Abstract Number: 002-0556

OUTCOME OF THE EARLY ADOPTION OF

MANAGEMENT PRACTICES ON PERFORMANCE – INSIGHTS FROM THE HIGH

PERFORMANCE MANUFACTURING STUDY

Prof. Dr. Frank H. Maier* Dipl.-Kfm. Andreas Hammer, MBA

Dipl.-Kfm. Christoph Zentis

International University in Germany, Bruchsal International University, Campus 1

76646 Bruchsal, GERMANY e-mail: frank.maier@i-u.de phone: +49 7251 700 320

fax: +49 7251 700 350

to appear in the

conference proceedings of the

Second World Conference on POM and 15th Annual POM Conference, Cancun, Mexico, April 30 – May 3, 2004

* corresponding author

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ABSTRACT

Over recent years the challenges for manufacturing companies to maintain competitiveness in the

market place strongly increased due to complexity and dynamics of the more and more global

competition. The early adoption and implementation of management concepts like, quality

improvement, Just-in-Time, employee involvement, manufacturing strategy, Simultaneous

Engineering, and supplier involvement have been seen in the past as a means to continuously

improve the competitiveness, in particular in manufacturing plants. This paper investigates the

relationship between the early adoption of these practices and the success and competitiveness of

manufacturing plants based on the empirical research project High Performance Manufacturing.

The research uses structural equation modeling to investigate a set of hypotheses about the

relationship between adoption and objective performance measures and then relates this to the

perceived competitiveness of the plants. The results of the structural equation model confirm

many of the initial hypotheses.

INTRODUCTION

Manufacturing companies compete not only on quality and cost anymore. Time has also evolved

as a success factor to gain competitive advantage (Blackburn, 1991; Stalk & Hout, 1990;

Milling, Schwellbach & Thun, 2000). Additionally, globalization is an ongoing development that

requires change in technological and organizational structures (Skinner, 1985). In this

increasingly complex and dynamic environment, this can be faced best by implementing

management practices that cover more than just one single dimension of the company. New

technological and organizational developments make a more comprehensive restructuring of

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production processes for an increasingly flexible and efficient production not only possible, but

also necessary.

Through the implementation of management practices, companies can deal with this changing

market environment. All management concepts in common is the fact that they interact with

many company functions simultaneously und cause significant change. Ultimately, the aim is to

improve overall performance. There are a number of management practices documented in the

literature that aim for such an improved competitiveness. It is the responsibility of management

to choose and implement those concepts that are potentially capable of achieving manufacturing

objectives. The influence of the following six management practices on competitiveness is

examined:

1. Quality improvement

2. Strategic orientation of production

3. Just-in-Time

4. Employee-oriented concepts

5. Supplier involvement

6. Simultaneous Engineering

MANAGEMENT PRACTICES FOR BETTER MANUFACTURING PERFORMANCE

Quality improvement

Considerations of quality management programs depend heavily on the understanding of the

term quality. A unifying definition is difficult because a variety of understandings of quality in

theory and practice exists. In this analysis, we use a rather broad understanding of quality that

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not only considers the quality of products and services, but also the quality of working conditions

and processes (Zink, 1995).

Quality improvement programs passed different development stages over time. Early

considerations aimed only for minimizing product specific mistakes and securing the delivery of

as many flawless products as possible. Further refinement of such concepts lead to the aspiration

to prevent mistakes before they occur and to analyze the stability of the manufacturing process

(Böhme M., 1998). Quality as a companywide responsibility requires the integration of all

functions. Furthermore, employees of all hierarchy levels have to be involved. Also, customer

and process orientation are a prerequisite for establishing quality in a preventive manner.

Customer orientation means here that only durable customer satisfaction should be the measure

for quality. Process orientation means that quality should not be measured by the result only, but

throughout the entire manufacturing process (Zink, 1995).

Flynn, Schroeder & Sakakibara define quality management “as an integrated approach to

achieving and sustaining high quality output, focusing on the maintenance and continuous

improvement of processes and defect prevention at all levels and all functions of the

organization, in order to meet or exceed customer expectations” (Flynn, Schroeder &

Sakakibara, 1994, p. 342).

