Malaysia, Total Vehicle Prodution, 2013-2015

(1)

The copyright © of this thesis belongs to its rightful author and/or other copyright owner. Copies can be accessed and downloaded for non-commercial or learning purposes without any charge and permission. The thesis cannot be reproduced or quoted as a whole without the permission from its rightful owner. No alteration or changes in format is allowed without permission from its rightful owner.

(2)

FRAMEWORK FOR THE IMPLEMENTATION OF A SUPPLIER KANBAN SYSTEM IN A SMALL AND MEDIUM SCALE INDUSTRY

BY

PIRABARKARAN PONNIAH

TITLE PAGE

Thesis Submitted to

Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia

In Fulfilment of the Requirement for the Degree of Doctor of Management

(3)

(4)

(5)

iii

PERMISSION TO USE

In presenting this thesis in fulfilment of the requirements for a Post Graduate degree from the Universiti Utara Malaysia (UUUM), I agree the Library of this university may make it freely available for inspection. I further agree that permission for copying this thesis in any manner, in whole or in part, for scholarly purposes maybe granted by my supervisor(s) or in their absence, by the Dean of Othman Yeop Abdullah Graduate School of Business where I did my thesis. It is understood that any copying or publication or use of this thesis or parts of it for financial gain shall not be allowed without my written permission, It is also understood that due recognition shall be given to me and to the UUM in any scholarly use which may be made of any material in this thesis.

Request for permission to copy or to make other use of materials in this thesis in whole or in part should be addressed to:

Dean of Othman Yeop Abdullah School of Business Universiti Utara Malaysia

06010 UUM Sintok Kedah Darul Aman

(6)

iv ABSTRACT

The framework for the implementation of Supplier Kanban System was developed as a simple step-by-step guide for small and medium-sized companies (SMEs) with limited resources that wish to implement the system for an extended period of time.

The model takes into consideration of the limited resources of manpower, time and money available to the SME companies and allows the companies to freely select only some (if not all) of the elements of the system, and apply it at their own comfortable pace. The framework was developed using an Action Research model which consists of two parts: (i) the core action research project, and (ii) the thesis action research project. The core action research project was undertaken to solve the supply chain and warehouse management problem in APMAE, the company where the research was carried out. The thesis action research project developed the Framework for the Supplier Kanban System by combining the knowledge, learning and experience gained from both the projects. The research was conducted over the four Action Research Cycle and Continuous Learning Cycles for a period of three years and the methods used to collect data were participant observations, participant interviews, focus group interviews, diary keeping and document research. The outcome from the core action research project was a twenty nine percent reduction in inventory and a thirty percent reduction in manpower resulting in a successfully implemented Supplier Kanban System in APMAE. The outcome from the thesis action research project is the framework for the implementation of a Supplier Kanban System.

Keywords: Supplier Kanban System, Action Research, Automotive Components

(7)

v ABSTRAK

Rangka kerja pelaksanaan Sistem Pembekal Kanban telah dibangunkan sebagai panduan langkah mudah untuk kegunaan syarikat kecil dan sederhana (PKS) yang mempunyai sumber yang terhad dan ingin melaksanakan sistem ini untuk suatu jangka waktu yang lama. Model ini mengambil kira sumber daya tenaga kerja yang terhad, masa dan wang yang sedia ada untuk syarikat-syarikat PKS dan membolehkan syarikat bebas memilih mana-mana (jika tidak kesemua) unsur-unsur sistem, dan menerapkannya mengikut kesesuaian kadar masa mereka sendiri.

Rangka kerja ini dibangunkan menggunakan model Kajian Tindakan yang terdiri daripada dua bahagian: (i) projek kajian tindakan teras dan (ii) projek kajian tindakan tesis. Projek kajian tindakan teras telah dijalankan untuk menyelesaikan masalah rantaian bekalan dan pengurusan gudang di APMAE iaitu syarikat tempat penyelidikan ini dijalankan. Projek kajian tindakan tesis telah membangunkan Rangka Kerja bagi Sistem Pembekal Kanban dengan menggabungkan pengetahuan, pembelajaran dan pengalaman yang diperoleh dari kedua-dua projek tersebut. Kajian ini telah dijalankan dengan empat Kitaran Kajian Tindakan dan Kitaran Pembelajaran Berterusan untuk tempoh tiga tahun dan kaedah yang telah digunakan untuk mengumpul data adalah menerusi pemerhatian turut serta, temu bual peserta, temu bual kumpulan fokus, penyimpanan dairi dan analisis dokumen. Hasil daripada projek kajian tindakan teras telah menunjukkan pengurangan inventori sebanyak dua puluh sembilan peratus dan pengurangan tiga puluh peratus untuk tenaga kerja.

Dapatan ini membuktikan kejayaan pelaksanaan Sistem Pembekal Kanban di APMAE. Hasil daripada projek kajian tindakan tesis adalah rangka kerja bagi pelaksanaan Sistem Pembekal Kanban.

Kata kunci: Sistem Pembekal Kanban, Kajian Tindakan, Komponen Automotif

(8)

vi

ACKNOWLEDGEMENT

I will like to express my gratitude to my supervisor Professor Madya Dr. Mohamad Ghozali Hassan who encouraged and motivated me throughout this academic journey and guided me towards the completion and submission of this thesis. I will also like to express my special appreciation and thanks to my co-supervisor Professor Madya Dr. Zulkifli Mohamed Udin. He was a tremendous source of inspiration and a great mentor who encouraged and coached me in a scholarly manner to carry out the research activities.

I am also indebted to my fellow colleagues at APMAE who provided invaluable inputs and support for the completion of the research. Lastly, I will like to thank my wife and children who supported me throughout this endeavour and encouraged and motivated me until I crossed the finish line. This has been an incredible journey of pleasure and pain, difficulty and disappointments, endless late nights, and groggy workdays but the reward is worth the effort and I will do it again without hesitation.

