Performance Analysis and Improvement of Ethiopian Leather

Footwear Factories:

With Special Reference to Anbessa Shoe S.C.

By: Tomas Cherkos

A thesis submitted to school of Graduate Studies of Addis Ababa University in partial

fulfillment of the requirements for the Degree of Masters of Science in Mechanical
Engineering (Industrial Engineering Stream)

Advisor: Dr.-Ing Daniel Kitaw

Co-Advisor: Mr. Temesgen Garoma

October, 2011
 Addis Ababa University
School of Graduate Studies
Addis Ababa Institute of Technology
Mechanical Engineering Department
Industrial Engineering Chair

Performance Analysis and Improvement of Ethiopian Leather Footwear

Factories
With Special Reference to Anbessa Shoe Share Company

By

Tomas Cherkos

Approved by Board of Examiners:

_________________ ______________
Chairman, Department Signature Date
Graduate Committee

Dr.-Ing Daniel Kitaw _________________ ______________

Advisor Signature Date

Mr. Temesgen Garoma _________________ ______________

Co-Advisor Signature Date

Mr. Amare Matebu _________________ ______________

Internal Examiner Signature Date

Dr. Nebyeleul Gessese _________________ ______________

External Examiner Signature Date
 Acknowledgement

All praise is due to the Almighty God for granting me the power, courage and wisdom to finish my study
– Thanks God. I would like to take the opportunity to thank all those people who have contributed to this
work over the time period.

First and foremost, I would like to express my deep sense of gratitude and appreciation to my advisor
Dr.-Ing Daniel Kitaw, Associate Professor in Mechanical Engineering Department (MED) of Addis
Ababa Institute of Technology (AAiT). It is his wholehearted effort that helped me to acquire lots of
knowledge and practices throughout my stay in AAiT. Everything that I learnt from him and the PHD
candidates in all the courses and this research work were value adding. So I would like to thank him for
all his contributions.

I would also want to express my heartfelt thanks to my co – advisor Mr. Temesgen Garoma, PhD
candidate in Mechanical Engineering Department of AAiT, for his continuous follow up, genuine
guidance, precious suggestions, and unreserved encouragement by providing directions to work hard.
Therefore, I truly acknowledge him for his friendly approach and efforts.

I would like to express my deep appreciation to all respondents in surveyed footwear companies,
government organizations and agencies for their support in filling questionnaires, allowing interviews
and providing necessary supports during my primary and secondary data collection.

I am also grateful to all staffs’ of Anbessa Shoe factory for their cooperativeness and giving the available
data in my stay in their company especially Mr. Wondesen Birhanu (commerce department head), Mr.
Frew Gebrehiwot (Information, productivity & service improvement office head), Mis. Tsedey Tilahun
(production department division head) and Mr. Ayele Andnew (production section supervisor).

Last but not least, my greatest appreciation is reserved to my lovely families, my cute Degnet Melese
and my friends (especially Azemeraw Tadesse & Tirufat Dejene), to their valuable support in material,
moral and ideas.

Thank you

Tomas Cherkos

October, 2011

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 Table of Contents

Acknowledgement........ ................................................................................................................... I
List of Figures.............. .................................................................................................................. V
List of Tables................ ................................................................................................................ VI
List of Abbreviations.... ............................................................................................................... VII
Abstract........................ .............................................................................................................. VIII

CHAPTER ONE........... .................................................................................................................. 1

INTRODUCTION........ .................................................................................................................. 1

1.1 Background & justification of the study ............................................................................... 1

1.2 Statement of the problem ...................................................................................................... 3
1.3 Objective of the study ........................................................................................................... 5
1.4 Scope of the study and limitation.......................................................................................... 6
1.5 Research methodology .......................................................................................................... 6
1.6 Significance of the study ....................................................................................................... 8
1.7 Organization of the thesis ..................................................................................................... 8

CHAPTER TWO.......... ................................................................................................................ 10

LITERATURE REVIEW ............................................................................................................. 10

2.1 Overview of performance, production system and related issues....................................... 10

2.1.1 Introducing performance and related terms ................................................................. 10
2.1.2 Efficiency, effectiveness and performance .................................................................. 14
2.1.3 Production system and manufacturing performance.................................................... 16
2.1.4 Performance factors ..................................................................................................... 19
2.2 Performance measures and measurement ........................................................................... 20
2.2.1 Introduction .................................................................................................................. 20
2.2.2 Performance measures and the need to measurement.................................................. 21
2.2.3 Classification of performance measures ...................................................................... 24
2.3 Performance improvement and review of models/tools ..................................................... 25
2.3.1 Performance improvement ........................................................................................... 25
2.3.2 Review of performance improvement models/ tools ................................................... 27
2.3.3 Selection of an appropriate improvement model/tool .................................................. 33

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CHAPTER THREE...... ................................................................................................................ 35
PERFORMANCE OVERVIEW OF FOOTWEAR SUB-SECTOR ........................................... 35

3.1 Ethiopian manufacturing..................................................................................................... 35

3.2 Global review of shoe industry ........................................................................................... 35
3.3 Review of Ethiopian leather footwear sub sector ............................................................... 41
3.3.1 Background of the footwear sub-sector ....................................................................... 41
3.3.2 Ethiopian leather footwear sub sector .......................................................................... 42
3.4 Performance assessment and evaluation of the leather shoe factories ................................ 50
3.4.1 Benchmarking: Ethiopia with Bangladesh, Indonesia and China ................................ 51
3.4.2 Production capacity, utilization and products of ELFFs .............................................. 51
3.4.3 Evaluation of development plan of the sector (2005/06 – 2009/10) ............................ 53
3.4.4 Next five years export plan of the sector (2010/11 – 2014/15) ................................... 57
3.5 Review of recently done activities to build the capacity of the sector................................ 58
3.6 Survey questionnaire analysis and results........................................................................... 61
3.7 Problems towards low performance and SWOT analysis................................................... 66

CHAPTER FOUR........ ................................................................................................................. 70

CASE STUDY (Anbessa Shoe Share Company) ......................................................................... 70

4.1 Introduction ......................................................................................................................... 70

4.2 Overview of the company ................................................................................................... 71
4.3 Existing performance measurement practices and related problems .................................. 77
4.3.1 Production process ....................................................................................................... 77
4.3.2 Material procurement and stock management process ................................................ 83
4.3.3 Design and/or product development process ............................................................... 86
4.3.4 Sales and marketing process ........................................................................................ 86
4.3.5 Distribution process ..................................................................................................... 90
4.3.6 Finance and accounting process................................................................................... 94
4.3.7 Human resource development and administration process .......................................... 94
4.4 Performance gap analysis of ASSC against benchmark targets ......................................... 95
4.5 Summary of problems and the findings ............................................................................ 100
4.5.1 Cause and effect analysis ........................................................................................... 100
4.5.2 Classification of problems (internal/firm level and external) .................................... 102
4.5.3 Summary of the findings ............................................................................................ 105

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CHAPTER FIVE.......... .............................................................................................................. 106
SOLUTION PROPOSAL ........................................................................................................... 106

5.1 Selection and proposal of performance improvement method ......................................... 106

5.2 Total performance scorecard (proposed method) ............................................................. 109
5.2.1 The Personal Balanced Scorecard (PBSC) of the model ........................................... 109
5.2.2 The Organizational Balanced Scorecard (OBSC) of the model ................................ 112
5.3 Development of performance measurement framework/scorecard .................................. 117
5.4 Development of TPS implementation guideline ............................................................... 121
5.5 Role of stakeholders in the performance improvement of the footwear sub-sector ......... 126
5.6 Summary ........................................................................................................................... 128

CHAPTER SIX............ ............................................................................................................... 129

CONCLUSION, RECOMMENDATION AND FUTURE RESEARCHS ................................ 129

6.1 Conclusion ........................................................................................................................ 129

6.2 Recommendation .............................................................................................................. 131
6.3 Future research areas......................................................................................................... 132

REFERENCE............... ............................................................................................................... 133

Appendix A: Organizational structure of Anbessa shoe share company .................................... 137

Appendix B: Survey questionnaire ............................................................................................. 138
Appendix C: Questionnaire analysis ........................................................................................... 145

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 List of Figures
Figure 1.1 Research frame work ............................................................................................................. 9
Figure 2.1 A linkage between performance objectives and improvement objectives .......................... 11
Figure 2.2 Performance considerations.................................................................................................. 12
Figure 2.3 Components of performance ............................................................................................... 15
Figure 2.4 The Triple P model showing the relations of the terms performance, profitability, and
productivity ............................................................................................................................................ 16
Figure 2.5 Schematic production systems ............................................................................................. 17
Figure 2.6 List of performance factors found in the literature survey .................................................. 19
Figure 2.7 List of factors influencing the performance of operations ................................................... 20
Figure 2.8 The Balanced Scorecard ....................................................................................................... 28
Figure 2.9 Generic benchmarking process............................................................................................. 30
Figure 3.1 World share of leather by end use ........................................................................................ 37
Figure 3.2 Supply of educated workers to meet the needs of the firm ................................................. 48
Figure 3.3 Ethiopian footwear sector, share in total manufacturing (%) ............................................... 49
Figure 3.4 Five year leather footwear export performance.................................................................... 56
Figure 3.5 General reasons for low performance................................................................................... 62
Figure 3.6 Factors for not being fully operational or work at full capacity ........................................... 62
Figure 3.7 Impact of critical reasons towards poor quality of shoe ....................................................... 64
Figure 3.8 Impact of possible facors towards high shoe manufacturing cost ........................................ 64
Figure 4.1 Some products of ASSC ....................................................................................................... 73
Figure 4.2 Shoe production operation process of ASSC ....................................................................... 76
Figure 4.3 Production trend (local, export and total) of ASSC ............................................................. 81
Figure 4.4 Percentage shares of costs in ASSC ..................................................................................... 83
Figure 4.5 Sales trend (local, export and total) of ASSC ...................................................................... 87
Figure 4.6 Relation between local, exports, total sale and profit trend of the firm .............................. 88
Figure 4.7 Distribution channel of Anbessa shoe factory (General view) ............................................. 90
Figure 4.8 Benchmark deviation map for Anbessa shoe factor ............................................................. 99
Figure 4.9 Cause and effect analysis of organizational performance problems .................................. 101
Figure 5.1 The personal PDAC cycle ................................................................................................. 111
Figure 5.2 Linking the OBSC to the Business Units’, Team BSC and Individual Performance Plan 115
Figure 5.3 Proposed TPS model or cycle ............................................................................................ 116
Figure 5.4 Proposed implementation steps of TPS .............................................................................. 121

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 List of Tables
Table 2.1 Classification of performance metrics .................................................................................. 25
Table 2.2 Selecting an appropriate model or tool ................................................................................. 34
Table 3.1 Global footwear consumption over 10 Years ...................................................................... 36
Table 3.2 Global shoe production 2004 ............................................................................................... 36
Table 3.3 World leather use by end product 2003 & 2007 ................................................................... 36
Table 3.4 Ethiopian leather footwear export by destination ................................................................. 45
Table 3.5 Number of persons engaged by major industrial group - public and private 1996 - 2000E.C.48
Table 3.6 Shoe manufacturing cost ....................................................................................................... 51
Table 3.7 Benchmarking shoe production between China and Ethiopia .............................................. 51
Table 3.8 Production of leather and footwear articles, 2006/2007 - 2008/2009.................................. 52
Table 3.9 Production capacity, utilization & products of major shoe factories .................................... 52
Table 3.10 The export earnings performance of leather and leather products 1998 – Nov 2002E.C .. 53
Table 3.11 Export performance of shoe factories in the budget year of 1997-2001E.C (‘000 USD) . 55
Table 3.12 The leather sector export plan (in million USD) ................................................................ 57
Table 3.13 The share of export plan in percentage ............................................................................... 57
Table 3.14 Footwear production plan within the leather sector export plan ........................................ 58
Table 3.15 SWOT Analysis for ELFFs................................................................................................. 68
Table 4.1 Production and sales of the company (1999 – 2003 E.F.Y) ................................................. 81
Table 4.2 Stock amount (birr) of ASSC (2008 - 2010) ......................................................................... 85
Table 4.3 Sales performance and associated expenses of ASSC outlets .............................................. 91
Table 4.4 Performance comparison of ASSC outlets ........................................................................... 92
Table 4.5 ASSC outlets inventory level for the year ended June 30, 2011 .......................................... 93
Table 4.6 Benchmark intervention for Anbessa shoe factory (quantitative analysis) .......................... 96
Table 4.7 Benchmark intervention for Anbessa shoe factory (qualitative analysis) ............................ 97
Table 5.1 PBSC-elements and related questions (Rampersad, 2003) ................................................. 109
Table 5.2 Elements of OBSC and related questions (Rampersad, 2003) ........................................... 113
Table 5.2 Proposed performance measurement framework/personal scorecards ............................... 118
Table 5.3 Proposed performance measurement framework /organizational scorecard ...................... 120

