UNIVERSITI PUTRA MALAYSIA

BARRIERS TO CIM IMPLEMENTATION FOR SMES IN THE KLANG VALLEY

LIM THIAM LAI.

FK 2004 19

BARRIERS TO CIM IMPLEMENTATION FOR SMES IN THE KLANG VALLEY

LIM THIAM LA1

MASTER OF SCIENCE UNIVERSITI PUTRA MALAYSIA

BARRIERS TO CIM IMPLEMENTATION FOR SMES IN THE KLANG VALLEY

BY

LIM THIAM LA1

Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia, in Fulfilment of the Requirements for the Degree of Master of

Science

March 2004

DEDICATIONS

To: My Mother,

My Wife,

My sons.

Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment of the requirement for the degree of Master of Science

BARRIERS TO CIM IMPLEMENTATION FOR SMES IN THE KLANG VALLEY

LIM THIAM LA1

March 2004

Chairman: Associate Professor Abdel Magid Hamouda, Ph.D.

Faculty: Engineering

Small and Medium Enterprises (SMEs) in Malaysia play a very important

role in the country's economic development. In the year 2002, SMEs

comprised 90.0% of the total manufacturing establishments in Malaysia

and contributing to 33.3% of total employment in the country.

Undoubtedly, in the new millennium, the Malaysia SMEs will face new

opportunities as well as challenges, particularly in view of the

liberalization of trade and investment under the ASEAN Free Trade Area

(AFTA), the ASEAN Investment Area (AIA), the European Union (EU)

and the emerging market economies of Eastern Europe and China.

The increasing global competition, technology advances, social changes,

changes in government trade and investment policies and changing

consumers markets will be some of the difficulties facing the Malaysian

3

SMEs. Therefore, the SMEs must formulate and implement new strategies

that will enable them to cope with these new challenges.

It is essential to conduct research and study on the Malaysian SMEs to

provide useful information so to enhance effort to transform the

manufacturing industry into a more dynamic sector with high value

added, capital intensive, high technology as well as skill and knowledge

intensive industries.

The purpose of this study is to investigate how the SMEs perceive

automation like computer integrated manufacturing system and how the

factors like management mindset; company size and level of computer

literate of the workforce can influence on the decision to implement

computer integrated manufacturing, CIM.

This study gathered information on the barriers of implementing CIM.

The research is an empirical study on the SMEs within Klang Valley. The

method of the research is the questionnaire survey method. A total of 290

questionnaires were mail to the selected SMEs companies listed in the SMI

Directory 2001 and the FMM Directory 2001. Selection of SMEs was based

on stratified sampling method on the basis of 25%. A total of 56 responses

were collected and data was analysed using SPSS version-10.0 software.

4

Analysis techniques used were the test of correlation (Chi-square) and

linear regression.

Result of the findings shows that the management understanding and

knowledge of CIM and level of computer literate operator has a

significant influence to the decision to implement CIM. But, the size of

company does not have significant influence on the implementation of

CIM. The findings also indicate that to improve the adaptation of CIM,

SMEs needs to improve the level of computer integration. Training has

been identified as the key issue before the implementation of CIM.

Therefore, in order to make implementation successful in SMEs a

comprehensive and effective training program is required.

Keywords: CIM, SMEs, Management Mindset, Technical strength

Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai memenuhi keperluan untuk ijazah Master Sains

HALANGAN KEPADA PELAKSANAAN SISTEM PEMBUATAN BERINTEGRASI KOMPUTER BAG1 PEKILANG-PEKILANG KECIL

DAN SEDERHANA DI LEMBAH KLANG

Oleh

LIM THIAM LA1

March 2004

Pengerusi: Profesor Madya Abdel Magid Hamouda, Ph.D.

Fakulti: Ke juruteraan

Pekilang kecil dan sederhana memainkan peranan penting dalam pekembangan

ekonomi negara. Pada tahun 2002, pekilang kecil dan sederhana merangkumi

90.0% daripada keseluruhan pertubuhan kilang pembuatan di Malaysia dan

menyumbangkan 3 3.3% pekerj aan negara.

Tidak boleh dinafikan, pada abad baru ini, pekilang kecil dan sederhana akan

menghadapi peluang dan juga cabaran baru, terutamanya, dari segi pengliberasasi

dagangan dan pelaburan dibawah Rantau Perdagangan Bebas ASEAN (AFTA),

Rantau Pelaburan ASEAN (AIA), Perpakatan Eropah (EU) dan pasaran ekonomi

baru seperti Eropah timur dan China.

