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UNIVERSITI PUTRA MALAYSIA
AFDIMAN BIN ANUAR
FK 2008 80
BEST MANUFACTURING PRACTICES IN MALAYSIAN SMALL AND MEDIUM ENTERPRISES
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BEST MANUFACTURING PRACTICES IN MALAYSIAN SMALL AND
MEDIUM ENTERPRISES
AFDIMAN BIN ANUAR
MASTER OF SCIENCE
UNIVERSITI PUTRA MALAYSIA
2008
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BEST MANUFACTURING PRACTICES IN MALAYSIAN SMALL AND
MEDIUM ENTERPRISES
By
AFDIMAN BIN ANUAR
Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia
in Fulfilment of the Requirement for the Degree of Master of Science
December 2008
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In dedication to:
My dear parents, for their affectionate caring;
my beloved wife, Azlina Othman for her encouragement; and
my adored son, Muhammad Danial Afdiman for making my life happier.
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Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment
of the requirement for the degree of Master of Science
BEST MANUFACTURING PRACTICES IN MALAYSIAN SMALL AND
MEDIUM ENTERPRISES
By
AFDIMAN BIN ANUAR
January 2009
Chairman : Associate Professor Rosnah Mohd. Yusuff, Ph.D
Faculty : Engineering
Facing increased competitive pressures due to globalisation and increased quality
requirements from their customers, small and medium-sized manufacturers must
increase their productivity and their competitiveness in order to survive and prosper.
Companies can gain competitiveness by increasing the productivity of manufacturing
operation and fulfilling the changing needs of customers and employees. Thus, it is
important to identify and analyze the practices that are currently being implemented
by the manufacturing companies nowadays. A study was conducted to identify the
manufacturing practices of the SMEs in Malaysia. The current level of best
manufacturing practices in Malaysian ISO certified SMEs and the relationship
between manufacturing practices and performance were investigated. A
questionnaire-based survey was conducted on 270 ISO9000 certified manufacturing
SMEs. Based on an extensive search of literature on performance requirements, eight
areas were identified. Thus, the questionnaire was designed consisting of the eight
areas which are management, human resources development, technology and product
innovation, marketing strategy, quality, production process, supply chain
management, and customer focus. A total of 60 respondents were received at 22.2%
response rate. Based on a 5-Likert scale which indicate best practices, the results
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showed that among the eight areas, customer focus is the most important area with
the highest mean of 4.16, followed by quality (3.92), management (3.78), supply
chain management (3.56), human resource development (3.27), marketing strategy
(3.05), production process (3.02), and technology and product innovation with a
score of 2.95. The results showed that level of best manufacturing practices can be
improved further especially in the area of technology and product innovation.
Pearson correlation and stepwise regression were used to test the hypotheses that
have been developed. The Pearson correlation results indicated that almost all the
benchmarking areas and performance were statistically significant. The regression
analysis results showed that each of the benchmarking areas were statistically
significant with performance. However, based on stepwise regression, the best
regression model obtained was Y = – 1.885 +1.065X1 + 0.467X2 – 0.299X3 +
0.282X4 with R2 = 0.853 where X1 = customer focus, X2 = supply chain
management, X3 = quality and X4 = marketing strategy. The negative coefficient
showed by quality in the regression model suggested that there are confounding
effects and other complex relationship exists among the variables. The project has
determined the current level of best manufacturing practices in some Malaysian ISO
certified Small and Medium Enterprises (SMEs) and identified the areas affecting the
companies’ performance. The results can be used by the SMEs to further improve
their manufacturing practices in various areas.
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Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai
memenuhi keperluan untuk ijazah Master Sains
AMALAN PEMBUATAN TERBAIK DI DALAM INDUSTRI KECIL DAN
SEDERHANA DI MALAYSIA
Oleh
AFDIMAN BIN ANUAR
Januari 2009
Pengerusi : Profesor Madya Rosnah Mohd. Yusuff, PhD
Fakulti : Kejuruteraan
Industri kecil dan sederhana (IKS) perlu meningkatkan produktiviti dan sentiasa
bersaingan untuk terus kekal dan maju di bawah tekanan yang makin meningkat
disebabkan oleh globalisasi dan peningkatan kualiti permintaan dari pelanggan.