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 List of Abbreviations

AALF All Africa Leather Fair

AGOA African Growth Opportunity Act
ASSC Anbessa Shoe Share Company
BSC Balanced Scorecard
COMESA Common Market for Eastern and Southern Africa
CSA Central Statistical Agency
ECBP Engineering Capacity Building program
ELFF Ethiopian Leather Footwear Factories
ELIA Ethiopian Leather Industry Association
ERP Enterprise Resource Planning
GoE Government of Ethiopia
GTP Growth and Transformation Plan
HRD Human Resource Development
KPI Key Performance Indicator
LIDI Leather Industries Development Institute
LLPI Leather and Leather Products Industries
MoI Ministry of Industry
MoT Ministry of Trade
MoTI Ministry of Trade and Industry
OBSC Organizational Balanced Scorecard
PBSC Personal Balanced Scorecard
PPP Performance, Productivity and Profitability
SCOR Supply Chain Operation Reference
SME Small and Medium Enterprises
TPS Total Performance Scorecard
UNIDO United Nation Industrial Development Organization

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 Abstract

Nowadays there is a need for business enterprises to measure, analyze and improve performance as
they encounter increasing competition from an ever-changing business environment. Performance is
the valued productive output of a system in the form of goods and services and performance
measures are the lifeblood of organizations, since without them no decision can be made, as it is the
first step to control and improvement.

Though the Government of Ethiopia is promoting the leather footwear industry as a priority area and
the sector has a huge potential for developing an economy, its performance is unsatisfactory due to
external and internal problems that hinders its competitiveness. Thus, the aim of this study is to
assess and evaluate performance management practice of Ethiopian Leather Footwear Factories,
identify critical problems and propose a firm level total performance improvement method and
suggest roles of stakeholders or improvement directions towards the external problems.

To undertake this research, primary and secondary data are collected through a survey
questionnaire, interviews (in the form of discussion) and physical observation in the case factory
(Anbessa shoe share company), as well as referring previous research works and case company
records. To analyze and present the data, pie charts, bar graphs, and cause and effect diagram are
used. In addition, to see the performance gap of the case factory, benchmarking is done.

From the research, it is concluded that the leather shoe factories have both internal and external
problems resulting low performance and competitiveness. To alleviate the internal or firm level
problems, a total performance improvement method called Total Performance Scorecard (TPS) is
proposed. In addition improvement directions are forwarded towards the external or sector level
problems. Regarding the proposed method, a performance measurement framework/scorecards and
its implementation guideline is developed for Anbessa S.C. TPS is a combination and also an
extension of the concept BSC, TQM and Competences Management which is being defined as a
systematic process of continuous, gradual and routine improvement, development and learning. The
process focused on the solid increase of both the personal and organizational performances. This
method has an important aspect in maximizing the involvement and loyalty of all involved person,
as well as encouraging individual and team learning and creativity via its Personal Balanced
Scorecard (PBSC).

Key words: Performance, Performance improvement models, ELFFs, footwear manufacturing,

Total performance scorecard

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 CHAPTER ONE

INTRODUCTION

1.1 Background & justification of the study

Nowadays there is a need for business enterprises to measure, analyze and improve performance as
they encounter increasing competition from an ever-changing business environment. Furthermore,
in order to more effectively cope with the significant competitive issues of increasingly
sophisticated customers and management practices, accelerating globalization and product
differentiation, a number of proposals have been put forward with regard to developing more
appropriate performance improvement methods. Performance is the valued productive output of a
system in the form of goods and services. The actual fulfillment of the goods or services
requirement is thought of in terms of units of performance. These goods or services units of
performance are usually measured in terms of quantity, time and quality feature measures.
Performance measures are the lifeblood of organizations, since without them no decision can be
made, as it is the first step to control and improvement [1, 2].

The industrial sector in Ethiopia has been characterized by a low level of development, even by the
standards of many least developed countries. This sector is basically intended for the production of
both for the local market as well as the export market. Ethiopia, as it is known, is the leading
African country in its livestock wealth. This huge potential resource will play a significant role for
the leather industry sector to be further enhanced. In addition, this sector is one of the sectors that
are believed to play a significant role in the enhancement of the overall economy of the country
thereby contributing a paramount share towards the five-year goals of the Growth and
Transformation Plan (GTP) being implemented by the Government of Ethiopia (GoE). The leather
industry sector is one of the leading foreign currency generating sectors of the country. Therefore,
the sector needs more foreign and local investments to come in the areas of footwear, glove, leather
garment, leather goods and articles.

Footwear is an active product in international markets. It is being delocalized from developed

countries to developing ones. As Tetsushi 2007, the production of leather shoes in Ethiopia dates
from the late 1930s when Armenian merchants founded two shoe factories in Addis Ababa. These
factories nurtured a number of shoemakers, who opened their own factories in Addis Ababa and
trained their workers. Ethiopian leather shoe industries are producing shoes for export market. The
industry took back the domestic market from Chinese shoes which had flooded the market in around

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2001. Since then, the industry has been growing vigorously. These developments are good news to
those who are interested in poverty reduction in Sub-Saharan Africa because Ethiopia is one of the
poorest countries and the leather-shoe industry is one of the most labor-intensive industries which
provide ample employment opportunities for the poor [3].

The leather industry has been one of the major traditional industries together with the coffee and
garment industries, but it is now at a turning point to change itself from a traditional industry to a
modern industry to penetrate the international high value-added leather market, under the strong
initiative of the GoE. The leather footwear industry is considered as an important sub-sector that
leads the whole sector’s modernization. Although the export of leather footwear started only in
2005, the export value has been growing steadily since then and is expected to have a big impact on
the Ethiopian economy. The importance is not only the economic impact resulting from the trade
but also the job opportunities the industry may create could make a significant impact on poverty
reduction.

As the study made by embassy of Japan in Ethiopia in 2008 shows, Ethiopia possesses one of the
largest populations of livestock in Africa and even 7th-9th in the world, i.e. 41miilion cattle,
25million sheep and 23million goats. However, the resource is not fully utilized and only 2.7million
hides, 8.1million sheep skins and 7.5million goat skins are sold on the market in 2007/2008.
Therefore, the leather industry still has room for development by utilizing the abundance of the
resource. But not only this but also proper utilization of finished leather for footwear is low in most
footwear industries [4]. Berhanu Nega (Ph.D.) and Kibre Moges, 2002 investigates that the raw hide
and skins are purchased from local tanneries what is domestically supplied to the leather products
industry is only the 14 percent of the total product of the tanning industry. The bulk of the tanning
industry output is exported in semi-processed form, a testimony to the underdeveloped nature of the
sector as a whole: inefficient tanning and infant leather products sub-sectors. Birhanu, 2002
analyzed that on average, Ethiopia produces only 25 million dollars worth of footwear annually
which is less than 50 percent of the tanning industry’s output [5]. This can be one of the major
indications of low performance for the Ethiopian shoe factories.

Studies on Ethiopian leather footwear industries made by UNIDO, Japan Embassy and other
researchers shows that their performance unsatisfactory and also faces some difficulties [4, 5, 7, 8,
9&45]. Most of these factories are not achieving their proper performance and are characterized by
low productivity (material and labor), poor working conditions, and improper utilization of
resources, weak relationship with customers and suppliers and poor management.

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Performance improvement in the firms could be achieved through effective implementation and use
of modern performance improvement methods which will bring total performance improvement.
This does not rely for its success on the application of specific performance techniques – it depends
much more on the commitment and creativity of all members of the manufacturing plant [6,
12&13]. Ideally, most manufacturing plants would like to find the method for the overall
performance/productivity improvement strategy. However, manufacturing firms that are searching
for improvement strategies are still likely to find that they are unable to take full advantage of the
modern methodologies and techniques of performance improvement. Part of this can be attributed
by fear of changes, complexity in working culture, lack of management commitment and lack of
understanding of performance.

Performance analysis using manufacturing performance measures and improvement techniques is

one of the promising tools employed for assessing performance and then taking the necessary
measures for improvements of existing deficiencies. Moreover, Performance measures are devices
to aid decision makers discriminate among competing manufacturing arrangements or to improve
the performance of an existing system. The main objective of this paper is assessing and analyzing
the performance of Ethiopian leather footwear factories and proposing a total performance
improvement method.

1.2 Statement of the problem

The Ethiopian leather footwear industry has grown within the past few years owing to the strategic
support and attention provided by the government. Ethiopian made leather footwear is now being
exported to many European, African countries and also recently to US. Moreover, potential buyers
from Europe, North American and African are also showing their interest to source leather footwear
from Ethiopia. Increased investment by local and foreign investors to take part in the sectors is also
evident to further justify the growth will continue in the years to come. According to the benchmark
implementation plan for the Ethiopian footwear sector in 2009, the level of competitiveness in the
international market is far below average to hinder the level of desired growth rate though the sector
is growing [7]. As Birhanu 2002 analyzed, on average, Ethiopia produces only 25 million dollars
worth of footwear annually. But this is less than 50 percent of the tanning industry’s output and this
is one of the major indications of low performance for Ethiopian shoe factories.

Considering production which is one of the manufacturing performance measures, international

benchmark has a production of 6500 pairs/shift whereas in Ethiopia, Anbessa Shoe Share Company
(ASSC) has 2250pairs/shift and others below this. In addition, international benchmark has labor

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productivity of 16pairs/person whereas Ethiopian shoe factories have about 3pairs/shift [7]. This
indicates that the manufacturing performance is low and an improvement is a need.

A benchmarking analysis on shoe production in Ethiopia made by Global Development Solutions in

2006 indicates that Ethiopia is relatively competitive against Indonesia with respect to the cost of
leather shoe assembly, but less against Bangladesh. Ethiopia’s shoe manufacturing productivity is
very low, and compared with China, the largest shoe producer in the world; it takes 78 minutes to
produce one pair of shoe uppers in Ethiopia, whereas it only takes 30 minutes for Chinese
manufacturers [8, 9]. Also, since the industry has been targeting only the domestic market for a long
time, the product development, market development and productivity improvement are crucial to
increase the trade volume.

From Central Statistics Agency (CSA, 2010) data and Leather Industry Development Institute
(LIDI) five year [1997-2001E.C] export performance plan of leather footwear factories, the five
year average export performance is 28% comparing to the planned export which is low. In addition,
the sector is envisaged to generate export income amounting to 500 million USD at the end of the
plan year (2014/15) and it will focus mainly on finished leather, footwear (63%), gloves and leather
garment and articles [10, 11]. This indicates that the leather footwear sub-sector has given more
emphasis compared to the other leather subsectors. However, based on the previous plan year of low
performance (28%), the sector will not also meet the new or current plan year performance unless an
improvement strategy or method is used by the footwear factories.

