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The Impact of Lean Implementation on Operational Performance: A

Study of Composite Manufacturing Companies in Malaysia


1.0 BACKGROUND INFORMATION

In 2012, the Asia-Pacific region accounted for 36 per cent of the worldwide
market in value for composite production and 41 per cent in volume, according to
Frederique Mutel, president and chief executive officer of the JEC Group, which is the
worlds largest composite industry organization, representing, promoting and expanding
the industry. From JEC groups annual survey the Asia-Pacific region has experienced
strong growth rates in terms of composites production 6.9 per cent per annum, according
to of the composites market since 2002. By 2015, the region is expected to account for 50
per cent of total composites production for all sectors, not just aerospace.
In Malaysia, Composites Technology Research Malaysia (CTRM), Asian
Composites Manufacturing (ACM) and SME Aerospace are winning composite work
from the majors (Mutel, 2013). CTRM is a major supplier for composites for the Airbus
A320 family, supplying 20 per cent of the wing surface. In addition, it is active on
Boeing programs (737, 767, 777 and 787), Eurocopter helicopters (EC130), Bombardier
CSeries and the Mitsubishi Regional Jet. ACM, meanwhile, which is a Boeing-Hexcel
company, produces advanced composite structures for the wings for Boeing aircraft and
is active on the 737, 747, 767 and 777 programs. Spirit Aerospace, the worlds largest
supplier of commercial aircraft assemblies and components, has established its own
subsidiary in Malaysia named SME Aerospace which manufactures composite sub-
assemblies for Airbus single-aisle aircraft, plus some A350 XWB work and 777 wing
works.
Mutel (2013) also stated that, with the growing use of composites in aerospace
production comes a challenge. The whole aerospace supply chain is under pressure to
deliver composites structures and parts with a triple challenge; quality, lightness and
safety. From upstream to downstream of the value chain, all segments have to be
optimized. A value chain is a business system which creates end-user satisfaction and
realizes the objectives of other member stakeholders (Walters & Lancaster, 1998).
Upstream of the value chain is receiving supply while downstream of value chain is
delivering the products to the customer. So, to ensure values are added from upstream to
downstream across the chain, adopting lean philosophy into the production system is the
right and wise decision to be made by any manufacturing firm because it is an approach
to deliver the up-most value to the customer by eliminating waste through process and
human design elements (Wong et al., 2009).
Lean manufacturing or lean production is a production philosophy, which
considers the expenditure of resources for any goal other than the creation of value for
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the end customer to be wasteful, and thus a target for its elimination (Shah & Ward,
2007; Antony, 2011). Lean also defined by Womack (1991) as a series of activities or
solutions to improve the value added (VA) process minimize non-value added (NVA)
operations which. This VA and NVA concept was derived from the Japanese style
production, especially the Toyota Production System (TPS). According to these two
definitions, lean concept is indeed in lined with the target of value chain optimization in
composite manufacturing as mentioned by Mutel (2013). The principles of lean
manufacturing have become state-of-the-art in modern manufacturing design and its
implementation has become a vital pre-requisite in global competition (Matt, 2008).
Therefore, composite manufacturing companies like CTRM, ACM and Spirit also
implement lean.



