Quality Management_product Quality

European Journal of Social Sciences – Volume 25, Number 1(2011)

The Contribution of Quality Management System on Quality of Product and Organizational Performance in Malaysian Logistics Companies Sarminah Samad Faculty of Business Management Universiti Teknologi MARA, Shah Alam, Malaysia E-mail: [email protected] Abstract This paper presents a study that determined the relationship between quality management system (QMS), organizational performance (OP) and quality of product (QP). Further, this study examined the contribution and effects of quality management system on organizational performance and quality of product. Data in the study was collected from a sample of 150 management staff of small and medium enterprises (SMEs) in Malaysian logistics industry. The obtained data were analyzed using SPSS (Statistical Package for Social Sciences) version17. Descriptive and inferential statistics were also employed to answer the objectives and hypotheses of the study. The study found that all of the quality management system aspects were related to quality of product and organizational performance. The study also revealed that quality management system practices significantly contributed to both quality of product and organizational performance. It was found that quality management system had more effects on organizational performance than quality of product. The findings of the study provide empirical evidence that quality of management system significantly enhanced the quality of product and organizational performance. Findings, implications and recommendations for future research from this study are discussed.

Keywords: Quality management system, quality of product and organizational performance

1. Introduction In the current globalization, rapid advanced technology and the emergence of knowledge-based economy, it is essential that organization truly leverage on effective management system as a competitive approach. A strategy to improve the management systems to drive for an organization with a higher value certainly has become one of the important agendas. Effective management system relates to performance management system of an organization. This is because performance management system involves activities to ensure goals are consistently being met effectively and efficiently. Rumler and Brache (1995) suggested performance management system as a process to build a product, services and performance of organization. This implies that a good system is required to ensure better organizational performance and quality of product and services. According to (Aubrey, 2000), a well designed workplace should have elements such as system, process and procedures. These elements and other resources will help organizations to bring out the best in people for high organizational performance. (Aubrey, 2000), stated that performance management has a wide variety of applications such as employee performance, software performance, business or corporate performance, quality of management and anything related to organizational context. 66

European Journal of Social Sciences – Volume 25, Number 1(2011) In the present world of intense competition, one of the primary factors for sustainable competitive advantage lies in delivering the highest quality service that leads to satisfied customers (Shemwell et al., 1998). Consequently, customer service is considered a distinct and important aspect of the product or service offering. Much emphasis has been given on the quality of management system (QMS) practices as a mechanism for achieving competitive advantage particularly on organizational performance (OP) and quality of product (QP) and services. Firms need QMS to develop in order to face the economic turbulence. QMS is one of the important strategies for the continuous improvement of product and service qualities to meet customer satisfaction (Naumann and Giel, 1995). In the past few decades the main ideas of QMS have been generally embraced by the business community globally. This is due to its impact on positive organizational outcomes such as organizational performance, quality of product and services. Within the framework of QMS which is widely discussed under organizational context, a lot of new models of thinking in business organizations are introduced (Chorn, 1991). Hunt (1993) described QMS as a comprehensive style of management to improve organizational performance and quality in organization. This implies that QMS is linked with OP and QP of the organization. Previous literature and research have concluded that QMS has become the integral philosophy of management in many organizations. QMS has also become a common phenomenon in global business as most performance of US and Japanese as well as Asia Pacific companies are influenced by QMS. This is without exception to small and medium-size enterprises (SMEs) in Malaysian logistics industries. QMS are particularly crucial in these sectors as Malaysian SMEs are becoming major sources of employment and are providing jobs for about 3 million workers or 65.1 percent of total employment. The rapid growth of Malaysian economy under the Transformation Economic Program (ETP) for example, has offered various business activities in the logistics industry. The market value for 3rd Party Logistic (for example transportation, storage and courier services) in 2010 was RM27.5 billion and for In-house Logistic (for example manufacturing, mining, agriculture and telecommunications) was RM81 billion. It is estimated that the logistics industry in Malaysia will grow to 11.5 ( RM121 billion) in 2011 compared to RM108.5 billion in 2010 and RM196.5 billion in 2015. In terms of external trade it is projected to increase by 10 percent (RM1.28 trillion) in 2011 compared to RM1.16 trillion in 2010 (Frost and Sullivan Report, 2011). The target contribution of the logistics industry under the Third Malaysian Industrial Master Plan (IMP3) by 2010 is 12.1% with overall growth of 8.6% during the period of IMP3 (Yong, 2007). According to Yong (2007) the logistics industry need to be developed to keep up with the increasing demand of international trade and provide source of growth to the national economy. To meet the above momentum and challenges, Malaysian logistics SMEs should think of ways in order to be sustainable in their business. Further, these SMEs should be able to practice effective management system that would help them remain competitive in business. Today’s businesses must be more profitable, react quicker, able to offer high quality products and services at lower costs and have effective management systems in place. Therefore, they should incorporate a quality system in their management to ensure their business implementation remain relevant. Porter (1985) argues that a different strategic direction in terms of competitive performance is a common phenomenon in organizations. Managers need to understand the link and influence of QMS on OP and QP. The role of QMS on both OP and QP has been emphasized in the literature (Coens and Jenkins, 2000). The issue is whether management system practices contribute to quality of product and organizational performance? This study therefore investigated the relationship between QMS, QP and OP and the contribution of QMS on QP and OP. Further, the study determined the effects of QMS on QP and OP in Malaysian context particularly in logistics companies.