The major problems occurring in the leather footwear factories are shortage of raw materials
(processed leather), long procurement lead time for imported materials, lack of demand, low quality
of finished leather, production delays and bottleneck at the workstations, lack of measurement and
improvement method, working far from the standard and the installed capacity and inefficient
utilization of resources (machine, labor and material). In addition, as per the benchmark
implementation plan for the Ethiopian footwear sector in 2009, low labor productivity (best practice
=16 pairs of shoe/day/person but actual average production of Anbessa= 3 pairs of shoe/day/person
& that of Peacock = 4 pairs of shoe/day/person) is another major problem which have great impact
on the operational performance and production efficiency [7]. On the other hand, all these factors
have a great impact on the product cost which in turn contributes for the decreasing in profit. To
sum up, these are the performance problems which currently affect the total performance and
competitiveness of the firms. Therefore, it is a need to identify the critical ones, analyze and bring
an improvement on the performance of Ethiopian leather footwear factories (ELFFs).

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 1.3 Objective of the study
General objective

The main objective of the study is to assess the performance of Ethiopian leather footwear factories,
analyze the existing performance practices and propose appropriate performance improvement
method so as to improve its global competitiveness.

Specific objectives

Extensive review of the footwear sector to assess and evaluate the current performance and
performance improvement practices of ELFFs
Determine the current performance factors and analyze the SWOT of ELFFs
Case study analysis to investigate the existing performance measurement practices, identify
and analyze firm level operational performance problems
Identify performance gaps of the company via benchmarking and cause and effect analysis
to identify the root causes of poor performance
Propose a total performance measurement and improvement method and develop
measurement framework which fill the gap and bring proper measurement culture
Develop an implementation guideline for the proposed method

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 1.4 Scope of the study and limitation

The Ethiopian footwear (shoe) industry is, composed of two sub-sectors: the larger mechanized 1
shoe industries sub sector and the smaller production units – micro, small and medium enterprises
including the informal ones. As LIDI, 2002E.C, there are currently eleven medium and large
mechanized footwear factories in the formal sector [11]. According to the information obtained from
LIDI, the shoe factories which are given due attention by GoE are the larger mechanized ones which
are export-oriented. Thus, this study is limited or gives more focus in assessing, reviewing and
analyzing performance to these footwear factories. It also includes performance analysis of the
manufacturing processes in the case factory and proposes an appropriate performance improvement
method. Absence of documented data and lack of cooperativeness of the firms were among the
limitations faced.

1.5 Research methodology

It is important to identify and understand the research approaches to be undertaken because it

influences the research instruments to be employed and the ultimate goal of the thesis. In addition,
its selection should be based on the problem of interest, resources available, skills & training of the
researcher, and the audience for the research.

Integration of the following methods is used to achieve the objectives of this paper.

1. Literature Survey

In the first stage of the study, an extensive survey has been conducted (to understand the existing
concepts, arguments, methods and advancements on performance measurement and improvement)
with a particular focus on the problems and improvement activities of manufacturing industry. This
is conducted using the following secondary data sources:

 Academic sources - The academic sources consist of books, journal articles and graduate
report on various aspects of the performance analysis and improvement.
 Official sources – it include studies and previous surveys of the manufacturing industries in
Ethiopia, conducted by government and non- government bodies.
 Public sources - The public sources consist of articles from local and foreign newspapers,
magazines and websites.

1
Mechanized footwear plant, a production unit, which is equipped with a complete line of machinery for the production of footwear

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 2. Data collection

a. Primary Data:

 Physical observation: case company (ASSC) and LIDI model shoe factory and
tannery
 Interview (in the form of discussion) with different responsible bodies in the case
company and LIDI researchers
 Survey Questionnaire: It was designed and developed to assess the availability of
performance factors via collecting qualitative and quantitative primary data
regarding the current performance management practices in ELFFs.
b. Secondary Data:

 From organizations & associations: the researcher tried to collect minimum of

recent five year data related to Ethiopian footwear industries (such as; policy &
strategy, capacity utilization, production and sales volume, export value, employee
creation and wage, etc) in the form of study and journal in different organizations and
associations such as; MoT & MoI, CSA, ECBP, UNIDO, LIDI, and ELIA. In
addition to collecting raw data, it is tried to have some discussion with experts who
work in LIDI. In addition, the questionnaire survey helps to assess the current
performance status of ELFFs relative to global.
 Case company previous records or documents to assess the performance
measurement/evaluation practices

3. Data analysis and Presentation

To analyze the collected primary and secondary data, tools used are: bar-graphs, pie-charts, and
cause and effect diagrams via spreadsheet/Excel file. After the analysis, discussion and
identification of major performance problems, performance gap analysis via benchmarking is done
and intervention areas of the case factory are identified. Based on the result of the study, an
appropriate performance improvement method with its measurement framework and
implementation guideline was proposed. Finally, a conclusion is drawn and strong recommendation
with future research areas is forwarded.

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 1.6 Significance of the study

The footwear companies are associated with company-wide problems. Although they are the focus
area by the government, they are not competitive in the global market. As such, identifying the
problems and suggesting appropriate improvement method to improve the performance and global
competitiveness of ELFFs is necessary to increase Ethiopian economy, reduce poverty and enhance
job opportunity. The beneficiaries of this paper can be: the case shoe factory, Ethiopian footwear
industries, researchers and students who will conduct studies related to this research area.

1.7 Organization of the thesis

The study is compiled into six chapters. The first chapter comprises the introduction, problems and
its approaches. The extensive literature review which includes performance and related terms,
manufacturing systems performance measures, and performance improvement methods or models
has been presented in the second chapter. The third chapter contains the detail overview of shoe
industry globally and in Ethiopia, performance assessment and evaluation of Ethiopian leather shoe
factories, survey questionnaire analysis and SWOT analysis of ELFFs. The case study analysis and
summary of critical performance problems has been presented in chapter four. Chapter five contains
the proposed performance measurement and improvement method with its performance
measurement framework and implementation guideline. Finally, the sixth chapter contains study
conclusion, recommendations and future research areas.

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 Section I: Literature Survey
(Establishing background of manufacturing performance measurement and
improvement)
Review and discussion on Performance, measurement & improvement technique,
models, factors affecting performance/ available worldwide issues

Section II: Data Collection

 Primary data: survey questionnaire for assessment of footwear
companies current performance status, physical observation of case
company and interviews
 Secondary data collection in some major organizations & associations
and case company records.

Section III: Data analysis and Presentation

(Investigating existing performance measurement practices and related
problems)
 Tools such as pie chart and bar graph to analyze data
 Spreadsheet to analyze survey questionnaire
 Benchmarking study for performance gap analysis
 Performance problems was summarized and synthesized via cause &
effect diagram

Section IV: Solution proposal

 Selection and proposal of appropriate performance improvement
method
 Developing performance measurement frame work
 Develop implementation guideline

Section V: Research Conclusion &

Recommendation
 Summarize the study, develop strong recommendation
and put suggestions to all shoe factories to adapt it
and put future research areas

Figure 1.1: Research frame work

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 CHAPTER TWO
LITERATURE REVIEW

2.1 Overview of performance, production system and related issues

2.1.1 Introducing performance and related terms

As Darryl D. 2000, performance is defined as "the progressive achievement of tangible, specific,

measurable and personally meaningful goals." Specific and measurable goals help organizations
evaluate success. A number of factors have caused companies to reexamine their performance.
These factors include competition, customer demands and knowledge, rapid technological change
and internal needs and desires [12].

As Gruenberg T. 2004, the terms performance, productivity and profitability (PPP) have similar or
overlapping meanings. All can be described as ratios, and they are easy to confuse. The terms
efficiency and effectiveness can be similarly confusing - even though they are often distinguished
as being doing things right and doing the right things [2]. To ease the understanding and make the
terms usable for improvement work, a presentation of the relations between the terms is made.

Two main views of the relationships between the terms are a hierarchical view and a subset view.
The hierarchical classification of measurements supports monitoring and pinpointing measures,
where the monitoring measures are of a more general kind and can be used as indicators of
problems. However, it is difficult to get information on the specific causes of a problem when
information is not sufficiently detailed. The subset view provides information on how to relate the
different measures.

Performance and productivity can be viewed as a company's ability to provide customer value. As
PPP are often described as ratios, the generic description could be summed up to customer
value/resources. However, this ratio is extremely broad and needs to be divided into smaller
concepts for use in improvement work.

PPP measurements are an essential ingredient of improvement work, since information about
objects in need of change and improvement has to be gathered and measured. These measures help
decide which problem areas to approach for improvement and also help evaluate the results of an
improvement program.

The measurements of PPP can also input into ongoing control processes - helping the organization
to focus on the important characteristics of operations. It is important to understand that

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measurement systems have both intended and unintended consequences. As Shirley Daniels 1997, a
common problem with measurements of operations is not to measure what can be measured, but to
reduce the list of measurements to measure only desired attributes of operations [6]. This is often a
problem in case studies, where the practitioner has an overload of measurements to choose problem
and for communicating the case effectively to others.

Performance

As Gruenberg T. 2004, performance is perhaps the “widest” term used here, and covers overall
economic and operational aspects. The three terms in PPP overlap each other and if they are
viewed hierarchically, then performance is at the top, representing an overarching concept [2].

To sum up, performance is the valued productive output of a system in the form of goods and
services. The actual fulfillment of the goods or services requirement is thought of in terms of units
of performance. These goods or services units of performance are usually measured in terms of
quantity, time and quality feature measures.

As Gruenberg T. 2007, discussing and measuring performance has two main aims - first to connect
company goals and objectives to improvements and secondly to set targets for improvement
activity. Together, these help focus energy and activity and increase the impact of any
improvement initiative [13].

An improvement program - if it is to have real impact - must be tightly connected to performance

goals and objectives. This helps to ensure clarity of the improvement program and to ensure that all
participants are working in the same direction. In turn, if all levels of the company understands the
program and its direction; all resources can more easily be directed to the same targets and goals. If
improvement goals are connected with overall strategic goals, there can be a “multiplier effect”
which fuels performance - objective results (see Figure 2.1 below). A linkage between performance
objectives and improvement objectives can raise the impact of improvement work, which in turn
helps fulfill performance objectives.

Figure 2.1 A linkage between performance objectives and improvement objectives [2]

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Performance objectives - for most organizations - relate to a company's ability to compete and meet
customer expectations. Slack et al. (1998) have identified five performance objectives which can be
considered generic - applying to just about every commercial, manufacturing organization (see
Figure 2.2).

Low price, high

External effects of the margin or both
five performance
objectives

Short delivery Dependable

lead time
Cost delivery

Dependability
Speed High total
productivity
Reliable
Fast operation
throughput Internal effects of
the five
performance
objectives
Error-free Ability to
processes change

Quality Flexibility

Frequent new products

On- specification Wide product ranges
products/services Volume and delivery
adjustments

Source: Slack et al. (1998)

Figure 2.2 Performance considerations

``Speed'' describes how quickly a delivery can be made after an order is received; whilst the
complementary characteristic of “precision” deals with delivering goods and services to the agreed
schedule. ``Quality'' is the degree to which a company meets customers' perceptions on a variety of
characteristics of the delivered products/services and is often expressed and managed using a
variety of technical quality factors such as percentage of defect goods. The selling price to
customers and the internal production cost are both addressed as part of the performance objective
of “cost” - recognizing that some products can be made at low cost but sold at high price (and vice
versa!). Finally, the “flexibility” objective deals with how a company reacts to changing demands
of customers and changing factors in the general environment.

These performance characteristics can be viewed from two sides, one internal and one external. For
example, ``cost'' is internally viewed as the costs of production - labor, material supply, energy
costs, etc. - and externally as the price to customers. An understanding of these relationships helps
determine an appropriate performance measurement regime and an appropriate improvement
strategy (Whiting, 1986).