Strategic orientation of production

The strategic orientation of production is increasingly complex. Compared to market strategies,

the advantage is that it is harder for competitors to look through and to copy it (Bates, Blackmon,

Flynn & Voss, 2001). For many industrial companies, manufacturing is the biggest, most

complex and most difficult part of the company to manage. The manufacturing strategy

influences other sections of the organization as well and interacts with other functional areas

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within the company, but also beyond the company’s own borders (Fine & Hax, 1984). Therefore,

when developing and implementing the manufacturing strategy, it has to be aligned with other

functional areas and consistency with the corporate strategy has to be ensured in order to achieve

competitive advantages driven by manufacturing (Corsten & Will, 1995). Skinner was one of the

first who considered manufacturing to create competitive advantages (Skinner, 1969). Before, it

was considered to be more of a bottleneck for objectives set by other functions. It was only

expected that these objectives were achieved in the most efficient way. As of today, more and

more companies understand the importance of the manufacturing process as a significant

competitive factor that can make a considerable, competitive difference. In this new and

important role of the manufacturing function, the strategic orientation of production is very

important (Milling & Hasenpusch, 1999).

Hayes and Wheelwright define manufacturing strategy as “…a consistent pattern of decision

making in the manufacturing function that is linked to the business strategy” (Hayes &

Wheelwright, 1984, p. 32). They categorize manufacturing companies based on the strategic role

of manufacturing in four levels. On the first level, the manufacturing function is considered to be

subordinated to the other functions. On the other extreme, manufacturing is considered to be the

source of excellent competitive performance.

Just-in-Time

There are a number of definitions for the Just-in-Time concept that describe it to different extents

(for more detailed description, see Hartlieb, 1997). A rather broad definition describes Just-in-

Time as “…a production methodology, which aims to improve overall productivity through

elimination of waste and which leads to improved quality” (Voss, 1989), whereas the necessary

input units are essentially produced in the smallest lot size and as late as possible. In a rather

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narrow definition, Just-in-Time is considered to consist of possible procedures for the production

planning and inventory holding (Sakakibara, Flynn & Toni, 2001). Historically, the term evolved

as a description of the “Toyota production system” (for the evolvement of the Just-in-Time term,

see Görgens, 1994). Toyota began very early with the redesign of its production control from a

push concept to a pull concept (Monden, 1981; Ohno, 1988). The production control is designed

in a way that a system of tightly integrated order cycles emerged and order data are directly

transported via Kanbans between the consuming and the producing position, so there is a

decentralized control of the material flow (Lackes, 1995). Originating from the customer order,

the last production process creates orders to preceding processes that proceeds throughout the

integrated order cycle (Eisenkopf, 1994). The objective on all levels of procurement, production

and distribution is to procure, produce and distribute only the amount that the corresponding

succeeding level actually requires.

The Just-in-Time concept is by no means limited to manufacturing or procurement, but embraces

the entire logistical supply chain. Therefore, the pull-oriented control of the material and product

flows also covers the external material and product flows across several supply chain levels

(Stötzle, 1999). In this paper, we follow this extended view of Just-in-Time, “viewing Just-in-

Time as a comprehensive approach to continuous manufacturing improvement, based on the

notion of eliminating waste in all phases of the manufacturing process” (Sakakibara, Flynn &

Toni, 2001, p. 141).

Employee-oriented concepts

It is more and more acknowledged that employees are an important source for sustainable

competitive advantages of companies: “…, a highly involved workforce is essential to

implementing many of the new technologies, techniques, and practices used in organizations

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today. Employees must be involved if they are to understand the need for the innovations and

how they operate; they must be involved if they are to be committed to changing their behaviours

to work in new, improved ways” (Cotton, 1993, p. VII). Here, we understand employee

orientation in a broader way, as the creation of human working content and environment under

consideration of the entire personality of the worker with her individual strengths and

weaknesses (Köditz, 1998).

Lawler argues that employee-oriented concepts consist of the following four components

(Lawler, 1998):

1. Employees receive extensive information about performance measures, schedules,

objectives and strategies of the company in order to understand the business processes

and to participate in the planning and strategy building process in order to provide

meaningful improvement suggestions.

2. Employees participate in training programs to extend their skills and knowledge.

3. The remuneration system is designed in a way that employees are encouraged to process

more information and to improve their qualification.

