An Exploratory Study of Computerization in Manufacturing Versus Service Firms in Egypt...

INTRODUCTION

Few firms can be classified as either pure manufacturing or pure service; most provide a bundle of attributes containing both product and service characteristics. Nevertheless, a number of authors have outlined differences between service and manufacturing organizations (Collier, 1984; Chase & Acquilano, 1999). In general service operations will have higher degrees of a number, but not necessarily all, of the following attributes: intangibility, non-storability, non-transportability, perishability, simultaneous production and consumption, labor intensity, heterogeneity, direct customer contact, dual function employees (operations and marketing), difficulty in measuring output, and an inability to perform a final quality check before delivery to the customer. These various attributes of a service firm force it to respond in some characteristic ways to the problems of ensuring quality and matching demand and capacity.

The literature concerning the computerization of manufacturing operations encompasses both abstract and empirical analyses of the rationale for and extent of computerization. With the continuing trend toward a service economy, Buffa and Sarin (1997) predict that a greater proportion of future operations managers will be employed by this sector. Moreover, the role of services in manufacturing sector is increasing. With automation and the use of computers in the design of products and their manufacturing processes, technical and professional people will have a greater role in production than will unskilled workers. In the factory of the future, the productive process may be guided by design engineers, computer operators, and production planners. According to Deming (1985), the proportion of the labor force that is engaged in services is 86:14, or 6 out of 7 if one includes the people in manufacturing concerns that work in accounting, law, management, personnel, planning, purchasing, sales, service, and transportation departments. Thus, because there are so many people engaged in servicee in Egypt and Kuwait, improvement in our standard of living depend highly on managing computerization, quality and improving productivity in services.

There is a great deal of conceptual ambiguity about the very nature of services. Since the appearance of early articles about services (Regan, 1963), several themes have emerged. Some authors argue that the service industry does not exist but that instead, all industries produce services, although some produce more than others (Levitt, 1972). Others show that the difference between services and non-services lies in what is being transformed during the production and creation of a service (Morris & Johnston, 1987). Wild (1997) identifies changes in form (manufacture), place (transport), possession (supply), and state (services). Killeya and Armistead (1983) prefer a less rigid model: a tetrahedron with the four corners representing pure states of manufacturing, transport, supply, and services. Clearly, as Haywood-Farmer and Lyth (1988) point out, these disagreements must be clarified, real differences between services and nonservices must be assessed, and successful operations strategies must be elucidated.

Broadly speaking, three major issues seem to emerge from these analyses. The first of these pertains to the relationship between firm size, normally measured by the number of employees, and the degree of computerization. The second issue pertains to the function specific, either by industry or application, or nature of computerization. While the third, and most generally acknowledged but least documented, pertains to the call for increased computerization of operations so as to increase the level of international competitiveness of the firm.

Theoretical Background and Hypotheses

The positive relationship between firm size and computerization has been suggested by a number of empirical studies. For instance Shalowitz (1990) reports that based on his survey of 287 organizations, firms with less than 500 employees continue to lag behind large firms in their extent of computerization. In addition to the issue of size, there appears to be considerable variation in the extent of computerization by function within the firm (Gustin, 1990). Tanc and Guptas (1990) found in their survey of 177 manufacturers the lowest degree of computerization (36.7%) in the area of materials handling, and the highest degree (92.7%) in inventory control.

In contrast with the literature on the manufacturing sector, the research on computerization of service operations appears less structured around particular issues. The lack of structure probably results from the relatively recent inception of this line of research. Although the issue of firm size as related to the degree of computerization is implied in several articles, there are notable examples where that relationship is suggested to be the inverse of that found in manufacturing. For example, with respect to the advertising industry, Skigen (1991) reports that small and mid-sized firms can adapt and apply computer technology more efficiently than large ones; a contention that is affirmed by the fact that very few large advertising agencies are computerizing their operations. Meanwhile, Masterson (1997) reports that many smaller agencies have gradually computerized every aspect of their operations.

Hypothesis One: Computerization of functions by firm size in Egypt and Kuwait will have no significant difference.

While both the abstract and the empirical surveys of computerization in manufacturing tend to be function specific (viz. Pertaining to materials handling, quality control, etc.), those that focus on service sector tend to be industry specific. For example, 91% of 1000 independent insurance agencies were found to have computerized operation (the ACORD Survey [2000]), whereas less than 40% of retailers in Egypt had done so.

