(jit) principles and systematic layout planning as tools to improve ...

ilmuonline.mpc.gov.my

(jit) principles and systematic layout planning as tools to improve ...

PRODUKTIVm

SUPPLIER DEVELOPMENT IN THE

MALAYSIAN AUTOMOTIVE INDUSTRY:

CURRENT PRACTICES, OUTCOMES AND ISSUES.

By Rail Mohd Nor (pg 1 - 29) M

JUST-IN-TIME (JIT)

PRINCIPLES AND SYSTEMATIC LAYOUT PLANNING

AS TOOLS TO IMPROVE

PRODUCTIVITY AND QUALITY (P8.Q).

By Che Razali Che Ismail (pg 30 - 62)

PRODUCTIVITY CHANGE AND TECHNICAL EFFICIENCY

IN THE MALAYSIAN CHEMICAL AND RELATED PRODUCTS

MANUFACTURING INDUSTRIES.

By Alias Radam and Shazali Abu Mansur (pg 63 - 92)

I PUBLIC SECTOR SERVICE QUALITY:

• AN EMPIRICAL STUDY IN THE ROAD

, TRANSPORT DEPARTMENT OF MALAYSIA.

1 ^9

I BySharifuddin Zainuddin (pg93 - 114)

SYMBOLISM AND BUSINESS

By Edgar ].Rldley(pg 115-124)


0000053860

Junwl Produktiviti - [Journal].

53360


pRODUKnvm

PENASIHAT

Tuan Haji Ismail Adam

(Kelua Pcngarah)

KETUA PENGARANG

Nik Zainiah Nik Abd. Rahman

(Poiijiiiriih FAQ Prnmosi)

SIDANG PENGARANG

Shezlina Zakaria, Fatimah Zainuddin,

Hamdi Othman, Suzana Ismail.

Waila Mohd Naair, Nor Anizar Zainal

Sarimah Mis man

PKNKKBIT

Perbadanan Produktivili Negara

(Nalional Productivity Corporation)

Peti Surat 64

Jalan Sullan, 46904

Petal ing Jay a, Malaysia

Tel: 03-7557266

PENCETAK/PRINTER

Am pang Press

No. 6 Jalan 6/91

Taman Shamelin Perkasa

Batu3 1/2 Jalan Cheras

56100 Kuala Lumpur.

Tel: 948 944 8/5036

Kami mengalu-alukan sumbangan rencana untuk

dimuatkan di dalam jurnal ini. 'Jurnal Produktiviti'

diterbilkan enam bulan sekali, meliputi semua aspek

ekonomi dan pengurusan serta lain-lain bidang yang

ada hubungannya dengan konsep produkiiviti.

Rencana-rencana yang tersiar tidak semeslinya

merupakan pcndapal NPC.

NPC

PERBADANAN PRODUKTIVITI NEGARA

'Jurnal Produktiviti' diterbitkan oleh

Perbadanan Produktiviti Negara

(Kementerian Perdagangan Antarabangsa dan Industri)

Pen' Surat 64. Jalan Sultan,

46904 Petaling Jaya, Selangor, Malaysia.

Telefon: 03-7557266 (15 Talian) Fax: 03-7578068

http://www.npc.org.my

LEMBAG A PENGARAH

PERBADANAN PMQDUKflVrn

Y.BHG. TAN SRI DATO'AZMAN HASHIM

Pengerusi, Perbadanan Produktiviti Negara

(NPC)

Y.BHG. ENCIK MOHD. ZULKIFLI ABD.

RAUF

Timbalan Pengerusi NPC

Timbalan Ketua Setiausaha (Industri)

Kementerian Perdagangan

Antarabangsa & Industri (MITI)

ENCIK ISMAIL ADAM

Ketua Pengarah

Perbadanan Produktiviti Negara (NPC)

Y.BHG. TAN SRI DATO' DR SHAMSUDIN

BIN ABDUL KADIR

Pengerusi Eksekutif Sapura Holdings

Y.BHG. TAN SRI KISHU TIRATHRAI

Pengerusi & Pengarah Unison Kumpulan Globe

Y.BHG. TAN SRI DATO'ABDUL

KHALID IBRAHIM

Ketua Eksekutif

Kumpulan Guthrie Berhad

Y.BHG. DR. MOHAMED ARIFF B. ABDUL

KARIM

Ketua Eksekutif

Malaysian Institute of Economic Research

(MIER)

Y.BHG. DATO' HAJI MOHD. RAMLI

KUSHAIRI

Setiausaha Agong

National Chamber of Commerce & Industry of

Malaysia (NCCIM)

Y.BHG. DATO' DR. SAMSUDIN B. HITAM

Ketua Pengarah

Unit Perancangan Ekonomi

Jabatan Perdana Menteri

Y.BHG. DATO' ZAINOL ABIDIN ABD.

RASH1D

Ketua Setiausaha

Kementerian Sumber Manusia


ENCIK ONN BIN KAYAT

Timbalan Setiausaha

Banagian Pinjaman Perumahan

Perbentfaharaan Malaysia

Y.BHG. DATO'ANNUAR MAARUF

Ketua Setiausaha

Kementerian Pertanian Malaysia

Y.BHG. DATUK PROF. DR. ANUWAR ALI

Pengarah, Jabatan Pengajian Tinggi

Kementerian Pendidikan Malaysia

Y.BHG. DATO' MUSTAFA MANSUR

Naib Presiden Persekutuan Pekilang-Pekilang

Malaysia.

ENCIK JAAFAR B. ABD. CARRIM

Persekutuan Majikan-Majikan Malaysia

ENCIK RAJASEKARAN GOVINDASAMY

Setiausaha Agong

Kongres Kesatuan Sekerja Malaysia

AHL1-AHLIGANTI

Y.BHG.DATUK DR. HADENAN ABDUL

JALIL

Timbalan Ketua Setiausaha (Perdagangan)

Kemanlerian Perdagangan Antarabangsa &

Industri (MITI)

Y.M. RAJA ZAHARATON RAJA ZAINAL

A 111 DIN

Pengarah Seksyen Industri & Perdagangan, Unit

Perancang Ekonomi, Jabatan Perdana Menteri

ENCIK MUHAMAD NOOR YACOB

Setiausaha Bahagian Perancangan &

Penyelidikan

Kementerian Sumber Manusia

ENCIK TAMBI B. HJ. ABU HASSAN

Penolong Pengarah

Bahagian Belanjawan

Kementerian Kewangan Malaysia

TUAN HAJI AHMAD PHARMY B. ABDUL

RAHMAN

Timbalan Ketua Setiausaha (Operasi)

Kementerian Pertanian Malaysia

111

PEJABAT-PEJABAT WILAYAH

UTARA

Pengarah Wilayah Utara

Beg Berkunci 206, Jalan Bertam

13200 Kepala Batas, Pulau Pinang.

Tel: 04-5754709

Fax:04-5754410

PANTAI TIMUR

Pengarah Wilayah Pantai Timur

Tingkat 18, Kompleks Teruntum

Jalan Mahkota, 25000 Kuantan.

Tel: 09-5131788/5131789

Fax:09-5138903

KUCHING

Pengarah Wilayah Sarawak

Lot 894, Fasa 3, Taman Perindustrian

Demak Laut, Peti Surat 2679

93752 Kuching, Sarawak.

Tel: 082-439959/439960

Fax: 082-439969

SELATAN

Pengarah Wilayah Selatan

No. 8, Jalan Padi Mahsuri

Bandar Baru UDA

81200 JohorBahru.

Tel: 07-2377422/2377644

Fax: 07-2380798

KOTA KINABALU

Pengarah Wilayah Sabah

No. 08, Tingkat 7. BlokE

Bangunan KWSP.

49 Jalan Karamunsing

88000 Kota Kinabalu.

Tel: 088-235837/233245

Fax:088-242815


BIODATA OF RALIMOHD NOR

Rali Mohd Nor is the General Manager of Proton Parts Centre Sdn. Bhd., a

subsidiary company of Perusahaan Otomobil Nasional Berhad (PROTON),

Shah Alam. Prior to his current position, he was a Senior Manager of

Production Planning in PROTON for seven years and a Senior Executive of

Production Planning in Dunlop Malaysian Industries Berhad for 8 years.

Currently he is a part time research associate with Henley Management

College, England. His current research interests include materials

management, supplier development and purchasing. He holds a Master of

Business Administration degree from Brunei University, England as well as

an Advance Post Graduate Diploma in Management Consultant from Henley

Management College.


Supplier Development in the Malaysian Automotive

Industry: Current Practices, Outcomes

and Issues.

ABSTRACT

This article presents the results of a study on supplier development in the

Malaysian automotive industry which focused on Proton and its

suppliers. The study indicates that through Proton and its vendor

development programme, plays a very crucial role in developing and

extending comprehensive support to its supplier firms such as matching,

contact, R&D, financing, marketing and promoting continuous

performance improvement programmes. The relationship is one of

cooperative and long term in nature. However, there are existing

problems, especially in the areas of new product development, product

quality, delivery of parts, costs and financing. The lack of technical

capability, reliance on bought-in technology, the protected environment

and limited volume for economies of scale are factors that rendered the

industry to be not so competitive at international level.

1. INTRODUCTION

Increasing competition in global market characterised by shorter

product life cycles, higher product quality, cheaper prices and shorter

delivery times to satisfy demanding consumers are likely to prevail

stiffly. Firms worldwide have responded to this competitive

environment with various strategies and activities such as downsizing

or concentrating on core competencies. Whichever way firms take,

either downsizing or concentrating on core competencies, it means

firms have to rely heavily on outside suppliers to provide high quality

inputs, on-time delivery, lower cost and constant innovation. Firms,

therefore, must continuously involve in supplier development to

ensure that their suppliers have the same capabilities and at the same

time sharing similar policies and objectives as theirs in order to

compete in such competitive environment.


The supplier development concept has been around for many years in

the Malaysian automotive industry, however, little has been

documented about the actual practices of the programme in terms of

the objectives, key factors, characteristics and effectiveness.

Consequently, this study will investigate and analyse the roles played

by the primary buyer firm (Proton) in developing its suppliers and also

its roles in spearheading the development of component parts industry

in Malaysia. Specifically, this study will, therefore, determine: What

supplier development programmes are being undertaken by Proton?

How are these programmes affecting the suppliers? What are the

outcomes and issues?.

For the purpose of this study, supplier development is defined as an

organisation's efforts to create and maintain a network of competent

suppliers to meet the organisation's short and long-term supply needs

(Leenders, 1989; Krause, 1997). It involves a long-term co-operative

effort between a buying firm and its suppliers to upgrade the suppliers

technical, quality, delivery, and cost capabilities and foster on-going

improvements (Hahn, et. al., 1990). The ultimate goal of these

programmes is to form a mutually beneficial relationship that will help

both firms compete more effectively in the marketplace (Watts and

Hahn, 1993).

2. LITERATURE REVIEW

The supplier development literature mostly consists primarily of indepth

case studies (Krause, 1997; Gait and Dale, 1991; Hahn, et. al.,

1990). Much of the supplier development literature focuses on the

automotive industry, either in the United States, Europe, Japan or

elsewhere and performed primarily by large firms (Krause, 1997; Gait

and Dale, 1991). Recent writings have begun to recognise the

importance of supplier development in formulating corporate

competitive strategies (Watts et al. (1995). This is especially true in the

automotive manufacturing in view of the fact that in automotive

industry, up to 75 per cent of cost of a vehicle comes from parts

sourced from outside suppliers (Smith, 1995). Hence, the auto firms

cannot be competitive in the world market unless they deal with their

suppliers who share similar objectives and have the same level of

performance (Watts et al., 1995; Womack et al., 1990; Helper, 1987).


The literature reviewed appears in agreement on issue that concerns

this study, i.e., the traditional posture, one of adversaries, adopted by

buyer and seller in buyer-supplier relations, is being replaced by a

much different stance-cooperative relations. In this respect, there is

still a contrasting difference between Western and Japanese model of

buyer-supplier relationships. Most of the suppliers in the Japanese

automotive industry have and continue to maintain stable business

relationships with their primary auto firms over long periods of time

(Womack et al., 1990; Harrison, 1994). The link between the auto firm

and its supplier serve to promote the growth of both firms in mutual

interest of both parties (Odaka et al., 1988). These elements led the

Japanese auto manufacturers to be highly regarded as the most

efficient and highest-quality producer of the motor vehicles in the

world (Womack, et. al., 1990; Cutts, 1992; Harrison, 1994).

3. METHODS AND PROCEDURES

The author has carried out a fieldwork in two stages. The first stage

involved the extensive interviews with Proton's managers/employees

to examine the purchasing and vendor development practices in

Proton. In the second stage, the author had examined Proton's supplier

firms through: 1) personal interviews with the owners or senior

executives of the selected vendors; 2) to further verify the accuracy of

the analysis and interpretations, the author has collected additional

data from a larger sample of suppliers through mail questionnaire

exploratory survey which were sent to 140 suppliers (87 per cent

response rate) and these data are used to validate the prepositions

developed during the exploratory interviews; and 3) plants tours and

site visits were also carried out for direct observation on processes and

activities carried in the plants. In addition, the author had investigated

and examined Proton's documents such as vendors data base,

management committee's meeting papers, board of directors' meeting

papers, all routine records of production, marketing, financial, etc. and

any other published and unpublished documents generated by or for

the programmes. The data and information collected through this

exercise would further verify the accuracy of the analysis and

interpretations carried out in the first and second stage of the

fieldwork.


4. SCOPE AND LIMITATIONS OF THE STUDY

This study was conducted in Perusahaan Otomobil Nasional Berhad

(Proton) and its suppliers (component parts manufacturers). The scope

of the study has been delimited in a number of ways. First, the study

is confined to the passenger car industry only. This is considered very

representative as the passenger cars dominate more than 70 per cent of

the total product mix of the industry while the rest were commercial

vehicles such as buses, lorries, taxi & hire cars, etc. Second, the study

will be delimited to Proton and its vendors (140 firms). It is

considered to be well represented as Proton produces and sell about 70

per cent of the total production and sales of passenger cars in Malaysia,

thus, it is the back-bone of the industry. In order to seek answers to the

research questions, this study will only cover the area of supplier

development between Proton and its primary or first tier suppliers (see

Figure 1).

FIGURE 1

Scope and Focus of the Study

PROTON

(Primary Buyer Firm)

In house + Local + imported Parts

= Proton Car

Supply

System

Supply of

Component Parts

Primary Suppliers (1st Tier)

Component Parts Manufactuers

(Complete Components and Sub-assemblies)

Body parts, Engine Parts, Drive, Transmission Parts,

Steering Parts, Suspension Parts, Electrical Parts, Trim

and Upholstery Parts, Paints, Sealents, General Parts,

etc

Secondary Suppliers (2nd Tier)

Raw Materials and Small Parts Suppliers

Ferrous, non-ferrous, plastic resins, rubber

compound, textiles, ceramics, forging, casting, bolts,

nuts, screws, etc.

Supplier Development

• Identification & Selection

• Matching

• Contact

• Research & Development

• Financing

Product & Producing

Technology Required

Specification


5. THEORETICAL FRAMEWORK: PROTON SUPPLIER

DEVELOPMENT MODEL

In Proton, the component parts supplied by its primary suppliers are

considered strategic products because the parts represent about 50 per

cent in the total cost of end product and most of them are sourced from

only one supplier (see Appendix 1), As Kraljic (1983) suggested,

"Strategic products are generally obtained from one supplier, which

the short- and long-term supply is not guaranteed and represent a high

value in the cost price of the end product. The strategy is to strive for

a partnership-like relationship with the suppliers in order to obtain

significant improvements in quality, costs, delivery, product

development and innovation."

Before the establishment of Proton, the component parts manufactured

locally were initially few and catered basically for the replacement

market. However, with the introduction of specific localisation

programme by Proton through its Vendor Development Programme

(PVDP) for the industry in the mid of 1980's, more components were

produced to cater for the original equipment and replacement parts

market for domestic as well as export markets. As the President of

Proton Vendors Association (PVA) said;

"....many vendors were born, nurtured, and later developed

and grew solely as a result of this VDP. There were only 17

vendors supplying 52 parts when Proton commenced

operations in 1985, most of which were low-tech traditionally

local parts like batteries, tyres and etc. To date there were 140

vendors supplying more than 4,000 parts to Proton." (From

interviews with the President of Proton Vendors Association).

In 1986, Proton has established the Procurement and Vendor

Development Division (PVD) which an objective to develop its own

group of suppliers in order to formulate and implement the local

content programme for the national car. It was envisaged that with the

implementation of this local content programme the automotive parts

industry would expand. This expansion was much needed not only by

Proton in its endeavor to build a strong industrial base to depend on,

but also by the Government as a source of employment absorption and

reduction of imports. The supplier development programme achieved

quick results. In 1985, the local content of Proton car was only 18

percent in terms of value. By 1988, this ratio had climbed to 60

percent, touching 65 percent in 1991, and 70 percent in 1992. (see

Appendix 2 and 3). The programme is illustrated in the theoretical

framework as shown in Figure 2.


Annual Master Plan (AMP)

Long Range Product Plan (LRPP)

Engineering Cost Estimates

Cost Estimates Review

4M Assessment (S.W.O.T).

Harnessing available facilities

Indigenous participation

Single Sourcing

No displacement of investment

Designing & Specification

Training & Development

Productivity Improvement

(QCD, 4M, TCA, etc.)

Searching for technical assistance

Matchmaking programme

Trade/investment promotion

Technology transfer

Research centre

Product development

Testing and verification

Technology "bridging "

Equity participation

Arranging Grant Scheme leme

Banking arrangementt

Purchasing arrangement nent

Advertising & promotion tion

Distribution

Export programme

After-sales services

'

FIGURE 2

Proton's Supplier Development Model

Identification

&

Selection

Process

Ongoing

Assistance

KEY FUNCTIONS/ACTIVITIES

Selection of Parts: Identifying and

selecting the parts to be produced

locally in Malaysia by local

component parts manufacturers

(suppliers).

2. Selection of suppliers: Identifying

and selecting the potential local

suppliers based on the company's

policies to produce the selected parts

in Malaysia.

3. Matching: Shaping and fitting the

products to Proton's requirements.

This includes such activities as

manufacturing, designing, specification,

drawings, grading, assembly,

packaging, agreement on price, order,

delivery, risk taking and other terms of

the offer.

Contact: Searching out necessary

input (technical assistance, capital and

other resources) and initiate a match

making programme between local

suppliers and reputable overseas technical

collaborators to expedite the

transfer of technology.

Research & Development: Gathering

of information necessary for product

planning, product development and

modification.

6. Financing: Acquisition and dispersal

of funds to cover the costs of

producing and distributing the

products.

7. Marketing: Market development and

dissemination of persuasive

communications about the products.


6. SUPPLIER DEVELOPMENT PRACTICES IN PROTON

The succeeding sub-sections will describe in detail the Proton's

supplier development model (as exhibited in Figure 3). The suppliers'

performance has a greater impact on the productivity, quality, and

competitiveness of Proton. The company has offered and performed

various functions (activities) to develop the component parts

manufacturers more than they can usually achieved on their own. The

key functions/activities that were carried out by Proton in developing

its suppliers are described below.

6.1 Selection of Parts

A critical strategic decision for any organisation centres on the

issue of make or buy. Proton's management support the

philosophy of sourcing from outside suppliers. The main reason

was the challenges of maintaining long-term technological and

economic viability for a noncore activity. It is, therefore, the

company's responsibility to search for or develop capable

suppliers suitable for strategic needs of the organisation.

Proton's supplier development programme starts with the

identification of parts to be localised and potential local

suppliers to undertake the manufacturing of the parts locally.

The decision to place a certain volume of business with a

supplier was based on a reasonable set of criteria. Normally, the

decision is governed by the perception of the supplier's ability

to meet satisfactory quality, quantity, delivery, price, service,

etc.

The potential parts for local production are selected from the list

of CKD parts imported from Japan. These parts are then

included in the long range product plan of the company (LRPP).

The LRPP is for the period of three to five years. The parts

selected for localisation would be tabled in the Annual

Management Plan (AMP) of the company for the top

management approval prior the implementation. Upon approval

of the AMP, the parts selected will be analysed in the

Engineering Cost Estimates for further consideration for local

production. Finally, the parts that meet the cost estimate review

will then be considered for implementation. For example, 690

parts were approved for localisation in the Annual Management

Plan for 1996.


6.2 SELECTION OF SUPPLIERS

The suppliers are identified and selected based on Proton's

policies. The company's supplier selection policies are: single

sourcing; no displacement of investment; harnessing or

optimizing available/existing facilities; and Bumiputra

participation. The appointment of suppliers are carried out in

two stages. First, the feasibility study stages, where the supplier

are assessed and evaluated based on the 4M's assessment (Man,

Machine, Material and Method) and SWOT analysis (Strength,

Weakness, Opportunity and Threat). Second, the cost and price

evaluation of the component parts based on the target cost as

suggested in the Cost Estimate Review Table. The suppliers that

meet the above two criteria will be appointed as Proton supplier

for the particular component parts. When the suppliers are

appointed, the assistance programme for the supplier will

commence, beginning from the development stage until mass

production stage and continuously then.

The evaluation of suppliers is a continuing purchasing task.

Current suppliers have to be monitored to see if expected

performance materialised. New suppliers need to be screened to

see if their potential warrants future consideration. Proton

separate the suppliers into two categories. The first category

constitutes established suppliers who over the past have proved

to be reliable and good sources. The second category is the new

supplier group that needs constant assistance and guidance. The

company establishes supplier rating schemes which track

vendor performance on management, financial, technical

capability, quality, delivery, service, price, etc.

6.3 Matching: Shaping and Fitting the Products to Proton's

Requirements

By matching, it means shaping and fitting the products to

Proton's requirements which includes such activities as

manufacturing, designing, specification, drawings, grading,

assembly, packaging, agreement on price, order, delivery, risk

taking and other terms of the offer. Proton provides design and

specifications of component parts or manufacturing services to

be produced/provided by the component parts suppliers. Proton

expects that the suppliers would supply components or services

of the highest quality. Appendix 4 shows the departments in


Proton that are responsible to support the development of

component parts manufacturers.

For long term, as an "on going assistance" Proton has introduced

several productivity improvement programmes to assist its

component parts manufacturers (suppliers) in developing

efficient operation system to improve their productivity. The

measures emphasized by Proton such as: factory layout;

equipment and processes; process control; production planning

and control; utilisation of manpower; materials handling and

inventories; and most important of all is the product quality. The

results achieved are in the form of efficient delivery, reduction

of manufacturing cost, shorter lead-times, better management of

inventories and better quality of products. Among the

programmes implemented are QCD Programme (Quality, Cost

and Delivery), 4M Programme (manpower, material, machine

and method) TCA Programme (Target Cost Achievement).

The author has carried out a study at four selected supplier firms

to find out the results achieved from the productivity

improvement programme conducted by Proton at these supplier

firms. The results are tabulated in Table 1.