Some aspects of performance are difficult to measure, e.g. customer satisfaction and flexibility,
since customer behavior is not static and flexibility is hard to benchmark between different

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organizations. Where performance characteristics are difficult or too blunt to be easily measured or
of sufficient utility, they may be sub-divided - or even measured ``by proxy''. These divided
measurements, often as simple ratios, turn out to resemble ``productivity'' measurements.
Sometimes it is difficult to identify whether a measurement is a performance measure or a
productivity measurement. For simplicity, it is suggested that a measure can be regarded as a
performance measure if it is related to the five attributes of the triple model – see figure 2.4.

Productivity

The simplest definition of productivity is an output/input ratio. However, the question is what the
ingredients of the formula should be. The name productivity implies that it reflects a company's
production ability. The measures of productivity are a subset of the performance measurements, but
they are not directly connected to the five performance characteristics. These measures are more of
a utilization character. The utilization of a production process is important in improvement work,
since there often are losses to reduce.

There are many different examples of productivity measurements used in companies and
organizations. These measurements are both used for monitoring and development of the daily
operation as well as for long-term strategic considerations of the business. The productivity
measures can be divided into three types (Hannula, 1999; Stainer, 1997) [2]:

1) Total productivity
2) Total factor productivity; and
3) Partial productivity measures

The three categories of productivity measurements above are hierarchically arranged - offering less
coverage and more detail as one move down the list. It is difficult to include monetary units in the
productivity ratio so that productivity is properly reflected. These monetary units are often used in
the productivity measures as output and input factors. A mixture of monetary and physical as well
as only physical measures (hours, kg, pieces, kWh, etc.) is in use by the industry.

The major drawback with monetary units in productivity measurement is that they need to be
deflated, i.e. adjusted for price changes. This involves difficulties when calculating the measures.
In fact, often approximation of the price changes needs to be used to make the calculations easy to
handle. Many researchers, for example Wolff (1990), Lofsten (2000) and Edgren (1996) point out
this problem and recommend adjusting for price variations of the input factors when calculating
productivity. However, this price-change issue is a source of ``error'' for productivity calculations
and Edgren (1996) suggests that monetary units should be avoided in productivity calculations in

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order to measure true productivity. For improvement work, it is strongly recommended that
monetary units are kept separate from the productivity ratios [2].

A low level of productivity implies a low growth of economy. A low growth of economy means
low income leading to low standard of living and a low level of savings, resulting in low level of
investment and low productivity. Thus, we are caught in a vicious circle of poverty. If we can
somehow pull all our resources together to improve productivity, a rise in productivity will lead to
a higher national output and a higher per capital income. A higher per capita income makes a
higher level of savings possible, and this will lead to a higher investment and better technology
resulting in increased productivity. The vicious circle of poverty would then be broken and
replaced by a spiral of prosperity [14].

Profitability

For improvement purposes, profitability does not have a direct impact since it is a result of, rather
than a contributor to, the actions and processes in operations. However, profitability is a useful
complementary or countermeasure to performance and productivity since it helps identify the
effects of monetary effects like inflation, price changes, devaluation and currency effects and
distinguish them from “true” performance and productivity changes. A company can increase its
profit and at the same time decrease productivity, because of these monetary effects. If both
performance (productivity) and profitability are measured, the true reasons for increased profits can
become clearer.

The measurement of profitability can be seen in economic reports as various ratios. A couple of
examples will be explained here as it completes the picture of PPP. Cash flow is a comparison of
how the cash amount differs between two points in time. This helps determine momentarily
whether a company is profitable or not - but is a form of partial profitability measure, useful for
particular reasons but perhaps dangerous to use on its own. The basic profitability ratio is
revenue/cost, but a number of other profitability ratios do exist. Common ratios are [2]:

 Return on assets (ROA), calculated by dividing net income by average total assets
 Return on investment (ROI) which shows profit in relation to the investment; and
 Return of sales (ROS) indicates profit in relation to sales.

2.1.2 Efficiency, effectiveness and performance

Efficiency and effectiveness are the central terms used in assessing and measuring the performance
of organizations (Mouzas, 2006) [15]. Performance, in both profit and non-profit organizations, can
be defined as an appropriate combination of efficiency and effectiveness. However, there seems to
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be some inconsistency in the use of these terms in the existing literature on the subject matter. For
the managers, these terms might be synonymous but each of these has their own distinct meaning.
Drucker (1977) distinguished efficiency and effectiveness by associating efficiency to “doing things
right” and effectiveness to “doing the right things” [2 & 15]. In Drucker’s terminology, a measure of
efficiency assesses the ability of an organization to attain the output(s) with the minimum level of
inputs. It is not a measure of a success in the marketplace but a measure of operational excellence in
the resource utilization process. More precisely, efficiency is primarily concerned with minimizing
the costs and deals with the allocation of resources across alternative uses (Achabal et al.,
1984).While commenting on effectiveness, Keh et al. (2006) observed that a measure of
effectiveness assesses the ability of an organization to attain its pre-determined goals and objectives.
Simply, an organization is effective to the degree to which it achieves its goals (Asmild et al., 2007).
In sum, effectiveness is the extent to which the policy objectives of an organization are achieved
[15].

It is significant to note that though efficiency and effectiveness are two mutually exclusive
components of overall performance measure yet they may influence each other. More specifically,
effectiveness can be affected by efficiency or can influence efficiency as well as have an impact on
the overall performance (Ozcan, 2008). Figure 2.3 below puts the argument in proper scenario.
Nevertheless, it is possible that an organization can be efficient in utilizing the inputs, but not
effective; it can also be effective, but not efficient. A proposition of the linkage between the terms
efficiency, effectiveness and performance is presented by Petersson (2000. This dualistic view is
needed since high efficiency without high effectiveness is sub-optimal) [2].

Efficiency
Performance

Effectiveness

Figure 2.3 Components of performance [15]

Effectiveness can be seen as how well a set of results is accomplished, while efficiency reflects
how well the resources are utilized to accomplish the result. This means that efficiency in
manufacturing is a measure that shows how much resources are actually used compared to the
minimum resource level that is theoretically required to run the desired operations in a given
system. Effectiveness, on the other hand, can be viewed as the actual output related to the expected
output.

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It is possible for an effective system to be inefficient; it is also possible for an efficient system to be
ineffective. However, if high values of both effectiveness and efficiency are achieved, productivity
or performance will be high.

As described by Gruenberg T. 2004, a “picture” of the terms described so far can be formulated as
the Triple P model as shown in Figure 2.4. The Triple P model shows that performance,
productivity and profitability can all be expressed as ratios of output and input. Efficiency is
focused on the input side and effectiveness on the output, to mirror the customer value.

Figure 2.4 The Triple P model showing the relations of the terms performance, profitability and productivity

2.1.3 Production system and manufacturing performance

Manufacturing is the application of tools and a processing medium to the transformation of raw
materials into finished goods for sale. This effort includes all intermediate processes required for the
production and integration of a product’s components [16]. Manufacturing is a transformation
process in which the inputs (raw materials, equipment, electrical energy, and labour) are converted
in to completed work-piece which carries some definite value in the market place. Transformation
processes involve a sequence of steps, each step bringing the materials closer to the desired final
state. For example, in shoe manufacturing, some of the transformation processes are cutting,
stitching, lasting and finishing. The key to successful manufacturing is therefore to produce
constituent parts in accordance with the desired specification at the lowest cost in the shortest
possible time that satisfies the customer requirement [14]. In doing so, customers’ performance can
be improved.

Production function is that part of an organization, which is concerned with the transformation of a
range of inputs into the required outputs (products) having the requisite quality level. Production is
defined as “the step-by-step conversion of one form of material into another form through chemical
or mechanical process to create or enhance the utility of the product to the user” [17]. Thus
production is a value addition process and at each stage of processing, there will be value addition.

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The production system of an organization is that part, which produces products of an organization. It
is that activity whereby resources, flowing within a defined system, are combined and transformed
in a controlled manner to add value in accordance with the policies communicated by management.
A simplified production system is shown below [17].

INPUT TRANSFORMATION OUTPUT

- Material PROCESS
- Machine - Production design - Goods
- Labour - Process plan
- Management - Production control - Services
- Capital - maintenance

Continuous;
- Inventory
- Quality
- Cost
Feedback Information

Figure 2.5 Schematic production systems

The production system has the following characteristics:

1. Production is an organized activity, so every production system has an objective.

2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve system
performance.

Manufacturing Performance

For the design or improvement of manufacturing systems it is important to be able to predict their
performance. For this purpose, performance of manufacturing has to be measured, analyzed,
evaluated and an improvement models and tools have to be used.

Performance of a manufacturing firm can be defined in various ways depending on the questions in
mind when one inquires about a firm’s performance. From a socio-economic perspective, profit is
the most common measure of a firm’s performance. Other indicators include internal rate of return,
productivity, superior quality and reliability, flexibility, efficiency, effectiveness, capacity
utilization, growth of output and net present value, and market share (Skinner, 1974; Wheelwright,
1978; Krajewski and Ritzman, 1987; Leong et al., 1990; White, 1996; Vokurka et al., 1998; Ward et
al., 1995 and 1998) [18].

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In the study manufacturing performance is defined as the relationship between the quality and
quantity of physical output in relation to inputs used in the production process and as the efficiency
with which inputs are transformed into desired output. This definition of manufacturing
performance reflects the basic rationale for a production system, which is to produce something of
value (Buffa, 1984) [18]. The definition of performance of a manufacturing firm describes a joint
impact of several factors. Some of these factors are the efficiency of production, the level of
technology in use, and the structure and composition of industry.

Recent Concepts and Practices in Manufacturing Performance

The manufacturing performance assessment and analysis introduced in Ahmad and Benson (1999)
covered the areas of quality, delivery reliability, cost (price minus profit margin), and delivery lead
time. The Key Performance Indicators (KPIs) within manufacturing strategy are cost, quality,
inventory, flexibility, and delivery (Corbett, 1998) [19].

A part of a project survey was carried out to identify which performance indicators companies’ use
and which ones they characterize as important. The top five were: profitability, conformance to
specifications, customer satisfaction, return on investment, and materials/overhead cost. When
looking at the performance areas to which the specific indicators are related and considering their
relative importance it was also possible to rank the importance of these performance areas (from top
to bottom): efficiency, quality, competence (technical), flexibility, innovativeness, speed, and
capacity (Jose et al., 1999). The measured KPIs are normally split into six sections: (1) safety and
environment, (2) flexibility, (3) innovation, (4) performance, (5) quality, and (6) dependability. The
focus was on the KPI of the dependability which consist of: (1) customer complaints, (2) on-time-
in-full delivery to customers (OTIFc), (3) on-time-in-full delivery from suppliers (OTIFs), and (4)
overall equipment effectiveness (OEE) & product quality rate availability (Ahmad and Dhafr, 2002).
A six-item scale is used to measure the operational performance of a manufacturing plant after
different levels’ lean manufacturing practice. The items include 5-year changes in scrap and rework
costs, manufacturing cycle time, first pass yield, labor productivity, unit manufacturing cost, and
customer lead time (Shah and Ward, 2003). Global competition demands the manufacturing
organizations improve quality, reduce delivery time, and minimize costs. In response to this, many
manufacturing organizations have implemented different excellence programs to improve their
performance. Lean manufacturing techniques, performance measurement, and benchmarking, were
included in many of those excellence programs (Ahmad et al., 2005) [19].

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2.1.4 Performance factors

To support improvement work it is vital to find performance factors that support the performance
strategy set by the company. Since many improvement suggestions do not provide help on where to
start changing, a proposal is presented below to support practitioners in their improvement work
[2]. The literature survey showed that many performance factors were too dedicated to a specific
case. Further, many of the factors are very general and/or include several other factors. Logistics
for example is mentioned by Waters (1999) and Bilberg and Alting (1994). However, logistics
includes factors such as lead-times and material flow. ``Logistics'' in itself is tough to affect as a
whole and one needs to decompose the concept logistics into smaller, component factors.