Overall, both the academic and trade literature suggest that the extent to which organizations computerize their operations is related not only to the size of the firm but also to the specific function being examined. Furthermore, it would seem that the form of these relationships is different for manufacturing than service firms.

Hypothesis Two: Computerization of operation function by manufacturing firms will have no significance difference than service firms in both countries.

In the manufacturing sector many companies are misrepresenting the competitive advantage that can follow the introduction of advanced manufacturing technology. The reason is that many models for evaluating such an investment do not take into account the most important criteria on which the project should be evaluated. These criteria would have to include the improvement in quality, flexibility, and productivity (Elkhouly-Elsayed, 1991). One of the reasons that these criteria are overlooked is that many organizations try to base their analysis on traditional cost accounting, which is true in the case of Egypt and Kuwait-rather than on the long-run strategic impact that is very important in a new operating environment where the production of mature products and utilization of stable technology are fast disappearing. In the new operating environment direct labor costs are beginning to play a less important role than in the past while direct labor costs were an integral part of the traditional justification models (Elkhouly-Elsayed, 1991).

Numerous potential areas of integration exist for computerization in manufacturing and service. They include the following:

* Marketing with design engineering for incorporating customer needs and desires in products;

* Marketing with all operations functions for determining product cost and lead times for response to requests for quotation, customer orders, and forecasts;

* Design engineering with manufacturing engineering for the design of manufacturable products and a common bill of material, for the design of products which are adaptable to flexible automation, for the generation and maintenance of routings, tool requirements, manual work instructions and programmable automation instructions, and for eliminating duplicate effort;

* Design and manufacturing engineering with material management for cost-effective use of materials in products and process;

* Design and manufacturing engineering with production for timely response to engineering changes and for product configuration management;

* Manufacturing engineering with industrial engineering for incorporating resource measurement standards and facility layout in process plans;

* Master production scheduling with sales/order entry, forecasting, material requirements planning, capacity planning, and detailed scheduling for determining and adhering to feasible production schedules;

* Material requirements planning with purchasing for timely acquisition of required material and components;

* Manufacturing resource planning with factory floor control for capacity planning, detailed scheduling, productivity determination, quality assurance, and product costing;

* Factory floor control with material control for inventory planning;

* Factory floor control with industrial engineering for maintenance of resource measurement standards;

* Factory floor control and material control with financial accounting, budgeting, cost accounting, personnel and payroll for financial and human resource management;

* Factory floor control with receiving for "dock to WIP" component material status and flow;

* Factory floor control and material control with warehousing and physical distribution for inventory planning;

* Factory floor control with shipping for generation of product configuration and shipping documents;

* Factory floor control with customer service for product repair;

* Material handling with inventory control, line balancing, and automated data entry;

* Testing and inspection with design and manufacturing engineering, receiving, fabrication, assembly, and product repair for defect isolation and total quality control;

* Customer service with all operations functions of the business unit for customer order and work monitoring and status;

* Supplier systems with those of the business unit for timely response to production component material requirements and design changes.

Of course most the previous integration can be applied to the service sector. In order for firms in Egypt and Kuwait to be successful in the utilization of integrated computerized systems, they should be internationally associated with multinational organizations. This involvement can take the shape of joint ventures, strategic alliances, or even managerial participation by international firms.

Hypothesis Three: Manufacturing firm computerization of functions by international involvement will have no significance difference than service firm computerization of functions by international involvement in both countries.

This paper explores a series of research questions that derive from the previous studies in the field.

RESEARCH METHODOLOGY

Sample

For the purpose of this study, two populations were identified: Egypt's and Kuwait's. Data was collected between 1998 and 2000 and all subjects participated voluntarily. Manufacturing and service firms located in major cities and industrial areas in both countries--namely Cairo, Alexandria, and Giza, in Egypt, Kuwait City, and Alahmedy, in Kuwait--comprise the stratified sample surveyed. The name and job title of the appropriate individual within each firm to whom the questionnaire was directed were obtained from a local mail directory in each country. A total of 800 questionnaires were mailed, 400 to manufacturing and service firms in Egypt and 400 to manufacturing and service firms in Kuwait. The survey resulted in 168 usable responses, for an overall response rate 21%. Of the 168 responses, 108 were returned from Egyptian firms (a response rate of 64.28%) and 60 were returned from Kuwaiti firms (a response rate of 35.72%). Of the 108 responses from Egypt 51 responses were from manufacturing (a response rate of 47.22%) and 57 responses were from service firms (a response rate of 52.78%). The sample of executives from Kuwait totaled 60. The majority of them were male and were citizens of Kuwait. Most of them worked in the petroleum industry, either in manufacturing (refining) or service (delivery).

