ASSESSMENT OF KETCHUP COMPANIES
PERFORMANCE IN MALAYSIA
AFAGH MALEK
UNIVERSITI TEKNOLOGI MALAYSIA
i
ASSESSMENT OF KETCHUP COMPANIES PERFORMANCE IN MALAYSIA
AFAGH MALEK
A project report submitted in partial fulfilment of the
requirements for the award of the degree of
Master of Engineering (Industrial Engineering)
Faculty of Mechanical Engineering
Universiti Teknologi Malaysia
JANUARY 2012
iii
To my beloved mother, father
&
brother
iv
ACKNOWLEDGEMENTS
I would like to express thanks to Allah, with his blessing in fulfilling my
thesis and sustaining me throughout this research.
I would also like to express my sincere appreciation to my supervisor, Dr
Azanizawati Ma’aram, for her encouragement, guidance, advices and critics. Without
her continued support and interest, this project would not have been the same as
presented here.
Further I would like to appreciate the invaluable cooperation of Mr. Mohd
Nazri Bin Ismail, Production Manager of Zara Foodstuff Industries Sdn Bhd as well
as Mr. Syukri Mohammad, Production Manager of Bumi Hijau Food Industries Sdn
Bhd for facilitating data gathering process.
v
ABSTRACT
Performance measurement is a vital part of any successful organization. One of the
most important challenges for measuring the performance is defining the critical
metrics and measures. For many companies, the critical metrics determined based on
their supply chain strategies. However, companies do not have a clear understanding
on their adopted supply chain strategy and are incapable of introducing the most
critical metrics for measuring their performance. This study determines the supply
chain strategy adopted by ketchup companies in Malaysia; it also specifies the most
critical factors for measuring companies’ performance based on Balanced Scorecard
(BSC) perspectives and finally conduct a comparative performance measurement for
six ketchup companies which located in Johor, Malaysia. The results of study show
that the appropriate supply chain strategy for ketchup companies in Malaysia is lean
supply chain strategy; also the companies’ supply chain strategy alignment with
product type has more significant effect on companies’ performance rather than
companies’ process structure and manufacturing techniques alignment with product
type.
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ABSTRAK
Pengukuran prestasi adalah penting terhadap mana-mana organisasi yang berjaya.
Salah satu cabaran yang paling penting untuk menilai prestasi ialah mendefinisikan
metrik yang kritikal dan pengukuran prestasi. Kebanyakan syarikat, metric yang
kritikal ditentukan berdasarkan strategi rantaian bekalan (Supply chain strategy)
mereka. Walau bagaimanapun, syarikat-syarikat tidak mempunyai kefahaman yang
jelas tentang rantaian strategi bekalan yang digunakan oleh mereka dan tidak
berupaya untuk memperkenalkan metrik yang paling kritikal untuk mengukur
prestasi syarikat. Kajian ini menentukan strategi rantaian bekalan yang diguna pakai
oleh syarikat-syarikat kicap di Malaysia; ia juga menyatakan faktor-faktor yang
paling kritikal bagi mengukur prestasi syarikat-syarikat berdasarkan perspektif Kad
Skor Seimbang (BSC) dan akhirnya menjalankan pengukuran prestasi perbandingan
bagi enam syarikat kicap yang terletak di Johor, Malaysia. Keputusan kajian
menunjukkan bahawa strategi rantaian bekalan yang sesuai bagi syarikat-syarikat
kicap di Malaysia adalah ‘lean’. Penjajaran di antara strategi bekalan rantaian dengan
jenis produk memberi kesan yang lebih penting ke atas prestasi syarikat berbanding
penjajaran di antara struktur proses dan teknik pembuatan dengan jenis produk.
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TABLE OF CONTENTS
CHAPTER
1
TITLE
PAGE
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENTS
iv
ABSTRACT
v
ABSTRAK
vi
TABLE OF CONTENTS
vii
LIST OF TABLES
xii
LIST OF FIGURES
xvi
INTRODUCTION
1
1.1
Introduction
1
1.2
Research background and motivation
1
1.3
Problem statement
3
1.4
Objectives of study
4
1.5
Scope of study
4
1.6
Significant of study
5
viii
1.7
2
Organization of thesis
5
LITERATURE
7
2.1
Introduction
7
2.2
Supply chain strategy
7
2.2.1 Levels of strategy
8
2.2.2 Lean supply chain
10
2.2.3 Agile supply chain
12
2.2.3.1 Postponement strategy
2.3
15
2.2.4 Leagile supply chain
16
2.2.5 Fisher’s framework
21
2.2.6 Hayes and Wheelwright’s framework
22
Performance measurement
23
2.3.1 Operational performance
25
2.3.2 Financial performance
27
2.3.3 Supply chain strategies performance
29
measurements
2.3.4 Performance Measures of Lean
31
supply chain strategy
2.3.5 Performance Measures of Agile
34
supply chain strategy
2.3.6 The implication of operational and
38
financial performance
2.3.7 Performance measurement system
41
ix
2.3.8 Challenges in performance measurement systems
42
2.3.9 Balance Scorecard approach
43
2.3.10 Balance Scorecard – supply chain strategy
46
framework
2.4
3
Summary
49
RESEARCH METHODOLOGY
50
3.1
Introduction
50
3.2
The research framework and model
51
3.3
Questionnaire design
52
3.3.1 Definition of terms
54
3.4
Selection of the sample
60
3.5
Choice of statistical technique
61
3.6
Categorization of performance metrics under BSC
61
perspectives
3.7
4
Summary
62
GENERAL FINDINGS AND DESCRIPTIVE STATICS
65
4.1
Introduction
65
4.2
Companies’ supply chain strategy
65
4.2.1 Zara Foodstuff Industries
65
4.2.2 Bumi Hijau Food Industries
66
4.2.3 Fama
68
4.2.4 Sos Mewah Sdn Bhd
69
x
4.3
4.4
4.5
5
4.2.5 Jalen Sdn Bhd
70
4.2.6 Yong Guan Sauce Manufacturer
71
Supply chain techniques
72
4.3.1 Zara Foodstuff Industries
72
4.3.2 Bumi Hijau Food Industries
73
4.3.3 Fama
74
4.3.4 Sos Mewah Sdn Bhd
75
4.3.5 Jalen Sdn Bhd
76
4.3.6 Yong Guan Sauce Manufacturer
77
Performance measurement
78
4.4.1 Customer perspective
79
4.4.2 Financial perspective
82
4.4.3 Internal business perspective
85
4.4.4 Learning and growth perspective
88
Summary
89
EMPIRICAL RESULTS AND ANALYSIS
91
5.1
Introduction
91
5.2
Comparison of Bumi Hijau Food Industries
92
and Zara Foodstuff Industries
5.3
Performance measurement of companies with similar
99
strategies
5.4
Alignment of product type with supply chain strategy,
manufacturing technique and process structure
103
xi
5.5
6
Summary
104
CONCLUSION AND RECOMMENDATION
105
6.1
Introduction
105
6.2
Research Findings
106
6.3
Contribution of the study
106
6.4
Implication of findings
107
6.5
Limitations of study
108
6.6
Issues for future research
109
REFERENCES
110
Appendice
118
A
xii
LIST OF TABLES
TABLE NO.
TITLE
PAGE
Table 2.1
Lean manufacturing ingredients
11
Table 2.2
Comparison of lean, agile and leagile supply chains
20
Table 2.3
Elements of financial, marketing performance
28
Table 2.4
Supply chain existing measures
30
Table 2.5
Summary of proposed performance metrics of Lean supply chain 33
Table 2.6
Correlation results of aggregated variables
Table 2.7
Summary of proposed performance metrics of Agile supply chain 37
Table 2.8
Key items of financial performance for Lean and Agile
34
39
Supply chain strategy
Table 2.9
Key items of operational performance for Lean and Agile
40
supply chain strategy
Table 5.1
Bumi Hijau Food Industries and Zara Foodstuff
93
Industries profile
Table 5.2
Objective Performance measurement by
Customer perspective metrics
94
xiii
Table 5.3
Objective Performance measurement by Financial
95
perspective metrics
Table 5.4
Objective Performance measurement by Internal
97
business process perspective metrics
Table 5.5
Objective Performance measurement by Learning
98
and growth perspective metrics
Table 5.6
Comparison of companies’ Process, Supply Chain Strategy
and Techniques
103
xiv
LIST OF FIGURES
FIGURE NO.
TITLE
PAGE
Figure 2.1
Agile supply chain characteristics
13
Figure 2.2
Postponement strategy
15
Figure 2.3
Position of decoupling point in different postponement strategies
17
Figure 2.4
Matching supply chains with products
21
Figure 2.5
The product-process matrix
22
Figure 2.6
Balanced scorecard-Agile supply chain strategy metrics
47
Figure 2.7
Balanced scorecard-Lean supply chain strategy metrics
48
Figure 3.1
The analytical steps of the methodology
63
Figure 4.1
Zara Foodstuff Industries supply chain attributes
66
Figure 4.2
Bumi Hijau Food Industries supply chain attributes
66
Figure 4.3
Fama supply chain attributes
68
Figure 4.4
Sos Mewah Sdn Bhd supply chain attributes
69
Figure 4.5
Jalen Sdn Bhd supply chain attributes
70
Figure 4.6
Yong Guan Sauce Manufacturer supply chain attributes
71
Figure 4.7
Zara Foodstuff Industries manufacturing techniques
73
Figure 4.8
Bumi Hijau Food Industries manufacturing techniques
73
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Figure 4.9
Fama manufacturing techniques
75
Figure 4.10
Sos Mewah Sdn Bhd manufacturing techniques
76
Figure 4.11
Jalen Sdn Bhd manufacturing techniques
77
Figure 4.12
Yong Guan Sauce manufacturer manufacturing techniques
78
Figure 4.13
Measurement of Customer perspective metrics
81
Figure 4.14
Measurement of Financial perspective metrics
83
Figure 4.15
Measurement of Financial perspective metrics (Cont’d)
84
Figure 4.16
Measurements of Internal Business perspective metrics
86
Figure 4.17
Measurements of Internal Business perspective metrics (Cont’d)
87
Figure 4.18
Measurements of Learning and growth perspective metrics
88
Figure 5.1
Measurement of Customer perspective metrics
96
Figure 5.2
Measurement of Financial perspective metrics
100
Figure 5.3
Measurement of Internal business perspective metrics
101
Figure 5.4
Measurements of Learning and growth perspective metrics
102
xvi
LIST OF APPENDICES
APPENDIX
A
TITLE
Questionnaire
PAGE
118
1
CHAPTER 1
INTRODUCTION
1.1 Introduction
Performance measurement is a vital part of any successful organization. One
of the most important challenges for measuring the performance is defining the
critical metrics and measures. For many companies, the critical metrics determined
based on their supply chain strategies (Chenhall, 2005). So, defining supply chain
strategy of company is a perquisite for measuring its performance.
1.2 Research background and motivation
Measuring performance has been part and parcel of any successful business
entity. It is vital due to the fact that the long run existence of any organization rely on
its performance. Managements use performance measurement to assess the overall
health of their organization.
2
However, in measuring performance, undoubtedly, many organizations still
face the following problems; specify the most suited performance measurement
system to their business and supply chain strategy, variables to be considered,
methodology to be used to evaluate the solidity of the variables and generate values
for the variables.
There are many examples of companies discovered that they were not
measuring the things that really matter to their customers due to selecting misaligned
metrics (Hausman, 2003). Dell initially thought that their personal computer
customers were most interested in buying the fastest processor available while in fact
customers wanted a consistent and corporate common platform product. So, features
same as component’s stability, consistency, and backward-compatibility were more
valuable to customers compared to component‘s speed or advanced graphical
features. Another example is a metric for monthly output of a factory producing
personal computers. The metric was on output only without considering meeting due
dates for specific orders. So, this could lead to on-time fulfilment of low-margin,
easier- to- produce items while for higher-margin items customers might be forced to
wait. (Hausman, 2003)
Many performance rating agencies in attempts to provide answers to the
above problems have adopted various approaches and strategies. Business Week
(2002), in measuring performance of “500 Best Companies” considered variables
like total return (1yr), total return (3yrs), sales growth (1yr), sales growth (3yrs), net
margin and return on equity. On the other hand, Fortune Magazine (2000) in its
attempt to measure performance of “50 Best Companies” Globally considered
variables like innovativeness, quality of management, employee talent, financial
soundness, use of corporate assets, long-term investment value and quality of
product(s). In addition, Nigerian stock Exchange (2003), in an attempt to measure
performance of “Best 20 Quoted Companies” in Nigeria focused attention on the
financial ratios/performance of performance.
3
Despite attempts to determine appropriate metrics, there is still need to
investigate firms’ performance vis-à-vis supply chain strategy for better
understanding of the relationship.
1.3 Problem statement
There is no doubt that there is a link between firm performance and supply
chain strategy (Ali, 2011). However identification of the right variables to establish
this relationship still exists. Previous attempts to measure firm performance have
ignored the extent of the impact of some important variables which are related to
supply chain strategy adopted by companies. For instance, a company with lean
supply chain should focus on cost reduction (Naylor et al., 1999) and the indicators
which manifest the company’s proximity to this goal.
The problems associated with the approaches used by previous researchers
(Suwignjo, 2000 and Coates, J.B. et al., 2000) are that they ignored the impact of
supply chain strategy adopted by companies on their performance. So, they were
incapable of introducing the accurate and relevant metrics for measuring the
performance of company.
Today, companies like Dell, Geae, Sears, Rock buck and Dow Channel have
adopted performance measurement of their business unit based on total operation and
awarding incentive pay based on their performance compared to competitors.
Recently, more and more managers are looking for other measures to reflect growth
in shareholders expectations and encourage strategic decision instead of short term
planning.
The need for seeking qualitative variables that impact on supply chain
strategy and consequently performance of firms has inspired this study. The study
therefore used six selected companies in JOHOR, Malaysia for case research. Also,
4
the evaluation of these variables in measuring performance will assist organizations
in making sure that the right and reasonable strategy is chosen.
1.4 Objectives of study
The study, aims to determine the critical performance measurement metrics
for selected companies in Malaysia. The objective associated with the following
aims:
1. Determine the supply chain strategy adopted by the company
2. Determine the critical performance metrics for ketchup company based on
Balance Scorecard Framework
3. Conduct comparative performance measurement for six ketchup companies
in Malaysia
1.5 Scope of study
The scopes of the project are limited to the following subjects:
1. The study focuses on determining the supply chain strategy of six
manufacturers who produce the Ketchup sauce in Malaysia
2. Due to the limitations of time and management, the performance
measurement system is not necessary to implement in the company
5
1.6 Significant of study
There is no known study of firm performance vis-à-vis supply chain strategy
in Johor. This study attempted to provide more information in this area. It presents
better understanding of performance measurement in supply chain strategy
implementation control; in addition, it will draw out the attention of managers to the
need of considering both quantitative and qualitative variables in measuring firms’
performance. It also aids similar firms in selecting the appropriate measurement
system and the factors which are crucial to measure due to their supply chain
strategy. The study could be served as a guide to supply chain strategy planning and
as a reference material to business policy makers and future scholars in this area.
1.7 Organization of thesis
This thesis is organised into six chapters. Chapter one introduces the study
background and motivation, statement of the research problem, research objectives,
research scope and significant of study.
Chapter Two reviews relevant research studies on supply chain strategies, the
levels of strategy and three most commonly accepted supply chain strategies which
are lean, agile and leagile with their prerequisite definition such as postponement
strategy and decoupling points.
It also involves description of performance
measurement from both operational and financial point of view and also the
relationship between performance measurement, lean and agile supply chain strategy.
The aim of this chapter is to identify relevant agile and lean supply chain capabilities,
firm performance factors and establish a basis to examine the relationship between
lean and agile supply chain capabilities, operational and financial performance.
6
Chapter Three provides the methodology of the study that carried out
systematically.
The major sections of this chapter are research framework and
model, questionnaire and sampling design and choice of statistical technique.
Chapter Four provides the results based on the implementation of
methodology. It mainly presents the general findings and statistics of firms resulting
from questionnaires.
The supply chain strategy and techniques adopted by
companies and quantitative data which are vital for measuring the performance of
system will also be discussed in this chapter.
Chapter Five discusses the empirical results and analysis of this study. It
describes the results of measuring firms’ performance by selected metrics and holds
data on assessment of firm performance based on objective and descriptive data. It
also investigates the impact of supply chain strategy alignment with product type and
process characteristic alignment with product type on performance of companies.
Chapter Six represents the final chapter within this thesis. This chapter
provides a summary of study findings and contribution of this research. In addition,
the suggestion and the direction for future research will be detailed.
7
CHAPTER 2
LITERATURE
2.1 Introduction
The literature review consisting of introduction to concept, ideas, techniques
and definitions related to supply chain strategies and performance measurement.
Moreover, it provides characterization and categorization of performance
measurements related to the different supply chain strategies based on balance score
card perspectives.
2.2 supply chain strategy
Term of “Strategy” was originally from Greek word ‘strategos’ meaning
‘general’ but in its modern usage in the strategic literature it has been used in
different ways.
