IMPACT OF QUALITY MANAGEMENT SYSTEMS ON CORPORATE PERFORMANCE RANKING AT SOUTH NYANZA SUGAR CO. LTD.

 CHAPTER ONE: INTRODUCTION

• Introduction

Industrial sugarcane farming was introduced in Kenya in 1902. The first sugarcane factory was set-up at Miwani 10km north of Kisumu in1922 and later at Ramisi in the Coast Province in 1927. After independence,      the Government explicitly expanded its vision    of the  role and importance of the sugar industry as set out in Sessional PaperNo 10 of 1965 which sought, inter alia, to:

• Accelerate socio-economic development
• Redress regional economic imbalances
• Promote indigenous entrepreneurship
• Promote foreign investment through joint ventures

In pursuit of the above goals, the Government established five additional factories in the1960s     and 1970s:  Muhoroni (1966), Chemelil (1968), Mumias (1973), Nzoia (1978), and South Nyanza (1979). Later, several more were to come on stream: West Kenya (1981), Soin Sugar Factory (2006) and Kibos Sugar & Allied Industries (2007), bringing the total number of milling companies to ten (10). The two older factories ceased operations: Ramisi sugar factory collapsed in 1988 and Miwani sugar factory was put under receivership. The establishment of the publicly owned factories was predicated on the need to:

• Achieve self sufficiency in sugar with a surplus for export in a globally competitive market
• Generate gainful employment and create wealth
• Supply raw material for sugar related industries
• Promote  economic  development  in the rural economy and beyond through activities linked  to the sugar industry

In support of the above goals,            the Government invested heavily in sugar factories, holding about 83% of the equity, later reduced to 70% after it divested 36% of its interest in Mumias Sugar Company. These resource injections into the subsector were in addition to the resources from the Sugar Development Fund (SDF), set up in 1992, that has contributed about KSh.11 billion         into the industry for cane development, factory rehabilitation, research and infrastructure development.

These   investments did not, however, help achieve the self-sufficiency in sugar as consumption continued to outstrip production. Total sugar production grew from 368,970 tones in 1984 to 520,000 tones in 2008 leaving Kenya a net importer of sugar with imports rising from 4,000 to 220,000 tones over the same period. The deficit is being met through imports from the COMESA region and other sugar producing countries including Brazil, United Kingdom and Mexico.

In 2003, the Government set up a Task Force on the Sugar Industry Crisis whose objective was    to examine the problems facing the sugar subsector and make recommendations for revitalizing the industry. Following the Task Force’s recommendations, the Government made the following decisions:

(a)  Made changes in the management of all publicly owned milling companies with a view            to improving corporate governance

(b) Reduced lending rates on SDF loans from 10% to 5%

(c) Wrote-off KSh. 4.7 billion on accrued interest and penalties on SDF loans

(d)  Disbursed KSh. 800 million towards settling arrears owed by milling companies to farmers

(e) Increased research funding from the Sugar Development Levy by (SDL) doubling the allocation from 0.5% to 1%.

(f ) Successfully  negotiated for a four-year COMESA safeguard  to give the industry time  to

Restructure and become globally competitive.

Concurrent with the structural reforms the Government was implementing, the industry   continued to expand its processing capacity: Kenya Sugar Board (KSB) registered three new mill white sugar factories, namely: Butali, Kwale  International Sugar Co. Ltd and Trans Mara Sugar Companies with a combined potential capacity of 5,000 TCD. It is also expected that an additional mill         would be established in the Tana River basin, with a potential capacity of 9,000 TCD. With the       operationalization of  these    new factories  and the upgrading of the existing mills, the industry’s capacity would   be close to 38,000 TCD, which would result in a production of about 1 million tones of sugar per annum.

