i
THE STUDY ON IMPROVING THE EFFECTIVENESS OF WAREHOUSE OPERATION: A CASE STUDY ON LCM UTARA (M)
SDN. BHD.
SHALYZAM BIN MOHMAD SHUKRI
Research report in partial fulfilment of the requirement for the degree of Master of Business Administration (Entrepreneurship)
Universiti Sains Malaysia
2015
iii
ACKNOWLEDGMENT
The voyage of completing this dissertation has been very much teaching me the values of sacrifices in seeking the knowledge for my academic endeavors. Firstly, I would to like to praise Allah the Almighty for His merciful Compassion and Blessing I am able to complete my adventurous journey.
First and foremost I would like to address my deepest appreciation and thankfulness to both of my parents for their pray and blessing in ensuring the success of my project. Not to forget my beloved wife Hartini binti Md Zin, for her unbearable patience and love motivating me to finish this journey.
My deepest gratitude and thankfulness would be dedicated to my project management supervisor Dr, Suzari bin Abd Rahim, for his broad wisdom, assistantship, unconditional motivation and encouragement I am able to complete the thesis. I really appreciate his kind effort for his belief and trust in my abilities in completing the task.
My sincere appreciation also goes to the respondents I have interviewed them before during the process of collecting the data for the research. Thank you Madam Suzaini binti Ahmad and her staff for their kind and cooperation together with their patience providing sufficient data and bearing their time with me answering questions during the interviews. I also wish to address a note of appreciation to the administration staff of Graduate School of Business, Universiti Sains Malaysia for their overwhelming support and guidelines to every single students who walk in through your door.
iv
TABLE OF CONTENT
PAGE
ACKNOWLEDGEMENT ii
TABLE OF CONTENT iii-v
LIST OF FIGURES vi-vii
ABSTRAK (MALAY) viii-ix
ABSTRACT x-xi
CHAPTER 1: INTRODUCTION
1.1 BACKGROUND OF THE CASE 1
1.2 PROBLEM STATEMENT 2
1.3 RESEARCH OBJECTIVES 3
1.4 RESEARCH QUESTIONS 3
1.5 CASE ISSUES 4
1.6 ORGANIZATION OF THE REMAINING CHAPTERS 5
v CHAPTER 2: COUNTRY PROFILE
2.1 OVERVIEW OF MALAYSIA 6
2.2 DEMOGRAPHIC 6
2.3 RELIGIONS 7
2.4 LANGUAGE 8
2.5 EDUCATION 8
2.6 ECONOMY 9
2.7 HISTORY OF ECONOMY 9
2.8 PLASTIC INDUSTRY IN MALAYSIA 10
CHAPTER 3: INDUSTRY ANALYSIS
3.2 INDUSTRY ANALYSIS
3.2.1 WORLD MARKET AND DEMAND 11
3.2.2 MALAYSIA MARKET 13
3.2.3 EXPORT AND IMPORT OF PLASTIC RESINS 17
3.2.4 LOCAL PRODUCTION OF PLASTIC RESINS 24
3.2.5 PRODUCTION OF PLASTIC PRODUCTS 25
vi
3.2.6 PLASTIC MAJOR MARKET SEGMENTS 26
3.2.7 EXPORT AND IMPORT OF PLASTIC PRODUCTS 30
CHAPTER 4: LITERATURE REVIEW
4.1 OPERATION MANAGEMENT 33
4.2 SUPPLY CHAIN 35
4.3 CONCEPTUAL MODEL 37
4.4 INTRODUCTION WAREHOUSING 38
4.5 STORAGE 40
4.6 DELIVERY 41
CHAPTER 5: METHODOLOGY
5.1 RESEARCH DESIGN 43
5.2 DATA COLLECTION 44
5.3 DATA ANALYSIS 45
CHAPTER 6: COMPANY BACKGROUND
6.1 COMPANY BACKGROUND 51
vii CHAPTER 7: CASE WRITE UP
7.1 INTRODUCTION 58
7.2 CASE ISSUE 59
CHAPTER 8: CASE ANALYSIS
8.1 INTRODUCTION 61
8.2 SELECTION OF RESPONDENTS 61
8.3 OVERALL FINDINGS 62
CHAPTER 9: RECOMMENDATION & CONCLUSION
9.1 RECOMMENDATION 74
9.2 LIMITATION OF STUDY 76
9.3 CONCLUSION 77
viii
LIST OF FIGURES
PAGE
FIGURE 1 : MARKET AND DEMAND FOR PLASTICS 11
ACROSS THE WORLD
FIGURE 2 : PLASTICS MATERIAL DEMAND IN 13
KG/YEAR PER CAPITA
FIGURE 3 : EXPORT OF PLASTIC RESINS 21
IN VALUE (2006-2010)
FIGURE 4 : IMPORT OF PLASTIC RESINS IN VALUE (2006-2010) 22 FIGURE 5 : EXPORT OF PLASTIC RESINS IN WEIGHT (2006-2010) 23 FIGURE 6 : IMPORT OF PLASTIC RESINS IN WEIGHT (2006-2010) 24
FIGURE 7 : TREND OF MAJOR MARKET SEGMENTS 28
FOR PLASTICS PRODUCTS (2006-2010)
FIGURE 8 : MAJOR MARKET SEGMENTS FOR PLASTICS PRODUCTS 29 IN MALAYSIA (2008-2010)
FIGURE 9 : THEORETICAL MODEL OF SUPPLY CHAIN 53
FIGURE 10 : LCM UTARA MANUFACTURING PLANT 53
FIGURE 11 : MACHINERY IN LCM UTARA 54
FIGURE 12 : LCM MANUFACTURING PROCESS 55
FIGURE 13 : LCM UTARA MANAGEMENT OFFICE 56
FIGURE 14 : LCM UTARA WAREHOUSE 56
FIGURE 15 : LCM UTARA TRANSPORT 57
FIGURE 16 : TOWS ANALYSIS MATRIX 73
ix
TABLES
PAGE
TABLE 1 : MALAYSIAN EXPORT AND IMPORT OF 19 PLASTIC RESINS IN VALUE (2006-2010)
TABLE 2 : MALAYSIAN EXPORT AND IMPORT OF 20
PLASTIC RESINS IN WEIGHT (2006-2010)
TABLE 3 : LIST OF PLASTIC RESINS PRODUCERS 25
IN MALAYSIA
TABLE 4 : PRODUCTION OF PLASTIC PRODUCTS 26
IN MALAYSIA
TABLE 5 : MAJOR MARKET SEGMENTS FOR PLASTIC 27
PRODUCTS (2006-2010)
TABLE 6 : MALAYSIAN EXPORT AND IMPORT OF 31
PLASTICS PRODUCTS IN VALUE (2006-2010)
TABLE 7 : MALAYSIAN EXPORT AND IMPORT OF 32
PLASTICS PRODUCTS IN WEIGHT (2006-2010)
TABLE 8 : SWOT ANALYSIS 67
x ABSTRAK
Objektif kajian ini adalah untuk menganalisa prinsip yang berhubungkait di antara pengurusan rantaian bekalan dengan operasi pengurusan gudang dengan tujuan untuk menghasilkan suatu set faedah yang boleh dinikmati oleh organisasi yang terlibat di dalam industri plastik. Kajian ini berdasarkan maklumat yang telah diperolehi dari sumber utama seperti pemerhatian secara langsung serta berdasarkan temuramah yang telah dijalankan terhadap pihak pengurusan dan pekerja di LCM Utara (M) Sdn. Bhd. Selain dari itu penggunaan sumber sekunder sebagai rujukan juga digunakan di dalam menyiapkan kajian ini. Sumber sekunder adalah dari laporan yang dikeluarkan oleh badan yang berkaitan di dalam bidang pembuatan plastic dan juga laporan tahunan syarikat. Menurut hasil kajian ini, pengurusan gudang yang efektif akan mampu meningkatkan hasil pengeluaran kepada tahap maksima serta mengukuhkan lagi keuntungan syarikat.