Strategy in contemporary general usage refers to a plan of how to
get to a chosen position. In economic terms it is the means (how) to achieving the
8
ends (objectives). Historically, writers have referred to strategies discussing means
and ends (Andrews et al., 1997; Chandler, 1962). Hofer and Schendel (1987) refer
to this as a broad definition of strategy while the specific definition focuses on the
means to achieve the end result.
A supply chain strategy determines the nature of procurement of raw
materials, transportation of materials to and from the company, manufacture of the
product or operation to provide the service and distribution of the product to the
customer, along with any follow-up service and a specification of whether these
processes will be performed in-house or outsourced (Chopra and Meindl, 2010).
Strategy also refers to several terms such as “supplier strategy” (Happek,
2005), “operation strategy” (Slack, Chambers and Johnston 2010) and “logistic
strategy” (Clinton and Closs, 1997). It encompasses design decisions regarding
inventory, transportation, operating facilities, and information flows (Chopra and
Meindl, 2010).
The supply chain strategy encompasses all activities associated with the flow
and transformation of goods (products and services) from initial design stage through
the early raw materials stage and on to the end user.
Also specifies what the
operations, distribution, and service functions, whether performed in-house or
outsourced, should do particularly well (Chopra and Meindl, 2010).
2.2.1 Levels of strategy
According to (Hines, 2004; Mintzberg, Ahlstrand and Lampel, 2005; Gold
and Luchs, 1996; Porter, 1980) strategy can be formulated at four different levels of
organizational structure. They are: corporate strategy, business strategy, operational
strategy and competitive strategy. The explanation of each strategy is as follows:
9
x
Corporate strategy: Decision about diversification and primary structures for the
organization together with the contributions that the organization’s portfolio of
businesses should make to the whole, are all corporate level strategy issues.
x
Business strategy: Business level strategy focuses attention on what Strategic
Business Units (SBUs) need to do to achieve their business level objectives
within the corporate whole.
x
Operational strategy: Operational strategy tends to focus on products and markets
and how best to achieve business objectives set by at corporate level and SBU
level.
x
Competitive strategy: In competitive markets customers drive market and
markets drive organizational attitude. So, supply chain strategies should be fit
with the competitive strategies. There are a number of key dimensions related to
competitiveness. These may include: Cost, Quality and reliability, Speed of
delivery, Delivery reliability, Flexibility, Responsiveness.
Supply chain strategy is a sub of the corporate strategy of the organization (Towill,
1997).
As a whole there are two different types of supply chain strategies that are
concentrated on efficiency and responsiveness which are called efficient (lean) and
responsive (agile) supply chain respectively. A combination of these two strategies
considered as the third division which is identified by Naylor et al. (1999) named
leagile.
10
2.2.2 Lean supply chain
The term “lean supply” implies that the supply chain is appropriate for lean
production.
The origins of lean manufacturing can be traced to the Toyota
Production System (TPS) (Ohno, 1988) that focus on the reduction and elimination
of waste.
Leanness means developing a value stream to eliminate all waste,
including time and to enable a level schedule (Naylor et al., 1999). Lean paradigm is
most powerful when the winning criterion is cost (Christopher and Towill, 2000).
It is appropriate for the supply management function in a lean environment to
integrate lean concepts and terminology into the development of supply strategy.
The major ingredients of lean manufacturing are defined as:
(Ducharme and
Lucansky,2002)
1. Product Flow: The value-added movement of goods and services from the
receipt of supplier raw material to delivery of product to customers.
2. Customer Demand: Actual demand that drives supply chain output.
3. Information Flow: The flow of relevant data that supports the flow of product
and service.
4. Customer/supplier Linkages: Key interfaces with customers and suppliers
impacting the movement of goods and services.
According to (Van Hoek, 1998) in lean strategies the emphasis is on
manufacturing to a forecast, keeping inventory holding low and seeking economic of
scale in production.
Therefore a well-defined lean supply chain is characterized by processes that are
considered core competencies by the organization and are supported by qualified
suppliers and driven by customer needs. There are some techniques and concepts
which are foundational to lean supply chain optimization. The following table holds
data on the core group of critical drivers and their supportive techniques (Ducharme
and Lucansky,2002).
11
Table 2.1 : Lean manufacturing ingredients
Critical driver
Product Flow
Supportive Systems
Kanban
Effect
Changing product
movement from “Push”
to “Pull” system
Customer Demand
MRP System
Synchronization of all
activities related to
supply chain
Information Flow
Virtual networks(e-
Synchronization of
commerce), ERP
supply and demand,
system, Internet
linking participants and
activities
Customer/supplier Linkages
QFD, Voice of
satisfy customer needs at
Customer
the lowest cost
Hence, the key to any efficient supply chain is to eliminate the cause for the
halt or match demand to production and single source suppliers. The value sought by
suppliers is the reduction of total cost, improvement in quality and achieving process
improvements quickly and effectively. It should be noted that the lean supply chain
is applicable in both wholesale and retail industries.
There are many techniques which playing the role of enabler and supportive for
lean supply chain. Some of the most important methods are as follows:
1. Just - In- Time (JIT)
2. Toyota Production System(TPS) principles
3. Total Quality Management(TQM)
4. Total Productive Maintenance(TPM)
5. Kaizen
6. 5’S
12
7. Six Sigma
2.2.3 Agile Supply chain
Agility means using market knowledge and a virtual corporation to exploit
profitable opportunities in a volatile marketplace (Naylor et al. 1999).
Another aspect of definition of Agility is a business-wide capability that
embraces organizational structures, information systems, logistics processes and in
particular, mindsets. Indeed the origins of agility as a business concept lie in flexible
manufacturing systems (Christopher et al., 2000). While Bonetto (n.d.) asserted that
a ” Flexible Manufacturing System” is a form of highly automated machine system
consists of : a group of processing workstations interconnected by an automated
material handling and storage system and controlled by a distributed computer
system.
In addition, Christopher et al. (2000) defines Agility as the ability of an
organization to respond rapidly to changes in demand, both in terms of volume and
variety.
According to the concept of the Seamless Supply Chain” (Towill, 1997)
agility implies that all businesses should work together to form an integrated supply
chain which orientation is toward satisfying the needs of end user, without focusing
on the performance improvement paradigms is applied by individual firms; hence,
the goal of agile supply chain is to establish a “Seamless Supply Chain” in which all
parties think and act as one. So, to achieve a seamless supply chain all boundaries
should be removed in order to ease the flow of information, material, cash and
resources (Mason-Jones et al., 1999).
13
Van Hoek (1998) expressed that agility relies on making to order acting on
actual demand signals from the market, postponing production until the demand is
known and being capable of adjusting capacity quickly.
The term “Postponing production until the demand is known” is referred to
the concept of “Postponement strategy” which is a key concept in agile supply chain.
A complete definition of this strategy will be presented at the end of this section.
To be truly agile Harrison et al., 1999 declared that supply chain should
possess a number of characteristics as shown in Figure 2.1.
Figure 2.1: Agile supply chain characteristics
One of the most important features of an agile supply chain is “market
sensitiveness”. Market sensitive means that the supply chain is capable of reading
and responding to real demand (Christopher et al., 2000).
14
As another point the progress of the last decade in the form of efficient
consumer response, which is a demand driven system that replenish merchandise,
manufacture and ship goods based on consumer purchase activity and capture data
on demand direct from the point-of-sale or point-of-use is now transforming the
organization’s ability to hear the voice of the market and to respond directly to it
(Christopher et al., 2000).
Information technology as another driver of agile supply chain shares data
between buyers and suppliers, in effect, creating a virtual supply chain. Virtual
supply chains are information based rather than inventory-based. Electronic data
interchange and now, internet as symbols of information technology enabled partners
in the virtual supply chain to act upon the same data (Christopher et al., 2000).
As another aspect, sharing information among different parties of supply
chain can be leveraged by process integration, which is defined by Morrison et al.,
(1997) as collaborative working between buyers and suppliers, joint product
development, common systems, and shared information. This form of cooperation
leads companies to focus on managing their core competencies and outsource all
other activities. Along with process integration, comes joint strategy determination,
buyer-supplier teams, transparency of information, and even, open-book accounting.
Christopher et al.( 2000) belived the idea of the supply chain, as a
confederation of partners linked together as a network, provides the fourth ingredient
of agility. The organizations that can better structure, coordinate, and manage the
relationships with their partners in a network in the era of “network competition,”
can make better, closer, and more agile relationships with their final customers. It
can be argued that in today’s challenging global markets, the route to sustainable
advantage lies in being able to leverage the respective strengths and competencies of
network partners to achieve greater responsiveness to market needs.
15
2.2.3.1 Postponement Strategy
Postponement or delayed configuration is based on the principle of seeking to
design products using common platforms, components or modules but where the
final assembly or customization does not take place until the final market destination
and/or customer requirement is known.
The advantages of the strategy of
postponement are several (Hoek, 1998). A postponement strategy aims at delaying
some supply chain activities until customer demand is revealed in order to maintain
both low system wide cost and fast response (Wan, 2006). Figure 2.2 provides
picture of supply chain strategy by taking into consideration the postponement
strategy.
Figure 2.2: Postponement Strategy
Institute for manufacturing (2006) declared that there are four major
postponement strategies. They are including:
1. Purchasing postponement: Delay purchasing of some expensive and fragile
materials
2. Manufacturing postponement: Products in semi-finished forms and can be
customized quickly in production facilities
16
3. Logistics postponement: Products in semi-finished forms and can be customized
quickly in production facilities close to customers
4. Time postponement: Finished products are kept in central location and are
distributed quickly to customers
Billington and Amaral (1999) suggested that the combined effect of shared
information in a supply chain and delayed configuration through postponement can
significantly improve responsiveness. Hence the product design has a fundamental
impact on agile supply chain performance.
2.2.4 Leagile Supply chain
It is not simply the lean manufacturing systems that are important but agility
is important too and this has been recognized in the phrase ‘Legality’ coined to
denote the concept (Naylor et al., 1999).
Before developing the definition of leagile supply chain the concept of
decupling point should be clarified. The extent of application of the postponement
strategy may decrease or increase gradually in the supply chains being determined by
an appropriate location of material decoupling point (Świerczek, 2007).
In the opinion of Hoekstra and Romme (1992) the decoupling point is the
point that indicates how deeply the customer order penetrates into the goods flow.
The material decoupling point is a buffer between upstream and downstream partners
in the supply chain. This enables them to be protected from fluctuating consumer
buying behavior and therefore establishing smoother upstream dynamics, while
downstream consumer demand is still met via a product pull from the buffer stock
(Mason-Jones and Towill 1999).
Figure 2.3 which proposed by Hoekstra and
Romme (1992) is referred to the idea that potential locations of material decoupling
17
points are indicating the extent of application of postponement strategies in the
supply chains.
Figure 2.3: Position of decoupling point in different postponement strategies
As the figure well depict, on the left side of material decoupling point the
activities are forecast driven, initiated by a push strategy, according to plans and
forecasts. On the right side of material decoupling point the activities are orderdriven which means they are originated by a pull strategy, according to customers‟
market demand.
An important point to recognize is that in real-world supply chains there are
actually two decoupling points. The first one is refers to the ``material'' decoupling
point where strategic inventory is held in as generic form. This point ideally should
lie as far downstream in the supply chain and as close to the final marketplace as
possible. The second decoupling point is refers as the ``information''. The upstream
in the supply chain has the effect to which information on real final demand
penetrates (Christopher, 2000).
18
Therefore, the location of material decupling point is often perceived as a
primary tool to indicate an extent of the application of postponement strategies in the
supply chains.
The definition of leagility follows from Naylor et al. (1999) as the
combination of the lean and agile paradigm within a total supply chain strategy by
positioning the decoupling point so as to best suit the need for responding to a
volatile demand downstream yet providing level scheduling upstream from the
decoupling point.
As another definition Naylor et al. (1999) also mention that combining agility
and leanness in one supply chain via the strategic use of a decoupling point has been
termed “leagility”.
Mason-Jones and Towill (1999) asserted lean and agile paradigms, though
distinctly different, can be and have been combined within successfully designed and
operated total supply chains which will constitute leagile paradigm.
Further Hoek et al. (2001) defined the leagile as the combination of the lean
and agile paradigms within a total supply chain strategy by positioning the
decoupling point so as to best suit the need for responding to a volatile demand
downstream yet providing level scheduling upstream from the market place.
The need for hybrid supply chain strategy emerges from recognize that,
within a mixed portfolio of products and markets, there will be some products where
demand is stable and predictable and some products where the converse is true. As
Fisher (1997) points out it is important that the characteristics of demand are
recognized in the design of supply chains. However, it is not necessarily the case
that a supply chain should be either lean or agile. Instead a supply chain may need to
be both lean and agile for different time era.
19
Consequently Suppliers need to be responsive to variable customer demand
by being agile enough to deal with shifts in volume while keeping inventories to a
minimum. So, the supply chain went from basically a whole lean supply chain to
one that incorporated agility downstream from the decoupling point. Therefore
replenishment lead times and information flows become critical to managing
leagility.
Table 2.2 which was proposed by Naylor et al. (1999), Mason-Jones et al.
(2000), Olhager (2003) and Bruce et al. (2004)
characteristics of lean, agile and leagile strategies.
briefly compares the major
20
Table 2.2: Comparison of lean, agile and leagile supply chains
Distinguishing
attributes
Lean supply
chain
Agile supply
chain
Leagile supply chain
Market
Demand
Predictable
Volatile
Volatile and
unpredictable
Product variety
Low
High
Medium
Product Life
cycle
Long
Short
Short
Customer
drivers
Cost
Lead time and
availability
Service level
Profit Margin
Low
High
Moderate
Marketability
Costs
Physical/Marketability
cost
Dominant Costs Physical Costs
Stock out
penalties
Long term
contractual
Immediate and
volatile
No place for stock out
Purchasing
policy
Buy goods
Assign capacity
Vendor manage
inventory
Information
enrichment
Highly desirable
Obligatory
Essential
Forecast
Mechanism
Algorithm
Consultative
Typical
Products
Commodities
Fashion goods
Algorithm and
consultative/
Algorithm or
consultative
Product as per
customer demand
Lead time
compression
Essential
Essential
Desirable
Eliminate Muda Essential
Desirable
Arbitrary
Desirable
Rapid
Reconfiguration
Essential
Essential
Robustness
Arbitrary
Essential
Desirable
Quality
Market qualifier
Market qualifier
Market qualifier
Cost
Market winner
Market qualifier
Market winner
Lead Time
Market qualifier
Market qualifier
Market qualifier
Service Level
Market qualifier
Market winner
Market winner
21
2.2.5 Fisher’s framework
Fisher (1997) proposed a model for matching of product characteristics and
supply chain design. Products that are innovative are characterized by e.g. variation
in demand and short life cycles; they should therefore be converted through a
market-responsive supply chain that has extra capacity, capability of market
information processing, and that is more flexible. On the other hand, products that
are functional are characterized by e.g. a steady demand pattern and long product life
cycles. A physically efficient supply chain that focuses on cost minimization and
high utilization of resources should handle this kind of product.
Thus, this model suggests that a certain product type requires a specific type
of supply chain design, whereas other choices will lead to a mismatch. This model is
supported by cases such as Campbell Soup and Sport Obermeyer (Cachon and Fisher
1997; Fisher, 1997; Fisher et al., 1994). The appropriate combinations are depicted
in Figure 2.4.
Functional Product
Innovative Product
Lean
Supply
Chain
Ma tch
Misma tch
Agile
Supply
Chain
Misma tch
Ma tch
Figure 2.4: Matching supply chains with products
22
2.2.6 Hayes and Wheelwright’s framework
The relationship between product characteristics and process choice has been
described by Hayes and Wheelwright (1979) in the product-process matrix.
The product-process matrix suggests that some combinations of product and process
types are better than others, such that a more flow-oriented production process will
be appropriate for increasing product demand volumes and a higher degree of
standardization. Thus, this framework suggests that certain products should be
produced using a specific type of manufacturing process in the firm.
As a product matures and the sales volume increases, there is a need to shift
from the initial low volume and high flexibility stage to a high volume and low cost
manufacturing process. Thus, a life cycle perspective can be employed, indicating
that a product would need different process types for different stages in the product
life cycle (Hayes and Wheelwright, 1979). This matrix is one of the common models
in the manufacturing strategy domain.
Figure 2.5: The product-process matrix
23
2.3 Performance measurement
The concept of performance measurement is straightforward: you get what
you measure; and can’t manage a project unless you measure it. (Performance-Based
management Special Interest Group (PBM SIG), 1993).
The OCIO (2007) described Performance measurement as a process whereby
an organization establishes the parameters within which programs, investments, and
acquisitions are reaching the desired results.
As BPR Glossary of Terms indicated performance measurement is the
process of developing measurable indicators that can be systematically tracked to
assess progress made in achieving predetermined goals and using such indicators to
assess progress in achieving these goals.
Center for program Evaluation and performance measurement define
performance measurement and performance measures as follows: Performance
measurement Involves ongoing data collection to determine if a program is
implementing activities and achieving objectives. It measures inputs, outputs, and
outcomes over time. In general, pre-post comparisons are used to assess change.
Performance measures are Ways to objectively measure the degree of success
a program has had in achieving its stated objectives, goals and planned program
activities. Such as number of clients served, attitude change, and rates of rearrests
may all be performance measures.