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European Journal of Social Sciences – Volume 25, Number 1(2011)

2. Previous Research 2.1. Quality Management System Quality is a widely used concept that has become one of the important agendas in most organizations. This is specifically for them to compete and face with the challenging forces of globalization. Global competition demands organizations across borders to initiate efforts in order to ensure their products achieve the highest standard of quality. Most researchers are in agreement that the adoption of a quality management model by an organization could be considered as a potential source of competitive advantage and value generating (Powell, 1995). Quality has been characterized by many authors as something that relates to the results of an ongoing improvement that includes products, services, processes and people to fulfill customer expectations and customer satisfaction. Formal writing on the concept of quality can be found from quality gurus such as Deming (1986), Juran (1994), Crosby (1979), Feigenbaum (1991) and Ishikawa (1985). These gurus have laid the foundations for understanding most concepts of quality management such as Total Quality Management (TQM), Total Quality Control (TQC) and Quality Management System (QMS). Crosby (1979) defines quality as conformance to requirements and can be measured by the cost of nonconformance which leads to only one standard of performance that is zero defect performance. Juran (1994) attributed quality as fitness for purpose, that is the users of the product or service should be able to count on it for what they need or want to do with it. According to Ishikawa (1985) customer satisfaction is the main focus of quality. Therefore quality is defined as a product that is most economical, most useful and always satisfactory to the consumer. Deming (1986) defines quality as a predictable degree of uniformity and dependability, at low cost and suited to the market and whatever the customer needs or requires. Meanwhile, Feigenbaum (1991) refers quality as the total composite product and service characteristics of marketing, engineering, manufacture and maintenance through which the product and service achieve the expectations of the customer. These definitions imply that quality has been defined in various perspectives by scholars. This plethora of research definitions is due to the different research framework adopted by various scholars and authors The above reviewed approaches of QMS from quality gurus indicate that each has its own distinctive approach. However, the principles and practices of QMS proposed by these quality experts do provide better understanding of the concept of quality management to the author. These differing perspectives also share some common points of QMS in terms of aspects such as: 1) leadership; 2) evaluation activities; 3) employees’ recognition and reward; 4) training and education; 5) process control and improvement; 6) a systematic firm-wide activity from supplier to customers (customer focus); 7) employee participation and (8) quality system improvement. These areas are among the most important identified and validated elements in QMS (Powell, 1995) that help the author in laying the foundations for this study. 2.2. Quality Management System, Organizational Performance and Quality of Product Various measures of organizational outcomes have been suggested by researchers and scholars. One of the widely researched constructs is organizational performance (OP). OP has been focused on two areas of research stream mainly on economic perspective and the organizational perspective. The economic perspective emphasizes the importance of external market factors such as the firms’ competitive business position and anything related to financial aspects. The organizational or non economic perspective builds on behavioral and sociological paradigms and their fit with the environment which includes quality of services (such as employee satisfaction, customer satisfaction) quality of product and competitiveness (Tvorok & McGiven, 1997). Accordingly, both organizational and economic factors serve as important indicators for organizational performance and quality of product. Naumann and Giel (1995) stated that employee satisfaction and customer satisfaction are among a firm’s key performance measures and important factors of business effectiveness.

