil Refineries
No. of
Employment
%
Plastic Products
No. of
Employment
%
Total no.
of
Employment
1983
5,423
17.33
9,828
31.41
917
2.93
15,126
48.34
31,294
1984
5,517
17.24
9,501
29.69
1,395
4.36
15,584
48.70
31,997
1985
5,658
17.57
9,877
30.67
1,402
4.35
15,271
47.41
32,208
1986
6,558
19.37
9,593
28.33
1,452
4.29
16,260
48.02
33,863
1987
7,137
20.04
9,220
25.88
1,125
3.16
18,138
50.92
35,620
1988
7,857
19.95
10,069
25.57
1,133
2.88
20,325
51.61
39,384
1989
8,655
18.02
11,242
23.41
1,161
2.42
26,972
56.16
48,030
61.00
60,004
1990
9,860
16.43
12,397
20.66
1,144
1.91
36,603
1991
11,602
16.18
13,049
18.19
1,223
1.71
45,846
63.92
71,720
1992
12,439
16.06
14,721
19.00
1,245
1.61
49,067
63.34
77,472
1993
13,316
16.06
13,526
16.32
1,296
1.6
54,759
66.06
82,897
Source: Industrial Survey
TABLE 5
Factor Productivity of Chemical and Other Products
Manufacturing Industries, 1983-1993
Year
—————————
Labor
Productivity
(VA/L)
Capital
Intensity
Wage/Labor
Ratio
(K/L)
(W/L)
Value Added/
Capital
(VA/K)
1983
51,944.11
142,538.03
3,237.91
364.42
1984
68,971.78
139,031.41
9,512.58
496.09
1985
76,830.01
184,252.64
10,298.06
416.98
1986
69,755.93
175,467.00
10,645.19
397.54
1987
69,969.40
162,070.72
10,526.61
431.72
1988
74,202.98
134,990.15
10,469.33
549.69
1989
73,984.78
122,757.63
10,065.15
602.69
1990
64,895.37
110,609.51
10,068.23
586.71
1991
74,194.34
123,981.25
10,596.57
598.43
1992
71,851.30
132,045.71
10,957.22
544.14
1993
75,269.95
174,809.35
12,724.59
430.58
Growth (%)
1.66
-1.43
Source: Industrial Survey
Department of Statistics. Various issues
87
2.43
3.09
TABLE 6
Mean Technical Efficiency Index
of Malaysian Chemical and Related Products
MIC
Code
Industry Description
Average
35111
Industrial gases
0.9818
35119
Other basic industrial chemical, except fertilizer
0.7837
35120
Fertilizer and pesticides
0.8599
35130
35210
Synthetic resins, plastic and materials and man-made fibresexcept glass
Paints, varnishes and lacquers
0.8481
0.9562
35220
Drugs and medicines
0.9557
35231
3523?
Soap and cleaning preparations
Perfumes, cosmetics and other toilet preparations
0.9938
35290
Chemical products, n.e.c.
Crude oil refineries
Plastics products, n.e.c.
Total
35300
35600
0.9638
0.8238
0.9817
0.8356
0.9076
TABLE 7
Mean Technical Efficiency Index
of Malaysian Chemical and Related Products
Year
Average
Maximum
Minimum
1983
1984
1985
1986
1986
1988
1989
0.8930
0.8965
0.8593
0.9179
0.9171
0.9535
0.9057
1.0000(4/11)
1.0000(5/11)
1.0000(5/11)
1.0000(5/11)
1.0000(5/11)
1.0000(5/11)
1.0000(4/11)
0.7604
0.7228
0.6431
0.7694
0.7903
0.8429
0.7564
1990
0.9136
1991
1992
0.8826
1.0000(5/11)
1.0000(4/11)
0.7933
0.7324
0.9449
0.8992
1.0000(6/11)
1.0000(3/11)
0.7792
0.7407
™
"
1993
Growth (%)
0.27
TABLE 8
Malmquist Index, Technical Efficiency Change Index and Technical
Change Index for Chemical and Related Product Manufacturing
Industries, 1983-1993
Technical
Year
Efficiency Change
Index
Technical Change
Index
Malmquist
Index
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1.0000
0.9913
0.9569
1.0050
1.0062
1.0190
1.0072
0.9863
0.9801
1.0036
0.9908
1.0000
1.0173
1.0234
1.1032
1.0871
1.0450
1.1547
1.2383
1.2927
1.2328
1.3010
1.0000
1.0085
0.9793
1.1088
1.0938
1.0648
1.1631
1.2214
1.2670
1.2372
1.2890
Growth {%)
0.0342
2.7971
2.8313
TABLE 9
Malmquist Index, Technical Efficiency Change Index and Technical
Change Index for Chemical and Related Product Manufacturing
Industries
Technical
Technical
Efficiency
Change
Index
Change
1.0000
0.8896
0.9857
1.0702
MIC
Code
Industry Description
35111
35119
Industrial gases
Other basic industrial chemical,
except fertilizer
35120
35130
Fertilizer and pesticides
0.9681
0.9122
1.1020
1.1602
1.0556
35210
Synthetic resins, plastic and materials
and man-made fibres - except glass
Paints, varnishes and lacquers
Drugs and medicines
1.0286
1.0000
1.0212
35220
1.3942
1.0501
1.3942
35231
Soap and cleaning preparations
1.0000
1.0596
10596
35239
Perfumes, cosmatics and other toilet
preparations
Chemical products, n.e.c.
0.9968
1.0843
1.0804
1.0739
1.1275
1.2124
Crude oil refineries
1.0000
1.1415
1.1415
Plastics products, n.e.c.