The majority of these firms were relatively small in size, with 75 (44.64%) having fewer than 100 employees. Fifty-eight firms (34.52%) reported having between 100 and 499 employees, while only 10 (05.95%) and 5 (02.97%) had 500-999, and 1000-1499 employees, respectively. A total of 20 firms (11.90%) had more than 1500 employees.

Of the 168 usable responses, 40 (23.80%) questionnaires were completed by the President, CEO, or owner of the firm, 43 (25.59%) by Executive or Senior Vice Presidents, and 35 (20.83%) by Vice Presidents of Operations, Manufacturing or Financial Administration. The remaining 50 (29.76%) had provided a title other than those mentioned, including Quality Control Supervisor, Purchasing Manager, Materials Manager, and Human Resources Manager.

The extent of internationalization of the firms surveyed varied according to type of foreign involvement. Only 5 (02.97%) and 10 (05.95%) of the firms reported being partially or wholly foreign owned, respectively, while 45 (26.78%) were found to have foreign affiliates. The largest proportion of the firms involved in international business were those involved in foreign trade through the importation of products and/or services (38.69%) and exportation of products and/or services (50.59%). Overall, 65.47% of the firms surveyed had some degree of involvement in international business.

Instrument

The survey utilized in this study consists mainly from two parts. The first section involves the gathering of background information on both the respondent (e.g., job title, years of experience, gender, and educational level) and the firm (e.g., number of employees, primary nature of the business, etc.). Within the section on background data on the firm, a number of questions elucidated the extent of the firm's internationalization (e.g., whether the firm is partially or wholly foreign owned, whether the firm export or imports products/services, whether the firm has foreign affiliates, etc.). The second part of the questionnaire, and the focus of this paper, attempts to assess the nature of computerization by asking respondents to indicate the specific operations management activities currently using computer support in their firm. The questionnaire design was finalized after pretests were conducted in cooperation with local operations managers from both manufacturing and service firms.

The respondents in both region were experienced executives. The questionnaire was translated from English into Arabic by bilingual translators and under their supervision, as independent translators. Checks were made by back-translation or parallel translation. Since translations, like all intercultural studies, never precisely match (Peng, Peterson & Shyi, 1991; Pike, 1992), the similarity of the measurements across translation needed to be estimated.

Analysis

Data collection for this study was limited to an availability or convenience sample, which resulted in an unequal sampling design. When sample sizes are unequal and not proportional, least squares equations no longer yield direct and easy solutions (Neter & Wasserman, 1974) and the component sums of squares in the analysis of variance are no longer orthogonal (e.g., they do not sum to sums of squares total). Thus, one must rely on the proper sum of squares for testing factor effects and interactions through regression analysis.

RESULTS

Test of Hypotheses

In the second part of the questionnaire, respondents were asked to indicate which operations management activities currently use computer support in their firm. The results, across all respondents, are shown in Table 1. In the category of "other", respondents indicated activities such as accounting, payroll, pricing/costing, portfolio management, product design and budgeting. There are clear variations in computerization by function; the general pattern seemed to match those found in other studies (Anderson et al., 1982; LaForge et al., 1986; Tanc et al., 1990). However, it does seem surprising that only 4 of the functions are computerized in more than half of the firms in the sample.