Antara pemerhatian yang telah dibuat ke atas syarikat yang telah dipilih, dipercayai apabila organisasi yang mengamalkan pengurusan gudang tidak efektif, ia menimbulkan pelbagai masalah bukan hanya berkaitan dengan gudang tersebut tetapi juga masalah lain yang mampu untuk menjejaskan fungsi organisasi tersebut di dalam industry. Ia seterusnya akan menjadikan masalah yang kecil menjadi semakin serius dan sukar untuk diatasi.
Kajian ini memberi beberapa cabaran berkenaan pemikiran yang sedia ada dan metodologinya dalam menguruskan rantaian bekalan, beserta tahap keengganan untuk menerima pakai konsep yang sudah lama diperkenalkan ini. Cabaran yang utama terletak dalam memberikan hujah-hujah yang relevan dan berguna mengenai kebaikan dan faedah yang boleh didapati dengan mengaplikasikan kaedah pengurusan gudang terkini.
xi
Kajian ini telah meneliti hasil-hasil kajian terdahulu, lantas cuba menghubungkan dengan masalah yang didapati di dalam LCM Utara (M) Sdn. Bhd.
xii
ABSTRACT
The purpose of this paper is to analyse the principles related in between the supply chan management with warehouse operation system in order to produce a set of advantages which can be benefited to the organization involved in the plastic industry. The research conducted is based on the information gathered from both primary and secondary sources, namely direct observation, interview sessions towards the team of management and the employees in LCM Utara (M) Sdn Bhd. More to the point, the use of secondary is also being referred in completing this research. The secondary sources are derived from reputable articles and annual report produced by the related organization involved in plastic industry.
LCM Utara (M) Sdn Bhd is a company supplying plastic basis product which their customers are coming from all over Malaysia. The company is categorized under SME company with their products are highly demanded by their customers. Though they have been operating since last 11 years before but the company still retains the conventional concept for their business operation. The company has been provided with limited space in their manufacturing site. The company has divided several compartmental sections in order to differentiate between other departments and storage sections. The issues occurred when the company received numerous product orders from their customers. On the other hand, the company acquired limited space to allocate these finished products. Hence the products are being allocated in the spaces it should not be and scattered all over the places around the premises. Furthermore, the company need to limit their products order from their customers due to the issues occurred. As the result, the profits of company is limited and the issue has been a major obstacle from the company to expand their business operation.
From the finding of the research believes that poor storage management is the major factor contributes to the problem. Hence the researcher proposed several recommendations on
xiii
warehouse management operation to be implemented in order to solve the issue. An effective warehouse management system will enable the management team to improve their production at the optimum level. Thus indirectly it will increase the profits gain by the organization.
1
CHAPTER 1
INTRODUCTION
This chapter is going to explain about the background and problem statement of the case study. It also covers the research objectives, research questions and case study issues for this particular case study case study.
1.1 Background of the case study
Plastics products and industry is one of the most dynamic and vibrant growth sectors within the Malaysian manufacturing sector. It has achieved an average growth rate of 15%
for the last 11 years due to the robust rate of Malaysian economy (National Solid Waste Management Department Ministry of Housing and Local Government Malaysia, 2011). The Malaysian plastics industry has developed into a highly diversified sector producing an array of products including automotive components, electrical and electronic parts as well as components for the telecommunications industry, construction materials, household goods, acrylic sheets, bags, bathroom accessories, battery casings, bottles, containers, toys, games and packaging materials. According to the 2013 performance report issued by MIDA, the plastics industry has registered a growth of up to RM10.6 billion. This represents an increase of 6.8% from the performance in 2012 Malaysia making the country as the one of the largest plastic producer in Asia, with over 1550 manufacturers and employing around 99,100 people workers.
2
This study is going to identify the root problem of the company and propose a solution for LCM Utara (M) Sdn. Bhd to improve their warehouse management system in order for them to increase their sales and also gain maximum profits.
1.3 Research Objectives
1.3.1 To identify current warehouse layout implemented in LCM Utara (M) Sdn. Bhd.
1.3.2 To determine the operation in LCM Utara (M) Sdn. Bhd.
1.3.3 To determine the impact of current warehouse layout to company’s sales.
1.3.4 To suggest forward recommendation to LCM Industries in improving their warehouse management.
1.4 Research Questions
The research questions are prepared to identify problems in warehouse management system:
1.4.1 What is the current warehouse management system used by LCM Utara (M) Sdn. Bhd?
1.4.2 How frequent the delivery of the products to the customers?
1.4.3 What are the problems faced during the process of delivery to customers?
1.4.4 How does the company react upon the issues occur previously?
1.4.5 Are there any changes in warehouse management operation every year?
3
1.5 Case Issues
Plastics manufacturing industry is considered as a highly demanding industry nowadays. This is due to the increasing demand in many manufacturing sectors which need plastic components to be used in their manufacturing products.
LCM Utara (M) Sdn. Bhd is one of the manufacturers involving in the industry. Even though they have been venturing in the industry for the last 11 years, LCM Utara actually has several obstacles in order to gain maximum profits in this business. This is due to the poor performance in handling their warehouse management. This obstacle has lead LCM Utara from taking maximum orders from the customers on their products. More to the point, the company also face an issue of unstructured layout in their warehouse which gives negative impact to their sales performance. An interview session has been conducted several times with the various respondents in the company. Based on the finding from the interviews with employees in LCM Utara it can, the researcher believes the poor warehouse management operation and unstructured warehousing layout give negative impact to the performance of LCM Utara in plastic industry.