• Background of the study

The Kenyan sugarcane industry is a major employer and contributor to the national economy. It is one of the most important crops alongside tea, coffee, horticulture and maize. Currently, the industry directly supports approximately 250,000 small-scale farmers who supply over 92 percent of the cane milled by the sugar companies. An estimated six million Kenyans derive their livelihoods directly or indirectly from the industry. In 2008, the industry employed about 500,000 people directly or indirectly in the      sugarcane business chain from production to consumption.  In addition, the industry saves Kenya in excess of USD 250 million (about KSh. 19.3 billion) in foreign exchange annually and contributes tax revenues to the exchequer (VAT, Corporate Tax, personal income taxes). In the sugar belt zones, the sugar industry contributes       to infrastructure development through road construction and maintenance; construction of bridges; and to social amenities such    as education, health, sports and recreation facilities.

The adoption of a quality management system should be a strategic decision of an organization. The design and implementation of an organization’s quality management system is influenced by;  its organizational environment, changes in that environment, and the risks associated with that environment,  its varying needs, its particular objectives, the processes it employs,  its size and organizational structure. It is not the intent of International Standard to imply uniformity in the structure of quality management systems or uniformity of documentation.

The quality management system requirements specified in International Standard are complementary to requirements for products. Information marked “NOTE” is for guidance in understanding or clarifying the associated requirement. The International Standard can be used by internal and external parties, including certification bodies, to assess the organization’s ability to meet customer, statutory and regulatory requirements applicable to the product, and the organizations own requirements. The International Standard promotes the adoption of a process approach when developing, implementing and improving the effectiveness of a quality management system, to enhance customer satisfaction by meeting customer requirements.

For an organization like SONY SUGAR to function effectively, it has to determine and manage numerous linked activities. An activity or set of activities using resources, and managed in order to enable the transformation of inputs into outputs, can be considered as a process. Often the output from one process directly forms the input to the next. The application of a system of processes within an organization, together with the identification and interactions of these processes, and their management to produce the desired outcome, can be referred to as the “process approach”. An advantage of the process approach is the ongoing control that it provides over the linkage between the individual processes within the system of processes, as well as over their combination and interaction.

Total quality management (TQM) has been proposed to improve business performance and received considerable attention in recent researches. Quality is ‘the degree of excellence of a thing’ Relative nature of kind or character of a thing Class or grade of something.

In such a competitive environment resulted from world globalization and liberalization, firms survive with much difficulty unless they create the competitive advantage over their competitors. With the increasing competitive, business survival pressure and the dynamic, changing customer-oriented environment, total quality management (TQM) has been recognized as one of the important issues and generated a substantial amount of interest among managers and researchers.

Since 1980s, TQM has been regarded as one of effective ways for firms to improve their competitive advantage (Kuei  et al ., 2001). Leading pioneers in the quality area, such as Deming (1986) and Juran (1993), asserted that competitive advantage can be gained by providing quality products or services. Additionally, Eng and Yusof (2003) argued that quality holds the key competitiveness in today’s global market. In addition, TQM has widely considered as an effective management tool to provide business with stability, growth, and prosperity. The benefits of quality improvement can not only be reflected on decreasing costs, but also on maximizing business profits. In terms of quality improvement, what really counts for a firm is not just cost minimization, but the effect of superior quality has on maximizing profits. Thus, the study of the relationship between quality management and firm performance is critical for firms and researchers to better understand the effects of quality management onto different levels of firm’s ranking performance.

In order to accomplish the requirement of quality, firms have to spend time and effort on the implementation of TQM. To this end, Sony Sugar must introduce quality management practice by communicating TQM philosophy and/or principle effectively. In addition, the application of TQM can be implemented to enhance the relationship between Sony Sugar Company and its suppliers. Moreover, the implementation of TQM can also increase customer satisfaction by providing preeminent products or services. According to the CEO’s view of quality which is displayed on Sony Sugar website, quality is actually one of Sony Sugar’s six important company values. In other words, Sony Sugar Company strives for pursuing world-class quality through the adoption and/or implementation of its quality systems. By doing so, the company dedicates to maintain the highest standards and sugar products that meet the stated goals of Sony sugar