0.9813
1.2865
1.2506
Average
0.9951
1.1360
1.1303
35290
35300
35600
89
Index
Malmquist
Index
0.8896
1.0503
1.0375
FIGURE 1
Input-output Observation Over Time
yt+i
., Zt+i
y<
Xi+i
90
Xi
FIGURE 2
Malmquist Index and Productivity Change Over Time
Frontire (t=l)
/
Frontier (t)
yt+]
CD
A
BC
DE
91
FIGURE 3
Malmquist Index, Technical Efficiency Change Index
and Technical Change Index
Index for Chemical and Related Products
Manufacturing Industries, 1983 -1993
1.4 -t
0.0
91
, Technical Efficiency Cbange Indei + Technical Change Index
, Maimquist Index
92
92
93
BIODATA OF DR. SHARIFUDDIN ZAINUDDIN
Dr. Sharifuddin Zainuddin obtained his doctoral degree in Public and
International affairs from the University of Pittsburgh. He teaches quality
management and project management courses at the Faculty of Economics
and administration, University of Malaya. His most recent publications
includes, "Malaysian Administrative Traditions" in Jay Shafritz, et. al. (eds.),
Encyclopedia of Public Policy and Management, Colorado, Westview Press,
1997, and, "An Economy Profile on Human Resource Management (HRM)
Policies and Practices in Malaysia", in Global Advantage Through People:
Human Resource Management and Practices in APEC Economies, AsiaPasific Economic Cooperation (APECC), 1998.
PUBLIC SECTOR SERVICE QUALITY:
AN EMPIRICAL STUDY IN THE ROAD
TRANSPORT DEPARTMENT OF MALAYSIA
(Dr. Sharifuddin Zainuddin)
The launching of the Excellent Work Culture Movement in 1989 (Hamid,
1994) marked the beginning of the public sector quality movement in
Malaysia. Since then, various programs and activities have been undertaken
to implement the quality work culture. However, despite the numerous claim
of success (Hamid, 1994), a general survey in 1993 by a client organization,
the Malaysian International Chamber of Commerce and Industry, revealed
that services were still unsatisfactory (NST, Nov., 1993). More recently, a
poll conducted among some top company executives by Far Eastern
Economic Review revealed that none of the respondents felt the Malaysian
Civil Service as 'highly efficient'. While 55 percent considered the civil
service 'somewhat efficient,' 25 percent regarded it as 'inefficient' (PEER,
May 30, 1996).
Dissatisfaction with service performance is further indicated by the high
number of complaints that regularly appear in the media or sent to the
relevant agencies, such as the Public Complaint Bureau. This is actually a
manifestation of a deeper problem. Studies show that almost all dissatisfied
customers, for various reasons, are not willing to lodge formal complaint
(Can and Littman, 1993: 33; Horovitz, 1994: 24).
On the other hand, despite the suggestion by both the Total Quality
Management or TQM (e.g., Carr & Littman, 1993) and service management
and marketing literature (Zeithaml, Berry & Parasuraman, 1993), that there
are fundamental differences between goods-producing and service
organizations, quality measurement research and practices has been
dominated by the so-called objective manufacturing-oriented approaches,
employing quality aspects or surrogates such as performance (Garvin, 1988),
efficiency and effectiveness (Juran, 1988; Adam, et al., 1986; Crosby, P.B.,
1984), which rely heavily upon agency records (Hero, 1986). As Milakovich
argues, in "measuring the quality of service... customers' perceptions are
equally important" (1995: 34).
94
However, the extremely few existing empirical research on service quality is
almost exclusively confined to organizations in the United States and some
Scandinavian countries. Horovitz (1994) suggested that various components
of quality do not have the same weight from one culture or country to
another. As an example, "being ten minutes late in France is not as serious as
in Germany" (Horovitz, 1994: 23). Furthermore, public sector is different in
many aspects-legal, political, financial, etc.—compared to the private sector
which has been analyzed, albeit limitedly, in the service quality literature.
In that connection, the population of interest in this study is the Road
Transport Department (RTD) which is a relatively big federal government
agency in Malaysia. This department is responsible for providing services,
among others, in matters pertaining to vehicles and driving licences. The
RTD's Vision is "to ensure complete satisfaction is achieved fully especially
through efficient counter services" (RTD HomePage). In concurrent with
that, "Zero Complaints!" has been adopted as the department's quality
slogan, which was postulated as the target the department is trying to
achieve.
Specifically, this study tries to examine the following questions:
1. How do the RTD customers' expectations of service compare to the
providers' perceptions of customers' expectations in terms of desired and
adequate service levels?
2. How do the RTD customers1 expectations in terms of adequate and
desired service levels compare to their perceptions of service levels?
LITERATURE REVIEW
While quality can be viewed or defined from various perspective (Juran,
1989; Crosby, 1979; Deming, 1986; Garvin, 1988) and theories (Chase and
Bowen, 1991;Klaus, 1985;Parasuraman,et. al., 1993, 1991), it is quite clear
that both the literature in quality or TQM (Horovitz, 1996; McKinney, 1995;
Milakovich, 1995; Hyde, 1992; Juran, 1988; Deming, 1986; Crosby, P.B.,
1979) and service-oriented quality/marketing (e.g., Parasuraman, et.al.,
1991, 1988; Garvin, 1988; Gronroos, 1988, 1982) suggest, that, quality of
goods or services is ultimately determined by users or customers. In fact, it
has even been suggested that the only criteria that count in evaluating service
quality are defined by customers (Carr and Littman, 1993: 3; Zeithaml, et al.,
1990; Gronroos, 1982).
95
Nevertheless, as far as the development of a relatively universal measures of
service quality, perhaps the most pertinent conceptualization has come from
research in the service marketing field. In particular, studies by Sasser, Olsen,
and Wyckoff (Gronroos, 1987), and, Parasuraman, Zeithaml, and Berry
(1991, 1988, 1985) support the notion that service quality, as perceived by
consumers, stems from a comparison of their expectations of the service they
will receive with their perceptions of the actual performance of firms
providing the service. In this way, the higher perceptions are than
expectations, the higher is the level of perceived quality; the lower
perceptions are than expectations, the lower is the level of perceived service
quality (Parasuraman, et. al., 1988: 12).
Importantly, research by Parasuraman, Zeithaml and Berry (1988, 1985)
have revealed that the criteria used by consumers in assessing service quality
fit five dimensions;
Tangibility:
Reliability:
Physical facilities, equipment, and appearance of
personnel.
Ability to perform the promised service dependability
and accurately.
Responsiveness:
Willingness to help customers and provide prompt
service.
Assurance:
Empathy:
Knowledge and courtesy of employees and their ability to
convey trust and confidence.
Caring, individualized attention that the firm provides its
customers.