In Performance Measurement and Evaluation’s Definitions and Relationships
(GAO/GGD-98-26), the U.S. General Accounting Office (GAO) provides the
following definition:
24
Performance measurement is the ongoing monitoring and reporting of
program accomplishments, particularly progress towards pre-established goals. It is
typically conducted by program or agency management. Performance measures may
address the type or level of program activities conducted (process), the direct
products and services delivered by a program (outputs), and/or the results of those
products and services (outcomes).
A “program” may be any activity, project,
function, or policy that has an identifiable purpose or set of objectives.
(PBM SIG, 1993)
Most performance measures can be grouped into one of the following six
general categories.
However, certain organizations may develop their own
categories as appropriate depending on the organization’s mission PBM SIG (1993).
1. Effectiveness: A process characteristic indicating the degree to which the process
output (work product) conforms to requirements.
2. Efficiency: A process characteristic indicating the degree to which the process
produces the required output at minimum resource cost.
3. Quality: The degree to which a product or service meets customer requirements
and expectations.
4. Timeliness: Measures whether a unit of work was done correctly and on time.
Criteria must be established to define what constitutes timeliness for a given unit of
work. The criterion is usually based on customer requirements.
5. Productivity: The value added by the process divided by the value of the labor and
capital consumed.
6. Safety: Measures the overall health of the organization and the working
environment of its employees.
Based on PBM SIG (1993) most companies gather data on their financial and
operational performance but the Malcolm Baldrige National Quality Award believes
companies should also focus on customer satisfaction, employee satisfaction,
product/service quality, and public responsibility as long term measures.
25
Although there are numerous categories of measures, but all of them can be
merged into two major groups of financial and operational measures (Wikipedia,
2010. Performance indicators). So, it is important to evaluate companies’
performance from financial and operational and marketing point of view.
2.3.1Operational performance
As business dictionary explained operational performance is firm's
performance measured against standard or prescribed indicators of effectiveness,
efficiency, and environmental responsibility such as, cycle time, productivity, waste
reduction, and regulatory compliance. Operational performance “deals with the time
required to deliver a customer’s order” (Bowersox et al., 2007).
Operational
performance can generally be separated into two groups: behavioral –based and
outcome based operational performance (Shang, 2002). In this study the outcomebased operational performance concept is adopted which emphasizes the outcome of
firm such as cost, time, flexibility and quality.
Slack and Lewise (2004) suggested five key criteria to measure operational
performance(1) quality (e.g. level of customer complaints, mean time between
failures and customer satisfaction score); (2) speed (e.g. customer query time, order
lead time and cycle time); (3) dependability(e.g. percentage of orders delivered later
and proportion of products in stock); (4) flexibility (e.g. time to change schedules,
time needed to develop new products/services and range of products/services) and
(5) cost (e.g. labor productivity and cost per operation hour).
Other performance indicators or metrics identified included, among other
metrics, customer service, cost management, asset management, quality, and
productivity (Bowersox et al., 1999). These measures connect improvements within
the supply chain to the overall firm level performance measures
26
Based on Collins (2010) Firms have multiple choices when selecting the
appropriate metrics for measuring operational performance across the supply chain.
Collins (2010) provided a list of relevant operational firm performance measures
below to facilitate their practical discussion:
1. Resource utilization (Return on investment; Equipment utilization; Energy
usage/cost; Total cost of resources used; Distribution costs including
transportation and handling; Manufacturing including labor; maintenance and rework Inventory)
2. Output measures (Customer responsiveness; Quantity of final product produced
;Per unit production time; Number of on-time deliveries (orders); Customer
satisfaction; Revenues; Revenue growth; Profitability (net income) and Fill rate)
Inman et al. (2011) investigated the relation between agile supply chain, JIT,
operational performance and firm performance.
Following items were used to
evaluate firm’s operational performance:
1. Customer service: Customer satisfaction; Product customization; Delivery speed
2. Cost management: Logistics cost
3. Quality: Delivery dependability; Responsiveness; Order flexibility; Delivery
flexibility
4. Productivity: Information systems support; Order fill capacity; Advance ship
notification
5. Asset management: Inventory turnover
In Study of Operational performance Inman et al. (2011) was measured using
a 13-item “performance metrics” scale developed by Bowersox et al. (1999). The
items incorporate customer service, cost management, quality, productivity and asset
management performance metrics.
27
The level of provider’s operational performance should necessarily meet the
customer’s requirements. Therefore, the review of performance metrics should be
undertaken from both provider’s (operational performance) and customer’s
(marketing performance) perspectives. Therefore the part of review titled “agile and
lean supply chain relation to performance measurement” is based on both operational
and marketing and also financial perspectives.
2.3.2. Financial performance
Sacco et al. (2000) Expressed financial Performance is used as an allembracing term to include financial success, conditions, and compliance.
It is
historical in perspective, referring to performance during a period in past.
Financial performance from Investopedia point of view is a subjective
measure of how well a firm can use assets from its primary mode of business and
generate revenues. This term is also used as a general measure of a firm's overall
financial health over a given period of time, and can be used to compare similar
firms across the same industry or to compare industries or sectors in aggregation.
Capon et al.(1990) explored the accurate metrics of financial performance.
Six items of financial performance, namely market value, assets, equity, cash flow,
sales and market or book value were defined in their study.
Ellinger et al. (2003) explore the relationship between firm financial
performance and Internet utilization in transportation industry. Seven items used to
evaluate firm’s financial performance: gross profit margin, return on sales (ROS),
operating profit margin, return on assets (ROA), and return on equity (ROE),
accounts receivable turnover, current ratio and debt ratio.
28
Enterprise Products Partners L.P (2000) conducts a study to explore the
differences of Non-GAAP financial measure from GAAP measures. They used
following five measures of financial performance:
net income, operating income,
net cash flow and gross operating margin and distributable cash flow.
Inman et al. 2007 also determined the firms’ financial and marketing
performance with the help of following factors:
Table 2.3: Elements of financial, marketing performance
Financial Performance
Marketing performance
Average return on investment over the
Average market share growth over the
past 3 years
past 3 years
Average profit over the past 3 years
Average sales volume growth over the
past 3 years
Profit growth over the past 3 years
Average return on sales over the past 3
Average sales (in dollars) growth over
the past 3 years
years
The scales for measuring the financial and marketing performance of the firm
in Inman et al. (2007)study were previously used by Green and Inman et al. 2005
and Green et al. (2004). The financial performance items were taken directly from
Claycomb et al. (1999). The marketing performance items were developed by Green
and Inman et al. 2005 based on measures of marketing performance (sales volume,
market share and sales growth) identified by Kohli and Jaworski (1990).
29
2.3.3 Supply chain strategies performance measurements
Murali Sambasivan (1997) conducted a research to consolidate performance
measures in a lean and agile supply chain environment. The following measure and
metrics were used.
30
Table 2.4: Supply chain existing measures
Murali Sambasivan (1997) investigates the contribution of five criteria to
evaluate supply chain performance:
(1) Inventory turnover (61.8 percent)
(2) Cycle time (48 percent)
(3) Fulfillment rates (20.2 percent)
(4) Supply chain service (20.2 percent)
(5) Perfect order (14.6 percent)
Since customer requirements are continuously changing, SC’s must be
adaptable to future changes to respond appropriately to market requirements and
changes (Azevedo, 2011); so, the ability to meet requirement of customer in a
31
changing environment is a crucial operational performance of both lean and agile
supply chain strategy.
2.3.4. Performance Measures of Lean supply chain strategy
Samson et al. (1997) examined the relationship between total quality
management (TQM) practices and operational performance. He focuses on quality
performance, operational and business performance indicators. Five items were used
to measure the firm’s operational performance: customer satisfaction, employee
morale, productivity, quality of output and delivery performance. The results of
survey show that three of the elements of TQM, leadership, people management and
customer focus have a significant positive effect on operational performance, but the
other three categories of strategic quality planning, information and analysis and
process management did not have the significant positive effect.
Samson et al. (1997) also used seven items to measure organizational
performance outcome: customer satisfaction, employee morale, productivity, defect
as a percentage of production volume, warranty claims as a percentage of total sales,
cost of quality (error, scrape, rework and inspection) as a percentage of total sales
and delivery in full on time to the customers.
GaMarkYang ( 2010) explored empirically the impact of lean supply chain
and environmental management on business performance. Their research area of
interest was two aspects of environmental performance and business performance.
Environmental performance refers to organization’s performance with respect to
their environmental responsibilities (Kleindorfer et al., 2005) and business
performance takes into account the organization’s responsibilities toward their
shareholders and has a profit maximization objective (Rappaport, 1987). Business
performance may be conceptualized with the two dimensions of market performance
and financial performance (Narasimhan and Kim, 2002; Lin et al., 2005; Menor et
32
al., 2007). The result of study showed that lean supply chain has a positive and
significant relationship with financial, market and environmental performance.
The following indicators has determined for each performance:
1. Financial performance ( Return on sale, return on investment)
2. Market performance(sales, market share)
In the note of Waddell (2000) titled “Manufacturing's Five Golden Metrics”
five golden metrics considered as lean supply chain metrics: total cost, total cycle
time, delivery performance and quality.
Robinson (1997) proposed the lead time reduction, velocity, cost of quality ,
on time on full delivery, increasing demonstrated capacity, cross training and
flexibility as performance measurements of Kanban system.
Inman et al. ( 2007) investigated the performance of 250 plants which applied
JIT purchasing system. Seven items were used to evaluate the firm’s operational
performance : having a daily basis for order placement of suppliers and delivering to
customers; proximity of supplier’s warehouse/factories; Sharing production plan
with suppliers; Placing small lot size order with suppliers; Reduced the inspection of
incoming materials; Visit’s suppliers plants regularly; Involvement of suppliers in
new product design.
Lean manufacturing and distribution can lead to Reduced cycle times; the
ability to deliver every time at the same cost to the business; Predictable throughput
times from better labor utilization; Improved working capital positions from reduced
inventory; Lower warranty and customer service costs from improved quality ( Bob
Trebilcock,2008).
Table 2.5 summarizes the performance metrics related to lean supply chain strategy.
33
Table 2.5: Summary of proposed performance metrics of Lean supply chain
Author(s)
Barber
(1996)
et
Financial
x Return on equity
x Sales Growth
x Sales Return
al.
x Recievable turn over ratio
x Current Ratio
x Cost of good sold ratio
x Gross profit ratio
Biscontri et al. x Inventory turn over ratio
(2000)
x Return on assests
x Assest turn over
x Income per employee
x Revenue per employee
x Return on capital
Kochakulah et al. x Return on assest
(2004)
x Stock performance
x Cash flow
x Quick ratio
x Return On Sale
x Cash Flow Margin
x Return On Assest
Fullerton
(2008)
Duarte
(2011)
et
et
al.
x Return on assest
x Return on investment
x Total Sales
al., x Labour cost per hour
x Revenue
x Profit
Operational
x Return On Cash Adjusted
Assest
x Employee Productivity
x Gross Margin Ratio
x Cash to Cash Cycle time
x Total Cycle time
x Inventory Cycle time
x Payables Cycle time
x Receivables Cycle time
x Productivity improvement
x Percentage of non-value
added activities
x Plant utilization ratio
x Operating profit
x Return on Investment in
JIT
x Inventory turnover rate
x Quality performance
x Product delivery time
x New product introduction
time
x Shop-floor
employee
involvement
x Inventory Turn
x Equipment down time
x On-time delivery
Cycle
x Manufacturing
efficiency
x On Time delivery
x Supplier
development
Ratio
involvement
x Employee
Ratio
x Set-up time reduction
34
2.3.5. Performance Measures of Agile supply chain strategy
Y.Y.Yousef et al. (2003) explored the effect of volume flexibility as one of
the agile supply chain attributes on business performance; they measured aggregate
agility (Competitive capability) of company on its attainment on cost, quality,
dependability, speed, volume flexibility, product customization and leadership in
new technology products. Also, they referred to five items to measure the business
performance (Aggregate performance) of firms: change in sales turn over, net profit,
market share, and proportion of sales from new products, customer loyalty and
performance against competitors.
As table 2.6 shows there is a significant and positive relationship between
aggregate agility excluding volume flexibility and aggregate performance.
Table 2.6: correlation results of aggregated variables
The comparison between lean and agile supply chain showed that for lean the
cost and quality are highest factor loading while in agile all the capabilities
(dependability, leadership in new technology products, speed to market, custom
production, volume flexibility, and quality) except cost have moderately high factor
loadings (Y.Y.Yousef et al., 2003). The survey also showed that agile supply chain
has the most significant relation with market share growth while lean supply chain
has a positive and significant relation with overall business performance and both
strategies have the significant and positive relation with the “performance against
competitors” factor.
35
In the study
of Inman et al.( 2007) the market sensitivity capability,
flexibility of production in terms of product model and configuration, ability to
accommodate to manufacturing process and systems, use of compatible IT systems
and technological capabilities to quickly respond to changes in customer demand, the
vision of organization emphasizes the need for flexibility and agility to respond to
market changes(ability to accommodate variation in buyer demand), forming cooperative relationships with customers and suppliers, appropriate management
decisions in the case of changes, meet and exceed the level of product quality by its
customer, delivery on time and ability to accommodate changing delivery and
reduced order lead time, capability of organization to get new products to market
quickly are characteristics based on which customers evaluate the agile supply chain
performance.
The finding of Inman et al.( 2007) is consistent with Vazquez-Bustelo et al.
(2007) who found that the adoption of agile manufacturing positively impacts
manufacturing strength thus leading to improved business performance.
Interestingly, this is consistent with the proposed relationships among three of
the four perspectives in balanced scorecard logic; customer perspective (marketing
performance), internal business perspective (operational performance), and financial
perspective (financial performance).
In the hand book of “how to measure performance” by U.S. department of
energy (1995) only one factor was used to determine the agile manufacturing’s
operational performance: on time delivery per month.
Azevedo (2011) believes that an agile supply chain should have the ability to
respond rapidly and cost effectively to unpredictable changes in market both in terms
of volume and variety. So, to respond rapidly to “changing continually fragmenting”
markets is an indicator to measure the performance of an agile supply chain.
36
Agarwal, Shankar and Tiwari (2006) have shown that the deployment of agile
SC paradigm depends on the following variables: market sensitiveness, customer
satisfaction, quality improvement, delivery speed, data accuracy, new product
introduction, centralized and collaborative planning, process integration, use of IT
tools, lead-time reduction, service level improvement, cost minimization, customer
satisfaction, minimizing uncertainty, quality improvement, trust development, and
minimizing resistance to uncertainty.
Also they mainly used following criteria to evaluate the performance of the
firm’s which apply agile supply chain as its supply chain strategy: i) to increase
frequencies of new product introductions; ii) speed in improving customer service;
iii) centralized and collaborative planning; iv) use of IT to coordinate/integrate
activities in manufacturing; v) speed in improving responsiveness to changing
market needs; vi) to produce in large or small batches; vii) ability to accommodate
changing delivery time of supplier’s order.
Table 2.7 briefly explains some of the metrics which are proposed by
previous researchers on evaluating firms’ performance which adopted agile supply
chain strategy.
37
Table 2.7: Summary of proposed performance metrics of Agile supply chain
Author(s)
Financial
x Change in sales turn
over
Yousef et al., (2003)
x Net profit
Operational
x Speed to market
x Customized production
ratio
x Market share growth
x Volume flexibility
x Proportion of sale
x Dependebility
from new product
x Information System
Capability
x Return on investment
x Market sensetiveness
x Return on sale
x Customer satisfaction
x Share value
x Delivery speed
x Investment in IT tools
Agarwal et al., (2003)
x Investment in demand
uncertainity reduction
x Lead time reduction
x Frequency of new product
intoduction
x Return on investment
x Market sensivity capability
x Avrage profit
x Flexibility in product
x Profit growth
model and rapid
x Avrage return on Sale
configuration
x Avrage market share
Inman et al.,(2007)
growth
x Avrage sale volum
growth
x Avrage sale growth
x Fast response tounplanned
customer order
x Order lead time
x On time delivery
x New product introduction
time
38
2.3.6The implication of operational and financial performance
In this study, operational performance concerns the measurable points of the
outcomes of an organization’s processes, such as reliability, speed of delivery and
quality of service (Voss et al., 1997).
To summarize the review based on the above operational and financial
performance, some implications are discussed in the following sections.
First of all, there is broad consensus that operational performance can be
expressed through a combination of cost, quality, flexibility, delivery and innovation
(da Silveria and Cagliano, 2006; Hill, 2005; Narasimhan and jayaram, 1998; Slack et
al., 2004).
Secondly, it is noticeable that different financial measures do not coincide in
different studies. Ellinger et al. (2003) used the following eight measures of
financial performance: gross profit margin, return on sales (ROS), operating profit
margin, return on assets (ROA), return on equity (ROE), accounts receivable turn
over, current ratio and debt ratio. Other measures that have been used include return
on investment (ROI) (Panayides, 2007; Inman et al., 2007), sales growth (Inman et
al., 2007), and sales volume (Inman et al., 2007).
Thirdly, an understanding of the financial and operational performance from
the previous search provides a concept in choosing items for use in the following
survey. These are summarized in table 2.8 and 2.9.