Peningkatan persaingan antarabangsa, peningkatan teknologi, pertukaran social,

pertukaran polisi dagangan dan pelaburan kerajaan serta pertukaran pasaran

pengguna akan merupakan masalah yang dihadapi oleh pekilang kecil dan

sederhana di Malaysia. Maka, pekilang kecil dan sederhana mesti membentuk

dan melaksanakan strategi baru yang akan menolong mereka menghadapi cabaran

baru ini.

Adalah difikirkan menjadi suatu keperluan untuk melaksanakan penyelidikan dan

kajian mengenai pekilang kecil dan sederhana di Malaysia, supaya dapat memberi

maklumat berguna untuk memperkukuhkan usaha untuk menukar industri

pembuatan kepada satu sektor yang bernilai tambahan yang tinggi, modal yang

intensif, berteknologi tinggi dan juga industri yang berdasarkan ilmu d m

kemahiran yang intensif.

Tujuan penyelidikan ini adalah untuk mengkaji apakah pandangan pekilang kecil

dan sederhana terhadap automasi seperti sistem pembuatan berintegrasi komputer

dan bagaimana faktor-faktor seperti pemikiran pihak pengurusan; saiz syarikat

dan tahap kefahaman mengenai komputer antara pekerja-pekerjanya dapat

mempengaruhi keputusan untuk melaksanakan sistem pembuatan berintegrasi

komputer, CIM.

Kajian ini mengumpul maklumat-maklumat mengenai halangan-halangan bagi

pelaksanaan CIM. Penyelidikan ini merupakan suatu kajian empirikal bagi

pekilang-pekilang kecil dan sederhana di Lembah Klang. Kaedah penyelidikan

adalah secara soal selidik. Sejumlah 290 borang kajian telah dikirim kepada

pekilang-pekilang kecil dan sederhana yang tersenarai dalam SMI Directory 2001

dan FMM Directory 2001. Pemilihan nama-nama pekilang ini adalah

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berdasarkan kaedah pesampelan stratified dengan peratus pemilihan sebanyak

25%. Sejumlah 56 jawapan telah diterima dan dianalisa dengan perisian SPSS

Ver. 10. Teknik analisa adalah ujian korelasi, iaitu chi-square dan regrasi linear.

Keputusan kajian ini menunjukkan bahawa pengetahuan dan kefahaman pihak

pengurusan mengenai CIM dan tahap kefahaman pekerja mengenai komputer

mempunyai pengaruh yang nyata terhadap keputusan untuk melaksanakan CIM.

Tetapi, saiz syarikat tidak menunjukkan kaitan yang nyata terhadap pelaksanaan

CIM. Keputusan kajian juga menunjukkan bahawa untuk meningkatkan

pelaksanaan CIM, pekilang-pekilang perlu meningkatkan integrasi komputer di

dalam kilang mereka. Latihan merupakan faktor utama sebelum pelaksanaan

CIM. Maka, untuk memastikan kejayaan pelaksanaan CIM, suatu program

latihan yang menyeluruh dan berkesan adalah suatu keperluan.

Perkataan Utarna: CIM, pekilang-pekilang kecil dan sederhana, pemikiran

pihak pengwusan, kefahaman komputer

ACKNOWLEDGEMENTS

I wish to thank God for giving me health and strength to complete this

research, which I hope will contribute to the welfare of mankind.

I wish to record and express all my sincere thanks to my supervisor,

Associate Professor Dr. Abdel Magid Hamouda. This thesis would not be

completed without the support, encouragement and comments from him.

I would also like to extend my thanks and appreciation to the member of

my supervisory committee, Associate Professor Dr. Megat Mohamad

Hamdan Megat Ahmad and Associate Professor Dr. Napsiah Ismail.

I also wish to thank all librarians in SMIDEC, MITI MIDA and UPM

library for giving me lots of helps in finding necessary information.

Finally, I would like to thank my mother, wife, brothers and sisters who

have given me lots of support and motivation towards my study.