2.0 LITERATURE REVIEW


2.1 Lean Practice

The concept lean was originated in Japan after the Second World War when it
was realized that they could not afford to invest much now. The objective of
implementing lean in manufacturing industries is to reduce waste in every part such as
human effort, inventory, time to market, manufacturing space and become more
responsive to customer demand while producing quality products in the most efficient
and economical manner (Womack, 1990). The origins of lean production are attributed to
Ohno (1988), who was the promoter of Toyota Production System (TPS). At the same
time, some credit should be given to Henry Fords moving assembly line, since Toyota
benchmarked Fords after the Second World War (Taj & Morosan, 2010). Waste is
defined as anything that interferes with the smooth flow of production (MacDufile &
Helper, 1997). Wastes highlighted in TPS were overproduction, waiting, conveyance,
over processing, excess inventory, unnecessary movement, defects and unused employee
creativity. Lean philosophy is one of the initiatives that many major businesses around
the world have been trying to adopt in order to streamline the production process and
achieve optimization in resources (Womack 1991; Schonbergerm, 2007). It is designed to
eliminate waste in every area extending from production to customer relations, product
design, supplier networks and factory management.
Many recent researches related to lean focus on assessing and evaluating lean
performance or effectiveness (Abdul-Wahab et.al, 2013; Karim & Arif-Uz-Zaman, 2013;
Agus & Hajinoor, 2012; Ghosh, 2011, Rahman et.al, 2010). The level of implementing
lean or to what extend lean has been implemented in an organization here is rephrased as
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leanness. Achieving manufacturing leanness is a continuous process improvement
technique to generate optimum value from the process while measuring leanness and the
selection of right measuring metrics with appropriate implementation method is very
crucial. (Karim & Arif-Uz-Zaman, 2013). Gunasekaran (2004) stated firms which fail to
develop performance measurement metrics to evaluate improvement in effectiveness and
efficiency often fail to maximize the benefits of lean strategies. Hence, motivates
researchers to focus on measuring and evaluating leanness in firms which have been
adopted lean into their systems. However, different researcher proposed different
measuring method but they all divided and classified lean practice into several
dimensions or subscales.
Abdul-Wahab, Mukhtar & Sulaiman (2013) had measured leanness in lean
manufacturing practices based on seven (7) dimensions which are workforce,
manufacturing process, manufacturing planning, product development, visual information
system, supplier and customer. Agus & Hajinoor (2012) derived lean dimensions based
on Davis & Heineke (2005) study. There were five (5) dimensions; reduce setup time,
kaizen, pull production system, shorter lead time and small lot sizes. Based on study done
upon 139 manufacturing companies in Indonesia, Nawanir, Teong & Othman (2012)
derived nine (9) mostly implement lean practices among Indonesian firms. Those nine (9)
practices are; flexible resources, cellular layouts, small lot production, kanban, quick
setup, uniform production level, quality at the source, total productive maintenance and
supplier network. Ghosh (2011) evaluated lean manufacturing performance in India
manufacturing plants. Within the scope of his study, seven (7) top rating lean dimensions
focused by 79 manufacturing plants in India are; supply performance, focus on customer
needs, implementing pull system, setup time reduction, total productive maintenance,
statistical process control and cross-departmental problem solving. Rahman,
Laosirihongthong & Sohal (2010) adopted thirteen (13) practices out of 21 management
practices that are associated with lean systems identified by Shah & Ward (2003). The
dimensions are as follow:
i. reducing production lot size;
ii. reducing setup time;
iii. focusing on single supplier;
iv. implementing preventive maintenance activities;
v. cycle time reduction;
vi. reducing inventory to expose manufacturing, distribution and scheduling
problems;
vii. using new process equipment or technologies;
viii. using quick changeover techniques;
ix. continuous/one piece flow;
x. using Kanban;
xi. removing bottlenecks;
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xii. using Pokayoke; and
xiii. eliminate waste.
Meiling et.al (2012) and Perez et.al (2010) used five (5) lean production principles
established by Womack & Jones (2003) in implementing continuous improvement
program in their respective manufacturing business studies. The five (5) principles are;
specify value, identify value stream, create flow, using pull system and endless strive for
perfection. These principles was originally derived from Womack (1990), which only
classified the principles into only three (3) dimensions; identification of value,
elimination of waste and generation of smooth flow.
Based on these literature surveys, it can be concluded that various dimensions of
lean principles have been classified and categorized by recent researchers are taken from
these three principles introduced by Womack (1990). Differentiating between value
added and non-value added operations or waste in a production system (Bhasin, Singh,
Vamsi et.al; Manzouri et.al, 2013) is regarded as practicing the first lean principle which
is identification of value. Reduction of setup time outlined as lean dimensions by Agus &
Hajinoor (2012), Nawanir et.al (2012), Ghosh (2011) and Rahman et.al (2010) can be
considered as the act of eliminating waste because setup time does not add value to the
product manufactured and customers never pay for that. Meanwhile, using pull
production system (Agus & Hajinoor, 2012; Nawanir et.al 2012; Ghosh, 2011; Rahman
et.al, 2010) or originally known as Kanban is the implementation of a method to
generate smooth flow in the manufacturing system. It is clear that the core principles of
the lean philosophy are identification of value, elimination of waste and generation of
smooth flow introduced by Womack (1990). Therefore, researcher will use these lean
dimensions as independent variables in the research model of this study.