Other authors like Ong (1997) and Gunasekaran and Cecille (1998) have their performance factors
tightly connected to the specific case study described in their articles. Ong (1997) concludes that
two major areas are of importance while working to improve a company's productivity and quality
- shortest improvement time and the company's budget. Gunasekaran and Cecille (1998) found
some important performance factors in their case study, such as bottlenecks, layout and material
flow. These factors are adapted for the respective cases since they were suggested for
improvements specific for that company. Bilberg and Alting (1994) found in their case studies that
productivity factors could be divided in some categories. Their approach is developed from ten
different case studies and they are more specific than the other authors.

Elimination and reduction of waste is important in the attempt to increase productivity (Petersson,
2000; Slack et al., 1998). One of the three key issues in JIT is elimination of waste (Slack et al.,
1998). The wastes mentioned in this article are considered as performance factors and are useful
targets for improvement. Pettersson (1991) gives examples of productivity factors in his case study.
These factors are significant but, again, are connected to this particular case.

Figure 2.6 List of performance factors found in the literature survey (Thomas Gruenberg, 2004)
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Economic approaches result in the CLEM (capital, labour, energy and material) categorization
(Heshmati, 2000). Inputs to manufacturing are in general decomposed into these ``traditional''
elements - capital, labor, energy and material. These elements are of a very general nature and give
few hints as to what to approach in improvement work.

The categories proposed in the study made by Gruenberg T. [2 & 13] (see Figure 2.6) are: Process,
Resources, Product and Control. The process factors relate to areas such as shop-floor logistics,
cycle-times, bottlenecks and factors regarding the company's processes. These factors mostly affect
speed and precision. The product category deals with issues such as product design (including
particular aspects such as ``design for assembly'') and product variety. These affect such important
``end factors'' as customer quality and assembly efficiency. Resources are the people and machines
that are used for the transformation of service/products in operations. A factor in this category
could affect for example flexibility and technical quality. To control operations, administration and
economic functions are used, and these can have a significant impact on the cost function.

Figure 2.7 List of factors influencing the performance of operations

2.2 Performance measures and measurement

2.2.1 Introduction

How to measure performance? How often do you ask yourself this question? - Once a week? Once a
month? Or Never? If you're a successful manager in a successful organization, you probably ask
yourself this question every single day. However, measuring performance often isn't easy. In the
performance measurement arena, you don't always (or even often) get the results that you expect,

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want, or predict. After expending a great deal of energy collecting information, just when the results
look promising, you find that you're measuring the wrong things.

A sound approach to performance measurement is a necessary ingredient for ensured success, but it
alone is not sufficient. You will also need to know what to do with performance measurement data
once it has been collected.

The use of performance measures in business is hardly new. Companies have been measuring costs,
quality, quantity, cycle time, efficiency, productivity, etc., of products, services, and processes as
long as ways to measure those things have existed. What is new to some extent is having those who
do the work determine some of what should be measured in order that they might better control,
understand, and improve what they do. [20]

All high-performance organizations, whether public or private, are, and must be, interested in
developing and deploying effective performance measurement and performance management
systems, since it is only through such systems that they can remain high-performance organizations.
[20]

2.2.2 Performance measures and the need to measurement

What Are Performance Measures?

Performance measures quantitatively tell us something important about our products, services, and
the processes that produce them. They are a tool to help us understand, manage, and improve what
our organizations do. Performance measures can let us know [20]:
 How well we are doing
 If we are meeting our goals and if our customers are satisfied
 If our processes are in statistical control
 If and where improvements are necessary

Generally, they provide us information necessary to make intelligent decisions about what one do.
Performance data must support the mission assignment(s) from the highest organizational level
downward to the performance level. Therefore, the measurements that are used must reflect the
assigned work at that level. [19 & 20]

What Is Performance Measurement?

Because performance measurement is a broad topic, the term can mean different things to different
people. So broad is the topic and so specific are some of its applications that entire books have been

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written on measuring performance for a specific area of business (e.g., Measures of Manufacturing
Excellence, edited by Robert S. Kaplan), a specific type of performance measure (Fast Cycle Time,
by Christopher Meyer), and even for a specific measure, economic value added (The Quest for
Value, by G. Bennett Stewart). These are just three examples from the hundreds of books written on
the topic of performance measurement and performance metrics. Seemingly, it’s possible to measure
just about everything.

As is so often the case for many concepts, performance measurement has no generally accepted
definition. In recent literature, it has been suggested that performance measures are the lifeblood of
organizations, since without them no decision can be made. Measurement is the first step to control
and improvement. Resources in any organization are limited and scarce. Performance measurement
provides management with the opportunity to make the right allocation of resources and to set the
right priorities for improvement.

In “Performance Measurement and Evaluation: Definitions and Relationships (GAO/GGD-98-26)”,

the U.S. General Accounting Office (GAO) provides the following definition:

Performance measurement is the ongoing monitoring and reporting of program accomplishments,

particularly progress towards pre-established goals.

It is typically conducted by program or agency management. Performance measures may address

the type or level of program activities conducted (process), the direct products and services
delivered by a program (outputs), and/or the results of those products and services (outcomes). A
“program” may be any activity, project, function, or policy that has an identifiable purpose or set of
objectives [20]. Performance measurement is quantifying, either quantitatively or qualitatively, the
input, output or level of activity of an event or process [21].

In terms of performance measurement choices, there are measures of financial performance,

operational performance, product or service performance, customer satisfaction, quality
performance, employee satisfaction, employee performance, supplier performance, project
performance, and contract performance [22].

The basic concept of performance measurement involves (a) planning and meeting established
operating goals/standards; (b) detecting deviations from planned levels of performance; and (c)
restoring performance to the planned levels or achieving new levels of performance.

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Why Do We Measure and Need to Measurement?

Measuring is the act of assigning numbers to properties or characteristics. We measure to quantify a

situation, to regulate, or to understand what affects things we see. Sometimes we measure with
gauges and instruments; sometimes, we simply count things. Performance measures can help you
understand and improve performance. It is exciting to measure, to benchmark, and to stretch to do
better. If you cannot measure an activity, you cannot control it. If you cannot control it, you cannot
manage it. Without dependable measurements, intelligent decisions cannot be made. Performance
measurement is a prerequisite to performance improvement and a first step in deciding what to
measure is to decide what you want to improve [20]. Measurements, therefore, can be used for:

1. Control: Measurements help to reduce variation. Their purpose is to reduce expense overruns so
that agreed-to objectives can be achieved.
2. Self-Assessment: Measurements can be used to assess how well a process is doing, including
improvements that have been made.
3. Continuous Improvement: Measurements can be used to identify defect sources, process trends,
and defect prevention, and to determine process efficiency and effectiveness, as well as
opportunities for improvement.
4. Management Assessment: Without measurements there are no way to be certain we are meeting
value-added objectives or that we are being effective and efficient.

Performance measurement, reporting and management

The following could be considered as possible definitions: [21]

 Performance measurement is quantifying, either quantitatively or qualitatively, the input,
output or level of activity of an event or process.
 Performance reporting is providing an account, and often some analysis, of the level of
input, activity or output of an event or process usually against some form of target.
 Performance management is action, based on performance measures and reporting, which
results in improvements in behavior, motivation and processes and promotes innovation.

It could be considered, therefore, that performance measurement and reporting is about efficiency,
productivity and utilization. It is a reductionist concept based on the performance measurement and
management (PMM) regime which dominated the majority of the twentieth century, whereas
performance management builds on performance measurement and is concerned with effectiveness
and a broader, more holistic, even qualitative view of operations and the organization which has
risen as a concept and the PMM from the 1980s until today.

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Besides capital investments and technology innovations, manufacturing industries have focused
great efforts on Production Management (PM). It is necessary for a firm to realize its own relative
competitive position and implement efficient PM to improve its productivity. It is clear that more
capital inputs, such as equipment renovation or the introduction of advanced technology, should
come with appropriate management systems in order to increase performance. Neglecting the
implementation of PM hinders the promotion of business performance and degrades a firm’s
competitiveness [23].

2.2.3 Classification of performance measures

Generally, performance measures are divided into five types. These five types are: [24]

a) Input Measures - Used to understand the human and capital resources used to produce the outputs and
outcomes.
b) Process Measures - Used to understand the intermediate steps in producing a product or service. In the
area of training for example, a process measure could be the number of training courses completed as
scheduled.
c) Output Measures - Used to measure the product or service provided by the system or organization and
delivered to customers. An example of a training output would the number of people trained.
d) Outcome Measures - Evaluate the expected, desired, or actual result(s) to which the outputs of
the activities of a service or organization have an intended effect. For example, the outcome of
safety training might be improved safety performance as reflected in a reduced number of injuries and
illnesses in the workforce.
e) Impact Measures - Measure the direct or indirect effects or consequences resulting from
achieving program goals. An example of an impact is the comparison of actual program
outcomes with estimates of the outcomes that would have occurred in the absence of the
program.

You may also hear of performance measures categorized as leading, lagging, and/or behavioral.
These types of measures are defined below [20]:

 Lagging Measures - Measure performance after the fact. Project cost performance is an example
of a lagging indicator used to measure program performance.
 Leading Measures - Are more predictive of future performance and include measures such as
near misses, procedural violations, or estimated cost based on highly correlated factors.
 Behavioral Measures - Measure the underlying culture or attitude of the personnel or
organization being measured. Examples would include management walk-throughs, safety
program implementation, or employee satisfaction questionnaires.

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By Tomas C. 2011
The University of California identifies five classifications of performance measures: Efficiency,
Effectiveness, Quality, Timeliness and Productivity. [20]

Table 2.1 Classification of performance metrics

Measure of... Measures... Expressed as ratio of...
Efficiency Ability of an organization to perform a task Actual input/planned input

Effectiveness Ability of an organization to plan for Actual output/ planned

output from its processes Output

Quality Whether a unit of work was done correctly. Criteria to Number of units produced
define “correctness” are established by the correctly/total number of units
customer(s). produced.

Timeliness Whether a unit of work was done on time. Criteria to Number of units produced on
define “on-time” are established by the customer(s). time/total number of units
produced.
Productivity The amount of a resource used to Outputs/inputs
produce a unit of work

2.3 Performance improvement and review of models/tools

2.3.1 Performance improvement

In this section, first introduction on what improvement is and reviews of historical perspectives
towards manufacturing performance improvement are presented, then it is tried to discuss about the
concepts and methods developed to this era of globalization and finally the objectives of a factory
which leads to a better performance are forwarded.

Globalization is posing several challenges to manufacturing and service industry. Organizations

develop new technology and adopt new paradigms to improve system productivity, but the
importance of quantifying the impact of technology innovation is overlooked. Since one cannot
improve what one cannot measure, performance metrics become a prerequisite to achieve
organizational excellence [25].

In the production literature, the term improvement defies a simple definition. Improvement,
however, generally means to seek improvement opportunities in daily life ( Bakerjian, 1993, p.1-1).
Improvement demands repeatedly asking ‘why?’ and a stubborn refusal to give up the search for the
best single way (Shingo, 1992, p.29-30). Most studies on manufacturing performance improvement
reflect the experiences and situations of the developed world, where real social demands and
economic and technological constraints are different from those in Least Developed Countries
(LDCs). In most LDCs manufacturing firms operate in diverse internal markets where living
standards often range from absolute poverty to the most sophisticated lifestyles [18].

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By Tomas C. 2011
Efforts to improve the performance of companies have been important since the start of the
industrial era. The first known and well-documented practitioners in the area of performance
improvement were Adam Smith (1776), Eli Whitney (1800), Baggage (1832), Frank B. and Lillian
Gilbreth (1900), Taylor (1903) and Henry Ford (1913) (Johansson, 1997; Olhager, 2000). Since the
1950s, competition between companies has increased as markets have become increasingly global
and there are no signs that this competition will ease. This increased competition creates an ever
greater need for first-rate improvement methods that can sustain competitiveness.