TABLE 1
OPERATIONS MANAGEMENT ACTIVITIES USING COMPUTER
SUPPORT

      Activity          Number of Firms   Percentage

Inventory Control             120           71.42%
Purchasing                    100           59.52%
Production Scheduling         85            50.59%
Customer Service              87            51.78%
Forecasting                   77            45.83%
Materials Management          75            44.64%
Operations Scheduling         65            38.69%
Quality Control               48            28.57%
Shop Floor Control            44            26.19%
Staff Scheduling              21            12.50%
Other                         60            35.71%

The firms were classified by size into groups: small firms, with less than 500 employees, and large firms with 500 or more employees. The percentage of firms in each group that uses computer support for the operations management functions is shown in Table 2. Clearly, there is greater use of computer support for all 10 functions in larger firms. Indeed, with the exception of operation scheduling and customer service, the differences were found to be statistically significant when tested using two-ample Z tests of proportions.

TABLE 2
COMPUTERIZATION OF FUNCTIONS BY FIRM SIZE

      Function          % Compu-   % Compu-   Significant
                        terized    terized    Difference
                        in Small   in Large    [Alpha] =
                         Firms      Firms        0.05

Inventory                68.0%      87.1%         Yes
Quality Control          24.0%      42.9%         Yes
Purchasing               54.4%      82.1%         Yes
Materials Management     37.8%      64.9%         Yes
Production Scheduling    45.0%      74.1%         Yes
Shop Floor Control       18.7%      49.9%         Yes
Staff Scheduling          8.8%       29%          Yes
Forecasting              37.9%      70.9%         Yes
Operations Scheduling     3.4%      48.9%         No
Customer Service         47.6%      62.7%         No

To examine the extent of computerization of individual firms, the number of functions using computer support was tabulated. The range was found to be 1 to 12 functions, with M = 4.8 and median of 5. Based on this distribution, firms were classified as having low (0-3), medium (4-7), or high (8-12) levels of computerization. A Chi-Square test of independence showed a significant relationship between the size of firm and extent of computerization, with larger firms having the highest degree of computerization in Egypt and Kuwait. This finding supports the first and second hypotheses.

A similar Chi-Square test was run to examine the relationship between the extent of computerization and whether or not the firm was involved in international business activities. Again, the test showed a significant relationship, with the higher levels of computerization being attributed to those firms that were directly involved in international business. In terms of the computerization of individual operations management functions, only staff scheduling (the least computerized function overall) showed greater computerization among firms with no international involvement.

However, that difference was not statistically significant. Indeed, all three scheduling functions (staff, operations, production) showed no statistically significant difference between those firms who did and did not have international involvement. These results as indicated in Table 3, support partially the third hypotheses.

TABLE 3
COMPUTERIZATION OF FUNCTIONS BY INTERNATIONAL
INVOLVEMENT

      Function           % Compu-      % Compu-     Significant
                         terized:      terized:     Difference
                         No Inter-    With Inter-    [Alpha] =
                         national      national        0.05
                        Involvement   Involvement

Inventory                  54.9%         83.1%          Yes
Quality Control            19.1%         32.9%          Yes
Purchasing                 42.1%         71.2%          Yes
Materials Management       23.8%         54.9%          Yes
Production Scheduling      42.7%         56.1%          No
Shop Floor Control         14.2%         31.6%          Yes
Staff Scheduling           15.6%         12.2%          No
Forecasting                30.9%         52.8%          Yes
Operations Scheduling      35.2%         37.9%          No
Customer Service           47.6%         52.5%          No

While the overall patterns of computerization do appear to broadly follow those suggested in the literature, the underlying question of possible differences between manufacturing service firms in Egypt and Kuwait still needs to be addressed. To this end the data were tabulated by type of firm, with separate analyses conducted for manufacturing firms and service firms in both countries.

The broad patterns of computerization by type of firm are shown in Table 4. With respect to 8 out of 10 functions, the gross level of computerization is greater in manufacturing than in service firms: in seven of these eight the differences are statistically significant. The two functions that in the sample showed greater computerization in service than in manufacturing are forecasting and customer service. Moreover, it does appear that while the levels of computerization are different between the two types of firm, there is some similarity between them with respect to which functions are the most and least computerized. A Spearman's rank correlation of 0.78 between the rankings of the functions under each type of firm in both countries, confirms this similarity. A final comparative analysis between the two types of firm involved a Chi-Square test of independence between the type of firm and extent of computerization. No significant relationship was found. Again these findings support the first two hypotheses.