(9)

vii

Table 3.5 Manpower saving from implementing Supplier Kanban System ... 137 Table 3.6 Participant Observation Timetable... 142 Table 3.7 Complete List of personnel involved in Participant Interview. ... 145 Table 3.8 List of Focus group members... 148 Table 3.9 Purpose of Focus Interview... 148 Table 3.10 List of Personnel assigned to do Diary Keeping ... 150 Table 3.11 Work Teams and committee members... 155 Table 3.12 Broad objective of work team ... 156 Table 3.13 Work teams meeting schedules ... 156 Table 3.14 Grouping of Supplier into Phases ... 160 Table 3.15 Participant Observation Time Table ... 163 Table 3.16 List of Interview Participant for Phase 1 Implementation Activity ... 164 Table 3.17 Focus Group Participants after Phase 1 Implementation ... 165 Table 3.18 Objective of the Focus Group Interviews after Phase 1

Implementation... 165 Table 3.19 List of Diary Keeping Activity Participants ... 167 Table 3.20 Delivery Timetable for Phase 1 Group of Suppliers ... 173 Table 3.21 Participant Observation Time Table Cycle 3 ... 184 Table 3.22 List of Diary Keeping Activity Participants_ Cycle 3 ... 186 Table 3.23 Supplier in Phase 2 group ... 188 Table 3.24 Milk run collection schedule for Phase 2 group of suppliers ... 190 Table 3.25 Milk run collection schedule for Phase 2 group of suppliers ... 191 Table 4.1 Summary of parts stored in warehouse ... 208 Table 4.2 Parts stored in warehouse categorized by size ... 209 Table 4.3 Bill of Materials for making Washer (Tank Large Parts only) ... 209

(23)

xxi

Table 4.4 Washer System Line Production Capacity... 210 Table 4.5 Total Stock of Large Parts used in Production of Washer System ... 211 Table 4.6 Maximum number of Washer Tanks which can be produced with

stock in hand... 211 Table 4.7 Time spent by staff repacking items sent by suppliers ... 221 Table 4.8 Amount of Time Spent by Supervisor Exchanging Defective Part ... 222 Table 4.9 Non Productive Time spent by Supervisor ... 223 Table 4.10 Record of Time Spent by APMAE’s staff doing Schedule Revisions .. 224 Table 4.11 Amount of Time by Store Hand Moving Goods Blocking Pathway .... 225 Table 4.12 Redundant Time Spent Moving Stock ... 226 Table 4.13 Number of Schedule Revision for Different Size Parts ... 227 Table 4.14 Reasons for revision of delivery schedule segregated by part size ... 228 Table 4.15 Stock held in warehouse in December 2011 (pallets) ... 230 Table 4.16 Warehouse Parts storage by Location- September 2012 to

November 2012 ... 240 Table 4.17 Warehouse Part Storage – Categorised by Size ... 241 Table 4.18 Time Supervisors spend Exchanging Defective Darts ... 253 Table 4.19 Comparison of Time Spent by Supervisors Exchanging Defective

Parts ... 254 Table 4.20 Number of time parts rejected to supplier for not following standard .. 255 Table 4.21 Comparison of Phase 1 suppliers’ performance before and after

intervention... 256 Table 4.22 Time Spent by Production Supervisor Exchanging Defective Parts

from Phase 1 Supplier ... 273

(24)

xxii

Table 4.23 Time Spent by Production Supervisor Exchanging Defective Parts from Phase 2 and Phase 3 Suppliers... 273 Table 4.24 Comparison of Phase 2 and Phase 3 Suppliers’ Performance before

and after Intervention ... 275

(25)

xxiii

LIST OF FIGURES

Page Figure 1.1 APMAE as a subset of the Malaysian Automotive Industry and

Global Automotive Industry... 4 Figure 1.2 Global Vehicle Production Volume 2013-2015. ... 7 Figure 1.3 Global Vehicle Production Volume 2013-2015 ... 9 Figure 1.4 APMAE Organization Structure ... 12 Figure 1.5 APMAE Plant Layout showing manufacturing floor and warehouse

sub division. ... 13 Figure 1.6 APMAE’s Products ... 14 Figure 1.7 Manufacturing Floor with Shop Floor Kanban System Layout. ... 17 Figure 1.8 Production Kanban Card movement ... 18 Figure 1.9 Move Kanban Card Movement ... 19 Figure 1.10 Empty Rectangle Draw on Warehouse Floor. ... 20 Figure 1.11 Kitting Kanban Card movement ... 20 Figure 1.12 Alternator Line Kanban System ... 21 Figure 1.13 Kanban Signal Post ... 23 Figure 1.14 Production line sequence of Kanban activities, 1, 2, 3, 4, and 5. ... 25 Figure 1.15 CKD components delivery to Production ... 27 Figure 1.16. The detail layout of the Warehouse. ... 30 Figure 1.17 Warehouse Organization Structure ... 31 Figure 1.18 APMAE’s Finished Goods Delivery to Customer ... 33 Figure 1.19. CKD Kit for building an alternator. ... 34 Figure 1.20 Unit of Analysis. ... 57