LCM Utara (M) Sdn. Bhd is a company producing plastic products which is required in the other industry. Their major customers come from cookies manufacturers in Malaysia.
Their business had covered across several states in Peninsular Malaysia. The demand for their products has been growing rapidly every year. This had caused insufficient place to store their finished products and raw materials which indirectly effected their business operation when they had to cancel many orders from their customers. Hence, the issue has severely affected the production operation when the company is unable to optimise their production
4
capacity. The researcher believes that the entire root of problem is caused by the poor warehousing management in LCM Utara (M) Sdn. Bhd. They do not apply specific system to organize their warehouse. The aim of this case study is to clarify the root issue of the problem and provide proper recommendation action for LCM Utara (M) to improve their business operation in the future.
LCM Utara (M) Sdn. Bhd was founded in 2004 which operates in Lot 1619 and 1620, Kawasan Perindustrian MARA, Kepala Batas, Pulau Pinang. This company involved in plastic manufacturing business by supplying cookies containers made from plastics as their
major products. In order to smoothen the manufacturing process, they have purchased plastic manufacturing injection molding machines to run its operations. Until today, LCM Utara (M) Sdn. Bhd has expanded their business across several states Peninsular Malaysia.
The nature of business of LCM Utara (M) Sdn. Bhd closely related with other industries. The biggest industry they closely supporting is cookies manufacturing industry as 80% of their customers are from this industry. This had leaded them to serious problem when the company has limited spaces in their warehouse to store finished products and raw materials. Thus, they had to reject some orders from their customers and they are unable to expand their business operation even though the company has the potential to do so.
From the general observation of the researcher, researcher believes that poor warehouse management operation is the major contribution towards the issue. Therefore, the researcher is going to clarify the case issue by having a constant observation and interviews for a duration period of time to identify the exact root of problem and recommend a proper solution regarding warehouse operation management to LCM Utara (M) Sdn. Bhd.
5
1.6 Organization of the Remaining Chapters
Chapter 1 provides the introduction of the background for this case study and follows by problem statements, research questions, objectives and case issues.
Chapter 2 provides an overview of country profiles of Malaysia political and government, economic, social and demographic, environmental and legal.
Chapter 3 describe the overall scenario of plastic industry.
Chapter 4 provides literature review of warehousing concept.
Chapter 5 provides data collection methodology and the analysis tools that applying in this case.
Chapter 6 provides the write up for LCM Utara (M) Sdn. Bhd regarding to their warehouse management.
Chapter 7 provide case analysis for LCM Utara (M) Sdn. Bhd via SWOT and TOWS perspective
Chapter 8 concludes with recommendation for this case study.
6
CHAPTER 2
COUNTRY PROFILE
This chapter provides the overview of Malaysia from its political, government and economic perspectives. It also covers social and demographic which including education system, environmental and legal systems in Malaysia are also being covered.
2.1 Overview of Malaysia
Malaysia is a country which the basic constitution is democratic with the King as the Chief of the country. It is located in South East Asia which the land itself covers around 329,847 km2. The country is divided into two parts which is the Peninsular of Malaysia (13 states) and the other one Borneo Malaysia which consists of Sabah and Sarawak.. The land is nearly borderd with Singapore, Philippines, Indoensia and Thailand. The total residents of the country is consists of 28 millions of people.
Malaysia is constituted with the Malay government which their territories were being colonised by the British 18 centuries. The territories were then being united under the name of Commonwealth in year 1946. The gained their independence in 1957 thus making them one of the most progressive country for the last 50 years economically.
2.2 Demographic
7
Malaysia has multi ethnics which the majority of them around 54% are consists of Malay people and 11% is consists of the other races.The constitution has stated that Malay people must be practicing the Malay culture, Bumiputera status are also being given to some of the aborigines including the races such as Thai,Khmer,Cham and Sabah and Sarawak people. Nearly half of the population of the Sabah and Sarawak are non-Malays bumiputeras which consists of Kadazan,Dusun and Bajau.
Around 23.7 % of Malaysian residents are from the Chinese and the rest 7.1% are Indians who migrated to Malaysia at the early years around 1900. The citizenship was given based on the Lex Soli. The citizenship of Sabah and Sarawak different compared to the peninsular residents due to migration reasons. Every citizen who has achieved the age of 12 will be given identity card which is biometric equipped and need to bring the card along at all time.
The average residential is not averagely the same as some of parts in Peninsular Malaysia which the residents are around 20 million. 70% of them lived in urban area such as big cities Kuala Lumpur and Penang. Due to the demand of labors, there are around 3 million foreign workers are estimated has been living in the countries who 2 million are illegal immigrants.
2.3 Religions
Malaysia is practicing the freedom of practicing own beliefs. However the religion of Islam is being recognized as the official religion of the country and the majority of Malays are Muslims. According to the statistics around 60.4% of the residents are muslims, 19.2%
are Chinese Buddha and the rest below 10% are Christians and Indians. All of the Malays are required to follow the laws of Sharah court for religious reasons. The judge is expectedly to be well acknowledged on the Shafie Schools fundamentals as the main mazhab in Malaysia.
8
The legislative power of shariah court is limited only for religious matters. The rest of the legislative matters are under the civil court order.
2.4 Language
The official language of the country is Bahasa Melayu and it is in form of standard language for communication. English language was used as the main language in the administration and remains as the secondary language and still becoming the fundamental language for official use for instance in commerce and technology wise. The use of the language sometimes are mixed with the other local language and even some Malaysians do like to speak colloquial English language and sometimes do practices switch codes in between both Bahasa Melayu and English language in their daily communication.
2.5 Education
In the education sectors which it is coordinated by the Ministry of Education, the school system is consisting of preschool (not compulsory), primary school and secondary school which are considered as compulsory. The school system is divided into two groups, general nationals’ school and vernacular schools. The national school is using the Bahasa Melayu as their means of delivering knowledge while on the other hand the vernacular schools are delivering their knowledge to the students by using Mandarin or Tamil language.The secondary education system is being conducted in the secondary school for about 5 years and the students will seat for SPM at the end of year 5 before graduating the secondary school and move on to the colleges or universities.