4. The employees have more decision authorization.

Supplier involvement

With supplier involvement, companies pursue the philosophy to engage selected suppliers into a

long-term and collaborative relationship (Stuart & Mueller, 1994). This collaboration between

supplier and customer can comprise different tasks in, e.g., procurement, research and

development or logistics. In the traditional view, a supplier-customer relationship was mainly

focused on the procurement process. Now, it is attempted to establish a partnership between

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companies through supplier involvement that can be defined as “an agreement between a buyer

and a supplier that involves a commitment over an extended time period, and includes the

sharing of information along with a sharing of the risk and reward of the relationship” (Ellram,

1991). Therefore, the primary goal of customers shifts from a single-sided focus on procurement

prices to minimizing the costs of the extended supply chain.

Simultaneous Engineering

Simultaneous Engineering tries to pursue the simultaneous development of product and

production facilities compared to the previously followed sequential approach, where a certain

development project only proceeds to the next step when the preceding step is completed. In

such a traditional approach, time can be wasted due to alignment and handing over procedures at

the interface between the phases characterized by insufficient information and communication

exchange (Corsten, 1997). Simultaneous Engineering aims to improve both, effectiveness and

efficiency. Approaches to improve effectiveness consist of choosing the right technology,

establishing the right product portfolio and investing resources in the right projects. Efficiency

improvements are achieved by optimizing processes and organizational structures. Emphasis is

put on shortening the time to market, minimizing product and development costs and the strict

quality orientation on customer requirements (Bullinger et al., 1995).

MOTIVATION FOR EARLY ADOPTION OF MANAGEMENT PRACTICES

Penrose created the foundation of the resourced-based-view as early as 1959 (Penrose, 1959;

Wernerfelt, 1984). Penrose explains competitive advantages of a company not with its position

on the market but with the quality of the internal resources and resource combination. Therefore,

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the resource-based view links long-term success of a company to its specific resource equipment,

i.e. to strategic resource advantages (Bamberger & Wrona, 1996). Followers of the resource

driven perspective criticize the dominance of a pure market-based view of competitive

advantages because this does not give any indication on the requirements that have to exist

within a company to establish this competitive advantage in the first place (Welge, Al-Laham,

1999). The resource-based view requires a stronger focus on the individual company as a system

of company-specific capabilities and competencies, which especially also implies the diversity of

companies (Knyphausen, 1993).

Generally, resources can be defined as “…anything which could be thought of as a strength or

weakness of a given firm. More formally, a firm’s resources at a given time could be defined as

those […] assets which are tied semipermanently to the firm” (Wernerfelt, 1984, p. 172). It can

be distinguished between material and immaterial resources (Knaese, 1996). Immaterial

resources can be split up into human resource unrelated resources, as for example patents,

copyrights and organizational capabilities in form of routines, and human resource related

resources, as for example company culture, individual capabilities and specific know-how of

employees of the company.

Resources by the means of the resource-based view are characterized by their contribution to the

company success and the relative competitiveness of the company. In order to be considered

strategically relevant, they have to fulfill certain crucial criteria. These criteria are discussed in

the literature to some extent (see e.g. Collis & Montgomery, 1995; Peteraf, 1993). Based on this,

four criteria are briefly described in the following. It will also be explained to what extent

management practices have the potential to contribute to the creation of such resources.

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Uniqueness and immobility of resources

An important requirement for the strategic relevance of a resource is the uniqueness of the

resource. The more unique it is the better protected the resource is and the more sustainable is the

competitive advantage. Especially immaterial resources that are based on subtle routines and

specific capabilities of employees are highly unique. At the same time, this leads to only limited

mobility since it loses value when used outside its original application area or it is not tradable in

the first place (Peteraf, 1993).

An important objective of the considered management practices is the capability to create

organizational routines to change processes within the company in order to improve

effectiveness and efficiency. Successfully implemented, management practices are of strategic

value for the company and capable of creating advantages over competitors. Strategic decisions

that are related to the implementation of management practices can be considered highly unique.

Although the practices themselves are well-documented, decisions about the number, sequence,

combination and time of implementation of different management practices are highly company-

specific. Over time, this builds individual organizational skills and routines that can be sources of

competitive advantage.

Inimitability of resources

The better a resource can be protected from copying the higher is the strategic potential.

Protection from imitation can be generated by the following four isolation mechanisms (Rasche,

1994). First, each company has a history that contributed to the creation of the resource basis.