(26)

xxiv

Figure 2.1 Relationship between TPS, Kanban System and APMAE’s Shop Floor Kanban System and Supplier Kanban System ... 70 Figure 2.2 The Toyota Production System House ... 72 Figure 2.3 TPS as an interlocking set of three elements ... 73 Figure 2.4 Overview of purpose of literature review. ... 80 Figure 3.1 APMAE’s philosophical stance leading to selection of research

methodology ... 108 Figure 3.2 Susman and Evered’s Action Research cycle ... 117 Figure 3.3 Perry and Zuber Skeriit Ortun Action Research Model ... 119 Figure 3.4 Continuous learning cycle ... 121 Figure 3.5 Pictures taken during the preliminary survey showing overstocking ... 123 Figure 3.6 Storehand repacking stock from suppliers into APMAE’s

production approved polyboxes ... 124 Figure 3.7 Steering Committee organization structure ... 128 Figure 3.8 Brainstorming output – Insufficient storage space ... 133 Figure 3.9 Brainstorming output-Redundant work ... 134 Figure 3.10 Brainstorming output-Logistic Issues ... 135 Figure 3.11 Cycle 1 of the Action Research Spiral ... 138 Figure 3.12 Cycle 2 of Action Research Spiral ... 158 Figure 3.13 Suppliers Kanban Card Process flow at Suppliers’ factory ... 176 Figure 3.14 Cycle 3 of the Action Research Spiral ... 178 Figure 3.15 Cycle 4 of the Action Research Spiral ... 194 Figure 4.1 Warehouse Operations Observation ... 214 Figure 4.2 Observation of Defective Part Exchange ... 215 Figure 4.3 Observation of the Delivery Schedule Revision Process ... 216

(27)

xxv

Figure 4.4 No of times a comment was made by interviewee ... 218 Figure 4.5 Continuous Learning Cycle 1 ... 234 Figure 4.6 Warehouse Floor on 30^th November 2012 ... 242 Figure 4.7 Warehouse Space between racks on 30.Nov.2012 ... 242 Figure 4.8 Observation of the Receiving, Storage for Large Parts after

Intervention ... 245 Figure 4.9 Observation of the Schedule Revision Process after Intervention... 246 Figure 4.10 One poly box of Washer Tanks in multiples of fifteen ... 247 Figure 4.11 No of times a comment was made by interviewee ... 249 Figure 4.12 Continuous Learning Cycle 2 ... 260 Figure 4.13 Pie chart showing response from employees on their perception of

the Supplier Kanban System ... 265 Figure 4.14 Pie chart showing response from employees on their feeling on

the progress of the Supplier Kanban System ... 266 Figure 4.15 Comments made repeatedly by employees to the informal

questions during dinner ... 268 Figure 4.16 Parts packed in multiples of 120 in Standard Polyboxes by Phase

2 suppliers ... 269 Figure 4.17 Goods received on pallets in multiples of 120... 269 Figure 4.18 Continuous Learning Cycle 3 ... 278 Figure 4.19 Pre-packed in multiples of 120 and labelled... 283 Figure 4.20 Pre-packed in multiples of 120 and labelled... 283 Figure 4.21 Continuous Learning Cycle 4 ... 285 Figure 5.1 Level 1 Supplier framework ... 300 Figure 5.2 Level 2-1 Supplier framework ... 305

(28)

xxvi

Figure 5.3 Level 2-2 Supplier framework ... 306 Figure 5.4 Level 3-1 Supplier framework ... 327 Figure 5.5 Level 3-2 Supplier framework ... 328 Figure 5.6 Level 3-3 Supplier framework ... 329

(29)

xxvii

ABBREVIATIONS SMI - Small and Medium Scale Industries APMAE - APM Autoelectrics Sdn. Bhd CBU - Completely Built Unit FG - Finished Goods

CKD - Complete Knock Down Components TAA - Technical Agreement Assistance OEM - Original Equipment Manufacturer JIT - Just in Time

PPCD - Production Planning and Control Department QA - Quality Assurance

VMI - Vendor Managed Inventory JMI - Jointly Managed Inventory TPS - Toyota Production System TMC - Toyota Motor Corporation WIP - Work in Progress

AR - Action Research

NG - No Good

(30)

1 1 CHAPTER 1

INTRODUCTION

1.1 Introduction

This thesis will focus on developing a framework for the implementation of a Supplier Kanban System. A Kanban system is an information system that assists the company in producing the right product, in the right quantity and at the time it is actually required (Javadian Kootanaee, Babu, & Talari, 2013; Matzka, Di Mascolo, &

Furmans, 2012; Monden, 1981). A Kanban is a tool which is used to achieve this objective. This framework will be developed for companies which fall within the category of small and medium scale industry (SMI) with limited resources wanting to implement a Supplier Kanban System. A Kanban System is also compatible with contemporary ideologies in manufacturing systems such as Industry 4.0 and is an ideal foundation for companies wanting to transition to Industry 4.0 (Buer, Strandhagen, & Chan, 2018). In addition to being Industry 4.0 friendly, Kanban system’s focus on improving energy efficiency, waste reduction, emissions and inventory reduction, indirectly contributes to the green movement by improving environmental impact and sustainability (Q. Zhu, Johnson, & Sarkis, 2018). A Supplier Kanban System refers to a systematic way of managing the parts supplied to a company by their suppliers, with the objective of delivering the required quantity when it is needed for production (Matsui, 2007; Sugimori, Kusunoki, Cho, &

Uchikawa, 1977; James P. Womack, Jones, & Roos, 1991). The potential benefit of successfully implementing the Supplier Kanban System is reduction in component level inventory, warehouse space, and manpower. A study conducted by Matsui (2007) showed most influential JIT practices for competitiveness is Just in Time

(31)

2 delivery by suppliers. This research will conduct a study and implement the Supplier Kanban System in APM Autoelectrics Sdn. Bhd (APMAE), a company involved in the manufacturing of automotive components within the automotive components industry. The experiences and observations made before, during and after the implementation of the Supplier Kanban System will be collated and documented as a repository of knowledge in the field of Supply Chain Management and Supplier Kanban System implementation. This thesis will contribute to both the academic and practitioner communities by presenting the Step by Step guide for the implementation of a Supplier Kanban System, which can be adopted by other small and medium sized companies in similar industries.