Fourthly, the Balance scorecard (BSC) will be introduced as a strategy
oriented performance measurement system. BSC is used to group performance
metrics related to lean and agile supply chain strategy based on customer, financial,
internal business and learning and growth perspectives.
39
40
Profitability
return on investment(ROI)
return on asset(ROS)
return on equity(ROE)
net income
operating income
gross profit margin
net cash flow
profit growth
return on sale(ROS)
operating margin
distributable cash flow
others
market/sale value
market share
sale volume
sale growth
account receivable turn over
current ratio
debt ratio
Title/Item
*&
Bowersox
et al. 1999
*&
*&
*&
Capon
1990
*&
*&
*&
*&
*&
*&
*&
Ellinger et
al. 2003
*&
*&
*&
*&
*&
*&
L.P.
2000
*&
*&
*&
*&
*&
*&
Inman
2007
*&
*&
*&
Kohli and
jawarski
1990
Table 2.8: Key items of financial performance for Lean and Agile supply chain strategy
*
*
*
*
Ga(Mark)
Yang 2010
& denote Agile
* denote Lean
39
to turn inventory more frequently
others
to produce new and customized products
to reduce inspection time
to increase velocity
to reduce total cycle time of production
to utilize IT systems to support productivity
Innovation
to reduce cost of customer service
to reduce cost of quality
to reduce manufacturing costs
to reduce distribution costs
to utilize resources efficiently
To reduce cost of management
Cost
to be more sensitive to market changes
to increase flexibility in production
to provide more flexible quantity of order
Flexibility
*&
*&
*&
*&
*&
*&
*&
*&
*&
*&
*&
*&
to be more responsive toward customers
to increase customer satisfaction
to enhance quality of output
*&
*&
*&
Slack and
Lewise
2002
*&
*&
*&
*&
*&
Bowersox
et al. 1999
to provide higher customer service level
Quality
to improve delivery performance
to determine an optimum order-fill capacity
to be more flexible in delivery service
To increase number of on time delivery
Delivery
Title/Item
*&
&
*
*&
*&
*&
&
&
*&
*&
*&
*
Inman
2007
*&
*
Azevedo
2011
*
*
*
*
*
Samson et
al 1997
*
*
*
*
*
Waddell
*
*
*
*
Robinson
1997
Table 2.9: Key items of operational performance for Lean and Agile supply chain strategy
*
*
*
Bob
Trebilcock
&
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*
*
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Y.Y.Yousef
et al. 2003
&
&
&
&
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&
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Agarwal,Sha
nkar,Tiwar
40
41
41
2.3.7 Performance measurement system
Radnor and Lovell (2003) explain the term performance measurement system
as a means of gathering data to support and coordinate the process of making
decisions and taking action throughout the organization. The measurement system is
a crucial element in ensuring the successful implementation and execution of
strategies identified by the organization in achieving their strategic goals (Fitzpatrick,
2002; Radnor & Lovell, 2003). Meanwhile, Pink et al. (2001) see performance
measurement as the process of quantifying past action, focusing on both efficiency
and effectiveness of the action taken.
According to Chang and Young (1995) performance measurement provides
organization with focus, direction, a common understanding and knowledge for
making better business decision besides providing feedback on the organizational
improvement efforts. Because performance measurement is always linked to a goal
or an objective, it gives the management the means to maintain control and monitor
the progress of the organizations towards achievement of their overall vision
(Aidemark, 2001), through the successful implementation of the strategy chosen.
However, with the rapid changes in the modern businesses environment,
many organizations have become dissatisfied with the traditional backward looking
performance measurement systems by identifying their shortcoming and arguing for
change (Aidemark, 2001). Eventually, the new situation causes the old systems to be
inefficient and no longer effective and thus becoming inappropriate to the
organizations.
42
2.3.8 Challenges in performance measurement systems
Eccles (1991) argues that new strategies and competitive realities require new
measurement systems because traditional systems that stress on the financial
indicators can no longer justify the need of the modern business entities.
To be successful and competitive, organizations require a more holistic and
balanced approach in measuring their performance that not only display yesterday
consequences as shown by the financial indicators but also capable of predicting
future performances through utilization of the non-financial measures which are
known to be forward-looking(MacStravic, 1999).
Because measurement provides the link between strategies and actions, the
type of performance measurement system is a barrier to organizational development
if inappropriate measures are applied. This is because such measures tend to lead to
actions, which are incongruent with the strategies no matter how well they are
formulated or communicated through the organizations (Oliveira, 2001).
As a result, there is an increasing awareness among today’s well-trained
managers on the need to search for an integrated performance measurement system
that can both strategically measure the financial and operational aspects of their
businesses, which are seen as truly essential in creating healthy and balanced
organizations (Birch, 2000).
Hence, the demand for integrated performance measurement systems begins,
with the continuing search for more relevant, integrated, balanced, strategic,
improvement oriented and dynamic kind of measurement systems (Betitci et al.,
2000).
One prime example of such measurement systems that happens to address
these requirements is the famous balanced scorecard.
43
2.3.9 Balance Scorecard approach
Balanced Scorecard (BSC) is a performance management tool which began
as a concept for measuring whether the smaller-scale operational activities of a
company are aligned with its larger-scale objectives in terms of vision and strategy.
By focusing not only on financial outcomes but also on the operational,
marketing and developmental inputs to these, the Balanced Scorecard helps provide a
more comprehensive view of a business, which in turn helps organizations act in
their best long-term interests (Ba-Abbad,2009).
The early versions of the Balanced Scorecard helped organizations achieve a
degree of "Balance" in selection of performance measures. In practice, early
Scorecards achieved this balance by encouraging managers to select measures from
three additional categories or perspectives: "Customer," "Internal Business
Processes" and "Learning and Growth." (Ba-Abbad, 2009).
In 1993, Robert S. Kaplan and David P. Norton began publicizing the
Balanced Scorecard through a series of journal articles. In 1996, they published the
book The Balanced Scorecard. Since the original concept was introduced, Balanced
Scorecards have become a fertile field of theory, research and consulting practice.
The Balanced Scorecard is a performance planning and measurement
framework, with similar principles as Management by Objectives, which was
publicized by Robert S. Kaplan and David P. Norton in the early 1990s.
Implementing Balanced Scorecards typically includes four processes:
1. Translating the vision into operational goals;
2. Communicating the vision and link it to individual performance;
3. Business planning;
4. Feedback and learning, and adjusting the strategy accordingly.
44
The Balanced Scorecard is a framework, or what can be best characterized as
a “strategic management system” that claims to incorporate all quantitative and
abstract measures of true importance to the enterprise.
According to Kaplan and Norton (1996) “The Balanced Scorecard provides
managers with the instrumentation they need to navigate to future competitive
success”.
The grouping of performance measures in general categories (perspectives) is
seen to aid in the gathering and selection of the appropriate performance measures
for the enterprise. Four general perspectives have been proposed by the Balanced
Scorecard:
* Financial perspective
* Customer perspective
* Internal process perspective
* Innovation and learning perspective
The financial perspective examines if the company’s implementation and
execution of its strategy are contributing to the bottom-line improvement of the
company. It represents the long-term strategic objectives of the organization and thus
it incorporates the tangible outcomes of the strategy in traditional financial terms.
The three possible stages as described by Kaplan and Norton (1996) are rapid
growth, sustain and harvest. Financial objectives and measures for the growth stage
will stem from the development and growth of the organization which will lead to
increased sales volumes, acquisition of new customers, growth in revenues etc. The
sustain stage on the other hand will be characterized by measures that evaluate the
effectiveness of the organization to manage its operations and costs, by calculating
the return on investment, the return on capital employed, etc. Finally, the harvest
stage will be based on cash flow analysis with measures such as payback periods and
revenue volume. Some of the most common financial measures that are incorporated
45
in the financial perspective are EVA, revenue growth, costs, profit margins, cash
flow, net operating income etc.
The customer perspective defines the value proposition that the organization
will apply in order to satisfy customers and thus generate more sales to the most
desired (i.e. the most profitable) customer groups. The measures that are selected for
the customer perspective should measure both the value that is delivered to the
customer (value position) which may involve time, quality, performance and service
and cost and the outcomes that come as a result of this value proposition (e.g.,
customer satisfaction, market share)(Kaplan and Norton ,1996).
The internal process perspective is concerned with the processes that create
and deliver the customer value proposition. It focuses on all the activities and key
processes required in order for the company to excel at providing the value expected
by the customers both productively and efficiently. These can include both shortterm and long-term objectives as well as incorporating innovative process
development in order to stimulate improvement.
The innovation and learning perspective is the foundation of any strategy and
focuses on the intangible assets of an organization, mainly on the internal skills and
capabilities that are required to support the value creating internal processes. The
innovation and learning Perspective is concerned with the jobs (human capital), the
systems (information capital), and the climate (organization capital) of the enterprise.
Relating to each perspective of the Balanced Scorecard, a number of key
performance indicators (KPIs) were proposed by Kaplan and Norton (1996) as :
1. Financial: Cash flow, ROI, Operating Margin, Return on capital employed,
Return on equity
2. Customer: Delivery Performance to Customer - by Date, Customer loss rate,
Customer satisfaction rate, Customer Loyalty, Customer retention
46
3. Internal Business Processes: Defect Rate,
New Process and Product
Development Time, Speed of Delivery, Overall Equipment Effectiveness
4. Learning & Growth: Revenue per Employee, Employee Capability, Team
Performance, Employee Turnover, Improvement Rate
The development of BSC required customization because every organization
has its own strategy and thus in need of specific strategic measurement system that
could measure the performance of the institution concerned. Generally, Brown
(1996) suggested a range of 15 to 20 measures as an ideal number of measures to
monitor in any measurement system in order to avoid information overload. These
limited measures should at the same time capable of giving the senior management a
balanced, fast and comprehensive overview of the organization performances.
This study aims to develop a Balance scorecard framework for companies by taking
into consideration the supply chain strategy adopted by them.
2.3.10 Balance Scorecard – supply chain strategy framework
As it was mentioned before the supply chain strategies can be grouped under
lean, agile or leagile. In the previous sections performance metrics related to each
strategy were identified. Further the importance of Balance scorecard (BSC) as a
strategic oriented performance measurement system in the organization was clarified.
This study develop a unique Balance scorecard framework for companies
accepted either lean or agile strategy. Figure 2.6 and figure 2.7 present the Balance
scorecard-agile and Balance scorecard-lean supply chain strategy frame works
respectively.
47
Customer perspective
Financial perspective
-
Market Share
- Net profit
-
Customer response time
- Return on sale
-
Customer satisfaction
- Return On Investment
-
Customer Response Time For
- Sale From New Products
Unplanned Orders
- Share Value
- Average Profit
- Profit Growth
- Sale Growth Rate
- Sale Volume
Internal business perspective
-
Lead Time
-
Investment in IT tools
-
Investment in demand uncertainty
Learning and growth perspective
-
Information System Capability
reduction
-
Number Of On-Time Deliveries
-
Flexibility in production/Volume
of Products
-
Speed Of Delivery
-
New Product Introduction Time
Figure 2.6: Balanced scorecard-Agile supply chain strategy metrics
48
Customer perspective
-
Sales per employee
Internal business perspective
-
Labour Cost
Cash To Cash Cycle Time
Accounts Payable Cycle Time
Accounts Receivable Cycle Time
Process Cycle Time
Percentage of Non-value Added
Activities
Floor Space Utilization
Manufacturing Cycle Efficiency
Number Of On-Time Deliveries
Operating Process's Quality
New Product Introduction Time
Shop-Floor employee involvement
Machine Or Process Downtime
Supplier development Ratio
Financial perspective
- Return on equity
- Quick Ratio
- Sale Growth Rate
- Total Sale
- Return On Sale
- Total Revenue
- Receivable Turnover Ratio
- Current Ratio
- Return on investment
- Gross profit margin
- Operating cash flow
- Inventory Turn Over Ratio
- Return on assets
- Total Profit
- Operating Margin
- Asset turnover ratio
Learning and growth perspective
-
Revenue per employee
Employee productivity
Improvement Rate
Figure 2.7: Balanced scorecard-Lean supply chain strategy metrics
49
2.4 SUMMARY
This chapter has reviewed relevant studies on the various supply chain
strategies, the proposed matrix of supply chain strategy alignment with product type
and process characteristic alignment with product type, performance measurement,
operational performance, financial performance, categorization of performance
metrics under Lean and Agile supply chain strategies; as well as description of
Balanced Scorecard and categorization of performance metrics by taking into
consideration both supply chain strategies and Balance scorecard perspectives.
50
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Introduction
Research design is a plan that defines the research question, hypotheses to be
examined, and the number and type of variables to be studied. It also assesses the
relationship between the variables by using well-developed principles of scientific
inquiry (Glossary of monitoring and evaluation term, 2008).
This chapter comprised of research framework and model, questionnaire and
sampling design and choice of statistical techniques. The literature review in
previous chapter is related to supply chain strategy, lean, agile and leagile supply
chain, alignment of product type with process characteristic and product type with
supply chain strategy, performance measurement concept and metrics from financial
and operational point of view , relation between supply chain strategies and
performance measurements ,description of Balanced scorecard performance
measurement system and categorization of supply chain metrics under Balanced
51
Scorecard perspectives. The literature provides a foundation for structuring research
framework. There are four sections in this chapter. The first section introduces the
research framework and model. The second section describes questionnaire design
and the related definitions. Third section explains sampling design and finally, the
fourth section mentions the statistical techniques that will be used.
3.2 The research framework and model
Firstly, the model aims to identify the supply chain strategies of the
companies with the help of their distinguishing characteristics. In previous studies,
Naylor et al. (1999), Mason-Jones et al. (2000), Olhager (2003) and Bruce et al.
(2004) compared Lean, Agile and Leagile supply chain strategy by their dominant
attributes.
They defined 19 different attributes such as market demand characteristics,
customer drivers and tried to compare supply chain strategies within these areas.
Similarly, this model seeks to understand the supply chain strategies of ketchup
companies in Malaysia.
Secondly, this model tries to distinguish the most frequent used techniques
and enablers of each supply chain strategy. Previous studies itemized the dominant
techniques of Lean and Agile supply chain strategy. Some common agile related
techniques and methods are Flexible Manufacturing System, Efficient Consumer
Response (Shubhankar et al., n.d.), Information system technology, Electronic Point
of Sale Data, Vendor Management Inventory (Christopher, 2000), Electronic Data
Interchange
(Mason-Jones
et
al.,
2000),
Enterprise
Resource
Planning
(Chintamaneni, 2010), Postponement Strategy (Christopher, 2000).
Lean supply chain is also supported by the following principles: Just In Time
(JIT), TPS principles (Christopher, 2000), Level scheduling techniques (Naylor et
al., 1999), Kanban system (Mason-Jones et al., 2000), Total Quality Management
52
(TQM), Total Productive Maintenance (TPM) and Quick change over techniques
(Baurdeen, 2008) , Kaizen, Poka-Yoke , Mistake Proofing Check list , Six Sigma ,5'S
(Bodek, 2010) and SMED (Christopher, 2000).
In a similar manner this model also will specify the dominant techniques
which are frequently used by each firm.
Thirdly, this model measures the performance of companies by metrics which
were proposed by Balanced scorecard system (Kaplan and Norton, 1996). Balanced
scorecard method categorizes metrics based on four major perspectives. These
include “Customer perspective”, “Internal business perspective”, ”Financial
perspective” and “Learning and Growth perspective” . Hence the performance of
cases by means of Balanced scorecard’s metrics will be investigated.
Finally, another important linkage in the model is the effect of supply chain
strategy alignment and process characteristic alignment on company’s performance.
On the one hand, the effects of limiting metrics to supply chain metrics on measure
of companies’ performance will be assessed. On the other hand the process structure
of companies will be asked to configure this relationship.
3.3 Questionnaire design
Once research objectives clearly defined the study will progress toward the
stage of data collection. In this study, a questionnaire is employed as the main
approach for data collection.
The questionnaire is defined as “an instrument delivered to the participant via
personal or non-personal means that is completed by participant” (Cooper and
Schindler, 2006). On the other hand, questionnaire can be used for “descriptive and
53
explanatory research” to examine relationships between variables (Saunders et al.,
2003).
To develop the questionnaire, appropriate style of question was selected and
the questions were written down and ordered. Finally, the questionnaire’s pages
were constructed and the appearance of questionnaire was designed. Questionnaire
scales in this research were based on previous studies in the relevant academic
literature.
The designed questionnaire consists of four parts. The first part is related to
the company’s characteristics (e.g. name, number of employee, process
characteristic). The second and third parts are associated with supply chain strategy
determination’s questions (Part A) and supply chain strategy techniques’ questions
(Part B) respectively.
Eventually the fourth part (Part C) is concerned with
performance measurement and following separated relevant questions.
Part A questions were developed based on a prioritized listing of 19
attributes necessary for organization to achieve each strategy. So, there were 19
questions in this part and respondents were asked to indicate the degree of
conformity, necessity and significance of their supply chain features with each
statement. Five – point Likert scales were used for each question.