10


Cases/

Company

Company A

Company B

Company C

Company D

TABLE 1

Productivity Improvement Programme Conducted

At Selected 4 Supplier Firms

Improvement

Activities

* Production Method

• Dies Improvement

* Modification of Jigs

* Re lay ou I Production

Line

* Scrap Reduction

• Productivity

Improvement

• Review Test Method

• Revise Specification

• Revise Procedures

(S.O.P.)

* Production Method

• Eliminate Deburring

• Modify Jigs

• Relayout Production

Line

Items

Improved

• Manpower

• Cycle Time

• No. of Process

• Working Area

• Monthly Cosi

• Saving/Month

• Rejection Rate

* Deburring

• Tag Weld

• Tapping Nut

Results of the Improvement

Before

Improvement

! 5 Persons

58 Seconds

15 Processes

63 m2

RM44.400

0

90%

9 Processes

After

Improvement

9 Persons

55 Seconds

8 Processes

36 m2

RM39.180

RM 5,220

1%

5 Processes

(Reduced

processing time

by 35%)

Note: Exchange Rate: US$1.00 = RM 2.60 (1996)

Due to confidentiality, the company's name is not mentioned in this study. However, readers who are

interested in a more detailed account of the study methodology including a brief description of their

characteristic, can consult the writer.

11


6.4 Contact: Searching out technical assistance, capital and

other resources

By contact, it means searching out necessary input (resources)

such as technical assistance, capital, skills, etc. and

communicating with prospective suppliers and buyers. The high

level of technical know-how and large capital required for

manufacturing automotive component parts may not be able to

be provided by small and medium-sized component parts

manufacturers. However, this constraint would generally be

made possible through joint venture with large firms or with

foreign firms for technical assistance.

Proton has made several arrangements to matchmake local

component parts manufacturers especially the small- and

medium scale industries (SMI) with reputable foreign vendors

to participate in the development of automotive component parts

in Malaysia. From this matchmaking programme, many of the

high-tech and high-value components, which may not be

produced by SMIs, were made possible for localisation through

various forms of cooperation with large firms or with foreign

firms for technical assistance. These efforts are proven to be

successful with the involvement of several reputable automotive

parts suppliers such as GKN (United Kingdom), Robert Bosch

(Germany), etc. To date, over 80 technical agreements have

been concluded between some 70 local companies and 76

foreign firms localizing almost 170 parts resulting in transfer of

technologies, know-how and technical skills in automotive parts

manufacturing (see Appendix 5).

6.5 Research and Development

By research and development, it means searching and gathering

of information necessary for product planning, product

development and modification. Since its inception, Proton has

served as an anchor facility to bring about a coherent localisation

of the Malaysian automotive industry. Completed facilities

at Proton's Research and Development Centre, the most

sophisticated in South East Asia today, provide full scale model

making, computer-aided engineering design and manufacturing

and include component and engine emissions testing

laboratories that are accredited with the United Kingdom

department of transport.

12


Proton inherited the automobile technology from Japanese technology-

Mitsubishi Motor Corporation of Japan. In the past ten

years, Proton has played its parts to "bridge" the gap between

the sophisticated technology required for automotive parts production

and the general low level industrial technology of most

of the Malaysian automotive parts manufacturers. To keep pace

with the technological advancement, Proton has acquired new

technology and training in the various fields of automobile technology.

Expansion of its Research and Development Centre (R

& D) are given a special priority by the company in a move

towards being innovative, stable and independent organisation.

6.6 Financing

The Government and Proton have jointly assumed the duty in

accelerating the growth of automobile industry. A special Grant

Scheme has been introduced by the Government through the

Ministry of International Trade and Industry (MITI) to increase

participation of small and medium-scale enterprises (SME) in

the automotive components industry. In the Fifth Malaysian

Plan (1986-1990), Proton secured a RM7.0 million grants earmarked

for the government Technical Assistance Scheme (to

produce Proton parts) to assist small and medium-sized entrepreneurs

to venture into local automotive parts manufacturing.

Under the Sixth Malaysian Plan (1991-1995) an additional

RM15.0 million was allocated for the similar purpose.

Management of this Special Grant Scheme is entrusted to Proton

based on the guidelines set by MITI. The utilisation of the Grant

Scheme is emphasized on development of components for

Proton new models, and upgrading/expansion of vendors manufacturing

facilities. Up to end of 1996, a total of RM14 million

grant assistance was awarded to 19 small and medium-sized

Proton vendors producing 135 parts.

6.7 Marketing

By marketing here it means ensuring that the products produced

by the local vendors can be marketed and sold to the consumers.

The component parts manufacturers aware of the benefits of

becoming Proton suppliers and one of them is easy accessible to

the market. Their markets are highly dependent on Proton,

which was confirmed by the President of Proton Vendors

Association (PVA), Proton guarantees long-term market for us

13


and makes our business easy in the long run. In this way our

business is more secure rather than if we have to compete every

year in a tender bidding system.'

Proton has successfully positioned its products from other

competitors' products as value for money buy, i.e. to

differentiate its product as a cost advantage. As such Proton has

strived to get the overall public perception that the car is cheaper

and economic to own. In doing so, the company has to maintain

its productivity level of its plant and its component parts

suppliers so that it can produce cars at lower cost. Proton has

entered the export market, which has achieved significant

success in a number of countries. Penetration into the

international market is an achievement to Proton as well as the

component parts manufacturers in view of the small size of

domestic market. This export venture would enlarge the market

size, thus, widen the scope and activities of the component parts

industry in Malaysia. These are some of the marketing

functions that are being carried out by Proton. Such functions

and factors work against the possible success of small and

medium-sized component parts manufacturers to enter the

business without the assistance of large firm - like Proton.

7. OUTCOMES AND ISSUES

In the Malaysian automotive industry, much of the recent change in

philosophy towards manufacturing and towards quality is strongly

influenced by the Japanese model of auto firm and suppliers relationships

- a recognition of the importance of 'network sourcing'. The

study found that almost similar relationship has been developed

between Proton and its component parts suppliers in Malaysian automotive

industry, however, it does not closely resemble yet the manufacturer-supplier

relationship characteristics in the Japanese automotive

industry. The development pattern of ancillary or supplier firms

grew more or less after, or dependent of, Proton. The outcomes and

issues are highlighted and discussed in the succeeding sub-sections.

7.1 Supply Structure

Many of the suppliers deal exclusively with Proton by supplying

every piece of their products to the latter. The supplier firms

receive assistance and support from Proton in the various forms

14


such as of technical know-how, supply of raw materials, equipment,

marketing, financing, training of personnel, etc. Proton

maintains some equity holdings in seven supplier firms.

Compared to Nissan in Japan, Proton's equity participation in its

supplier firms is considered small. Nissan has an average of 33

per cent equity ownership in its 29 direct supplier firms (Dyer

and Oichi, 1993).

The Proton supply system is vertically structured - organised in

a pyramid-like structure (see Figure 3 below). It is a two-tier

structure, primary and secondary suppliers. The level is shorter

than that in Japan where in the Japanese automotive industry, the

second-tier companies may have a third or even fourth tier of the

supply pyramid. As at the end of 1996, Proton has 140 primary

suppliers and about 500 secondary suppliers that supply parts

and raw materials to the primary suppliers. Proton directly

manages its relationship with the primary suppliers, whose

member firms in turn take responsibility for managing the

secondary suppliers or those lower down in the hierarchy.

7.2 Technical Capability and Product Quality

The lack of capability lead to collaborative arrangement with

foreign firms who act as technology provider. Proton viewed

these as strategy alliances, with foreign companies extending

technical knowledge and expertise to Proton's vendors. Hightech

items produced under these collaborative arrangements

include engine and transmission parts, oil pumps, pedal assembly,

brake assembly, clutch assembly, instrument panels and

door-trims. The main issues here are: one, whether the "match

making" activities are effective in transfer of technology?; and

two, whether the alliance is strategic and result in value added

partnership? The transfer of technology is known to be extremely

difficult and complicated. In many cases, the principal is not

sincere in the relationship and there are no equitable return in

which case that the principal benefits more (Awang, 1997). One

of the reasons is due to lack of ability and experience of the local

vendors in framing out the scope of agreement resulting in

shortfall thereby only one party benefits.

15


First Tier Suppliers (140)

2nd Tier Suppliers

(About 500)

FIGURE 3

Proton Hierarchical Supplier System

PROTON


A point worth noting in the Malaysian experience is the

relatively high adaptability of the production workers and

engineers to new machinery and technology. The technology

gap was naturally wider in early days of their development,

however, the Malaysian workers of the local firms managed to

master the operations of the imported technology with

assistance from their foreign counterparts. The quality of the

automotive parts and components as a whole has risen

substantially over the last ten years as a result of improvements

in existing technology as well as the introduction of new foreign

technology. As at middle of 1997, 63 supplier firms have

achieved ISO 9001/9002 certification. The fact that Proton cars

have exported to more the forty countries and seven of Proton

supplier firms have exported their parts to Japan, Australia and

Europe for OEM requirements implied that the quality has

reached the international standard.

7.3 Product Development

Proton selects all the necessary suppliers at the early part of their

product development and involves the companies supplying the

same parts to Proton and are long-term members of Proton's

supplier group. They are not selected on the basis of bids, but

rather on the basis of past relationships and a proven record

performance. In early part of product development, shortly after

the planning process starts in Proton, the suppliers assign staff

members to the development team of the Proton development

programme.

When product planning is completed, the component parts of the

car are turned over to that area's supplier specialist to conduct in

detailed development and engineering (based on the design and

specifications given by Proton). The supplier, then have full

responsibility for making component systems that perform to

the agreed-upon specification in the completed car. The study

found that many of the vendors do not have the capability to

design new parts/products. They can only develop the product

based upon specification control drawings provided by Proton

and/or MMC. Proton, for the development of new models, is

almost entirely dependent on its joint venture partner MMC.

Such dependency has placed Proton in a weak position for rapid

development unless a good cooperation with MMC is

maintained at all time.

17


7.4 Relationships, Assistance and Market Dependency

Proton and local vendors have maintained stable business

relationships. About 60 per cent of the suppliers have more than

5 years business relation with Proton and almost all of them

have experienced continuous subcontracting relationship since

the establishment of their formal contacts with Proton.

Assistance in continuous improvement consists of working with

established suppliers with systematic programmes for raising

efficiency and making other improvements. The average market

dependence of Proton's created suppliers is about 74 per cent as

compared with transactional dependence of Japan which is 69

per cent, Britain 26 per cent (Sako, 1992; Awang, 1997). The

market dependence of Nissan's suppliers is 50 per cent (Dyer

and Ochi, 1993). As such Proton has created a cluster of

dependent suppliers whose existence, management, technical

capability and market rested on Proton.

7.5 Price Determinant and Delivery System

Proton will set first a target price for the parts and then, with the

suppliers, works backwards, how the parts can be produced at

the set-up price while allowing a reasonable profit for both the

auto firm and the suppliers. The cost of the parts makes up of

material costs, supplier purchases of child parts and processes

from other firms (such as plating, ED-coating, etc.), direct

manufacturing costs, tooling costs, and gross margin (overhead

plus profit margin). The price is negotiated every year and this

would give both parties a chance to adjust the price accordingly

so that whatever adjustment made it would benefit both parties

in long term. The spirit of negotiation is based on long-term

partnership that is more concerned with good quality at

reasonable price rather than forcing the price to go down.

About 50 per cent of the parts are delivered to Proton plant

ranging from 2 to 4 hour per day, 40 per cent twice a day (one

delivery in the morning and another one in the evening), and the

balance 5 per cent are delivered twice a week (mostly small

parts). Though the delivery concept is based on the JIT system,

however, it is yet to resemble the JIT concept practised by the

Japanese auto firms. Neither Proton nor its vendors practise

perfect JIT and zero inventory. Both, Proton and its suppliers

hold excessive stocks, either in raw materials, CKD kits or

18


finished products. In short, the JIT system does not really work

perfectly here due to the large amount of raw materials have to

be imported from overseas, which requires a long lead time.

7.6 Suppliers Association

Proton has initiated the formation of Proton Vendors

Association, which was officially launched on July 9,1992. The

main objective is to foster relationship amongst members, and

between members and Proton. Currently, 107 out of 140 Proton

vendors are members of the association. Vendors' association

has played an indispensable role in the development of both

vendors and Proton. It has served not only as primary firm's

channel of assistance to ancillary firms, but also as an effective

instrument for the cultivation of loyalty between both parties.

The idea of suppliers association was put forward by the former

Managing Director of Proton, Mr. Kenji Iwabuchi, who believed

the Japanese style of supplier cooperative association or

kyoryokai kai would help in developing suppliers in Malaysia.

The establishment of such cooperative association is crucial for

generating and maintaining trust, as well as for disseminating

management innovations. In Japanese automotive industry, all

the first tier suppliers (primary suppliers) are members of the

suppliers association of their automotive customers.

7.7 Overall Performance: Benchmarking Against MMC and

Others

Since Proton is closely related with Mitsubishi Motor

Corporation (MMC), it will be most appropriate, to benchmark

Proton against MMC's associate companies outside Japan in

term of production performance. Comparing the productivity of

the assembly plants are by no means easy due to the differences

in several controlling factors such as production models, degree

of automation, extent of in-house manufacturing, sales

organisation and economic/market conditions. To have a feeling

of Proton's efficiency in relations to Mitsubishi's associate

plants overseas, .a 'productivity index' assessment was

conducted as exhibited in Table 2.

19


Company/

(Country)

MMC (Japan)

DSM (USA)

CMC (Taiwan)

Proton (Malaysia)

MMAL (Australia)

NMMNZ (N. Zld)

MSC (Thailand)

PAMCOR (Phil.)

KRM (Indonesia)

KKM (Indonesia)

Eicher (India)

TABLE 2

Productivity Index of MMC's Overseas Related

(Associate) Companies

Production

Volume

(1993)

1,362,447

135,610

85,079

118,140

54,600

6,200

71,849

23,730

25,100

13,400

3,370

Manpower

As at End

1993

27,603

3,569

2,453

3,914

4,993

595

2,809

1,397

545

536

630

Production

Vol. Per

Employer

Note: Without Sales = Excluding sales personnel

With Sales = Including sales personnel

Source: Mitsubishi Motors Corporation, Overseas Operation Office, 1995.

20

49.4

37.7

34.7

30.2

10.9

10.4

25.6

17.0

45.9

25.0

5.3

Remarks

Reference

Without Sales

Without Sales

With Sales

With Sales

With Sales

With Sales

With Sales

Contract

Assembler


Car

Assembly

Production

© Reverse

Imports

W Overseas

Production

© Export

© Local

Production

t

Shift to

Mass

Production

t

KD Operation

t

© Import of CBU

(No. Assembly

Plant)

Taking Mitsubishi, Japan, as reference, Proton with 30.2

units/employee lies third after Diamond Star Motors, USA and

China Motors Corporation, Taiwan. Taking a step further, on a

globally competitive basis, Proton still lag behind the American

and European manufacturers in main plant characteristics (see

Appendix 6). The local car industry, spearheaded by Proton, is

still a long way from becoming a world class car manufacturer.

Against Mitsubishi and other Japanese auto firms, the current

status of Proton and the Malaysian automotive parts industry is

as plotted in the scatter diagram in Figure 4 below.

FIGURE 4

Current Status of the Malaysian Automotive Industry

c •••-.

©

REM

Parts

f Perodua ^

,--~~ "A Malaysia J

Qfavt-^. ^/

Assemblers ~)

©

Local Production

\ Malaysia )

-~— __— --

Start-up Expansion Shift to

_^^- ^ mass pro.

Component Parts Production/manufacturers

21

©

Export

Y MM

c& \-

( Gibers Japanese

1

Firms L

0

Overseas

Production

Q

"Reverse

Imports


8. Conclusion

The research, conducted in the Malaysian environment, focused on

Proton and its vendors operations with the objective of obtaining a

better understanding of the current practices, outcomes and issues in

the total supply system of the Malaysian automotive industry. It was

found that Proton, the primary car manufacturer, through its vendor

development programme, plays a very crucial role in developing and

extending comprehensive support to its supplier firms such as

matching, contact, research & development, financing, marketing and

promoting continuous performance improvement programmes. The

relationship is one of cooperative and long term.

However, there are existing problems, especially in the areas of new

product development, product quality, delivery of parts, costs and

financing. The lack of technical capability, reliance on bought-in technology,

the protected environment and limited volume for economies

of scale are factors that render the Malaysian automotive industry to be

not competitive on an international level. The local parts were developed,

in most cases, with cost penalty. To compete in the global marketplace,

a considerable cost reduction is needed. And, since about 80

per cent of the production costs are due to the costs of components and

materials, with labour and sundry costs the remaining 20 per cent,

reduction of cost of component parts is certainly more important than

cheaper labour and sundry costs.

The rapid progress of component parts industry in Malaysia was made

possible, to a great extent, by close collaboration through supplier

development efforts between Proton and its suppliers. Besides

assistance from Proton and also the Government, the component parts

manufacturers themselves have made most extensive effort over the

past twelve years under the entrepreneurial and leadership of the owners

and the key executives of the firms. For as long as such efforts and

cooperation are sustained, the local component parts industry is

expected to grow for a brighter future to cater for Malaysian as well as

the international market.

22


Appendix 1:

Cost Breakdown of Proton Car and Focus of the Study

Local Parts

represent

major portion

of the cost and

is the main

focus of the

study

Proton Wira 1.3 Litre M/T

Others

(7%)

Source: Proton, Finance Division, September 1996

23

In house Parts

(4%)

Fix Overhead

(10%)


Year

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

Total

Appendix 2:

Locally Produced Parts Initiated by Proton

Parts

Classification Main Parts/Items

Body Parts

Engine Parts

Drive, Transmission

and Steering Parts

Suspension Parts

Electrical Parts

Trim and Upholstery

General Parts

Body stamped-parts, fuel tank, exhaust system, safety glass,

whether strips, moldings, etc.

Filters, radiator hoses, air filter housing, spark plug, piston, piston

liners, etc.

Wheel rim, wheel nuts and studs, control cables, rack and pinion

steering assembly, etc.

Coil and leaf spring, U-bolt and shackle assembly, shock absorber,

disc pad, etc.

Battery, horn, wiring harness, alternator, starter motor, voltage regulator,

wiper and washer assembly, instrument cluster, relays, fuses

box, etc.

Carpet, floor mat, rear parcel shelf, seat assembly, safety belt, melt

damping sheet, etc.

Paint and thinner, underseal, tyre, air conditioner, radio, screw jack,

etc.

(Source: Proton, PVD Dept, December, 1996)

Appendix 3

Proton's Supplier Development and Localisation Achievement

No. of

Suppliers

17

33

40

46

67

78

99

106

125

134

137

140

140

In-house

Parts

176

223

237

345

519

524

528

259

394

394

394

394

394

Local

Parts

52

102

161

180

382

490

649

1057

2505

3050

3640

4300

4,300

Total

(Source: Proton, PVD Dept., December, 1996)

24

228

325

398

525

901

1014

1167

1316

2899

3444

4034

4694

4,694

Model

Saga

Saga

Saga

Saga

Saga

Saga

Saga

Saga

Saga/Wira

Saga/Wira

Saga/Wira

Saga/Wira

Saga/Wira


Departments

Procurement &

Vendor Development

Quality Control

Research &

Development

Production

Engineering

Production Planning &

Control

Appendix 4

Departments in Proton that Support the Supplier

Development Programme

Support Activities

a. Plan, implement and monitor the development

b. Identification of parts and vendors

c. Window of communication & coordination

d. Close relationship from feasibility to production

a. Assist in identifying testing & requirement

b. Product identification & qualification

c. Assist in establishing of quality system

a. Release drawing for development

b. Prototype build up design approval

c. Special testing & homologation

d. Engineering order

a. Assist in fitting trial

b. Feed back as end user

c. Line trial for assembly verification

d. Assist in designing/improving plant layout

a. Assist on tooling concept

b. Die trial & modification

c. Advise on process planning

a. Monitor part development

b. Provide volume forecast

c. Coordinate part supply

d. Assist on material handling & inventory

Source: Proton, PVD Dept., December 1993

25


to

ON

Source

Country

Japan

Germany

Taiwan

South Korea

Joint

Venture

15

3

4

3

Australia 2

Others

TOTAL

3

30

Appendix 5

Matchmaking Activities up to December 1996

Technical

Assistance

33

0

1

0

1

2

37

Purchase

Agreement

5

0

0

0

0

0

5

Wholly

Own

(Source: Proton, PVD Dep., December, 1996)

3

1

0

0

0

0

4

No. Foreign

Companies

56

4

5

3

3

5

76

No. of Local

Vendors

48

5

5

3

3

6

70


Average ration of share parts

Productivity (hours/vehicle)

Appendix 6

Benchmarking on Assembly Plant Characteristic

Quality (assy. Defect/ 100.00)

Return to normal productivity

after new model (months)

Return to normal quality

after new model (months)

Japan

18%

16.8*

60

4

1.4

USA

38%

24.9

82.3

Note: *Productivity at MMC Plant is 12.5 hours/vehicle

Source: Womack et al., (1990); Proton, Corporate Planning Div., 1996

27

5

11

Europe

28%

35.5

97.5

12

12

Proton

40%

15.0*

60

12

12


BIBLIOGRAPHY

Awang, M., (1997), "The Japanisation Process in Malaysia", Unpublished

Ph. D. Thesis, University of Aston, United Kingdom.

Cults, R. L., (1992), "Capitalism in Japan: Cartels and Keiretsu," Harvard

Business Review, (June-July 1992).

Dyer, J. S. and Ouchi, W. G., (1993), "Japanese-Style Partneships: Giving

Companies a Competitive Edge," Shan Management Review, Fall 1993, pp

(51-63).

Gait, Major J.D.A. and Dale, B. G., (1991), "Supplier Development: A

British Case Study," International Journal of Purchasing and Materials

Management, Winter 1991, 27 (1), pp (16-22).

Hahn, C. K., Watts, C. A. and Kirn, K (1990),"The Supplier Development

Programs: A Conceptual Model," Journal of Purchasing and Materials

Management, Spring 1990, pp (2-7).

Harrison, B., (1994), "Lean and Mean: The Changing Landscape of

Corporate Power in the Age of Flexibility," New York: BasicBooks, a

Division of HarperCollins Publisher, Inc.

Helper, S. R., (1987), "Supplier Relations and Technical Change: Theory and

Application to the US Automobile Industry," Harvard University, USA:

Unpublished Ph. D. Thesis.

Kraljic, P., (1983), "Purchasing Must Become Supply Management",

Harvard Business Review, (September-October 1983) pp (109-117).

Krause, D. R., (1997), "Supplier Development: Current Practices and

Outcomes," International Journal of Purchasing and Materials

Management, Spring 1997, 33 (2), pp (12-19).

Leender, M. (1989), "Supplier Development," Journal of Purchasing and

Materials Management, Spring 1989, pp (47-55).

Odaka, K., Ono, K. and Adachi, F., (1988), "The Automobile Industry in

Japan: A study of the Ancillary Firm Development," Tokyo: Oxford

University Press.