The above dimensions were determined through the authors' design and
implementation of the so-called "SERVQUAL" scale - a concise multiple
item scale with good reliability and validity. This instrument was designed to
be applicable across a broad spectrum of services. It was further refined, and
consequently the reliability and validity were further improved, through a
later reassessment study by the same authors (Parasuraman, et. al., 1991).
96
SERVICE QUALITY MODEL
According to the Perceived Quality Model introduced by Gronroos (1982),
the quality of a service as perceived by the customers is the result of a
comparison between expectations of the customers and his real-life
experiences. If the experiences exceed the expectations, the perceived quality
is positive, and vice versa.
This confirmation/disconfirmation concept has been the foundation for most
of the model building within the service quality field during the 1980s and
1990s - particularly, the well-known Gap Analysis and SERVQUAL models
by Parasuraman, Zeithaml, and Berry (1994, 1993, 1991, 1988, 1985).
Parasuraman, et. al. (1985) identified five (5) "gaps" or discrepancies in their
conceptual model of service quality (see Fig. 1) and they referred to these
gaps simply as Gaps 1 through 5. According to their model, Gap 5 is the
discrepancy between the customer's expectations and perceptions and
reflects the customer's overall service quality assessment. Gap 1 is the
difference between what customers expect and what management perceives
they expect. Gap 2 is the discrepancy between managers' perceptions of
customers' expectations and the actual specifications they establish for
service delivery. Gap 3 is the service-performance gap, that is, the difference
between service specifications and the actual service delivery. Finally, gap 4
is the discrepancy between what an organization promises about a service, as
communicated in their slogans, advertising or public relations, and what it
actually delivers.
Gaps 1 through 4 occur in the process of designing and providing a service,
and contribute to, or cause, Gap 5. Milakovich (1995: 35) suggests that the
magnitude of gap 5 equals to the sum of the first four. The Gap Analysis and
the SERVQUAL Survey have been suggested as the "most useful techniques
to analyze the differences between expectations and perceptions"
(Milakovich 1995:34), and, "for obtaining a wider understanding of quality
in service process" (Edvardsson and Gustavsson 1991: 324).
Central to the perceived-quality approach in the concept of a "Service
Encounter" - "a period of time during which the customer interacts directly
with the service system and its employees" (Chase and Bown, 1991:160)which is a primary distinction between the production of a good and the
production of a service. Such encounters are the primary source of
information for the customer to use in evaluating service quality.
97
EXTENDED CONCEPTUALIZATION OF EXPECTATION
While the SERVQUAL instrument has been productively used for measuring
service quality in many studies - e.g., public recreation programs (Crompton
and Mackay, 1989), hospitals, health care or medical care settings (Babakus
and Mangold, 1992; Steffen, 1992), US Postal Service (Kilkenny, 1992),
higher education (Boulding, Kalra, Staelin and Zeithaml, 1993; Ford, Josep
and Joseph, 1993), and the Air National Guard (Orwig, 1994)-it has also
raised, questions about the interpretation and operationalization of
expectations (e.g., Teas. 1994, 1993). In response to that, their later work on
the nature of expectation (Parasuraman, et. al., in different order of names,
1994a, 1994b, 1994c, and 1993) resulted in the conceptualization and
operationalization of expectation into two levels:
Desired Service - the service level customers believe organizations can
and should deliver; and,
Adequate Service - the minimum
acceptable.
service level customers consider
The comparison of perception to desired service level and adequate service
level generate a "Measure of Service Superiority" (MSS or perceived service
relative to desired service) and a "Measure of Service Adequacy" (MSA or
perceive service relative to adequate service) respectively.
Therefore, for the original gap 5, the comparison between desired service and
perceived service is the perceived service superiority gap; Parasuraman, et.
al. (1994) call this perceived service quality (PSQ) Gap 5A. On the other
hand, the comparison between adequate service and perceived service is the
perceived adequacy gap; they call this PSQ Gap 5B. The higher the perceived
service relative to desired service level, the higher the Perceived Service
Superiority; and accordingly for adequate service level. These two service
quality assessments, therefore, replace the single Gap 5 and 1 in the Gaps
model (Zeithaml, et. al., 1993).
Figure 2 shows gap 5 in its new form. Separating adequate service and
desired service levels is the "zone of tolerance" (ZoT) (Parasuraman et. al.,
1994a, 1994b, 1994c; Zeithalm et. al., 1993). The service performance is
considered satisfactory (tolerated), but not superior, if the perceived service
score lies in between the desired service score and adequate service score.
Stamatis (1996:165) suggested that, in the absence of competition, achieving
98
Word of Mouth
Personal Needs
Communications
Past Experience
Expected Service
Gap 5
CONSUMER
Perceived Service
MARKETER
Service Delivery
(Including pre-and
post-contacts
Gap 4
External
Communications
to Consumers
Gap 1
Gap 3
Translation of Perceptions
into Service Quality
Specs.
Gap 2
Management Perceptions
of Consumer Expectations
FIGURE 1
Parasuraman, Zeithaml & Berry's Service Quality
Model Source: Parasuraman et. al. (1990)
99
Customer's Expectation of
Service
Desired Service
Zone of Tolerance
Adequate Service
PSQ GAP 5A:
Perceived
Service
Superiority
PSQGAP5B:
Perceived
Service
Adequacy
Perceived
Service
FIGURE 2
(Modified from Zeithaml, et. al., 1993)
100
any point in the ZoT might be considered satisfactory enough. However, if
there is an open competition which provides alternatives or choices, the ZoT
will decrease, because the customer is able to go beyond mere satisfaction to
extreme satisfaction or delightedness.
As of this writing, however, only one empirical study based on the extended
conceptualization of expectation into desired and adequate levels has been
done. This particular empirical examination by Parasuraman, et. al. (1994b),
using revised and refined SERVQUAL instrument with three-column format
and 9-point scales, exhibits high reliability as well as good predictive,
convergent, and discriminant validity. Furthermore, despite disagreement
over aspects such as the dimensionality of the SERVQUAL instrument across
different settings, "there is general agreement that the 22 items are good
predictors of overall service quality, with R^ values ranging from 0.5 to 0.7"
(Bitner and Hubbert, 1994).
METHODOLOGY
Building on this model of service quality discussed earlier, this study utilizes
the two levels of expectation-desired and adequate service levels. Hence, the
research model for this study is as illustrated in figure 3. There are four
measures:
Gap 1A :
The comparison between providers' perception of customers'
desired service level and customers' actual desired service level.