In Part B, eight lean and three agile techniques were brought and the
companies’ representatives were asked to indicate which of these techniques had
been applied more frequently during manufacturing process.
In this part,
respondents determine how frequent each technique is used in their firm.
The
answers were in terms of numbers from one (least frequent) to five (most frequent).
Further, Part C aims at measuring the company’s performance by both rating
method and objective data (as a numeric range) along with determining the necessity
of each metric from companies’ view point by asking respondent to tick in
Importance and Used columns respectively. Part C group metrics are based on
54
Balanced scorecard legs; thus the company’s performance can be compared within
different perspectives.
Finally, four general questions were asked about the previously applied
performance measurement systems in company and also the company’s supply chain
structure will be determined; in addition, the duration of company’s lead time will be
clarified. As a final question, the company was asked to rate its overall performance
in year 2010 compared to similar companies in the market. A copy of questionnaire
is provided at Appendix A.
3.3.1 Definition of terms
This section defines some of the technical words which were used in the
questionnaire.
Assemble to Order – A type of manufacturing that converts lower-level components
and raw materials to a predetermined level of manufacture and assembles or
configures to customer order upon receipt or order.
Efficient consumer response – A system for replenishing merchandise based on
actual consumer demand.
Electronic Data Interchange – It refers to the structured transmission of data
between organizations by electronic means. It enables partners in the supply chain to
act upon the same data e.g. real demand.
Electronic Point of Sale Data – It is a fully integrated system that links the front
office point of sales system directly to the back office operations. Access the relevant
data real-time, or offline if required.
55
Enterprise Resource Planning (ERP) – It is an integrated computer-based system
used to manage internal and external resources including tangible assets, financial
resources, materials, and human resources.
Engineer to Order – A manufacturing philosophy whereby finished goods are built
to unique customer specifications. Assemblies and raw materials may be stocked but
are not assembled into the finished good until a customer order is received and the
part is designed.
Five ‘S (5’s) – It is the name of a workplace organization methodology that uses a
list of five Japanese words which are seiri, seiton, seiso, seiketsu and shitsuke. It
mainly used to reveal the 'root cause' (as opposed to symptoms) of a problem.
Flexible Manufacturing System –It is a form of flexible automation in which
several machine tools are linked together by a material-handling system, and all
aspects of the system are controlled by a Central computer.
Information Enrichment- It will help to reduce the information transmission leadtime from one end of the chain to the other to zero. So, each player receives the
marketplace data directly.
Just In Time (JIT) –The focus of this strategy is to reduce in plant lead times
through the elimination of waste and it tries to approach to zero inventory level.
Kaizen – It refers to philosophy or practices that focus upon continuous
improvement of processes in manufacturing, engineering, and business management.
Kanban system – Kanban is a concept related to lean and just in time. It is a
scheduling system that tells you what to produce, when to produce it, and how much
to produce.
Lead time - The total time that elapses between an order's placement and its receipt.
It includes the time required for order transmittal, order processing, order
preparation, and transit.
Make to Order – A manufacturing process strategy triggered to begin manufacture
of a product based on actual customer order or release, rather than a market forecast.
56
Make to Stock – A manufacturing process strategy where finished product is
continually held in plant or warehouse inventory to fulfil expected incoming orders
or releases based on a forecast.
Marketability cost – It includes all obsolescence and stock out costs.
Mistake Proofing Check list - A manufacturing technique of providing a signal
when an error is about to be introduced into the production process.
Muda – Muda is a Japanese word that means waste or any activity that does not add
value. There are seven type of waste: defects, overproduction, inventories, over
processing, human motion, transportation and handling and waiting.
Physical cost – It includes all production, distribution, and storage costs.
Poka-Yoke - A manufacturing technique of preventing errors by designing the
manufacturing process, equipment, and tools so that an operation literally cannot be
performed incorrectly.
Postponement Strategy – It is a business strategy that maximizes possible benefit
and minimizes risk by delaying further investment into a product or service until the
last possible moment.
Product Life Cycle – The complete life of a product, from early planning through
sales build-up, maximum sales, declining sales, and withdrawal of the product.
Quick change over techniques – Processes of manufacturing, allowing companies
to quickly and efficiently change from one product to another. It allows companies to
reduce batch sizes and shorten lead time.
Robustness – It refers to the persistence of a system’s characteristic behaviour under
perturbations or conditions of uncertainty.
Seiban Method - This enables a manufacturer to track everything related with a
particular product, project, or customer. It also facilitates setting aside inventory for
specific projects. It mostly used for build-to-order manufacturing.
57
Shojinka Technique - It focuses on continually optimizing the number of workers in
a work centre to meet the type and volume of demand imposed on the work centre.
Single Minute Exchange of Die (SMED) – It is one of the many lean production
methods for reducing waste in a manufacturing process. It provides the ability to
perform any setup activity in a minute or less of machine or process downtime.
Six Sigma – It seeks to improve the quality of process outputs by identifying and
removing the causes of defects (errors) and minimizing variability in manufacturing
and business processes
Total Productive Maintenance (TPM) – It is a maintenance philosophy designed to
integrate equipment maintenance into the manufacturing process. The goal of any
TPM program is to eliminate losses tied to equipment maintenance.
Total Quality Management (TQM) – It is a philosophy which states that uniform
commitment to quality in all areas of an organization promotes an organizational
culture that meets consumers' perceptions of quality.
TPS principles – It is an integrated socio-technical system, developed by Toyota,
that comprises its management philosophy and practices. The main objectives of the
TPS are to design out overburden (muri) and inconsistency (mura), and to eliminate
waste (muda).
Vendor Managed Inventory – The practice of retailers making suppliers
responsible for determining order size and timing usually based on receipt of retail
POS(point of sale) and inventory data. Its goal is to increase retail inventory turns
and reduce stock outs.
Return on investment - It evaluates the efficiency of an investment or compares the
efficiency of a number of different investments. It is calculated by: (Gain from
investment - Cost of investment)/ Cost of investment.
Operating income - The amount of profit realized from a business's operations after
taking out operating expenses - such as cost of goods sold (COGS) or wages and
depreciation. Operating income is calculated by: (revenue - all operating expenses).
58
Return on equity - It measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have invested.
Gross profit margin - It assess a firm's financial health by revealing the proportion
of money left over from revenues after accounting for the cost of goods sold.
Calculated as: ((Revenue – Cost of goods sold)/Revenue).
(Net) cash flow - A measure of company's financial health. Equals cash receipts
minus cash payments over a given period of time.
Operating margin - Operating margin is a measurement of what proportion of a
company's revenue is left over after paying for variable costs of production such as
wages, raw materials, etc.
Market Value - Market value is the price at which an asset would trade in a
competitive auction setting.
Receivable turnover ratio - An accounting measure used to quantify a firm's
effectiveness in extending credit as well as collecting debts. The receivables
turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Return on sale - It says how much profit is being produced per dollar of sales.
Debt Ratio - A ratio that indicates what proportion of debt a company has relative to
its assets.
Current ratio - The Company’s ability to pay back its short-term liabilities
(debt and payables) with its short-term assets (cash, inventory, receivables).
Return on assets - It gives an idea as to how efficient management is at using its
assets to generate earnings. Calculated by dividing a company's annual earnings by
its total assets, ROA is displayed as a percentage.
Inventory turnover ratio - A ratio showing how many times a company's inventory
is sold and replaced over a period.
59
Assets turn over - The amount of sales generated for every dollar's worth of assets.
It is calculated by dividing sales in dollars by assets in dollars.
Distributable cash flow - Net income + depreciation, amortization & other non-cash
expenses - maintenance capital expenditures.
Return on capital employed - It compares earnings with capital invested in the
company.
Quick Ratio - It measures the ability of a company to use its near cash or quick
assets to extinguish or retire its current liabilities immediately. It calculated as total
assets divided by total liabilities (exclude Share Capital and Retained Earnings.)
Economic Value Added - A measure of a company's financial performance based
on the residual wealth calculated by deducting cost of capital from its operating
profit.
Operating cash flow - The cash generated from the operations of a company,
generally defined as revenues less all operating expenses.
Lead time - Time from the moment the customer places an order (the moment you
learn of the requirement) to the moment it is received by the customer.
Accounts Payables Cycle time - The average of days it takes for Cash converted to
goods, goods converted into credit sales, credit sales converted to creditors, and
finally creditors converted to payables.
Accounts Receivable Cycle Time - The reality of the situation is that the receipt of
cash on a timely basis from a customer.
Cash to Cash cycle time (Show how lean you are) - Calculates the time operating
capital (cash) that is out of reach (when not collected from customer, cumulated as
inventory) for use by your business.
First pass yield - The number of units coming out of a process divided by the
number of units going into that process over a specified period of time.( Only good
units with no rework are counted as coming out of an individual process.)
60
Sigma Level - A sigma value is a description of how far a sample or point of data is
away from its mean, expressed in standard deviations usually with the Greek letter σ
or lower case s.
Rolled throughput yield - It is used to calculate the probability of creating a defectfree unit during the multiple process manufacturing (typically used in Six Sigma).
Cost per transaction - Divide the total cost over the total number of transactions.
Breakeven time - The amount of time needed for the discounted cash flows of an
investment to equal the initial cost of the investment. The longer the break-even time
the riskier an investment is, since it will take a longer period of time for the investor
to recoup the investment's cost.
Process capability - The ability of a process to produce output within specification
limits. It measure how much "natural variation" a process experiences relative to its
specification limits.
Manufacturing Cycle Efficiency - Value added (VA) time divided by non-value
added (NVA) time. That is, in the entirety of a process flow or value stream flow, the
total of value added time divided by the total of non-value added time.
3.4 Selection of the sample
For ketchup companies in Malaysia, a listing of 6 food product manufacturer
companies was extracted from Federation of Malaysian Manufacturers (FMM)
website. The food manufacturers were targeted because of the considerable number
of them in Johor Bahru. All of the firms produce the same range of products from
different kind of sauces to food seasoning and located in the vicinity. Due to
limitations which imposed by companies two of them were selected to be the source
of objective data collection.
ZARA food stuff industries and Bumi Hijau food
Industries were the companies that provided this survey with their numerical data.
The other samples are Federal Agriculture Marketing Authority (FAMA), Sos
61
Mewah SDN. BHD., Jalen SDN. BHD. and Yong Guan Sauce Manufacturer SDN.
BHD.
3.5 Choice of statistical technique
In this study, basic statistical analysis method was used for data analysis. It
includes using Microsoft Excel 2010 for drawing bar charts and column charts to
provide a visual interface in order to analyse data more accurately. The rating
numbers which were gathered through responses were used as input for charts which
were drawn by Excel spread sheet.
3.6 Categorization of performance metrics under BSC perspectives
Literature review discussed the issue of aligning supply chain strategy with
performance metrics which means that companies with different supply chain
strategies are expected to measure different type of metrics that show the proximity
of the company’s performance to its strategy.
So, financial and operational
performance metrics are categorized into lean and agile supply chain strategy groups.
The methodology was counting the number of previous studies on connecting a
specific metric to a particular supply chain strategy and assigning each metric to its
relevant strategy based on the total number of consensus.
On the other hand, the Balanced Scorecard (BSC) system made some
contribution to the performance measurement part. The metrics which were grouped
under lean and agile supply chain strategies were found among the metrics which
were proposed by Kaplan and Norton (1996) for various Balanced scorecard
perspectives. Therefore, a revised BSC framework was introduced in which the lean
and agile metrics are classified by Customer, Financial, Internal business, Learning
and Growth perspectives. The revised BSC frameworks were named as Lean-BSC
and Agile-BSC metrics. The recent framework helps to measure the company’s
62
performance with the most critical metrics which will lead to more accurate
evaluation of firm’s performance; also can be used to signify the supply chain
strategy alignment with product type.
3.7 Summary
This chapter has documented various issues associated with the empirical
approach adopted for this study. These include the research framework and model,
the questionnaire design, data collection, selection of sample, and data analysis
methods.
The analytical steps of the methodology are shown in Figure 3.1. The first
step was the identification of the supply chain strategy adopted by companies. This
consisted of a review of previous studies, designing questionnaire and personal
interview. The second step was related to determining the most frequently used
manufacturing techniques in the company.
This also necessitates the review of
previous research, a questionnaire design and personal interview. The third step was
including the same procedure but for performance measurement. The data analysis
was done by Microsoft Excel Software 2010.
63
Selection of Supply chain attributes, manufacturing techniques and
performance measurement techniques
x
Review related literature
x
Questionnaire development
x
Interviews
Identification of Supply chain strategy adopted by companies
x
Data analysis with Excel bar chart
Identification of manufacturing techniques frequently used by companies
x
Data analysis with Excel column chart
Measuring the performance of companies
x
Data analysis with Excel bar chart
x
Data analysis by Excel financial functions
Figure 3.1: The analytical steps of the methodology
This chapter has addressed the research design and methodology to be
applied in this study. The descriptive statistics and empirical results and analysis
will be displayed in chapter 4 and 5 respectively.
64
CHAPTER 4
GENERAL FINDINGS AND DESCRIPTIVE STATICS
4.1 Introduction
In literature review, the previous researches have categorized diverse supply
chain strategies based on their characteristics. In the study of Naylor et al (1999)
supply chain strategies classification was done based on their distinguishing
attributes such as customer demand characteristics, typical products, dominant costs,
etc.
Similarly to determine companies’ supply chain strategy, Naylor et al. (1999)
classification was used; the questions were asked companies to rate various attributes
based on their orientation toward each.
This chapter generally analyses the data which was gathered from companies
through questionnaire. The first section aims at identifying companies’ supply chain
strategy.
65
4.2. Companies ‘supply chain strategy
The numbers which assigned to attributes as rates were used to be input for
charts which were drawn by Microsoft Excel 2010. Following charts are beneficial
in providing a visual interface and consequently will lead to more accurate judgment
regarding firm’s supply chain strategy.
4.2.1 Zara Foodstuff Industries
Data gathered from Zara foodstuff industries leads to the conclusion that the
company’s supply chain strategy is lean supply chain.
Figure 4.1shows the
company’s strategy with respect to various areas such as “Customer demand
characteristics”, “Dominant Costs”, “Market qualifier/winner”, etc.
Zara foodstuff production manager rated the predictability of customer
demand 4 out of 5, its volatility 3 and its unpredictability and volatility 2. This
means that the customer demand characteristic of Zara foodstuff is most suited for a
company with lean supply chain strategy.
On the other hand, the firm’s customer driver is “short lead time and high
availability” which grouped company’s strategy as agile strategy.
Both physical costs and commodity products are characteristics of a lean
environment. The necessity level of eliminate muda and rapid reconfiguration shows
that the company might be adopted leagile strategy while the necessity level of rapid
configuration is 4 which is a good indication of an agile or leagile strategy. The Zara
foodstuff’s products have various attributes, For instance the product variety ascribe
for Zara foodstuff is classified as leagile strategy while the product lifecycle shows
lean strategy adoption. Zara foodstuff set high quality, short lead time and high
service level as the market qualifiers as well as market winners.
66
As a whole the supply chain attributes of Zara Foodstuff Company shows a
great proximity to lean supply chain strategy.
Figure 4.1: Zara Foodstuff Industries supply chain attributes
4.2.2Bumi Hijau Food Industries
The following column chart depicts the Bumi Hijau supply chain strategy
based on its general characteristics.
Figure 4.2: Bumi Hijau food Industries supply chain attributes
67
As it is well noticed, the customer demand characteristic is highly predictable
(Lean supply chain) while their customer drivers are mostly short lead time& high
availability and high service level which are related to agile and leagile supply chain
respectively.
On the other hand, their dominant costs are both physical and marketability
costs which are a leagile strategy characteristic. The Bumi Hijau products can be
categorized as commodities instead of fashion goods and product per customer
demand. The importance level of two techniques of Eliminate Muda and Rapid
reconfiguration in Bumi Hijau shows that the strategy can be considered as lean and
agile or leagile respectively, whereas the lead time compression importance level of
three demonstrates the application of leagile supply chain.
Based on the products characteristics data, the product variety and product
margin are showing both leagile strategy but the product life cycle is similar to a
product manufactured by lean strategy.
Regarding to market qualifiers, it can be argued that the attributes like low
cost and high service level are showing nearness of Bumi Hijau strategy to agile and
lean respectively. On the other hand, the high service level as a market winner is
rated at 5 which can be considered as lean strategy traits as well.
Generally most of the mentioned attributes are signs and symptoms of leagile
supply chain strategy; thus based on the data gathered, the adopted supply chain
strategy of Bumi Hijau company is leagile supply chain strategy.
68
4.2.3 Fama
Apart from the strategies discussed for Zara foodstuff industries and Bumi
Hijau, Figure 4.3 gives the information about the supply chain strategy of Fama
Company.
Figure 4.3: Fama supply chain attributes
As the graph well depicts the demand for Fama products are predictable
rather than volatile and unpredictable which is a dominant characteristic of lean
supply chain strategy. On the other side, both agile and leagile strategy can be
inferred from customer drivers. The dominant costs are physical costs as well as
their typical products which can be categorized as commodities like all lean
manufacturing enterprises. The importance level of Eliminate muda together with
Lead time compression techniques is 3 out of 5.