28


Sako, M, (1992), "Prices, Quality and Trust: Inter-Firm Relations in Britain

and Japan," New York: Cambridge University Press.

Smith, G. B., (1995), "Purchasing for the Motor Industry". In: Farmer, D.

and Van Weele, A. (eds), "Handbook of Purchasing Management," (2nd

Edition), England: Gower Publishing Ltd., pp C32 535-545.

Watt, C. and Hahn, C. K. (1993), "Supplier Development Programmes",

International Journal of Purchasing & Materials Management, 29 (2) pp

(10-17).

Watts, C. A., Kee, Y. K. and Chan K. H., (1995), "Linking purchasing to

corporate competitive strategy," International Journal of Purchasing &

Materials Management, 31 (2) pp (3-8).

Womack, J. P., Jones, D. T. Roos, D., (1990), "The Machine that Changed the

World," New York: MacMillan.

29


BIODATA OF CHE RAZALI CHE ISMAIL

Che Razali bin Che Ismail is a consultant at National Productivity

Corporation, Petaling Jaya. He obtained his Master of Science in

Manufacturing Systems Engineering and Management at University of

Bradford, UK in 1997. His first degree is Bachelor of Science in Civil

Engineering from University of Nebraska Omaha, USA in 1988. His main

areas of expertise are ISO 9000, 5S, 7QC Tools, Process Q and JIT.

Previously he was a Civii Engineer and also Chief Designer Engineer in two

companies in USA and Malaysia.

30


JUST-IN-TIME (JIT) PRINCIPLES AND

SYSTEMATIC LAYOUT PLANNING AS TOOLS

TO IMPROVE PRODUCTIVITY AND QUALITY

(P&Q)

By Che Razali Che Ismail

ABSTRACT:

This article discusses a case study on a factory called Birkbys Plastics

Limited, United Kingdom. The objective of the study was to analyse the

current production system in a manufacturing cell called Gemini with

regards to people, machines, tools and material. Based on the data collected,

several new layouts were suggested to improve the efficiency and utilisation

of people and machines. Several Just-in-Time (JIT) elements were

also suggested to eliminate waste while improving the present production

and quality system. Comparison was made between the existing and the

proposed layout of the cell. This is to show the advantages of the new layout.

Cost analysis was also carried out to determine the expenses and savings.

INTRODUCTION

Manufacturing industries have had an interest in the Just-in-Time (JIT)

philosophy for the past two decades due to the significant reduction in costs

and inventory, improvement in quality of goods produced, increased

productivity and other manufacturing improvements. JIT concepts can be

used to reduce manufacturing lead times, increase utilisation and efficiency

of workers and equipment, reduce work-in- progress, increase work in

progress, inventory turnover, reduce raw materials, improve quality, reduce

finished goods inventory, reduce production space requirements, increase

flexibility in changing production mix, reduce scrap and increase

productivity [Schonberger (1982), Zipkin (1991)].

JIT philosophy, also known as 'Pull System' is a concept where goods are

manufactured when they are needed at the right quantity without wastage.

JIT has attracted a massive interest in the East and the West and has been

strongly recommended by Monden (1983), Schonberger (1982), Shingo

31


(1988), Suzaki (1987) and Voss (1989). According to Oliver (1991), a survey

carried out in 1987 64% from 132 manufacturing companies in the West are

implementing or planning to implement JIT programs, while a survey carried

out in 1988 found that, out of 1,000 manufacturing companies, approximately

two-thirds were implementing or planning to use JIT.

1.1 Case Study Objective

Birkbys Plastics Limited is a polymer engineering company which

manufactures plastic injection moulding components and assemblies

for customers such as Ford, Toyota, Black & Decker, Rank Xerox,

Jaguar, VDO and Linkbuilder. In 1990, the Marubeni Corporation,

one of the largest trading companies in the world bought Birkbys

Plastics but, the Marubeni Corporation decided to allow Birkbys

Plastics Limited to continue their development programme so as to

serve their present customer.

Figure 1.1 shows the existing layout of the Gemini Cell situated at

Birkbys Plastics Limited.

Data were collected to calculate machine efficiency and utilisation on

the actual production from May 1997 to July 1997. Observations were

made on the tool set-up and changeover to determine the actual setup

time for the tool change. Records on product scrap and machine maintenance

we collected to determine the frequency of service on the

machines.

Machine efficiency is defined as the percentage of time required for a

machine to carryout each task against the actual time taken to perform

that task. Machine utilisation is defined as the percentage of available

time less stoppage time against the available time for a machine to

carryout the task. Table 1.2 shows the summary of machine efficiency

and utilisation of the Gemini Cell for the actual production from May

to July 1997. Based on the Birkbys method, machine utilisation and

efficiency are calculated as follows:

Efficiency: Birkbys has set the efficiency for all the machines in the

Gemini Cell to be 80% without doing any calculation. The reason for

Birkbys Plastics Ltd. doing this is 'unknown'.

Utilisation: Monthly Utilisation = (Monthly hours required to

produced parts)/(Hours available x 0.8)

32


UJ

UJ

Figure 1.1: Existing Layout of

the Gemini Cell

QC inspection

& Parkina Area

13m

13m

["Assy. Insp.

—' & Parking

DD

Nortell

Assembly

Area

Painting

Area

Paint Paint

Store Tech

O

Q]

Q_

Insp

w

dQ

V!

O

^*

e

ff

3

a


No.

1

2

3

4

5

6

7

8

9

TABLE 1.2

Summary of Machine Efficiency and Utilisation of the Gemini Cell (May-July 97 Production)

Machine

Number

Al

A2

A4

A5

A6

A7

A8

A9

AID

Description

TOSHIBA 350 E-17A

STORK 1000/250

DEMAG250NC111

DEMAG400NC111

STORK 2500/440

STORK 1000/250

STORK 1600/330

STORK 2500/440

STORK 2500/440

AVERAGE

Ma

Efficiency (%)

Birkbys UOB

80 76.5164.1

74.34

80 82.00

80 44.1524.3

50.96

80 68.05

80 82.59

80 83.72

80 85.83

80 78.50

80 85.45

y-yi Utilisation (%)

Birkbys UOB

81.5 84.24

49.4 63.60

64.8 92.83

74.4 93.69

21.6 89.43

91.5 82.35

91.5 83.61

80.00 76.3162.57

79.45

Efficiency (%)

Birkbys UOB

80 90.38

Jun

80 81.64 81.5 94.65

80 88.42

80 70.68

80 85.66

80 89.45

80 66.47

80 95.28

80 80.4191.5

80.26

80.00 83.15

97

Utilisation (%)

Birkbys UOB

64.1 92.92

24.3 93.77

49.4 84.38

64.8 92.97

74.4 95.45

21.6 80,63

91.5 96.85

Jul

Efficiency (%)

Birkbys UOB

80 79.66

80 54.65

80 55.21 10.7 42.08

80 36.20

80 80.78

80 74.90

80 28.84

80 43.5188L1

49.82

80 82.77

97

Utilisation (%)

Birkbys UOB

83.2 84.13

88.3 71.32

30.8 66.52

65.5 77.00

49.9 68.35

24.7 50.04

88.1 74.41

62.57 90.21 80.00 59.61 58.81 64.85


At the University of Bradford (UOB), machine efficiency and

utilisation is calculated as follows [Khan (1997)]:

Efficiency: Efficiency = [(Time required to produce parts)/(Actual

time taken to produced parts)] x 100%

Utilisation: Utilisation = [(Available hours - Stoppage

hours)/(Available hours)] x 100%; where stoppage hours are shown in

Table 3,3.

Results of the calculation (shown in Table 1.2) shows that there are

differences between the figures derived from the Birkbys and the

University of Bradford's (UOB). The UOB calculation is based on the

industrial standard (Khan, 1997); As the data were all actual, it can

strongly be said that UOB calculation is more realistic than Birkbys

Plastics Limited's which used only estimated figures. The causes of

machine stoppages which resulted in the reduction of the machines

efficiency and utilisation are recorded in Table 1.3.

The most frequent stoppage with 26 cases was because the operator

was assigned to perform other work. An operator may be transferred

from one machine to another with higher priority leaving the first

machine without operator.

1.2 Tool Set-up and Changeover

Observations were made to determine the actual time taken for the tool

setup and changeover on only seven different machines and times. The

actual time taken for the tool set-up and changeover is three hours

which exceeds the company-targeted time of two hours. The result of

the seven observations are tabulated in Table 1.4.

1.3 Summary

Each worker such as operator, technician, QC personnel, material

supplier and fork-lift truck driver has only a limited number of tasks to

do. A technician has to wait for a fork-lift truck driver to deliver a tool

to be changed. When intact, the technicians could pickup the tool and

record themselves. During the tool set-up, time was also wasted due to

unnecessary movements and readjustments of the tool to fit into the

machine.

35


Code

No.

0

1

2

3

4

5

6

7 .

8

9

10

11

12

13

14

15

16

17

IS

19

Stoppage Code

Unauthorised Stop

Tool Fault (Internal)

Inspection

Department

Electrical

Maintenance

Mechanical

Maintenance

No Material

(Internal)

Technician

Setter

No Operator

Customer Packing

Sampling

No Work

Tool Fault (External)

Feeder

Bought Out

Engineering

Housekeeping

Try Out

Wait Tool Change

Job end

TABLE 1,3

Machine Stoppages and the Causes

Stoppage Description

Machines were stopped, no stop code entered

Tool undergone repair by tool room personnel

Waiting for first off sample

Electrician worked on the machine

Technicians worked on the machine (mechanical

Problem)

Waiting for material to dry or problem

with material feed

Technicians worked on the machine

Tool was being fitted

No operator available

Ran out of customer returnable packaging

Sampling department worked on the machine

No work was scheduled

This code is no longer applicable

Feeder relieving operator for break

Shortage of infeed parts including materials

Engineering Department personnel worked on the

machine

Cleaning and painting floor

Technician tried to get first off sample

Waiting for tool to be changed on the machine

End of production

36

No. of

Cases

0

8

1

5

3

2

4

2

26

4

5

2

0

14

0

1

11

8

6


Presently, tools for all the machines are stored in the Tool Storage Area

as shown in the Figure 1.1. Ocassionally a lot of time taken by the

forklift truck driver to deliver the tool from the tool storage area to

machine. In addition, files for tool allocation are kept in the tool

storage area only. One person is responsible to keep the tool. If the

Production and Planning controller (who determines the tool change

for all the machines in Birkbys Plastics Limited) wishes to assign new

production, and therefore the tool will be changed and he has to

contact the tool storage personnel. If the person is busy, the production

and Planning Controller has to go to the tool store himself. Time is

wasted due to unnecessary movement.

Date

Observed

30-6-97

17-7-97

18-7-97

8-8-97

12-8-97

18-8-97

21-8-97

TABLE 1.4

Machine Set-up and Changeover

Machine

No.

A6

A5

A5

Al

A7

A4

A7

From Tool No.

11275

11312

10689

11309

11481

11088

11481

37

To Tool

No.

11361

10689

11518

11005-26

11112

11579

11399

Average

Act Time Taken

3hrs

3 hrs 7 mins

3 hrs 25 mins

3hrs

2 hrs 57 mins

3 hrs 20 mins

2hrs

3hrs


Observations were made to determine the frequency of movements of

people, tools and materials within the cell. In order to be more accurate

in data analysis, the observations were made every working day for

four months from May to August 1997.

Table 1.5 shows 59% of the time was wasted due to waiting for the

parts to be produced and ejected from the machine. Table 1.6 shows

that in the month of August, the maximum number of machines, which

were running, was eight on 21 August 1997. It is also calculated that

the average machines which were running daily is four out of the total

of machines of nine (44%).

2.1 Proposed Gemini Cell Layout Improvement

The proposed Gemini Cell layout improvement was determined based

on two aspects. Firstly, workers spent 59% on average of the time

waiting for parts to be ejected from the machine. This leads to a

possible multi machine tasks by operator to reduce waiting time while

increasing working time on the parts. Secondly, some machines run

daily to produce parts while some are idle. This leads to a possible

grouping of machine with heavy and light load to level up the load

among the machines.

2.2 Proposed Layout Improvement No. 1

As shown in Figure 1.7. Group 1 (A2, A4, A7) are combined based on

two high frequency orders for A2 and A7 and one low frequency for

A4. It is also based on low size machine capacity of 250 tonnes for all

the three machines. The combination of Group 2 (Al, A5 and A8) is

also based on two high frequency order for Al and A5 and one low

frequency order for A8. It is also based on medium size machine of

330-400 tonnes.

The combination of Group 3 (A6, A9 and A10) is also based on two

high frequency orders for A6 and A10 and one low frequency order for

A9 It is also based on big machine of 440 tonnes. Two operators are

required to operate three machines each. If all three machines are

running, the two operators will increase their working time from 41%

(in the existing layout) to61%(41%x3 machines/2 operators). The

total number of operators can be reduced from ten to six.

38


2.3 Proposed Layout Improvement No. 2

The Figure 1.8 shows a combined conveyor belt system. Each time

machines in Group I & A2, A4 & A7, Group II (A 1, A5 and A8) and

Group III (A6, and A10) are producing parts, they will eject parts

which drop on the shared conveyor belt where they will flow down to

the operators for finishing work of the part.

2.4 Proposed Cell Layout

As shown in Figure 1.9, the'Group-of-Three° machines are arranged in

a U-Shaped layout but each machine has its own conveyor belt for the

product to flow to the operator. Two operators are needed to monitor

the Group-of-Three machines and they can remove the conveyor belts

in order to stand near the machine to insert and feed parts on the mould

as necessary.

In addition each group of machines will have its own tools store kept

within the cell. Group A2, A4 and A7 has fifteen tools, GroupAl,A5

and A8 has nineteen tools and Group A6, A9 and A10 has ten tools.

The overall dimensions of all the tools for these three groups of

machines ranging from 0.4m x 0.45m x 0.75m (smallest-175T) to

1.0m x 0.55m x 0,62m (biggest-440T); therefore, they will be kept on

a wooden platform with a single layer. Presently, each tool is stored

on a wooden pallet and put on a three-layer tool room. As the new

proposed tool storage doesn't require a forklift to transport it, single

layer is necessary, as an overhead crane will carry it to each machine

for tool changeover. The overall layout of the factory showing the new

design of the Gemini Cell is shown in Figure 2.0.

2.5 Multi-Skilled Workforce

Firstly the four main types of direct workers involved in the cell are

operators who perform their daily work mentioned earlier. Secondly

the QC inspectors who carry out final audit of the parts before they are

packed and delivered to the customers. Thirdly the tool technicians

who change tools and repair machines. Fourthly the Internal Raw

Material Supplier who supplies raw material to the machines.

However, these four different tasks with the appropriate training can

be combined. As a result, they will not only perform operator's work

but also audit the parts, supply their own raw material and change the

tool by themselves. The same principle is applied to the QC inspector

and tool technicians where it will then lead to the concept of Team

Work.

39


MC

No

Al

A2

A4

AS

A6

A7

A8

A9

A10

TABLE 1.5

Percentage of Operators Doing Works Versus Waiting

Tool

Number

11005-25

11309-01

11005-26

11005-24

1120021

1 1088-02

11250-52

11165-01

10689-01

11312-04

10310-01

11275-11

11361-01

11481-01

11170-01

11112-01

11399-01

11089-13

10838-01

Daily

Frequency

292

156

150

30

925

221

510

124

121

56

29

1350

272

271

182

152

65

45

333

11159-11 > 235

i

1139231 431

11392-32 96

No. Op.

40

1

1

1

1

2

1

1

1

1

1

2

1

1

1

1

1

1

1

1

1

1

Percentage of Operators

Doing Works

Doing Works

47

31

47

47

42

47

18

55

20

37

100

71

40

35

48

20

60

38

18

33

16

29

Waiting

53

69

53

53

58

53

82

45

80

63

0

29

60

65

52

80

40

62

82

67

84

71


MC

NO.

Al

A2

A4

A5

A6

47

A8

A9

A10

TABLE 1.6

Machines A1-A10 in Operation in August 1997

Tool

Number

11309-01

11005-26

11005-25

11005-24

11200-21

1 ineo cfi

IlUoo-Ui

11250-52

11165-01

10689-01

11312-04

10310-01

11275-11

11361-01

11481-01

11170-01

11112-01

11089-13

11399-01

10838-01

11159-11

11392-31

11392.32

TOTAL

7

*

*

2

9

*

*

*

*

*

4

11

*

*

*

4

12

*

*

*

*

*

5

13

*

*

*

*

*

5

Note: Plant was shut down from 1 to 6 August 1997

14

*

*

*

*

*

5

41

15

*

*

*

*

*

6

18

*

*

*

*

*

6

19

*

*

*

*

*

6

20

*

*

*

*

5

21

*

*

*

*

*

*

*

*

8

22

*

*

*

*

*

*

*

7

26

*

*

*

*

*

*

5

27

*

*

*

*

*

*

6

28

*

*

*

*

*

*

*

6

29

*

*

*

*

*

*

*

7


2.6 Set-up Time Reduction and Improvement

Time taken to change tools was approximately three hours. This

exceeds the company's target of two hours because work was carriedout

manually. Electrical or pneumatic tools would allow the work to

progress faster. There were two cases where the technicians were waiting

for tools to be delivered. Tool storage near the machine is essential

as the technician can collect the tool himself by using the overhead

crane without waiting for the forklift driver to deliver the tool.

Thirdly, the technician travelled back and forth three times from the

machine to the tool store to get the right size of hydraulic hoses. It

took 30 minutes for the unnecessary activities. The technicians should

make it a point'to check the size of nozzle to fit the right size of hose

before collecting it. In fact, the set-up time of two hours was achieved

during one of the observations because the above problems were

eliminated (except the manual adjustment which is still being used).

Therefore, it implies that the technicians have the capability of

reducing the set-up time and can reduce even further if electrical or

pneumatic tools are used.

2.7 Levelled/Mixed Scheduling

The most important aspects of JIT is levelled scheduling which is not

only planning a level of products but planning to produce the full mix

of models each day (or some other short interval, if volumes are not

high enough to warrant daily production). The benefit of full-mix production

in short periods is that the level of inventory build-up remain

relatively low. This allows the schedule to be flexible and very easy

to respond to actual custom order conditions. To plan for level output,

the first step is to forecast demand for the product mix and convert the

forecast into daily production plan. As for the present production

planning in the Birkbys Plastics Limited factory, the machines are run

based on priority. The first priority production in the Gemini Cell was

priority number 8 for machine A10 to produce parts. This is one of the

reasons why most machines in the Gemini Cell were idle due to operators

being transferred to higher priority machines outside the Gemini

Cell.

2.8 Tool Management Design

The tools for each machine group should be kept within the Gemini

Cell. However, it will be better for the Production and Planning

42


Controller who plans the production and instructs the technicians for

tool change to keep the tool storage record in his room.

Every time he assigns a new production run, there will be a tool

changes and he will update the tool movement and allocation in the

computer. By doing this, he will always have the up-to-date record

rather than having to go to the tool storage area office to check the tool

storage data which is what he is presently doing.

2.9 Maintenance System

Presently, the maintenance system which includes servicing the

machines at the required interval, repairing the machine when it breaks

down and checking the safety features of the machine are done by the

technicians. In the new system, it is proposed that the operators carry

out 'first-line* maintenance by cleaning and checking the machine

everyday against the specified criteria mentioned. This leads to one of

the JIT concept called 'Total Preventive Maintenance' which

maximizes the overall effectiveness of equipment through the people

that operate and maintain that equipment [Willmott (1994)]. Workers

who worked within the cell will be totally responsible for the machine

and work without relying on the technicians for maintaining the

machine. They must be properly trained in order to fulfill this JIT

principle.

2.10 Summary

As the number of machines in the Gemini Cell is fairly small, a manual

technique adapted from different methods such as 'Systematic Layout

Planning' of layout design was used to accommodate the JIT

implementation. In the previous chapter, data was collected and

extracted from actual measurement for the existing layout of the

Gemini Cell, records in the company's computer system and print-out,

daily observations, informal interviews and discussions with the direct

workers, executives and managers of the Birkbys Plastics Limited who

are working in the Gemini Cell.

3.0 EFFICIENCY OF THE NEW CELL DESIGN

The average time of the workers carrying-out value-added activities

was 41% while the remaining 59% was just waiting time. The average

number of machines in operation daily was only four out of nine. In

43


Figure 1.7: Proposed Layout Improvement No. 1

Group 1 Group 2 Group 3

•o o

85

•o 3

1

B_

2

o


Figure

A4r

i

> \ 2 \l

C c

/

)

1.8 Proposed Layout Improvement No. 2

3


4 m

n^

i

A/

<

:

A n

AAO

7

A.1

N

3 m

I

c

/

)3


4 m

D


Tool

Store

for

A2,,

A4&

A7

Figure 1.9 : Proposed Cell Layout

Group I Walking

A2

A4

A7

Container Box

Path Only

A1

Fork-lift

Driveway & V 'a\\ in 3 Path

Group 2

A8

A5

Container Box

Tech.

Room

(Cage)

Tool

Store

for A1,

A5&A8

Tool

Store

A9&A10

A9

Group 3

A6

A10

Container Box

"0

3

•O

O


Raw

Mat.

Store

Tool Storage Area

Tool Repair Area

Scrap

Area Inserts

Store

A11 -A16

QC Inspection

& Parking Area

Delivery Area

Prod.

Office Rework

Area

Figure 2.0 : Detailed Layout of The Inproved Gemini Cell

L-

Shop

I Ass'y, Insp.

—' & Parking

Nortell

Assembly

Area

Painting

Area

Paint Paint |nsp

Store Tech

oCft

3

n

a

O

s.

nn =


addition, tool set-up and changeover time was three hours which

exceeds the company target time of two hours. Besides, the servicing

of machines has no proper records. With the new layout, coupled with

the appropriate manufacturing system, workers can increase their

value added activities. Machine usage can be increased leading to

better utilisation and efficiency (this will improve further with TPM)

and tools are stored within the cell; therefore, avoiding time wasting

due to the unavailability of the forklift truck driver to deliver the tool

to the machine. The new tool storage system proposes to use the

existing overhead crane in the Gemini Cell to transport the tool to the

machine.

3.1 Layout Comparison

The new layout as shown in Figure 1.9 and Figure 2.0 was based on

combinations of machines with two having high frequency demand

and one having low frequency demand so that the load on the three

machines can be levelled-up . Two operators handle the 'Group-of-

Three' machines so that they can work together and lead to better

'teamwork'.

3.2 People Comparison

In the new proposed layout, the machines were laid-out in 'U-Shaped'

system and operated by two operators. A combined system will enable

operators to perform value-added activities rather than just waiting for

part to come-out from the machine. The new proposed system will also

require a three-in-one task by direct workers involved in producing

parts of the Gemini Cell. Three of the five main types of workers in

the Gemini Cell are operators, QC inspectors and technicians (setters).

In fact, these three tasks can be combined together provided that they

have proper training on each type of task.