2.2 Operational Performance

As Gurumurthy & Kodali (2011) found that by achieving significant improvement
in performance, an organization can meet the increasing demand without any additional
resources, it shows that lean practice and organization performance had cross-linked.
Additional resources here can be referred as waste which is something need to be
eliminated according to lean principles. Hence, there are quite numerous studies were
done focusing on lean implementation towards operational performance or efficiency.
Manzouri et.al, (2013) stated halal food firms which had implemented lean supply chain
are due to their need to improve the firms operational performance. Dora et.al (2012)
had studied application of lean practice in order to improve operational efficiency in
context of SME food enterprises within German, Hungary and Belgium. Rahman et.al
(2010) had examined the extent to which lean management practices are adopted by
manufacturing organizations in Thailand and their impact on firms operational
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performance. A study to investigate the relationship between the adoption of lean
manufacturing and market share and operational flow (value creation) of companies in
the agricultural machinery and implements sector in Brazil was done by Forrester et.al
(2010) also shows that studies on relation between lean implementation and operational
performance indeed an attention topic to researchers.
There are five basic operational performance objectives that are considered to
apply to all types of operations (Slack et al., 2004; Hill, 2000). These all-pervasive
operational performance objectives are quality, speed, dependability, flexibility and cost
and they provide the key impetus for operations management tools and techniques, such
as kanbans, SPC, ERP, and just-in-time, all of which are focused on doing things better,
faster, more efficiently, and more cheaply. Gupta et.al, (2013) measured operational
performance in tire manufacturing firm according to first time quality, manpower
productivity, machine efficiency, defects and scraps quantity and production efficiency.
Nawanir, Teong & Othman (2012) measured performance of Indonesian manufacturing
companies in terms of quality, inventory minimization, on-time delivery, cost reduction
and productivity. Meanwhile, Ghosh (2011) in his study on manufacturing plants in India
classified operational metrics into productivity, first-pass correct output, conversion cost
reduction, inventory reduction, lead time reduction and space reduction.
Rahman, Laosirihongthong & Sohal (2010) used four criteria to measure the
operational performance. These criteria are quick delivery compared to the major
competitor, unit cost of product relative to competitors, overall productivity and overall
customer satisfaction. These measures were derived from several criteria, which have
been conceptualized and used in previous empirical studies of lean manufacturing and
supply chain management (Tan, 2001; Shah & Ward, 2003). Hon (2003) had investigated
the literature from 1960 and demonstrated that the performances were measured in terms
of cost, productivity and quality. He measured lean implementation upon operational
performance by calculating time, cost, quality, flexibility and productivity
simultaneously. Most of the previous models, methods and theories revealed that
performance indicators were measured in terms of cost, quality, lead time, processing
time, operations time and VA time (Shah & Ward, 2003; Kuhlang et al., 2011; Zarei &
Fakhrzad, 2011). Core and most often mentioned operational performance dimensions
(Ward et al., 1998; Narasimhan & Jayaram, 1998; Pagell & Krause, 2002) are quality,
delivery, flexibility and cost.
Several studies postulated that lean has become a powerful approach in escalating
operations performance in terms of quality (Fullerton & Wempe, 2009; Shah & Ward,
2003), inventory minimization (Chong et al., 2001; Fullerton & McWatters, 2001),
delivery (Ahmad et al., 2003, 2004), productivity (Fullerton & Wempe, 2009; Singh et
al., 2010), and cost reduction (Cua et al., 2001; Hallgren & Olhager, 2009). Based on
these literatures, authors found that quality, cost and time-related measures are most
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significant for operational performance evaluation as implication of implementing lean
practice.


3.0 PROBLEM STATEMENT

At the operations level, several studies postulated that lean manufacturing (LM)
has become a powerful approach in escalating operations performance (OP) in terms of
quality (Abdul-Rahman, 2013; Nawanir, 2012; Fullerton & Wempe, 2009; Lee, 2006),
cost reduction (Abdul-Rahman, 2013; Nawanir, 2012; Perez et.al, 2010; Seth et.al, 2007),
and shorter lead time (Singh; Vamsi; 2013; Chowdary & George, 2012; Gosh, 2011;
Nepal, 2010).
Various studies concluded that LM has helped numerous companies in various
sectors to improve its performance including Electrical Switchgear Production (Karim &
Zaman, 2013), Radial Tire Manufacturing (Gupta, Acharya & Patwardhan, 2013),
Pharmaceutical Ointment and Cream Production (Chowdary & George, 2012),
Biomedical Bone screws Production (Nepal, Natarajarathinam & Balla, 2010). However,
reported cases of similar studies (application of lean manufacturing) in composite
manufacturing industry are none found from the literature survey.
While there is a growing number of anecdotal and empirical evidence in favor of
LM in manufacturing environment, only few rigorous research examining the link
between LM and OP in Malaysia. Much of the research had examined the impact of lean
practice on performance in the developed countries, such as Japan, the USA, the UK,
Germany, Italy, etc. (Nawanir, Teong & Othman, 2012). Amoako-Gyampah & Gargeya
(2001) suggested that not much attention had been paid to investigate the lean
performance relationships in the developing countries. Recent researches found on lean
practice done in Malaysia were still at empirical studies (Abdul-Wahab et.al, 2013; Ali
et.al, 2012; Kee & Soh, 2011). Other than that, researches related to supply chain
management (Manzuori et.al, 2013; Agus & Hajinoor, 2012), SME (Rahman et.al, 2013)
and construction business in Malaysia (Mahani et.al, 2012) also found.
Author believed that in order to obtain a clearer picture regarding the impact of
lean practices on operational performance in developing countries, investigation in the
context of composite manufacturing companies resided in Malaysia is substantially
required as contribution for future development of Malaysia secondary industries and for
future research need in academic since the research within this area is still absent and
nowhere to be found yet. The purpose of this paper is to investigate the interrelationships
between LM, and OP in Malaysian composite manufacturing companies. Specifically, the
extent of LM implementation is examined comprehensively by using the three basic
principles of lean philosophy (Womack, 1990); whereas OP is assessed in terms of
shorten lead time, cost reduction and optimum quality.
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4.0 RESEARCH MODEL

