Majority of the small manufacturers are in job shop and batch production or a combination of both. Only one manufacturer adopts assembly line production. In all.
A STUDY ON THE FACTORS AFFECTING ISO 9000 IMPLEMENTATION IN SMALL MANUFACTURERS
John P.T. Mo, BSc, PhD Manufacturing Systems Engineering, RMIT, Australia
and
Andy M.S. Chan, BBA, PGD(Manu. Mgt.), MBus, MEng Ryoden Lift and Esc. Co. Ltd., Hong Kong
1.
Introduction
Since the release of ISO 9000 Standards by the International Organization for Standardization in 1987, the standard becomes extensively accepted as a set of quality assurance standards in most of the developed countries. For the exporting companies, the accreditation is a qualification for them to sell across national boundaries into the markets supporting ISO 9000. In fact, a supplier must be ISO certified in order to do business with the European Community (EC) industries [1]. Domestic suppliers, particularly those selling to the public or to large private purchasers, seek ISO certification for marketing purposes. On the other hand, ISO 9000 is considered as an effective tool to provide “controls to ensure quality of production and delivery, and reduces waste, downtime, and labour inefficiencies, thereby increasing productivity” [2]. The justification of the ISO adoption is normally based on “the benefits that will ensue - greater efficiency, a first class marketing tool, improved customer satisfaction, less (if any) supplier audits required and higher customer and staff morale” [3]. In order to make the customers feel confident about the supplier’s ability to meet order requirement, organizations implementing ISO standards need to be confirmed. The accreditation or certification process serves this purpose. There are three types of certification: first party certification (verification by the sources within the company), second party certification (verification by the purchaser) and third party certification (verification by an independent certifying agency or standards association). Third party certification is the most widely accepted form. The independent body, usually called registration or certifying body, would normally issue a certificate of registration, indicating acceptance of the organization as “A Company of Assessed Capability”, or something similar. This bears witness to the world at large that the assessed organization complies with all of the requirements of the applicable standard. However, many small manufacturers are complaining that they are having difficulties introducing ISO quality system [4]. Bell [5] criticizes that ISO 9000 is irrelevance to small organizations. Others consider the high cost of achieving and maintaining the certification may be damaging the small business sector [6]. Gome [7] notes that ISO 9000 requirement is far too sophisticated and does not add value to small businesses. However, it seems that the real factors hindering or helping ISO implementation in small manufacturers, are still not clear. This paper investigates the various factors influencing small manufacturers, particularly in the Australasian regions, in their implementation of ISO 9000. 2. Driving Forces to ISO Implementation Endrijonas [8] identifies that “the impetus behind a company’s drive toward ISO 9000 registration generally falls within one or more of four categories: customer demands and expectations, competitive pressures, regulatory environment, and internal benefits”. 1
Various surveys around the world [9,10] reveal that sales related elements are the major driving forces for ISO certification: · Pressure from major customers’ request · Anticipation of request form customers soon · Requirement of potential customers · Ability to capture more market share · Pressure from competitors It appears that manufacturers gain certification greatly because of their anticipation on the internal benefits rather than sales focused motives. On the other hand, from the list of proactive drives, a number of the variables in ISO 9000 certification are related somehow to the Total Quality Management (TQM) philosophy. Thus, ISO 9000 can be treated as an effective tool which contributes to the TQM process. The summary for the proactive drives can then be viewed as a path to Total Quality Management (TQM) [11,12] which contributes to continuous improvement of the company. Sakofsky considers that the internal auditing process for ISO can be a tool for continuous improvement. “It will facilitate process improvement by identifying in weak segments in process chains” [13]. Corrective action analysis will identify the root causes of the process upsets and actions will be developed and implement to solve business problems and satisfy the quality system. Therefore, the continuous internal audit process, along with a commitment to develop meaningful business corrective actions, helps the organization to achieve continuous improvements in TQM. 3. Inhibitors for ISO Implementation On the contrary, many manufacturers found that ISO registration is too expensive, time consuming, too formalized and impersonal [3]. Orsini notes that the cost of obtaining ISO 9000 could act as a barrier for smaller companies wishing to register [14]. There are also opinions that ISO 9000 is far too sophisticated. [15]. The direct costs of obtaining and maintaining ISO certification are the registration fees, auditing fees and the optional consultation fees [16]. Nicholas [17] notes that the “ registrar and consulting fees can easily top [U.S.]