3.3 Tool Management System Comparison

The present layout of the Gemini Cell has no room for tools to be

stored next to the machines. Several times technicians had to wait for

the forklift driver to deliver the tool from the tool store for the tool

change. As the forklift driver had to service three other manufacturing

cells for the tool delivery and change, delay should be expected at the

required machine's tool set-up. The new system offers the tools to be

stored next to the machines. Therefore, no forklift is necessary to

transfer the tool from tool store to the machine. The technicians can

pick-up the required tool by using the overhead crane. As mentioned

48


above, the forklift is not required to pick-up the tool for the tool

changes in the newly proposed system. There is less burden for the

forklift and its driver. This could also lead to less maintenance and

usage of the forklift.

3.4 Maintenance System Comparison

There was no record available on the machine maintenance. Daily

records show that safety checks were not carried out on a regular basis.

As observed, technicians were always busy changing the tool and also

fixing and adjusting the machines (for all the four manufacturing cells,

not just only for the Gemini Cell). A better maintenance system called

the Total Productive Maintenance, where the operators carry out some

maintenance works including safety checks, repair, cleaning and

servicing by themselves without waiting for the technicians to do it.

But, they need to be provided with proper training before they can start

doing the works.

3.5. Summary

The improvements suggested above will cover all the major

manufacturing resources such as people, machines, tools and

materials. The implementation of the new system may not have a

immediate impact as some of the workers are likely to require a little

time to adapt. The changing process will need some efforts to go

through the learning process. Once the initial step is successful, the

consequent improvement programmes will be much easier to

implement.

4.0 COST ESTIMATION

4.1 Cost Incurred for the Improved Layout

There are three major expenses involved in implementing the new

layout; namely, relocating the nine machines, in-house training for the

direct workers and production stoppage due to machine relocation.

4.2 Relocating the Machines and Equipment

From the data supplied by the company, the cost incurred in moving

one machine to another place is £1000. The cost for nine machines

49


will be £9000. The cost includes transferring the machines to a new

place, reconections of electrical wiring, raw material pipes, exhaust

cylinder and computer system.

4.3 In-house Training

The new system requires the operators to be multi-skilled. They will

need to be trained to fulfill the role of QC inspectors and technicians.

The training for QC inspector's work, which will be done by the

present QC inspector, will take two days of eight hours per day. The

present wage for the QC inspector is £12.13 per hour. Thus, the total

cost for QC training will be £12.13/hour x 16 hours = £194.00.

Training of the technicians requires longer period because the contents

of the training are very technical. The participants need to learn in

detail about machine safety, maintaining them and changing tools. In

order to properly develop the operators to become technicians, the

training could take a whole year of working days which is 260 days at

eight hours per day. The present technicians will provide the training

to the operators and their present wage is £28 per hour. Thus, the total

cost for the training will be £28/ hour x 260 days x 8 hour/day =

£58,240. Therefore, the total cost for both types of training is £194 +

£58,240= £59,000

4.4 Production Stoppage Due To Machine Relocation

As estimated by the company, it will take 96 hours to relocate one

machine. (96 hours per machine x 9 machines = 864 hours of

stoppages). The standard price of parts produced by the Machines Al-

A10 (excluding A3) is shown in Table 2.2

In order to calculate the production loss due to stoppage of machines for

relocation process, it is more realistic to base on the higher frequency

production. For instance, to calculate the production loss for moving

Machine Al, it is based on the high frequency production (Refer Table 1.8)

where Product 11005-25 was highly produced from May to July 1997. The

loss due the stoppage for Machine Al is calculated as follows:-

Production Loss = Stoppage Time/Product Cycle Time x Price x

Average Actual Efficiency (From Table 3.4)

= 96 hrs x 60 mins/hr x 60 secs/min/34 sec x 0.8507 x

[(76.31% + 83.15% + 59.61%)/3]

= £7420

50


The remaining of the production loss due to other machine stoppages are

summarised in Table 2.1 as follows:-

TABLE 2.1

Production Loss due to Machine Relocation

Machine No.

Al

A2

A4

A5

A6

A7

AS

A9

A10

Total

Production Loss (£)

51

6,312

8,970

25,274

117,910

27,134

8,778

6,797

6,605

7,278

216,000


4.5 Total Costs Incurred

The total costs incurred are £9000+ £59,000 + £216,000 = £284,000

4.6 Cost Savings

The savings are derived from the reduction of manpower, elimination

of forklift utilisation, reduction in space utilisation, reduction in set-up

time and an increase in workers' production and flexibility.

4.7 Rationalisation of Manpower

The present wage of an operator is £12.13 per hour. Each week, the

normal working hours are ninety-nine (99) hours. Therefore, the

weekly wage for each operator is £12.13/hour x 99 hours/week x 52

weeks/year = £62,445.24 per year. The new proposed system reduces

manpower from ten to six. Thus, the total savings per year is 4

operators x £62,445.24 = £250,000 per year.

4.8 Elimination of Fork-lift Truck Utilisation

Everyday, there are about four tool changes for machines Al to A10.

The forklift has to travel about 0.25 km to transport the tool from the

store and deliver to the machine and return to its station. The cost of

diesel for forklift is £0.65/litre for every kilometer movement. Thus,

the cost of forklift consumption is 0.25km x 4 times/day x 1 litre/km x

£0.65/litre = £0.65 per day x 5 days/week x 52 weeks/year = £170 per

year.

4.9 Floor Space Saving

The new layout provides tool storage next to the machines. It is

calculated the floor saving will be 4.5 metres x 13 metres = 58.5

square metres. Due to a strict cofidentiality of the monetary value for

the floor space, Birkbys Plastics Limited decided not to reveal its

figure for this project.

52


4.10 Set-up Time Reduction Saving

There were two cases where it took less than two hours for the

technicians to change the tool. Firstly, the technicians took 85 minutes

to change the tool but had to wait for 95 more minutes for the raw

material to be supplied to the machine for production. Secondly, the

technicians took exactly two hours to change the tool. In other words,

the technicians .have a capability of achieving the company target of

two hours for changing the tool by proper planning. This could be

improved further if electrical or pneumatic tools were used as opposed

to the current manual tools.

If the set-up time is reduced from three to two hours, the machine can

start producing part one hour early. Average cycle time for producing

each part is one 49 seconds and there are four tool changes everyday.

Therefore, the saving will be {[(4 tool changes per day x 1 hour per

tool change) x 60 mins/hour x 60 secs/min]/ 49 sees} x £4.494 (Table

6.1) = £1,320.69 per day x 260 days per year = £344,000 per year.

4.11 Higher Productivity and Higher Flexibility of Workers

With the higher productivity and higher flexibility of workers in the

new production system coupled with the new layout, it is expected that

overtime can be eliminated. The overtime records for May to July

1997 production is as listed in Table 2.3.

The company record also shows that the average number of machines

run every weekend for the overtime production was four with one

worker per machine. Therefore, total overtime saved during the

weekend is calculated as follows:

Saving = 122.4 hours/week x 52 weeks/year x 4 workers x

(24.26/hour (double pay during the weekend) = £618,000 per year.

4.12 Total Savings

From the four aspects mentioned above the total savings for Birkbys

Plastics are £250,000 per year + £170 per year + £344,000 per year

+ £618,000 per year = £1,212 ,000 per year.

53


4.13 Summary

The summary of financial costs involved and savings gained from the

new layout are given as follows:-

Cost incurred from

Relocating machines and equipment = £9,000

In-house training = £59,000

Production stoppage due to machine relocation = £216,000

Total - £284,000

Savings from,

Rationalisation of Manpower = £250,000

Set-up Time Reduction = £344,000

Higher productivity and flexibility = £618,000

Total = £1,212,000

It must be stressed that training of the new multi-skilled workforce is

the key factor for the success before forming the new cell.

5.0 IMPLEMENTATION OF THE NEW LAYOUT

The new layout is considered as practical, viable and flexible for future

operation with the workers developing from single skill to multiskilled.

In most manufacturing operations, the company always rely

on the '4M + IE' concept which stands for Manpower, Machines,

Method, Material and Environment. In the case of Birkbys Plastics

Limited, the workers didn't utilise their capabilities to their maximum

capacity.

Workers can optimise their working time by operating more than one

machine and carrying other tasks such as checking and cleaning the

machine without assistance from the technician.

54


TABLE 2.2

Standard Price List for Parts Produced by Machines A1-A10

M/CNo.

Al

Al

Al

A2

A2

A2

A2

A2

A2

A4

A4

A4

A5

A5

A5

A5

A5

A5

A5

A5

A5

A6

A6

A7

A7

A7

A7

A7

AS

A8

A8

A9

A9

A9

A9

A10

A10

A10

A10

A10

A10

Part Code

11309-01

11005-21+35

11308-12

11002-21

11200-21

10328-11

10848-01+02

10859-01+02

10861-11+212

11088-02

11089-13

10307-01

11250-52

10689-01

10310-01

10314-01

11164-01

11165-01

11312-04

10306-01

10312-01

11275-11

11156-41

11112-01

11111-01

11399-01

11160-11

11170-01

10838-01

11163-01

11456

11392-31

11159-11

11032-11

11392-32

11392.31

10054-01

10055-01

11035-11

11159-11

11392-32

Average

Cycle Time

(seconds)

26

34

60

50

45

60

50

52

51

45

55

60

55

40

57

60

51

47

67

60

69

22.5

45

60

50

10

51

12.5

55

40

48

55

48

53

55

55

55

51

43

48

55

49

Std. Price (per part)

(£)

0.733

0.850

2.085

2,130

1.600

2.740

0.626

0.360

0.785

55.10

30.12

1.253

25.70

1.532

1.944

2.705

1.124

1.135

1.717

2.030

1.544

2.420

2.445

2.088

2.138

0.848

0.755

0.333

1.482

0.939

39.61

1.587

1.257

4.813

1.587

1.587

2.643

1.052

4.813

1.257

1.587

4.494

55


With regards to the material, scrap exceeds the targeted amount. This

shows that there is still a significant amount of non-standard quality

product produced. In term of the environmental factor, Birkbys

Plastics Limited has implemented good housekeeping concept called

'5S' to ensure well organised environmental condition around the

factory. However, there were times where irresponsible workers threw

rubbish into the container box instead of the trashcan. This type of

attitude can be rectified through proper training and disciplanary

reinforcement.

5.1 Summary of New Cell Layout and Its Practicality

Even though substantial work has been carried out in this project, it

only involved nine machines. This contribute only a little improvement

to the company. However, as the continuous improvement will

normally start with small and gradual activities (which is referred as

Kaizen), this project is considered as one of a most significant step

towards the success for implementation of JIT principles. With the

new layout, the operators time of carrying-out value-added activities is

increased from 41% to 62%. They can also carry-out 'first-line'

maintenance by cleaning and checking the machine by themselves and

keep the records in a safe and locked place within the cell. Control,

Updating and Keeping the Quality Record and Corrective and

Preventive Maintenance are two of the quality standard elements set

by the International Standard Organisation. [ISO 9000 Manual

(1994)]. The tools are stored within the cell. By eliminating time

waste due to waiting for the fork-lift truck driver to deliver the tool to

the machine, set up time will be reduced.

5.2 Conclusion

Birkbys Plastics Limited has a tremendous amount of manufacturing

resources available in people, machines, tools and materials but they

are not utilised as efficiently as they should. Machine operators spent

more than half of their time waiting for the parts to come out from the

machine rather than carrying out value-added tasks. Machines were

under utilised, tool were changed inefficiently and material scrap

exceeds the targeted amount.

56


5.3 Project Achievements

The proposals developed in this project have yet to be implemented;

however, the data generated on the existing Gemini Cell has given the

company much useful information about the present state of the

production system. The company has estimated that two hours are

required for tool set-up time and changeover, but from the seven cases

observed the technicians actually took three hours to change the tool.

All the machines in the factory were claimed to be serviced regularly,

but no record was available to support this fact. This is a noncompliance

according to the International Standard Organisation

(ISO) quality element (ISO 9000 Manual (1994). In order for Birkbys

Plastics Limited to retain their ISO 9000 accreditation, this noncompliance

needs to be addressed. Birkbys Plastics Limited may lose

£225,000 within four working days for machine and relocation and

production stoppage for implementing new layout in the Gemini Cell

but they will also start saving by a reduction in the number of workers

required (£1,000 per day), reduction of set-up time (£1,400 per day)

and elimination of overtime hours (£2,400 per day). In comparison,

the amount of loss of £225,000 can be recovered within 47 working

days with the total amount of savings of £4,800 per day (£1,000 +

£1,400+ £2,400).

TABLE 2.3

Average Overtime for Works carried-out During the Weekends

Overtime

Total hours

Average hours per week

May

1997

418.61

104.65

57

June

1997

742.8

185.7

July

1997

307.13

76.78

Average

489.5

122.4


5.6 Summary

Finally, this project has helped the company to understand what is

actually happening to their manufacturing resources such as people,

machines, tool and materials. The recommendations made are based

on the actual data taken from beginning of May 1997 until the end of

August 1997 using JIT concepts and the successful implementations of

JIT in other industries. The JIT concept as suggested by many great

thinkers, practioners and 'gurus', has been proven to be a useful and

practical as pursued by Birkbys Plastics Limited. Even though all the

suggestions and recommendations may not be implemented by

Birkbys Plastics Limited immediately, they can be implemented in

stages with success provided all employees are committed to put in the

effort required.

58


REFERENCES

1. Alaya, S.E.B.H., Elimination of Waste in Public Enterprises in

Developing Countries. 1987, Pakistan Development Banking Institute,

Karachi, Pakistan.

2. Apple, J.M., Plant Layout and Material Handling. 1977, p. 5-24, John

Wiley & Sons, New York, USA.

3. Bazoian, H.M. and Proud, J.F. Inventory Reduction Can Be a Reality.

1983, p. 14-22, APICS, Florida, USA

4. Berry, W.L., Vollmann, T.E. and Whybark, D.C. Manufacturing

Planning and Control Systems. 3rd Edition, 1992, p. 14-18, West

Publishing Company

5. Borchers, M.C., Focused Factory Reduces Time. 1991, p. 128-131

6. Burbidge, J.L., Production Flow Analysis For Planning^ Group

Technology. 1989, p. 1-2, Oxford Science Publications Ltd., UK.

7. Burbidge, J.L., Production Flow Analysis for Planning Group

Technology, Journal of Operations Management. No. 1, 1991, p. 5-27.

8. Chase, R.B. and Aquilano, N.J., Production and Operations

Management: A Life Cycle Approach. 1992, p. 266-268, Homewood,

USA.

9. Collet, S. and Spicer, R.J., Improving Productivity Through Cellular

Manufacturing, Production and Inventory Management Journal. First

Quarter 1995, p. 71-73.

10. Cox, J.F., An Examination of JIT Management for the Small

Manufacturer : With an Illustration, International Journal of

Production Research. No. 2, 1986, p. 342-392

11. Faulhaber, T.A., Planning Your Plant Industry. 1963.

12. Finch, B.J., Japanese Management Techniques in Small

Manufacturing Companies : A Strategy for Implementation.

Production and Inventory Management Journal. No. 3 1986, p. 30-38.

59


13. Francis R.L. and White, J.A. Facility Layout and Location : An

Analytical Approach. 1974, p. 33-37, Prentice-Hall, Inc., New Jersey,

USA.

14. Golhar, D.Y., Stamm, C.L. and Smith, W.P., JIT Implementation in

Small Manufacturing Firms, Production and Inventory Management

Journal 31, No. 2 1990, p. 44-48.

15.. Gwee, S.H., Plant Layout Improvement According To JIT Principles.

1992, M.Sc. Dissertation, University of Bradford.

16. Harrison, A., JIT Manufacturing in Perspective. 1992, Prentice-Hall

17. Hayes, R.H. and Pisano, G.P, Beyond World-Class: The New

Manufacturing Strategy, Harvard Business Review. 1994, p. 77-86.

18. Hill, T., Manufacturing Strategy : The Strategic Management of the

Manufacturing Function. 1993, p. 121-127, MacMillan Press.

19. Hitchcork, N. A, People Make the Difference in Focused Factory,

Modern Material Handling. 1991, p. 62.

20. Hollingum, J., Manufacturing Logistics Bring Companies Cash

Saving, Assembly Automation. Vol. 9, No. 1, 1989, p. 21 -23.

21. Immer, J.R., Layout Planning Techniques. 1950, McGraw-Hill, UK

22. International Standard Organisation (ISO 9000) Manual, 1994,

Redmap Publishing, UK

23. Khan, M.K., Private Communications, University of Bradford, 1997.

24. Kochhar, A.K. Design and Operation of Manufacturing Systems in

Japanese Industry. 1988, Report of a Study Visit, University of

Bradford

25. Markham, I. S, and McCart C. D., The Road To Successful

Implementation Of Just-In-Time Systems, Production and Inventory

Management Journal. First Quarter 1995, p. 68.

26. Maynard, H.B., Industrial Engineering Handbook. 3rd Ed., 1971, p.

11-61, McGraw-Hill Book Co., London.

60


27. Monden Y., Toyota Production System. Industrial Engineering and

Management Press, Georgia, 1983.

28. Monden, Y., Toyota Production System-An Integrated Approach to

JIT. 1994 Chapman-Hall, London, UK.

29. Moore, J.M., Plant Layout and Design. 1962, p. 4-20, The Macmillan

Company, New York, US.

30. Morris, J.S. and Tersine, R.J., A Simulation Analysis of factors

Influencing the Attractiveness of Group Technology Cellular Layouts,

Management Science, No. 2, 1990, p. 1567-1578.

31. Muther, R., Practical Plant Layout. 1955, McGraw-Hill, London, UK.

32. Muther, R., Systematic Layout Planning. 1961, Industrial Education

International Ltd., London, UK.

33. Nelleman, D.O. and Smith, L.F., Just-ln-Time versus Just-In Case

Production Systems Borrowed Back from Japan, Production and

Inventory Management Journal. No. 13, 1982, p. 12-21.

34. New, C.C. and Clark, G.R., JIT Manufacturing. 1989, Cassell

Educational Ltd., London

35. OiGrady, P.J., Putting JIT Philosophy Into Practice. 1988, Kogan Page

Ltd., London, UK.

36. Ohno, T. and Mito , S., JIT for Today and Tomorrow. 1988,

Productivity Press, Cambridge, USA.

37. Oliver N., The Dynamics of JIT, New Technology. Work and

Employment. Vol. 6 No. 1, 1991. P. 19-28.

38. Rose, R.M., Private Communications, University of Bradford, 1997.

39. Schonberger, R.J., Japanese Manufacturing Techniques. 1982, p. 5,20,

115, The Free Press, New York.

40. Singh, N. and Rajamani, D., Cellular Manufacturing Systems : Design

Planning and Control. 1996, p. 1-10, Chapman-Hall.

61


41. Shingo S.. Non-Stock Production: The Shingo System for Continuous

Improvement. 1988. Productivity Press, Cambridge MA.

42. Skinner, W., The Focused Factory, Harvard Business Review* No. 3,

1974, p. 113-121

43. Suzaki K., The New Manufacturing Challenge: Techniques for

Continuous Improvement. 1987, The Press Division of Macmillan

Publication Co. Inc., New York.

44. Temponi, C. and Pandya, S. Y., Implementation of Two JIT Elements

in Small-Sized Manufacturing Firms, Production and Inventory

Management Journal. First Quarter 1995, p. 23-24

45. Vokurka, RJ. and Davis, R.A., JIT : The Evolution of a Philosophy,

Production and Inventory Management Journal. First Quarter 1995, p.

56-59.

46. Voss C.A., Just-In-Time Manufacture. 1988, IPS Publications, UK.

47. Voss, C.A. and Clutterbuck, D., Just-In-Time: A Global Status Report.

1989, IPS (Publication) U.K.

48. Voss, C.A., Manufacturing Strategy : Process and Content, 1992,

Chapman-Hall.

49. Wantuck, K.A., The Japanese Approach to Productivity. 1983,

Southfield MI, Bend Corporation

50. Wild, R., Production and Operation Management. 4th Ed., 1989,

Cassell Education Limited, London.

51. Wilmott, P., Total Productive Maintenance. 1994, p. 14-16,

Butterworth-Heinemann Ltd.

52. Wilson, I.B., Logistics in Manufacturing-An IFS Executive Briefing.

1988 p. 111-117, IFS Publications.

53. Zipkin, PH., Does Manufacturing Need a JIT Revolution? No 1,

1991, p.40-50, Harvard Business Review.

62


BIODATA OF ALIAS RADAM

Alias Radam started working with the Faculty of Economics and

Management in 1990. He obtained his MBA from the Universiti Pertanian

Malaysia. He has taught courses on Operation Research and Mathematical

Economics. Currently he is the coordinator of Bachelor Economics for

-Executive Programme at the faculty. He is the Secretary of the Malaysian

Agricultural Economics Association for 1998/9 session.

His research topics and consultancies include productivity analysis and

production economic in agricultural and manufacturing sectors. Some of the

research projects and consultancies have been funded by various agencies

including NPC, Department of Agriculture, Johor Tenggara, MIER and

IRPA.

63


PRODUCTIVITY CHANGE AND TECHNICAL

EFFICIENCY IN THE MALAYSIAN CHEMICAL

AND RELATED PRODUCTS MANUFACTURING

INDUSTRIES

By Alias Radam and Shazali Abu Mansor

ABSTRACT:

This article examines the productivity and technical efficiency in the

chemical related industry by employing the Malmquist and Farell index

respectively. The results show the productivity and technical efficiency of

this industry have improved significantly in accordance with the growth of

the industry. Thus this finding suggests that policy should be directed

towards expanding its world market share to further reap the benefits of

economies of scale which is closely associated to this type of industry.

INTRODUCTION

The performance of the Malaysian economy during the Sixth Malaysian Plan

period was impressive. The strong economic fundamentals resulting from

sound macroeconomic policies and the increasing competitiveness of the

economy contributed to high growth with relatively stable prices. The

economy was propelled by the strong upsurge in private investment which

was supported by large inflows of foreign investment, high domestic savings

and privatization. The export sector performed remarkably well, despite the

sluggish growth of the major industrial economies during the first half of the

Plan Period.

With the rapid growth, the economy also faced supply constrains such as

infrastructure inadequacies and labour shortages while the current account

deficit of the balance of payments persisted throughout the period. In

addition, large short-term capital inflows affected the management of

monetary policy in the middle of the Plan period. However, pragmatic policy

measures were instituted and conscientious efforts were undertaken to

overcome these developments.

Recognizing that there are limitations to sustaining high levels of investment

to support high growth, the Seventh Malaysian Plan will shift the focus from

64


an investment-driven strategy towards a productivity-driven strategy, by

enhancing the contribution of total factor productivity (TFP) growth from

28.7 percent of Gross Domestic Product (GDP) in the Sixth Malaysian Plan

to 41.3 percent in the Seventh Malaysian Plan. Among others, emphasis will

be given on increasing the rate of innovation, skill development and

managerial efficiency. Since the private sector is the main engine of growth,

it is expected that strategies for productivity increase will be crucial

ingredients in their operations. This shift in strategy will further strengthen

the fundamentals of Malaysian economy and contribute to its continued high

growth with price stability.