This history is unique, not reproducible and for an outside company hard to track and therefore

very difficult to imitate. Second, complex causal interrelations (causal ambiguity) between the

resources of a company and the resulting competitive advantages have to be mentioned (Collis &

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Montgomery, 1995, p. 122). Therefore, it remains unclear what organizational capabilities and

routines contribute to the relative competitive strength of the company. Third, complex

interaction patterns, consisting of immaterial and material resources (social complexity) make it

increasingly difficult to copy. Fourth, imitation barriers due to time characteristics can be

identified. Often, attempts to imitate a certain practice fail because experience deficits or know-

how shortcomings are very difficult to compensate due to inefficiencies as a result of time

pressure and multiplying effects in favor of the established company.

Although basically every company has the opportunity to implement management practices, the

implications of an implementation on organizational characteristics and the performance of a

plant are most likely different. Through different decisions during the implementation process, a

specific resource basis is developed over time that is not reproductive and therefore not to copy.

Causal ambiguity and social complexity evolve because it is unclear for competitors, which

resources and resource combinations generated in connection with the implementation of

management practices contributed to the success. Furthermore, companies that implement

management practices earlier can also begin earlier to accumulate application experience over

time and therefore realize a knowledge advantage.

Substitutability of resources

Another success contribution of a resource is determined by its potential to be substituted by

another resource. The less a resource is protected from substitution the lower its value and

strategic potential. The logic behind follows a similar argumentation as above.

Although the strategic value of an immaterial resource, built-up through the implementation of

management practices, can diminish because of substitute resources – e.g. developed

technological know-how is always in danger of substitution due to permanent technological

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change (Thiele, 1997) – the underlying significant and company-specific changes especially of

the immaterial resource basis make it also not easy to achieve the particular outcome.

Capability to create additional customer benefit

In order to be of competitive relevance, a resource has to significantly contribute so that the

products of a company provide additional benefit to the customer.

Successfully implemented management practices can have a positive influence on various

performance measures. An improvement of time, quality and cost factors can provide additional

customer benefit in form of a better price value of the products.

It can be concluded that management practices can build-up immaterial, strategic relevant

resources. Normally, not isolated but only combined resources lead to company-specific core

competencies and therefore sustainable competitive advantages (Grant, 1998). Core

competencies evolve from complex combinations of capabilities and routines (immaterial assets)

and material assets and not only consist of knowledge, but also of the ambition and skills (Suter,

1995). In order to be considered a core competency, according to Barney, such resources have to

significantly improve the competitive position of a company in a sustainable way, be, in line

with the resource-based view, not imitable and unique and, most of all, enable supportive

organizational structures and processes within a company to allow the full utilization of the core

competency potentials (Barney, 1997).

Management practices as comprehensive approaches that aim to not only extending or changing

the internal resource basis but always also changing organizational structures and processes

contribute especially to the development of utilizing core competencies (Reiß, 1997). Such a

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competency acquisition can only be achieved over time by learning capabilities, routines and

organization-specific supportive structures and processes (Schoemaker, 1992).

This leads to the hypothesis that a relatively early adoption of management practices has a

positive effect on the relative competitive position of a company in the creation of utilizable core

competency potentials because of learning effects and time-based advantages.

THE HIGH PERFORMANCE MANUFACTURING PROJECT

This analysis is based on data gathered in the context of the High Performance Manufacturing

(HPM) project, formerly also known as World Class Manufacturing project (Schroeder & Flynn,

2001). In this project, universities in five countries – Japan, USA, Germany, Italy and the United

Kingdom – collected data of manufacturing plants in three industries: the automobile industry,

the electronic industry and the engineering industry. Each plant received 26 structured

questionnaires for employees from different departments and hierarchy levels, asking questions

about the subjects technology management, manufacturing strategy, human resource

management, Just-in-Time, information management and quality management. The objective

was to gather information that cover a multitude of aspects of state-of-the-art manufacturing

structures. By using many different questionnaires it could not only be assured that data from

different departments and competent persons were collected but also that information from the

entire plant was gathered (Milling, 1998). All together, 155 manufacturing plants were included

in the analysis and served as a basis for the empirical research described in the following.