European Journal of Social Sciences – Volume 25, Number 1(2011) Meanwhile, quality of product (QP) has been identified as one of the most important factors for an organization to be successful in the world market. Pfau (1989) suggested that quality image can improve an organization’s ability to compete and gain long term opportunity for success. Therefore high product quality should be emphasized in a business strategy development (DuBirn, 1995). Steingard and Fitzgibbons (1993) viewed QP as a strategic asset to improve global competitiveness of an organization. Based on these notions, the author relates the QMS with QP and OP (organizational performance) from two perspectives mainly financial and non financial. Financial performance of organization refers to aspects such as annual sales, annual sales growth, profits, market share and exports while nonfinancial performance encompasses aspects such as customer satisfaction and employee satisfaction. QP highlights on an organization’s quality of product as indicated by their performance, reliability, durability, conformity products, defects and failure rates. Literature has concluded that QMS improves organizations’ competitive abilities and provide strategic advantage in the market place (Anderson et al., 1995). Research conducted by Rategan (1992) found that 90% of improvement rate in employee relations, operating procedures, customer satisfaction, quality of product and financial performance was influenced by QMS. This is because according to Ho and Fung (1994) QMS is a way to improve the effectiveness and competitiveness of business organization. Among the critical factors or aspects of QMS that could influence organizational performance and quality of products are like leadership, evaluation of activities, employee participation, recognition and reward, education and training, cooperation and teamwork, customer focus, zero defect mentality, flexible manufacturing and process improvement (Black & Porter, 1996 and Powell, 1995). Extensive literature review suggested that all of these aspects are related and have an influence on OP and QP. Accordingly quality policy has influenced the overall organizational performance in terms of productivity improvements, quality of product, customer satisfaction and loyalty. In conclusion, QMS appeared to have significant impacts on both QP and OP. However, Burrows (1992) in his study found that QMS has no contribution on organizational performance. Further, Eskildson (1994) reported that QMS has uncertain or even negative effects on OP and QP. A study done by Mowtani et al. (1996) revealed that there is no relationship between top management support for QP level and OP. A replication study using QMS model suggested by Deming by Rungtusanatham et al. (1998), in three different industries in Italy and by Anderson et al. (1995) in US-based firms found that the results differed considerably. The preceding discussions indicate that although many studies have addressed the link between QMS with QP and OP, the results have not been conclusive. The mixed findings of previous studies have also been reported on the effects of QMS on overall organizational performance and QP. Thus, conflicting research findings may be experienced by Malaysian SMEs particularly in the logistic industry. Further less research has been done in Malaysia in this area and Sim & Yap (1997) has suggested the need to have more research on various perspectives of SMEs which include effect of QMS on other organizational outcomes such as organizational performance and quality of product. Therefore, this study hypothesized that QMS will be positively related to OP and QP. The proposed conceptual framework or model of QMS for this study is depicted in Figure 1.

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European Journal of Social Sciences – Volume 25, Number 1(2011) Figure 1: A proposed conceptual framework of Quality Management System L

EA

EP

QP

RR

QMS

F

ET

OP PCI NF

QSI

CF

3. Purpose and Hypotheses of Study The main purpose of this study was to empirically examine the relationship between QMS and its aspects with QP (quality of product) and OP (organizational performance). Consequently the study examined the influence of QMS on QP and OP. It also determined the effects of QMS on QP and OP. Based on the preceding discussions the following hypotheses are proposed in this study: H1: There is a positive and significant relationship between QMS and QP H2: There is a positive and significant relationship between QMS and OP H3: There is a significant contribution of QMS on QP H4: There is a significant contribution of QMS on OP H5: QMS will have a more significant and positive effect on OP than QP