$40,000” in the United States. In Australia, the average small business would have been paying up to Australian $40,000 for the certification [18]. Gome [19] reckons that the biggest problem to small businesses is that customers demand certification but still try to buy on price. A survey conducted by Eisen [20] of 338 manufacturers in Australia showed that ISO might not be worthy to small businesses as the benefits from ISO might not cover the total costs spent on the certification. Most of the small businesses do not consider that the certification can induce new orders although certification can improve the quality image of the company. Moreover, small businesses always complain that ISO cannot give them advantages such as increase of productivity, 2
reduction rework, reduction of scrap, and so on, but the tremendous increase in paper works [21]. 4. The Research Methodology Although there are many criticisms that ISO 9000 is inappropriate or over-sophisticated to small businesses, there are a lot of benefits to be gained from the ISO certification process [22]. Small businesses play an important role in their contribution to any economy. It is the objective of this research to identify the various factors affecting small manufacturers on ISO 9000 implementation so that resources can be better allocated to achieve value adding purposes. In order to examine whether the problems and situation encounted by the small manufacturers are unique to small manufacturing businesses in the Australasian regions, a 3-phase investigation has been designed to provide accurate and in-depth understanding of the implementation issues of ISO 9000 (Figure 1).
Figure 1
The Three-stage Investigation Plan
With the major inputs from the literature survey, the questionnaire was designed to investigate the similarities and differences between small manufacturers in seven aspects as shown in Table 1. Section 1 2 3 4 5 6 7
Addressed Issue How do the customers evaluate the product and/or service quality of the respondent’s organization? Awareness of ISO 9000 certification. The status of the respondent’s organization in the ISO 9000 certification process. The possible reasons for the respondent’s to start the ISO 9000 certification process. The possible reasons hindering the respondent’s organization to start the ISO 9000 certification process. Number of employee of the respondent’s organization. The industry of the respondent’s organization. Table 1 Seven Sections of the Questionnaire 3
Case studies are then conducted to investigate intensively on some areas of importance identified by the literature survey and the questionnaire survey. A checklist was designed as a reference list for data collection during the interviews. The checklist covers the general background information of each case so that the organizations can be grouped according to their employee size, product type, customers type and so on. The rest of the checklist gives the focus to the ISO issues. Intensive investigation is made to reveal the problems and benefits on the ISO implementation process. The main methods used in the study are: · in-depth interviewing of owner-manager, senior management or quality manager · plant visits to factory, design workshop, production workshop, warehouse, and job sites · participant observation · non-participant observation · documentary analysis 5. Questionnaire Survey The aim of the questionnaire survey is to examine the similarities and differences between small manufacturers. Manufacturing industry with less than 100 employees and non-manufacturing companies with less than 20 employees are defined as small manufacturers [23]. 5.1 Background Information All the companies in the survey were aware of ISO 9000 irrespective of their size and geographic areas, and whether they planned to start the ISO 9000 certification process or not. Majority of the companies had engaged themselves in the certification process indicates the widespread demand of the certification in the manufacturing industry (Figure 2).
27%
29%
Obtained Certification Start ISO Process
44%
Figure 2
Not Start ISO Process
The ISO Implementation Status
The survey also indicates that there is a correlation between the employee level and ISO certification. In Figure 3, it can be seen that the higher the employee level, the higher will be the percentage of companies getting certified or in the process of certification. It appears that larger manufacturers are more motivated or more aggressive in seeking ISO
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certification. It appears that larger manufacturers are more motivated or more aggressive in seeking ISO certification. This also suggests that larger companies are usually accessible to more sufficient resources which enables them to start the certification process earlier and obtain the certification quicker than the comparatively smaller companies.