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THE DIFFUSION OF MANAGEMENT PRACTICES

The patterns of the diffusion of different management practices vary significantly between

plants, countries and industries. As can be seen in Table 1, concepts of quality improvement are

more implemented than any other management practice. In Italy, even all plants claim to have

such concepts in place; in Germany it is 93.3%. Less than half of all plants in most countries

adopted Simultaneous Engineering. Germany represents the exception with a diffusion rate of

63.6%. Just-in-Time concepts have the highest diffusion in the USA, even more than in Japan,

where this practice was originated. Since Just-in-Time normally aims to optimize the extended

supply chain (Zibell, 1990), it is even more surprising that only 20% of the plants in the USA

claim to have supplier involvement in place.

quality improvement Just-in-Time

employee- oriented practices

strategic manufacturing

orientation

supplier involvement

Simultaneous Engineering

GER 93.9% 72.7% 87.9% 87.9% 69.7% 63.6%JPN 78.4% 70.3% 70.3% 70.3% 70.3% 40.5%USA 83.3% 73.3% 60.0% 60.0% 20.0% 46.7%ITL 100.0% 58.8% 73.3% 73.3% 50.0% 41.2%UK 23.8% 19.0% 19.0% 19.0% 4.8% 23.8%

Table 1: Degree of implementation in 1996

Besides these differences in applied management practices, there are also considerable

differences in terms of when these management practices were introduced. Table 2 shows the

Median of the year of introduction of each management practice in the different countries. It is

noticeable that German plants introduced all but employee-oriented practices later than the

plants in other countries. Japanese plants, on the other hand, introduced all practices earlier than

the plants in the other countries.

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quality improvement Just-in-Time

employee- oriented practices

strategic manufacturing

orientation

supplier involvement

Simultaneous Engineering

GER 1990 1990 1988 1990 1993 1993JPN 1966 1981.5 1968.5 1980 1970 1987USA 1988 1988 1988.5 1989.5 1990.5 1992ITL 1986 1989.5 1989 1987 1990 1989UK 1988 1989 1989 1989.5 1972 1992

Total 1985 1988 1986 1987.5 1989 1990

Table 2: Median of the introduction year of management practices

When analyzing the data it has to be noted that the variance within each country is rather high. In

each country, there are plants that introduced several management practices significantly earlier

or later than the average. Overall, quality improvement concepts and employee-oriented concepts

were in average earlier introduced than the others.

timing quality improvement

Just-in-Time

employee- oriented practices

strategic manufacturing

orientation

supplier involvement

Simultaneous Engineering

GER early 15.1% 6.1% 27.2% 9.1% - -average 39.4% 33.4% 24.3% 39.3% 24.2% 27.3%

late 39.4% 33.3% 36.4% 39.4% 45.5% 36.4%JPN early 67.5% 43.2% 62.1% 29.7% 48.6% 24.3%

average 10.8% 24.3% 8.1% 40.5% 21.6% 16.2%late - 2.7% - - - -

USA early - 10.0% 6.6% 3.3% - 6.6%average 70.0% 43.3% 60.0% 33.3% 13.3% 33.3%

late 13.3% 20.0% 13.3% 23.3% 6.7% 6.7%ITL early 5.9% - 8.7% 11.7% 5.9% 14.6%

average 79.4% 41.1% 52.9% 52.9% 41.2% 26.5%late 14.7% 17.7% 11.8% 8.8% 2.0% -

UK early - - - - 4.8% 4.8%average 19.0% 14.3% 19.0% 9.5% - 19.1%

late 4.8% 4.8% - 9.5% - -

Table 3: Implementation timing in the different countries

In order to make the timing of implementation of management practices within each country

better comparable, we divided the manufacturing companies into three groups, depending

whether a concept was introduced early, average or late, as shown in Table 3.

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The sectioning was done according to the diffusion curve of the cumulative percentage of those

plants that implemented the corresponding concept. Therefore, each concept has a different time

interval for an early, average or late implementation, as shown in Table 4.

time intervalmanagementpractice

early average late

Quality improvement 1945 - 1978 1979 - 1990 1991 - 1997Just-in-Time 1974 - 1983 1984 - 1990 1991 - 1997Strategic orientation 1949 - 1979 1980 - 1990 1991 - 1997Employee orientation 1940 - 1980 1981 - 1991 1992 - 1997Supplier involvement 1936 - 1978 1979 - 1991 1992 - 1997Simultaneous Engineering 1966 - 1987 1988 - 1992 1993 - 1997

Table 4: Time interval for diffusion curves

PERFORMANCE MEASURES

All analyses of the HPM project follow the goal to analyze observed differences in the

performance of the companies for their underlying causes. Therefore, we analyze the impact of

the implementation time of the described management practices on important performance

measures.

