1.

0 Introduction

Performance measurement of a company enables the managers to obtain

information on the performance of various tasks in a company. Then, the managers

can evaluate whether the performance met the pre-set budgets, objectives, and goals

of the company. In this group project, a report is written is to study and evaluate the

performance measurement system of manufacturing company in Malaysia.

Our group has selected Chia Theng Enterprise from manufacturing industry to

study the performance measurement system of the company. Since the company is

located at Perlis, we are only able to conduct phone interview with Ms. Lim Hei Hun

and Mr. Cheah Chi Hua, the Directors of the company. Through the phone interview,

our group has collected useful information about the performance measurement

system of the company. We also obtained extra information needed from the directors

through e-mail.

1.1 Company Background

Chia Theng Enterprise is a manufacturing company located at Simpang Empat,

Perlis. The company is established in 2005 under the company name of Bentat

Enterprise Sdn. Bhd. In 2013, the company changed its name to Chia Theng

Enterprise. The vision of Chia Theng Enterprise is to be a recognised industry leader

by delivering quality products and services to customers. To achieve this goal, the

company emphasises on continual progress in production, customer relations, and

healthy environmental practices. On the other hand, the company’s mission is to

become the manufacturer and supplier of high quality wooden and other related

products, provide the best service and support to its customers, promote a stable

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environment for the employees, and respect the environment and community in which

the company operates.

The company is involved in the manufacturing of wooden and aluminium

products such as door, window, door frame, window frame, furniture, suspended

ceiling, and aluminum for door and window. The main product of Chia Theng

Enterprise is wooden door. The company provides its products to various project sites

located at Terengganu, Kelantan, Perak, Kuala Lumpur and so on. Besides, the

company also exports the wooden door products to Thailand.

Chia Theng Enterprise is a small-sized company comprises of 35 employees.

The directors of the company have almost 30-years working experience in this sector

of manufacturing industry. The organization chart of Chia Theng Enterprise is as

follows:

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Organisation Chart of Chia Theng Enterprise

Director Director

Cheah Chi Hua Lim Hei Hun

Managing Director

Cheah Chee Yeong

Installation Wood Carving Wood Sculpture Wood Craft Build-In-Furniture

Department Machines Design Grinding
4 workers
4 workers 5 workers 5 workers 3 workers

Flush Floor Drivers Clerks Aluminum

Department Department
2 drivers 2 clerks
4 workers 3 workers

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Revenue Reported

2.0 Current Performance Measurement System

Although there are many different type of performance measurement systems

that a manufacturing company can apply, we use balance scorecard (BSC) as our

reference to conduct the interview with the both directors, Mr Cheah and Mrs Lim of

Chia Theng Enterprise. The BSC is used in this interview because it provides a

guideline in measuring both financial and non-financial performance of a company.

The measurement of BSC is started with learning and growth perspective, continued

by internal business process perspective, then followed by customer perspective and

lastly is the financial perspective.

2.1 Non-Financial Aspects

There are three non-financial aspects in the performance measurement system of Chia

Theng Enterprise, which include internal processes, employees, and customer

satisfaction.

2.1.1 Internal Processes

In an organization, internal processes of a company are closely related to the

customers. In a business world, it is to be said that excellent customer satisfaction

derived from business processes, decisions made, and activities carried out within a

company. Managers need to focus on the critical internal operations which enable

them to satisfy the customers’ needs. The key question for internal processes is to

identify the business processes that impact customer satisfaction the most.

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2.1.1.1 Current Performance Measurement System

Currently, there are six departments in Chia Theng Enterprise which are

installation department, flush door department, wood carving machine, wood

sculpture design, wood craft grinding, build-in-furniture, and aluminium department.

Every department has its own head of department. According to Ms. Lim, there are

several processes in producing a wooden door. The sawn timber is cut into size or

size-panel. For the sawn timber which cut into size, it is ready for door installation.

On the other hand, the sawn timber cut into size-panel will be sent for panel

lamination in the next process. Then, it is ready for door installation. In each

production department, the department head will randomly check on the products

before they are being sent for further processes. The department head will do

inspection before sending the products to the next department. It is to ensure that the

products are processed well in each production stage. The inspection conducted by

department head can effectively reduce the defective products of the company.

2.1.2 Employees

“Without any employee, you have no business.” It means that the employee

stands as an important asset to success a business. Today, the company’s success

depends on customer satisfaction by providing excellent quality of product and

service. To achieve the high value of customer satisfaction, employee’s collaboration

is needed.