35.0 30.0
Not Start ISO Process
25.0 20.0
Start ISO Process
15.0
Obtained Certification
10.0 5.0 0.0 1-10
Figure 3
11-20
21-50
51-100
ISO Implementation Status vs. Employee Levels
The survey results also indicate that more than two third of the small manufacturers with less than ten employees are not in the ISO process. Again, this can be the reason of the under-resources of the comparatively smaller companies. In addition, a lot of smaller companies are handling orders with small quantities and small amount. The customers are less likely to request their small suppliers to be ISO certified. Without the pressure from the customers, smaller manufacturers do not have the driving force or initiative to seek the certification. 5.2 Customer’s Quality Evaluation Criteria This factor refers to the perception of how the small manufacturers considered that their customers would evaluate their quality. Figure 4 reveals that majority of the small manufacturers in the Australasian region do not consider ISO 9000 certification a critical criterion for their customers to evaluate their quality. Rather, small manufacturers tend to develop close customer relationship as part of their quality promotion strategy. About 80 per cent of the companies consider that their customers evaluate their quality by the knowledge that competent personnel are handling quality in their companies. This conforms with the critical factor pointed out by Meredith that the success of small business relies on the ability of the owners and employees to provide professional and expertise services to their customers [24].
5
100.0 80.0 Unlikely & Very Unlikely
60.0
Possible 40.0 Very & Quite Likely 20.0 0.0
Figure 4
Customer’s Quality Evaluation Criteria for Small Manufacturers
5.3 Reasons for Small Manufacturers to Start the ISO Process Companies start their ISO process owing to different reasons. However, based on the literature survey, there are some typical driving forces for companies to embark on ISO implementation. Figure 5 shows the responses from small manufacturers in the questionnaire survey on various reasons or driving forces for them to start their ISO process Suppliers Obtained Certification Capture more Market Share Customers will Request Soon Competitors' Pressure Potential Customers' Requirement Loss of Customers to Certifified Major Customers' Request
Unlikely & Very Unlikely Possible Very & Quite Likely
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Figure 5 Reasons to Start the ISO Certification Process for Small Manufacturers Around 70 per cent of Victorian small manufacturers did not consider the loss of customers to certified competitors would drive them for the certification. However, 90 per cent of the small manufacturers in South East Asia have the opposite view. In 6
Australia, the small manufacturers do not expect their customers to change their purchasing habits or source of supply merely on the issue of the certification because other issues such as competitive price, personalized service, convenient locations can be very important. In South East Asia, the markets are more volatile and the suppliers can not afford any chance of losing business to competitors. The small manufacturers are more alert to take corrective actions owing to the threat from other competitors. 5.4 Factors Inhibiting Small Manufacturers from Starting the ISO Process Many small manufacturers complain that they are prohibited to start the ISO process owing to a lot of different reasons. Some typical inhibiting forces are identified according to the literature survey. Figure 6 shows the factors inhibiting small manufacturers in this questionnaire survey from starting their ISO process.