From the literatures studied, and based on problem highlighted, a conceptual
framework is constructed as in Figure 4.1. This framework is the foundation or base for
the whole study which theorizes the relationships among the several factors that have
been identified as important to the research problem. The factors are classified into two;
independent and dependent variables. The independent variable is the variable that is
varied or manipulated by the researcher, and the dependent variable is the response that is
measured. These variables are extracted based on the research problem which had been
proved through literature survey.


Independent Variables Dependent Variables







Figure 4.1: Conceptual Framework
















LEAN PRINCIPLES
i. Identification of Value
ii. Elimination of Waste
iii. Generating Smooth Flow
OPERATIONAL
PERFORMANCE
i. Time
ii. Cost
iii. Quality
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5.0 RESEARCH PURPOSE

This study aims to investigate the impact of lean principles implementation and
design on composite manufacturing companies operational performance. From the main
research purpose, several research objectives are derived to clarify and measure the goals
pursue in this study. Research objectives influence the research strategy that will be
employed in order to either provide answers to the research questions. Formulation of
precise research questions requires deep insights into the domain of study. Questions that
are to be answered should be fit the research objectives.


5.1 Research Questions

Based on the problem statement, several research questions are derived as
guideline to ensure the objectives of the study will be achieved. To achieve each
objective of the study, each research question needs to be answered. The research
questions are as follows:
1. To what extend has the company been adopting the lean principles?
2. How the companys operational performance is measured?
3. What are the relationships between lean principles with operational performance
dimensions?
4. Does implementing lean into its system affect the companys operational
performance?


5.2 Research Objectives
Objectives of the study are determined and guided by the outlined research
questions, earlier. The objectives prescribe the findings that will be obtained from the
study. An objective is considered as achieved when the related research question has been
answered. The research objectives are as follows:
1. To examine comprehensiveness of lean adoption by the company using 3 core
lean principles
2. To measure companys operational performance in the context of time, cost and
quality
3. To specify relationships between lean principles with operational performance
dimensions?
4. To examine affective of lean implementation on the companys operational
performance


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6.0 METHODOLOGY


6.1 Research Design

This research is a conclusive research to ascertain in detail about the research
problems which describes in detail, determine the association and the effect of
relationships between lean principles as independent variables and operational
performance as dependent variable. It is also a survey-based and cross-sectional study. A
cross-sectional study represents a snapshot of one point in time (Cooper and Schindler,
2003). Organization was the unit of analysis. The samples will be drawn from three (3)
major composite manufacturing companies acknowledged by JEC Group (worlds largest
composite industry organization). Respondents will be handed a set of close-ended with
ordered choice questionnaires adapted from several sources. This study emphasizes in
measuring lean practices based on three (3) core lean principles and operational
performance in three (3) measures (time, cost and quality). Operational performance will
be measured based on the achievement of the related firms during the past five (5) years
to reduce the influence of temporary fluctuations in the variables. This research also
categorized as a quantitative study since the outcome of the study will be evaluated from
quantitative data.
Steps of conducting study to achieve the research objectives consist of six (6)
stages as shown in Figure 6.1. The first step is gathering information and studying
literature (theoretical reading and previous research review). The second stage is
modelling and designing research strategy based on information obtained from the
previous step. Then the proceeding step will be construction and distribution of the
questionnaires. From the collected data, reliability test will be done to check the validity
of the handed questionnaires. If the data pass the reliability test, the procedure will be
extending to data analysis stage. The final step will be report writing to document and
record the research findings.