A causal model is used that represents a system of hypotheses that describes the relationship

between a relatively early implementation time of each of the management practices and

performance measures. In another step, the analyses focus on the extent the performance

measures influence each other and whether there is a significant relationship between them and

competitiveness of a manufacturing company.

A total of eight objective performance measures are used. They cover time, quality, cost

situation, employee productivity, simplicity of product design, inventory turnover, internal

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development of production facilities and flexibility of production planning. In order to conduct

the model analysis and to compare the measures, performance measures are standardized across

all three industries. In addition, they have been adjusted so that high values always represent

better performance than lower values. Therefore, values larger than zero represent a better than

average performance among the analyzed plants.

The cost situation of a plant is derived by dividing the total manufacturing costs of a year by the

annual turnover. The result is currency-independent and allows for direct comparison of all

plants. The quality factor of a plant in this analysis is derived by the mean of three measures. The

ratio of products that pass the final inspection without rework and the percentage of scrap and

rework represent measures of internal quality whereas the ratio of products returned by

customers because of defects represents external quality.

The time factor of a manufacturing plant is also derived by the mean of three standardized

measures. Considered are the lead time of the products from the reception of the customer order

until the delivery of the products, the lead time from reception of the raw material until the

customer receives the order and the ratio of orders that are delivered on time. Due to the

increasing time-based competition, it is especially important for manufacturing operations to be

able to change the production plan with short notice or determining the production as late as

possible, respectively. The extent of such flexibility of the production planning is measured by

the length of the time horizon reserved for determining the production program.

The relation between the total manufacturing costs and the value of the inventory is interpreted

as a substitute measure for inventory turnover. The higher the inventory turnover the more

efficient the plant uses its capital equipment. The inventory value is determined by the average

annual value of finished goods, raw material and work in process. Furthermore, employee

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productivity is considered. High employee productivity provides potential for differentiation

compared to competitors because machine productivity is relatively similar among all companies

(Lay, Dreher & Kinkel, 1999). Employee productivity is determined by standardizing the

measure “value added per employee”.

The extent of internal development of production facilities is also determined by the mean of

three measures: The percentage of production facilities designed internally but produced

externally, the percentage of production facilities designed and built internally, and the number

of engineering change orders. The simplicity of product design is evaluated on a Likert-scale.

This is considered to be relevant because the complexity in terms of technological design and

variety of product choice should remain manageable despite increasing requirements and over-

engineering should be prevented (Ehrlenspiel, 1995).

Competitiveness is only measured by the companies’ perception of its own performance

compared to its competition, on a subjective base. The dimensions are quality of product

conformance, delivery performance, fast delivery, flexibility to change volume, cycle time (from

the receipt of raw materials to shipment), and customer support service. These elements are

weighed to determine an overall rating.

MODEL HYPOTHESES CONSIDERING PERFORMANCE MEASURES

The hypotheses are based on the assumption that the desired positive effects of management

practices on performance is dependent on the time of introduction. The earlier a certain practice

is implemented the longer the experience, the longer the learning curve and the better the

outcome. The following tables show the sets of hypotheses:

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Employee-oriented practices

There is a positive correlation between a relatively early adoption of employee-oriented practices and …

… flexibility. … internal development of production facilities. … product quality. … employee productivity. … time factor. … cost situation.

Strategic orientation of production

There is a positive correlation between a relatively early adoption of a strategic orientation of production and …

… product simplicity. … flexibility. … internal development of production facilities. … product quality. … inventory turnover. … time factor. … cost situation.

Just-in-Time

There is a positive correlation between a relatively early adoption of Just-in-Time practices and …

… flexibility. … product quality. … inventory turnover. … time factor. … cost situation.

Quality improvement

There is a positive correlation between a relatively early adoption of quality improvement practices and …

… product simplicity. … product quality. … flexibility. … employee productivity. … time factor. … cost situation.

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Supplier involvement

There is a positive correlation between a relatively early adoption of supplier involvement practices and …

… flexibility. … product quality. … inventory turnover. … time factor. … cost situation.

Simultaneous Engineering

There is a positive correlation between a relatively early adoption of Simultaneous Engineering and …

… product simplicity. … internal development of production facilities. … flexibility. … product quality. … time factor. … cost situation.