• Statement of the problem

 The ISO 9000 family of standards is related to quality management systems and designed to help organizations ensure that they meet the needs of customers and other stakeholders^] while meeting statutory and regulatory requirements related to the product. The standards are published by ISO, the International Organization for Standardization, and available through National standards bodies. ISO 9000 deals with the fundamentals of quality management systems, including the eight management principles on which the family of standards is based. ISO 9001 deals with the requirements that organizations wishing to meet the standard have to fulfill.  Third party certification bodies provide independent confirmation that organizations meet the requirements of ISO 9001. Over a million organizations worldwide are independently certified, making ISO 9001 one of the most widely used management tools in the world today. Despite all the studies carried out in order to analyze the impact of quality management systems implementation and certification over companies’ financial performance, conclusions reached so far have been of a contradictory nature. Some authors conclude that there is a positive relationship between quality management systems and corporate performance ranking, while others do not find evidence to support such a relationship. Overall, no consistent evidence could therefore be found in the literature concerning the impact quality management systems over companies’ performance ranking. This study aims to provide a contribution in this area.

• Objectives of the study

General objective: Impact of quality management systems on corporate performance ranking at South Nyanza Sugar Co. Ltd.

Specific objectives:

• To determine The Effects of quality management systems on Business Performance of Sony Sugar Ltd
• To outline the relationship between quality management systems and the ranking of Sony Sugar Ltd in relation to other Sugar companies in Kenya
• To establish the impact of quality management systems towards improving the customer base, taste and preferences of Sony Sugar Ltd’s products
• To establish the extent to which quality management systems affects the Stock exchange performance in the Nairobi Securities Exchange Market.
  • Research questions

This proposed research seeks to answer the following questions:

• How do quality management systems affect Sony Sugar’s business performance?
• What is the relationship between quality management systems and the ranking of Sony Sugar Ltd in relation to other Kenyan sugar companies?
• Do quality management systems results into more customers to the company?
• How quality management systems do affects the Stock exchange performance in the Nairobi Securities Exchange Market?
  • Significance/Justification of the study

           Every company wide approach is centered on application of Quality Management to all aspects of business.  Quality management usually focus on the requirements of the customer satisfaction, Seeks participation of all employees, recognizes the importance of suppliers and aim at long-term success for the company there are several gains that a company will achieve through implementation of quality management systems. These include:

• Higher customer satisfaction levels.
• Improved customer perception.
• Improved productivity and efficiency.
• Cost reductions
• Improved communication, morale and job satisfaction.
• Competitive advantage and increased marketing and sales.
• Opportunities

This study is aimed at helping SONY SUGAR LTD achieve the above mentioned benefits through the implementation of quality management systems. It is worth noting that; this study will not only benefit Sony Sugar Ltd but it will also assist other companies in the sugar industries in realizing and appreciating the importance of quality management systems.

• Limitations of the study

This proposed study will be restricted to SONY SUGAR CO. located in Awendo Division Migori County. This follows financial and time constraints. Other limitations of the study are inadequate resources to explore more respondents.

• Ethical consideration

Before the research is conducted, the researcher will seek permission and authority from the all the concerned parties to conduct the research and collected data. In addition, the views of the respondents will be treated with utmost confidentiality it deserves. The cultural and traditional norms of the respondent will be respected and upheld.