Chia Theng Enterprise has 35 employees in total, comprising of both local

and foreign employees. The salaries of local and foreign employees are different. For

local experienced employees, the company will pay RM 180 per day whereas for

foreign employees with less experience, the company will pay RM35 to 45 per day.

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The working days of the company is from Monday to Saturday, and working hours is

from 8.30 a.m. to 5.30 p.m.. For the build-in-employees which always need to work

for longer time due to the additional customer needs, the company will give overtime

wages to them.

Besides that, the company uses an advanced technology which is finger pad

in order to ensure the punctuality of the employees. Since each employee has unique

fingerprints, cheating on the check-in time can be prevented. Other than that, it is

easier for the managers to identify which employee is always absent or late for work.

2.1.2.1 Current Performance Measurement System

Chia Theng Enterprise uses the key performance indicators (KPI) to evaluate

the performance of employees. The KPI in this company is the employees are

required to produce 60 wooden doors per day. When the employees are able to

achieve the KPI set by the company, it means they are performing well. On the other

hand, when the employees do not achieve the KPI, it shows that the employees are not

performing well. For those employees who do not achieve the KPI, Mr. Cheah will

conduct a short interview with them to find out the problems causing to delay of work.

To ensure the employees’ satisfaction, communication between the managers

and employees is very important. In Chia Theng Enterprise, the employees are given

the opportunities to express their opinions on how to improve their work performance.

When the managers consider the suggestions given by employees, the employees have

a sense of involvement in improving the company performance. They will feel that

they are in part of the company. Thus, the employees are satisfied and motivated to

work hard which in turn improve the efficiency in working. For example, when the

employees do not achieve the production target, Mr. Cheah will communicate and

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discuss with the employees to obtain feedback on the reasons which cause the

problem. The feedback from employees may be helpful to improve the company

business processes.

Chia Theng uses the mentor-mentee strategy to guide the new employees on

working to increase the employees’ capabilities. All the skills learned by new

employees are taught by the experienced employees, and the performance levels of

new employees are evaluated by the experienced employees. Hence, no extra training

course is provided for the employees. This strategy enables the company to save the

cost and time on providing outside training for the employees. Mentor-mentee

strategy is the internal training provided by the company for its employees. It means

that the employees are being trained when they are performing their jobs. Thus, the

employees are easier to learn the skills required in working.

Other than that, to increase the employees’ satisfaction towards the company,

Chia Theng Enterprise gives some fringe benefits for them. The company provides

health insurance to the employees because they are working in the production site

with many heavy woods, and it is dangerous for them to work there. Other than that,

the company also provides living accommodations to the foreign employees who

receive lower wages compared local employees. On other hand, Chia Theng

Enterprise gives bonus to appreciate the employees. Mr. Cheah will give bonus as

reward to his employees based on the performance of employees. For example, each

experienced employee is entitled to receive one to two month bonus. Mr. Cheah also

provides some gifts to his employees as a token of appreciation in helping the

company to achieve good performance. For instance, he will buy cartons of drinks for

his employees during Hari Raya Haji. Other than that, annual dinner will be organised

for his employees too.

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2.1.3 Customer Satisfaction

Customer satisfaction is a self-reported measure and cannot be measured only by

considering only one factor; the data can be collected from different areas, such as the

speed of service, efficiency when solving problems and ease of use regarding the

customer service platform. Not only will a business be able to find out how satisfied

their customers are with regards to customer service, but they will also be able to see

which areas they are dissatisfied with.

2.1.3 Current Performance Measurement System

Based on the interview with the directors of Chia Theng Enterprise, there are

two types of customers in Chia Theng Enterprise which are walk-in customer and

project or tender customer. Walk-in customer is a customer that comes to the

showroom without an appointment. Usually, walk-in customer purchases company

products in smaller quantity. On the other hand, a project or tender that Chia Theng

Enterprise obtains will be involved in bulk orders.

Currently, Chia Theng Enterprise does not have any system to measure the

customer satisfaction. The company does have their own ways to retain the customer

such as giving discount for customers who buy their products in bulk and after-sales

services. However, in term of measuring the customer satisfaction, the company does

not measure the customer satisfaction.