Gap IB :
The comparison between providers' perception of customers'
adequate service level and customers' actual adequate service
level.
Gap 5A :
The comparison between customers' desired service score and
their perceived service score.
Gap 5B :
The comparison between customers' adequate service score and
their perceived service score.
RESEARCH POPULATION AND SAMPLING UNIT
The service provider population for the study consists of all employees that
make up the service-providing divisions or sections of the RTD.
Nevertheless, since the population for the customer consists of all customers
101
PROVIDER
Gap IB
Perceived Customer
Expectations (PE)
FIGURE 3
(Adapted from Parasuraman, et. ah, 1988; Zeithalm, et. al., 1993)
102
who pay a nominal fee and received direct service from RTD, the population
for the provider excludes employees in the enforcement division of the
department.
A cluster sample of 10 RTD offices which closely approximated the
geographic distribution of the RTD's offices and the demographic
characteristics of its employee population was selected. The offices selected
were six state offices - Selangor, Pulau Pinang, Perlis, Terengganu, Pahang,
and Melaka in Melaka - two branch offices in Taiping and Muar, and two
sub-offices in Kuala Kubu Bharu and Tapah.
A systematic selection of 400 respondents out of all employees which
constituted the sampling frame in the selected offices were carried out. The
questionnaires were administered on site in the ten selected offices.
For customer sample, Goodsell's (1980: 123-136) "sidewalk" interview
technique to study official-client relations was employed. With the approval
of the director or head of each office the survey process was administered to
440 clients as they walked out of the office permises. The selection of
respondents was random in the sense that clients were approached in the
order they emerged from the office premise.1
INSTRUMENTATION
A "Service Quality Questionnaire" which was patterned from the revised
SERVQUAL questionnaire of Parasuraman, et. al. (1994) was used. Unlike
the original SERVQUAL with separate ratings of expectation and perception,
the new instrument format generates separate ratings of desired, adequate
and perceived service. In view of the need to capture two different
expectation levels, the response scale was changed from a 7~point to a 9point scale to offer respondents a wider range of choices.
Nevertheless, attempts were made to adhere as closely as possible to the textbook definition oi
systematic selection With the information provided by RTD officers, an estimate of the number oJ
customers served in person per day was made tor each office Therefore, if an office served 500
customers per day, <md the researcher wanted 50 lespondenls from Ihdl office, but he had only 5
working days to spend at that office, then, every 50th customer coming out of the office premise
would be approached, giving him 10 respondents per day Observation or counting, which admittedly
was not necessarily perfect, was helped by an assistant
103
To enhance the applicability of the instrument to the study's purposes,
comments and suggestions were solicited from three senior RTD officers
with regard to the appropriateness of the SERVQUAL dimensions-
tangibility, reliability, responsiveness, assurance and empathy-as well as the
items of each dimension. The questionnaire was then pilot-tested with a
selected sample of clients and employees in the Federal Territory of Labuan
RTD Office. Responses and comments resulted in minor modifications
and/or additions in terms of the order or wording of items, instructions, and
to the scale in section II of the questionnaires2.
Analysis Methods
The quality scores for a customer would be computed as follows:
Perceived Service Superiority (Measure of Service Superiority)
= Perceived Service Score - Desired Service Score
Perceived Service Adequacy (Measures of Service Adequacy)
= Perceived Service Score - Adequate Service Score
Both the organization's Perceived Service Superiority (Measures of Service
Superiority or MSS) and Perceived Service Adequacy (Measures of Service
Adequacy or MSA) along each of the five dimensions can then be assessed
by averaging their customers' scores on statements making up the dimension.
For example, if X customers responded to the survey, the average quality
score (either perceive service adequacy or superiority) along each dimension
would be obtained through the following steps:
1. For each customer, add the (different) scores on the statements pertaining
to the dimension and divide the sum by the number of statements making
up the dimension.
2. Add the quantity obtained in Step 1 across all X customers and divide the
total by X.
The scores for the five dimensions obtained in the preceding fashion can
themselves be averaged to obtain both overall measure of Perceived Service
Superiority or Perceived Service Adequacy.
The questionnaires in complete form are available upon request.
104
RESEARCH FINDINGS
Hypothesis la: Actual customers' overall desired service are not
significantly different from service providers' perception of customers'
overall desired service scores.
A t-test analysis on the overall desired service scores, as Table 1 shows,
produced no significant result. This suggested that there is not enough
evidence to show that customers' desired service Jevel is different from what
the providers perceived them to be. In other words, the results implies that
service providers do understand the level of service their customers desire. It
seems quite reasonable that customers tend to expect the maximum they can
realistically achieve, and providers seem to understand this.
TABLE 1
T-tests for Customers' Overall Desired and Adequate Service Level
Means and Providers' Perception of Customers' Desired and Adequate
Service Level Means
Variable
Overall Desired Service Level
Customer
Mean
SD
8.11
0.77
Provider
T Value
Sig
1.55
.121
8.66
.000***
0.45
Overall Adequate Service Level
Customer
5.29
Provider
5.97
1.06
*** Significant with p < .001
105
Hypothesis Ib: Actual customers' overall adequate service scores are not
significantly different from service providers' perception of customers'
overall adequate service scores.
A t-test analysis on the overall adequate service scores, however, shows that
there is a statistically significant difference with p < .0001 between the two
means - customers' overall adequate service level mean and service
providers' perceptions of customers' overall adequate service level mean and
service providers' perception of customers' overall adequate service level
mean (Table 1). This suggests that there is a significant difference between
what the customers considered adequate and what the providers perceived
them to be. With their mean of 5.97 larger than customers' mean of 5.29,
providers seem to perceive customers' adequate service level higher than
what customers consider as adequate. In other words, despite the common
notion that providers tend to underestimate customers' adequate service
level, in this case the reverse seems to occur.
Hypothesis 2a: Customers' overall perception scores are not
significantly different from desired service scores.
The result of t-test analysis on the means of the two types of scores -
perceived and desired services - shows that there is a statistically significant
difference with p < .0001 between the two means (Table 2). This finding is
supported by MANOVA analysis with a p value of .000. The result suggests
that there is a significant difference between the service level the customers
desired, and what they perceived was the service level they received. The
difference or MSS mean of -2.17 (negative MSS scores) denotes that the
mean perceived service score is lower by 2.17 compared to the mean desired
service level.