9
2.6 Economy of Malaysia
Malaysia is a country which is rapidly developed and practicing the open market system policies. The country play a big role in the economy but lately less focusing on the economic planning for macroeconomic. In year 2007 Malaysia is considered as the 29th largest economic growth according to GDP which is around 357.9 billion with the current development of growth around 5% -7% since then. The average income for the residents in Malaysia is around RM1000-2000 whilst 19.8% gained in between RM2001 and RM3000.
12.9% of the population gained RM3000-RM4000.
2.7 History of Malaysia Economy
The economic system which has been practiced by Malaysia started since the year 1900 untul 1963 when it can be categorized into 2 major parts which is the Sistem Sara Diri and Sistem Ekonomi Komersil. The forms of the economic activities are normally influenced by the system of ruling of the government. As for example, normal citizen of Malaysia would be a farmer trader and soon becoming business entrepreneurs and etc. The Ekonomi Sara Diri system is much more focusing on the self-reliant economic activities to sustain the family needs. The activities involved are agricultural and inculcating fish and crops. These activities do not require to much cost to begin with.
10
Sistem Ekonomi Komersil emerged just when it existed after the colonization of British Empire. Their existence has emerged and pushed the Malaysian business activities and trades to the level since they need the people to pay taxes to them in cash. Hence those who failed to pay taxes will be fined or sentenced. Among the biggest industry emerged during that time was the trading and mining sectors.
2.8 Plastic industry in Malaysia
Malaysia is considered new in the particular industrial development. The industry has been rapidly grow for the last few decades with total investment which around RM400 million which provides the job opportunities for 25000 currently. The industry offers RM600 millions of values of trade and the industry have its own strength and positive potential to be expanded. The industry is still considered new to the Malaysians as it just started since 30 years ago and only 400 plastic manufacturing companies available with 190 injection molders, 150 film extruders and etc.
The industry has its own potential to be developed since it was introduced. The contribution of GDP from this particular sector to the country is around RM11.703 billion which represents 20.3% which is 1% contribution for GDP. The plastic industry in Malaysia is producing manufactured products such as glues, adhesive paints and lacquers. Since the industry has a great potential to be developed, there is more competitive demands come from the customers requesting the manufacturers to produce high quality products. Hence the industry members who involved with plastic industry is getting more competitive and challenging over the years from now.
11
CHAPTER 3
INDUSTRY ANALYSIS
In this chapter, it will describe the overall scenario of plastic industry.
3.2 Industry Analysis
3.2.1 World Market and Demand
The production of plastic in the world has booming to rise from 50 million tonnes in mid of 1970 to more than 290 million tonnes in 2010. The analysis by Plastic Europe (2010) as in Figure 1, illustrated the increasing of the market and demand for plastics across the world.
12
Figure 2 showed the rise of global consumption of plastics from 1980 to 2010. Figure 2 also show the correlation of plastics consumption between the developed countries and developing countries i.e Asia. As a developed country, the plastics consumption per capita of North America and Western Europe is higher compared to the plastics consumption in Asia.
The per capita plastics consumption in 2010 for North America is 125 kg/year which show the growth of over than 18% compared to their consumption in 2005. Whilst, the per capita plastics consumption in Asia is 20 kg/year grow to 27 kg/year in 2010. The demand for plastic in Asia is expected to continue to increase due to the developing economies within the region. (Europe, 2010)
13
3.2.2 Malaysia market
Malaysia’s plastics industry is more focused in producing products such as, electrics and electronics components, automotive components, bags, containers, battery and packaging materials. Due to the increasing in an international demand in plastics industry, manufacturer in Malaysia saw this as a chance that needs to grab. As results, Malaysian’s plastics industry has continued to rise every year.
14
Malaysia’s plastics products are exported worldwide including the European Union (EU), China, Hong Kong, Singapore, Japan and Thailand. The export of Malaysia in the plastics sector comes in primary forms and in non-primary forms. China, Hong Kong, Singapore, Japan and Indonesia are the major consumers of Malaysian plastics in primary forms which include:
Polyethylene (PE)
Polypropylene (PP)
Polyacrylonitrile-co-butadine-co-styrene (ABS)
Polysterene (PS)
Polyvinyl chloride (PVC)
Polyethylene terephthalate (PET)
. The non-primary forms of Malaysian’s plastics products are as below.
Films
Linear Low Density Polyethylene (LLDPE) film grades for general purpose and heavy duty films.
High Density Polyethylene (HDPE) film grades for the production of carrier bags and thin film applications such as shrinkable polyethylene films and bags.
15 Wire and Cables
Polyethylene and PVC wire and cable compounds are used in the telecommunications and power industries due to their excellent properties for cable insulation and jacketing.
Most of the plastic components are used in the electronics industry and electronic products such as digital cameras, computers or televisions. However, the packaging sector also demanding plastics as for instance metallocene Polypropylene (PP) and Polyethylene (PE) plastic as well as multi-layer barrier films. Furthermore, PET packaging is charting new growth milestones in the severe plastics packaging segment. With regard to the automotive industry, the MPMA sees for sample an increase of plastics to replace metal components and parts in car production.
Another factor that could lead to an increase use of plastics is due to the automotive industry desires to attain production efficiency, noise reduction as well as cost and weight reduction. Besides that, plastics will also be used to build advanced composites for the aerospace, aviation and military industries. However, an overall trend that has risen over the last few years also in the plastics industry is the eco-friendly saving attitude of consumers.
Ever since issues such as global warming and environmental impacts have come up, environmental friendly packaging in the plastics industry has become an often discussed issue. It is not only that consumer are buying products that are eco-friendly but manufacturers also recognise the possible of cost savings from materials and packaging,
16
making pro-environment designs and materials become the favoured choice of housewares producers and buyers.
Besides that, Malaysian’s manufacturers use more recycled element in the production to ensure their products are more readily recyclable. Above all, according to the MPMA the use of biodegradable plastics will reduce the quantity on non-biodegradable and ozone depleting plastics bags. The scenarios for future developments are still positive as plastics will continue to be the materials for the future in many industrial and consumer applications.
According to the MPMA (2011), there are benefits for the industry in various ways. The three main benefits are arising from the export sector and the local demand. An increase in the exports for plastics packaging is expected since the food sector need more packaging material. Furthermore, local demand will increase as well since the automotive sector in the industry since Malaysia itself needs plastics due to improving consumer spending.
Finally, the increase in in-direct export for electrical and electronics appliances will lead to larger production in the plastics sector which can robust consumer’s purchasing power. The globalization industry currently will increase trade opportunities for the resins and plastics industry, however at the same time expose Malaysian manufacturers to competition. The key problems that come with globalization are high production costs and concern on environment issue. Besides, regulations such as the Registration, Evaluation and Authorization of Chemical Substances (REACH) or Waste Electrical and Electronics Equipment (WEEE) commenced by the European Union (EU) and other economies, make the use of plastics stricter for the global plastics industry. Thus it is important for the Malaysian plastics industry to strengthen its competitiveness through the continued acquisition of the appropriate technologies as well as enhance skills training and marketing
17
capabilities. If they do so, Malaysia can continue to penetrate new markets in developed and developing economies successfully.