Persaingan sesebuah syarikat dapat dicapai dengan meningkatkan produktiviti
operasi pengeluaran serta memenuhi kehendak pelanggan dan pekerja yang sentiasa
berubah. Oleh sebab itu, adalah penting untuk mengenalpasti dan menganalisa
amalan pembuatan yang diamalkan oleh syarikat-syarikat pembuatan IKS pada masa
kini. Satu kajian telah dijalankan untuk mengenalpasti amalan-amalan pembuatan
yang dipraktikkan oleh IKS di Malaysia. Tahap semasa amalan pembuatan terbaik di
kalangan IKS yang memiliki pensijilan ISO dan hubungan antara amalan pembuatan
terhadap prestasi telah dikaji. Soal selidik telah diagihkan kepada 270 IKS dalam
bidang pembuatan yang memiliki pensijilan ISO9000. Berdasarkan kepada pencarian
menyeluruh mengenai kajian ilmiah ke atas keperluan prestasi, lapan bidang telah
dikenalpasti. Soal selidik tersebut mengandungi lapan bidang amalan pembuatan
iaitu pengurusan, pembangunan sumber manusia, teknologi dan produk inovasi,
strategi pemasaran, kualiti, proses pengeluaran, pengurusan rangkaian bekalan dan
fokus pelanggan. 60 responden telah memberi kerjasama dengan kadar maklumbalas
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22.2%. Berdasarkan skala 5-Likert, keputusan menunjukkan fokus pelanggan
dikenalpasti sebagai bidang terpenting berbanding dengan bidang-bidang lain. Nilai
purata untuk fokus pelanggan adalah yang tertinggi dengan nilai 4.16, diikuti dengan
kualiti (3.92), pengurusan (3.78), pengurusan rangkaian bekalan (3.56),
pembangunan sumber manusia (3.27), strategi pemasaran (3.05), proses pengeluaran
(3.02), dan akhir sekali teknologi dan inovasi produk (2.95). Nilai-nilai tersebut
menunjukkan bahawa tahap amalan pembuatan terbaik dapat ditingkatkan ke arah
yang lebih jauh terutamanya di dalam bidang teknologi dan inovasi produk. Korelasi
Pearson dan regresi berperingkat telah dilaksanakan untuk menguji hipotesis yang
telah dibina. Secara statistik amnya, hasil korelasi Pearson menunjukkan semua
bidang amalan pembuatan adalah signifikan dengan prestasi. Analisis regresi juga
menunjukkan setiap bidang amalan pembuatan adalah signifikan secara statistik
dengan prestasi. Akan tetapi, model terbaik yang dapat dibina berdasarkan kepada
regresi berperingkat adalah Y = – 1.885 +1.065X1 + 0.467X2 – 0.299X3 + 0.282X4
dan R2 = 0.853 di mana X1 = fokus pelanggan, X2 = pengurusan rangkaian bekalan,
X3 = kualiti dan X4 = strategi pemasaran. Nilai pekali negatif yang ditunjukkan oleh
kualiti di dalam model tersebut mungkin disebabkan oleh wujudnya kesan dari
pelbagai hubungan yang kompleks antara pembolehubah. Projek ini telah berjaya
mengkaji tahap semasa amalan pembuatan terbaik di dalam beberapa IKS yang
memiliki pensijilan ‘ISO’ di Malaysia dan mengenalpasti bidang amalan pembuatan
yang mempengaruhi nilai prestasi sesebuah syarikat. Hasil kajian dapat membantu
IKS untuk menambahbaik amalan pembuatan di dalam bidang-bidang tertentu.
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ACKNOWLEDGEMENT
All the praise to Allah the Al-Mighty for his blessing and benevolence
The author wishes to express his sincere gratitude and appreciation to the numerous
individuals whose have contributed towards the completion of this thesis:
To all my supervisors: Associate Professor Dr. Rosnah binti Mohd. Yusuff,
Associate Professor Dr. Megat Mohamad Hamdan Megat Ahmad and Ir. Hj.
Mohd Rasid bin Osman for their invaluable advise, supervision and assistance;
To Department of Mechanical and Manufacturing Engineering, Faculty of
Engineering, Universiti Putra Malaysia for providing facilities support
throughout the duration of the study;
To all the respondents of the survey, for their cooperation in answering the
questionnaire;
To all other individuals that directly and indirectly involved in this research.