Looking back at Hypotheses 1, by suggesting that providers understand what
the customers' desired level is, it should in theory result in a service quality
level as desired by customers. However, Hypothesis 2a's finding suggests
that the actual level of service that they delivered, for whatever reason, was
not up to the level that they seemed to know their customers desired. What
might be clear here is that, delivering desired quality service goes beyond
understanding the customer's desired service level. It may involve not only
knowledge, information, and technology, or rather capacity, but also
attitudinal or cultural factors. Unfortunately, the definite answer to these
issues is beyond the scope of this research.
106
TABLE 2
Manova and Paired Sample T-Test on Overall Perceived Service Scores
With Overall Adequate and Desired Service Scores
Hotelling
P Value
6.95
1279.1
Overall Scores
Mean
MSA'1 Mean
Perceived Service
5.93
Adequate Service
5.28
Desired Service
8.10
MANOVA
DF
P Value
2.00.000***
Paired Sample 1-Test
MSSh Mean
t- Value
Significance
11.46
.000***
- 2 . 1-36.02
7
.000***
+0.65
Note: - Measure of Service Adequacy i.e. perceived minus adequate scores.
- Measure of Service Superiority i.e. perceived minus desired scores
*** Significant with p < .001
Hypothesis 2b: Customers' overall perception scores are not
significantly different from adequate service scores.
The result of t-test on the two means-perceived and adequate service scores-
also shows that there is a statistically significant difference between the two
means with p < .0001 (Table 2). This finding is also supported by MANOVA
analysis with p < .0001. It suggests that there is a significant difference
between the service level the customers consider adequate and what they
perceived the service level they received.
However, while in the case of hypothesis 2a perceived scores are less than
desired scores, in this case, the mean perceived scores exceed the mean
adequate scores by 0.65. The result seems to suggest that service providers
are somewhat able to deliver the level of service they perceived their
customers considered as adequate. One interpretation is that, their
overestimation of customers' adequate service level might have contributed
to this ability. They delivered what they perceived as customers' minimum or
adequate service level so as to elude or minimise the possibility of complaint
or dissatisfaction. Another interpretation is that, it could be just that the
customers were able to tolerate the kind of service level which they received,
given the fact that their mean adequate score is lower compared to what the
107
service providers perceived them to be. In short, while the earlier results
suggest the absence of delightedness among customers with respect to their
desired service, customers seem to generally consider the level of service
they received as tolerable.
The ability to tolerate the kind of service they receive, or rather the existence
of "maintainers" which is the lower level of input to satisfaction as opposed
to the higher "satisfiers" (Czepiel et. al. 1974) which is absent, perhaps partly
explains why customers tend to be reluctant to formally voice their
unhappiness concerning a service. In that regard, while maintaining the
"Zero Complaints!" slogan may help RTD move toward achieving its quality
objectives, it should not assume that the absence or lack of complaint
suggests happiness or satisfaction with the service. On the other hand, it most
probably only implies a tolerable situation rather than happy or delighted
situation, or for that matter, satisfactory situation. Conversely, the existence
of complaint might suggest an intolerable service level.
CONCLUSION
An interesting finding of this study was that, eventhough providers seem to
understand and even overestimate customers' expectation, their performance
in the eyes of customers still seems to be considerably below what was
expected. This variation between understanding or knowledge and actual
performance may be an indication that there is a gap between what providers
know about the customers and what or how they do to meet what they know.
Whatever the reason, the RTD may want to examine the causes, such as the
organizational climate, to determine why such a gap exists if it wants to
improve itself in reaching its quality objectives.
This research result also suggests several implications for public policy and
administration. First of all, it is of paramount importance to remind public
organizations or employees that the reputation of public organizations and
the government itself is greatly dependent upon understanding and meeting
citizen-customers' perceptions and expectations. In order to inculcate and
institutionalise that awareness and understanding, public organizations have
to develop and conduct the appropriate training programs.
Apart from equipping personnel with technological skills or knowhow, the
training program should be tailored with additional emphasis given to the
issues of human factors in service delivery, by which the required attitude
and human relations skills could be inculcated among personnel of all levels
and positions.
108
It could be real that government faces numerous kinds of legal, financial and
other constraints to "blueprint" the specific kind of treatment for specific
groups of citizens-customers. Nevertheless, the individual employees'
awareness and recognition of the existence of the differences, their 'new'
attitudinal and technological abilities to deal with them, coupled perhaps
with the possibility of providing them reasonable flexibility in service
delivery, may at least assist them to deliver better services.
However, while the right kind of treatment due to customers is dependent on
the right kind of information regarding those perceptual differences,
organizations must realize that perceptions may change over time. In that
regard, it is necessary to institute an appropriate research program to detect
those possible changes in perception, and to keep personnel informed
through periodic briefing or even training.
109
APPENDIX 1
A Sample of Customer Survey Questionaire
The minimum
service level I can
tolerate, out of 9
points, is:
Low
The service level 1
actually desire or
hope for, out of 9
points, is:
High
Low
But, my Perception
of the Actual
Service I received
from RTD is
High
Low
High
1. Employees doing
something within a
specified period of time as
promised (e.g., fulfilling a
promise to issue a licence
within two days)
123456789
123456789
123456789
2. Employees showing a
123456789
123456789
123456789
123456789
123456789
123456789
sincere interest in solving
customers' problem
3. Employees performing
the service right the first
time
APPENDIX 2
A Sample of Provider Survey Questionnaire
I think, the minimum
I think, the service level
service level my customers
my customers actually
can tolerate, or which they
consider adequate, out of 9
points, is:
desire or hope for, out of 9
points, is:
Low
High
Low
High
1. Employees doing
something within a
specified period of time as
promised (e.g., fulfilling a
promise to issue a licence
within two days)
123456789
123456789
2. Employees showing a
123456789
123456789
123456789
123456789
sincere interest in solving
customers' problem
3. Employees performing
the service right the first
time
110
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114
SYMBOLISM AND BUSINESS
EDGAR J.
RIDLEY
President and Chairman
ill
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••••••.>'«.