According to the Malaysian Investment Development Authority (MIDA), the development of domestic downstream plastics processing activities can be attributed to the presence of a developed petrochemical sector in Malaysia. Other engineering plastics, such as polyamides (nylons) and polycarbonates (PC), which are mainly used for the production of parts and components for the E&E, automotive, medical equipment and construction industries remain to be imported. In flexible packaging, more bio- degradable, photo- degradable or chemical- degradable plastics are being introduced with increasing awareness on environment protection.
As point out before, Malaysia exports mainly plastics in non- primary forms. This plastics product industry can be divided into four sub-sectors, i.e. plastics packaging, E&E and automotive components, consumer and industrial products. With 40% of the total industry output, the largest sub-sector for the plastics industry remains plastics packaging comprising both flexible and rigid (including bags, films, bottles and containers). In fact, Malaysia is one of the world’s top suppliers of plastics bags.
3.2.4 Local Production of Plastic Resins
Besides imported plastic resins, there are resins produced locally in Malaysia. They are as listed in Table 3 shows the list of fourteen (14) local producers in Malaysia
18 Table 3: Plastic resins producers in Malaysia
3.2.5 Production of Plastic Products
As the plastic resins are the ‘raw material’ in producing plastic products, therefore the resins consumption is a good indicator for monitoring the trend of total production of plastic products. Based on statistics from the Department of Statistics Malaysia (DOSM), the total productions of plastic products are presented in value (RM ‘000) as depicted in Table 4 (below) for categories of plastic products being manufactured in Malaysia. The total production of plastics products is in inclining trend from 2007 to 2008 with turnover of RM15.4 billion (2007) and RM16.2 billion (2008). There was a drop in production due to the economic recession in 2009 (RM14.6 billion). In 2010, the production climbs up with RM15.8 billion worth of plastic products being produced locally.
19 Table 4: Production of plastic products in Malaysia
3.2.6 Plastic Major Market Segments
Plastics industry in Malaysia can be divided into seven (7) subsectors as follows:
Packaging – comprises plastic bags, containers, films, plates,, strip bottles and boxes.
Packaging is the largest market for plastics industry;
Among the major players of the industry in plastics packaging industries are :
COMPANY ADDRESS
1.
TEO MAH POH PLASTIC INDUSTRY PLOT 22 LOT PT 51680 KAWASAN PERINDUSTRIAN TAMAN MERU JELAPANG, PERAK
2.
PPASIA MEDIA PACKAGING SDN. BHD Plot 468 & 482, Jalan Perusahaan Baru, Prai Industrial Estate, PENANG 3.
SIMWA PLASTIC No.64, Jalan SS 14/2A , Subang Jaya, Selangor
4. WAKIM PLASTIC INDUSTRY SDN. BHD. 55-B-4, Lorong Raja Bot, Kampung Baru, Selangor
5.
NUR QASEH ARIANNA COLLECTION 16-1, JALAN JUNID, Muar, Johor
20
6. Rozie Cookies Taman Kencana, Selangor
7. Oleensys Sdn Bhd A-G-20 Jalan PJU 10 / 10G, Selangor
8. AUXPOINT INDUSTRIES SDN. BHD 1478, Jalan Perusahaan Maju 8, Prai Industrial Estate 4, Penang
Table xx : Plastic Food Container Manufacturer in Malaysia
Electrical and electronics – includes electrical components/ parts and home appliances such as, radio, air-conditioning, and telephone. This subsector is the second largest markets for plastics industry in Malaysia;
Household – includes plastic table ware, kitchen wares and toiletries products.
Automotive – plastics are used for a wide range of automotive parts and component such as dashboard, bumpers and hood.
Construction – plastics are used for manufacturing of pipes, valves and cable shield.
Agriculture – comprises products such as planting bags, raffia string, rain shield, nursery
tray and flower pots.
Others – other sub-sectors include medical devices, plastic furniture, stationeries, toys and gifts.
The percentage of market segment shares for plastics industry are presented in Table 5 and depicted in Figure 7 As shown in Figure 8, the pie chart showing the percentage of market segment for plastics from 2008 to 2010. As presented in Figure 7, automotive, electrical and electronic and packaging subsectors were increased whilst construction sub- sector remained stable throughout 2008 to 2010. Market share for electrical and electronics subsector expanded due to strong surge in the production of television and air-conditioner
21
sets. The automotive sub-sector improved from 10% in 2009 to 11% due to increase in production of passenger cars in 2010.
Table 5: Major market segments for plastic products (2006-2010)
Figure 7: Trend of major market segments for plastics products (2006-2010)
Source: MPMA (2011)
22
Figure 8: Major market segments for plastics products in Malaysia (2008-2010)
23
3.2.7 PLASTICS INDUSTRY REGULATORY BODIES,
ASSOCIATIONS AND RELEVANT ORGANISATIONS
Malaysian Plastics Manufacturer Association (MPMA)
The Malaysian Plastics Manufacturers Association was established in 1967 and is a trade association providing leadership and quality services to its members and the plastics industry. As the official voice of Malaysia’s plastics industry, it represents the members and industry in government interaction, provides platforms to assist members in order to be globally competitive. MPMA currently has about 900 members of whom 60% are plastics manufacturers within the country. These people in return are responsible for 80% of the total plastics production in Malaysia. Besides, they are actively involved in waste management and recycling activities and the Green Partnership Programme (GPP) which is a joint Malaysia - Japan Partnership programme focusing on transfer of technology and information for the environment. Moreover, they work together with other associations such as the Malaysian Petrochemical Association (MPA) and the Plastics Resins Producers Group (PRPG)
SIRIM - Plastics Technology Group (PTG)
SIRIM Berhad is a wholly-owned company of the Malaysian Government under the Ministry of Finance Incorporated. With over forty years of experience and expertise, SIRIM has been the government's mandated machinery for research and technology development, and the national champion of quality.
SIRIM has always played a major role in the development of the country's private sector. SIRIM Berhad has enabled Malaysian products and services to receive due
24
recognition in quality and innovativeness worldwide. SIRIM is recognised the world over as a global research and standards development organisation.