The origins of a number of the methods of operations improvement in use today lie in the strong
development period during and immediately following the Second World War, principally in the
USA. These methods were imported to, and improved on in, Japan; for example at the Toyota
Company Womack et al., (1996). Examples of such methods are total preventive maintenance
(TPM) that originated with the simple concept of preventive maintenance (PM) in the USA Nord et
al., (1997) and total quality management (TQM) developed by Juran and Deming Bergman and
Klefsjo¨, (1995). The original US methods were successfully imported and adapted to a Japanese
way of working. From simple, basic concepts and approaches, the Toyota production system (TPS)
was synthesized and resulted in various additions and derivative methods like kaizen, 5S and
benchmarking. Together, such methods resulted in the lean manufacturing concept. When such
methods were re imported into the West, implementation was often not fully successful. This is still
the case Womack et al., 1996). Womack et al. (1996), assert that most Western companies are still
’’traditional’’ mass production companies. They exemplify this with General Motors, which has too
many plants, too many managers and too many workers. However, the development of such
methods in Japan did spark a new round of thinking in the West and the development of a number of
new improvement methods as a competitive counteraction against the Japanese movement, e.g.
theory of constraints (TOC), business process reengineering (BPR) and BPR including kaizen –
called business process improvement (BPI).

All these methods have a similar fundamental aim, which is to improve operations. However, they
are different in the means by which they set out to accomplish this, and in their scope. However, a
common failing is that these methods do not give decision support as to which performance factors
to improve. When it comes to measurement, the literature often lists specific measurements to be
made – but this approach can suggest that improvement methods are static. Since operational
activity is dynamic, so must the improvement methods be [13, 26].

Improving the performance of an organization is not a straightforward task. Instead, it is frequently

a complex and poorly defined problem which solution often requires a process of organizational
learning enabling decision makers to change the way they think and act, and consequently, enabling
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By Tomas C. 2011
a more effective use of the available information. It is therefore my belief that approaches which
allow decision makers to identify and understand the causes of poor performance, which allow
decision makers to understand the implications of alternative courses of action before they become
operational and which help them in evaluating and eventually selecting appropriate corrective
actions, can provide very valuable insights when supporting the process of performance
measurement and improvement.

(Goldratt and Cox, 1986) and (Goldratt and Fox, 1986) said that the goal of a factory is to make
money, and there are three important measures (which are defined in monetary rather than physical
units): throughput, inventory and operations expenses. The first should be maximized and the last
two should be minimized. (Desrochers, 1990) mentioned some of the objectives of a factory which
leads to a better performance: [25]

 minimized total time required to complete all the jobs (i.e. minimized make span)
 minimized set-up costs
 meeting the due date
 minimized mean time in the shop (mean flow time)
 minimized machine idle time and minimized mean number of jobs in the system
 Minimized mean lateness of jobs and mean queue time.

Businesses must continually improve performance if they are to remain competitive. Performance
Improvement discusses strategies for improving performance and includes concepts, models,
processes, tools and techniques for all types of businesses and work teams. Performance
improvement becomes a self-fulfilling prophecy. If leaders believe in their people, their people will
perform. If they don't, they won't [12].

2.3.2 Review of performance improvement models/ tools

The more widely used models and tools have been reviewed as part of the Performance
Management, Measurement and Information (PMMI) Project being conducted jointly by the Audit
Commission and the Improvement and Development Agency (IDeA) of US. The aim of this review
is to help gain awareness and understanding of the models and tools available to local authorities
and others. It is tried to summarize the performance improvement models and tools reviewed as part
of the PMMI project, 2006, listed (1-5) and in table 2.2 [24]. In addition, benchmarking, total
performance scorecard (TPS), TQM and Supply Chain Operation Reference Model (SCOR) models
are included in the review.

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By Tomas C. 2011
 1. Balanced Scorecard

Kaplan and Norton, who developed the balanced scorecard in the 1990s in the USA, noticed that
financial measures being used to gauge performance in many organizations were not necessarily
related to achieving strategic objectives. The scorecard sought to remedy this by providing a more
balanced suite of performance measures across a number of key perspectives. Typically these look
at customers, finances, internal processes and organizational learning (figure 2.8 below). However,
they can be adapted depending on what factors are considered important for the success of the
particular organization.
Financial perspective

Vision & Internal process perspective

Customer perspective
Strategy

Learning & growth perspective

Figure 2.8 The Balanced Scorecard

The Balanced Scorecard aims to:

1. Enable organizations to manage strategy by linking corporate objectives, initiatives,
measures and targets at all levels in the organization;
2. Achieve a balanced set of performance measures and targets that allow managers to track
progress in key areas.

2. Business Process Reengineering (BPR)

BPR became popular in the early 1900s with the publication of Hammer and Champy’s bestselling
book ‘Reengineering the Corporation’ 1993. Hammer and Champy described BPR as ‘the
fundamental rethinking and radical re-design of business processes to achieve dramatic
improvements in critical, contemporary measures of performance, such as cost, quality, service and
speed’. The approach applies six steps to reengineering and involves reviewing the current situation,
developing a business model that addresses the issues at hand and planning implementation. This
are: define the project, review the business baseline, identify opportunities, verify the opportunities,
plan the achievement of the benefits, and review and report.

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By Tomas C. 2011
 3. ISO 9001:2000

ISO 9001:2000 is the global standard and approach for quality management systems. The standard
focuses on the management of processes and documentation in order to meet customer’s needs and
expectations. The standard originated in the UK in 1976 as BS 5750. It later evolved to ISO9001
and was revised in 2000 to ISO9001:2000. The nature and reduced documentation requirements of
the latest edition of the standard have significantly increased its applicability to the public sector.
Over time the standard has evolved to become a quality approach for improving procedures.

ISO9001:2000 identifies eight quality management principles that can be used by managers to
improve performance. These are: customer focus, involvement of people, systems approach to
management, factual approach to decision making, leadership, process approach, continual
improvement, and mutually beneficial supplier relationships. ISO9001:2000 aims to: establish
excellent working practices through effective processes; and document processes in order to
improve understanding among staff; with the aim of better meeting customer needs and expectations.

4. Kaizen Blitz

Kaizen Blitz was developed in the Japanese motor industry and is well established in manufacturing
industry. ‘Kaizen’, meaning ‘continuous improvement’, is a Japanese business philosophy of
making continuous improvements and enhancements in business processes. ‘Blitz’ refers to the
concentrated assault on inefficiency. Kaizen techniques are based on the principles of focused
continuous improvement, commitment of leadership, empowerment of staff, hands on doing not
proposing, and elimination of waste and low budget incremental improvements with occasional
breakthroughs. Kaizen principles and techniques can be used on a continuing basis without the
intensity of a blitz week. Kaizen Blitz aims to:

 Improve identified processes and functions;

 Achieve ‘quick wins’ and develop action plans for longer term gains;
 Create ownership of the new processes through involvement and empowerment of those
working in that area.

5. Performance Prism

The Performance Prism is a stakeholder-centric framework for performance measurement and

management. The model was developed by the ‘centre for business performance” at Cranfield
School of Management, in conjunction with Accenture. It evolved from the balanced scorecard, but
unlike the Scorecard, it acknowledges the full range of stakeholders an organization has. Principally
these are investors, customers & intermediaries, employees, suppliers, regulators and communities.
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By Tomas C. 2011
It does this in two ways; by considering what the current and future wants and needs of those
stakeholders are, and more uniquely, what the organization wants and needs from its stakeholders.
In this way the reciprocal relationship with each stakeholder is examined in the context of
improvement. The Performance prism aims to:

1. Help organisations develop a set of performance measures that reflect the wants and needs of
its key stakeholders;
2. help organisations to identify, measure and manage the strategies, processes and capabilities
they require to satisfy these wants and needs;
3. Enable an organization to build an explicit understanding of the drivers of performance at all
levels that enable sustained achievement of performance objectives.

6. Benchmarking

Over the past decades, benchmarking has gained wide acceptance among organizations as a practice
to improve business performance and competitiveness. This can be confirmed by the number of
benchmarking web sites in operation nowadays. What is benchmarking? It is defined as the process
of comparing a firm’s operational and managerial practices and performance against others,
competitors or not, in order to achieve improvements [27, 28].

Benchmarking Procedure: Although different companies have adopted different models to

benchmarking, most of these models generally conform to a process comprising five basic steps, as
shown in Figure 2.9 below [27].

1. Determine 2. Form a team 3. Identify 4. Collect and 5. Implement and

what to partners Analyze data monitor results
benchmark

Figure 2.9: Generic benchmarking process

7. Supply Chain Operation Reference Model (SCOR)

SCOR model is a process reference model, developed in 1996 by the supply-chain council, as a
cross-industry diagnostic, benchmarking, and process improvement tool for supply chain
management. SCOR provides a complete set of supply chain performance metrics, industry best
practices, and enabling systems' functionality that allows firms to thorough analyze all aspects of
their current supply chain. [29]. Process reference models integrate the well-known concepts of
business process reengineering, benchmarking, and process measurement into a cross-functional

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By Tomas C. 2011
framework [30]. It is based on five distinct management processes: plan, source, make, deliver and
return. SCOR is used to describe, measure and evaluate supply-chain configurations:

 Describe: Standard SCOR process definitions allow virtually any supply-chain to be

configured.
 Measure: Standard SCOR metrics enable measurement and benchmarking of supply-chain
performance.
 Evaluate: Supply-chain configurations may be evaluated to support continuous
improvement and strategic planning.

8. Total Performance Scorecard (TPS)

As Rampersad, H.K.2005 and 2007, Total Performance Scorecard (TPS) is defined as the systematic
process of continuous, gradual, and routine improvement, development and learning, focused on a
sustainable increase of personal and organizational performances [31, 32]. It stresses the importance
and need to develop a high-performance culture that combines the goals and aspirations of the
individual with those of the company. This model will help organizations manage the demanding
and often frustrating road toward sustained employee engagement and improvement [55]. As TPS is
a holistic management process of improvement and change; within this concept, improvement,
development and learning are treated as cyclic and ethical processes through which the development
of personal competence, of the organization as well as the internal implication are reciprocally
consolidated [56].

This management concept encompasses the personal and organizational mission, vision, key roles,
core values, critical success factors, objectives, performance measures, targets and improvement
actions, as well as the resulting process of continuous improvement, development and learning. This
model was developed to fill the gap or pitfalls of BSC and other methods. It consists of the
following elements: [31, 32 & 56]

I. The Personal Balanced Scorecard (PBSC): entails the total idea of personal mission, vision,
key roles, critical success factors, objectives, performance measures, targets, and improvement
actions (Rampersad, 2003). A new Plan-Do-Act- Challenge cycle (PDAC-learning) is used for
personal improvement.

II. The Organizational Balanced Scorecard (OBSC): encompasses the total organizational
mission, vision, core values, critical success factors, objectives, performance measures, targets
and improvement actions. This corporate BSC is communicated and translated into all business
unit BSCs, team BSCs and the performance plans of individual employees.

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III. Total Quality Management: encompasses a disciplined way of life within the entire
organization whereby continuous improvement of oneself, one’s job and organization stand
central. Defining problems, determining root causes, taking actions, checking the effectiveness
of these actions and reviewing business processes are done in a routine, systematic and
consistent way (Rampersad, 2001). The emphasis is on the mobilization of the entire
organization in order to continuously satisfy the needs of the customer. It is a philosophy as well
as a set of guidelines forming the basis for a continuously improving organization using the
effective Deming cycle (plan, do, check and act) as its starting point (Deming, 1985). This
learning cycle (PDCA-learning) is used for process improvement.

IV. Competence Management: involves the continuous development process of the human
potential within an organization, having as a purpose the continuous supply of top performances
with motivated and developed personnel and focusing upon the employees’ maximum
development and on the optimum use of their potential with the purpose of fulfilling the goals of
the organization. The process involves the development of the competences related to the job
requirements. Information, abilities, experience, skills, standards, values and principles are
focused on skillfully complying with the job requirements. The main part here is the
development cycle which is made up of the following stages: Results planning; Guidance
(coaching); Evaluation and development of the competences related to the job requirements.