Thank you for all your contributions. May Allah bless you all.
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I certify that a Thesis Examination Committee has met on 22 December 2008 to
conduct the final examination of Afdiman Bin Anuar on his thesis entitled "Best
Manufacturing Practices in Malaysian Small and Medium Enterprises (SMEs)"
in accordance with the Universities and University Colleges Act 1971 and the
Constitution of the Universiti Putra Malaysia [P.U.(A) 106] 15 March 1998. The
Committee recommends that the student be awarded the Master of Science Industrial
and Systems Engineering.
Members of the Thesis Examination Committee were as follows:
Napsiah Ismail, PhD
Associate Professor / Datin
Faculty of Engineering
Universiti Putra Malaysia
(Chairman)
Norzima Zulkifli, PhD
Faculty of Engineering
Universiti Putra Malaysia
(Internal Examiner)
Md. Yusof Ismail, PhD
Associate Professor / Ir.
Faculty of Engineering
Universiti Putra Malaysia
(Internal Examiner)
Sha’ri Mohd Yusof, PhD
Professor / Ir.
Department of Industry and Manufacturing Engineering
Faculty of Engineering
Universiti Teknologi Malaysia
Johor, Malaysia
(External Examiner)
______________________________________
HASANAH MOHD GHAZALI, PhD
Professor and Deputy Dean
School of Graduate Studies
Universiti Putra Malaysia
Date:
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DECLARATION
I hereby declare that the thesis is based on my original work except for quotations
and citations which have been duly acknowledged. I also declare that it has not been
previously or concurrently submitted for any other degree at UPM or other
institutions.
________________________
AFDIMAN BIN ANUAR
Date: 21 February, 2009
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LIST OF TABLES
Table Page
2.1 Definition of SMEs in summary 8
2.2 Areas of best practices 12
2.3 Summary of benchmarking practices metrics 20
3.1 Likert scale used in questionnaire 27
4.1 Breakdown of the respondents according to the company
general information
34
4.2 Distribution of respondents according to the type of
industry
35
4.3 Results of the internal consistency analysis 35
4.4 Customer focus practices 38
4.5 Quality practices 41
4.6 Management practices 43
4.7 Supply chain management practices 46
4.8 Human resource development practices 49
4.9 Marketing strategy practices 52
4.10 Production process practices 54
4.11 Technology and product innovation practices 56
4.12 Summary of manufacturing practices area overall mean 57
4.13 Pearson correlation coefficients among manufacturing
practices areas
59
4.14 Summarized manufacturing practices area regressed with
the performance
61
4.15 Summarized regression model each manufacturing
practices
62
4.16 Summarized R2 Hypothesis 1 through Hypothesis 8 63
4.17 Model summary of stepwise regression 64
4.18 Coefficients of stepwise regression 64
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LIST OF FIGURES
Figure Page
2.1 SMEs distribution by sector (SMIDEC, 2004) 8
2.2 Distribution of SMEs in the manufacturing sector
(SMIDEC, 2004)
9
3.1 Research flowchart 26
4.1 Manufacturing practices areas versus performance
scatter plot graph
60
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LIST OF ABBREVIATIONS/NOTATIONS/GLOSSARY OF TERMS
CAD Computer Aided Design
CAM Computer Aided Manufacturing
CIM Computer Integrated Manufacturing
CNC Computer Numerical Control
FMM Federation of Malaysian Manufacturer
FMS Flexible Manufacturing System
GDP Gross Domestic Production
HRD Human Resource Development
ICT Information and Communication Technology
IMP2 Second Industrial Master Plan
ISO International Organization for Standardization
JIT Just-In-Time
KPI Key Performance Indicator
MATRADE Malaysia External Trade Development Corporation
NPC National Productivity Corporation
QFD Quality Function Deployment