This shows the tendency of
company’s strategy is toward agile and leagile supply chains correspondingly. In
relation to products characteristics, it can be mentioned that the product variety is
high enough to be considered as an agile manufactured product. What can be
concluded from both market winners and market qualifiers ranking is that each of the
three supply chain strategy of lean, agile and leagile have the same chance of being
applied.
69
As a whole, the supply chain strategy adopted by Fama Company is lean or
leagile supply chain.
4.2.4 Sos Mewah Sdn Bhd
Sos mewah Sdn Bhd is another sauce manufacturer which is expected to
implement lean manufacturing and adopted lean supply chain as well as all other
sauce manufacturer companies with limited number of production line (Dudbridge,
2011). Figure 4.4 describes Sos Mewah supply chain strategy in details.
Figure 4.4: Sos Mewah Sdn Bhd supply chain attributes
Six of Sos Mewah supply chain attributes are a good estimation of lean
supply chain strategy while three of them have the agile manufacturing
characteristics and only one can be regarded as leagile supply chain strategy feature.
Some of the lean related attributes are predictable customer demand
characteristics, physical costs, commodity products, Eliminate muda as a
manufacturing technique and high quality as a market qualifier.
70
In relation to agile supply chain the characteristics short lead time and high
availability as customer drivers and high service level as a market winner can be
indicated. The only indication of leagile supply chain strategy is market winners
which are considered as low cost and high service level.
4.2.5 Jalen Sdn Bhd
Jalen Company was selected as another place for conducting empirical study.
Figure 4.5 provides information about Jalen Company specifications that have
influence on its adopted supply chain strategy and can be served as a guideline for
identification of Jalen Company supply chain strategy.
Figure 4.5: Jalen Sdn Bhd supply chain attributes
Figure 4.5 illustrates plenty of attributes rating in a way that the supply chain
strategy adopted by Jalen Company can be regarded as lean supply chain. The
predictability of customer demand characteristic is rated at 4 which is highest among
other attributes and is regarded as an indication of lean supply chain strategy. In
addition in the dominant costs and typical products sections the physical costs and
commodities were highly rated which are the other implication of lean supply chain.
71
Although most of the attributes were located in a lean context, the number of
leagile items which were highly rated is not differ too much from the lean items
Hence the Jalen Company supply chain strategy might not purely lean as it can be a
combination of lean and leagile supply chains.
To follow the previous manner in determining supply chain strategy and ease
the process of data analysis, lean supply chain strategy is most suited for Jalen
Company.
4.2.6 Yong Guan Sauce Manufacturer
Figure 4.6 presents the subdivision of lean, agile and leagile supply chain
strategies. The number of “Y” characters on blue lines are outweighed the number of
similar characters on red lines. As mentioned on the right side of the chart the blue
line is related to lean strategy while the agile and leagile strategies were assigned to
red and green colors respectively.
Based on discussion presented, the strategy adopted by Yong Guan Sauce
Manufacturer can be regarded as lean supply chain strategy.
Figure 4.6: Yong Guan Sauce Manufacturer supply chain attributes
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The next section is devoted to identify the frequently used manufacturing
techniques implemented by aforesaid Ketchup manufacturer companies.
4.3 Supply chain techniques
The literature chapter critically reviewed the manufacturing techniques
which have significant relationship with performance of companies (e.g. TQM, JIT,
Flexible production). Eight of questioned techniques are related to lean and three
techniques are related to agile manufacturing. Some of the lean techniques are "Just
in time", "Level scheduling techniques", "Six sigma" and "TPS" while "Flexible
manufacturing system", "Information system technology" and “Vendor management
inventory" are considered as agile techniques.
4.3.1 Zara Foodstuff Industries
The Zara foodstuff adopted all the manufacturing techniques which were
asked in the questionnaire. The most frequent used techniques are “TQM”, “TPM”,
and “5’S” for lean whereas “Flexible manufacturing system” and “Information
system technology” for agile techniques which were rated highest among other
techniques. “Just in Time” and “Level Scheduling techniques” are ranked second by
rating 4 out of 5. The less frequently used techniques are “Kanban system”, “Six
sigma”, “TPS” and “Vendor management inventory”.
Generally the Zara foodstuff industries manufacturing system is a
combination of lean and agile techniques.
Figure 4.7 shows the Zara foodstuff
company status regarding lean and agile manufacturing techniques.
Lean
Vendor management
inventory
Lean
Information system
technology
Flexible manufacturing
system
Compared to Zara Foodstuff,
5'S
Toyota production
system(TPS)
Six Sigma
Total productive
Maintenance(TPM)
Total Quality management
(TQM)
Kanban System
Level scheduling
techniques
Just in time
Vendor management
inventory
Information system
technology
Flexible manufacturing
system
5'S
Toyota production
system(TPS)
Six Sigma
Total productive
Maintenance(TPM)
Total Quality management
(TQM)
Kanban System
Level scheduling
techniques
Just in time
73
6
5
4
3
2
1
0
Frequency of usage
Agile
Figure 4.7: Zara Foodstuff Industries manufacturing techniques
4.3.2 Bumi Hijau Food Industries
Bumi Hijau Company showed less
commitment to implement lean and agile manufacturing techniques.
Figure 4.8
clearly shows the techniques which are used by Bumi Hijau company.
5
4
3
2
1
0
Frequency of usage
Agile
Figure 4.8: Bumi Hijau Food Industries manufacturing techniques
74
The highest rate for frequency of each technique used is 3 out of 5. “Kanban
system”, “Six sigma” and “TPS” are the least frequently used techniques; further
“Just in time” and “Level scheduling techniques” ranked second. The other seven
techniques were rated 3 and related to both lean and agile techniques. Some of them
include “TQM”, “TPM”, “5’S” and “Flexible manufacturing system”.
Eventually the company prefers agile techniques more and using each of agile
techniques with fairly high commonness compared to other techniques. As another
point, the “TQM” and “TPM” have good frequency of usage than other lean
techniques which have not been implemented very often.
4.3.3 Fama
Fama is a company with high commitment in implementing manufacturing
techniques. Based on Figure 4.9, “Just in time”, “Flexible manufacturing system”
and “Information system technology” were rated as 5 which means that the company
fully obligated itself to apply these techniques through its manufacturing process.
Moreover the “Level scheduling techniques”,”TPM’,”TQM”,”5’S” and
“Vendor management inventory” ranked at second. Fama Company does not
implement Toyota production system (TPS) principles at all.
It can be referred that the company has the equal tendency toward applying
each group of techniques and except for “TPS”,
prevalently used.
the other techniques were
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5
4
3
2
1
Lean
Vendor management
inventory
Information system
technology
Flexible manufacturing
system
5'S
Toyota production
system(TPS)
Six Sigma
Total productive
Maintenance(TPM)
Total Quality management
(TQM)
Kanban System
Level scheduling
techniques
Just in time
0
Frequency of usage
Agile
Figure 4.9: Fama manufacturing techniques
4.3.4 Sos Mewah Sdn Bhd
In comparison with Fama, Sos Mewah has applied a few number of
techniques which are related to agile manufacturing and all of them implemented
with moderately high frequency. “Flexible manufacturing system”, “Information
system technology” and “Vendor management inventory” was used during
manufacturing process of Sos Mewah Company and assigned with the rating number
of four, four and five relatively.
Consequently the manufacturing system adopted by Sos Mewah Company is
agile manufacturing technique.
It is not very common for Sos Mewah Company
with seven product line and lean supply chain strategy to adopt agile manufacturing.
Chart 4.10 holds data on manufacturing techniques adopted by Sos Mewah
Company.
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6
5
4
3
2
1
Lean
Vendor management
inventory
Information system
technology
Flexible manufacturing
system
5'S
Toyota production
system(TPS)
Six Sigma
Total productive
Maintenance(TPM)
Total Quality management
(TQM)
Kanban System
Level scheduling
techniques
Just in time
0
Frequency of usage
Agile
Figure 4.10: Sos Mewah Sdn Bhd manufacturing techniques
4.3.5 Jalen Sdn Bhd
Figure 4.11 well illustrates Jalen company eagerness to implement both lean
and agile manufacturing techniques.
Regarding lean techniques, it can be mentioned that Jalen has implemented
“Just in time”, “TQM” and “TPM” with a fairly high frequency. On the contrary, the
techniques such as “Six sigma” and “TPS” are not implemented at all.
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5
4
3
2
1
Lean
Vendor management
inventory
Information system
technology
Flexible manufacturing
system
5'S
Toyota production
system(TPS)
Six Sigma
Total productive
Maintenance(TPM)
Total Quality management
(TQM)
Kanban System
Level scheduling
techniques
Just in time
0
Frequency of usage
Agile
Figure 4.11: Jalen Sdn Bhd manufacturing techniques
Techniques such as “Kanban system”, “Level scheduling” and “Vendor
management inventory” are rarely used in the manufacturing system due to their
rating number is 2 out of 5.
The other commonly used manufacturing techniques are related to agile
manufacturing techniques which include “Flexible manufacturing system” and
“Information system technology”. Hence the company has been implemented both
lean and agile techniques with the same degree.
Generally the Jalen Company is manufacturing with respect to both lean and
agile techniques.
4.3.6 Yong Guan Sauce Manufacturer
As the previous section has discussed the manufacturing techniques related to
other cases, the following paragraphs are devoted to explain the manufacturing
techniques concerned with Yong Guan Sauce manufacturer.
78
The Yong Guan Company competitive priority is JIT approach; hence, it was
rated as most frequent technique.
The “Information system technology” and
“Flexible manufacturing system” placed at second and third position respectively
with rating number of 4 and 3.
The other two remaining techniques of lean
manufacturing are “TPM” and “TQM”. These were implemented rarely based on the
rating with 2 out of 5 commonness of usage.
Generally, Yong Guan is not very desirous to implement
other
manufacturing techniques beside JIT and is neither lean nor agile.
5
4
3
2
1
Lean
Vendor management
inventory
Information system
technology
Flexible manufacturing
system
5'S
Toyota production
system(TPS)
Six Sigma
Total productive
Maintenance(TPM)
Total Quality management
(TQM)
Kanban System
Level scheduling
techniques
Just in time
0
Frequency of usage
Agile
Figure 4.12: Yong Guan Sauce manufacturer manufacturing techniques
4.4 Performance measurement
In the literature review section, a list of performance metrics classified as lean
or agile was prepared. In addition, the lean balanced scorecard and agile balance
scorecard frameworks were proposed to differentiate supply chain strategy metrics
by company’s strategy toward customer, employee, financial and internal business
79
sections and provide more accurate approach for measuring performance of
companies.
In part C of questionnaire, respondents were asked to rate their performance
from 1(low) to 5(high) regarding each metric. The following section is devoted to
comparatively measure the performance of companies and consequently identify the
company with best performance.
4.4.1 Customer perspective
Customer perspective performances metrics were selected to be ten measures.
Some of them include “Customer satisfaction and loyalty level”, “Length of your
customer relationship”, “Repeat customer rate”, “Customer complaints”, “ Return
products”, “Customer response time”, “Cost of complaints”, “Customer loss rate”
and “New customer acquisition number”.
Figure 4.12 illustrates companies’ performance compared to other
competitors with respect to customer perspective.
Zara Foodstuff Industries had the best performance in the “Sale per
employee”, “Total number of customer”, “Cost of complaints” and “Repeat customer
rate” in year 2010. Moreover, it performed well along with some other companies
regarding to “Market share”, “Sale per product line”, “Revenue from new customer”,
“New customer acquisition number”, “Customer loss rate”, “Return products”,
“Customer complaints” and “Customer satisfaction and loyalty level”.
Consequently Zara Foodstuff Industries company has performed very well in
most of the customer perspective metrics which lead this company ranked first
among other companies in this perspective.
80
The second well performed company is Sos mewah which was rated as best
company in “Length of your customer relationship” and “Customer response time”.
Further it performed well together with some other companies in “Sales per product
line”, “Customer loss rate”, “Return products”, “Customer complaints” and
“Customer satisfaction and loyalty level”.
Jalen Company is standing at third position while the other three companies
which are Bumi Hijau, Fama and Yong Guan Sauce Manufacturer which have the
same number of highest rated metrics occupy the fourth position.
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Customer Response Time For
Unplanned Orders
Market Share
Sales per employee
Sales per product line
Revenue from new customers
Revenue per customer
Price of the products
Yong Guan Sauce
Total number of customers
Jalen
New Customer Aquistition
number
Sos Mewah
Customer loss rate
Bumi Hijau
Fama
Zara
Cost of complaints
Customer response time
Return Products
Customers complaints
Repeat Customer Rate
Length of your customer
relationship
Customer satisfaction and loyalty
level
0
1
2
3
4
5
6
Figure 4.13: Measurement of Customer perspective metrics
82
4.4.2 Financial perspective
One of the most important groups of metrics which is common to measure in
both traditional and modern performance measurement systems is financial metrics
group. There are plenty of financial measures which were proposed by Balance
Scored card designers. This survey tried to evaluate the company’s performance by
the all proposed metrics in order to have a more comprehensive evaluation of
manufacturer’s performance. Figure 4.13 and figure 4.14 compare the companies’
performance from financial point of view.
From Figure 4.14, it can be concluded that once more the first position is
occupied by Zara Foodstuff Industries. Zara Foodstuff Industries rated its
performance very well in most of the metrics. These metrics include “Return on
sale”, “Operating margin”, “Return on equity”, “Operating cash flow” and “Asset
turn over”. Yong Guan Sauce Manufacturer occupies the second position.
Fama and Jalen have the same level of financial output. Financial output here
refers to the rating number that each company allocated to its financial performance.
For instance, both Fama and Jalen performed as the strongest companies regard to 13
metrics which leads them capture the third position.
Sos Mewah is the fourth company in this ranking system which performed
best in the areas such as “Growth in revenues”, “Return on assets”, “Current ratio”.
Similar to previous perspective, Bumi Hijau has the weakest performance; hence it
ranked fourth among other companies.
83
Profit Growth
Inventory Turn Over Ratio
Return On Assets
Current Ratio
Debt Ratio
Return On Sale
Recievable Turnover Ratio
Yong Guan Sauce
Sale Growth Rate
Jalen
Sos Mewah
Sale Volume
Fama
Market/ Sale Value
Bumi Hijau
Zara
Operating Margin
(Net) Cash Flow
Gross Profit Margin
Operating Income
Net Income
Return On Investement
Return On Equity
0
1
2
3
4
5
Figure 4.14: Measurement of Financial perspective metrics
84
Total Profit
Total Revenue
Total Sale
Gross Margin Of New Products
Revenue From New Producs
Total Cost
Avrage Profit
Yong Guan Sauce
Sale From New Products
Jalen
Sos Mewah
Net Profit
Fama
Operating Expenses
Bumi Hijau
Zara
Operating Cash Flow
Economic Value Added
Growth In Revenues
Quick Ratio
Return On Capital employed
Distributable Cash Flow
Assets Turn Over
0
1
2
3
4
5
Figure 4.15: Measurement of Financial perspective metrics (Cont’d)
85
4.4.3 Internal business perspective
For the internal-business-process perspective, managers identify the processes
that are most critical for achieving customer and shareholder objectives (Kaplan and
Norton, 1996). The metrics which were used in the business process perspective try
to measure the companies’ performance based on their proximity to achieve
customer and shareholder objectives.
Figure 4.15 and figure 4.16 depict each company’s performance regarding its
achievement toward customer and shareholders objectives. Companies were asked
to rate their performance from 1 to 5(Low to high).
Despite other previously mentioned perspectives, Sos Mewah Company is
positioned as the first company in Internal business perspective. The metrics such as
“Number of on time deliveries”, “First pass yield”, “Process cycle time”, “Speed of
delivery”, “Cost per transaction” , “Floor space utilization”, “Process time”, and
“Appraisal cost” are among those metrics that Sos Mewah has the best performance
compared to other companies.
The second place is not occupied by just one company. There are three
companies that show similar performances. They are Zara foodstuff industries, Yong
guan sauce manufacturer and Jalen.
“Sigma Level”, “Manufacturing cycle
efficiency” and “Planning accuracy” are the metrics which show Zara foodstuff
industries priority to other companies.
On the other hand, Yong guan sauce
manufacturer is performing very well based on the “New product introduction time”
and “Supplier development ratio”. Fama’s performance is good enough to make it as
third top company in this perspective. There is a large gap between performances of
Fama and Sos mewah companies. There are few measures including “Lead time”,
“Cash to Cash cycle time” and “Accounts receivable cycle time” show the
superiority of Fama Company. The weakest company from performance point of
view in this perspective is Bumi Hijau.