This thesis is divided into five chapters. The first chapter provides an overview of the industry in which the subject matter of the research is positioned. This chapter predominantly discusses in detail the company which is the focal point of this research, researcher, research problem, justification for the research and the limitations of the research. The second chapter focuses on literature review which principally will concentrate on sourcing and identifying knowledge, shortcomings and pitfalls in the implementation of the Supplier Kanban System. Chapter 3 will provide a detail overview of the methodology and justification for the adoption of this methodology. The core actions research undertaken using the action research spiral is expounded in the third chapter and the outcomes resulting from the thesis action research and the continuous learning cycle is discussed in Chapter 4. Chapter 4 principally examines in detail the outcome, results and findings of the interventions and subsequent corrective actions taken when the results of the action deviate from the desired results. Finally, Chapter 5 is dedicated for the Supplier Kanban System Framework developed from the findings, learning and experience collated in the

(32)

3 course of conducting this research and is the penultimate objective of undertaking this research. Subsequently this chapter also recaps the results and achievement accomplished from this research and makes recommendations for future research.

1.2 Background to the Research

This section begins by providing the reader with an overview of the global automotive industry, which consists of car makers and component makers. Figure 1.1 shows where APMAE is positioned in relation to the Malaysian Automotive Industry specifically and the Global Automotive Industry generally. This section is intended to show the bigger picture of the global automotive and automotive components industry, followed by the smaller Malaysian Automotive and automotive components industry and finally zoom into APMAE, a single small company within the Malaysian automotive industry space. The automotive industry is a global industry, with many large automotive manufacturers and related automotive component manufactures who support and are supported by the automotive industry. The large automotive companies have their presence in almost every developed and developing country around the world. In Malaysia there 27 vehicle manufactures and 641 parts and component manufacturers (Malaysian Automotive Institute, 2017). These vehicle producers together with their associated component manufacturers make up the Malaysia automotive industry. Among these component manufacturers’ are major foreign players like Delphi Automotive Systems, TRW, Siemens, Bosch and Continental to name a few. The local component manufactures generally produce low tech parts like steering wheel, brake pads and wheels (Malaysian Investment Development Authtority, 2009). It can be seen that APMAE is only one company among 641 companies servicing the Malaysia Automotive Industry which in turn is a subset of the Global Automotive Industry.

(33)

4 Stiff competition from global car makers who either assemble their cars in Malaysia or import in the completely built-up unit (CBU) are forcing the car makers in Malaysia to strive for global pricing. Most car companies are very secretive about their material and component cost, and there is little information on component cost as a ratio of the total cost of the car. Some researchers have places this value at seventy per cent of the cost of the car (Klier & Rubenstein, 2009). Local car makers are bench marking components prices from global players and setting these prices as the ‘target prices’ for the local components manufacturers.

The above mentioned factors; leave little room for component manufacturers to increase prices. Local components suppliers are forced to lower the selling prices of

Figure 1.1

APMAE as a subset of the Malaysian Automotive Industry and Global Automotive Industry.

Source: Researcher’s Data, 2015

(34)

5 their components to sustain their business. Profitability can only be achieved by lowering their cost of manufacturing. Thus local component manufacturers like APMAE are forced to take extremes measures to reduce cost. Supplier Kanban System is an APMAE initiative to reduce operating cost by improving the efficiency of the local supply chain and concomitantly reduce the inventory of supplier parts kept in APMAE’s warehouse. The relationship between the problem statement, cost reduction and implementation of the Supplier Kanban System will be discussed in the sections that follow and in the chapter on methodology.

Next, section 1.4 provides a rich description of the focus company where the research is taking place, the organization structure, the factory layout, sales turnover and profit, products, customers and suppliers. Section 1.5 expounds the researcher’s background and expertise which qualifies him to undertake this research. Further, the researcher’s leadership style, interaction with the key stakeholders, superiors and subordinates is described to provide an insight into the researcher’s leadership qualities which is well- matched with the leadership qualities needed to drive this kind of project. Section 1.6 briefly discusses the methodology, and Section 1.7 highlights the research problem and the critical incident which initiated this research. Section 1.8 provides an overview of the ‘unit of analysis’ and section 1.9 discusses the justification for this research. Section 1.10 highlights the limitation and key assumptions of this research and finally Section 1.11 provides a summary of this chapter and what was discussed.

1.3 Overview of the Automotive and Automotive Components Industry

This section begins by providing an overview of the global automotive and automotive components industry and the relative position of the Malaysian automotive industry in the global scale. This overview is intended to draw the attention of the reader to appreciate the cost disadvantage resulting from

(35)

6 diseconomies of scale in the Malaysian context. Further in an increasingly globalized world, vehicle manufacturers are able to source components at very competitive prices from anywhere in the world and Malaysian component manufacturers cannot use the excuse of diseconomies of scale to sell at a higher price. The original intention of the Malaysian government’s national automotive project in 1983 was to rationalize the automotive industry, increase local content and through economies of scale achieve international competitiveness (Abdulsomad, 1999). However, from hindsight this did not materialize and today Proton has become a failed company (Ariffin &

Iskandar, 2018).

1.3.1 Global Automotive and Automotive Components Industry

The productions of automobiles have been increasing globally year on year by an average of one million vehicles a year. The total global production volume for year ended 2015 is approximately 91 million. The total global vehicle production for three years from 2013 to 2015 is shown textually in Table 1.1 and graphically in Figure 1.2.

(OICA, 2017)

The automotive components industry is built around the automotive industry with production volumes in excess of four to five times of the volumes of the automotive industry.

