ASSESSMENT OF KETCHUP COMPANIES PERFORMANCE IN MALAYSIA
AFAGH MALEK
UNIVERSITI TEKNOLOGI MALAYSIA
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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
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To my beloved mother, father & brother
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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.
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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
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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
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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
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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
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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
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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
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5.5
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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
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LIST OF TABLES
TABLE NO.
TITLE
PAGE
Table 2.1
Lean manufacturing ingredients
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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
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Table 5.3
Objective Performance measurement by Financial
95
perspective metrics Table 5.4
Objective Performance measurement by Internal
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business process perspective metrics Table 5.5
Objective Performance measurement by Learning
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and growth perspective metrics Table 5.6 Comparison of companies’ Process, Supply Chain Strategy and Techniques
103
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LIST OF FIGURES
FIGURE NO.
TITLE
PAGE
Figure 2.1
Agile supply chain characteristics
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Figure 2.2
Postponement strategy
15
Figure 2.3
Position of decoupling point in different postponement strategies
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Figure 2.4
Matching supply chains with products
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Figure 2.5
The product-process matrix
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Figure 2.6
Balanced scorecard-Agile supply chain strategy metrics
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Figure 2.7
Balanced scorecard-Lean supply chain strategy metrics
48
Figure 3.1
The analytical steps of the methodology
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Figure 4.1
Zara Foodstuff Industries supply chain attributes
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Figure 4.2
Bumi Hijau Food Industries supply chain attributes
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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
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Figure 4.11
Jalen Sdn Bhd manufacturing techniques
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Figure 4.12
Yong Guan Sauce manufacturer manufacturing techniques
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Figure 4.13
Measurement of Customer perspective metrics
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Figure 4.14
Measurement of Financial perspective metrics
83
Figure 4.15
Measurement of Financial perspective metrics (Cont’d)
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Figure 4.16
Measurements of Internal Business perspective metrics
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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
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LIST OF APPENDICES
APPENDIX A
TITLE Questionnaire
PAGE 118
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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.
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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.
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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,
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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
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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.
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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.
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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
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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:
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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.
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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.
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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.
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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.
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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).
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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
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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).
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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).
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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.
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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
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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
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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).
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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.
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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
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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
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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
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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:
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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.
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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
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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.
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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.
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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).
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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.
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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
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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
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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
&
&
* * * *
* &
Y.Y.Yousef et al. 2003
&
& &
&
& & &
&
&
Agarwal,Sha nkar,Tiwar
40
41
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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.
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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.
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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
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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.
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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
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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
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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.
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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
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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
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(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
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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
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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.
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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.
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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.
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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).
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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.
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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.)
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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
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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.
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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
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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)
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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
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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)
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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
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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.
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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.
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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
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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
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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.
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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.
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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
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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.
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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
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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:
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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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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.)
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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
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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)
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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)
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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
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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)