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Research and Development Cost
Cost Per Transaction
Costs of Waste
Rolled throughput Yield
Sigma Level
First Pass Yield
Defect Rate
Yong Guan Sauce
Speed Of Delivery
Jalen
Sos Mewah
New Product Introduction Time
Fama
New Process and Product
Development Time
Bumi Hijau
Zara
Machine Or Process Downtime
Cash To Cash Cycle Time
Accounts Recievable Cycle Time
Accounts Payable Cycle Time
Process Cycle Time
Lead Time
Number Of On-Time Deliveries
0
1
2
3
4
5
6
Figure 4.16: Measurements of Internal Business perspective metrics
87
Supplier development Ratio
Manufacturing Cycle Efficiency
Process Capability
Shop-Floor employee
involvement
Percentage of Non-value Added
Activities
Planning Accuracy
Forcasting Accuracy
Material Stock-outs and
Shortages
Yong Guan Sauce
Aged Material and Finished Stocks
Jalen
Sos Mewah
Floor Space Utilization
Fama
Invesetment in order forcasting
Bumi Hijau
Zara
Investement in IT tools
Process Time
Flexibility in production/Volume
of Products
Operating Process's Quality
Cost of Marketing and advertising
Enviromental Compliance Cost
Appraisal Costs
Labor Cost
0
1
2
3
4
5
6
Figure 4.17: Measurements of Internal Business perspective metrics (Cont’d)
88
4.4.4 Learning and growth perspective
Learning & Growth Perspective focuses on the intangible assets of an
organization, mainly on the internal skills and capabilities of the employees that are
required to support the value-creating internal processes. The Learning & Growth
Perspective focuses on Human Capital-Jobs and people issues; Information CapitalSystems and technology issues; Organization capital- Organizational climate and
quality of work-life (Kaplan and Norton, 1996).
Figure 4.18 below illustrates manufacturer’s performance by eight metrics
that were suggested by Balance scorecard system. These metrics try to evaluate the
companies’ success on combination of people, technology and organizational climate
to support their strategy.
Suggestion Made and
Implemented
Improvement Rate
Information System Capability
Yong Guan Sauce
Team Performance
Jalen
Sos Mewah
Fama
Revenue Per Employee
Bumi Hijau
Zara
Key Employee Turnover Ratio
Employee Satisfaction
Employee Capability
0
1
2
3
4
5
Figure 4.18: Measurements of Learning and growth perspective metrics
89
Zara foodstuff industries is ranked first by holding a large number of metrics
with high rating number. All firms had satisfactory level of “Revenue per employee”
but in relation to “Information system capability” and “suggestion made and
implemented”, Zara and Fama performed better than other companies respectively.
As another point, the overall rating number assigned to “Team performance” is lower
than any other metrics which can be attributable to the case studies’ poor team
performance.
As a conclusion, it should be noted that Zara foodstuff Industries Company
has performed better than other companies during 2010, because in customer,
financial, learning and growth perspectives, Zara foodstuff industries company
related measures were rated higher than other firms.
4.5 Summary
This chapter has summarized the general findings resulted from the initial
analysis of questionnaire, which is summarized below:
x
Identification of supply chain strategy adopted by each company by
comparing its attributes with those which were proposed by Naylor et.al.
(1999). Zara food stuff adopted Lean supply chain strategy while Bumi hijau
Food Industries adopted Leagile strategy. On the other hand, Fama’s supply
chain strategy is not distinctive as it could be both Lean and Leagile. The
other companies including Sos mewah Sdn Bhd, Jalen Sdn Bhd and Yong
Guan Sauce manufacturer adopted lean supply chain strategy.
x
Determining the most frequently used techniques by each company. All
companies except Sauce Mewah Sdn Bhd implemented both lean and agile
techniques through their production process. Sauce Mewah Sdn Bhd just
implemented agile manufacturing techniques.
90
x
Measuring the performance of companies with total metrics proposed by
BSC. Among all manufacturing companies, Zara food stuff industries
occupied the first position by performing the best company in Customer,
Financial and Learning& Growth perspectives. Bumi Hijau food Industries
has the poorest performance.
The following chapter will present some objective data related to Zara
Foodstuff Industries and Bumi Hijau Food Industries to compare these companies by
real numbers; in addition it could validate the performance measurement approach
which was used in this study. Moreover, some discussions on grouping companies
based on their supply chain strategies and measuring their performance by revised
Balanced scorecard framework will be provided. Further it will investigate the effect
of supply chain strategy alignment with product type and manufacturing process
alignment with product type on companies’ performance.
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CHAPTER 5
EMPIRICAL RESULTS AND ANALYSIS
5.1 Introduction
The previous chapter has discussed general findings based on the
respondents’ perception. In contrast, this chapter focuses on the empirical results by
analyzing and grouping the general findings and consists of four sections. Section
one compares the performance of Bumi Hijau Food Industries and Zara Foodstuff
Industries in more details. The second section groups the companies with similar
supply chain strategies and measures their performance by revised BSC framework.
The third chapter investigates the alignment of the supply chain strategy of the
companies with their product types as well as their process characteristics with
product type. A summary and discussion of the empirical results and their analysis is
provided in the final section
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5.2 Comparison of Bumi Hijau Food Industries and Zara Foodstuff Industries
Bumi Hijau Food Industries and Zara Foodstuff Industries were selected to be
the main source of objective data collection due to their cooperation.
Bumi Hijau Food Industries was established at 1983 in Permas Jaya, Johor.
Its ability in a short period of time to diversify its products from the original chili and
tomato sauce to various sauces such as oyster sauce, black-paper sauce boosts the
growth of this company. Bumi Hijau Food Industries produces a variety of Sauces in
a wide range of size and packaging. Some of its products are Chili Sauce, Tomato
Sauce, Oyster Sauce, Fresh Chili Sauce, Black Pepper Sauce, Sweet Soya Sauce,
Salty Soya Sauce, Pineapple Sauce, and Mango Sauce.
On the other hand, ZARA Foodstuff Industries SDN BHD was established
since 1987 at Jalan Tahana. They try to differentiate themselves by producing high
quality products.
The products which produced by ZARA Foodstuff Industries
include Salty Soy Sauce, Sweet Soy Sauce, Tomato Sauce and Chili Sauce. Tomato
sauce and Chili Sauce are produced in two different sizes. Table 5.1 summarizes the
Bumi Hijau Food Industries and Zara Foodstuff Industries’ profiles.
According to table 5.1, Zara Foodstuff Industries is larger than Bumi Hijau
Food Industries in terms of annual sale and number of employees. On the other hand
both firms have similar product characteristics but different process characteristic.
The products produce based on make to order discipline while the process
characteristics for Zara Foodstuff Industries and Bumi Hijau Food Industries is Batch
and Job order production respectively.
Zara Foodstuff Industries supply chain entities are supplier and distributer
while Bumi Hijau Food Industries supply chain structure is composed of supplier,
distributer, retailer and customer. Lead time duration of Zara Foodstuff Industries is
1 week while for Bumi Hijau Food Industries is minimum of 1week and maximum
of 3 weeks.
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Zara Foodstuff Industries Company evaluates its overall performance in 2010
compared to competitors better than Bumi Hijau Food Industries. The rating numbers
assigned to Zara Foodstuff and Bumi Hijau Food Industries were 4 and 3
respectively.
Table 5.1: Bumi Hijau Food Industries and Zara Foodstuff Industries profile
Name of Company
Zara Foodstuff
Bumi Hijau Food
Industries
Industries
Annual
sale
of 60 million -70 million 3.8 million RM
company
RM
Number of employee
180 – 200 persons
35 persons
Product characteristic
Make to order
Make to order
Process characteristic
Batch production
Job order production
Company’s
competitive priority
Supply chain entities
Cost efficiency
Responsiveness
Supplier, Distributer
Lead time duration
1 – 3 days
Supplier,
Distributer,
Retailer, customer
1 week
Performance
evaluation from
company’s perception
4 out of 5
3 out of 5
Despite the performance measurement of previous chapter which compares
the performance of companies by perceptual measures this chapter will discuss the
performance of Zara Foodstuff Industries and Bumi Hijau Food Industries companies
by objective data.
Table 5.2 holds data on companies’ performance with respect to customer
perspective.
94
Table 5.2: Objective Performance measurement by Customer perspective metrics
Metric
Customer satisfaction and
Loyalty level
Length of your customer
relationship
Repeat customer rate
Number of customer
complains
Number of Products return
due to bad quality
Customer response time
New customer acquisition
numbers
Total number of customers
Numeric Data
Zara Foodstuff
Industries
18 – 19%
Bumi Hijau Food
Industries
75%
More than 10 years
More than 10 years
More than 80%
More than 80%
Less than 10 cases /per Less than 10%
year
Less than 1% of sale
1.5% of sale
About 1 week to take About 3 days to 1 month
action
2- 3%
5 customers / per month
18 – 20 distributer
Price of your products
4 -8 RM per unit
More
than
customers
1.8 -2 RM per unit
300
Revenue per customer
Revenues from new
customers
Sales per product line
1,200,000
RM
/per
distributer yearly
Less than 50,000 RM/per
month
19.2 million RM yearly
50,000RM / per retailer
& distributer yearly
Less than 8500RM/per
month
0.14 million RM yearly
Sales per employee
0.09 million RM yearly
0.02 million RM yearly
Market Share
55 – 60 %
30 %
Table 5.2 shows that there is a substantial difference in the sale per product
line and sale per employee of two companies; further the market share of Zara
Foodstuff Industries is as double as Bumi Hijau Food Industries Company. One
important point is Zara Foodstuff Industries customers include distributer which is
around 18-20 while for Bumi Hjau Food Industries the wholesalers, retailers and
even final customers are included in customer’s category. This will lead to the
95
assumption that the “Revenue per customer” metric should not have be a reliable
measure for comparing the performance of these companies.
Having discussed customer perspective, the following section compares Zara
Foodstuff Industries and Bumi Hijau Food Industries performance from financial
point of view. Table 5.3 depicts this comparison.
Table 5.3: Objective Performance measurement by Financial perspective metrics
Metric
Numeric Data
Zara Foodstuff
Bumi Hijau Food
Industries
Industries
Net income
3.2 million RM yearly
1.7 million yearly
Operating income
8.8 million RM yearly
0.22 million yearly
Gross profit margin
6.4 million RM yearly
0.76 million yearly
Profit growth
Less than 5%
5%
Operating margin
2.5 million RM /month
370,472 RM/month
Sale growth rate
3% per year
5-10% per year
Return on sale
0.24 million RM yearly
Economic value added
7 million RM yearly
0.30 million RM
yearly
1,091,970 RM yearly
Ketchup sale
16 million RM yearly
0.7 million RM yearly
Total sale
70 – 80 million RM yearly
3.8 million RM yearly
According to table 5.3, there is a large gap between both total sale and
ketchup sale of Zara Foodstuff Industries and Bumi Hijau Food Industries company
which have a significant influence on the other metrics because the other metrics can
be expressed as a percentage of total sale. For instance, the operating margin of Zara
Foodstuff Industries is 2.5 million RM/year which is 43% of its sale while Bumi
Hijau Food Industries earned around 370K RM or 18% of its sale.
96
Table 5.4 displays the metrics related to internal business processes of Bumi
Hijau Food Industries and Zara Foodstuff Industries companies. It is clear from the
chart that the most significant difference is related to “Shop floor employee
involvement” ratio. This measure is 80% in Bumi Hijau Food Industries and 10-15%
in Zara Foodstuff industries. This can be an indication of the companies with fewer
employees requires their shop –floor employee cooperation in other issues beside
shop-floor issues more than companies with greater number of employees.
In another point, the supplier development ratio for Bumi Hijau Food
Industries is 12% which is defined as “New supplier/ (non-active suppliers +active
supplier)”. This ratio is 1% for Zara Foodstuff Industries Company.
97
Table 5.4: Objective Performance measurement by Internal business process
perspective metrics
Metric
Numeric Data
Number Of On-Time
Deliveries
Lead Time
Zara Foodstuff
Bumi Hijau Food
Industries
Industries
90 – 98 % of whole 70% of whole deliveries
deliveries
1- 3 days
1 week
Process Cycle Time
3 hours
3 days
Machine Or Process
Downtime
New Process and
Product Development
Time
New Product
Introduction Time
Speed Of Delivery
6- 7 days per year
6 days per year
6 months and above
6 months
6 months
3 months
Customer Response
Time For Unplanned
Orders
Floor Space Utilization
1 week
1 week
80 -85%
73%
Material Stock-outs and
Shortages
Percentage of Nonvalue Added Activities
Shop-Floor employee
involvement
Supplier development
ratio
Process Capability
Less than 1%
7%
1 – 2%
0.75 %
10 - 15 %
80%
Less than 1%
12%
99%
80%
Manufacturing Cycle
Efficiency
80 – 85 %
92%
1 day
1- 3 days
98
Table 5.5 holds data on the metrics related to learning and growth perspective
of mentioned companies.
Table 5.5: Objective Performance measurement by Learning and growth perspective
metrics
Metric
Numeric Data
Zara foodstuff industries
Key Employee
10 years
Turnover Ratio
Bumi Hijau
10 years departments
1year production
Team Performance
2 – 3 projects
2 project
Improvement Rate
Less than 5%
2%
Suggestion Made and
70% implemented
5% implemented
Implemented
Table 5.5
illustrates the metrics related to learning and growth perspective
of Bumi Hijau Food Industries and Zara Foodstuff Industries. Both companies have
similar performance regarding all metrics except the number of suggestions made
and implemented. Zara Foodstuff Industries committed itself to implement 70% of
suggestions made by employees while the Bumi hjau Food Industries only
implement 5% of suggestions.
Having compared Bumi Hijau Food Industries and Zara Foodstuff Industries
by their numerical data, the next section will compare the performance of companies
with similar supply chain strategies.
99
5.3 Performance measurement of companies with similar strategies
Based on the information inferred from the initial analysis of questionnaire in
chapter 4, companies’ supply chain strategy were determined. On the other hand, in
the literature review two Balanced scorecard (BSC) frameworks were proposed in
which the lean and agile related metrics were group under BSC perspectives. The
new frameworks will lead to more accurate evaluation of companies’ performance;
in addition it can be used to check the validity of Fisher framework (1997). This
section aims at measuring the performance of companies with similar supply chain
strategy by proposed frameworks.
Zara Foodstuff Industries, Sos Mewah Sdn Bhd, Yong Guan sauce
manufacturer and Jalen Sdn Bhd adopted lean supply chain strategy while Bumi
Hijau Food Industries’ supply chain strategy is leagile and Fama Company adopted
lean or leagile.
So, the lean adopted companies’ performance reassess by lean
balanced scorecard metrics.
The performance of lean companies are compared via Figure 5.1, 5.2, 5.3and
5.4 which are related to customer, financial, internal business process and learning
and growth perspectives respectively.
Yong Guan Sauce
Sales per
employee
Jalen
Sos Mewah
Zara
0
1
2
3
4
5
Figure 5.1: Measurement of Customer perspective metrics
100
The only metric proposed by lean-BSC regarding customers perspective is
“Sale per employee”. Clearly Zara Foodstuff Company has the highest sale per
employee while Sos Mewah, Jalen and Yong Guan sauce manufacturer have similar
performance.
Total Profit
Operating Cash Flow
Return On Investement
Total Revenue
Total Sale
Quick Ratio
Assets Turn Over
Yong Guan Sauce
Operating Margin
Jalen
Return On Assets
Sos Mewah
Zara
Inventory Turn Over Ratio
Gross Profit Margin
Current Ratio
Recievable Turnover Ratio
Return On Sale
Sale Growth Rate
Return On Equity
0
1
2
3
4
5
Figure 5.2: Measurement of Financial perspective metrics
Figure 5.2 compares the companies from financial point of view. Based on
the rating number which was assigned to each metrics company’s performance is
ranking as follows:
101
Zara Foodstuff Industries occupies the first position by performing as best
company in 10 out of 16 metrics. The second position belongs to Yong Guan sauce
manufacturer and third ranked companies are Sos Mewah Sdn Bhd and Jalen Sdn
Bhd with the similar number of measures rate as highest.
Supplier development Ratio
Machine Or Process Downtime
Shop-Floor employee
involvement
New Product Introduction Time
Operating Process's Quality
Number of On time deliveries
Manufacturing Cycle Efficiency
Yong Guan Sauce
Floor Space Utilization
Jalen
Percentage of Non-value Added
Activities
Sos Mewah
Zara
Process Time
Percentage of Non-value Added
Activities
Process Cycle Time
Accounts Recievable Cycle Time
Accounts Payable Cycle Time
Cash To Cash Cycle Time
Labor Cost
0
1
2
3
4
5
6
Figure 5.3: Measurement of Internal business perspective metrics
102
Figure 5.3 compares the performance of lean companies by the most relevant
metrics to their adopted strategy. As it is well noticed, the Zara Foodstuff Industries
performs as the best company. Sos Mewah Sdn Bhd and Yong Guan sauce
manufacture are ranked second by the same number of metrics rated as highest while
Jalen Sdn Bhd Company has the weakest performance among other firms.
Yong Guan Sauce
Jalen
Sos Mewah
Improvement Rate
Zara
Revenue Per Employee
0
1
2
3
4
5
Figure 5.4: Measurement of Learning and growth perspective metrics
Figure 5.4 illustrates that Zara Foodstuff Industries and Jalen Sdn Bhd are
performing as best companies while Yong Guan sauce manufacturer ranks second
and Sos Mewah Sdn Bhd occupies the third position.
Generally Zara Foodstuff Industries is ranked first which shows the
consistency of previous findings with new conclusion. So Zara Foodstuff company
does not show any variation from performing as best company while the metrics
were limited to those which proposed by lean-BSC framework.
The results which obtained in this section provide evidence to compare the
impact of supply chain strategy alignment and process characteristic alignment with
product type on companies’ performance.