Table 1.1

Global Vehicle Production Volume 2013 – 2015

Global Vehicle Production Volume 2013-2015 Passenger Vehicle Commercial

Vehicle

Total

2013 65,745,403 21,850,595 87,595,998

2014 67,782,035 21,994,430 89,776,465

2015 68,539,516 22,241,067 90,780,583

Source: OICA, 2017

(36)

7 1.3.2 Malaysian Automotive and Automotive Components Industry

The Malaysian automotive industry can broadly be broken down into three main segments, namely the National car companies, car assemblers of international brands and importers of CBU vehicles. The importers of CBU vehicles are insignificant in this study. The importance of the automotive industry to developing economies cannot be underestimated and is considered the ‘industry of industries’ meaning it has the potential of driving industrialization with spill over effects on other manufacturing industries (Dicken, 2015). The national car companies are companies which were setup by the government with infant industry support with the aspiration of driving the transformation of Malaysia from an agricultural based economy to an industrial economy. The national automobile companies set up by the Malaysian government are Proton (1983), Perodua (1993), Malaysia Bus and Truck (MTB) (1994) and Inokom (1997).

Figure 1.2

Global Vehicle Production Volume 2013-2015.

Source: OICA, 2017

86,000 87,000 88,000 89,000 90,000 91,000 92,000

2013 2014 2015

Vehicle Production , Thousands

Year

Global Vehicle Production Volume 2013 - 2015

(37)

8 1.3.2.1 Car Assemblers

The car assembler segment consists of international car makers who set up assembly plants in Malaysia to increase their sales and grow their brand in this region. The car assemblers in Malaysia, consists of major Japanese brands like Toyota, Honda, Nissan and European brands like Volkswagen, and Mercedes to name a few.

The total production volume of the Malaysian automotive industry is a minute fraction of the total global automotive production volume. The annual industry volume has been fluctuating within a narrow band of between 550,000 and 650,000 vehicles for the last ten years. The total Malaysian vehicle production for three years from 2013 to 2015 is shown textually in Table 1.2 and graphically in Figure 1.3 (OICA, 2017).

Table 1.2

Malaysia Vehicle Production Volume 2013 - 2015

Malaysia Vehicle Production Volume 2013-2015 Passenger Vehicle Commercial

Vehicle

Total

2013 543,892 57,515 601,407

2014 545,122 50,012 595,134

2015 558,324 56,347 614,671

Source: OICA, 2017

(38)

9 1.3.2.2 Component Manufacturers

A large number of automotive component manufacturing companies have been set up in Malaysia to support the automotive industry. There were a total of 704 automotive component and part manufacturers in Malaysia in 2012 (Lim, 2012) which shrank to 641 in 2017 (Malaysian Automotive Institute, 2017). We can group the Malaysian Automotive components industry into two broad categories. One category consisting of international companies who set-up operations in Malaysia. These are wholly owned foreign companies who have expertise and specialized knowledge in the components they produce. The other category consists of local companies who setup operations through joint ventures (JV) or technical assistant agreement (TAA) with international automotive component makers. These arrangements are made to compensate for the lack of the expertise and product knowledge. Studies have shown these locally incorporated companies formed through TAA’s lack the technological capability to compete effectively with foreign suppliers (Rosli & Kari, 2008).

Figure 1.3

Global Vehicle Production Volume 2013-2015 Source: OICA, 2017

585 590 595 600 605 610 615 620

2013 2014 2015

Vehicle Production, Thousands

Year

Malaysia, Total Vehicle Prodution, 2013-2015

(39)

10 1.3.3 Challenges of Malaysian Automotive Component Manufacturers

The challenges faced by the local automotive component manufactures, are ‘how to remain competitive in the absence of the benefits afforded by economies scale available to high volume manufacturers’. Malaysia imports more automotive components than it exports, leading to a negative trade balance, and needs to improve its competitiveness in components and parts manufacturing, providing cheaper components while maintaining high quality standards (Wad & Chandran Govindaraju, 2011). In the face of stiff competition, unavailability of options for increasing prices, profitability can only be sustained by significant cost cutting measures.

1.4 Research Setting – APMAE’s Local Supply Chain and Warehouse

This section provides a rich description of APMAE, the place where this action research is undertaken. We explore APMAE’s, history, manpower, plant layout, products, operations, Shop Floor Kanban System, warehouse layout and operations, customers, turnover and profit, and suppliers.

1.4.1 Autoelectrics Sdn. Bhd (APMAE)

APMAE is located in Bukit Beruntung Industrial Park, Rawang. It was incorporated in 1981 and commenced operation in 1984. APMAE was initially formed for the sole purpose of supplying components to Proton and is a pioneer in the automotive component industry in Malaysia. The stimulatory and protective measures afforded by the government of Malaysia in the fledgling years of Malaysia’s automotive industry, helped spur the growth of the local automotive components industry (Rosli & Kari, 2008). APMAE benefited greatly from these policies to become a major player in the automotive components industry. APMAE is now a component supplier to most of the Japanese car assemblers in Malaysia, with Proton being the biggest customer.

(40)

11 In recent years’ greater trade liberalizations policies, free trade agreements within ASEAN countries and gradual removal of excise duties and non-tariff tax barriers have negatively affected APMAE and other members of the local automotive components industry at large. The availability of cheaper imports from within the ASEAN region has eroded most of the competitive advantage offered by the protectionist policy. APMAE’s profit margins have been steadily declining and drastic measure need to be put in place to impede the erosion. APMAE’s financial performance is discussed later in Section 1.4.9.

1.4.2 APMAE - Manpower

APMAE has an average headcount of around 140 personnel. Out of these 140 personnel, thirty two are management staff and the rest supervisors and machine operators. This numbers has been stable for the last five years with less than 2%

annual turnover at the management level and less than 8% annual turnover at the supervisor and machine operator level.