TABLE 4
COMPUTERIZATION OF FUNCTIONS BY FIRM TYPE

      Function          % Compu-     % Compu-     Significant
                        terized:     terized:     Difference
                        in Manu-    in Service     [Alpha] =
                        facturing      Firms         0.05
                          Firms

Inventory                 77.9%        62.8%          Yes
Quality Control           33.1%        14.9%          Yes
Purchasing                66.1%        49.8%          Yes
Materials Management      56.8%        22.2%          Yes
Production Scheduling     63.2%        32.1%          Yes
Shop Floor Control        37.3%        07.4%          Yes
Staff Scheduling          07.1%        02.7%          Yes
Forecasting               44.2%        47.8%          No
Operations Scheduling     38.6%        32.5%          No
Customer Service          49.8%        54.6%          No

Other Comparisons

Of the 108 Egyptian firms in the sample, 88 were classified as small and 20 were classified as large. When the proportion of firms in each size that used computer support for each of the 10 functions was tabulated, a clear pattern of greater computerization in the larger firms emerged (Table 5). The only two functions where size was not indicative of significantly greater computerization were operations scheduling and staff scheduling. In fact, this latter function was the only one that had less than 50% rate of computerization among large firms. The relationship between firm size and extent of computerization was tested, and as expected was found to be significant using Chi-square.

TABLE 5
EGYPTIAN FIRM COMPUTERIZATION OF FUNCTIONS BY
FIRM SIZE

      Function          % Compu-    % Compu-    Significant
                        terized:    terized:    Difference
                        in Small    in Large     [Alpha] =
                          Firms       Firms        0.05

Inventory                 74.1%        100%         Yes
Quality Control           25.9%       74.9%         Yes
Purchasing                59.8%       89.8%         Yes
Materials Management      47.7%       94.6%         Yes
Production Scheduling     54.8%       94.6%         Yes
Shop Floor Control        24.7%       84.6%         Yes
Staff Scheduling          05.1%       14.9%         No
Forecasting               38.5%       64.7%         Yes
Operations Scheduling     36.2%       54.8%         No
Customer Service          44.2%       74.8%         Yes

Over 75% of the Egyptian firms were in some way involved in international business activities, of these 13.58% (11 firms) were partially foreign owned. Although the gross proportions of firms that used computer support for operations management functions were larger among firms with some degree of international involvement, only 4 of the 10 functions showed statistically significant differences between the two classes of Egyptian firms (Table 6). However, when the relationship between the extent of computerization and the degree of international involvement of Egyptian firms was tested using Chi-square, the relationship was shown to be significant. This again supports the third hypothesis.

TABLE 6
EGYPTIAN FIRM COMPUTERIZATION OF FUNCTIONS BY
INTERNATIONAL INVOLVEMENT

      Function           % Compu-      % Compu-     Significant
                         terized:      terized:     Difference
                         No Inter-    With Inter-    [Alpha] =
                         national      national        0.05
                        Involvement   Involvement

Inventory                  54.1%         85.7%          Yes
Quality Control            27.1%         37.6%          No
Purchasing                 41.8%         73.8%          Yes
Materials Management       35.2%         63.9%          Yes
Production Scheduling      53.7%         65.3%          No
Shop Floor Control         27.2%         39.4%          No
Staff Scheduling            7.7%          5.9%          No
Forecasting                18.9%         52.4%          Yes
Operations Scheduling      31.1%         41.6%          No
Customer Service           39.2%         52.8%          No

Of the 60 responding Kuwaiti firms, 42 were classified as small and 18 were classified as large. When the proportion of firms in each size that used computer support for each of the 10 functions was tabulated, the pattern of computerization was not found to be as clear cut as had been the case for Egyptian Firms (Table 7). Only 3 of the 10 functions showed greater size to be indicative of significantly greater computerization. Indeed, both customer service and quality control were more often computerized by the small firms than by the large service firms in the sample. Despite this apparent lack of a pattern, the relationship between firm size and extent of computerization among service firms was found to be significant using Chi-square. These findings are supportive partially to hypotheses one and two.