This study enlists data envelopment analysis (DBA) to measure technical

efficiency, technical change and factor productivity. A technical efficiency

index measures the efficiency with which inputs are utilized in the

productivity of outputs. DEA has been widely used to calculate and compare

technical efficiency across individual firms. Among others are Arnade

(1994), Fare et al (1992), Fare and Grosskoft (1994), Carifell-Tatje and

Lovell (1995), Piasse, Thirtle and Van Zyl (1996), Chavas and Cox, Chaves,

Alibe, Prices and Weimen-John (1996) and Cox (1994), and others. This

study applies DEA to chemical and related product manufacturing industry

data to compare the technical efficiency and productivity of each

manufacturing sectors from 1983 to 1993.

CHEMICAL AND RELATED PRODUCT MANUFACTURING

The industrialization strategies of the Sixth Malaysian Plan incorporated the

principal recommendations of the Industrial Master Plan (IMP) which

emphasized export-led growth through industrial diversification, provision

of a liberal investment climate and the promotion of intra-industry linkages.

The government will provide a conducive environment to further foster the

development of the manufacturing sector as the leading sector of growth in

the economy. During the period, the sector achieved high rates of growth in

output, surpassing the target set. This was largely attributed to strong domestic

and sustained external demand for the country's manufactured products.

With the expansion of the sector, there was a corresponding increase in its

contribution to Gross Domestic Product (GDP), employment and export

earnings.

To sustain this high growth, policies and strategies have been formulated in

the Seventh Malaysian Plan to accelerate the diversification of industries and

develop a more resilient industrial base towards the achievement of Vision

65


2020. In meeting the challenges arising from increased globalization and

continued tightness in the labour market, priority will continue to be

accorded to improving the competitiveness of industries through increases in

productivity, research and development as well as the provision of adequate

supporting infrastructure. A more concerted and coordinated approach will

also be undertaken to broaden and strengthen the manufacturing base

through the development of capital and intermediate goods industries.

Strategies and programmes to further expand and upgrade small-and

medium-scale industries (SMIs) will also be actively pursued, in order that

they be more effective supporting industries to the larger establishments.

The manufacturing sector led in contributing to the buoyant growth of the

economy with expansion of output in most industries, brought about by the

strong demand in both the domestic and export markets. Private investment

increased substantially to support the expansion of the sector, reflecting the

private sector's confidence in the economy.

Rapid industrial development has increased the demand for new and

advanced materials made from petrochemical products. These advanced

materials will be the new frontiers of industrial development and efforts will

be geared towards producing such materials and keeping the petrochemical

industry abreast with the dynamics and needs of new markets. In view of the

policy to promote the utilization of the country's gas resources as feedstock

material, the petrochemical industry is in a position to better contribute to the

growth of capital- and technology-intensive as well as higher value added

products, especially in the plastics and fertilizer industries. This will ensure

the greater utilization of natural gas-based raw materials such as ethylene,

propylene and ammonia. In addition, following the expansion of the

domestic crude oil refining capacity, the country has another important

source of feedstock for a wider range of petrochemical products, such as

aromatics which is an essential element for the manufacture of downstream

products such as fibres, films, bottles and kitchenwares. This will provide

new opportunities for local private sector participation in both the primary

and downstream petrochemical industry.

The development strategies to spur the growth of the petrochemical industry

include expanding the local and regional markets through better market

information as well as encouraging manufacturers to produce niche products

at competitive prices and with a high standard of product quality. There is

also a need to develop the base for local raw materials to achieve a higher

level of production geared towards import substitution and help reduce the

66


country's dependence on chemical imports. As the technologies to produce

advanced materials are still in the domain of developed countries, it is

important for the petrochemical industry to form strategic alliances with

MNCs in order to acquire these technologies effectively.

THE MEASUREMENT OF PRODUCTIVITY CHANGE

Since Solow's (1956) paper on U.S. aggragate growth, productivity

measurement has an important role in applied economics. Theorists have

improved their understanding of the relationship between productivity and

other economic variables while applied economists have improved their

understanding of the components of productvity growth. This improved

understanding has coincided with data processing capabilities. Therefore,

numerous methodologies for measuring productivity have developed over

the last three decades. The three currently accepted indexes of productivity

change are the Tornqvist index (Toraqvist, 1936), the Fisher Ideal index

(Fisher, 1922), which is the geometric mean of the Laspeyeres and Paasche

indexes and the Malmquist index (Malmquist, 1953).

The popularity of the Tornqvist and Fisher Ideal indexes result from two

desirable features they share (Gritell-Tatje & Lovell, 1995). First, both can

be calculated directly from price and quantity data, and it is not necessary to

recover the structure of the underlying best practice production frontier and

how it shifts over time whether by using econometrics techniques to estimate

the parameters of functions characterizing the frontier or by using

mathematical programming techniques to construct the frontier. Second,

both are consistent with flexible representations of the frontier, i.e, both are

superlative indexes (Caves, et. al., 1982; Diewert, 1992).

The popularity of the Malmquist index stems from three quite different

sources. First, it is calculated from quantity data only, a distinct advantage if

price information is unavailable or if prices are distorted. Second, it rests on

much weaker behavioral assumptions than the other two indexes, since it

does not assume cost minimizing or revenue maximizing behaviour. Third,

provided panel data are available, it provides a decomposition of productivity

change into two components. One is labelled technical change, and it reflects

improvement or deterioration in the performance of best practice

manufacturing industries. The other is labelled technical efficiency change,

and it reflects the convergence toward or the divergence from best practice

on the part of the remaining manufacturing industries. The value of the

decomposition is that it provides information on the source of overall

67


productivity change in the chemical and related products manufacturing

industries. We implement the Malmquist index by solving a series of linear

programming problems to construct the distance function that make up the

Malmquist index. These distance function characterize the best practice

production frontier at any point in time, and they also charaterize shifts in

the frontier over time as well as movements of the producers towards or away

from the frontier.

The non-parametric approach, introduced by Farrell (1957) is used here

largely because it does not require prices and leads directly to simple

efficiency comparisons and the Malmquist index. The Farrell technical

efficiency measures is defined so that the isoquant, which is the locus of the

efficient points that form the boundry of input requirements set, designated

the minimal set of inputs, Xt, resulting in the unit level of output of yt. The

efficiency of the other firms is measured radially relative to this isoquant.

To set the scene for our productivity measurement we adopt the framework

set out in the papers by Fare et al. (1990) and Hjalmarsson and Veiderpass

(1992). Figure 1 show two observations on the input-output (x and y

respectively) bundles used by a firm in an industry at time and time t + 1.

The objective is to measure the productivity growth between the two time

periods in terms of the change from input-output bundle Zi to input-output

bundle z.+i. To do this we have to impose some prior structure on the

underlying production possibility sets and this is done in Figure 2.

In Figure 2, two forms of structure have been imposed on the production

bundle observations from Figure 1. Firstly, we have assumed that there is in

each period a production frontier representing the efficient levels of output

(y) that can be produced from a given level of input, and we assume that this

frontier can shift over time. Secondly, we assume that a given observation

need not correspond to a point on the frontier so that firms can at any time be

technically inefficient in the sense of using more than the minimal amount of

input to make a given level of output. The relative movement of a production

observation over time therefore depends on both its position relative to the

corresponding frontier and the position of the frontier itself. If an industry

shows productivity growth over time it may be because firms are catching up

with their own frontier or because the frontier is shifting up over time, or

both.

In terms of Figure 2, we begin by establishing the benchmark frontier as that

operating frontier (t). Measured relative to this frontier, the use of input x to

make output y at time t, i.e. the bundle & can be reduced by the horizontal

68


distance ratio: OB/OF in order to make production technically efficient. By

comparison the use of input x to make output y at time t + 1, i.e. Z ttl should

be multiplied by horizontal distance ratio: OE/OD in order to achieve

comparable technical efficiency. Since the frontier had shifted in the

meantime OE/OD unity although z ltl is technically inefficient relative to its

own frontier (t + 1). The ratio of these two distance corrections, (expressed

as technical efficiency ratios), is the Malmquist index of productivity growth

between t and t + 1.

A useful feature of the total Malmquist productivity index, first noted by Fare

et al. (1995), is that it decomposes into the product of an index of technical

efficiency change and an index of technical change, as follows;

(1) Mi(y , y , x , x ) = [E,(y , y , x , x )] [Ti(y , y , x , x )]

where Mi (y , y , x , x ) = Malmquist productivity index

E(y,y,x,x) = an index of relative technical efficiency

change

T (y , y , x , x ) = Technical change of component of

productivity.

y = output at time period 0

y = output at time period 1

x = input at time period 0

x = input at time period 1

Productivity changes arising from changes in technical efficiency can be

measured as the ratio of two distance functions at different points in time, or

as:

(2) E(y , y , x , x ) = 0

D (y , x )

An index of relative technical efficency index measures the ratio of technical

efficency at time period 0 and time period 1. This is a measure of a firm i

catching up to a frontier representing best-practice technology. This index is

greater than, equal, or less than unity according as the relative performance

of producer i is improving, unchanging or declining.

69


The second component of total Malmquist productivity index is an index of

technical change. Fare et. al (1995) calculated the technical change

component of productivity as the geometric means of two ratios of output

distance function as.

m (3)

0 1 0 1 ,

T(y TV , y • , x • , x "> ) =

L D'(y', x') D'Cy , x )

The four distance functions defined the shift of the technical progress

frontier. The ratios are compare year t observations with the t + 1 reference

technology, or vice versa. For example, the first ratio, the numerator

measures the technical efficiency in time period 1 relative to technology in

time period 0. This is the mixed distance function. The denometors measures

technical efficiency in time period 1 relative to the technology in period 1 .

The technology index measures the shift in the frontier. This index shows

whether the best practice relative to which firm is compared is improving,

stagnant or deteriorating. This component greater than, equal to, or less

than unity according as technical change is positive, zero or negative, on

average, at the two observations (y ,x ) and (y ,x ).

The Malmquist productivity index and its two components are local indexes,

in the sense that their values can vary across firms and between different time

periods. Those same firms may exhibit an increase in technical efficiency,

and others may exhibit a decrease, and either can change over time.

Similarly, some firms may exhibit technical progress, and others may exhibit

technical regress, and either can change over time.

ESTIMATION OF MALMQUIST PRODUCTIVITY INDEXES

We develop the Malmquist productivity estimates from mathematical

programming models of the frontier production function. For a recent survey

of this approach see Fare, Grosskoft and Lovell (1994) and Seiford and

Thvell (1990).

Calculation and decompositions of the Malmquist productivity index

requires the calculation of four output distance functions, for each firm in

each pair of time period. We concentrated our attention on Malmquist based

70


productivity growth in the context of year by year improvements. The

Malmquist index are computed for each firm in each year of the data using

1993 as the base year for comparison. We follow Arnade (1994) by using

linear programming techniques to calculate these ouput distance functions

observations, the reference technology must be defined and the distance of

the K observation from the reference technology must be measured. The

programming problem used to calculate the Farrell measure of technical

efficiency for a specific observation; K', in time period 0 is set up as:

0 , 0 0,

(4) F (yk, ,x , ) = [D (y k, ,x k, ) ] = min y

subject to

ZkYJ (m= 1,.....

< y Xk,n° (n= 1,......

z*>0 (k- 1.......K)

*=/

Zk= 1

Superscripts on the data represent the time period 0. Supercripts on functions

represent the technology defined by the data. Subscript K 1 refers to a specific

cross-sectional observation. Subscripts m and n refers to output and inputs.

Mixed-distance functions are estimated by comparing observations in one

time period with the best-practice frontier of another time period. For

example, set up a programming problem that calculates the shrinkage

required of inputs of observation K 1 in time period 1 relative to the

technology of time period 0. The result is an estimate of the inverse of the

mixed-distance function for observation K 1 that can be defined as:

71


(5) [ry^^) ] = min y

subject to

*•

Yk.m° < I ZkYkm° (m= 1,.....M)

k=l

K

X ZkXb," < y XM° (n=l,......N)

K

£ Zk= 1

The technology is defined from data in time period 0, where the efficiency

of the specific observation k 1 is defined using data from time period 1.

In this study, we evaluate the Malmquist Index of 11 Malaysian chemical and

chemical related products manufacturing industries according to 5-digit level

of Malaysian Industries Code (MIC) over the 1983 to 1993 period. We adopt

the Malmquist Index measures using a value of production as an output and

three inputs, namely cost of material, number of labour and value of capital.

The data are obtained from Industrial Survey, Department of Statistics.

RESULT AND DISCUSSION

Current Status and Trends

Production Trend

Gross output of the chemical and chemical products industry in current prices

grew from RM 7,006 million in 1983 to RM 18,279 million in 1993, giving

an average annual growth rate of 9.98 percent. The growth in actual chemical

output exceeds the projected IMP target by 2 percent. Table 1 shows the total

output in current prices of the whole industry from 1983-1993. The table also

includes the value added of output, employment, value added per employee

and the wage rates received during the time period.

Looking at all the chemical subsectors as a whole, the gross value of output

has increased significantly over the 1983-1993 period. Industrial chemical

72


egistered the largest increase in monetary terms from RM 1,876 million in

1983 to RM 7,758 million in 1993, giving a 12.24 percent average annual

growth rate. Plastic products on the other hand, registered the largest increase

in percent average annual growth rate of 21.03 percent. Other chemical

products also showed a large increase in output increasing from RM 881

million to RM 2,601 giving an average growth rate of 12.52 percent. Crude

oil refineries had the lowest increase growth rate of 3.16 percent during the

study period. In terms of the industry's contribution to manufacturing

sector's output, it increased from 4.80 percent in 1981 to 4.93 percent in 1988

(Table 2).

From 1983 to 1993, the industry's output has shown a steady increase. A

breakdown of the industry's output in 1993 by subsectors according to the

MIC classification is given in Table 7, from the total RM 18,279 million of

output, crude oil refmeries(35300), plastics products(35600) and industrial

gases (35111) accounted for about 63 % of output. In other words, these

subsectors are very important contributors to the the total output of the

chemical industry. The other sub-sectors which include other chemical

products, fertilizer and pesticides, synthetic products, paints, drugs and

medicines, soaps, perfumes and chemical products are only minor

contributors to the whole industry.

Value Added Trend

Table 2 shows that the industry's value added trend has been increasing

steadily since 1983 except for a drop in 1986. Over the period 1983-1993 the

average annual growth rate was 12.80 percent in current prices. The

industry's value added contribution to GDP dropped slightly from 1981 to

1983, from 1.06 percent to 0.77 percent. From 1983 to 1988, it rose steadily

to 1.17 percent in 1988.

Taking the chemical industry as a whole, the value added has increased

significantly over the 1983-1993 period; from RM 1,625 million in 1983 to

RM 6,239 million in 1993, accounting for a 12.8 percent annual growth rate

(See Table 1). Looking at the subsectors, the industrial subsector had the

largest monetary increase in value added increasing from RM 811 million in

1983 to RM 3,372 million in 1993. Plastics products is next highest followed

by other chemicals and then the crude oil refineries. Comparing the

subsectors as a whole, plastics products showed the largest percentage

increase in value added of 22.04 percent, followed by industrial chemicals

(11.94 percent), other chemical products (11 percent) and crude oil refineries

(8.46 percent).

73


As seen in Table 3, in 1993, industrial gases contributed the most to total

value added within the industry (35.52 percent) followed by plastics products

(23.15 percent), other basic industrial chemicals (9.14 percent) and crude oil

refineries (7.73 percent).

Employment Trend

The chemical industry is one of the largest employers in the manufacturing

sector. In 1983 the total number of persons engaged in the industry was

31,294, and this increased to 82,897 in 1993 giving an average growth rate

of 11.14 percent. About 66 percent of the workforce is employed in the

plastic factories (Tables 4). Employment in the industrial chemical and other

chemical products subsectors in 1993 was 13,316 and 13,526 persons

respectively, contributing to about 16 percent each of total manufacturing

employment. Crude oil refineries only accounts for about 1,296 persons or

1.56 percent employment sources for the industry.

Looking at the subsectors according to their MIC classification, plastics

products accounted for the biggest share or 66 percent of the employment

sources.The salaries and wages paid in this subsector accounted for 44.46

percent of the total wage bill. The next several largest employment was

generated by companies associated with chemical products, other basic

industrial chemical, synthetic resins and industrial gases which contributed

on average of 4 percent each and this sub-sector accounted for a total of

about 30 percent of the industry's wage bills. Crude oil refineries and

perfumery plants are the lowest in terms of employment generation and also

in its share of salaries and wages contribution to the industry as a whole.

Factor Productivity Trend

Table 5 shows the four measures of factor productivity for the chemical

industry. Labour productivity (VA/L) has been increasing steadily through

1983 - 1993. The average growth rate was 1.66 percent. This trend is also

similar for the wage labour ratio as measured by the W/L. It increased on

average of 2.43 percent anually. The capital intensity indicator on the other

hand registered a negative rate of 1.43 percent. This means that capital

investment per labour had on average experienced negative growth. Finally,

the value added per capital registered the highest growth rate over the years

studied. Its rate of 3.09 percent is the highest if compared among the factor

productivity indices.This shows the value added process through capital

investment which are on an increasing trend. It is interesting to note that the

largest growth is registered by the VA/K but the largest monetary amount is

recorded by VA/L.

74


Productivity Growth Measurement

Two primary issues are addressed in our computation of the Malmquist

indices of productivity growth in the Malaysian chemical and related product

manufacturing industries. The first is how to measure productivity and

technical efficiency over a time period. The second is how such productivity

change if it exists, can be decomposed into a catching up effect and frontier

shift effect.

We begin by looking at the whole production possibility set consisting of

observed inputs and related outputs produced in the manufacturing industries

over the period of 1983 to 1993. In Table 6, the constructed frontier is shown

by the average Farrell efficiency index for each industry. The production

possibility set consists of 121 observations in total but only 42.14 percent of

these comprise the frontier. The average technical efficiency for Malaysian

chemical and related product manufacturing industries for the period of this

study is quite high, that is 90.76 percent. Only 45.50 percent of the industries

have a technical efficiency less than average. Industries which experiences

high levels of technical efficiency include Industrial gases (35111), Paints,

varnishes and lacquers (35210), Drugs and medicines (35220), Soap and

cleaning preparations (35231), Perfumes, cosmetics and other toilet

preparations (35239) and Crude oil refineries (35300).

Industries on the production frontier can be labelled as "best practice" and

demonstrate optimum efficiency in resource utilization. An index measure of

1.0 indicates that an industry lies on the best-practice frontier while an index

measure of less than 1.0 indicates inefficient resource utilization compared to

those on the best-practice frontier. An inefficiency index substracted from

one represents the largest proportional amount of input that can be reduced

without reducing output (Chavas and Aliber, 1993).

Annual technical efficiency results are summarized in Table 7. It shows that

chemical and related products manufacturing industry provides on average

about 85.93 to 95.35 percent of the output by the best-practice industry over

the period 1983 to 1993. The slight increase in this range over time could be

due to a gradual narrowing of the gap between the normal practice and best

practice industries.

Table 8 shows the average estimate of Malmquist index, technical efficiency

index and technical change index of chemical and related product

manufacturing industry. Indices representing productivity growth due to

technical change are calculated by estimating technical efficiency in one time

75


period against the best-practice technology of another period. This study's

estimates represent the inverse of the technology index defined by Equation

(3), so a number greater than 1.0 represents an improvement in productivity

due to technical change (Arnade, 1994). Index numbers are defined so that

the 1983 observation equals 1.0. A Malmquist productivity index are

calculated from a combination of technical efficiency change indices and

technical change indices. The estimated indices represent the inverse of

Malmquist index described in Equation (1), so production improvements are

greater than 1.0.

The Malmquist index indicates a 2.83 percent annual productivity growth

rate. This suggests that in 1993, chemical and related product manufacturing

industries produce about 28.9 percent as much output per unit of resource

consumed as they were produced 11 years earlier. The decomposition of

Malmquist index helps to guide the measured productivity increase. The

results indicate that during the overall period under investigation, an

improvement in productivity efficiency occured. Over the period the

technical change increased productivity by 2.80 percent per annum.

However, there appears to be no trend in the rate of technical efficiency

change. Figure 3 plots the weighted mean Malmquist index over the period

and further disaggregate into output weighted technical efficiency change

and technical change indices. It is immediately apparent that virtually all of

the observed productivity growth is associated with the technical change

effect as the industry moves out to a new frontier. From the illustrative trend

in Figure 3 it appears that the trend rate of productivity growth accelerated

significantly after 1988, that is after recession time.

Table 9 shows the productivity and its component indices for the chemical

subsectors according to their MIC codes. The annual average productivity as

measured by the Malmquist index for all subsectors in the chemical

industries recorded an improvement in productivity. This increase of 1.13 per

cent showed that production processes in the chemical industry had increased

by 113 per cent if compared to the base year. Looking at the individual subsectors,

it can be seen that drugs and medicines (35220) showed the highest

productivity by registering an index of 1.39. Next is the plastics products

(35600) with 1.25, chemical products (35290) with 1.21 and crude oil

(35300) with an index of 1.14. All the other sub-sectors were on average

productive at an index of 1.0 with the exception of industrial gases which

registered 0.88. Thus, industrial gases declined in productivity by as much as

20 per cent if compared to the base year.

76


CONCLUSION

Chemical related industry has recorded high value added and export growth

rates during 1990-95. In fact, it is among the highest in the country. As

production and export increase, the demand for petrochemical products will

also increase, and this will ensure greater use of domestic resources. There

are basically two major issues in production : productivity and efficiency. In

this paper we tackled both issues by estimating the Malmquist Index and

Parrel Efficiency Index. We used input-output data from the Department of

Statistics over 1983-93 period.

We can say that chemical related industry is technically efficient with an

average efficiency of almost 91 percent. This is realistic in high growth

industry and it suggests substantial scope for development with available

technology. The industry as a whole is also experiencing increased

productivity through the years with average productivity growth of 2.8

percent. All of the observed productivity growth is associated with the

frontier shift and almost none of the productivity growth appears to be

attributable to catching up effect. High technical efficiency and productivity

growth were the likely explanation for the strong industry growth over the

1990 - 95 period.

The results also implied several policy recommendations. Large scale

production in petrochemical industry should be encouraged to take

advantage of the economies of scale which is closely associated to this kind

of industry. This will lead to greater efficiency in chemical industry, and

consequently forcing production points closer to the frontier. Economies of

scale in petrochemical industry coupled with latest technology acquisition

will further develop downstream activities in chemical related industry.

Increase production could also lead to economies of scope and increasing the

market share of the industry. Although presently, the industry is capable of

capturing the world market, aggressive marketing is still needed to ensure

the country's competitiveness in chemical related industry does not

deteriorate.

77


BIBLIOGRAPHY

Afrait, S. (1972) "Efficiency Estimation of Production Functions." Int. Econ.

Rev.. 13:568-98.

Aigner, D. J., and S. F. Chu. (1968) "On Estimating the Industry Production

Function." Amer. Econ. Rev.. 58:826-39.