The organization structure is shown in Figure 1.4. The researcher is the Plant Deputy General Manager reporting directly to the General Manager. There are five department managers reporting directly to the researcher. The researcher is responsible for all matters pertaining to the Plant operations. Two other department managers, the warehouse manager and the purchasing manager report indirectly to the researcher on all matters relating to plant operations.

(41)

12 1.4.3 APMAE - Plant Layout

The plant is divided into two major sections, the manufacturing section where the products are assembled and the warehouse where the components and finished goods are stored. The Warehouse is further sub divided into three sections, namely, the Finished Goods (FG) Storage section, the components (CKD) storage section and the kitting section. The standard production lot size in APMAE is 120 sets. All components for the assembly of every product are prepared in lot sizes of 120 by the warehouse. The Kitting section is responsible for preparing the parts in lot sizes of 120. The plant layout is shown in Figure 1.5.

Figure 1.4

APMAE Organization Structure Source: Researcher’s Data, 2015

(42)

13 1.4.4 APMAE - Products

The company develops, assembles and supplies Alternators, Starter Motors, Wiper Systems and Washers Systems to most of the Original Equipment Manufacturers (OEM) in Malaysia. The product design is undertaken by the Technical Assistance Agreement (TAA) partner. APMAE’s product range is shown in Figure 1.6. The Alternators and Starter Motors are manufactured under a TAA with Melco Japan. The Wiper System and Wind Shield Washer System are manufactured under a TAA from Mitsuba Corporation of Japan. The TAA partners have assisted APMAE gain experience and know-how in the design and manufacture of all the products, in the early years of its existence. However, the TAA restricts APMAE from exporting any

Figure 1.5

APMAE Plant Layout showing manufacturing floor and warehouse sub division.

(43)

14 of the products outside Malaysia. In recent times, this has become a hindrance to APMAE’s aspiration of becoming an ASEAN supplier.

1.4.5 APMAE - Operations

APMAE’s operation focuses mainly on the design of manufacturing facility, and assembly of the products. The products are designed collectively with the TAA partners and assembled in APMAE’s plant in Bukit Beruntung. All components used in the assembly of APMAE’s products are either outsourced from local suppliers or purchased directly from the TAA partners. After an in-depth study some years ago, a decision was made to discontinue all in house upstream activities. This study showed outsourcing the component is cheaper in the long run and substantial savings can be realized from not having to internally manage the cost of poor quality arising from the defects in components manufacture. The current arrangement allows APMAE to claim all defective parts from the suppliers. This works well for both parties, as the

Figure 1.6

APMAE’s Products

(44)

15 suppliers can use their resources and specific expertise to make the components at a relatively low defect level and lower cost, and concurrently, allow APMAE to use her limited resources to focus on the design and improvement of the manufacturing facility and assembly of her products.

The assembly facilities consist of two alternator lines, one starter motor line, one wiper line and one washer line as shown in Figure 1.5 in the section on Plant Layout.

Each of these product line run production in lot sizes of 120 sets. The lot size of 120 was chosen because the customer orders are in multiples of 12 or 30. The components for the assembly are prepared in lot sizes of 120 sets by the warehouse and delivered to the designated areas on the production floor, by the store hand.

1.4.6 APMAE - Shop Floor Kanban System

In 2008, the researcher was assigned the task of implementing a Kanban System in APMAE. A few working visits to Japanese automotive component manufacturer’s in ASEAN countries had convinced APMAE’s top management substantial saving can be realized from a Just in Time (JIT) manufacturing system. After careful evaluation of the requirement, the researcher convinced the management to accept a partial implementation of the Kanban System on the manufacturing floor. Partial implementation of a kanban system is advocated by some experts whereas others have an opposing view (Chan, 2001; Lage Junior & Godinho Filho, 2010; Matsui, 2007;

Matzka et al., 2012; Seidman & Holloway, 2002; Spearman, Woodruff, & Hopp, 1990). This exercise involved implementing the Kanban System aptly named the Shop Floor Kanban System on the manufacturing floor but excluded the warehouse and supply chain. This Shop Floor Kanban System was implemented on the manufacturing floor of the factory which is on the left side of the plant layout shown in Figure 1.5 in the section Plant Layout. The rational being APMAE did not have

(45)

16 sufficient resources and expertise to implement Just In Time manufacturing system for the whole plant at once. The idea was to start with the Manufacturing floor first.

Then APMAE will be able to use the experiences and expertise gained from this initial exercise to implement the Supplier Kanban System to manage the supply chain and the warehouse. This will be less taxing on the company’s limited resources and increase the probability of success. The Shop Floor Kanban System was successfully completed in 2012 after a five year implementation period.

The implementation of the Kanban systems requires the following five rules be religiously adhered.

a. Rule 1- The subsequent process should withdraw the necessary products from the preceding process in the necessary quantity at the necessary point in time b. Rule 2 – The preceding process should produce its product in the quantities

withdrawn by the subsequent process

c. Rule 3 - Defective products should never be conveyed to the subsequent process

d. Rule 4 - The number of Kanban should be minimized

e. Rule 5 - The Kanban system should only be adopted in situations where there is small fluctuation in customer demand,

The next few paragraphs will provide the reader with a comprehensive elucidation of the Shop Floor Kanban System. The importance of understanding the Shop Floor Kanban System cannot be understated as it provides the basic knowledge required to understand the implementation of the Supplier Kanban System. Figure 1.7 shows the Manufacturing Floor with the Shop Floor Kanban System Layout.

(46)

17 Figure 1.7

Manufacturing Floor with Shop Floor Kanban System Layout.

(47)

18 1.4.6.1 Types of Kanban Cards Used

APMAE uses three different types of Kanban card, namely

I. Production Kanban Card used to initiate production. This Kanban card moves between production, FG warehouse and Production Planning and Control Department (PPCD). Movement of the Production Kanban Card is shown in Figure 1.8.