2.2 Financial Aspect

Financial plays a very crucial role in a company in order to measure the financial

capabilities of the company. Financial measure is one of the indicators in balanced

scorecard. It can reflect the results of actions that already taken as it complements

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those financial measures with three sets of operational measures having to do with

customer satisfaction, internal processes, and the organization’s ability to learn and

improve the activities that drive future financial performance. It is very important for

a company to keep track of their financial data and meanwhile can implement the

strategy to increase the company profitability. In fact, through financial analysis, it

can let the company to know well about their current financial status and assist them

for further financial planning.

2.2.1 Current Performance Measurement System

Firstly, Chia Theng Enterprise measures their financial performance by

computing the net profit. By computing net profit, it can reflect the total amount of

revenue left over after all the expenses and additional income streams are accounted

for. Normally, Chia Theng Enterprise will mark-up the price of the products which

are the doors in the range of 20%-30%.The net profit margin will reflect a company’s

overall ability to turn income into profit.

However, they do not prepare a budget for the revenue expenditure. The

employees still need to control the cost involved in the production process. The

director of Chia Theng Enterprise will estimate the production cost based on their

experiences. For instance, they will estimate the number of timber and other

ingredients needed to produce 60 doors per day. The managing director will mainly

review the number of timber used for the production of doors on weekly basis. Their

raw material of the production is timber and it is the fundamental ingredient in the

production. Thus, it is important to avoid the wastage of their raw material.

In addition, other production costs will also be reviewed by managing director

in Chia Theng Enterprise weekly. On the other hand, managing directors will review

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the production costs involved monthly. These cost measurement is used to ensure the

production cost is always within the acceptable rate as they trace the cost

consumption daily. Any overconsumption of production costs can be identified

instantly.

Furthermore, at the end of each month, the account executive will prepare the

income statement of Chia Theng Enterprise by using standard costing method. The

fixed and variable cost is minus directly with the revenue to identify the profit earned

on a particular month. Standard costing method is used because it is easy to prepare

and understand. If Chia Theng Enterprise is not able to generate profit as expected,

the managing director has to give explanation to director and then they will conduct a

meeting to discuss on it.

3.0 Evaluation

3.1 Non-Financial Aspects

3.1.1 Internal Processes

The reason for using this performance measurement for internal processes is to

make sure that the products are produced according to the standards set earlier. Hence,

the quality of the products is high and consistent. When the company sells good

quality products to its customers, the customers’ satisfaction towards the company’s

products will be maximised and they will loyal towards the company. Therefore, Chia

Theng Enterprise is very particular to make sure its products are always produced in

good quality.

Secondly, performance measurement is able to reduce the defective products. It

is due to when the company managers monitor and evaluate the internal processes of

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the company, the internal processes can be improved. It is useful in reducing the

defective products of the company. According to Ms. Lim, the timbers purchased

from suppliers are very expensive. During the cutting process in production, the

wastage of timbers occurs. The wastage of timbers as raw materials will increase the

cost of production and lead to production inefficiency.

Furthermore, machine is one of important production equipments in production

process. Nowadays, machine is used more generally to replace human work in

production. Since the establishment of Chia Theng Enterprise two years ago, there are

about ten machines in for the use of production. All machines used by the company

are very expensive whereby the price of machines reaches tens of thousands. Based

on explanation by Ms. Lim, the machines are still in good conditions and there is no

maintenance service until now. In the production environment, there are many

disruptions, such as machine breakdown, rush orders, and so on. Under these

circumstances, the production process of the company will be affected; resulting in

the company is unable to meet customers’ demands on time. The company may lose

its customers since the customers may purchase products from other companies.

3.1.2 Employees

The reason of using KPI in Chia Theng Enterprise is to help the managers to

measure the performance of the employees. It is easier for the managers to review the

employees’ overall performance. By referring to KPI, the managers can evaluate the

performance of employees from various aspects. However, as the production process

in Chia Theng Enterprise is working as a team, the individual employee performance

is hard to identify. Furthermore, the company uses the overall KPI to give the reward

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for the employees. It is unfair for the employees since the job scope of each employee

is different and cooperation between the employees is highly needed.

Furthermore, KPI also can help Chia Theng Enterprise to measure the

employee capability. The employee capability is important for the company because it

will affect the company’s productivity. The skills and knowledge of employees are

important to the employees in achieving the production target given. Therefore, Chia

Theng Enterprise requires the senior employees to supervise and train the new

employees so that they have sufficient knowledge and skills in production. For

example, the senior employees will share their knowledge and experience to the new

employees on how to operate the machines and equipment, how to cut the woods

accurately and so on. The high employee capability smoothen the production process

as well as increase the productivity. However, the training provided by the company

is depending on the experienced employees. Therefore, the new employees are only

able to learn the limited skills. Besides that, experienced employees may be bias

towards the capabilities of the new employees in mentor-mentee strategy. It may

affect the performance evaluation given by experienced employees to new employees,

and thus, the performance measurement is not accurate.