TABLE 7
KUWAITI FIRM COMPUTERIZATION OF FUNCTIONS BY
FIRM SIZE

      Function          % Compu-   % Compu-   Significant
                        terized:   terized:   Difference
                        in Small   in Large    [Alpha] =
                         Firms      Firms        0.05

Inventory                58.9%      71.7%         No
Quality Control          16.8%      11.3%         No
Purchasing               41.2%      71.8%         Yes
Materials Management     17.1%      32.6%         No
Production Scheduling    24.3%      49.5%         No
Shop Floor Control        5.1%      10.9%         No
Staff Scheduling         17.3%      45.1%         Yes
Forecasting              36.2%      78.2%         Yes
Operations Scheduling    29.4%      43.8%         No
Customer Service         56.9%      49.9%         No

In contrast to the Egyptian sample, less than 50% of the Kuwaiti firms were involved in international business activities and of these only four firms were partially foreign owned. Although the gross proportions of firms that used computer support were larger among firms with international involvement for seven of the ten operations management functions, none of them was significant when tested (Table 8).

TABLE 8
KUWAITI FIRM COMPUTERIZATION OF FUNCTIONS BY
INTERNATIONAL INVOLVEMENT

      Function             % Compu-        % Compu-     Significant
                           terized:        terized:     Difference
                           No Inter-      With Inter-    [Alpha] =
                           national        national        0.05
                          Involvement     Involvement

Inventory                    55.9%           70.8%          No
Quality Control              13.1%           18.2%          No
Purchasing                   41.3%           61.1%          No
Materials Management         16.2%           29.3%          No
Production Scheduling        33.7%           29.3%          No
Shop Floor Control            2.9%           11.7%          No
Staff Scheduling             22.4%           28.5%          No
Forecasting                  41.1%           56.9%          No
Operations Scheduling        38.3%           29.1%          No
Customer Service             55.8%           54.2%          No

Similarly the three functions that showed greater computerization among the non-internationally involved firms (customer service, operations scheduling, and production scheduling) did not exhibit statistically significant differences. This apparent lack of relationship between computerization and international involvement was confirmed by the Chi-square test. These findings support hypothesis three.

CONCLUSION

Despite a relatively small sample and the resultant gross classification of firms in terms of nationality, size, and international involvement, this research was able to elucidate a number of issues concerning the similarities and differences between service and manufacturing firms when it comes to computerization of operations management functions.The broad relationships between firm size and computerization and international involvement and computerization were established for the overall sample. And also supported partially the hypotheses. However, when broken down into two subsets representing both countries under study namely Egypt and Kuwait, the sample data showed that significant differences exist between these two countries with respect to patterns of computerization.

The most marked differences appear to concern the relationship between computerization and international involvement. While this relationship is readily apparent for the Egyptian firms, both in the raw data and through the statistical tests; it is virtually non-existent among the Kuwaiti firms. Given the present dramatic increase in the importance of foreign direct investment in services, both inward to Egypt and Kuwait, and outward from Egypt and Kuwait, as well as the attention drawn to trade in service by the Uruguay round of GATT, it would seem that a more in-depth analysis of this issue is called for.

The second major differences between the two types of firms appears to be the form of the relationship between firm size and the extent of computerization. The data, while not entirely conclusive, seem to support the arguments of those who suggest that smaller service firms may be faster to adopt computerization of operations than larger ones. This research utilized the federal Small Business Administration's definition of "small" (less than 500 employees). However, when "very small" service firms (with less than 100 employees) were used as the basis for comparison with the rest of the firms, there was definitely no significant relationship between size of firm and extent of computerization in the sample. Clearly, there is a need for more empirical research into this issue of size and computerization of service firms. The impact of alternative definitions of firm size, which incorporate measures other than number of employees, must be addressed before firm conclusions can be drawn.

Of course this study has its limitations. Field studies of this type usually encounter a number of methodological problem and this effort was no exception. First, the uneven sample for the two countries under study, the analysis of the data was restricted to one technique that allowed for hypothesis testing. Care should be given to a more balanced sampling design in future studies. Also, this study used only one measurement of computerization of operations management functions. Future research should use multiple complementary methods and instruments. If we are to gain more knowledge of how different cultures handle the use of computerization, studies should not be restricted to one definition.

This study has confirmed some of the findings of previous research that focused on narrower definitions of operations management functions, particular industries, or other geographic regions of the Arab Countries. While there is a great deal more work to be done in this line of research, this study have set the scene for more in depth analyses of the similarities and differences between service and manufacturing firms' computerization of operations management functions in Egypt and Kuwait.

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Sayed M. Elsayed-Elkhouly
Kuwait University