II. Move Kanban Card is used by Kitting Section of Warehouse to initiate the movement of the CKD kits. This Kanban card moves between Warehouse, Production and PPCD. The Move Kanban Card movement is shown in Figure 1.9.

Figure 1.8

Production Kanban Card movement Source: Researcher’s Data, 2015

(48)

19 III. Kitting Kanban Card is used to initiate the Kitting of the CKD components in the Warehouse. This card remains within the warehouse kitting section.

There are two signals requiring the kitting of the CKD components. Firstly, a visual signal, an empty rectangular outline on the Warehouse floor and secondly, a Kitting Kanban Card on the Kitting Kanban Guide Post. A rectangular outline is drawn with yellow paint on the floor of the warehouse in the kitting section. This rectangular outline on the floor is a dedicated storage space for placing the kitted components. Figure 1.10 shows the rectangular outline drawn on the warehouse floor. The general rule is there must be an empty rectangular outline on the warehouse floor, before the kitting process can start. The Kitting Kanban Card shows the CKD components which is required for that kit. The movement of the Kitting Figure 1.9

Move Kanban Card Movement Source: Researcher’s Data, 2015

(49)

20 Kanban Card is shown in Figure 1.11. Kitting operation is explained in Section 1.4.7.5.

Figure 1.11

Kitting Kanban Card movement Source: Researcher’s Data, 2015 Figure 1.10

Empty Rectangle Draw on Warehouse Floor.

(50)

21 1.4.6.2 Line Layout Detail

The Alternator Line as shown in Figure 1.12 will be used to explain the various features of the Shop Floor Kanban System. The same general concept is used to manage all the other lines on the production floor.

The Production Kanban Signal Post is placed in front of the production line. The Production Kanban Card will be placed on this Production Kanban Signal Post. To the left of the Production Kanban Signal Post is the Move Kanban Collection bin.

This is where the Production operators will put the Move Kanban Card when they remove it from the CKD kits which they receive from the warehouse kitting section.

Figure 1.12

Alternator Line Kanban System Source: Researcher’s Data, 2015

(51)

22 The CKD component bins are on the left side of the production line and the FG bins are on the right side. This is where the CKD component bins which have not been used and the finished FG bins are stored. Yellow rectangular boxes are painted on the production floor to indicate the exact location for these bins. The maximum number of bins at any time is three full CKD component bins and three full FG storage bins. This is a form of visual control to ensure no over production.

At the bottom of the production line there is one location for keeping empty CKD component bin and one location for keeping empty FG goods storage bin. After the CKD components have been used, the production operators will place the empty CKD components bins in this location. Similarly they will take the empty FG storage bin from the designated location before start of production.

1.4.6.3 Kanban Signal Post

The Kanban signal post consists of vertical columns with ten slots for placing the Production Kanban cards as shown in Figure 1.13. The slots in the Kanban Signal Post are organized by time. The Production Kanban Cards are placed in the slots to inform production to produce the parts. Each Production Kanban Signal Post can receive a maximum of eight Kanban Production cards. The number of Kanban cards issued per day per line is determined by the cycle time of each product variant. If cycle time to produce 120 pieces of Alternator Variant A is ninety minutes, the first card will be placed in the 8.00 a.m. slot. The second card will be placed in the 10.00 a.m. slot as shown in Figure 1.13. Similarly, if the cycle time to produce 120 pieces is three hours, then the second card will be placed in the 11.00 a.m. slot.

(52)

23 1.4.6.4 Weekly Production Planning

At the end of each week, a production planning meeting involving PPCD, Quality Assurance Department (QA), Production Department, Technical Department and Maintenance Department will be held to discuss the production plan for the following week. This weekly meeting is schedule for 4.00 p.m. on Friday or the last working day of the week if Friday is a public holiday. Once the plan is finalized and ratified in the production planning meeting, PPCD will issue the production plan to all Heads of Department. Subsequently, PPCD will prepare a production sequence plan for each line and distribute this to Production and Warehouse. This production sequence plan will be used by the Production Supervisor and the Warehouse Supervisor to verify the correct Production Kanban Card and the correct Move Kanban Card is placed in the correct sequence in the respective Kanban Signal Post.

Figure 1.13

Kanban Signal Post

(53)

24 1.4.6.5 PPCD Function

Every morning at 8.00a.m., PPCD staff will place the Production Kanban Card on the Production Kanban Signal Post. This is done for all the six production lines. The last Production Kanban card is placed in the 6.00 p.m. slot. This is to ensure the production line can start running at 8.00 a.m. next morning.

Similarly, PPCD will place matching Move Kanban Card in the Move Kanban Signal post which is placed in front of the Kitting section in the warehouse. It serves a similar function as the Production Kanban card and is used to inform the Kitting section to send the kitted CKD components to the production line. The sequence of the Move Kanban cards must match the sequence of the Production Kanban cards.

1.4.6.6 Production Function

At 8.00 a.m. every morning production department will start their operation by loading all the CKD components from the CKD kit to the production line. The Move Kanban card on the CKD kit will be removed and placed in the Move Kanban collection bin. The production supervisor will move the 6.00 p.m. Production Kanban Card from the slot and place it on the FG container. After the production is complete the FG storage bin which is full will be moved to the FG Storage area. The operation will be repeated for the next production Kanban Card. The sequence of activities 1, 2, 3, 4, and 5 are shown in Figure 1.14.

(54)

25 1.4.6.7 Matching and Verifying Kanban Card Sequence

Every morning, when the Production Kanban cards are placed in the production Kanban signal post and the Move Kanban cards placed in the Move Kanban signal post, the Production Supervisor and Warehouse

Supervisor will sign off on the Production sequence plan, acknowledging the Kanban cards are correct and have been correctly placed in the right sequence. These procedures minimize the possibilities of building the wrong parts or supplying the CKD kit in the wrong sequence which is detrimental to the working of the Kanban system as stated in Rule 3 in Section 1.4.6 above.