4. Research Method 4.1. Sample and Procedure Participants in the study were managerial staff of SMEs specifically in the logistics industries or companies in Malaysia. 200 self administered questionnaires were distributed to the staff of the selected companies obtained from the Federation of Malaysian Manufacturers (FMM). 150 useable questionnaires were used in the statistical analysis representing a response rate of 75% from the sample. The selection of the respondents was based on the random sampling. 4.2. Measurement The independent variable of the study was QMS. QMS was measured based on seven (8) dimensions with a scale of 32 items, developed by the author and adapted from Ahira et al. (1996); Fyynn et al. (1994) and Saraph et al. (1989). Seven point Likert-type scales was used to measure QMS dimensions (leadership, evaluation activities, employee participation, recognition and reward, education and training, process control and improvement, quality system improvement and customer focus) as independent variables. Respondents were asked to evaluate the level of their QMS on a range from 1 =

European Journal of Social Sciences – Volume 25, Number 1(2011) strongly disagree to 7 = strongly agree. The reliability coefficient for all components of QMS is depicted in Table 1. Organizational performance (OP) and quality of product (QP) were the dependent variables of this study. Organizational performance (OP) encompasses two main aspects: financial and non financial. The financial aspects consisted of five items namely annual sales, sales growth, profits, market share and exports. The non financial aspects which contain seven items measured employee satisfaction and customer satisfaction. OP scale was developed by the author and adapted from Morgan and Strong (2003); Rosenzweig et al. (2003) and King and Zeithaml (2001). OP’s financial aspects were evaluated on a range scale from 1 = much worse than average of industry to 7 = much better than average of industry scale, with a middle anchor point of 4 = to average of industry scale. The response options for job satisfaction and employee satisfaction items were based on a 7 point Likert-scale ranging from 1= strongly disagree to 7= strongly agree. The reliability coefficient for all organizational components was .83. Quality of product (QP) was measured based on five items mainly on conformity rates, reliability, durability, defects rates and failure costs developed by the author. Respondents were asked to evaluate the overall QP on a range of scale from 1 = worst in the industry to 7 = the best in the industry with a middle anchor point of 4 = above average. The reliability coefficient for quality of product was .81.

5. The Results and Hypotheses Testing This section presents the analysis of the study and results of research hypotheses. 5.1. Demographic Variables Table 1 depicts the characteristics of the respondents. In terms of age the average age of the respondents was 35 years, while the mean age of their experience in organization was 15 years and experience with the current job was 6 years. Regarding gender, 70% of respondents were male while female were 30%. Majority of the respondents (80%) were married while 20% were not married. In terms of position, 40% of the respondents were from senior level of management and 60% were middle level of management. Table 1:

Background Characteristics of the Subjects Mean 35 15 6

Age (years) Experience in organization (years) Experience in current position (years) Gender Male Female Marital Status Single Married Position: Senior level management Middle level of management

n

%

105 45

70 30

30 120

20 80

60 40

40 60

5.2. Results of Testing H1 and H2 - The Relationship Between Quality Management System, Quality of Product and Organizational Performance The mean, standard deviation and the reliability coefficients ranges from 0.70 to 0.92, which concurs with Nunnaally’s (1978) minimum acceptable level of 0.70 is indicated in Table 2.

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European Journal of Social Sciences – Volume 25, Number 1(2011) Table 2:

Number of Items, Mean, Standard Deviation and Cronbach’s Alpha Values

Variables Leadership (L) Evaluation activities (EA) Employee participation (EP) Recognition and rewards (RR) Education and training (ET) Process control and improvement (PCI) Quality system improvement (QSI) Customer focus (CF) Quality of product (QP) Organizational performance (OP)