103
5.4 Alignment of product type with supply chain strategy, manufacturing
technique and process structure
This section provides some discussion on how performance of companies
influenced by supply chain strategy, manufacturing techniques and manufacturing
process structure of companies. Table 5.6 put all the aforementioned factors together.
Table 5.6: Comparison of companies’ Process, Supply Chain Strategy and
Techniques
Rank
Company
Process
Batch
Supply Chain
Strategy
Lean
1
Zara
2
Techniques
Lean&Agile
Jalen
Continuous
Lean
Lean&Agile
3
Sauce Mewah
Continuous
Lean
Agile
4
Yong Guan
Batch
Lean
Lean&Agile
5
Fama
Continuous
Lean/Leagile
Lean&Agile
6
Bumi Hijau
Job order
Leagile
Lean&Agile
Ketchup Sauce product is a functional product since all companies rates the
customer demand characteristics highly predictable and categorize their products as
commodities or functional products. Based on Fisher’s framework (1997) the lean
supply chain strategy is most suited for these companies. Table 5.6 shows that the
high ranked companies adopted lean supply chain strategy which is considered as a
justification for Fisher’s framework (1997).
On the other hand, the Hayes and Wheelwright (1979) matrix proposed
functional products to be manufactured under continuous process. Table 5.6 shows
that the process structure and manufacturing techniques adopted by companies do not
have significant contribution to their performance since they do not follow a pattern
while arrange companies based on their performance.
104
As a whole, the effect of aligned supply chain strategy with product type is
more significant than the impact of aligned process characteristic with product type
and manufacturing techniques. This can empirically justified Fisher’s framework
(1997).
5.5 Summary
This chapter has presented the empirical results and more in depth analysis by
grouping companies with similar strategies and measuring their performance by
proposed Balanced Scorecard framework. Finally, the alignment of companies’
supply chain strategy with product types and manufacturing process and techniques
was investigated. Findings of this chapter are summarized as follow:
1. Supply chain strategy alignment with product type has more significant effect on
companies’ performance rather than Process characteristic alignment with
product type.
2. The appropriate supply chain strategy for Ketchup Companies in Malaysia can
be regarded as Lean.
3. The overall outcome of performance measurement by lean – BSC metrics is
similar to Basic – BSC metrics; hence:
-
It could be an applicable framework for companies with lean supply chain
strategy.
-
Companies with more commitment to their adopted supply chain strategy
have better performance.
4. The manufacturing techniques implemented by companies do not have any
significant effect on their performance.
105
CHAPTER 6
CONCLUSIONS AND RECOMMENDATION
6.1 Introduction
The primary objective of this research is to determine the critical performance
metrics for Ketchup companies in Malaysia. Since a large number of Ketchup
companies are located in Johor, the study was limited to Johor Ketchup companies.
To achieve the objective, the literature is reviewed in chapter 2 related to
supply chain strategies, performance measurement and Balanced Scorecard to
provide a basis for building a research framework. Next, chapter 3 focused on the
research design and methodology of analysis. Finally, the supply chain strategy and
frequently used techniques and overall performance of Johor Ketchup companies
were described (chapter 4), and the companies classification under different supply
chain strategies as well as measuring the performance of companies by metrics
which were proposed by Balanced Scorecard and relevant supply chain strategies and
companies' product type alignment with their supply chain strategy , process
106
characteristic and manufacturing techniques were examined and their effect on
companies’ performance were investigated(chapter 5).
The final chapter of the study consists of five sections. The first section
summarizes the major findings that can be drawn from this study.
The second
section describes the contribution of this study to existing knowledge of the research
area. The third section covers the various implications of this research for theory and
practice. Finally the issues for future research are suggested.
6.2 Research findings
The main findings derived from case study conducted in Johor among Ketchup
manufacturer companies are as follows:
x
The Ketchup companies mainly adopted lean supply chain strategy and
described Ketchup Sauce as a functional product.
x
The manufacturing techniques implemented by Ketchup companies
compromised of both lean and agile manufacturing techniques.
x
The results of determining the companies’ performance with the basic metrics
proposed by Balanced Scorecard and the modified Balanced ScorecardSupply chain strategy metrics are similar.
x
The best-performing companies have aligned product type with supply chain
strategy but not necessarily aligned product type with process characteristic.
x
Comparison of Bumi Hijau and Zara Foodstuff companies by numerical data
revealed the priority of Zara Foodstuff industries to Bumi Hijau Company.
6.3 Contribution of the study
Several contributions have been made by this study in both theory and
practice of performance measurement systems
107
Firstly, this study provides a theatrical framework to link performance
metrics, supply chain strategy and Balanced Scorecard for companies. Secondly, this
study examines the framework in Ketchup companies in Johor, Malaysia as case
studies.
Thirdly, the researchers suggested that there has been little attention given to
empirical studies of Supply chain strategy alignment with performance metrics. This
study not only tries to overcome this issue but also combined Balanced scorecard
framework with theoretical framework in order to measure more strategic-oriented
metrics.
Fourth, samples drawn from the food processing companies in Johor,
Malaysia provide an opportunity to undertake a comparative analysis among the
companies in the same market with similar environmental attributes.
Finally, the numerical data gathered from two companies provide an
indication of reliability of findings.
6.4 Implication of findings
The findings of this study provide guidelines for performance measurement
experts to measure the most critical metrics which determine the proximity of
company to its strategies toward employee, customer, financial obligations and
internal business process by taking into consideration the supply chain strategy
adopted by companies. It is also important for ketchup manufacturing companies’
managers to evaluate strengths and weaknesses in their financial and operational
performance relative to their competitors and improve their capabilities by bench
marking the best-performing company to gain competitive advantages.
108
Secondly, the results suggest that the alignment of product type with supply
chain strategy and process capability is much more important than the alignment of
product type with manufacturing techniques since many companies do not commit
themselves to a pure lean or agile manufacturing system instead they implement
hybrid manufacturing techniques.
Thirdly, this study changes the traditional view of measuring the performance
by numerical data to a more comprehensive view which incorporate both financial
and operational metrics.
6.5 Limitations of study
The study findings, however, suffer from several limitations. First, the
research sample for customers was drawn from small manufacturing firms in Johor.
Therefore, the conclusions inferred can be generalized to include the small Ketchup
manufacturing firms in Malaysia.
Secondly, the actual financial and non-financial performance data of
Malaysian Ketchup manufacturer firms were difficult to obtain due to the fact that
such companies are not publicly listed and they are not in the market of Bursa
Malaysia. Therefore, this study used perceptual measures to measure ketchup
manufacturing performance.
Thirdly, the postal questionnaire in the case based research is proven to be a
good approach, but it is very hard to verify that a respondent’s answers are truthful
(Saunders et al., 2009). Moreover, the response rate for this survey was zero so the
method of data gathering had changed to individual interview with production
managers of ketchup companies which imposed lots of expenses.
109
Finally this study was limited to study of performance of Ketchup companies
in Malaysia; further the respondent firms were asked to evaluate their perceived
performance at a single point of time (year 2010). However, the expectations will
change over time and related measurement should also change (Brooks, 2000).
Hence the study should be implemented over time in order to track changes in this
market.
6.6 Issues for future research
Several issues for further research are suggested as below:
First, to compare companies’ performance by numerical data, size of
companies should be taken into consideration. The two companies which were
compared in this study do not follow the same size. Therefore, the result of
comparing these companies did not validate.
Second, the future research can conduct as a survey to check the validity of
proposed metrics as well as Supply chain strategy-BSC metrics relationship with the
companies’ performance.
Third, this study was limited to assess the Ketchup manufacturing firms
within a particular national industry. Future research could undertake a broader study
to enhance the generic applicability of the results.
Fourth, this study compares companies’ performance by perceptual measures.
Future research could compare the companies by reveal data.
Finally, in this research the data was collected at one point in the time, the
future efforts might design the research so that the changes in perception of
performance measures reveal overtime.
110
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APPENDIX A
Afagh Malek
Postgraduate Student,
Fakulti Kejuruteraan Mekanikal,
Universiti Teknologi Malaysia,
Skudai. Johor
Production manager
Sir,
As a part of my Master work, I have taken up a research study to explore the
issue of “Assessment of Sauce Manufacturer Company’s performance in Malaysia ”
and I am being guided by Industrial Eng. & Manufacturing department, UTM.
The survey aims at determining the company’s supply chain strategy;
determine critical performance metrics for company and measure the performance of
company with the help of “Balanced Scored card strategy”.
The questionnaire enclosed is designed to study aspects of supply chain strategy and
performance metrics which will be used to measure the performance of company. I
am very appreciating if you can spare your time to give corporation and answer the
questionnaire that only takes less than 10 minutes. Your responses will be kept
strictly confidential and the information provided by you will be used only in
connection with the above mentioned research. Also attempt will be made to share
the aggregate results of this study with you.
Thank you very much for your time and cooperation.
Sincerely yours,
Afagh Malek
119
Company Profile
Name of company:
Address:
Tel:
Fax:
Contact person:
Email:
Position in company:
Annual Sales of the Company (In thousands of Ringgit):
……………………………………………………………………………… (Please write exact amount or give a
range)
Number of Employees:
…………………………………………………....................... (Please write exact number or give a
range)
Rate following based on your company’s orientation toward each
5
Strongly
4
3
moderately
2
1
slightly
Please consider that this survey focuses on one type of sauces (if you produce
ketchup sauce please chose this product) you produce in your company. So, please
answer the questions based on the attributes of this product.
Product Characteristics: (e.g. around 40 percent of your ketchup sauce products
produce when you receive order from customer so rate “Make to Order” as 3 and so
on.)
120
Make to Stock
Buy to Order
Make to Order
Ship to stock
Process Characteristics: (please rate based on you process orientation toward each.)
Job Order
Batch
Continuous
Others
(Specify)
Mission statement of company:
Vision statement of company:
Part A: Determination of supply chain strategy
a) What is the competitive priority of your company? (Rate 1 to 5)
Cost efficiency
Responsiveness
Availability
b) Please indicate by circling the appropriate number in your view, for the
following attributes. What is the degree of conformity of each item to your
company’s situation? If you are not able to answer any part, please circle
N/A.
Degree of conformity
Factor
Considered
Highly
Non conform
1
Highly
Conform
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
Customer demand characteristics
1. Predictable
2. Volatile (highly
changing)
3. Unpredictable &
Volatile
Customer drivers(your customer preferences)
1. Low Cost
1
2
3
4
5
N/A
2. Short Lead time &
High availability
1
2
3
4
5
N/A
3. High Service level
1
2
3
4
5
N/A
121
What are your Dominant costs
1. Physical cost
(Manufacturing,
distribution,
transpiration,…)
2. Marketability cost
(Marketing )
3. Both
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
What are your Typical products
1.
Commodities(Routine
products )
2. Fashion goods (your
products always change
in shape and taste)
3. Product as r
customer demand(you
change your product
taste and shape as your
customers wish)
c) Please indicate how essential each item is considered in your company. (How
much does your company spend money and concentrate on each factor?) .If you are not
able to answer any part, please circle N/A.
Level of necessity
Factor
Considered
2. Lead Time
Compression(shortening
Very
Necessary
Very
Unnecessary
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
Lead time)
3. Eliminate Muda
(=waste)
2. Rapid
Reconfiguration(Changing
your products shape and
taste due to market change)
3. Robustness(shows the
ability of your company to
remain effective under
different markets)
122
d) Please indicate the level of following attributes. If you are not able to answer
any part, please circle N/A.
Level
Factor Considered
Low
High
1
2
3
4
5
N/A
1. Product Variety
1
2
3
4
5
N/A
2. Product Life Cycle(when
your products enter the market
until it become out of fashion,
e.g. when people don’t like to
buy Ketchup any more)
1
2
3
4
5
N/A
3. Product Margin
1
2
3
4
5
N/A
e) What are your company’s market qualifiers (how much each of these factors is
important for your company if you want to enter the market)? (Please rate them
based on their significance)
Significant Level
Factor
Considered
Low
High
1
2
3
4
5
N/A
1. High Quality
1
2
3
4
5
N/A
2. Low Cost
1
2
3
4
5
N/A
3. Short Lead Time
1
2
3
4
5
N/A
2. High Service Level
1
2
3
4
5
N/A
f) What are your company’s market winners (how much each of these factors is
important for your company if you want to win the market)? (Please rate them
based on their significance)
123
Significant Level
Factor
Considered
Low
High
1
2
3
4
5
N/A
1. High Quality
1
2
3
4
5
N/A
2. Low Cost
1
2
3
4
5
N/A
3. Short Lead Time
1
2
3
4
5
N/A
2.High Service Level
1
2
3
4
5
N/A
Part B: supply chain strategy techniques
What are the techniques that you use in your company? (Rate them based on the
frequency of usage)
Frequency of usage
Factor
Considered
Low
High
1
2
3
4
5
N/A
1. Just In Time (JIT)
1
2
3
4
5
N/A
3. Level scheduling
techniques
1
2
3
4
5
N/A
4. Kanban system
1
2
3
4
5
N/A
5. Total Quality
Management(TQM)
1
2
3
4
5
N/A
6. Total Productive
Maintenance (TPM)
1
2
3
4
5
N/A
7. Six Sigma
1
2
3
4
5
N/A
8. Toyota production
system(TPS)
1
2
3
4
5
N/A
9. 5'S
1
2
3
4
5
N/A
Lean techniques
124
Agile techniques
1. Flexible
Manufacturing
System
2. Information system
technology
3. Vendor
Management
Inventory
1
2
3
4
5
N/A
1
2
3
4
5
N/A
1
2
3
4
5
N/A
If others, please list
1.
4.
2.
5.
3.
6.
Part C: Performance measurement
a) What are the metrics used in your company for measuring the company’s
performance? Please tick the “U” column.
b) What are the metrics you think that is important to measure? Please tick “I”
column.
c) Please rate the following metrics based on your performance in year 2010.
Rate from 1(Low) to 5(High) in Rate column.
d) Please give a numeric range for each metrics that you have the amount. (It
will really help us to have better evaluation.)
Customer perspective
Measure
Customer satisfaction and loyalty
levels
Length of your customer
relationships
Repeat customer rate
Number of customer complaints
Number of Products return due to
bad quality
Customer response time(If customers
have any problems how long does it
take to response them)
Cost of complaints(all cost due to
losing your customers, lawsuit, etc)
Range(Numeric)
Rate
U
I
125
Customer loss rates
New customer acquisition numbers
Total number of customers
Price of your products
Revenue per customer
Revenues from new customers
Sales per product line
Sales per employee
Market Share
Financial Perspective
Measure
Return on equity
Return on investment
Net income
Operating income
Gross profit margin
(Net )cash flow
Profit growth
Operating margin
Market /sale value
Sale volume
Sales Growth rate (in targeted
market)
Receivable turnover ratio
Return on sale
Debt ratio
Current Ratio
Return on assets
Inventory turnover ratio
Assets turn over
Distributable cash flow
Return on capital employed
Quick ratio
Growth in revenues
Economic value added
Operating cash flow
Operating expenses
Net profit
Sale from new products
Average profit
Total cost
Revenue from new products
Gross margin of new products
Total sale
Total revenue
Total profit
Total cost
Range(Numeric)
Rate
U
I
126
Internal business process perspective
Measure
Number of on-time deliveries
Lead time
Process cycle time
Accounts Payables Cycle time
Accounts receivable Cycle time
Cash to Cash cycle time
Machine or process downtime
New product and process development
time
New product introduction time
Speed of delivery
Customer response time for unplanned
orders
Defect rate
First pass yield
Sigma level
Rolled throughput yield
Costs of waste(all kind of waste)
Cost per transaction
Research and development cost
Labor costs
Breakeven time
Appraisal costs (inspection, compliance)
Environmental compliance costs
Cost of marketing and advertising
Operating process’s quality
Flexibility in production/volume of
products
Process time
Investment in IT tools
Investment in order to forcasting customer
demand more accurately
Floor space utilization
Aged materials and finished stock(number
of cumulated products in warehouse)
Material stock-outs and shortages
Forecasting accuracy
Planning accuracy
Percentage of non-value added
activities(the activities which cosider as
waste, e.g. unnecessary movement of employe
due to poor factory layout …)
Shop-floor employee involvement (how
much you use your employees’ brain when you
face problems)
Supplier development ratio
Process capability
Manufacturing Cycle efficiency
Range(Numeric)
Rate
U
I
127
Learning and growth Perspective
Measure
Employee capability
Employee satisfaction
Key employee turnover ratio (How long
Range(Numeric)
Rate
U
I
your key employees stay in your company)
Revenue per employee
Number of projects with more than
one Business unit participate(Team
performance )
Information system capabilities
Improvement rate
Suggestion made and implemented
1. Do you use any particular performance measurement system to measure
Company’s performance? If yes please name. (Balanced Score card, EVA, etc.)
…………………………………….. .
2. What is your supply chain structure? (Which of the following does your company
have?)
Supplier
Distributer
Retailer
Customer
3. How do you evaluate your overall performance in comparison with similar
companies in the market (in year 2010)? Rate from 1 (Low) to
5(High)……………………………. .
4. How long is your Lead time? ................................................... (Give a range or
exact number)