-
EDGAR J. RIDLEY & ASSOOA TES, INC.
2500 E. Gary Street, Sutto 501
Richmond, VA 23223
Telephone/Telefax
804-649-OG05
E-Mail;
[email protected]
February 22.1999
There have been various concepts put forth by consultants to improve
productivity. There is an ongoing battle among consultants and/or consulting
firms to see who can come up with the management concept that will be
judged the leader of the pack. Concepts such as re-engineering have taken
hold; companies not only in America but throughout the world realize that
there is a huge market for quick-fix solutions to organizational problems. W.
Edwards Deming, world-renowned for his 13 principles as spelled out in his
book, Out of the Crisis, was rejected by Americans. After World War II,
Japan hired him to find solutions to their management problems. However,
Americans were intimidated by Deming and his concepts for an educated,
fair and honest workforce. It was only after American corporations became
sophisticated enough to mythologize Deming's concepts were they willing to
not only give Deming an audience, but hire him to solve their economic and
management problems. Mythology allows us to corrupt and distort good
concepts, good behavior and good intentions.
115
One of the things that re-engineering does is to change metaphors.
Businesses are run by symbol systems, and these metaphors are entirely
inadequate for productivity to take place. When corporations find themselves
in a mess because of these symbol systems, they hire consultants to solve
their problems. Consultants are viewed in today's marketplace as the ultimate
symbolic analysts, to quote former U.S. Labor Secretary Robert Reich. The
approach of these consultants is to change the metaphors which are symbol
systems. James Champy, former Chairman of CSC Consulting Group in
Cambridge, MA, states that "today's managers must find new metaphors."1
Tom Peters in his book, Liberation Management, devotes a chapter to
"Finding New Metaphors". Finding metaphors is not the solution to business
problems; it only enhances the problems that exist and creates an
environment for new problems to flourish. Consultants who manipulate and
change metaphors to solve problems are not effective. This is because they
are, indeed, symbolic analysts who fail to see that they must eradicate the
symbol systems. By eradicating the symbol systems, these consultants would
eradicate the mythological systems. This method only will solve the
problems of corporations. Today's consultants fail to realize that their
contentment is in being the ultimate symbolic analysts.
Joseph Campbell was a mythologist whose books have been very influential
in discussing the mythological life. We live in a mythological world
characterized by what mythology produces. As we have discussed,
mythology produces racism, delusions and mental health problems.
The late psychologist Amos Wilson stated in his book, The Falsification of
African Consciousness, that "mythology often can be seen as a form of
denial of reality."2 He goes on to state that "mythology is hallucination."1 In
his book, Amos Wilson talks extensively about European mythology as
hallucination. We must stress that mythology has its roots in Africa, and
European mythology is but a derivative of African mythology. There has
been some discussion among African scholars that there are two types of
mythology; one African and one European. In actuality, there is only one type
of mythology. That mythology originated in Africa and spread to Europe. So,
Black scholars must face the reality that 'same European mythology
originated in Africa, and the damage that mythology produces affects all of
us globally.
Champy, James, AMA Management Review, January, 1995.
Wilson, Amos, The Falsification of African Consciousness, African World InfoSyslems, 1993, p. 28.
Wilson, Amos, ibid, p. 23.
116
Once it is understood that we live in a mythological world, we see the
consultant, as we discussed earlier, as one who is a master of symbolic
manipulation. The consultant takes his skills of symbolic analysis into the
business world and tries to solve problems. When mythology is seen as a
denial of reality, it is readily understood why living in a mythological world
is not only totally destructive but also self-defeating. Problems cannot be
solved by engaging in the creation of new metaphors.
We must always remember that metaphors and mythology are synonymous
and that symbols produce them. Yet, the leading business theorists today
stress over and over again that by creating new metaphors, we solve the
problems that we create. If there ever was a merry-go-round, this is it.
The idea that we live in a mythological world is hard to accept. One of the
reasons it is hard to accept is because we base our decisions on a
mythological framework. What that means is that most of the decisions that
we make are wrong, incorrect, ineffective and non-productive. Remember,
mythology is a denial of reality, so if mythology is a denial of reality and we
live in a mythological world, then our world is basically sick. The reason
why racism is so prevalent is because we live in a sick world.
There is no doubt that the eradication of mythology would practically cure
the mental illness and psychological problems that affect us in today's
civilization. In today's business world, many people are on drugs such as
Prozac and in psychiatric treatment, simply because they are immersed in a
mythological system with no way out. This is the prime reason why drugs,
used by executives, are so prevalent in the business community, because
manipulating metaphors and creating new mythologies creates a worsening
of the psychological condition of the world population. That means the world
business population is primarily a mentally confused and psychologically
impotent population. Businesses cannot flourish as we rely on mythological
answers to solve concrete and serious problems.
117
Amos Wilson states:
Whatever mythology we believe is one that organizes our
approach to other people, our perception of ourselves and of
other people. It provides answers. The answers may not be right,
they may be wrong; but it still provides an answer. And that is
psychologically satisfying. Nothing threatens us and nothing
upsets us like unanswered questions. Often Man projects a
mythology in order to get himself out of his agony of dealing
with unanswered questions and to put his mind at rest.4
Amos Wilson demonstrates that indeed, if we have no answers to a problem,
we supply a myth to satisfy our need for an answer. That is why consultants
are providing the wrong approach to the business problems that we have
today. They do not have an answer so they seek a mythological one.
Corporations are paying out millions and millions of dollars to people who
are supposed to provide answers but instead provide a myth!
One of the reasons why people still want that mythological answer is because
they know that, by getting rid of the myth, they will get rid of a lot of
assumptions they hold and are utilizing to keep them in power and have
domination over other people. So, they are content to have mythological
answers provided to them. Vincent Capranzano stated in an article in the New
York Times Book Review called "Dancing With Myths", "Mythmakers, like
their audience, like the commentators, are always trapped in their creations,
and, I would stress, the delusions they produced."s
In the business world, Europe and North America's biggest nightmare is to
see Asia and Africa doing business together. Malaysia is doing business in
South Africa and hopes to use South Africa as a gateway to the rest of the
continent. In fact, South Africa is Asia's biggest trading partner on the
continent.