Number of Items 4 4 4 4 4 3 4 5 5 12

Mean 4.82 5.13 5.71 5.35 5.48 5.95 5.63 5.27 5.21 5.11

S.D 1.33 1.32 1.11 1.18 1.27 1.16 0.97 1.15 1.13 1.11

α 0.89 0.91 0.85 0.87 0.79 0.88 0.83 0.92 0.81 0.83

Meanwhile Table 3 presents the correlation analysis of the study variables. As shown in Table 3, all of the independent variables are positively correlated with OP and QP. This correlation analysis also revealed that all dimensions of QMS practices are correlated to each other and each dimension of QMS is positively correlated with OP and QP. Thus the first and second hypothesis (H1 and H2) were accepted and the study concludes that all of the eight elements of QMS practices significantly enhanced the OP and QP. Examining the relationship of each variable, the analysis reveals that the strength of the relationship ranges from low to moderate and positive relationship. As can be seen in Table 3, there is no issue of collinearity problem in this data as the correlations between the independent variables are not high. This implies that a multiple regression analysis can be carried out to answer the hypotheses of the study. Table 3:

Correlation Coefficients of the Main Variables

Num Variables 1 2 1 Leadership .89 2 Evaluation activities .20* 0.91 3 Employee participation .23* .43* 4 Recognition and reward .29* .23* 5 Education and training .34* .46* 6 Process control and improvement .49* .33* 7 Quality system improvement .41* .62* 8 Customer focus .53* .15* 9 Quality of product .43* .35* 10 Organizational performance .63* .35* *p = 0.05 (Alpha reliability values are shown on the diagonal)

3

4

5

6

7

8

9

10

.85 .16* .26* .61* .27* .32* .51* .49*

.87 .28* .29* .22* .24* .44* .34*

.79 .58* .48* .30* .50* .22*

.88 .26* .25* .44* .63*

.83 .28* .33* .23*

.92 .32* .33*

.81 .27*

.83

5.3. Results of Testing H3 and H4 - The Contribution of Quality Management System on Organizational Performance and Quality of Product Table 4 presents the results of regression analysis to answer the hypotheses H3 and H4 of the study. To answer the hypothesis H3, all of the QMS components were regressed with organizational performance. From Table 4, when the eight QMS dimensions were regressed with organizational performance, the R2 value was found to be .53. This indicates that 53 percent of the variance in organizational performance was explained by the QMS dimensions. The beta values as indicated in Table 4 shows that all of the QMS dimensions had a positive and significant effect on organizational performance (leadership, beta .50; evaluation activities, beta. 25; employee participation, beta .27; recognition and reward, beta .21; education and training, beta .49; process control and improvement, beta .44; quality system improvement beta.38 and customer focus, beta .23). Among all these QMS dimensions leadership emerged as the most significant contribution of organizational performance with beta value of .50. This shows that among the QMS factors; leadership emerged the most important

European Journal of Social Sciences – Volume 25, Number 1(2011) factor to enhance organizational performance. This data provided support for the H3 of the study. Therefore, the H3 of the study was accepted. Table 4:

Impacts of QMS on Organizational performance and Quality of product

Dimensions Quality Management System: Leadership Evaluation activities Employee participation Recognition and reward Education and training Process control & improvement Quality system improvement Customer focus *p = 0.05

Std β

Organizational performance t R² f

P

0.53

.000

102.82

Std β

Quality of product t R² f

P

0.22

0.000

99.28

.50 .25 .27 .21 .49

2.55 3.04 1.23 3.36 1.49

.000* .002* .000* .000* .000*

.19 .30 .24 .20 .19

2.54 3.03 1.20 0.75 2.78

.002* .000* .000* .000* .000*

.44

1.96

.000*

.21

2.95

.000*

.38

1.60

.000*

.25

2.23

.000*

.23

2.21

.002*

.32

2.10

.000*

In order to answer the H4 of the study all, of the QMS dimensions were regressed with quality of product. As can be seen on Table 4, the R2 value was .22 indicating that 22 percent of variance in quality of product was explained by eight QMS components. As shown in Table 4, all of the QMS aspects had a positive and significant effect on quality of product (leadership, beta .19; evaluation activities, beta. 30; employee participation, beta .24; recognition and reward, beta .20; education and training, beta .19; process control and improvement, beta .21; quality system improvement beta.25 and customer focus, beta .32). Examining each of the QMS components, it was found that customer focus aspect (beta .32) of QMS was found to be the most significant contributor to quality of product. This implied that customer focus was considered as the most important factor in determining quality of product. The data from the analysis provided support for the hypothesis H4, therefore the H4 was accepted. 5.4. Results of Testing H5 – Quality Management System has more Effect on Organizational Performance than Quality of Product Table 4 depicts the regression analysis of QMS on two dependent variables of the study mainly organizational performance and quality of product. Data in Table 4 revealed that the variance explained in organizational performance by QMS was 53 percent while the variance explained by QMS in quality of product was 22 percent. This shows that the amount variance explained by QMS on organizational performance is higher than on quality of product. Therefore this data supported the hypothesis H5 of the study that QMS had more effect on organizational performance than on quality of product. Thus the H5 of the study was accepted