Too Difficult to Learn & Implement Assistance not Available Staffs are too Busy Extensive Changes Unlikely & Very Unlikely
Another Standards in our Industry
Possible
Not Supported by Employees
Very & Quite Likely
ISO Useless in our Industry Management does not Know ISO Returns Cannot Cover Costs Total Costs Unaffordable 0.0
20.0
40.0
60.0
80.0
100.0
Figure 6 Factors Inhibiting the Start of the ISO Process for Small Manufacturers Despite the majority of the Australian small manufacturers consider that the unaffordable costs of certification would prevent them from starting the ISO process, no other factors appear to have a dominant effect. About half of the companies consider their staffs are too busy on the existing jobs and do negatively affect them to start the process. However, some other common complaints raised by small businesses were unlikely to inhibit them from starting the ISO process. These complaints include the followings: · lack of knowledge on ISO 9000 of the management · total benefits cannot cover total costs · inappropriateness of ISO 9000 in their industry 7
· · · ·
ISO implementation will not be supported by employees another standard is adopted in their industry extensive changes are required too difficult to learn and implement
6. Case Study Among the cases, small manufacturers with longer years of operation produce industrial products such as ultrasonic cleaners and manufacturers produce less durable commercial products such as computers and construction materials appear to have a shorter history. Small manufacturers with longer years of operation usually have less major customers. In all cases, satisfying customer demands is cited as one of the critical factor leading to the success of the business. Majority of the small manufacturers are in job shop and batch production or a combination of both. Only one manufacturer adopts assembly line production. In all cases, the technology of production are considered as simple and routine. Sophisticated system like robotics, computer aided manufacturing (CAD), computer integrated manufacturing (CIM), and other advanced automated machinery are quite alien to the small manufacturers. Majority of the case organizations are adopting a centralized management system with the owner-managers or senior management making all principal decisions. This is in fact one of the basic management and organizational characteristics of Australian small businesses. Company vision and mission statements do exist in most of the organizations. However, according to the interviewees, the vision and mission are not well communicated to the employees other than the senior management. In most of the cases, the vision and mission can only be regarded as the task of individual ownermanager instead of the whole company. Employee participation usually happens in the decision making process on technical matters such as the modification of machinery. All the case organizations consider that their success will rely on the delivery of quality products and services which best satisfy the needs of their customers. This “quality” concept is communicated to all the employees through the direct interaction between employees and owner-managers or senior management and the enforcement of strict product inspection. The case studies confirm that organizations with larger employee size are more likely to be certified or to be in the process of certification. This again suggests that the accessibility to more sufficient resources in larger companies enables them to start the certification process earlier and obtain the certification quicker than the comparatively smaller companies. For the certified manufacturers, a staff is assigned the responsibility of project manager of the ISO implementation in addition to his/her normal job function. All these quality management representatives are trained by external institutes and consultants are recruited for assistance in two cases.
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6.1 Motivations for ISO 9000 Certification From the case studies, the impetus behind the case organization’s drive toward ISO 9000 falls within two main categories: sales focused and internal focused. Sales focused motivations include customers’ demands, competitive pressure and the anticipation of competitive advantages. It is obvious that small manufacturers have to react to the market demand in order to stay in the business. To achieve organizational growth, acquiring a competitive advantage like ISO 9000 certification can be an effective tool. Figure 7 shows the percentage of case organizations considering the sales focused motivation driving them to seek certification.
90.0 80.0 70.0 60.0 50.0 40.0
Small Manufacturers Engaged in ISO
30.0 20.0 10.0 0.0
Figure 7
The Extent of Sales Focused Motivation Driving Small Manufacturers to Seek ISO Certification
The internal focused motivations are usually originated from desire of the management for continuous improvement of the organization. All of the case organizations engaged in ISO are supported by the desire of the owner-managers or senior management on their anticipation of the benefits gained by the implementation of ISO 9000. Although most of them consider a rigorous quantitative measurements on the benefits are both difficult and unworthy, they do “feel” that the company has some improvements after ISO implementation. The benefits include: · reduce scrap and obsolete stock; · reduce rework; · increase productivity; · improve product quality; · minimize role ambiguity; · increase employee morale; · control better on suppliers; · improve existing system; and · improve customer satisfaction.