The Plastics Technology Group (PTG) under SIRIM is a leading independent plastics specialist organisation, providing "testing and consultancy services", technology & R&D services, training and information services to the plastics & composites industry. The Plastics Technology Group (PTG) was established in SIRIM with the objective of assisting the growth of the Malaysian plastics industry. The Plastics Technology Group (PTG) is staffed by a team of full-time dedicated researchers, consultants and technicians, each of whom has years of experience in plastics testing, analysis, consultancy and R&D. The staff members were qualified in-house in order to maintain their areas of expertise. PTG has a pilot plant that houses major plastics processing machines for training and incubator services.
Malaysian Plastics Design Centre (MPDC)
The Malaysian Plastics Design Centre was initiated in 1995 with assistance and support from the Ministry of International Trade and Industry (MITI). MPDC is a company limited by guarantee formed in January 1998 to operate the Centre. The main objective of the Centre is to develop new designs for plastics products aimed at creating own brand names for Malaysian-made plastics products. MPDC provides design services from concept design to engineering design. The other related services rendered by MPDC are graphic design and rapid prototyping. MPDC in collaboration with local and international institution also offers short courses in design in future.
25
3.2.8 Export and Import of Plastic Resins
Plastic resins are categorized as commodity resins and engineering resins. The commodity resins category includes polyethylene (PE) which generally comprises polypropylene (PP), polystyrene (PS), polyvinyl chloride (PVC) and acrylonitrile butadiene styrene (ABS). Other plastic resins are categorised as engineering resins which have higher material strength and commonly used in electric and electrical industry.
Table 1 and Table 2 (sourced from MATRADE) below, showing the statictics in Ringgit Malaysia values and in tonne weight of export and import of 10 categories of plastic resins from 2006 to 2010. Whilst the total values for export by category of plastic resins were simplified as in Figure 3 and Figure 4.
26
Table 1: Malaysian export and import of plastic resins in value (2006-2010)
27
Table 2: Malaysian export and import of plastic resins in weight (2006-2010)
28
Figure 3: Export of plastic resins in value (2006-2010)
Sources: MATRADE (2011)
29
Figure 4: Import of plastic resins in value (2006-2010)
Sources: MATRADE (2011)
From these figures, it can be concluded that Low Density Polyethylene (LDPE) has the highest export and import market values.
Figure 5 and Figure 6 show the weight of exported and imported plastic resins..
Similar trend is observed for exported resins of which LDPE being the most exported and imported resins by weight. Generally, imported resins are quiet high despite the fact that Malaysia’s own significant high level of resin production. This glitch is caused by the differing grade requirement by domestic manufacturers’ via-a-via international manufacturers.
30
Figure 5: Export of plastic resins in weight (2006-2010)
Sources: MATRADE (2011)
31
Figure 6: Import of plastic resins in weight (2006-2010)
Sources: MATRADE (2011)
3.2.9 Export and Import of Plastic Products
Harmonized System (HS) codes for plastics products exported and imported by Malaysia presented in Table 6 and Table 7. In general, the trend of export for plastic products is increasing from 2006 to 2010 with slight fall in 2009. The highest valued plastic products in 2010 are sacks and bags, boxes, casings, bottles & containers at value of RM3, 304,505,000.
32
Floor, wall and ceiling coverings have the least value with products worth at RM65, 804,000. Similar trend is observed for the import market of plastic products where the least valued products are for the floor, wall and ceiling coverings, with a valued of RM32, 885,000. The highest valued plastic products in 2010 are plates, sheets, films, foils, strips and tapes of which were valued at RM1, 316,929.
In terms of tonnage, plates, sheets, films, foils, strips and tapes product types constitute is the highest whilst baths, washbasins, seats, covers and other building materials were the least products for both export and import market.
33
Table 6: Malaysian export and import of plastics products in value (2006-2010)
34
Table 7: Malaysian export and import of plastics products in weight (2006-2010)
35
CHAPTER 4
Literature Review
4.1 Operation Management
The whole process in operating a business is recognized operation management (OM).
This element is essential to the administration of the company since it would be affecting the smooth running of the company and indirectly effecting the whole production of the business operation. The field of operations management (OM) has been evolving for many years and may broadly be construed as incorporating supply chain management, quality management, product and process design, project management, and other topical areas (Charles 2011). This part is closely related to each other in order for the company to maximize the production and at the same time optimizing the profits. More to the point the maximize production of the company would be able to reduce the cost of the production and reducing the production period of time.
OM is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services (Charles, 2011). The system itself is designed for the production management team to produce and coordinate the delivery system until the product reach to the end users. More to the point operations management has been strongly influenced by manufacturing management practice and research (Henrique Luiz Correa, 2007) since every single component in the OM needs to be critically analysed and studied to ensure the end users are satisfied with the quality of the product and services provided. On the other hand, the organization also is able reduce the overall cost of management and at the same time efficiently use their time in production line.
36
According to research 80 percent of total capital investment will be in the operations area (Lawrence M. Corbett, 2009). This is because the operation management is considered as the anchor of the whole operation of the business and normally it covers the whole aspects of the business operation. Having a weaknesses or obvious flaws in this part would cause disasters to the whole operation of the business. Operations management (OM) is generally concerned with making the value chain work within and beyond the firm (Kim Sundtoft, 2013). This is due to the fact that OM itself is closely related with all aspects of the company operation management starting from the manufacturing process until the production of the end product.
The requirement for coordination is increasing with the increased size and complexity of the extended enterprise such as ERP (Kim Sundtoft Hald and Jan Mouritsen, 2013). The operations management has been strongly influenced by manufacturing management practice and research (Henrique Luiz Correa, 2007). The Enterprise Resource Planning (ERP) itself is a method which combines variety of elements for instance data storage system, the ability to self-analyse the whole process of the OM, productions system and etc.
The application (ERP) is essential since one of its major features is the ability to integrate between modules, data storing retrieving processes and management and analysis functionalities, combined with the typical functionalities of stand-alone applications (Antonio Rizzi, 1999). By having this integration of all the modules in the system, therefore the management of the company would be able to monitor the whole process involved in the OM as a whole.
37
4.2 Supply Chain
Supply chain integrates topics from manufacturing operations, purchasing, transportation, and Physical distribution into a unified program (Sotiris Zigiaris,2000) cconcerned with managing the conversion process between departments of a single organization or the externalization of relationships with customers and suppliers by the enterprise (Ellram and Cooper, 1993; Porter, 1985). The supply chain involves from the basic foundation of the process from creating the raw material to become a basic product until it reach the end customers. In every single process involved in producing the product would require a specific department handling the particular process. Supply chain is described as the interdepartmental relationship in order to ensure the smooth running of the production of the company.