Assumptions held by whites are beginning to backfire. Their own
mythological system is backfiring. Set-aside programs for businesses that are
owned and operated by women and so-called minorities have undergone
scrutiny and evaluation recently. The prevailing attitude among the white
population is that the set-aside programs, geared to help so-called minorities,
4
Wilson, Amos, ibid., p. 30-31
Capranzano, Vincent, "Dancing With Myths", the New York Times Book Review
Vincent, "Dancing With Myths", the New York Times Book Review
118
Capranzano,
must be eliminated because racism no longer exists. Many white perceive
that the programs that are geared to help people of color and women have
tendencies to produce reverse discrimination. This all comes out of a fear that
whites have that they are beginning to lose their power. Whites are coming
to a realization of themselves as being the minorities on the world stage.
Whites have risen to a state of panic while still practicing racism to the
highest degree. At the same time, whites insist that racism is at such a low
that the programs that have been operating to give minorities an opportunity
should be eliminated.
It must be clearly understood that there are two powerful forces deriving
from symbolism that affect global business. These two phenomena are
racism and religion. With the rather recent emphasis on global transactions,
we need a new kind of sophistication to do international business. The world
has shrunken to the extent that one can conceivably fly to different parts of
the globe during a workday and still make it home for the evening news. It
requires a knowledge base that was previously thought unnecessary. The
behavioural sciences have not done an adequate job in educating the
workforce in how to do world class business.
The education of managers and the rest of the workforce in an adequate and
unbiased way is not in the vested interest of those who would rather see the
present way of doing business remain status quo. This produces an elitist,
racist, and sexist system that continues to dehumanize the poor, reward the
rich, and utilize technology for greed.
The behavioral sciences, as taught in our business schools, stay away from
issues they deem touchy, sensitive, or uncomfortable. Business is
successfully done by exhibiting appropriate behavior patterns. How one
makes decisions is crucial to the outcome of any business transaction. The
fad theories that are promoted by so-called motivational speakers or gurus
produce superficial concepts that have a comfortable appeal to the masses.
This practice tends not to irritate or create a climate of deep thought, but is
always on a very superficial level that requires no abstract insight. Because
of a penchant to keep from dealing with reality, it is discerning to realize that
we live in a world that is basically false through and through.
119
By using myths as an escape for reality, we promote myths as the ultimate
reality. This is totally insane and detrimental to our well-being. This is the
reason why Tom Peter's book called for Crazy Ideas for Crazy
Organizations. This is the main reason why any theory has a chance to be
promoted in a book will easily make the New York Times' bestseller list, as
long as the book is written by a white person. Non-whites are not supposed
to produce theories or offer solutions that would have a severe effect on the
balance of power in the world. Despite the growing tendencies of whites to
discount the factor of race and its influence in the business world, it is overly
apparent that the racism that we experience in today's contemporary world is
more vicious and insidious than ever before. The degree of sophistication of
this type of racism and its origin has been recognized by some scholars as a
permanent part of civilization. If this racism is continued and allowed to
stand, there is no doubt that its resulting effect will destroy the economy of
the entire world. We will also destroy and chance for progress in such vital
areas as health, education, politics, business and the overall welfare. It will
cause, a continued rise in poverty. The tree is known by the fruit it bears.
What is so disturbing about this racism is its total and unequivocal rejection
of ideas that are presented by blacks and other people of color.
New concepts and theories by people of color can have an enormous effect
on the enhancement of disciplines such as medicine, physics, science, and
other major fields of study. The contributions that Africa and Asia has offered
the world are no secret. However, most concepts and ideas are tainted and
discounted for the sole reason that their creators are non whites. This practice
must be eliminated so we can do business in an effective and efficient
manner. The level of operation is endless if we stop doing business as usual
no matter how lucrative it appears. This form of intellectual racism is
supported and reinforced by academia, media, government, religion,
business, and all areas where decisions are made to affect world policy. What
is so appalling is the gall of whites and their mindless support of these racist
practices.
In a global business world, it is neither polite nor considered appropriate to
discuss racism and its continuous and damaging effects. It is not politically
correct or good business practice to do this. The only code word that is
acceptable in the global business community is diversity. This term has
become comfortable and an acceptable password for entertaining the ideas,
out of necessity, of non-white workers in the global economy. What does
diversity really mean? People of color and women are dealt on defined terms.
This limits the extent of business dealings. In other words, because whites are
a minority, it will become next to impossible to keep the global majority,
120
which are people of color, out of the workforce and other managerial
positions as well. Because of that scenario, there is indeed panic among
whites to contain the effectiveness of all people of color. If this sounds
disturbing, indeed it is. Whites, for the most part, may not verbalize this
position. Their positions are presented in code words and daily business
transactions. This sophisticated racism must be addressed no matter how
uncomfortable it is. We can never have the attitude that racism is acceptable
or here to stay. Racism cannot become a permanent fabric of today's society,
it must be brought to its knees. I repeat: the only way to eradicate racism is
to eliminate the symbol systems that cause it. Symbols systems produce the
mythology that results in racism.
Throughout history, and certainly in these contemporary times, there have
been countless books and articles written about racism. It is time to stop
writing about it and start offering solutions that will eradicate racism. A
solution to eradicate racism has yet to manifest itself. It must be made
perfectly clear that we have a solution that will eliminate racism and its
resulting effects. This solution is beneficial to all parties involved. This, I
repeat, is the solution: the elimination of all symbol systems. By doing this,
we eliminate all of the mythological systems that create and support racism.
This concept offers a glimmer of hope to the statements written in Derrick
Bell's book, Faces at the Bottom of the Well. Bell's book concluded that
racism is a permanent part of American society. We can no longer accept
racism as a permanent part of society. Any attempt to do so is insanely
detrimental to the business ocmmunity and the world at large. The business
community must be willing and ready to accept new concepts that will
challenge them to respond and think on new levels. The business community
must stop overlooking the problems and start implementing solutions that
will increase productivity to its most effective mode.
The second most prominent phenomenon created by mythology is religion.
Religion is a very sensitive topic to discuss. It is viewed as very personal and
off limits. But when business people evaluate situations all over the world,
invariably they come upon troubled areas where religion dictated the turmoil
and unrest. However, in Africa, Asia, Latin America, and Europe, religion is
still very personal. Any business person doing business globally will have to
understand the importance religion plays in the decision-making processes of
the people he or she is doing business with. It is increasingly apparent that
people make decisions based on their theological and religious belief systems
and practices. A severe injustice would be perpetuated if we did not deal with
the ramification of the theological belief of the masses around the globe.