According to the sand cone model (Ferdows & Meyer, 1990), a cumulative relationship between

the components of the strategic triangle time, cost and quality exists. This, and other possible

correlations between the performance measures, are also examined. The following Figure 1

shows these relationships. Finally, it is assumed that all eight performance measures have a

positive relationship with the competitiveness of a manufacturing company.

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Employee productivity Time factor

Quality factor

Product simplicity

Cost situation

Inventory turnover

Internal development of production facilities

Flexibility of production planning

Figure 1: Suspected relationships among performance measures

MODEL EVALUATION AND IMPLICATIONS

As shown in Table 5, the goodness of fit of the model is assessed according to generally accepted

criteria (see e.g. Homburg & Baumgartner, 1995). As it is shown, all specified requirements are

met. Therefore, the goodness of fit is considered to be positive. The model confirms many but

not all model hypotheses. Figure 2 shows all significant (p<0.1) positive and negative

correlations of the estimated standardized regression coefficients.

Several significant positive correlations between the early implementation of management

practices and objective performance measures exist. However, no practice can claim to improve

all performance measures by an early implementation.

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fitness measurevalue in model

optimal value Assessment

chi-square 34.8 0 model assessment positive

chi-square / df 1.16 0 model assessment positive; value <2.5

significance level 0.25 1 Assumption of model; p>0.1

RMSEA 0.032 / values below 0.05 indicate a good model alignment

NFI 0.985 1 model assessment positive; NFI >0.9

CFI 0.998 1 model assessment positive; CFI >0.9

TLI 0.992 / model assessment positive; TLI >0.9

Table 5: Fitness measures for model assessment

Employee-oriented practices

Supplier involvement

Strategic orientation of

production

Simultaneous Engineering

Quality improvement

Just-in-Time

Time factor

Internal development of production

facilities

Flexibility

Quality factor

Employee productivity

Cost situation

Product simplicity

0,27

0,33

0,23

-0,660,33

0,37

0,26

-0,30

-0,42

0,24

Figure 2: Significant relationships between the experience with management practices and performance measures

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A relatively long experience with employee-oriented practices shows a significant impact on

three performance measures. Additionally, the fact that several negative correlations have been

identified indicates that companies also have to consider certain risks. Furthermore, we could not

find significant positive correlations with cost situation and inventory turnover. Also, longer

experience with individual practices does not necessarily lead to a better performance. However,

we did not examine whether longer experience with a combination of management practices

have a stronger positive influence on these performance measure.

According to our findings, the early implementation of the Just-in-Time concept influences only

the time factor positively. Therefore, companies having a relatively long experience with Just-in-

Time can build up advantages in the increasingly important time-based competition over time.

However, there was no significant correlation with the quality factor and inventory turnover,

although both variables are important elements of the Just-in-Time concept (Stötzle, 1999). One

possible reason might be that companies aim to improve their material flow rather than their total

inventory. Maybe companies can optimize their material flows throughout their processes,

reduce their work-in-progress inventory and increase their on-time deliveries. However, if

deliveries to the customer themselves cannot be speeded up despite faster material flows,

inventories of finished goods prevent an improvement of inventory turnover as measured by the

data. That there is not a significant correlation between the Just-in-Time concept and the quality

factor can be explained by the fact that in order to realize Just-in-Time, even average product

quality is sufficient and no further efforts are undertaken. The lack of a significant relationship

between Just-in-Time and cost situation indicates that efforts to improve the time factor also

cause certain costs. However, there is also no negative correlation present.

- 24 -

An early adoption of strategic orientation of production as a management practice, leads to

higher quality levels. This confirms the assumption that often only long-term commitment

enables a successful realization of such strategies since it requires a considerable amount of time

to apply proper operations in the production. Also, the results of such strategic initiatives are

only perceived after some time. Although there is a positive correlation between the strategic

orientation of the production and the time factor, cost situation and flexibility, they are not

significant. Therefore, the respective hypotheses cannot be supported.

Furthermore, the results of our study suggest that employee-oriented practices should be

implemented with a long-term perspective in order to have a positive impact on performance. In

our model, experience with employee-oriented practices influence positively flexibility, the

internal development of production facilities and employee productivity. Complex decisions

about employee-oriented concepts, especially on designing and planning organizational

structures, work content, personal development and company culture, cause positive long-term

changes for a company. However, we could not find a significant correlation with the

components of the strategic triangle, namely the cost situation, the quality factor and the time

factor. Although this was surprising, it indicates that additional factors have to be considered in

order to improve quality, cost and time performance measures besides the early adoption of

employee-oriented practices.