Figure 1.14

Production line sequence of Kanban activities, 1, 2, 3, 4, and 5.

(55)

26 1.4.6.8 Production Kanban Card and Move Kanban Card collection

At the end of the production day, the PPCD staff will collect all the Production Kanban Cards from the Warehouse Production Kanban card collection Bin and the Move Kanban Card from the Production Move Kanban card collection bin. They will tally the cards to ensure they match the production plan and delivery to customer and all cards have been accounted for.

1.4.6.9 CKD Components Delivery Operations

Every morning, the Kitting operations store hand will remove the Kitting Kanban Card from the CKD Kit and place it on the Kitting Kanban Card signal post. They will then replace this card with the Move Kanban Card which was placed on the Move Kanban Signal Post. The CKD components together with the Move Kanban card and the empty finished goods poly bins are move to the production location and placed on the correct storage area on the production floor. After delivering the CKD kits, the Kitting section store hand will collect the empty CKD bins from the production floor back to the warehouse. The sequence of operations is shown as 1, 2, and 3 in Figure 1.15.

(56)

27 1.4.6.10 Collection of Finished Goods and Empty Bins

Every two hours once, the Warehouse FG store hand will go to the production floor and collect the FG and send them to the FG Warehouse. The Finished Goods are delivered to the customers whenever there is an order for them.

They will also collect the empty FG containers returned from customer and send it to the CKD components section, ready for delivery to production with the CKD kits.

Figure 1.15

CKD components delivery to Production Source: Researcher’s Data, 2015

(57)

28 1.4.7 APMAE - Warehouse Overview

Most of the research, data collection and intervention will be conducted in the Warehouse and some of the research will be conducted on the production floor. The research on the production floor is part of the unit of analysis as it addresses the gap identified in the first stage of the Shop Floor Kanban System implementation, namely the problem of poor quality parts being issued to production from the warehouse. The Supplier Kanban System and supply of poor quality parts to production is related as all these parts are received from the suppliers and sent to the production floor. This section provides an overview of the current layout and operations of the warehouse, and will be the starting point for this research. A baseline research will be undertaken to establish the current state of the warehouse operations and production operations. The production operations will be limited to the delivery of CKD kits from the warehouse to the production line. Interventions will be introduced to the current process based on the baseline research. The research will review and reflect on the impact of these interventions and make further interventions. The details of which are discussed in the chapter on methodology.

1.4.7.1 APMAE - Warehouse Layout

The warehouse is divided into three sections namely, the Finished Goods Store, the CKD Store and the Kitting section. The total storage space available in the warehouse is for 2400 pallets as shown in Table 1.3. The FG store has the capacity to store 600 pallets. The balance 1800 pallet storage capacity is reserved for the CKD store. The CKD store is further divided into imported part (parts from TAA partner) store and local part store. Six hundred pallets storage capacity is reserved for the imported parts store and the remaining 1200 pallet storage capacity is for the local

(58)

29 parts. The storage space demarcation in this manner was deemed necessary to ensure sufficient space for finished goods and imported components.

The finished goods store is required to keep three days stock of finished goods to ensure on time delivery to customers. The imported part store is important because of the long order to delivery lead time. The order lead time for imported parts is three month and any imported part shortage can be disastrous as APMAE will not be able to build the finish goods to meet customer demand. Top management made this compulsory division of the warehouse in order to ensure there is sufficient storage space for the imported parts and finished goods. The warehouse layout is shown in Figure 1.16.

The CKD store receives the components from the supplier and places it in the CKD store. Similarly, the Finished Goods are collected from the production floor and placed in the FG store. As shown in Figure 1.16 the floor on the kitting area has a rectangular outline drawn on it with yellow paint. There is one rectangular outline for each active part number. The Kitting section is only allowed to kit one set of components for one part number. The kitting section personnel are only allowed to start the kitting process if there is an empty space for storing the kits. This is means if none of the rectangular outlines painted on the floor are available for storing the kitted parts, the kitting operation cannot start.

Table 1.3

Warehouse Storage Space Allocation

(59)

30 Figure 1.16

The detail layout of the Warehouse.

(60)

31 1.4.7.2 Warehouse Organization chart

The warehouse has twenty four personnel consisting of one manager, two clerks, three supervisors and eighteen store hands. The warehouse organization chart is shown in Figure 1.17.

The average annual manpower cost for the warehouse operations is RM 1,080,000.00. The detail breakdown of the manpower cost is shown in Table 1.4.

This cost excludes the average two months bonus paid out to all personnel at the end of the year. The bonus cost was not included as it is a variable cost depending on the company’s performance for the particular year.

Figure 1.17

Warehouse Organization Structure Source: Researcher’s Data, 2015

(61)

32 1.4.7.3 Finished Goods Operations

The customer issues the instruction for the parts to AMAE’s Marketing Department.

Marketing will issues the instructions to APMAE’s warehouse. FG store personnel will prepare the requested part, remove the Production Kanban Card from the FG goods, and repack the goods as per customer request. The Production Kanban card will be placed in the Production Kanban Card collection bin and Customer Kanban Tag will be placed on the goods which will be delivered to the customer. Then the products are shipped out to the customers. The sequence of activities is shown as 1, 2, 3, and 4 in Figure 1.18.

Table 1.4

Average Warehouse Manpower Cost

Source: APMAE Company Record, 2012

Malaysia, Total Vehicle Prodution, 2013-2015

TABLE OF CONTENTS

Malaysia, Total Vehicle Prodution, 2013-2015