6.2 Population and Sampling

JEC Group as the worlds largest composite industry organization has
acknowledge Composites Technology Research Malaysia (CTRM), Asian Composites
Manufacturing Sdn. Bhd. (ACMSB) and SME Aerospace as major composite
manufacturing companies which represent Malaysia in Asia-Pacific region (Mutel, 2013).
These three (3) companies will be the population the researcher focus on. Meanwhile,
Planning and Operations Managers, Executives, Engineers and Execs are the population
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the target samples. These are the personnel which directly responsible for the products
manufacturing planning and implementations.















No


Yes










Figure 6.1: Flow chart of research development
START
Gathering Information and Literature
Study
Modeling & Designing Research
Strategy
Constructing, Piloting & Distributing
Questionnaire
Analyzing Data
Descriptive
Correlational
Regression

END
Reliability Test
Report Writing
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6.3 Data Collection

Introduction letter will be mailed and e-mailed to target sample companies. After
7 days from the date the mails are sent, the non-response target samples will be
telephoned to confirm feedback. An industrial visit to each target sample company will
be arranged if positive feedback is to be received. Using the survey questionnaire sets,
data on lean implementation will be collected from production exec, department
executives, middle and senior managers which directly involve in manufacturing of parts
belonging to three (3) major composite manufacturing firms in Malaysia as mentioned
earlier. The questionnaires will be distributed both by hand and electronic mail to the
respondents and they will be informed to return the completed survey booklets on the
spot or within 7days of receipt via electronic mail. Meanwhile, for measurement of
operational performance of the related firms, data collection will be based on historical
data for quality, manufacturing lead time, on time delivery and total cost of production
for the past 5 years.


6.4 Data Analyses

SPSS version 22.0 for Windows OS was the statistical software program will be
used to perform all data analyses procedures. First, the validity of the questionnaires was
analyzed using Reliability Analysis. Second, Descriptive Statistics will be done to
quantify the mean, standard deviation, maximum and minimum responded score of the
computed independent variables and dependent variable level. Third, Correlational
analyses and regression analyses will be used to examine the associations among lean
principles and operational performance (time, cost, quality). Lastly, Regression Analysis
was done to determine whether lean principles as independent variables really affected
operational performance as dependent variable or not.
Descriptive statistics are used to summarize quantitative data, enabling patterns
and relationships to be discerned which are not apparent in the raw data (Hussey &
Hussey, 1997). The common purpose of these techniques is to summarize both variability
(that is the spread of the numbers) and the center of data. Sekaran (2000) describes the
mean of a sample as a measure of central tendency that offers a general picture of the
data without unnecessarily inundating one with each of the observations in a data set or
sample. On the other hand, the aim of carrying out correlational analysis is to determine
the associational relationships between variables in a research project. Meanwhile,
standard linear regressions usually used to explore how much of the variance in
dependent variables can be explained by independent variables.

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6.5 Research Budget & Schedule

A Gantt chart (Figure 6.2) to illustrate the research schedule has been developed.
The chart exhibits the period taken or time consumption of each activity that has and will
be done during conducting the research. It also visualizes the dependency (precedence
network) relationships between activities, current status (progress) and milestones of this
research. The blue columns indicate the research progress is running, while the green
columns indicate research progress is on hiatus due to certain priority event (revision and
examination weeks) and public holidays (Eid Al-Fitri). The red columns represent the
milestone which will be the benchmarking throughout conducting this research study.


Figure 6.2: Research Schedule


Developing a budget is an important part of the proposal process because it gives
description of a financial plan. This research budget is a briefed statement outlining
estimated project costs to fund the research activities. Normally a budget describes a
period in the future (estimation). Estimated budget for conducting this research is
presented in Table 6.1. The budget is allocated based on eight (8) different activities. The
estimated total budget is MYR 3,700.00. The highest allocated budget is on course fee,
follow by industrial visit to all three (3) composite manufacturing companies and the
assessment fee.


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Table 6.1: Research Budget

Activity Resource
Sub-Total (MYR)
1. Literature study
Journals, conference
papers, reports
300
2. Data collection
Communication
50
Industrial visit
500
Printing
50
Distribution
100
3. Analyzing data SPSS license
100
4. Writing draft report Printing
50
5. Supervisor's review Course fee (6 credits)
1800
6. Writing final report Printing
100
7. Compiling reports Hardcover
150
8. Assessment

500
Total

3700
































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