The early adoption of Simultaneous Engineering has a significant positive influence on product

simplicity. It seems that plants with many years of experience better realize the possible

improvements resulting from lower degrees of complexity. Surprisingly, increasing experience

with Simultaneous Engineering showed a significantly negative correlation with the quality

factor and the cost situation. It seems that a longer implementation of this concept bears certain

- 25 -

risks. An explanation might be that companies demand too much over time in terms of speed-to-

market. Too much concurrent work combined with time pressure might increase the risk of

designing a defective product (Ehrlenspiel, 1995) and raise costs beyond the benefits gained

(Corsten, 1997).

Regarding supplier involvement, the hypothesis that a long experience with the related practices

increases the quality factor was confirmed. It is very likely that companies who maintain good

relationships with their suppliers especially focus on activities that ensure high quality.

Developing such relationships over time improves the common understanding of quality

standards and even integrating quality assurance systems is more likely. Surprisingly, at a first

glance, there is a significant negative correlation between longer supplier involvement and

flexibility. However, this could be caused by accompanying practices like vertical disintegration

or reduction on the number of suppliers, which are only hard to reverse and increase the

dependencies. Such dependencies might also support opportunistic behavior of suppliers (for an

overview on opportunistic behavior, see Böhme A., 1999). This can also explain that there are no

significant positive correlations between the early adoption of supplier involvement and relative

advantages in terms of time, cost and inventory turnover.

The empirical data did not reveal any significant correlation between quality improvement

programs and the performance measures. Even the quality measure was not significantly

influenced. This can be explained by the fact that most companies in this study already

accomplished a relatively high quality standard, the ones with longer experiences as well as the

ones with less experience. It is possible that companies did improve continuously over time on

certain performance measures in the past. However, due to the fact that most of the underlying

data are cross-sectional rather than longitudinal, we cannot analyze this in more detail.

- 26 -

Nevertheless, the analysis suggests that most companies already realized the importance of

quality aspects for their competitiveness and achieved quality improvements even without long

experience.

We also tried to examine supposed relationships among the performance measures (see Figure 1)

and the competitiveness of the companies. However, only few significant correlations could be

identified, as shown in Figure 3.

Employee productivity

Time factorQuality factor

Product simplicity

Cost situation

Inventory turnover

Internal development of production

facilities

Flexibility of production planning

0,266

Competitiveness

-0,215

0,201

0,263

0,240 0,158

0,140

0,215

Figure 3: Significant relationships among the performance measures and competitiveness

Plants with a relatively high flexibility of production planning show also a significantly better

performance for the time factors and inventory turnover. Against expectations, there is a

significant negative correlation between inventory turnover and the time factor. One explanation

could be that both criteria are influenced by other criteria with opposite signs and therefore no

direct negative correlation exists. In such a case, a pseudo-correlation would exist (see Degen,

Lorscheid, 2001). This could evolve if a company tries to save costs by saving on procurement

- 27 -

and distribution on the one hand and by reducing inventory on the other hand. While the first

action potentially has a negative effect on the time factor, a reduction of inventory leads to a

higher inventory turnover and has therefore a positive effect on the time factor.

The only significant positive correlation with competitiveness was found for time, quality and

cost situation. Therefore, this strongly supports the hypothesis about the strategic relevance of

these three elements of the strategic triangle for manufacturing companies.

CONCLUSION AND FUTURE RESEARCH

Although the analyses described above did not support all our hypotheses about the impact of the

adoption of management practices on the performance on a company, the results point out that

the early adoption of management practices improve the operational performance. The fact that

several hypotheses could not be supported suggests that additional research has to be done. In

particular future research will try to investigate why for several variables a negative correlation

was identified where a positive was expected. This hints that additional measures and indicators

have to be considered in future research. In addition, the research investigates process related and

dynamic issues. However, since the largest portion of data in the database is only cross-sectional

and only some allow to analyze change over time, the results have to be interpreted in the light of

this. Therefore, the future research of the High Performance Manufacturing research groups aims

at collecting longitudinal data – the data collection already started at the end of 2003 – to

overcome this limitation.

- 28 -

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