 CHAPTER TWO: LITERATURE REVIEW

2.0. Introduction

2.1. The Effects of TQM on Business Performance  

The benefits of an effective TQM implementation can be studied with three different perspectives. Firstly, from the operating angel, the reason that TQM has became a hot topic in both industry and academia is that it can be applied to improve/enhance  global competitiveness (Flynn et al ., 1995; Samson and Terziovski, 1999). Firms with effective TQM implementation can accomplish the internal benefits such as improving quality, enhancing productivity enhancement, or realizing better operating income (Corbett et al., 2005; Hendricks and Singhal, 1997). Secondly, from the financial performance perspective, careful  design and implementation of consistent and documented quality management systems  can contribute significantly to superior financial performance (Corbett et al ., 2005). Further, firm with an effective TQM implementation can significantly outperform on the stock price performance (Hendricks and Singhal, 2001). Finally,  from the knowledge management (KM) viewpoint, the implementation of TQM can al so increase and enhance organizational knowledge, which in turn helps more  understanding of how quality management practices can affect firm  performance (Linderman  et al ., 2004). Compared with TQM and KM, there are many similarities between these two management philosophies. If properly planned, they can complement one another effectively (Hsu & Shen, 2005)

Recent studies have examined the relationship between total quality management and various levels of business performance (Das  et al., 2000; Kaynak, 2003; Mohrman  et al., 1995). Although many results of prior studies supported the positive effects of TQM on organizational performance (Hendricks & Singhal, 1997; Kaynak, 2003; Madu et al ., 1995; Sun, 2000; Terziovski & Sa mson, 1999), there were several researches which found the implementation of  TQM might lead to  ineffectiveness of firm performance (Choi & Eboch, 1998; Dale  et al ., 1998; Lemak  et al ., 1997; Reed et al., 1996). Kaynak (2003) indicated the reasons that the results of these aforementioned studies have different outcomes probably resulted from the nature of the research designs such as using TQM practices or business performance as a single construct.

Customer focus

For business enterprises, the significant driving force to establish the quality goals basically originates from customer needs. Generally speaking, customer needs identify the operational goals for firms to meet. And this type of quality goals is also referred as market-driven (Juran, 1992).  Oakland (2005) mentioned that quality started with the understanding of customer needs and ended when those needs were satisfied. In order to meet the requirement of customers, top management should clarify the expectations of its customers. Further, organizational strategy should also be developed based on customers’ needs. Samson & Terziovski (1999) pointed out that customer focus is the underpinning principles for firms to implement TQM programs. Since senior management may have the influence and authority to dominate the entire TQM implementation, dedicated commitment from top management about implementing TQM is certainly a necessity

Management leadership 

Management leadership is considered to be another major driver of TQM and it has a significant influence on determining whether or not a TQM program can be implemented effectively (Soltani, 2005). Management leadership in fact, refers to how management level guides and supervises personnel of a firm in an appropriate manner. Management level provides the necessary resources for training employees to meet the new requirements and/or changes that are resulted from TQM implementation, and consequently, creates a work environment which is conductive to employee involvement in the process of changes (Kaynak, 2003; Wilson & Collier, 2000). In addition, effective management leadership is critical to influence the decision of selecting qualified suppliers and certifying suppliers for quality material (Flynn  et al ., 1995; Trent & Monczka, 1999). Management level is also responsible for mentoring product design and considering market demands & consumer needs (Deming, 1986; Flynn  et al ., 1995). In other words, the focus of management is essential for firms to produce goods that are manufacturable and meet the needs of customers (Flynn et al ., 1995; Juran, 1981). In conclusion, management level plays a significant role on conducting organizational operation and also highly influences the decision-making and resource allocation processes for supplier management and design management, respectively. Therefore, the authors propose that management level has positive effects on human resource, suppliers’ management, and design management.

Human resource

In terms of quality management, employees must be able to measure and utilize quality data efficiently and effectively (Ahire & Dreyfus, 2000; Ho et al ., 1999). The study of Ho et al . (2001) indicated that human re source, which includes employee training and employee relation, was positively related to quality improvement, which was mediated through utilizing quality data and reporting. Thus, whether or not a

TQM program will be successfully implemented mainly depends on the collaboration and coordination among a firm’s workforce.  An effective implementation of TQM can be derived from employees’ understanding of the philosophy and principle of TQM implementation. Furthermore, if employees have high consciousness of TQM, the data and reporting of quality control prepared by working staffs will be easy to uncover the reality and thus, can be used to correct quality flaws or mistakes immediately and effectively