SCM Supply Chain Management
SEM Structural Equation Modelling
SME Small and Medium Enterprise
SMIDEC The Small and Medium Industries Development Corporation
SPC Statistical Process Control
SPSS Statistical Package Social Science
TQM Total Quality Management
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TABLE OF CONTENTS
Page
DEDICATION ii
ABSTRACT iii
ABSTRAK v
ACKNOWLEDGEMENTS vii
APPROVAL viii
DECLARATION x
LIST OF TABLES xi
LIST OF FIGURES xii
LIST OF ABBREVIATIONS/NOTATION/GLOSSARY OF TERMS xiii
CHAPTER
1 INTRODUCTION
1.0 Background of the Research 1
1.1 Problem statement 3
1.2 Objectives of the Research 4
1.3 Scope of the Research 4
1.4 Importance of the Research 4
1.5 Layout of the Thesis 5
2 LITERATURE REVIEW
2.0 Introduction 7
2.1 Small and Medium Enterprises (SMEs) 7
2.1.1 Nature of SMEs in Malaysia 8
2.1.2 Role of SMEs in Malaysia 10
2.2 Best Practices 10
2.2.1 Definition of Best Practices 11
2.3 Benchmarking of Manufacturing Practices 13
2.3.1 Customer Focus 13
2.3.2 Management 14
2.3.3 Quality 15
2.3.4 Supply Chain Management 16
2.3.5 Production Process 17
2.3.6 Marketing Strategy 17
2.3.7 Human Resources Development 18
2.3.8 Technology and Product Innovation 19
2.3.9 Summary of manufacturing practices metrics 19
2.4 Relationship of Manufacturing Practices and Performance 21
2.5 Key performance indicator and Performance Measures 22
2.6 Summary 23
3 METHODOLOGY
3.0 Introduction 25
3.1 Design of the Survey 25
3.2 Design of Questionnaire 26
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3.3 Sampling 28
3.4 Instrument Validity 28
3.5 Reliability 29
3.6 Data Analysis 29
3.7 Development of the hypotheses and regression model 30
4 RESULTS AND DISCUSSION
4.0 Introduction 33
4.1 Profiles of survey 33
4.1.1 Response Rate 33
4.1.2 Profiles of the Respondents 34
4.1.3 Reliability Test: Internal Consistency Analysis 35
4.2 Manufacturing practices 36
4.2.1 Customer Focus 36
4.2.2 Quality 39
4.2.3 Management 42
4.2.4 Supply Chain Management 43
4.2.5 Human Resource Development 47
4.2.6 Marketing Strategy 50
4.2.7 Production Process 53
4.2.8 Technology and Product Innovation 54
4.3 Summary of Eight Areas of Manufacturing Practices 56
4.4 Relationship between Areas of Manufacturing Practices and 58
Performance
4.4.1 Pearson Correlation 58
4.4.2 Regressing Manufacturing Practices areas 59
individually with performance (simple linear
regression)
4.4.3 Manufacturing Practices areas with performance 63
(multiple regression)
5 CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions 67
5.2 Recommendations for future research 69
REFERENCES 70
APPENDICES 76
BIODATA OF THE STUDENT B.1
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CHAPTER 1
INTRODUCTION
1.0 Background of the Research
SMEs have been the backbone of economic growth of an economy in driving
industrial development (Normah, 2006). SMEs play a big role in national economies
by providing job opportunities and supporting the big industries. Facing increased
competitive pressure due to globalisation and increased quality requirements from
their customers, SMEs manufacturers must increase their productivity and
competitiveness in order to survive and prosper (St-Pierre and Raymond, 2004).
Globalisation, shortening product life cycles, increasing labor costs and volatility in
input prices has created an environment where manufacturers must be flexible,
adaptive, responsive and innovative (Sohal et. al, 1999). Companies can gain
competitiveness by increasing the productivity of manufacturing operation and
fulfilling the changing needs of customers and employees. Thus, the manufacturing
organizations must not only become increasingly advanced in their manufacturing
process but also adopt world class manufacturing practices. The increased
competition will enhanced the demand for more customized products.