Aigner, D. J., C. A. K. Lovell, and P. J. Schmidt. (1977) "Formulation and

Estimation of Stochastic Production Function Models." J. Econometrics.

6:21-37.

Arnade, C. (1992) "Productivity and Technical Change in Brazilian

Agriculture." Technical Bulletin No. 1811. U.S. Dept. Agr., Econ. Res. Serv.,

Nov.

Arnade, C.A. (1994) "Using Data Envelopment Analysis to Measure

International Agricultural Efficiency and Productivity." Technical Bulletin

No.1831. U.S. Dept. Agr., Econ. Res. Serv., Feb.

Ball, V.E. (1985) "Measuring Agricultural Productivity." Staff Report No.

AGES 840330. U.S. Dept. Agr., Econ. Res. Serv., May.

Berg, S. A., F. R. Forsund, and E. S. Jansen. (1992) "Malmquist Indices of

Productivity Growth During the Deregulation of Norwegian Banking, 1980-

1989." The Scandinavian Journal of Economics. Vol. 94, S211-S228.

Berg, S. A., F. R. Forsund, L. Hjalmarsson, and M. Suominen. (1993)

"Banking Efficiency in the Nordic Countries." Journal of Banking and

Finance. Vol. 17 (2,3), 371-388, Apr.

Bjurek, H., and L. Hjalmarsson. (1995) "Productivity in Multiple Output

Service: A Quadratic Frontier Function and Malmquist Index Approach."

Journal of Public Economics. Vol. 56(3), 447-460, Aug.

Capalbo, S. (1988) "Measuring the Components of Aggregate Productivity

Growth." Western Journal of Agricultural Economics. Vol. 13.

Caves, D., L. Christensen, and E. Diewert. (1982) "The Economic Theory of

Index Numbers and the Measurement of Input, Output, and Productivity."

Econometrica. Vol. 50.

78


Chambers, R. (1988) Applied Production Analysis. New York: Cambridge

Univ. Press.

Chambers, R., R. Fare, and S. Grosskopf. (1991) "Quantity Indexes and

Productivity Indexes: A Synthesis." Working Paper.

Charnes, A., W. Copper, and E. Rhodes. (1978) "Measuring the Efficiency of

Decision Making Units." European Journal of Operational Research. Vol. 2,

429-44.

Chavas, J.P., and M. Aliber. (1993) "An Analysis of Economic Efficiency in

Agriculture: A Nonparametric Approach." Journal of Agricultural and

Resource Economics. Vol. 18.

Chavas, J., and T. L. Cox. (1990) "A Non-Parametric Analysis of

Productivity: The Case of U. S." The American Economic Review. Vol.

80(3), 450-464, Jun.

Deaton, A. (1979) "The Distance Function and Consumer Behavior with

Applications to Index Numbers and Optimal Taxation." Review of Economic

Studies. Vol. 46.

Debreu, G. (1951) "The Coefficient of Resource Utilization." Econometrica.

Vol.19.

Denny, M., M. Fuss, and L. Wavermann. (1981) "The Measurement and

Interpretation of Total Productivity in Regulated Industries with Application

to Canadian Telecommunications," Productivity Measurement in Regulated

Industries. Cowing and Stevenson (Eds.). New York: Academic Press, 1981.

Fare, R., S. Grosskopf, B. Lindgren, and P. Roos. (1992) "Productivity

Changes in Swedish Pharmacies, 1980-1989: A Nonparametric Malmquist

Approach." Journal of Productivity Analysis. Vol. 3.

Fare, R., S. Grosskopf, and C. A. K. Lovell. (1985) Measurement of

Efficiency of Production. Boston Kluwer Nijhoff.

Fare, R., S. Grosskopf, S. Yaisawarng, S. K. Li, and Z. Wang. (1990)

"Productivity Growth in Illinois Electric Utilities." Resources and Energy

Economics. Vol. 12(4), 383-398, Dec.

79


Fare, R., S. Grosskopf, and W. Lee. (1995) "Productivity in Taiwanese

Manufacturing Industries." Applied Economics. Vol. 27(3), 259-265, Mar.

Farrell, M. (1957) "The Measurement of Productive Efficiency." Journal of

the Royal Statistical Society. Series A, General 120, Part 3.

Forsund, F. R.. and L. Hjalmarsson. (1979) "Frontier Production Function

and Technical Progress: A Study of General Milk Processing and Swedish

Dairy Plants." Econometrica. 47: 893-900.

Forsund F. R.. and E. S. Jansen. (!977) "On Estimating Average and Best

Practice Homothetic Production Functions via Cost Functions." Int. Econ.

Rev. 18:463-76.

Fukuyama, H. (1995) "Measuring Efficiency and Productivity Growth in

Japanese Banking: A Nonparametric Approach." Applied Financial

Economics. Vol. 5(2), 95-107, Apr.

Greene, W. H. (1980) "On Estimation of a Flexible Frontier Production

Model." J. Econometrics. 13: 10115.

Huang, C. J. (1984) "Estimation of Stochastic Frontier Production Function

and Technical Inefficiency via the EM Algorithm." Southern Econ. J..

50:847-56.

Johnes, G. (1995) "Scale and Technical Efficiency in the Production of

Economic Research." Applied Economics Letters. 2:7-11.

Jorgenson, D., F. Gollop, and B. Fraumeni. (1987) Productivity and U.S.

Economic Growth. Cambridge, MA: Harvard Univ. Press.

Kerstens, K. (1996) "Technical Efficiency Measurement and Explanation of

French Urban Transit Companies." Forth coming, Transportation Research

(A).

Malaysia. (1996) Rancangan Malaysia Ketujuh. Percetakan Negara

Malaysia.

Malmquist, S. (1953) "Index Numbers and Indifference Surfaces." Tradajos

de Estadistica. Vol. 4.

80


Maisom, A. (1995) "Total Factor Productivity in the Electrical and

Electronics Industry." Third Malaysian Econometric Conference. MIER.

Holiday Inn Kuala Lumpur, June 14-15.

Mao, W., and W. W. Koo. (1996) "Productivity Growth, Technology

Progress, and Efficiency Change in Chinese Agricultural Production from

1984 to 1993." Agricultural Economics Report No. 362.

Meeusen, W., and J. Van den Broeck. (1977) "Efficiency Estimation from

Cobb-Douglas Production Functions with Composed Error." Int. Econ. Rev..

18 : 847-56.

Ministry of International Trade and Industry, Malaysia. (1996) Second

Industrial Master Plan 1996-2005. Percetakan Zainon Kassim (M) Sdn Bhd.

National Productivity Corporation (1997). Malaysia Productivity Report.

1996. P. J. Malaysia.

Nolan, J. F. (1996) "Determinants of Productive Efficiency in Urban

Transit." Logistics and Transportation Review. Vol. 32(3), Sept.

Pardey, P. G., J. C. Barbaran, and D. Klans. (1994) "A New Look at State-

Level Productivity Growth in U. S. Agriculture." Evaluating Agricultural

Research and Productivity in an Era of Resource Scarcity, ed. W. Burt

Sundquist, Staff Report P94-2. U. S. Dept. Agr. and Applied Econ.,

University of Minnesota.

Pastor, J. M., F. Perez, and J. Quesada. (1997) "Efficiency Analysis in

Banking Firms: An International Comparison." European Journal of

Operational Research. Vol. 98(2), 395-407, Apr. 16.

Piesse, J., C. Thirtle, and J. Van Zyl. (11996) "Effects of the 1992 Drought

on Productivity in the South African Homelands: An Application of the

Malmquist Index." Journal of Agricultural Economics. Vol. 47(2),, 247-254.

Price, C. W., and T. Weyman-Jones. (1996) "Malmquist Indices of

Productivity Change in the UK Gas Industry before and after Privatization."

Applied Economics. 28 : 29-39.

Richmond, J. (1974) "Estimating the Efficiency of Production." Int. Econ.

15:515-21.

81


Schmidt, P., and C. A. K. Lovell. (1980) "Estimating Stochastic Production

and Cost Frontier When Technical and Allocative Inefficiency are

Correlated." J. Econometrics. 13.

Seiford, L., and R. Thrall. (1990) "Recent Developments in DBA, The

Mathematical Approach to Frontier Analysis." Journal of Econometrics. Vol.

46.

Shoemaker, R. (1988) "The Relative Demand for Inputs: A Decomposition

of U.S. Agricultural Production." Applied Economics. Vol. 20.

Solow, R. (1956) "A Contribution to the Theory of Economic Growth."

Quarterly Journal of Econometrics. Vol. 70.

Trueblood, M. (1991) Agricultural Production Functions Estimated from

Aggregat Intercountry Observations A Selected Survey. Staff Report No.

AGES 9132. U.S. Dept. Agr., Econ. Res. Sen, June.

Viton, P. A. (1995) "Changes in Multi-Mode Bus Transit Efficiency, 1988-

1992." Working Paper. Ohio State University Department of City and

Regional Planning.

Yaisawarng, S., and K.J. Douglass. (1994) "The Effects of Sulfur Dioxide

Controls on Productivity Change in the U.S. Electric Power Industry." The

Review of Economics and Statistics. Vol. 76(3), 447-460, Aug.

82


TABLE 1

TYend in Production, Employment, Value Added and Wage Rate

of Chemical and Chemical Product Manufacturing Industries,

1983 -1993

Year

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Growth (%)

Output

1 KM mil)

7006.09

8151.11

9046.77

7196.96

8006.68

9040.50

10991.31

13363.49

16071.35

16855.04

18279.06

9.98

Value added

(KM mil)

1625.54

2206.89

2474.54

2362.15

2492.31

2922.41

3553.49

3893.98

5321.22

5566.46

6239.65

12.80

Source: Industrial Survey

Department of Statistics. Various issues

83

Employment

31294

31997

32208

33863

35620

39384

48030

60004

71720

77472

82897

11.14

Value added

per employee

(RM)

51944.11

68971.78

76830.01

69755.93

69969.40

74202.98

73984.78

64895.37

74194.34

71851.30

75269.95

1.66

Wage rate

8237.91

9512.58

10298.06

10645.19

10526.61

10469.33

10065.15

10068.23

10596.57

10957.22

12724.59

2.43


Year

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Growth (%)

TABLE 2

Output and Value Added of Industrial Chemical, Other Chemical Products,

Crude Oil Refineries and Plastic Products Sub-sectors, 1983-1993.

Industrial Chemical

Output

(RMmll)

1,876.95

3,006.23

3,435.05

3,006.50

3,441.71

4,066.68

4,431.23

4,859.12

6,364.45

6,865.41

7,758.70

12.24

VA

(RMmil)

811.12

1,440.37

1,528.75

1,300.06

1,537.72

1,840.05

1,879.88

2,022.38

2,982.76

2,985.31

3,372.81

11.94

Source: Industrial Survey

Department of Statistics. Various issues

Other Chemical Products

Output

(RM mil)

881.49

839.64

935.28

1,006.95

1,043.71

1,285.46

1,540.59

1,794.68

2,182.95

2,443.47

2,601.72

12.52

VA

(RMmil)

370.09

347.60

378.88

396.73

416.93

469.05

569.17

627.10

823.64

917.62

940.06

11.00

Crude Oil Refineries

Output

(RMmil)

3,666.18

3,724.33

4,053.33

2,504.67

2,698.37

2,558.18

3,491.11

4,671.57

4,785.27

4,475.72

4,250.45

3.16

VA

(RM mil)

581.48

232.55

338.52

420.44

260.50

273.23

614.58

538.33

582.94

493.44

482.54

8.46

Output

(RMmil)

Plastic Products

581.48

580.91

623.12

678.83

822.89

1,130.18

1,528.39

2,038.11

2,738.68

3,070.44

3,668.19

21.03

VA

(RMmil)

195.72

186.37

228.39

244.92

277.16

340.07

489.89

706.17

931.88

1,170.09

1,444.24

22.04


MIC

Code

35111

35119

35120

35130

35210

35220

35231

35239

35290

35300

35600

Industry Description

Industrial gases

TABLE 3

Output, Value Added, Employment and Value of Capital by Sub-sector, 1993

Other basic industrial chemical, except fertilizer

Fertilizer and pesticides

Synthetic resins, plastic and materials and manmade

fibres - except glass

Paints, varnishes and lacquers

Drugs and medicines

Soap and cleaning preparations

Perfumes, cosmatics and other toilet

preparations

Chemical products, n.e.c.

Crude oil refineries

Plastics products, n.e.c.

Total

Source: Annual Statistics of Manufacturing Industries, Part A: 1993

Output

(RM'OOO)

3,633,242

1,703,440

1,029,670

1,392,351

630,937

312,169

754,146

149,497

754,970

4,250,454

3,668,185

18,279,061

%

Share

19.88

9.32

5.63

7.62

3.45

1.71

4.13

0.82

4.13

23.25

20.07

100.00

Value

Added

(RMOOO)

2,216,245

570,167

257,890

328,503

213,299

139,151

246,284

71,155

270,173

482,543

1,444,243

6,239,653

%

Share

35.52

9.14

4.13

5.26

3.42

2.23

3.95

1.14

4.33

7.73

23.15

100.00

No. of

Employment

3,473

3,919

2,215

3,709

2,352

3,296

3,090

835

3,953

1,296

54,759

82,897

%

Share

4.19

4.73

2.67

4.47

2.84

3.98

3.73

1.01

4.77

1.56

66.06

100.00

Wage and

Salaries

(RMOOO)

91,855

77,563

58,088

73,697

48,941

39,395

59,898

11,743

71,196

53,528

468,926

1,054,830

%

Share

8.71

7.35

5.51

6.99

4.64

3.73

5.68

1.11

6.75

5.07

44.46

100.00

Capital

(RMOOO)

5,682,776

2,442,898

476,705

1,579,530

167,351

164,937

216,964

27,720

347,230

1,181,447

2,203,613

14,491,17

%

Share

39.22

16.86

3.29

10.90

1.15

1.14

1.50

0.19

2.40

8.15

15.21

100.00


Year

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

TABLE 4

Employment of Manufacture of Industrial Chemical, Other Chemical Products,

Crude Oil Refineries and Plastic Products Sub-sectors, 1983-1993

Industrial Chemical

No. of %

Employment

Source: Industrial Survey

5,423 17.33

5,517 17.24

5,658 17.57

6,558 19.37

7,137 20.04

7,857 19.95

8,655 18.02

9,860 16.43

11,602 16.18

12,439 16.06

13,316 16.06

Other Chemical Products

No. of %

Employment

9,828 31.41

9,501 29.69

9,877 30.67

9,593 28.33

9,220 25.88

10,069 25.57

11,242 23.41

12,397 20.66

13,049 18.19

14,721 19.00

13,526 16.32

Crude Oil Refineries

No. of %

Employment

917 2.93

1,395 4.36

1,402 4.35

1,452 4.29

1,125 3.16

1,133 2.88

1,161 2.42

1,144 1.91

1,223 1.71

1,245 1.61

1,296 1.6

Plastic Products

No. of %

Employment

15,126 48.34

15,584 48.70

15,271 47.41

16,260 48.02

18,138 50.92

20,325 51.61

26,972 56.16

36,603 61.00

45,846 63.92

49,067 63.34

54,759 66.06

Total no.

of

Employment

31,294

31,997

32,208

33,863

35,620

39,384

48,030

60,004

71,720

77,472

82,897


Year

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Growth (%)

TABLE 5

Factor Productivity of Chemical and Other Products

Manufacturing Industries, 1983-1993

—————————

Labor

Productivity

(VA/L)

51,944.11

68,971.78

76,830.01

69,755.93

69,969.40

74,202.98

73,984.78

64,895.37

74,194.34

71,851.30

75,269.95

1.66

Capital

Intensity

(K/L)

142,538.03

139,031.41

184,252.64

175,467.00

162,070.72

134,990.15

122,757.63

110,609.51

123,981.25

132,045.71

174,809.35

Source: Industrial Survey

Department of Statistics. Various issues

-1.43

87

Wage/Labor

Ratio

(W/L)

3,237.91

9,512.58

10,298.06

10,645.19

10,526.61

10,469.33

10,065.15

10,068.23

10,596.57

10,957.22

12,724.59

2.43

Value Added/

Capital

(VA/K)

364.42

496.09

416.98

397.54

431.72

549.69

602.69

586.71

598.43

544.14

430.58

3.09


MIC

Code

35111

35119

35120

35130

35210

35220

35231

3523?

35290

35300

35600

Year

1983

1984

1985

1986

1986

1988

1989

1990

1991

1992

1993

Growth (%)

TABLE 6

Mean Technical Efficiency Index

of Malaysian Chemical and Related Products

Industry Description

Industrial gases

Other basic industrial chemical, except fertilizer

Fertilizer and pesticides

Synthetic resins, plastic and materials and man-made fibresexcept

glass

Paints, varnishes and lacquers

Drugs and medicines

Soap and cleaning preparations

Perfumes, cosmetics and other toilet preparations

Chemical products, n.e.c.

Crude oil refineries

Plastics products, n.e.c.

Total

TABLE 7

Mean Technical Efficiency Index

of Malaysian Chemical and Related Products

Average

0.8930

0.8965

0.8593

0.9179

0.9171

0.9535

0.9057

0.9136

0.8826

0.9449

0.8992

0.27

Maximum

1.0000(4/11)

1.0000(5/11)

1.0000(5/11)

1.0000(5/11)

1.0000(5/11)

1.0000(5/11)

1.0000(4/11)

1.0000(5/11)

1.0000(4/11)

1.0000(6/11)

1.0000(3/11)


Average

0.9818

0.7837

0.8599

0.8481

0.9562

0.9557

0.9938

0.9638

0.8238

0.9817

0.8356

0.9076

Minimum

0.7604

0.7228

0.6431

0.7694

0.7903

0.8429

0.7564

0.7933

0.7324

0.7792

0.7407

"


TABLE 8

Malmquist Index, Technical Efficiency Change Index and Technical

Change Index for Chemical and Related Product Manufacturing

Industries, 1983-1993

Year

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Growth {%)

Technical

Efficiency Change

Index

1.0000

0.9913

0.9569

1.0050

1.0062

1.0190

1.0072

0.9863

0.9801

1.0036

0.9908

0.0342

Technical Change

Index

1.0000

1.0173

1.0234

1.1032

1.0871

1.0450

1.1547

1.2383

1.2927

1.2328

1.3010

2.7971

Malmquist

Index

1.0000

1.0085

0.9793

1.1088

1.0938

1.0648

1.1631

1.2214

1.2670

1.2372

1.2890

2.8313

TABLE 9

Malmquist Index, Technical Efficiency Change Index and Technical

Change Index for Chemical and Related Product Manufacturing

Industries

MIC

Code

35111

35119

35120

35130

35210

35220

35231

35239

35290

35300

35600

Industry Description

Industrial gases

Other basic industrial chemical,

except fertilizer

Fertilizer and pesticides

Synthetic resins, plastic and materials

and man-made fibres - except glass

Paints, varnishes and lacquers

Drugs and medicines

Soap and cleaning preparations

Perfumes, cosmatics and other toilet

preparations

Chemical products, n.e.c.

Crude oil refineries

Plastics products, n.e.c.

Average

89

Technical

Efficiency

Change

Index

1.0000

0.9857

0.9681

0.9122

1.0286

1.0000

1.0000

0.9968

1.0739

1.0000

0.9813

0.9951

Technical

Change

Index

0.8896

1.0702

1.1020

1.1602

1.0212

1.3942

1.0596

1.0843

1.1275

1.1415

1.2865

1.1360

Malmquist

Index

0.8896

1.0503

1.0556

1.0375

1.0501

1.3942

10596

1.0804

1.2124

1.1415

1.2506

1.1303


FIGURE 1

Input-output Observation Over Time

yt+i ., Zt+i

y<

90

Xi+i Xi


FIGURE 2

Malmquist Index and Productivity Change Over Time

yt+]

CD A BC DE

91

Frontire (t=l)

/

Frontier (t)


1.4 -t

0.0

FIGURE 3

Malmquist Index, Technical Efficiency Change Index

and Technical Change Index

Index for Chemical and Related Products

Manufacturing Industries, 1983 -1993

, Technical Efficiency Cbange Indei + Technical Change Index

, Maimquist Index

92

91 92 93


BIODATA OF DR. SHARIFUDDIN ZAINUDDIN

Dr. Sharifuddin Zainuddin obtained his doctoral degree in Public and

International affairs from the University of Pittsburgh. He teaches quality

management and project management courses at the Faculty of Economics

and administration, University of Malaya. His most recent publications

includes, "Malaysian Administrative Traditions" in Jay Shafritz, et. al. (eds.),

Encyclopedia of Public Policy and Management, Colorado, Westview Press,

1997, and, "An Economy Profile on Human Resource Management (HRM)

Policies and Practices in Malaysia", in Global Advantage Through People:

Human Resource Management and Practices in APEC Economies, Asia-

Pasific Economic Cooperation (APECC), 1998.


PUBLIC SECTOR SERVICE QUALITY:

AN EMPIRICAL STUDY IN THE ROAD

TRANSPORT DEPARTMENT OF MALAYSIA

(Dr. Sharifuddin Zainuddin)

The launching of the Excellent Work Culture Movement in 1989 (Hamid,

1994) marked the beginning of the public sector quality movement in

Malaysia. Since then, various programs and activities have been undertaken

to implement the quality work culture. However, despite the numerous claim

of success (Hamid, 1994), a general survey in 1993 by a client organization,

the Malaysian International Chamber of Commerce and Industry, revealed

that services were still unsatisfactory (NST, Nov., 1993). More recently, a

poll conducted among some top company executives by Far Eastern

Economic Review revealed that none of the respondents felt the Malaysian

Civil Service as 'highly efficient'. While 55 percent considered the civil

service 'somewhat efficient,' 25 percent regarded it as 'inefficient' (PEER,

May 30, 1996).

Dissatisfaction with service performance is further indicated by the high

number of complaints that regularly appear in the media or sent to the

relevant agencies, such as the Public Complaint Bureau. This is actually a

manifestation of a deeper problem. Studies show that almost all dissatisfied

customers, for various reasons, are not willing to lodge formal complaint

(Can and Littman, 1993: 33; Horovitz, 1994: 24).

On the other hand, despite the suggestion by both the Total Quality

Management or TQM (e.g., Carr & Littman, 1993) and service management

and marketing literature (Zeithaml, Berry & Parasuraman, 1993), that there

are fundamental differences between goods-producing and service

organizations, quality measurement research and practices has been

dominated by the so-called objective manufacturing-oriented approaches,

employing quality aspects or surrogates such as performance (Garvin, 1988),

efficiency and effectiveness (Juran, 1988; Adam, et al., 1986; Crosby, P.B.,

1984), which rely heavily upon agency records (Hero, 1986). As Milakovich

argues, in "measuring the quality of service... customers' perceptions are

equally important" (1995: 34).

94


However, the extremely few existing empirical research on service quality is

almost exclusively confined to organizations in the United States and some

Scandinavian countries. Horovitz (1994) suggested that various components

of quality do not have the same weight from one culture or country to

another. As an example, "being ten minutes late in France is not as serious as

in Germany" (Horovitz, 1994: 23). Furthermore, public sector is different in

many aspects-legal, political, financial, etc.—compared to the private sector

which has been analyzed, albeit limitedly, in the service quality literature.