121
First, it must be understood that religion has its origin and was created out of
mythology. Conservative theologians and philosophers might have a problem
with that assertion. There have been countless debates about the impact
symbols and myths have had on religion, with the understanding that myths
have created all religions. There is no religion that did not manifest from
mythology, directly or indirectly. Many lives have been lost in the name of
religion. Much unnecessary bloodshed has taken place because of this
religious mythological phenomenon. In today's time, we can look at the
situations in Ireland, India, Russia, and the Middle East.
Traditionally it has been viewed as inappropriate and bad manners to discuss
religious beliefs. But it is essential to understand the religion and culture of
the people you are doing business with. Many business deals have been
based on that. The understanding of one's religious practice could mean the
success or failure of a business transaction. It is becoming more apparent
every day that one's mythological belief dictates and controls not only
business decisions but life and death decisions as well. This shows the
overwhelming extent and the importance of the mythological content of
one's religious belief.
The profound impact of mythological beliefs cannot be expressed completely
in words. In the book written by Norman Brown, Love's Body, he states that
symbolism produced the myths that created all of the religions that are in use
in today's world.
W. Edward Deming states in his book, Out of Crisis, that the United States
today may be the most underdeveloped country in the world. He made that
statement because he realized that the United States misuses and abuses the
skills and knowledge of an army of employed people in all ranks of industry.
The United States, which has a universal reputation of a world leader has
used myths to manipulate her image around the world so that there is a
misleading regard toward her strengths and weaknesses. The United States is
no longer the economic powerhouse that it once was is evident. Its prevalent
metaphors that are used to guide its people and philosophy are no longer
functional nor productive. The economic force has now shifted to Asia.
Michael Hammer and James Champy, who are the force behind the
reengineering craze, emphasize that managers must find new metaphors, for
they realize that the old metaphors are invalid and counter-productive in the
new global arena today. With the understanding that symbols produce
metaphors, these symbol systems must be eradicated and discarded for the
metaphors to be eliminated.
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The productivity problems of America stem from symbolism and
manipulation of the resulting mythology. The business community must
understand this fact in order for productivity to become a reality. All
metaphors that have been used in the past must be discarded, be carefully
examined and eventually eliminated. The business world, like other areas of
human activity, has failed to see the need to eradicate myth, metaphors, and
rituals. Instead, the necessity of these entities has been emphasized. As long
as the business world sees the need for these symbol systems, the problem of
productivity will continue to plague all aspects of American business
transactions. This practice is being seen in the global market as well. For the
problem with symbols and symbol systems are truly global and must be
looked at as such. Up to now, the world business community has failed to
realize and refused to acknowledge the damages of mythological thinking.
The use of consultants by the world business community has enhanced the
manipulation and spread of myths and metaphors. This practice causes
severe damages through all disciplines. Robert Reich, the United States
Labor Secretary, has called consultants "symbolic analysts". Symbolic
analysts are consultants who make their living from manipulation of abstract
concepts. This is the main reason why consultants and consultant firms have
such a vash influence in who dominates the world. They take ideas and
concepts and manipulate these myths worldwide. This is why consultants are
so essential for a growing economy but also for a stabilized economy.
Consultants are used to reinforce ideas that need to stay in power and to
generate new ideas that must be born. This practice maintains and entrenched
their power worldwide.
It is very important to understand the phenomenon that resulted from the
Fourteen principles created by Deming. When Deming first revealed his
Fourteen Principles, the United States was afraid to implement the principles
for fear of upsetting the power structure. The implementation of Deming's
principles would upset the current power structure and its obsessions with
racism and sexism. In Deming's philosophy, there were no losers. Everybody
was a winner. This concept is unheard of in the corporate Western world. For
in the Western world, having losers was business as usual. The losers were
always those who were of non-white status and the practice in regards to
productivity has never been researched and studied in an extensive way.
Although Deming never specified race, it was obvious that if everyone would
be winners Blacks and women would be treated fairly and promoted at the
same rate as their white male peers. America and the West was not ready
for this type of philosophy. In fact, they fought very diligently to see that it
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did not happen. Therefore, Deming's principles were totally ignored and he
was forced to leave the United States, and go to Japan. His concepts, which
were welcomed, changed Japan's economic position. Japan's economy
shifted to growth and power. By then, the United States, with the use of their
consultants, had become sophisticated enough to manipulate symbols. They
created new myths and metaphors to guide the decisions of not only top
managers in business but the general American public.
When Deming returned to the United States, the atmosphere was one of
welcome. American businesses saw his success in Japan and wanted him to
duplicate his philosophies in America. Unfortunately, they were able to
accept Deming's principles and philosophies only after mythologizing them.
They could feel comfortable with mythologizing the educational programs to
fit their own agenda. If that educational program was to educate the
employees, the inferior of blacks and other people of color, then that
principle could be used effectively in their business structure. This was a
means of justifying the promotion and hiring of people due to the myth of
intelligence as perpetuated in the book, The Bell Curve, by James Murray.
The book states that blacks are intelligently inferior to whites and therefore
cannot be as efficient of education and self-improvement can mythologize to
distort and dilute its original intentions. It is very important to understand
that the I.Q. test is nothing more than the ability to reason in terms of symbol
systems, which, in turn, means the manipulation of myths and metaphors. We
must continue to realize that myths and metaphors are synonomous. This is
a critical point to understand. This shows how the rest of the Fourteen
Principles were mythologized to fit the individual corporation. Deming was
very disheartened at the attitude of not only American businesses, but the
business practices of the whole Western world. The practice of
mythologizing ideas and concepts continue to hold sway in the top business
schools in the United States. Ross Webber, Chairman of the Management
Department at the University of Pennsylvania, states, 'There has been a
change in the myths that talented people in this new generation guide their
lives by, and an entrepreneurial connection is a strong part of that
mythology." As long as corporate America and its leaders continue to place
their hope for the future on new metaphors, the business community
worldwide will never solve its problems.
Fortune, "Kissing Off Corporate America".
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