3.1.3 Customer Satisfaction

There are several disadvantages of not having a performance measurement

system to measure the customer satisfaction. Firstly, Chia Theng Enterprise would

not be able to know whether the quality of products and services provided meet the

customer requirements and expectations. For example, Chia Theng Enterprise is

unable to know whether the customers are satisfied with the products purchased as

well as the services provided by the company. Failing to meet the customer

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requirements opens the door for the competitors in the same industry to serve the

customers even better than them and thus, the company tends to lose its customers.

Furthermore, measuring customer satisfaction helps Chia Theng Enterprise to

reveal the area of problems that need to be improved. For example, if the customer is

unsatisfied with the product, there will be many reasons behind it. In order to identify

the area in which the problems exist, measurement of customer satisfaction is

definitely needed. In the current performance measurement system, Chia Theng

Enterprise is not able to specifically determine the problems regarding the products

and services that they need to improve because the company does not use any

performance measurement for measuring the customer satisfaction.

3.2 Financial Aspect

It is quite surprise that Chia Theng Enterprise does not has budget for the

manufacturing process. They control the cost by using their past experiences. So, the

estimation is based on their personal perception and experience.

In fact, a budget can give a better a better financial planning and greater control

over the organisation’s expenditure. They are free to take actions for the unfavourable

variances. If the cost is too high, they might need to investigate the reasons of it in

order to ensure that there is no wastage of raw materials or can consider to change

supplier due to the higher price. It also acts as a benchmark for the performance

measurement because the budgeted figure is the desired performance of the

organisation. Therefore, a favourable variance shows the organisation is exceeding

their target performances.

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 Moreover, the budget can be regularly monitored and proper action can be taken

when it is needed. For example, the expenditure spends in the maintaining of machine

increase due to the increase of the operation hours. Then other expenditure will need

to deduct in order to ensure it will not over budget.

If the organisation continues to make the estimation based on their experience

without any budget, it will be risky for their financial planning as it will tend to not be

accurate. This happens when some expenditures increase unexpectedly, it may distort

the estimation and make the management will confuse whether which part they can

deduct cost in order to keep the budget in control.

4.0 Recommendations

4.1 Non-Financial Aspects

4.1.1 Internal Processes

To ensure the high quality of products, we recommend Chia Theng to use Total

Quality Management (TQM) as performance measurement system. TQM is a

measurement system tool that focuses on all stages of value chain in production which

is from receives raw materials from suppliers to transform them into outputs that are

delivered to customers. The steps required in carrying out the business processes are

defined, and performance measures are continuously monitored in order to detect

unexpected variation. When the company implements TQM system, it is beneficial to

the company in enhancing the products and thus, customer satisfaction on products

can be maximised.

In addition, it is very important for the company to do maintenance on the

machines to make sure the machines are functioning well. It is because the machines

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will affect the productivity of the company and the company must take precautions

steps against the breakdown of machines from happening. As the recommendation,

Chia Theng Enterprise should do maintenance on the machines at least once a year.

Furthermore, Chia Theng also can purchase more machines in advanced

technology because the current machines in use may not be enough for the company

to increase its productivity for business expansion in the future. For example, when

the company has machines with advanced technology, the company can produce high-

end products to fulfill the customers’ needs. According to professional market players,

high-end products are produced with high technologies. Thus, we recommend Chia

Theng Enterprise to purchase machines with advanced technology as the company is

expanding its business gradually.

4.1.2 Employees

To improve the performance measurement of employees, we recommend

Chia Theng Enterprise to monitor the performance of each employee by using

timesheet. Timesheet records all the jobs and tasks together with the duration of time

taken by each employee in performing them. By using the timesheet, the manager can

determine the performance level of employees and appropriate corrective actions can

be done when the employees do not perform well. Timesheet also can be used to give

reward for the employees who perform well. It can motivate the employees to perform

better in daily working.

Furthermore, the internal training of Chia Theng Enterprise limits the

knowledge and skills learned by the employees. Thus, as a recommendation, Chia

Theng Enterprise should provide the external training for the employees as well.