V. Kolb’s Learning Cycle: This process of instinctive learning (learning by experience) is seen in
all four management concepts mentioned. Together with the process of conscious learning
(learning by education) they result in individual and collective behavioral changes. These two
learning forms as well as individual learning, PDCA-learning and collective learning are
important themes in the TPS-concept. These are used to create conditions for effective
organizational change. Kolb’s learning cycle contains the following four phases (Kolb, 1984):
Gaining hands-on experience, observing this experience, drawing conclusions from this
experience, and testing these ideas in experiments, which again will result in new behavior and
experiences.

9. Total Quality Management (TQM)

Total quality management is the management philosophy & company practices that aim to harness
the human & material resources of an organization in the most effective way to achieve the
objective of the organization. These objectives may include customer satisfaction, business
objectives such as growth, profit or market, or the provision of services to the community [33, 14].
It is a management process or system that emphasizes continuous quality improvement & demands

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that top management (leader ship) be committed to continuous improvement. The key ideas in the
definition or model of TQM are: customer focus, internal alignment, external alignment, total
involvement, continuous improvement, and leadership commitment.

Generally, this method, TPS, can be considered as the state of the art of performance improvement
as it considers personal performance where other methods give less emphasis.

2.3.3 Selection of an appropriate improvement model/tool

Before selecting a particular performance management model or improvement tool or approach,

organizations need to be clear in what they are trying to achieve and why. This will involve asking a
series of questions, including:

 What are you aiming to change, improve and what outcome are you looking for?
 Does the improvement need to be holistic covering all the organizations activities or
designed for a specific task, service or area of activity?
 What is the key driver for change i.e. inspection or review, change of staff etc
 What is the timescale for the change and what resources are available?
 To what extent do you want to involve staff in the changes?

Table 2.2 below summarizes the models and tools across a number of these criteria: [24] Individual
authorities and organizations will need to undertake research to decide on the approach or balance of
approaches that would best suit their organization and circumstances. It is unlikely that a single
approach would address all their needs. The above review does not aim to provide definitive
information on each approach but is provided to help people make more informed decisions. Those
considering the adoption of a particular models or tools are advised to undertake further research
and speak to users prior to making a final decision.

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 Table 2.2 Selecting an appropriate model or tool [24]

Performance Scope Time Resource Staff

models involvement

Holistic model that Four to six months to Low resource Inclusive if

Balanced can be used at various implement depending on investment – often just scorecards are
scorecard levels across the level of measurement in facilitation costs and cascaded and
(BSC) organization, service, place staff time widely deployed
team or group.

Business Improvement tool Improvements anticipated in Investment of resources Inclusive of staff in

used to bring about 6-12 months from the start can be high due to the the areas of activity
Process
change in systems and of the project, although can intensive nature of the being improved
Reengineering people who operate be sooner for individual approach. External
(BPR) them processes support often required

Can be resource Fully inclusive.

EFQM intensive. Costs are Involvement
Holistic self Approx 35 staff days over estimated to be at least usually through
Excellence assessment model six weeks £4000-£5000 for facilitated staff
Model® external support per workshops
assessment

Processes and Implementation to Organizations of 60-70 inclusive of staff in

documentation assessment takes approx. six would pay approx the areas of activity
ISO9001:2000
to nine months £3000 for the being improved
quality system assessment and £1600 a
year for audits

Processes or functions Usually two to three months Consultant costs within Fully inclusive of
from conception to bedding the region of £7000- staff in the areas of
Kaizen Blitz in of new processes 10,000 per blitz event activity being
blitzed

Stakeholder centric- Up to approx 6 months to Relatively low resource Inclusive of

model implement depending on investment. Independent organizational
Performance strategies & performance facilitation may be managers and
Prism measures in place required to maximize stakeholders
the effectiveness of
workshop sessions.

Processes, functions Black belt projects will Costs vary depending on Inclusive of staff in
Six Sigma or services normally take three to nine methods adopted and areas of activity
months consultancy requirement being improved

Statistical Processes or functions Less than 6 months to Moderately resource Inclusive of staff in
Process implement improvements to intensive. External areas of activity
processes or functions support often required being improved
Control

Organizations, Several months but varies Start up costs vary Inclusive of staff in
Value projects or functions depending on the breadth of depending on training areas of activity
Management application needed and consultancy being improved
requirement

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By Tomas C. 2011
 CHAPTER THREE
PERFORMANCE OVERVIEW OF FOOTWEAR SUB-SECTOR
3.1 Ethiopian manufacturing

Development of the manufacturing sector in Ethiopia went back to the establishment of strong
central government at the end of the 19th century. However, a deliberate attempt to develop
industrialization through import substitution strategy started only after 1950s. Until then there was
no noticeable intentional industrial development strategy in the country. Until the fall of the imperial
regime in 1974, most of the manufacturing industries were private owned. However, following the
1974 revolution, the government took away almost all the medium and large-scale manufacturing
industries and became the major owner. After 1991/92, the role of both domestic and foreign private
sectors was given attention with the change in government and policy direction. To this effect,
different policy measures like privatization of government owned enterprises and spread of new
investment code have been made [34].

3.2 Global review of shoe industry

a) Production and consumption of footwear

From the newsletter published by ETFLPMA (currently known as ELIA), 2006, on the analysis of
global trade in HSL (hide, skin and leather), China is the main manufacturer of footwear producing
60% of the world's total [35]. The world shoe production is estimated up to 16 billion USD in 2007
G.C. showing significant increment from the previous result. The reasons for the growth are: - [10]

 Chinas local market shift, to international in less than 20 years. (china has 63% share in
world shoe market)
 84% of the total shoe production produced in Asia and Asia has 41% share in the world
market and expected to increase in future.
 India’s 12.3%, Vietnam’s 41%, Indonesia’s 3.5% and Thailand’s 1.6% growths in the
industry.
 Outside of Asia, Brazil has registered 4.9% growth in the sector.
 About 52% of the total skin and hides supply used for shoe in 2007.
 Shoe industry created job opportunity for about 10 million people in the world.

The global footwear industry accounts for the production and sales of more than 2 billion pairs of
shoes around the world each year. Rapid globalization and the 2008 to 2009 economic recession

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have impacted operations and sales across the industry [36]. See the following tables (table 3.1 and
table 3.2) global footwear consumption and production [37]

Table 3.1 – Global footwear consumption over 10 years

Consumption 1998 2000 2002 2004 2008

(millions of pairs)
Asia (all) 4744 5222 5474 5840 6528
Americas 3011 3274 3279 3433 3611
Europe (all) 2239 2396 2544 2717 2886
Rest of the World 1086 1187 1172 1317 1399
TOTAL 11080 12079 12469 13307 14424

Table 3.2 - Global shoe production 2004

Producer Footwear 000’ pairs

China 7,000,000
Vietnam 480,000
India 1,736,000
Brazil 650,000
Europe 705,090

b) Share of leather by end use

The leather use by end product, 2003 looks like as seen in the following table and figure. It can be
seen that footwear takes the highest percentage (56%) share of leather by end use.

Table 3.3 World leather use by end product 2003 & 2007
Million square feet & (%)
Leather product 2003 2007
Footwear 10,835 (56%) 52.0%
Garments 2,205 (11.4%) 10.0%
Automotive 1,220 (6.3%) 10.2%
Furniture upholstery 2,420 (12.5%) 14.0%
Gloves 850 (4.4%) 4.4%
Other leather 1,820 (9.4%) 9.4%
Products
Total 19,350 (100%)

Source: Industry estimates [Newsletter by ETFLPMA, 2006] and ELIA journal, 2011

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 Figure 3.1: World share of leather by end use

c) Global review of footwear market (import and export) and its impact

The manufacturing and marketing of leather products has consolidated in the last 5 years into broad
geographic groups. Manufacturing takes place in the East and marketing takes place in the West.
The countries which manufacture, hence export, do not have saturated local markets. They have
developed their leather products industry as a means of exploiting a particular advantage(s) to gain
competitiveness and so gain hard currency. China which is the biggest producer of leather products,
particularly footwear, in the world does not have a saturated domestic market for its products. It
concentrates on exports. It is well known that China’s source of competitive advantage is a plentiful
supply of productive, acquiescent, labour who are willing to work, (at present) for relatively low
wages coupled with benign industrial policies set by Government. It is a similar case in India
although this country has not yet realized its exporting capacity. It is a “sleeping giant” with an
installed production capacity second only to China [37].

China has emerged as the dominant player in leather products exports, particularly footwear,
because of its high capacities installed, (at least for the USA), infrastructure, and component supply
industry. It also gives excellent service to its customers. Vietnam is becoming a competitor to
China. It is easier to deal there with smaller companies and less official bureaucracy, costs compare
favorably with China. Vietnam is building up its infrastructure aiming to become a serious player
and has normalized its relationship with USA. It produces footwear and garments equally well. In
parallel with these developments, India was also targeting its large and to some extent informal
leather sector to modernize. Through Government legislation the sector aims to become one of the
dominant leather shoe supplying countries.

Globally, the manufacture of footwear for exports has quadrupled and relocated from the developed
countries to the developing countries. The growth of Chinese exports is simply overwhelming and
makes China the leader in the field as far as footwear exports world-wide are concerned. The
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By Tomas C. 2011
restructuring process of the footwear industry globally by moving to developing countries generally
follows the economic rationale of the cheapest producer where the relocation cost and the start up
cost of manufacturers are low enough to shift production easily and quickly. However, higher cost
countries such as Italy, Spain, Portugal and others still remain among the major footwear producers.
[38].

A market research report entitled “Global Footwear Market to Reach US$195 Billion by 2015” in
January 2011 shows that, world footwear market was projected in 2007 to reach 13.9 billion pairs
corresponding to a value of US$192.4 billion by 2010. New estimations point that the total value of
this industry will rise to US$195 Billion by 2015, what happens to be nearly 2.5 billion in five years.
United States and Europe occupy the leading positions, accounting for a major share of the global
footwear market revenues, as stated by this market research report. Region-wise, developed markets
bore the brunt of the recession pummeled by the financial crisis, which was the deepest in North
America and Europe, and demographic factors, such as, aging population and falling birth rates [36].

Illegal footwear imports, more particularly the practice of under-invoicing, seriously undermine the
process of customs control and have enormous undesirable effects for the footwear sector where
imports compete unfairly with local products. Illegal imports of footwear and leather goods has
serious negative consequences for the industry and the broader economy as it leads to loss of market
share, job losses, factory closures, pressure on the sector’s competitiveness, damage of brand equity
and undermines attempts by the sector to restructure.

d) Cluster

It is believed that more than 1000 enterprises are producing leather shoes in Addis Ababa. This
cluster is as large as successful footwear clusters in other countries. According to case studies, Agra,
India, had around 5000 footwear enterprises in 1990-1991, even though the number decreased to
around 2375 in 1996. In Brazil, the Sinos Valley footwear cluster consisted of about 500 shoe
manufacturers and about 700 subcontractors. In Mexico, there were about 1700 shoe enterprises in
the Leon cluster and 1200 in the Guadalajara cluster. Thus, the Addis Ababa cluster is comparable
to these well-known footwear clusters at least in terms of the number of enterprises [3, 39].

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e) African perspective

Manufacturing industries in Sub-Saharan Africa have generally been stagnant or shrinking for the
last three decades (Bigsten and Söderbom, 2005). From the viewpoint of poverty reduction, this is
worrisome because industrial development is expected to offer plenty of employment opportunities
to the poor. As Collier and Gunning (1999) and Fafchamps (2004) and many others argue, industrial
development in Africa has been hindered by many problems ranging from high transportation costs,
high transaction costs to highly risky business and political environments. Moreover, both the
provision of public services and the development of grass-roots institutions and social capital are
considered to be insufficient in Africa to cope with such problems [3, 39].