Manufacturing is the fastest growing sector in Malaysia with value-added expanding
by 9.8 per cent (Department of Statistics Malaysia, 2006) and an important
contributor to the economy accounting for 31.6 per cent of Gross Domestic Product
(GDP) in 2005 (Department of Statistics Malaysia, 2006) with 18,271 SMEs
manufacturing companies were registered. The manufacturing operation is the prime
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strategic function of any business. Whether or not, manufacturing operation achieves
its strategic potential and contributes to the competitive position of a business
depends entirely on how it is managed (Kasul and Motwani, 1995 cited in Rosnah,
2004). Benchmarking techniques can be used by the SMEs to measure the level of
manufacturing practices performance in their firms and would lead manufacturing
SMEs to adopt new business practices (St. Pierre and Raymond, 2004). It is
important to benchmark the practices of the Malaysian SMEs to determine their
current manufacturing practices (Rosnah, 2004). Many manufacturing organizations
in Malaysia do not benchmark their manufacturing practices in pursuing global
competitiveness. This is because it uses a lot of money and time but they do not
realize that, implementing benchmarking and best manufacturing practices can
improve the performance of their company (Goetsch and Davis, 2003). The process
of identifying manufacturing practices opens up a lot of opportunities for the SMEs
to evaluate their performance and also improve their quality and productivity at the
same time. Most SMEs used to compete based on the quantity of production, price or
quality, but now they have to compete across all competitive performance objectives
including responsiveness and flexibility in the current economic environment
(Gunasekaran, 2003).
The outcomes of this study could help the Malaysian small and medium companies
that are trying to improve their manufacturing practices and performance.
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1.1 Problem Statement
In Malaysia, the SMEs are under increasing pressure to improve their performance
level (Normah, 2006). Globalization, shortening product life cycle, increasingly
sophisticated consumers, increasing labour cost, and volatility in input prices has
created an environment where manufacturers must be flexible, adaptive, responsive
and innovative (Sohal et. al., 1999). Previously, the companies used to compete
based on the price and quality, but now they have to compete across all competitive
aspect including flexibility and responsiveness in the current economic environment
(Gunasekaran, 2003). Thus, it is necessary to identify the current manufacturing
practices of the Malaysian manufacturing companies and with the manufacturing
practices of world class companies. This will enable the companies to identify and
direct their focus on the areas that require improvement. Also, the companies will
become more aware of the manufacturing practise that will help increase their
performance and competitiveness. With best manufacturing practices, SMEs will be
able to improve their business performance and expand their company assets,
providing work opportunities, and indirectly boosting the growth of the small and
medium enterprises (Government of Malaysia, 2006) and contribute to Malaysian
economic development.
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1.2 Objectives of the Research
1. To determine the current level of manufacturing practices in Malaysian ISO
certified Small and Medium Enterprises (SMEs)
2. To determine the relationship between manufacturing practices and
performance
3. To develop a regression model of manufacturing practices for Malaysian
Small and Medium Enterprises (SMEs)
1.3 Scope of the Research
The research is carried out to identify the manufacturing practices of Malaysian
Small and Medium Enterprises covering the following areas:
1. The manufacturing practices were limited to only eight areas identified as
customer focus, management, quality, human resource development, product
technology and innovation, production process, supply chain, and marketing
strategy.
2. The samples for this research were small and medium manufacturing
companies that have been certified with ISO9000 as listed in the Federation
of Malaysian Manufacturers directory (FMM, 2005) and Small and Medium
Industries Development Corporation website (SMIDEC, 2006).
1.4 Importance of the Research
Due to the importance of implementing best practices and manufacturing practices,
this research attempts to flourish studies in this area within the Malaysian
manufacturing companies. The findings from this research would be making the
following important contributions:
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1. To enrich the pool of reference materials and findings relating to the
manufacturing practices in the manufacturing companies, which are relatively
scarce since very few journals and research papers have been found,
especially for Malaysian SMEs.
2. The current status of manufacturing practices in the Malaysian manufacturing
companies will help indicate the level of competitiveness and provide policy
makers or organization to develop appropriate strategies in improving the
SMEs.
3. To provide some insights and help the Malaysian manufacturing companies
to implement best practices and manufacturing practices in improving their
practices.
4. To promote awareness of the importance of manufacturing practices
implementation in the Malaysian manufacturing companies.
1.5 Layout of the Thesis
This thesis consists of five chapters as listed below:
1. The first chapter introduces the background, objectives, scope, importance
and limitations of the research.
2. Chapter 2 is a review of literature related to the SMEs, best practices, Key
Performance Indicators, best manufacturing practices and performance.
3. Chapter 3 describes the methodology used for this research. Research
instrument that was conducted for data collection and analysis are also
elaborated in this chapter.
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4. Chapter 4 presents the results analysis and discussion. It consists of the
survey results, manufacturing practices in the Malaysian SMEs and
relationship between manufacturing practices and performance.
5. Chapter 5 concludes the main findings in relations to the objectives of the
research and provides suggestions for future research.
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