In that connection, the population of interest in this study is the Road

Transport Department (RTD) which is a relatively big federal government

agency in Malaysia. This department is responsible for providing services,

among others, in matters pertaining to vehicles and driving licences. The

RTD's Vision is "to ensure complete satisfaction is achieved fully especially

through efficient counter services" (RTD HomePage). In concurrent with

that, "Zero Complaints!" has been adopted as the department's quality

slogan, which was postulated as the target the department is trying to

achieve.

Specifically, this study tries to examine the following questions:

1. How do the RTD customers' expectations of service compare to the

providers' perceptions of customers' expectations in terms of desired and

adequate service levels?

2. How do the RTD customers 1 expectations in terms of adequate and

desired service levels compare to their perceptions of service levels?

LITERATURE REVIEW

While quality can be viewed or defined from various perspective (Juran,

1989; Crosby, 1979; Deming, 1986; Garvin, 1988) and theories (Chase and

Bowen, 1991;Klaus, 1985;Parasuraman,et. al., 1993, 1991), it is quite clear

that both the literature in quality or TQM (Horovitz, 1996; McKinney, 1995;

Milakovich, 1995; Hyde, 1992; Juran, 1988; Deming, 1986; Crosby, P.B.,

1979) and service-oriented quality/marketing (e.g., Parasuraman, et.al.,

1991, 1988; Garvin, 1988; Gronroos, 1988, 1982) suggest, that, quality of

goods or services is ultimately determined by users or customers. In fact, it

has even been suggested that the only criteria that count in evaluating service

quality are defined by customers (Carr and Littman, 1993: 3; Zeithaml, et al.,

1990; Gronroos, 1982).

95


Nevertheless, as far as the development of a relatively universal measures of

service quality, perhaps the most pertinent conceptualization has come from

research in the service marketing field. In particular, studies by Sasser, Olsen,

and Wyckoff (Gronroos, 1987), and, Parasuraman, Zeithaml, and Berry

(1991, 1988, 1985) support the notion that service quality, as perceived by

consumers, stems from a comparison of their expectations of the service they

will receive with their perceptions of the actual performance of firms

providing the service. In this way, the higher perceptions are than

expectations, the higher is the level of perceived quality; the lower

perceptions are than expectations, the lower is the level of perceived service

quality (Parasuraman, et. al., 1988: 12).

Importantly, research by Parasuraman, Zeithaml and Berry (1988, 1985)

have revealed that the criteria used by consumers in assessing service quality

fit five dimensions;

Tangibility: Physical facilities, equipment, and appearance of

personnel.

Reliability: Ability to perform the promised service dependability

and accurately.

Responsiveness: Willingness to help customers and provide prompt

service.

Assurance: Knowledge and courtesy of employees and their ability to

convey trust and confidence.

Empathy: Caring, individualized attention that the firm provides its

customers.

The above dimensions were determined through the authors' design and

implementation of the so-called "SERVQUAL" scale - a concise multiple

item scale with good reliability and validity. This instrument was designed to

be applicable across a broad spectrum of services. It was further refined, and

consequently the reliability and validity were further improved, through a

later reassessment study by the same authors (Parasuraman, et. al., 1991).

96


SERVICE QUALITY MODEL

According to the Perceived Quality Model introduced by Gronroos (1982),

the quality of a service as perceived by the customers is the result of a

comparison between expectations of the customers and his real-life

experiences. If the experiences exceed the expectations, the perceived quality

is positive, and vice versa.

This confirmation/disconfirmation concept has been the foundation for most

of the model building within the service quality field during the 1980s and

1990s - particularly, the well-known Gap Analysis and SERVQUAL models

by Parasuraman, Zeithaml, and Berry (1994, 1993, 1991, 1988, 1985).

Parasuraman, et. al. (1985) identified five (5) "gaps" or discrepancies in their

conceptual model of service quality (see Fig. 1) and they referred to these

gaps simply as Gaps 1 through 5. According to their model, Gap 5 is the

discrepancy between the customer's expectations and perceptions and

reflects the customer's overall service quality assessment. Gap 1 is the

difference between what customers expect and what management perceives

they expect. Gap 2 is the discrepancy between managers' perceptions of

customers' expectations and the actual specifications they establish for

service delivery. Gap 3 is the service-performance gap, that is, the difference

between service specifications and the actual service delivery. Finally, gap 4

is the discrepancy between what an organization promises about a service, as

communicated in their slogans, advertising or public relations, and what it

actually delivers.

Gaps 1 through 4 occur in the process of designing and providing a service,

and contribute to, or cause, Gap 5. Milakovich (1995: 35) suggests that the

magnitude of gap 5 equals to the sum of the first four. The Gap Analysis and

the SERVQUAL Survey have been suggested as the "most useful techniques

to analyze the differences between expectations and perceptions"

(Milakovich 1995:34), and, "for obtaining a wider understanding of quality

in service process" (Edvardsson and Gustavsson 1991: 324).

Central to the perceived-quality approach in the concept of a "Service

Encounter" - "a period of time during which the customer interacts directly

with the service system and its employees" (Chase and Bown, 1991:160)which

is a primary distinction between the production of a good and the

production of a service. Such encounters are the primary source of

information for the customer to use in evaluating service quality.

97


EXTENDED CONCEPTUALIZATION OF EXPECTATION

While the SERVQUAL instrument has been productively used for measuring

service quality in many studies - e.g., public recreation programs (Crompton

and Mackay, 1989), hospitals, health care or medical care settings (Babakus

and Mangold, 1992; Steffen, 1992), US Postal Service (Kilkenny, 1992),

higher education (Boulding, Kalra, Staelin and Zeithaml, 1993; Ford, Josep

and Joseph, 1993), and the Air National Guard (Orwig, 1994)-it has also

raised, questions about the interpretation and operationalization of

expectations (e.g., Teas. 1994, 1993). In response to that, their later work on

the nature of expectation (Parasuraman, et. al., in different order of names,

1994a, 1994b, 1994c, and 1993) resulted in the conceptualization and

operationalization of expectation into two levels:

Desired Service - the service level customers believe organizations can

and should deliver; and,

Adequate Service - the minimum service level customers consider

acceptable.

The comparison of perception to desired service level and adequate service

level generate a "Measure of Service Superiority" (MSS or perceived service

relative to desired service) and a "Measure of Service Adequacy" (MSA or

perceive service relative to adequate service) respectively.

Therefore, for the original gap 5, the comparison between desired service and

perceived service is the perceived service superiority gap; Parasuraman, et.

al. (1994) call this perceived service quality (PSQ) Gap 5A. On the other

hand, the comparison between adequate service and perceived service is the

perceived adequacy gap; they call this PSQ Gap 5B. The higher the perceived

service relative to desired service level, the higher the Perceived Service

Superiority; and accordingly for adequate service level. These two service

quality assessments, therefore, replace the single Gap 5 and 1 in the Gaps

model (Zeithaml, et. al., 1993).

Figure 2 shows gap 5 in its new form. Separating adequate service and

desired service levels is the "zone of tolerance" (ZoT) (Parasuraman et. al.,

1994a, 1994b, 1994c; Zeithalm et. al., 1993). The service performance is

considered satisfactory (tolerated), but not superior, if the perceived service

score lies in between the desired service score and adequate service score.

Stamatis (1996:165) suggested that, in the absence of competition, achieving

98


Word of Mouth

Communications

CONSUMER

MARKETER

Gap 1

Gap 5

Gap 3

Gap 2

Personal Needs Past Experience

Expected Service

Perceived Service

Service Delivery

(Including pre-and

post-contacts

Translation of Perceptions

into Service Quality

Specs.

Management Perceptions

of Consumer Expectations

Gap 4

External

Communications

to Consumers

FIGURE 1

Parasuraman, Zeithaml & Berry's Service Quality

Model Source: Parasuraman et. al. (1990)

99


PSQGAP5B:

Perceived

Service

Adequacy

Customer's Expectation of

Service

Desired Service

Zone of Tolerance

Adequate Service

Perceived

Service

FIGURE 2

(Modified from Zeithaml, et. al., 1993)

100

PSQ GAP 5A:

Perceived

Service

Superiority


any point in the ZoT might be considered satisfactory enough. However, if

there is an open competition which provides alternatives or choices, the ZoT

will decrease, because the customer is able to go beyond mere satisfaction to

extreme satisfaction or delightedness.

As of this writing, however, only one empirical study based on the extended

conceptualization of expectation into desired and adequate levels has been

done. This particular empirical examination by Parasuraman, et. al. (1994b),

using revised and refined SERVQUAL instrument with three-column format

and 9-point scales, exhibits high reliability as well as good predictive,

convergent, and discriminant validity. Furthermore, despite disagreement

over aspects such as the dimensionality of the SERVQUAL instrument across

different settings, "there is general agreement that the 22 items are good

predictors of overall service quality, with R^ values ranging from 0.5 to 0.7"

(Bitner and Hubbert, 1994).

METHODOLOGY

Building on this model of service quality discussed earlier, this study utilizes

the two levels of expectation-desired and adequate service levels. Hence, the

research model for this study is as illustrated in figure 3. There are four

measures:

Gap 1A : The comparison between providers' perception of customers'

desired service level and customers' actual desired service level.

Gap IB : The comparison between providers' perception of customers'

adequate service level and customers' actual adequate service

level.

Gap 5A : The comparison between customers' desired service score and

their perceived service score.

Gap 5B : The comparison between customers' adequate service score and

their perceived service score.

RESEARCH POPULATION AND SAMPLING UNIT

The service provider population for the study consists of all employees that

make up the service-providing divisions or sections of the RTD.

Nevertheless, since the population for the customer consists of all customers

101


PROVIDER

Gap IB

Perceived Customer

Expectations (PE)

FIGURE 3

(Adapted from Parasuraman, et. ah, 1988; Zeithalm, et. al., 1993)

102


who pay a nominal fee and received direct service from RTD, the population

for the provider excludes employees in the enforcement division of the

department.

A cluster sample of 10 RTD offices which closely approximated the

geographic distribution of the RTD's offices and the demographic

characteristics of its employee population was selected. The offices selected

were six state offices - Selangor, Pulau Pinang, Perlis, Terengganu, Pahang,

and Melaka in Melaka - two branch offices in Taiping and Muar, and two

sub-offices in Kuala Kubu Bharu and Tapah.

A systematic selection of 400 respondents out of all employees which

constituted the sampling frame in the selected offices were carried out. The

questionnaires were administered on site in the ten selected offices.

For customer sample, Goodsell's (1980: 123-136) "sidewalk" interview

technique to study official-client relations was employed. With the approval

of the director or head of each office the survey process was administered to

440 clients as they walked out of the office permises. The selection of

respondents was random in the sense that clients were approached in the

order they emerged from the office premise. 1

INSTRUMENTATION

A "Service Quality Questionnaire" which was patterned from the revised

SERVQUAL questionnaire of Parasuraman, et. al. (1994) was used. Unlike

the original SERVQUAL with separate ratings of expectation and perception,

the new instrument format generates separate ratings of desired, adequate

and perceived service. In view of the need to capture two different

expectation levels, the response scale was changed from a 7~point to a 9point

scale to offer respondents a wider range of choices.

Nevertheless, attempts were made to adhere as closely as possible to the textbook definition oi

systematic selection With the information provided by RTD officers, an estimate of the number oJ

customers served in person per day was made tor each office Therefore, if an office served 500

customers per day,


To enhance the applicability of the instrument to the study's purposes,

comments and suggestions were solicited from three senior RTD officers

with regard to the appropriateness of the SERVQUAL dimensionstangibility,

reliability, responsiveness, assurance and empathy-as well as the

items of each dimension. The questionnaire was then pilot-tested with a

selected sample of clients and employees in the Federal Territory of Labuan

RTD Office. Responses and comments resulted in minor modifications

and/or additions in terms of the order or wording of items, instructions, and

to the scale in section II of the questionnaires 2 .

Analysis Methods

The quality scores for a customer would be computed as follows:

Perceived Service Superiority (Measure of Service Superiority)

= Perceived Service Score - Desired Service Score

Perceived Service Adequacy (Measures of Service Adequacy)

= Perceived Service Score - Adequate Service Score

Both the organization's Perceived Service Superiority (Measures of Service

Superiority or MSS) and Perceived Service Adequacy (Measures of Service

Adequacy or MSA) along each of the five dimensions can then be assessed

by averaging their customers' scores on statements making up the dimension.

For example, if X customers responded to the survey, the average quality

score (either perceive service adequacy or superiority) along each dimension

would be obtained through the following steps:

1. For each customer, add the (different) scores on the statements pertaining

to the dimension and divide the sum by the number of statements making

up the dimension.

2. Add the quantity obtained in Step 1 across all X customers and divide the

total by X.

The scores for the five dimensions obtained in the preceding fashion can

themselves be averaged to obtain both overall measure of Perceived Service

Superiority or Perceived Service Adequacy.

The questionnaires in complete form are available upon request.

104


RESEARCH FINDINGS

Hypothesis la: Actual customers' overall desired service are not

significantly different from service providers' perception of customers'

overall desired service scores.

A t-test analysis on the overall desired service scores, as Table 1 shows,

produced no significant result. This suggested that there is not enough

evidence to show that customers' desired service Jevel is different from what

the providers perceived them to be. In other words, the results implies that

service providers do understand the level of service their customers desire. It

seems quite reasonable that customers tend to expect the maximum they can

realistically achieve, and providers seem to understand this.

TABLE 1

T-tests for Customers' Overall Desired and Adequate Service Level

Means and Providers' Perception of Customers' Desired and Adequate

Service Level Means

Variable Mean SD T Value Sig

Overall Desired Service Level

Customer

Provider

Overall Adequate Service Level

Customer

Provider

*** Significant with p < .001

8.11 0.77

5.29

0.45

5.97 1.06

105

1.55

8.66

.121

.000***


Hypothesis Ib: Actual customers' overall adequate service scores are not

significantly different from service providers' perception of customers'

overall adequate service scores.

A t-test analysis on the overall adequate service scores, however, shows that

there is a statistically significant difference with p < .0001 between the two

means - customers' overall adequate service level mean and service

providers' perceptions of customers' overall adequate service level mean and

service providers' perception of customers' overall adequate service level

mean (Table 1). This suggests that there is a significant difference between

what the customers considered adequate and what the providers perceived

them to be. With their mean of 5.97 larger than customers' mean of 5.29,

providers seem to perceive customers' adequate service level higher than

what customers consider as adequate. In other words, despite the common

notion that providers tend to underestimate customers' adequate service

level, in this case the reverse seems to occur.

Hypothesis 2a: Customers' overall perception scores are not

significantly different from desired service scores.

The result of t-test analysis on the means of the two types of scores -

perceived and desired services - shows that there is a statistically significant

difference with p < .0001 between the two means (Table 2). This finding is

supported by MANOVA analysis with a p value of .000. The result suggests

that there is a significant difference between the service level the customers

desired, and what they perceived was the service level they received. The

difference or MSS mean of -2.17 (negative MSS scores) denotes that the

mean perceived service score is lower by 2.17 compared to the mean desired

service level.

Looking back at Hypotheses 1, by suggesting that providers understand what

the customers' desired level is, it should in theory result in a service quality

level as desired by customers. However, Hypothesis 2a's finding suggests

that the actual level of service that they delivered, for whatever reason, was

not up to the level that they seemed to know their customers desired. What

might be clear here is that, delivering desired quality service goes beyond

understanding the customer's desired service level. It may involve not only

knowledge, information, and technology, or rather capacity, but also

attitudinal or cultural factors. Unfortunately, the definite answer to these

issues is beyond the scope of this research.

106


TABLE 2

Manova and Paired Sample T-Test on Overall Perceived Service Scores

With Overall Adequate and Desired Service Scores

MANOVA

Paired Sample 1-Test

Overall Scores

Perceived Service

Adequate Service

Desired Service

Hotelling P Value DF

6.95 1279.1 2.00.000***

Mean MSA' 1 Mean MSS h Mean

5.93

5.28 +0.65

P Value

t- Value Significance

11.46 .000***

8.10 -2.17 -36.02 .000***

Note: - Measure of Service Adequacy i.e. perceived minus adequate scores.

- Measure of Service Superiority i.e. perceived minus desired scores

*** Significant with p < .001

Hypothesis 2b: Customers' overall perception scores are not

significantly different from adequate service scores.

The result of t-test on the two means-perceived and adequate service scoresalso

shows that there is a statistically significant difference between the two

means with p < .0001 (Table 2). This finding is also supported by MANOVA

analysis with p < .0001. It suggests that there is a significant difference

between the service level the customers consider adequate and what they

perceived the service level they received.

However, while in the case of hypothesis 2a perceived scores are less than

desired scores, in this case, the mean perceived scores exceed the mean

adequate scores by 0.65. The result seems to suggest that service providers

are somewhat able to deliver the level of service they perceived their

customers considered as adequate. One interpretation is that, their

overestimation of customers' adequate service level might have contributed

to this ability. They delivered what they perceived as customers' minimum or

adequate service level so as to elude or minimise the possibility of complaint

or dissatisfaction. Another interpretation is that, it could be just that the

customers were able to tolerate the kind of service level which they received,

given the fact that their mean adequate score is lower compared to what the

107


service providers perceived them to be. In short, while the earlier results

suggest the absence of delightedness among customers with respect to their

desired service, customers seem to generally consider the level of service

they received as tolerable.

The ability to tolerate the kind of service they receive, or rather the existence

of "maintainers" which is the lower level of input to satisfaction as opposed

to the higher "satisfiers" (Czepiel et. al. 1974) which is absent, perhaps partly

explains why customers tend to be reluctant to formally voice their

unhappiness concerning a service. In that regard, while maintaining the

"Zero Complaints!" slogan may help RTD move toward achieving its quality

objectives, it should not assume that the absence or lack of complaint

suggests happiness or satisfaction with the service. On the other hand, it most

probably only implies a tolerable situation rather than happy or delighted

situation, or for that matter, satisfactory situation. Conversely, the existence

of complaint might suggest an intolerable service level.

CONCLUSION

An interesting finding of this study was that, eventhough providers seem to

understand and even overestimate customers' expectation, their performance

in the eyes of customers still seems to be considerably below what was

expected. This variation between understanding or knowledge and actual

performance may be an indication that there is a gap between what providers

know about the customers and what or how they do to meet what they know.

Whatever the reason, the RTD may want to examine the causes, such as the

organizational climate, to determine why such a gap exists if it wants to

improve itself in reaching its quality objectives.

This research result also suggests several implications for public policy and

administration. First of all, it is of paramount importance to remind public

organizations or employees that the reputation of public organizations and

the government itself is greatly dependent upon understanding and meeting

citizen-customers' perceptions and expectations. In order to inculcate and

institutionalise that awareness and understanding, public organizations have

to develop and conduct the appropriate training programs.

Apart from equipping personnel with technological skills or knowhow, the

training program should be tailored with additional emphasis given to the

issues of human factors in service delivery, by which the required attitude

and human relations skills could be inculcated among personnel of all levels

and positions.

108


It could be real that government faces numerous kinds of legal, financial and

other constraints to "blueprint" the specific kind of treatment for specific

groups of citizens-customers. Nevertheless, the individual employees'

awareness and recognition of the existence of the differences, their 'new'

attitudinal and technological abilities to deal with them, coupled perhaps

with the possibility of providing them reasonable flexibility in service

delivery, may at least assist them to deliver better services.

However, while the right kind of treatment due to customers is dependent on

the right kind of information regarding those perceptual differences,

organizations must realize that perceptions may change over time. In that

regard, it is necessary to institute an appropriate research program to detect

those possible changes in perception, and to keep personnel informed

through periodic briefing or even training.

109


1. Employees doing

something within a

specified period of time as

promised (e.g., fulfilling a

promise to issue a licence

within two days)

2. Employees showing a

sincere interest in solving

customers' problem

3. Employees performing

the service right the first

time

1. Employees doing

something within a

specified period of time as

promised (e.g., fulfilling a

promise to issue a licence

within two days)

2. Employees showing a

sincere interest in solving

customers' problem

3. Employees performing

the service right the first

time

APPENDIX 1

A Sample of Customer Survey Questionaire

The minimum

service level I can

tolerate, out of 9

points, is:

Low High

123456789

123456789

123456789

The service level 1

actually desire or

hope for, out of 9

points, is:

Low High

123456789

123456789

123456789

APPENDIX 2

A Sample of Provider Survey Questionnaire

I think, the minimum

service level my customers

can tolerate, or which they

consider adequate, out of 9

points, is:

Low High

123456789

123456789

123456789

110

But, my Perception

of the Actual

Service I received

from RTD is

Low High

123456789

123456789

123456789

I think, the service level

my customers actually

desire or hope for, out of 9

points, is:

Low High

123456789

123456789

123456789


REFERENCES

Adam, E.E. Jr., J.C. Hershauer and W.A. Ruch, 1986. Productivity and

Quality: Measurement as a means for improvement, 2d ed. Columbia, MO:

College of Business & Public Administration, University of Missouri-

Columbia.

Babakus, Emin and W. Glynn Mangold, 1992. "Adapting the SERVQUAL

Scale to Hospital Services: An Empirical Investigation." Health Services

Research, vol. 26, no.6, pp. 767-786.

Bitner, M.J. and A.R. Hubbert, 1994. "Encounter Satisfaction Versus Overall

Satisfaction Versus Quality." In R.T. Rust and R.L. Oliver, eds., Service

Quality: New Directions in Theory and Practice. Thousand Oaks: Sage

Publications, pp. 72-94.

Boulding, W., A. Kalra, R. Staelin and V Zeithaml, 1990. "A Dynamic

Process Model of Service Quality: From Expectations to Behavioral

Intentions." Journal of Marketing Research, vol. 30 (February), pp. 7-27

Carr, O.K. and I.D. Littman, 1993. Excellence in Government Arlington,

VA: Coopers and Lybrand.

Chase, R.B. and D.E. Bowen, 1991. "Service Quality and the Service

Delivery System: A Diagnostic Framework." In S.W. Brown, E.

Gummasson, B. Edvardasaon, eds., Service Quality: Multidisciplinary and

Multinational Perspectives. Lexington, MA: Lexington Books.

Crompton, J.L. and K.J. Mackay, 1989. "Users' Perceptions of the Relative

Importance of Service Quality Dimensions in Selected Public Recreation

Programs." Leisure Sciences, vol. 11, pp. 367-375.

Crosby, Philip B., 1979. Quality is Free. New York: McGraw-Hill.

—————, 1984. Quality With Tears: The Art of Hassle-Free Management.

New York: McGraw-Hill.

Czepiel, J.A., L.J. Rosenber and A. Akerele, 1974. "Perspective on consumer

satisfaction." In R.C. Curhan, ed., 1974 Combined Proceedings. Serial

Number 36. Chicago: American Marketing Association.

11


Deming, W.E., 1986. Out of the Crises. 2nd ed. Cambridge, Massachusetts:

MIT Center for Advanced Engineering Study.