Suppliers’ management

With regarding to suppliers’ management, an effective suppliers’ management will enforce the cooperation between suppliers and firms by allowing suppliers’ involvement and/or participation not only  in the design process but also in the production process, and help the procurements of materials or parts meet firm’s requirements and be efficiently utilized (Flynn  et al ., 1995; Shin  et al ., 2000; Tan, 2001). The research findings of Kaynak (2003) showed that suppliers’ management, which emerged as an important component of TQM implementation, had directly positive effects on both design management and process management. In addition, the quality of materials provided by suppliers is important and the starting point for firms to produce quality products.  Eventually, a good quality of raw materials will reduce the occurrences of rework, scrap, and/or defective outputs. Ultimately, it can result in a good operational performance. From the discussion above, suppliers’ management can be used to streamline the suppliers’ base to facilitate the following tasks such as managing suppliers’ relationship, developing strategic alliances with suppliers, cooperating with suppliers to ensure meeting the customers’ expectations, involving suppliers early in the product development process, and enhancing the process management (Flynn  et al., 1995; Kannan & Tah, 2005). The focus of modern quality view is the process quality management but not the product itself of traditional quality view. It is the requirement of the quality management system of ISO9004:2000 and the essential difference of modern and traditional quality view. In each step of supply chain, there are many correlative processes, such as procurement logistics, production, inventory, selling, service, etc. These processes have their own independent objectives an programs. There are usually conflicts among the objectives and programs. Therefore, the processes and their mutual effects should be identified and managed to ensure the harmonious operation of supply chain. Then, all the processes especially the key processes, can realize high quality, i.e. small variation, small waste, and more increment, through the continuous improvement and total quality control in all the nodes of supply chain system.

2.2. Quality management systems and profitability

In order to meet the demand of establishing theory on  quality  as  a  management  method,  as  well  as  it integration with the business administration theory as presented by Dean Jr. and Bowen (1994), emerged in this same issue the today’s classic article of Anderson,  Rungtusanatham  and  Schroeder  (1994) where  the  authors  articulate  a  theory  of  business management based on the Deming’s philosophy by developing a quality management framework using rigorous methodology. Reeves and Bednar (1994discuss the evolution of the definition of quality, the strengths  and  the  weaknesses  of  each  one  of  them and concluded that multiple definitions should be adopted in order to capture the complexity and the richness  of  the  construct.  On the other hand  Rege et al. (1994) discuss the difficulties of implementing quality management, given the resistance of the employees when confronted with change.

Despite  the  existence  of  a  consolidated  line  of  re-search with focus on the impact of quality on various operational aspects of the firms (Flynn, Schroeder and Sakakibara 1995; Adam Jr 1994; Forza and Filip -pini 1998; Choi and Eboch 1998; Dow, Samson and Ford  1999),  the  academic  interest  about  the  impact of quality on the financial results is more recent. One seminal work (Powell 1995) had major implications for the areas of operations and strategy. Powell’s empirical research shows that character -istics  commonly  associated  to  TQM  (Total  Quality Management), such as process improvement, bench-marking,  and  training  (also  know  as  “hard  TQM”)  (Rahman 2004), do not produce competitive advantages for the firms, contrary to some tacit, behavior and non imitable characteristics (“soft TQM”), such as  organizational  culture,  empowerment  and  the leadership commitment. According to Powell, these results support the RBV theory  (Dierickx  and  Cool 1989; Barney 1991; Peteraf 1993). Powell was also the first to challenge the view of quality as a whole, since in his study only three of twelve practices associated  to  TQM  were  related  to  superior  performance,  therefore  suggesting  that  companies  could capture benefits from quality management without necessarily using the whole “TQM ideology”.

Firm’s performance

There are plentiful studies investigated the relationship between TQM and firm performance. Kaynak (2003) indicated that quality improvement had positive effects on improving a firm’s finan.............