6. Conclusion, Implications and Suggestions The purpose of this study was to determine the relationship between QMS practices with organizational performance and quality of product. Consequently it examined the contribution of QMS on OP and QP. The study also examined the different effects or contribution of QMS on organizational performance and quality of product. The correlation matrix indicated that all of the QMS practices were positively related to organizational performance and quality of product. The multiple regression analysis revealed that all of the QMS dimensions had a positive and significant contribution on organizational performance and quality of product. This implied that all of the QMS aspects had 73

European Journal of Social Sciences – Volume 25, Number 1(2011) important roles in enhancing organizational performance and quality of product. Further, the study revealed that QMS had a more significant effect on organizational performance than quality of product The results in this study also found that leadership emerged as the most important factor for organizational performance, while customer focus was found to be the most important factor that influenced quality of product. This finding implied that both leadership and customer focus play important roles to promote and support the improvement and expansion of QMS, organizational performance and quality of product. This result is parallel with previous studies done by Adler, (1990), Anderson et al. (1995), Rategan (1992) and Ho and Fung 91994). This finding is particularly very relevant in Malaysian logistics companies which are entrusted to undertake various business activities such as activities under the Economic Transformation Program (ETP) and Malaysian Third Industrial Master Plan (IMP3). Thus the leading and managing of such a high volume of businesses in a very vibrant economy require superior leadership. Moreover these industries are facing challenges due to lack of access of better technology, high level of bureaucracy and lack of competent human capital (Saleh and Ndubisi, 2006). Earlier researches have contended that leadership behavior play key roles on organizational performance and effectiveness (Adler, 1990). Wisner and Lewis (1997) stressed that top management support is a critical driver of quality improvement in any organizations’ activities and contribute to sustainable advantage (Hammer, 2004). Previous result confirms the finding of this study which revealed that leadership emerged as the most important factor for organizational performance. In summary, it can be concluded that the findings of the study validate the result of previous researches and generalizes it to other group of employees (Hoffman & Mehra 1999). The results also implied that the application of some aspects of QMS practices in combination can lead to improvement in organizational performance and quality of product. This study suggests that all of the QMS factors specifically leadership and customer focus aspects, need to be recognized as a potential factor for organizational performance and quality of product of logistics SMEs in Malaysia. SMEs certainly demand good leaders or champions who are able to contribute towards high performance organization. Kallock and Artman (1986) suggested that a logistics champion can make a positive difference and those who have a logistics champion on board will reap powerful benefits in terms of growth, competitive advantage and true logistics excellence. This is in tandem with the entrusted responsibilities under the Third Malaysian Industrial Master Plan (IMP3) to provide leadership in the overall development of the logistic industry besides coordination and implementation of policies and programmes (Yong, 2007). This study suggested that customer focus is the most important factor for quality of product. This implies that customer focus could enhance quality of product. Thus Malaysian logistics SMEs should give priority on this aspect to achieve high quality of product. This result is parallel with Chang and Fong’s (2010) finding which found that quality of product is related to customer focus in terms of loyalty and satisfaction. Findings of this study serve as guidelines for management to formulate the improvements on management planning in Malaysian logistics SMEs. These guidelines however are not a universal panacea but can be used as reference especially for practitioners and researchers. There is no single or best approach of QMS practices that can improve organizational performance and quality of product. This is because organizations are different in terms of for example their people, history, goals, vision, structure, products, processes and cultures. The ability to combine their own uniqueness with the existing QMS system will lead them into organization excellence. This finding is certainly useful for both practical and theoretical purposes. However, further research could be explored on other variety of samples, approaches and setting to generalize the results.

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