Supply is important to the organization of the company since it is closely related with inventory management ( Soren Graungaard Pedersen, 2012). The field of study known as supply-chain management represents a crossroads where many academic disciplines have converged. (Nick Rich, 1997). Supply chain is considered as one of the most important parts in business operation management in ensuring each party involved in the production line would be able to deliver their own task successfully and at the same time fulfil the objective of the organization. The study of the field has been attracting a lot of researchers since it represents the working relationships within and beyond the organization were first identified (Ford, 1980). Supply chain needs a close relationship of the organization and the external parties for instance the suppliers who are supplying raw materials to the company. This
38
strategic cooperation is essential by creating strategic relationships with critical suppliers in order to maximize the value creation in the supply chain (Eamonn Ambrose, 2010).
The strategic cooperation is important for the survival of the business operation of the organization to avoid shortage of raw materials to the organization. As the consequences, it would affect the production of the company and indirectly effecting the short term and long term profits of the organization.
Flow of goods from manufacturer to retailer is supported by the flow of information (Hakan Hakansson, 2004). Supply chain need to be closely monitored since it will affect the quality of the product. However it is difficult to control supply chain supply chains outside their boundaries with respect to the quality of supplied materials need to pay close attention to quality management (QM) issues in supply chains (Xingxin Zu, 2012) since the parties involved in the supply chain is not from the internal department of the organization. Hence, a good relationship in between the organization and the supply chain parties need to be retained and consistently improved in order to ensure the smooth running of the whole operation of the organization and ensuring the quality of the production involved.
39
4.3 THEORETICAL MODEL
Figure 9: Theoretical Model of Supply Chain
The basic theoretical model of supply chain as shown in Figure 9 is normally involving several processes from different parties. Among the parties involved are production line, storage, quality control, information system and delivery system. These elements are essentials in ensuring the smooth running of the business operation and achieving the goal of the organization. In this research, the researcher choses LCM Utara (M) Sdn Bhd as the sample of research because the company do apply the basic foundation of theoritical model of supply chain. However a specific focus of study is focused on warehouse management, storage system and delivery system since the researcher believes that there is a room of improvement can be highlighted to the organization.
40
4.4 Introduction warehousing
Warehouse operation management is considered as an important element in managing business operations. Warehouse operations covered most substantial part of warehousing management operation from all areas involved, Even though warehouse management is crucial many organizations today have not taken the issue of warehousing into account, storage of goods and distributions from the same warehouses are done haphazardly that is without any order, (Karimi, 2014). Some of the companies other than some of leading companies have not realize the power of having effective and efficient warehouse (Wickramarachchi, 2011) which later caused them lots of cost. The warehouse management has broaden the ambit of warehouses for storing or buffering products (raw materials, goods-in-process, finished products) (Chalotra, 2013)
Warehouse management is today playing a more vital role than it ever has in the success or failure of businesses (Frazelle, 2002). This is due to the fact that there are several essential elements in warehouse management in ensuring the effectiveness of the business of the organization. Warehouses play a critical intermediate role between supply chain members, affecting both supply chain costs and service (Kiefer and Novack, 1999).
Warehouse management is directly related with supply chain system since it involves with the supply system of the organization.
Warehouse also plays a big role in ensuring the safety of the products when it functions as storage of finished goods and/or materials that require protection from the elements, as well as ensure commercial security and social safety (Florence Yean, 2008). Some of the finished
41
goods are vulnerable and easily damaged when it is not being properly organized. Therefore these type of products need to be properly monitored and stored. Hence the organization needs good people, systems and technology to work effectively together to achieve the best performance. (Rick Ballard, 1994) in ensuring the storage quality of the goods.
In an effort to justify supply chain procedures and to coordinate them more competently, many corporations have set up centralized production and warehouse facilities over the last decades (HIDC/BCI, 2001). Centralized production is a method of management system where is functions as the centre of warehouse storage. The centre act at the centralized storage for all of the production storing good to be supplied to the focused area nearby. The advantages of having centralized storage is that it would be able to supply products consistently and efficiently to the specific areas required. At the same time it will reduce the warehousing cost since the centralized storage has covered the areas needed.
The general warehousing concept comprises the storage and retrieval operations, the organizational features, the mechanisation equipment for resources handling, media for material storage, and the building structure itself which is necessary to guard the goods' surroundings. The task of distribution comprises of moving goods from the manufacture line to the client in an acceptable time and doing it economically. Both the physical procedures of material handling and stocking, as well as the fundamental methodologies, are usually signified by the word ``warehousing''. Warehousing events concern the physical storage and retrieval of materials, and also the processing of information needed about the goods stored.
For example, lot (or the parcel) has an origin, its supplier, identification, its designation, a dimension (usually the quantity), a destination and a customer. Basically, warehousing methodology is information-oriented and requires the use of efficient media to store and
42
handle data about the movement of goods. It is important to have good control over the inventory.
In today’s world, it is almost impossible to contemplate any efficient mass production or commercial distribution without a careful consideration of the role of warehousing (Henneberry, 1987; Power et al., 2007) since warehouse management involved closely related with many kind of processes such as storage, distribution, consolidation and etc.
Facilities used in the warehouse are also essentials since it provide the right environmental conditions for the storage of finished goods and/or materials that require protection from the elements, as well as ensure commercial security and social safety (Gunasekaran et al, 1999) As for example many standard management software system are available in the market currently (Loudin, 1998; Randal 1999). The use of the software in the operation management system is in order to facilitate the administration management in managing storage system.
As such, warehouses have to be designed to satisfy a combination of several technical and operational requirements (Florence Yean, 2008). The combination of these facilities and storage system will assist the operational management of the warehouse. It may cover the aspects of managing equipment, receiving and shipping processes and associated transportation, and the requirements of the functional personnel.
In recent times the growing demand for warehousing by manufacturers and retailers has contributed to the creation of a market in commercial warehouse leasing (Jones and Hillier, 2000) since the it is proven that warehouse management contributes effectively and positively to the whole system of the business operation. Warehouse management encompasses the control and optimization of complex warehouse and distribution processes (N. Faber, 2013), and it depends on the tasks to be performed and on the market the warehouse operates in. The design of warehouse management may be different from an
43
organization compared to another organization due to the differences of business operation, size, logistic availability, geographical factors and others.
4.5 Storage
One of the most important aspects of warehouse management is producing warehouse design which is its layout (Mohsen M.D. Hassan, 2002) and concern the physical storage and retrieval of materials, and also the processing of information needed about the goods stored.
(A.Gunasegaran, 1999) A layout of storage is important in order to define the capacity and availability of spaces can be used in order to keep goods or products. The size of the layout will effect the volume of the product storage which will be located at the warehouse.
