Manufacturing Performance : Evaluation and Determinants

Many studies examine manufacturing performance along individual benchmarking dimensions. In explaining manufacturing performance, most studies are prescriptive in nature, only a few of them empirically verify the underlying practices that account for performance differentials. This study develops a performance metric based on quality and output volume among other variables to assess a firm's manufacturing competitiveness in relation to its major rivals. The relative manufacturing performance is measured by Data Envelopment Analysis (DEA). Several key manufacturing practices are examined for their impact on performance. They are R&D commitment, time compression during production, and degree of outsourcing. Based on a sample from the world automobile industry, the empirical results suggest that a strong R&D commitment and ability to compress production time explain 37% of the manufacturing performance differences among major volume automobile producers. A non-linear convex relationship is also found between outsourcing rate and manufacturing performance. The results show how the resulting performance ratings can then be utilized to assess the effects of a selected group of practices on manufacturing performance. Since there is a common basis for the sources of competitiveness among industries, the findings derived from this study are probably transportable to other industries. Also, the proposed metric and analytic approaches are generic and thus can be broadly applied to other industries. The results also suggest the need for further analysis of where improvements can be made within a given company, according to its firm-specific characteristics