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6.2 Difficulties Encountered on ISO Implementation Difficulties originated from the internal organization creates the biggest obstacles to the ISO process. Majority of the case organizations considered that most of the difficulties are originated from within. An interviewee recalled that their ISO implementation process became a political war which led to the resignation or dismissal of some managers. ISO can be treated as a stimulus in a revolution or a stepping stone in an evolution of organization development. The success of either process depends on whether the organization really need the change. The difficulties faced by the case organizations on ISO implementation are: · lack of commitment of personnel; · insufficient training; · insufficient resources; · languages problems for non English speaking employees; · overloading of job commitment; · unable to measure benefits against ISO implementation; and · lack the persistent to develop the documentation. Figure 8 shows the various internal difficulties encountered by the case organizations during the ISO implementation process.
L a c k T im e B e n e fits C a n n o t b e E v a lu a te d O v e rlo a d in g o f W o rk C o m p e te fo r R e s o u rc e s
S m a ll M a n u fa c tu re rs E n g a g e d in IS O
L a c k C le a r B ud g e t In s u ffic ie n t T ra in in g N o t S u p p o rte d b y E m p lo y e e s 0 .0
Figure 8
1 0 .0
2 0 .0
3 0 .0
4 0 .0
5 0 .0
6 0 .0
The Internal Difficulties Encountered
Although the internal difficulties may cause the failure of ISO implementation, they can somehow be “fixed” within the organization. Organizations are more frustrating to the external difficulties as they can hardly influence the sources creating the difficulties. Some of the external difficulties are: · major customers request an unreachable time limit for certification; · customers are not using quality system as an assessment criterion to select suppliers; · suppliers do not support ISO implementation; and · external consultants are costly but not helpful;
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The external difficulties are caused from three sources: customers, suppliers and consultants. The lack of demand or decrease of demand for ISO from customers will discourage the small manufacturers to seek certification. Without considering the costs saved owing to the implementation of ISO, the costs incurred to the certification will reduce the price competitiveness of the products produced if the customers do not expect to pay a premium price for their ISO certified suppliers. About half of the case organizations have recruited external consultants to assist their ISO certification process. However, not all the organizations are satisfied with the performance of the consultants. Some of the case organizations complain that external consultants is costly but not helpful. Not only does an ineffective consultant negatively affects the bottom line, it may cause unnecessary delay to the ISO implementation. 7. Conclusion Both of the case studies and questionnaire survey reveal similar results in the areas such as: the relationship between employee size and ISO implementation status, and the motivations for the certification. Small manufacturers with a larger employee size and hence sufficient resources, can be able to start ISO earlier and obtain certification in a quicker rate. The motivations for certification are sales focused and internal focused. Sales focused motivation is defensive in market survival and offensive in acquiring a competitive advantages. Internal focused motivation is originated from the desire of the owner-managers or senior management that internal benefits can be obtained on the successful implementation of ISO 9000. Difficulties of ISO implementation come from both internal organization and external sources. Besides, both the questionnaire survey and case studies show that the two major forces behind ISO 9000 certification are market demand and benefits derived from the process. Most of the small manufacturers start their ISO implementation in response to their major customers’ request; the requirement of the potential customers and the anticipation that the customers would request the certification soon. These provide the practical evidence that market demand is the major drive to initiate people commitment toward ISO. The continuous demand of ISO 9000 based on the promotion of the standards by the International Organization of Standardization, government, customers, competitors and industries. However, people will only adopt a standard which is beneficial and practical to their organizations. A continuous review of the benefits enjoyed by the company in the implementation process can enforce the commitment of the people involved in the process. Some of the common benefits are listed in the following Table 2.
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Quantitative Benefits Non-quantitative Benefits Expand market share (especially export Increase employee morale market) Reduce scrap rate Minimize role ambiguity Reduce rework Control better on suppliers Increase productivity Improve existing system Reduce product defects rate Improve customer satisfaction Table 2 Common Benefits of Implementing ISO 9000 Although the business benefits of ISO 9000 registration for a small company are the same as for a large company, the difficulties on ISO implementation appear to be more critical to small companies owing their smaller sizes and limited resources. By revealing the various factors affecting ISO implementation, small manufacturers can determine a more cost-effective strategy which best satisfy their requirements in the successful implementation of ISO 9000. 8.
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