The role of information technology, business network and adoption of manufacturing automation in manufacturing efficiency.

• Author: Winata, Lanita
• Position: Report

1. INTRODUCTION

   Today's business organisations are facing a highly competitive environment due to globalisation, deregulation, corporatisation/ privatisation, and technological innovation. One of the consequences of such competitive business environment is that customers have more choices; they become more demanding for competitive prices, and better quality products and services (Kaplan & Norton, 1996; Lynch & Cross, 1991, Wyle, 2000). To survive the competition, some companies from other countries take advantage of low labour costs by moving their production facilities to low labour cost countries, while others are forced to compete by making themselves more efficient. Such a competitive environment also encourages changes in customers' behaviour, their tastes and preferences, and a rapid change or innovation in manufacturing technology and processes. To face the increasing competition and its resultant effects, organisations must provide a broad range of high quality products and services at competitive prices. Manufacturing automation, such as computer assisted design and computer assisted manufacturing (CAD/ CAM) promises organisations capabilities and opportunities to produce a broad range of quality products with less cost and time (Wyle, 2000). Because of the potential of manufacturing automation to provide more efficient and faster production at lower costs, manufacturers are always on the lookout for suitable manufacturing automation to accelerate their production processes and meet the customers' growing demands for quality products and services at competitive prices. There is a strong body of literature suggesting that a suitable manufacturing automation adopted by an organisation may improve the organisation's performance (Blois, 1986; Voss, 1988). The performance of an organisation should cover (a) manufacturing efficiency or operating performance (e.g., efficiency of production process; success in control of costs, defect rates, and reduction in production lead-time), (b) business performance (e.g., market share, penetration into new market, gaining new customers), and (c) management performance (such as employee satisfaction, and supplier/customer satisfaction) (Kaplan & Norton, 1996; Mapes & New, 1997). This study concentrates on the manufacturing efficiency aspect of an organisation. Because of multiple attributes of organisational performance, adoption of manufacturing automation alone may not be sufficient to improve an organisation's performance; the automation needs to be complemented by other supporting factors so that synergy between supporting factors and manufacturing automation can facilitate improvements in the organisational performance.

   Further, in today's competitive environment, businesses must have a global perspective in order to identify opportunities and threats in the marketplace. The extant literature suggests that to outlive the threats from local as well as global competitors, firms not only should increase product and service quality and offer better value for money, but they should also actively seek to penetrate into foreign/new markets in addition to the local market. One way for a firm to enter into a foreign market is to engage in a business network with other firms. A business network is an agreement among two or more independent firms to cooperate with each other for the purpose of achieving common goals such as a competitive advantage and customer value creation. A business network allows the member firms to share R&D and other fixed costs, and associated risks in, developing new products, processes and sometimes services (Hill, 1994; Squire, B., et. al., 2009). It is also a way to bring together complementary skills and resources that a firm could not easily develop on its own (Hajji., et. al., 2011). The relevant literature also suggests that a firm's successful engagement in a business network may depend information sharing which is accurate and timely data or information on its actual performance, and on issues like market opportunities, customer tastes and preferences, technological innovation, and local and foreign competitors' actions. Managerial use of information technology such as Intra-net, and Inter-net (e.g. net-meeting, net-phone, videoconference) can help the management of an organisation to gather and share the real-time information. Real-time and accurate information may help the firm to get the benefit of engaging in business network (Andersen & Segar, 2001). This is particularly the case when a manufacturing firm operates in a highly competitive market, offers a broad range of products, maintains a number of divisions in different locations (regions or countries), and employs a large number of employees (Karake, 1992). This study examined the relationships between (a) manufacturing efficiency, engagement in a business network, and managerial use of information technology. The study was carried out in 104 private manufacturing organisations operating in Java Island, Indonesia, where approximately 80% of all manufacturing organisations in Indonesia are located (Statistic Indonesia, 2009).

2. DEFINITION OF THE VARIABLES

   Adoption of manufacturing automation. For the purpose of this study, manufacturing automation is defined following Jonsson (2000), which refers to the technology that includes computer-aided design and computer-aided manufacturing (CAD/CAM), computer-aided process planning (CAPP), flexible manufacturing systems (FMS), and automated material handling. CAD/ CAM consists of a series of computerised equipment for designing products, and calculating the time and the costs of producing products (e.g. computer-aided engineering). Computer-aided process planning (CAPP) consists of a series of computerised equipment for production planning (e.g., machine selection, tool selection, process optimatization, and production route). FMS is an integrated computerised system of industrial robots, machining centre; and automatic measuring instruments. Finally, automated material handling systems under computer control allow manufacturing of a great variety of products.

   Business network. For the purposes of this study, business network is defined as a cooperative and mutual agreement between autonomous organisations with a view to improving competitive advantage and long-term profitable value for all the cooperating parties; nonetheless, the agreement may or may not involve cross-partner equity investments (Miles & Snow, 1992).

   Managerial use of information technology. The focus of information technology in this research is on the use of information technology for information sharing, which includes the use of Intranet, Internet and visual communication including videoconference, and net-meeting for communication, information sharing and exchange (Forouzan, 2001; Targowski & Rienzo, 2004).

   Manufacturing efficiency. For purposes of this research, manufacturing efficiency is defined in terms of efficiency in using labour and material, ratio of good output to total output, material scrap loss and manufacturing lead-time (Hoque, 2000; Kaplan and Norton, 1992).

3. HYPOTHESES DEVELOPMENT

   3.1. ADOPTION OF MANUFACTURING AUTOMATION AND MANAGERIAL USE OF INFORMATION TECHNOLOGY

   The extant literature suggests that as the level of a manufacturing organisation's adoption of manufacturing automation increases, the information need of managers in the organisation also increases. The information (e.g, cost-related information, production volume and quality-related information) is important for managers and production engineers so that they can monitor day-to-day manufacturing and other related activities of the organisation (Kaplan & Atkinson, 1989, 1998; Hoque, 2000). The literature also suggests that an accurate and detailed cost information is important for management, because detailed and accurate information about specific products is important feedback for effective managerial planning, controlling, and decision making (Cooper & Kaplan, 1998). Moreover, the information can help managers to track products and production processes continuously, such as tracking the units produced, the materials used, the extent of defective products, and the machine hours worked. Besides, the information is also useful for other departments such as accounting, to report and monitor the whole operation of the organisation, and ultimately helps managers make appropriate decisions in approving manufacturing efficiency (Hoque, 2000).

   In today's highly complex and competitive business environment, it is not enough for management to receive an adequate amount of accurate information for effective decision making; the information must be available on a real-time basis and online so that managers can have access to the information on-time or immediately when they need such information. Information technology (including Internet, Intranet, teleconference and videoconference) can play a critical role in gathering and presenting the necessary information to managers on a real-time basis (Andersen, 2001). To achieve all these, a firm, which adopts manufacturing automation, needs to facilitate its managers' use of information technology. Managerial use of the technology would make necessary information easily accessible to both internal users like managers and external users such as suppliers and customers at low cost. Communication technology such as Intranet, Internet, and videoconference can play a useful role to fill up this need, especially if the company has a broad range of products, multiple departments or divisions, and if it operates in different locations (Karake, 1992; Scott, 2000; Tullo, 2000). Vijayan (2000) argues that an electronic communication system increases real time flow of information by providing an information network from the plant to the management of an organisation. Consequently, the functions including resource allocation, quality control...