I certify that an Examination Committee met on 25" March 2004 to conduct the final examination of Lim Thiarn Lai on his Master of Science thesis entitled "Barriers to CIM Implementation for SMEs in the Klang Valley" in accordance with Universiti Pertanian Malaysia (Higher Degree) Act 1980 and Universiti Pertanian Malaysia (Higher Degree) Regulation 1981. The committee recommends that the candidate be awarded the relevant degree. Members of the Examination Committee are as follows:

MD. YUSUF ISMAIL, Ph.D. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Chairman)

ABDEL MAGID HAMOUDA, Ph.D. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Member)

MEGAT MOHAMAD HAMDAN MEGAT AHMAD, PkD. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Member)

NAPSIAH ISMAIL, Ph.D. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Member)

Professor/ ~ e ~ u t y a e a n School of Graduate Studies Universiti Putra Malaysia

Date: 1 7 JUN 2004

This thesis submitted to the Senate of Universiti Putra Malaysia and has been accepted as fulfilment of the requirement for the degree of Master of Science. The members of the Supervisory Committee are as follows:

ABDEL MAGID HAMOUDA, Ph.D. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Chairman)

MEGAT MOHAMAD HAMDAN MEGAT AHMAD, Ph.D. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Member)

NAPSIAH ISMAIL, Ph.D. Associate Professor Faculty of Engineering Universiti Putra Malaysia (Member)

AINI IDERIS, Ph.D. Professor/ Dean School of Graduate Studies Universiti Putra Malaysia

Date: 0 9 JUL 2004

DECLARATION

I hereby declare that the thesis is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for other degree at UPM or other institutions.

- LIM THIAM LA1

TABLE OF CONTENTS

DEDICATION ABSTRACT ABSTRAK ACKNOLEDGEMENTS APPROVAL DECLARATION LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS LIST OF GOVERNMENT AGENCIES

CHAPTER

INTRODUCTION 1.1 Introduction 1.2 SMEs in Malaysia 1.3 Problem Statement 1.4 Objectives 1.5 Hypothesis 1.6 Thesis Overview

LITERATURE REVIEW 2.1 Introduction 2.2 Overview of CIM 2.3 Historical Development of CIM 2.4 Manufacturing Innovation 2.5 CIM Wheel 2.6 Challenges in the Past and Today's

Manufacturing Enterprise 2.7 Development of CIM Research 2.8 Stages of CIM adaptation 2.9 CIM and SMEs 2.10 Barrier to CIM Implementation 2.11 Merits of CIM 2.12 Summary

Page

METHODOLOGY 3.1 Overview 3.2 Design and Development of the Survey 3.3 Research Flow Chart

RESULTS Respondent and Industry Years of Incorporation Annual Sales Turnover Level of Automation Product Market Number of Product Types Summary for the profile of the respondents Stages of CIM Adaptation Chi-square test and Linear Regression Analysis Management Mindset and the Implementation of CIM Company Size and the Implementation of CIM Level of Computer Literate and the Implementation of CIM Merits of CIM Barriers of CIM Preparation Prior to CIM Implementation Assistance Measures to Help the Implementation of CIM

DISCUSSION 5.1 Overview of Findings 5.2 Limitations

CONCLUSION 6.1 Conclusion 6.2 Recommendations 6.3 Thesis Contribution

REFERENCES APPENDICES BIODATA OF THE AUTHOR

LIST OF TABLES

Table

Grouping of questionnaire

Grouping of selected SMEs by industries

Industries and respondent

Descriptive statistic (years since incorporation)

Descriptive statistic (annual sales turnover)

Descriptive statistic (level of automation)

Descriptive statistic (product market)

Descriptive statistic (number of product types)

Page

50

50

56

Question related to the stages of CIM implementation 64

10 Stages of adaptation

11 Result of regression analysis

12 Descriptive statistic (merits of CIM)

13 Descriptive statistic (barriers of CIM)

14 Descriptive statistic (preparation measures)

15 Descriptive statistic (assistance measures)

Figure

LIST OF FIGURES

Manufacturing Innovation

CIM Wheel

Research flow chart

Page

AHS:

AMT :

ASRS:

CAD:

CAM:

CAP:

CAPM:

CAPP:

CAQ:

CAT:

CIM:

CNC :

ERP:

FMS:

LIST OF ABBREVIATIONS

Automated handling system

Advanced manufacturing technology

Automated storage and retriever system

Computer-aided design

Computer-aided manufacturing

Computer-aided planning

Computer-aided production management

Computer-aided process planning

Computer-aided Quality Assurance

Computer-aided technology

Computer integrated ,manufacturing

Computer numerical control

Enterprise resources planning

Flexible manufacturing system

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GT:

IRM:

ISA:

IT:

MNC :

MRP:

MRP 11:

OMT:

PPS:

QC:

ROI :

SADT:

SCM:

Group technology

Integrated resource management

Integrated system architecture

Information technology

Multi national company

Material requirement planning

Manufacturing resources planning

Object oriented technology

Operating system

Production planning systems

Quality circle

Return of investment

Structural analysis and design technique

Supply chain management

SME:

VM:

Small and medium enterprises

Work in progress

Virtual manufacturing

1. FMM

LIST OF GOVERNMENT AGENCIES

2. MATRADE

3. MIDA

4. MIDF

6. MTDC

7. NPC

8. SMIDEC

Federation of Malaysian Manufacturers

Malaysia External Trade Development Corporation

Malaysian Industrial Development Authority

Malaysia Industrial Development Finance Berhad

Ministry of International Trade and Industry

Malaysian Technology Development Corporation

National Productivity Corporation

Small and Medium Industries Development Corporation

CHAPTER 1

INTRODUCTION

1.1 Introduction

Malaysia has transformed herself from an agriculture based economy to

an economy that is based on industrialization. For more than two

decades, the Malaysian economy has experienced tremendous growth due

to industrialization. Today, Malaysian manufacturing industries are

facing increasing competition from other emerging industrialized

countries, like Thailand, China and Eastern Europe (Hashim, M.K. and

Wafa, S.A., 2002). Furthermore, introduction of trade liberalization like

ASEAN Free Trade Area (AFTA), ASEAN Investment Area (AIA) would

mean that Malaysian industries have to be better prepared to face greater

challenges ahead. In the global market, the characteristics of order-

qualifiers for manufacturing industries is the capability of producing high

quality products with shorter delivery lead time and the ability to produce

according to the diverse requirements of the customers (Nagalingam, S.V.

and Lin, G.C.I., 1999). Hence, in order to overcome the above issues, it is

necessary for Malaysian industries to adopt advanced manufacturing

technology (AMT) and computer integrated manufacturing (CIM).

The concept of CIM was coined by Dr. Joseph Harrington in 1973 in the

book called "Computer Integrated Manufacturing" (Harrington, J., 1973).

CIM only became commonly known from early 1980. The proposal of

CIM in the early 1970s might have appeared to be over futuristic. Today,

with the tremendous developments in computer, electronics and

mechanical technologies, CIM became a reality that can be achieved

without much difficulty.

Small and Medium Enterprise (SMEs) as compared to large firms, produce

much smaller quantity of products in batches. In order to compete with

the larger firms, they must always look for niche market by customized

their products according to the changing needs of their customers.

Therefore, by adopting CIM, it will certainly help to enhance flexibility to

meet the above goal. In the wave of globalization, CIM was named as the

factor that, not only determine the development but also the survival of

many companies (Luong, L.H.S., 1998). The benefits of CIM are well

documented. Some of these benefits include, shorter lead time, gain in

productivity, reduce in work-in-progress, lower cost and improve

competitiveness (Quantz, P.A., et al., 1984; Babbar, S. and Rai, A., 1990

and Bedworth, D.D., et al., 1991). Clive Vassell urge the SMEs to adopt

CIM (Vassell, C., 1999).

SMEs in Malaysia

Small and Medium Industries is defined as the company that is

incorporated under the Companies Act 1965, having less than 150 full

time employees and with an annual sales turnover that is less than RM25

million. A small-scale enterprise referred to a company with an annual

sales turnover of less than RM 10 million and not more than 50 full-time

employees and a medium-scale enterprise was referred to a company with

an annual sales turnover between RMlO million to RM25 million and has

between 51 to 150 full-time employees (SMIDEC, 2001).

In many developed countries, the small and medium industries

contributed substantially to the economic development of the countries as

well as providing job opportunities to the job market. SMEs in Japan

comprised 99.7 per cent, Taiwan 98.1 per cent and Germany 99.0 per cent

of total manufacturing establishments. In Malaysia, based on the media

statement by Y.B. Dato' Seri Rafidah Aziz, Minister of International Trade

and Industry of Malaysia on 22 August 2002, SMEs comprised 90.0 per

cent of the total manufacturing establishments in Malaysia and

contributing to 33.3 percent of total employment of the country.

Malaysia has set its vision of becoming a fully industrialized nation by the

year 2020. This has initiated the government to emphasize on the effort to