Since the technology is progressing rapidly, it is important to provide external training

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to the employees which are useful in helping the business to catch up with the

advanced technology. Other than that, it enables the employees to gain extra

knowledge and skills to improve their capabilities in working.

4.1.3 Customer Satisfaction

There is recommendation that we consider suitable for Chia Theng

Enterprise to implement in the business to measure the customer satisfaction. The

company can measure the performance level of the company by obtaining customer’s

feedback. Customer’s feedback needs to be seriously taken into consideration and act

upon reasonable requests. There are several ways that the company can gather the

customer’s feedback. For example, customer’s feedback can be collected through by

distributing survey when the customer comes to their showroom, sending e-mail and

using phone calls. By gathering customer’s feedback, the customers can express their

opinions on the experience of purchasing products from the company as well as

provide recommendation on the ways to maximise customer satisfaction.

4.2 Financial Aspects

To improve the financial performance of the company, a forecast budget is

essential for Chia Theng Enterprise in order to have a good financial planning. In fact,

budget is a detailed analysis of how a firm expects to spend money in future time

periods. Basically, it is based on the firm’s fiscal year and then broken down by

months.

With a budget, management can review it on a regular basis and adjust it when

needed as this will help the management to keep an accurate picture of the company’s

financial condition. Budget also can control how much money needed to spend on

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certain operations of job. Meanwhile, management can review the budgets prepared to

determine how well they followed the guidelines and why the budget variances

occurred. If the budget variance is higher than acceptable rate, then the management

will need investigate the causes and solves the problem. Thus, the budget is crucial for

the company as it can provide a financial roadmap for the business operation and

ensure that the company will have a healthy cash flow.

In addition, Chia Theng Enterprise can perform a trend analysis to evaluate the

company’s financial condition over a period of time. It is significant to evaluate the

financial health of the company. For instance, the account executive can compare the

financial data for the past two years by calculating and analysing the amount change

and percent change from year to year. Trend analysis can help a company to ensure

that there will has a gradual increase in the revenue growth by emphasizing cost

reduction.

Targeted costing can be applied to Chia Theng Enterprise as it help to reduce

the costs in the manufacturing stage of the product life-cycle by using the continuous

improvement & operational control. The company can also find the supplier that

provides the cheaper timber as this will help to reduce the cost of production. In fact,

targeted costing and Kaizen are strongly recommended to the company as it can

improve the overall product quality, reduce cost, increase customer satisfaction and

assist the company to achieve desired profitability on the products.

Besides that, the company is also recommended to use the financial ratio to

evaluate the performance of the firm’s business because each ratio provides the

factors such as the earning power, efficiency, solvency and debt load of the business.

The profitability ratios are suitable for the firms to evaluate the financial viability. Net

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profit margin can use to measure the percentage of sales revenue retained by the firm

after minus the operating expenses, interest and taxes. Return on equity provides the

amount of after- tax profit generated for each ringgit of equity. While, the return on

investment can measure the amount of return on an investment relative to the

investment cost.

5.0 Conclusion

Based on the evaluation of current performance measurement system of Chia

Theng Enterprise, we conclude that the performance measurement system is

important in helping the company to achieve its objectives and goals.

The current performance measurement system of Chia Theg Enterprise only

covers some aspects which are internal processes, employees, and financial aspects.

The company does not focus on other performance measurement aspects such as

customer satisfaction and company growth which are also essential in measuring the

overall company performance. Hence, we would like to suggest Chia Theng

Enterprise to measure its company performance by adopting balance scorecard (BSC)

in order to improve the performance measurement system.

BSC can act as a good performance measurement system for the company. It

is a strategic-based performance management system that measures the company’s

performance in four key perspectives which are financial performance, internal

business processes, customer satisfaction, and learning and innovation. Thus, BSC is

able to cover more perspectives compared to Chia Theng Enterprise’s current

performance measurement system.

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 When the performance measurement system is more accurate, the company

can determine whether the company’s performance is aligned with the strategies of

the company in order to achieve objectives and goals. Since Chia Theng Enterprise is

expanding its business gradually, it is beneficial for the company to use BSC to

measure the company performance.

Performance measurement system is important for a company since the

overall company performance will bring significant impact on the company

succession. Hence, periodic performance measures can help a company identify

potential as well as existing problems before they get into crises. After all, prevention

is always better than cure.

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