The advantage of volume based storage is the reduction in travel time and distance.
The more storage and size of the warehouse can be designed will provide more spaces to the goods to be allocated. Hence it will reduce the cost of transportation and will be more time efficient. Gibson and Sharp (1992) and Gray et al. (1992) found that locating high volume items close to the exit point results in a important increase in picking efficiency. By having and efficient picking system, there will be no left out goods or products as the result the storage system will run smoothly and efficiently
4.6 Delivery
The design of the service delivery system addresses the question of “how” the service concept is delivered to target customers (Tax and Stuart, 1997). It refers on how the finish products are distributed to the end customers. The task of distribution consists of moving goods from the production line to the customer in an acceptable time and doing it economically. (A.Gunasegaran, 1999). Delivery system needs to be operated in economic
44
manner as such to reduce operational cost. It is essential in order to ensuring the quality of the products fulfilled the requirements of the quality control of the organization and satisfy the needs of the customers. According to Rajesh Kumar and Uday Kumar (2004) the delivery of the required function means ensuring that the right product (meeting the requirements of quality, reliability and maintainability) is delivered in the right quantity, at the right time, in the right place, from the right source. It shows that the delivery system involves with many aspects from the production line of the organization, quality control, storage quality and system and also delivery procedures and system.
45
CHAPTER 5
METHODOLOGY
This section is going to explain about the obstacles faced by the entrepreneurs in meeting customer’s demand regarding the warehouse management nature. In order to complete this study, articles related to the problem faced by the company have been analysed.
The methodology applied in the study is qualitative method. An interview has been conducted to with the top management and also employees in LCM Utara (M) Sdn. Bhd as the respondents.
5.1 Research Design
5.1.1) Sources of references
In obtaining the data, researcher chooses primary data from the interview to be used as major references. Beside that secondary data such as statistics from the reliable sources, observation and journal also were being collected.
5.1.2) Objective of the study
The main aim of this study was to describe the issues and lack of warehouse management system in LCM Utara (M) Sdn. Bhd.
5.1.3) Method of data collection
Primary data was collected from observation and interview sessions.
As the supportive effort, data will be backed up by secondary data which had
46
considered as accessible such as information that derived from books, articles and journals about the industry.
5.2 Data collection
5.2.1) Primary data
5.2.1a) Observation
The respondents were observed constantly 6 times in 6 months of period of time. The observations were conducted in order to observe the operation procedure of warehouse management in LCM Utara (M) Sdn. Bhd. The information obtained is related to the marketing and operations of the company. In addition, observations were made to determine current warehouse management system used for LCM Utara (M) Sdn. Bhd.
5.2.1b) Interview
Interviews were conducted with the CEO of the company and 9 employees to obtain the desired information from different perspectives. From the interview, researcher is expecting to gain more futher insight and information about the warehouse operation management in LCM Utara (M) Sdn. Bhd.
47 5.2.2) Secondary data
5.2.2a) Library research
The secondary data were been taken from various literature reviews, related to the study. The references are also taken from selected books, journals, articles, company reports etc. regarding plastic industry in Malaysia.
5.2.2b) Others
Other document such as standard operating procedures, warehouse design, layout were observed and collected for further references. These data was obtained from LCM Utara (M) Sdn. Bhd.
Company profile and their past report including statistics related to warehouse management in LCM Utara (M) Sdn. Bhd.
5.3 Data Analysis
In this research, SWOT and TOWS analysis are being used as the major tools and technique for the study. The use of tools and technique are important in order to identify relationship between warehouse management and operation for LCM (M) Sdn. Bhd. Delivery and storage align with warehouse management system in LCM Utara (M) Sdn. Bhd.
5.3.1 SWOT Analysis
SWOT analysis provides a systematic system to synthesize and incorporate various types of information all the way through the data compilation process.
48
SWOT analysis is well-organized strategies that identify the strengths, weaknesses, opportunities and threats of the organization in the business. Albert Humphrey who is led a principle at the Stanford Research Institute was said the one who create SWOT analysis but he denied it and it’s remain unknown until this day.
o Strengths: the benefits of the organization in the
o Weaknesses: the weakness of the organization in the industry
o Opportunities: probabilities of the organization might make utilize of to its advantage.
o Threats: possibility in a condition that might cause serious problems to the organization
SWOT analysis were applied in this study due to the rationale that it will assist to further improve the strategic business map Hence the industrial organization would be capable to provide for the decision maker with priceless information about the business plan. From the SWOT analysis result, the decision maker should be capable to judge whether the objective is achievable or vice versa. This process need to be adhered and recurring to meet and accommodate with the new attainable objective.
SWOT analysis focuses on the internal and external factors of the organization to achieve its objectives. It can be divided into two main sections that are:
49
1. internal factors – the strengths and weaknesses in the organization 2. external factors – the opportunities and threats that are outside factors
Internal factors that consists strength and weaknesses can be identify through organization objectives. Strength of the respect objective might become weakness for another objective. It might involve personnel, finance, manufacturing ability and others that relate indirectly to the organization.
While external factors may consists of macroeconomic factors such as technological changes, legislation and sociocultural change. Usually the results will be present in a table or matrix.
5.3.2 TOWS Analysis
The TOWS matrix is often used to generate strategic planning for the organization. It is similar with SWOT analysis since this technique also needs to identify company’s strengths, weaknesses, opportunities and threats. The main different both techniques is SWOT analysis identify strengths and weaknesses to minimize threats and maximize the opportunities. While TOWS analysis use matrix to identify external opportunities and threats, then compare with company’s internal strength and weaknesses.
The aims in TOWS analysis need to answer the following four questions:
Strengths and Opportunities (SO): How can organization’s strengths assist them to take advantage of on their opportunities?
50
Strengths and Threats (ST): How can organization present strengths assist them to identify and keep away from present and possible threats?
Weaknesses and Opportunities (WO): How can organization defeat their present weaknesses by using organization’s opportunities?
Weaknesses and Threats (WT): How can organization reduce their weaknesses and stay away from present and potential threats?
TOWS analysis is a type of strategic analysis process that includes complete analysis about internal and external factors. It can be used to generate growth potential of the organization in the business. All of the factors can be arrange into 2 groups that are:
Internal and external factors that involve in the business
Positive and negative possibilities that might affect the organization
Based on the groups above, it will create 4 different categories of factors that consist:
External and positive (opportunities)
External and negative (threats)
Internal and positive (strengths)
Internal and negative (weaknesses)
Comparing opportunities and threats with strengths and weaknesses of the company permit significant its strategic position, and can also be a foundation of attractive ideas of strategies. There are four basic strategies depending on the occurrence of the analyzed group of