Edvardsson, Bo and BengtOve Gustavsson, 1991. "Quality in Service and

Quality in Service Organizations: A Model for Quality Assessment." In

Brown, S.E., et. al., eds., Service Qaulity: Multidisciplinary and

Multinational Perspectives. Toronto: Lexington Books.

Garvin, D.A., 1988. Managing Quality: The Strategic and Competitive Edge.

New York: Free Press.

Goodsell, Charles T., 1980. "Evaluation of Welfare Program."

Administration and Society, vol. 12, no. 2, pp. 123-136.

Gronroos, Christian, 1987. "Developing the Service Offering - A Source of

Competitive Advantage." In Carol Surprenant, ed., Add Value to Your

Service: The Key to Success. Chicago: American Marketing Association.

Hamid, Ahmad Sarji Abdul, 1994. The Civil Service of Malaysia. Kuala

Lumpur, Malaysia: Percetakan Nasional Malaysia Berhad.

Hero, Rodney, 1986. "Citizen Contacting and Bureaucratic Treatment

Response in Urban Government: Some Further Evidence." The Social

Science Journal, vol. 23, no. 2, pp. 181-187.

Horovitz, J., and M.J. Panak, 1994. Total Customer Satisfaction. New York:

Richard D. Irwin, Inc.

Hyde, A.C., 1992. "The Proverbs of Total Quality Management." Public

Productivity and Management Review, vol. 16, no. 2, pp. 25-37.

Juran, J.M., 1988. Juran on Planning for Quality. New York: Free Press.

Kilkenny, Regina A., 1992. At Your Service? Public Sector Service Quality

in Monopolistic Versus Competitive Environments. Phd Dissertation.

Denver: University of Colorado at Denver,

Klaus, P., 1985. "Quality Epipheriomenon: The Conceptual Understanding of

Quality in Face-to-Face Service Encounters." In J. Czepiel, M.R. Solomon

and C.F. Surprenant, eds., The Service Encounter. Lexington MA: Lexington

Books.

112


McKinney, Jerome B., 1995. Understanding TOM & ZBB. Clinton,

Maryland: Public Policy Press.

Milakovich, M.E., 1995. Improving Service Quality: Achieving High

Performance in the Public and Private Sectors. Delray Beach, FL: St. Lucie

Press.

Orwig, Robert A., 1994. An Empirical Analysis of Service Quality in the Air

National Guard. Ph.D. Dissertation. Mississippi: The College of Business

and Industry, Mississippi State University.

Parasuraman, A., V.A. Zeithaml and L. Berry, 1994a. "Reassessment of

Expectations as a Comparison Standard in Measuring Service Quality -

comment/reply." Journal of Marketing, vol. 58. no. 1 (January), pp. 111-139.

———————, 1994b, "Alternative Scales for Measuring Service Quality: A

Comparative Assessment Based on Psychometric and Diagnostic Criteria."

Journal of Retailing, vol. 70, no. 3, pp. 201-230.

———————, 1993. "More on Improving Service Quality Measurement."

Journal of Retailing, vol. 69, no. 4 (Spring), pp. 140-147,

———————, 1991. "Refinement and Reassessment of the SERVQUAL

Scale." Journal of Retailing, vol. 67, no. 4 (Winter), pp. 419-450.

———————, 1985. "A Conceptual Model of Service Quality and Its

Implications for Future Research." Journal of Marketing (Fall).

———————, 1988. "SERVQUAL: A Multi-Item Scale for Measuring

Consumer Perceptions of Service Quality." Journal of Marketing, vol. 64, no.

1 (Spring).

Stamatis, D.H., 1996. Total Quality Service: Principles. Practices and

Implementation. Delray Beach, FL.: St. Lucie Press.

Steffen, T.M., 1992. Determinants of Service Quality in Health Care

Organizations. Phd Dissertation. University of Wisconsin-Milwaukee.

113


Teas, R.K., 1993. "Expectations, Performance Evaluation and Consumer's

Perceptions of Quality." Journal of Marketing, vol. 57 (October), pp. 18-34.

——————, 1994. "Expectations as a Comparison Standard in Measuring

Service Quality: An Assessment of a Reassessment." Journal of Marketing.

vol. 58 (January), pp. 132-139.

Zeithalm, V.A., Berry, L.L., and Parasuraman, A., 1993. "The Nature and

Determinants of Customers' Expectations of Service." Journal of the

Academy of Marketing Science, vol. 21, no. 1, pp. 1-12.

Zeithaml, V.A., A. Parasuraman and L.L. Berry, 1990. Delivering Quality

Service: Balancing Customer Perceptions and Expectations. New York: Free

Press.

114


SYMBOLISM AND BUSINESS

EDGAR J. RIDLEY

President and Chairman

ill

111

I»II»T»~

> X\\\

.\v\\yv

••••••.>'«.

-

EDGAR J. RIDLEY & ASSOOA TES, INC.

2500 E. Gary Street, Sutto 501

Richmond, VA 23223

Telephone/Telefax 804-649-OG05

E-Mail; rttttey@fichmond.lnfl.net

February 22.1999

There have been various concepts put forth by consultants to improve

productivity. There is an ongoing battle among consultants and/or consulting

firms to see who can come up with the management concept that will be

judged the leader of the pack. Concepts such as re-engineering have taken

hold; companies not only in America but throughout the world realize that

there is a huge market for quick-fix solutions to organizational problems. W.

Edwards Deming, world-renowned for his 13 principles as spelled out in his

book, Out of the Crisis, was rejected by Americans. After World War II,

Japan hired him to find solutions to their management problems. However,

Americans were intimidated by Deming and his concepts for an educated,

fair and honest workforce. It was only after American corporations became

sophisticated enough to mythologize Deming's concepts were they willing to

not only give Deming an audience, but hire him to solve their economic and

management problems. Mythology allows us to corrupt and distort good

concepts, good behavior and good intentions.

115


One of the things that re-engineering does is to change metaphors.

Businesses are run by symbol systems, and these metaphors are entirely

inadequate for productivity to take place. When corporations find themselves

in a mess because of these symbol systems, they hire consultants to solve

their problems. Consultants are viewed in today's marketplace as the ultimate

symbolic analysts, to quote former U.S. Labor Secretary Robert Reich. The

approach of these consultants is to change the metaphors which are symbol

systems. James Champy, former Chairman of CSC Consulting Group in

Cambridge, MA, states that "today's managers must find new metaphors." 1

Tom Peters in his book, Liberation Management, devotes a chapter to

"Finding New Metaphors". Finding metaphors is not the solution to business

problems; it only enhances the problems that exist and creates an

environment for new problems to flourish. Consultants who manipulate and

change metaphors to solve problems are not effective. This is because they

are, indeed, symbolic analysts who fail to see that they must eradicate the

symbol systems. By eradicating the symbol systems, these consultants would

eradicate the mythological systems. This method only will solve the

problems of corporations. Today's consultants fail to realize that their

contentment is in being the ultimate symbolic analysts.

Joseph Campbell was a mythologist whose books have been very influential

in discussing the mythological life. We live in a mythological world

characterized by what mythology produces. As we have discussed,

mythology produces racism, delusions and mental health problems.

The late psychologist Amos Wilson stated in his book, The Falsification of

African Consciousness, that "mythology often can be seen as a form of

denial of reality." 2 He goes on to state that "mythology is hallucination." 1 In

his book, Amos Wilson talks extensively about European mythology as

hallucination. We must stress that mythology has its roots in Africa, and

European mythology is but a derivative of African mythology. There has

been some discussion among African scholars that there are two types of

mythology; one African and one European. In actuality, there is only one type

of mythology. That mythology originated in Africa and spread to Europe. So,

Black scholars must face the reality that 'same European mythology

originated in Africa, and the damage that mythology produces affects all of

us globally.

Champy, James, AMA Management Review, January, 1995.

Wilson, Amos, The Falsification of African Consciousness, African World InfoSyslems, 1993, p. 28.

Wilson, Amos, ibid, p. 23.

116


Once it is understood that we live in a mythological world, we see the

consultant, as we discussed earlier, as one who is a master of symbolic

manipulation. The consultant takes his skills of symbolic analysis into the

business world and tries to solve problems. When mythology is seen as a

denial of reality, it is readily understood why living in a mythological world

is not only totally destructive but also self-defeating. Problems cannot be

solved by engaging in the creation of new metaphors.

We must always remember that metaphors and mythology are synonymous

and that symbols produce them. Yet, the leading business theorists today

stress over and over again that by creating new metaphors, we solve the

problems that we create. If there ever was a merry-go-round, this is it.

The idea that we live in a mythological world is hard to accept. One of the

reasons it is hard to accept is because we base our decisions on a

mythological framework. What that means is that most of the decisions that

we make are wrong, incorrect, ineffective and non-productive. Remember,

mythology is a denial of reality, so if mythology is a denial of reality and we

live in a mythological world, then our world is basically sick. The reason

why racism is so prevalent is because we live in a sick world.

There is no doubt that the eradication of mythology would practically cure

the mental illness and psychological problems that affect us in today's

civilization. In today's business world, many people are on drugs such as

Prozac and in psychiatric treatment, simply because they are immersed in a

mythological system with no way out. This is the prime reason why drugs,

used by executives, are so prevalent in the business community, because

manipulating metaphors and creating new mythologies creates a worsening

of the psychological condition of the world population. That means the world

business population is primarily a mentally confused and psychologically

impotent population. Businesses cannot flourish as we rely on mythological

answers to solve concrete and serious problems.

117


Amos Wilson states:

Whatever mythology we believe is one that organizes our

approach to other people, our perception of ourselves and of

other people. It provides answers. The answers may not be right,

they may be wrong; but it still provides an answer. And that is

psychologically satisfying. Nothing threatens us and nothing

upsets us like unanswered questions. Often Man projects a

mythology in order to get himself out of his agony of dealing

with unanswered questions and to put his mind at rest. 4

Amos Wilson demonstrates that indeed, if we have no answers to a problem,

we supply a myth to satisfy our need for an answer. That is why consultants

are providing the wrong approach to the business problems that we have

today. They do not have an answer so they seek a mythological one.

Corporations are paying out millions and millions of dollars to people who

are supposed to provide answers but instead provide a myth!

One of the reasons why people still want that mythological answer is because

they know that, by getting rid of the myth, they will get rid of a lot of

assumptions they hold and are utilizing to keep them in power and have

domination over other people. So, they are content to have mythological

answers provided to them. Vincent Capranzano stated in an article in the New

York Times Book Review called "Dancing With Myths", "Mythmakers, like

their audience, like the commentators, are always trapped in their creations,

and, I would stress, the delusions they produced." s

In the business world, Europe and North America's biggest nightmare is to

see Asia and Africa doing business together. Malaysia is doing business in

South Africa and hopes to use South Africa as a gateway to the rest of the

continent. In fact, South Africa is Asia's biggest trading partner on the

continent.

Assumptions held by whites are beginning to backfire. Their own

mythological system is backfiring. Set-aside programs for businesses that are

owned and operated by women and so-called minorities have undergone

scrutiny and evaluation recently. The prevailing attitude among the white

population is that the set-aside programs, geared to help so-called minorities,

4 Wilson, Amos, ibid., p. 30-31

Capranzano, Vincent, "Dancing With Myths", the New York Times Book Review Capranzano,

Vincent, "Dancing With Myths", the New York Times Book Review

118


must be eliminated because racism no longer exists. Many white perceive

that the programs that are geared to help people of color and women have

tendencies to produce reverse discrimination. This all comes out of a fear that

whites have that they are beginning to lose their power. Whites are coming

to a realization of themselves as being the minorities on the world stage.

Whites have risen to a state of panic while still practicing racism to the

highest degree. At the same time, whites insist that racism is at such a low

that the programs that have been operating to give minorities an opportunity

should be eliminated.

It must be clearly understood that there are two powerful forces deriving

from symbolism that affect global business. These two phenomena are

racism and religion. With the rather recent emphasis on global transactions,

we need a new kind of sophistication to do international business. The world

has shrunken to the extent that one can conceivably fly to different parts of

the globe during a workday and still make it home for the evening news. It

requires a knowledge base that was previously thought unnecessary. The

behavioural sciences have not done an adequate job in educating the

workforce in how to do world class business.

The education of managers and the rest of the workforce in an adequate and

unbiased way is not in the vested interest of those who would rather see the

present way of doing business remain status quo. This produces an elitist,

racist, and sexist system that continues to dehumanize the poor, reward the

rich, and utilize technology for greed.

The behavioral sciences, as taught in our business schools, stay away from

issues they deem touchy, sensitive, or uncomfortable. Business is

successfully done by exhibiting appropriate behavior patterns. How one

makes decisions is crucial to the outcome of any business transaction. The

fad theories that are promoted by so-called motivational speakers or gurus

produce superficial concepts that have a comfortable appeal to the masses.

This practice tends not to irritate or create a climate of deep thought, but is

always on a very superficial level that requires no abstract insight. Because

of a penchant to keep from dealing with reality, it is discerning to realize that

we live in a world that is basically false through and through.

119


By using myths as an escape for reality, we promote myths as the ultimate

reality. This is totally insane and detrimental to our well-being. This is the

reason why Tom Peter's book called for Crazy Ideas for Crazy

Organizations. This is the main reason why any theory has a chance to be

promoted in a book will easily make the New York Times' bestseller list, as

long as the book is written by a white person. Non-whites are not supposed

to produce theories or offer solutions that would have a severe effect on the

balance of power in the world. Despite the growing tendencies of whites to

discount the factor of race and its influence in the business world, it is overly

apparent that the racism that we experience in today's contemporary world is

more vicious and insidious than ever before. The degree of sophistication of

this type of racism and its origin has been recognized by some scholars as a

permanent part of civilization. If this racism is continued and allowed to

stand, there is no doubt that its resulting effect will destroy the economy of

the entire world. We will also destroy and chance for progress in such vital

areas as health, education, politics, business and the overall welfare. It will

cause, a continued rise in poverty. The tree is known by the fruit it bears.

What is so disturbing about this racism is its total and unequivocal rejection

of ideas that are presented by blacks and other people of color.

New concepts and theories by people of color can have an enormous effect

on the enhancement of disciplines such as medicine, physics, science, and

other major fields of study. The contributions that Africa and Asia has offered

the world are no secret. However, most concepts and ideas are tainted and

discounted for the sole reason that their creators are non whites. This practice

must be eliminated so we can do business in an effective and efficient

manner. The level of operation is endless if we stop doing business as usual

no matter how lucrative it appears. This form of intellectual racism is

supported and reinforced by academia, media, government, religion,

business, and all areas where decisions are made to affect world policy. What

is so appalling is the gall of whites and their mindless support of these racist

practices.

In a global business world, it is neither polite nor considered appropriate to

discuss racism and its continuous and damaging effects. It is not politically

correct or good business practice to do this. The only code word that is

acceptable in the global business community is diversity. This term has

become comfortable and an acceptable password for entertaining the ideas,

out of necessity, of non-white workers in the global economy. What does

diversity really mean? People of color and women are dealt on defined terms.

This limits the extent of business dealings. In other words, because whites are

a minority, it will become next to impossible to keep the global majority,

120


which are people of color, out of the workforce and other managerial

positions as well. Because of that scenario, there is indeed panic among

whites to contain the effectiveness of all people of color. If this sounds

disturbing, indeed it is. Whites, for the most part, may not verbalize this

position. Their positions are presented in code words and daily business

transactions. This sophisticated racism must be addressed no matter how

uncomfortable it is. We can never have the attitude that racism is acceptable

or here to stay. Racism cannot become a permanent fabric of today's society,

it must be brought to its knees. I repeat: the only way to eradicate racism is

to eliminate the symbol systems that cause it. Symbols systems produce the

mythology that results in racism.

Throughout history, and certainly in these contemporary times, there have

been countless books and articles written about racism. It is time to stop

writing about it and start offering solutions that will eradicate racism. A

solution to eradicate racism has yet to manifest itself. It must be made

perfectly clear that we have a solution that will eliminate racism and its

resulting effects. This solution is beneficial to all parties involved. This, I

repeat, is the solution: the elimination of all symbol systems. By doing this,

we eliminate all of the mythological systems that create and support racism.

This concept offers a glimmer of hope to the statements written in Derrick

Bell's book, Faces at the Bottom of the Well. Bell's book concluded that

racism is a permanent part of American society. We can no longer accept

racism as a permanent part of society. Any attempt to do so is insanely

detrimental to the business ocmmunity and the world at large. The business

community must be willing and ready to accept new concepts that will

challenge them to respond and think on new levels. The business community

must stop overlooking the problems and start implementing solutions that

will increase productivity to its most effective mode.

The second most prominent phenomenon created by mythology is religion.

Religion is a very sensitive topic to discuss. It is viewed as very personal and

off limits. But when business people evaluate situations all over the world,

invariably they come upon troubled areas where religion dictated the turmoil

and unrest. However, in Africa, Asia, Latin America, and Europe, religion is

still very personal. Any business person doing business globally will have to

understand the importance religion plays in the decision-making processes of

the people he or she is doing business with. It is increasingly apparent that

people make decisions based on their theological and religious belief systems

and practices. A severe injustice would be perpetuated if we did not deal with

the ramification of the theological belief of the masses around the globe.

121


First, it must be understood that religion has its origin and was created out of

mythology. Conservative theologians and philosophers might have a problem

with that assertion. There have been countless debates about the impact

symbols and myths have had on religion, with the understanding that myths

have created all religions. There is no religion that did not manifest from

mythology, directly or indirectly. Many lives have been lost in the name of

religion. Much unnecessary bloodshed has taken place because of this

religious mythological phenomenon. In today's time, we can look at the

situations in Ireland, India, Russia, and the Middle East.

Traditionally it has been viewed as inappropriate and bad manners to discuss

religious beliefs. But it is essential to understand the religion and culture of

the people you are doing business with. Many business deals have been

based on that. The understanding of one's religious practice could mean the

success or failure of a business transaction. It is becoming more apparent

every day that one's mythological belief dictates and controls not only

business decisions but life and death decisions as well. This shows the

overwhelming extent and the importance of the mythological content of

one's religious belief.

The profound impact of mythological beliefs cannot be expressed completely

in words. In the book written by Norman Brown, Love's Body, he states that

symbolism produced the myths that created all of the religions that are in use

in today's world.

W. Edward Deming states in his book, Out of Crisis, that the United States

today may be the most underdeveloped country in the world. He made that

statement because he realized that the United States misuses and abuses the

skills and knowledge of an army of employed people in all ranks of industry.

The United States, which has a universal reputation of a world leader has

used myths to manipulate her image around the world so that there is a

misleading regard toward her strengths and weaknesses. The United States is

no longer the economic powerhouse that it once was is evident. Its prevalent

metaphors that are used to guide its people and philosophy are no longer

functional nor productive. The economic force has now shifted to Asia.

Michael Hammer and James Champy, who are the force behind the

reengineering craze, emphasize that managers must find new metaphors, for

they realize that the old metaphors are invalid and counter-productive in the

new global arena today. With the understanding that symbols produce

metaphors, these symbol systems must be eradicated and discarded for the

metaphors to be eliminated.

122


The productivity problems of America stem from symbolism and

manipulation of the resulting mythology. The business community must

understand this fact in order for productivity to become a reality. All

metaphors that have been used in the past must be discarded, be carefully

examined and eventually eliminated. The business world, like other areas of

human activity, has failed to see the need to eradicate myth, metaphors, and

rituals. Instead, the necessity of these entities has been emphasized. As long

as the business world sees the need for these symbol systems, the problem of

productivity will continue to plague all aspects of American business

transactions. This practice is being seen in the global market as well. For the

problem with symbols and symbol systems are truly global and must be

looked at as such. Up to now, the world business community has failed to

realize and refused to acknowledge the damages of mythological thinking.

The use of consultants by the world business community has enhanced the

manipulation and spread of myths and metaphors. This practice causes

severe damages through all disciplines. Robert Reich, the United States

Labor Secretary, has called consultants "symbolic analysts". Symbolic

analysts are consultants who make their living from manipulation of abstract

concepts. This is the main reason why consultants and consultant firms have

such a vash influence in who dominates the world. They take ideas and

concepts and manipulate these myths worldwide. This is why consultants are

so essential for a growing economy but also for a stabilized economy.

Consultants are used to reinforce ideas that need to stay in power and to

generate new ideas that must be born. This practice maintains and entrenched

their power worldwide.

It is very important to understand the phenomenon that resulted from the

Fourteen principles created by Deming. When Deming first revealed his

Fourteen Principles, the United States was afraid to implement the principles

for fear of upsetting the power structure. The implementation of Deming's

principles would upset the current power structure and its obsessions with

racism and sexism. In Deming's philosophy, there were no losers. Everybody

was a winner. This concept is unheard of in the corporate Western world. For

in the Western world, having losers was business as usual. The losers were

always those who were of non-white status and the practice in regards to

productivity has never been researched and studied in an extensive way.

Although Deming never specified race, it was obvious that if everyone would

be winners Blacks and women would be treated fairly and promoted at the

same rate as their white male peers. America and the West was not ready

for this type of philosophy. In fact, they fought very diligently to see that it

123


did not happen. Therefore, Deming's principles were totally ignored and he

was forced to leave the United States, and go to Japan. His concepts, which

were welcomed, changed Japan's economic position. Japan's economy

shifted to growth and power. By then, the United States, with the use of their

consultants, had become sophisticated enough to manipulate symbols. They

created new myths and metaphors to guide the decisions of not only top

managers in business but the general American public.

When Deming returned to the United States, the atmosphere was one of

welcome. American businesses saw his success in Japan and wanted him to

duplicate his philosophies in America. Unfortunately, they were able to

accept Deming's principles and philosophies only after mythologizing them.

They could feel comfortable with mythologizing the educational programs to

fit their own agenda. If that educational program was to educate the

employees, the inferior of blacks and other people of color, then that

principle could be used effectively in their business structure. This was a

means of justifying the promotion and hiring of people due to the myth of

intelligence as perpetuated in the book, The Bell Curve, by James Murray.

The book states that blacks are intelligently inferior to whites and therefore

cannot be as efficient of education and self-improvement can mythologize to

distort and dilute its original intentions. It is very important to understand

that the I.Q. test is nothing more than the ability to reason in terms of symbol

systems, which, in turn, means the manipulation of myths and metaphors. We

must continue to realize that myths and metaphors are synonomous. This is

a critical point to understand. This shows how the rest of the Fourteen

Principles were mythologized to fit the individual corporation. Deming was

very disheartened at the attitude of not only American businesses, but the

business practices of the whole Western world. The practice of

mythologizing ideas and concepts continue to hold sway in the top business

schools in the United States. Ross Webber, Chairman of the Management

Department at the University of Pennsylvania, states, 'There has been a

change in the myths that talented people in this new generation guide their

lives by, and an entrepreneurial connection is a strong part of that

mythology." As long as corporate America and its leaders continue to place

their hope for the future on new metaphors, the business community

worldwide will never solve its problems.

Fortune, "Kissing Off Corporate America".

124

Similar magazines