African countries have 20% of the world’s cattle, sheep and goats, but produce only 14.9% of world
output of hides and skins. They have 10% of the world’s cattle but produce only 4.5% of bovine
hides. Their exports of hides and skins have fallen in recent years from 4% to 2%, and their tanning
capacity from 9.2% to 6.8%. Import penetration of their domestic leather footwear markets by other
developing countries is estimated at 73.3% [40]. This gap between resources and production shows
the considerable potential of the African leather industry. Reducing this gap is especially critical in
an important strategic sector for the economic and industrial development of many African
countries. Not only does this sector have an excellent and renewable resource base, but it is also
labor-intensive with the potential to be a major source of employment all along its supply chain. In
eight of the nine countries 2 surveyed in the studies from which this Blueprint is derived, the leather
and shoe manufacturing sub-sector already provides 4% to 5% of total industrial employment, with
contributions to MVA of 2.9% in Egypt, 8.3% in Tunisia and 74% in Ethiopia, where the cattle
population is the highest in Africa, and close to 1% in the remaining five countries. Clearly the
realization of the African leather industries potential would bring significant economic gains to the
continent [40].

The African footwear sub-sector seems isolated from the fast pace of technological innovation
taking place globally. Lack of design capabilities, operator, supervisory and manager skills, and
knowledge of more appropriate material inputs and marketing techniques, all combine to cause poor
productivity and low competitiveness. Even in the local market, high operational costs and lack of
attention to what the market demands in shoes in terms of quality and price, allow cheap Asian
products and second hand shoes to penetrate the market [40].

2
Countries: Egypt, Tunisia, Morocco, Ethiopia, Senegal, South Africa, Tanzania, Benin, and Kenya [ Years 1997-1999,
UNIDO World Industrial Data Base]
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According to a report from the US International Trade Commission, Ethiopia is emerging as one of
the leading sub-Sahara footwear exporters, along with South Africa, Kenya, Zimbabwe and Cape
Verde. These 5 countries account for 80 % of the shoe exports from the region. The development
comes on the eve of substantial private investment in shoe production in Ethiopia, and the export is
also benefitting the country's trade balance. Exports have been helped by improved quality in the
production among other reasons because of a government established training institute giving six
months training for employees in the industry. The industry is also benefitting from tax exemption
in imports of materials for the production and export taxes on the ready products [41].

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 3.3 Review of Ethiopian leather footwear sub sector

3.3.1 Background of the footwear sub-sector

The production of leather shoes in Ethiopia dates from the late 1930s when Armenian merchants
founded two shoe factories in Addis Ababa - Tikure Abbay and Anbessa [3]. These were
nationalized by the military government in 1974 and remained the largest and second largest
shoemakers in the country. These factories nurtured a number of shoemakers, who opened their own
factories in Addis Ababa and trained their workers. Today, the neighborhood of Mercato, a huge
marketplace in the city, swarms with shoemakers, wholesale shops dealing in leather, soles, and
shoe accessories, and shoe retail stores.

Ethiopia possesses the largest livestock population in Africa, and the 10th largest in the world.
Ethiopia’s livestock population is estimated at 44.3 million cattle, 23.6 million sheep, 23.3 million
goats and 2.3 million camels in 2007. The skin removal rate is 7% for cattle, 33% for sheep and
37% for goats. The country produces 2.7 million hides, 8.1 million sheepskins and 7.5 million
goatskins annually [9]. It can be seen that resource utilization as well as output performance of
Ethiopian leather sector is low. Therefore, the leather industry still has room to be developed further,
optimizing the abundance of the resource. However, the leather industry has been traditionally
active, based on the abundance of this resource.

Currently, 22 tanneries and another 18 leather products manufacturing enterprises operate in the
country, producing products ranging from various forms of semi-processed leather to finished
leather articles such as shoe uppers, leather garments, stitched upholstery, school bags, handbags,
industrial gloves and finished leather [9].

In general, the installed capacity amounts 7 million pairs/year, but the actual production is currently
about 5 million pairs. This output is equally divided between the mechanized large and medium
firms and the SME sub-sector. Most of the mechanized shoe companies have started to export
recently and few remaining are upgrading to enter the export market. As SMEs produce low quality,
low priced mostly men’s shoes; they are focussed on the local market. A threat for SMEs is that they
continue loosing the local market share to cheap imported shoes from China. Ethiopian footwear
factories produce men’s casual shoes and children’s shoe-uppers made from pure leather.
Additionally, the factories: [43]
 Sell directly to overseas importers/wholesalers, or to direct buying offices
 Facilitate the production and export of footwear under the private labels of department stores,
boutiques, shoe retail chains and mail-order houses

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  Source out from Ethiopia and other nations in East Africa and re-export
 Facilitate the production and export of internationally well-known brands under contract

3.3.2 Ethiopian leather footwear sub sector

Manufacturing of footwear is a promising option to increase the value added of the leather industry,
making use of Ethiopia’s low labour costs. The production of leather shoes on a handicraft basis has
a long tradition in Ethiopia, but only a handful of modern factories have been established. In the
early 2000s, the footwear industry suffered a serious crisis when Chinese imports of cheap synthetic
shoes flooded the domestic market, driving many small-scale producers out of business. Larger
enterprises, however, reacted to the challenge, importing modern machineries and improving the
quality, design, and durability of shoes. Soon after the first wave of Chinese imports, consumers
became aware of the low quality and durability of these synthetic products, returning to buy genuine
leather shoes from domestic producers. Today mechanized factories are clearly competitive and
growing, whereas small producers of low-quality shoes are still struggling to compete with Chinese
imports [44].

The leather sector in general can be divided into three phases [44]: the acquisition of hides and
skins, the leather processing in tanneries, and the manufacture of leather products. Leather footwear
is the last rung of the value chain starting from livestock, through slaughtering, to tanning. It is also
a by-product of the meat industry.

The leather footwear industry is considered as an important sub-sector that leads the whole sector’s
modernization. Although the export of leather footwear started only in 2005, the export value has
been growing steadily since then and is expected to make a big impact on the Ethiopian economy.
Not only is the economic impact resulting from the trade important but also the job opportunities the
industry may create could make a significant impact on poverty reduction.

In the next section it is tried to assess the Ethiopian leather footwear sub-sector with respect to
different issues (one by one) such as: policy and strategy, market (domestic & export), product
development, comparative and competitive advantages, HRD and employment, contribution of the
subsector to the Ethiopian economy and capacity building activities in the sub sector.

a) Policy and Strategy of the Government of Ethiopia

The importance of the leather footwear industry as a part of the leather industry has been
emphasized by the GoE at various levels. In the PASDEP (Plan for Accelerated and Sustained
Development to End Poverty), the leather industry is mentioned as an important sector for trade and

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industry development. PASDEP, which is the strategic plan from 2005/06 to 2009/10, sets a target
to export 6.4million pairs of leather footwear in 2005/06 and to increase to 20million in 2009/10.
With regards to leather products and commodities, it is planned to increase export earnings to $43
million. Ethiopia’s Industrial Development Strategy, which was prepared in August, 2003,
prioritizes the leather product industry together with garment/textile, meat processing, construction,
small and medium sized enterprise (SME), and IT industries. The government supports the export of
finished leather by prohibiting export of raw sheepskin and also discouraging the export of leather at
the wet blue stage (not much value adding) by imposing a 150% tax on its export [9].

The development of the leather industry is in line with the Agricultural Development Led
Industrialization (ADLI), which is the basic development strategy of the country, in that the
promotion of high value-added leather products is going to encourage the process of the
industrialization of agriculture.

The Policy Framework for the Ethiopian LLPI, An-Export-Led Strategy: Policies for the LLPI
have been identified, formulated and are being implemented by the government. The short-term
strategy is to transfer leather production from the wet-blue stage to crust, and then to finished
leather. The long-term objective is to gradually increase the volume of hides and skins that are
processed to finished leather products especially to leather shoe (63% in 2007E.C) [10].

The lack of finished leather is a serious constraint to the operation and to the development of this
sector. It was recommended by UNIDO that in the short term, finished leather should be imported
in order to facilitate the expansion of this sector (footwear in particular). As this sector expands, it
creates an ample market opportunity for the leather tanning industries, as tanneries can move, stage-
by-stage, to a more advanced level of finished leather manufacture. In order to facilitate the
penetration of export markets, it is proposed in the strategy that tools such as benchmarking, and
partnership mechanisms such as sub-contracting and joint ventures should be pursued. Institutions
such as the LIDI and QSAE should play a catalytic role in the development of the LLPI [45].

b) Marketing (domestic and export)

Even though an optimistic market is found in the world, Ethiopia gets lower stage in the sector. In
the previous 30 years, evidences shows that the demand of leather shoe increased by double fold
[10].

The Leather Association and MoTI have been promoting the Ethiopian leather/leather products
through international fairs and the Ethiopian embassies abroad. However, despite the high quality of
the finished leather and the effort of the relevant organizations, the negative image of Ethiopia

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makes the promotion difficult. According to the interview, MoTI projects that the productivity will
increase from 7,000-8,000 pairs of shoes per day to 50,000 in the near future [4]. If this happening,
marketing will be required to find additional sales channels to sell the increased number of products.
UNIDO held a fashion show of Ethiopian leather and leather products at the Embassy of Italy in
Ethiopia in June, 2007. This kind of effort could gradually change the image of Ethiopian
leather/leather products and help them to penetrate into international markets.

The domestic market: The retail market in Addis Ababa at this time suffers from low quality
Chinese made synthetic footwear, though its price is cheap. These plastic shoes are squeezing out
the local manufacturers of leather shoes. The shoes are all very similar in styling and pricing in
almost all shops in the Merkato and Piazza areas. The Chines shoes look good and fashionable in
terms of last shapes and heel heights and are freely available in different style (men’s, women’s and
children’s). As a result they have high market though there is little product differentiation [45]. It is
believed that companies must become more market-oriented in order to counter shoe imports. This
will require a better leather shoe at competing prices supported by advertising campaigns directed at
the local market: using well planned inexpensive advertising campaigns that comprise points of sale
materials, billboards and editorials

The Export Market: Serving the export market will require the co-ordination of activities by the
enterprises, the raw material suppliers and the supporting institutions, both public and private that
operate in the different segments of the value chain. The LLPTI (LIDI) plays a critical role in the
development of the footwear industry as a source of technical and managerial training programs,
indispensable to the success of the ventures. Subcontracting agreements and joint ventures with
producers in the global chain would facilitate the entrance of Ethiopian companies into the global
footwear market.

Leather is exported to more than 60 countries, the major destinations Italy, the United Kingdom and
China. Leather products such as shoe uppers, leather garments, stitched upholstery, school bags,
handbags, industrial gloves, and finished leather are also exported to Europe, the United States,
Canada, Japan and the Far East. There are also some export sales to countries in Africa, in particular
to Nigeria and Uganda, as well as to the Middle East, and especially Yemen. The destination of
export for Ethiopian market in 2001 E.C is shown below.

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 Table 3.4 Ethiopian leather footwear export by destination [47]

Country weight Value % share unit price(USD)

Italy 279,755 4,572,722 63.17 16.35
Germany 82,580 1,703,976 23.54 20.63
Sudan 54,677 401,844 5.55 7.35
Netherlands 17,453 207,885 2.87 11.91
France 6,000 75,000 1.04 12.50
united states of America 1,817 58,153 0.80 32.01
Spain 3,333 50,793 0.70 15.24
united kingdom 1,400 37,583 0.52 26.85
Saudi Arabia 3,180 34,980 0.48 11.00
Yemen 1,710 10,330 0.14 6.04
Swaziland 855 10,080 0.14 11.79
Poland 300 8,736 0.12 29.12
Canada 460 6,816 0.09 14.81
Denmark 155 4,937 0.07 31.85
Ghana 245 3,744 0.05 15.28
Uganda 140 1,661 0.02 11.86
Norway 35 966 0.01 27.60
Djibouti 800 607 0.01 0.76
Niger 15 596 0.01 39.73
Kenya 8 184 0.003 23.01
Unspecified 46,778 0.65 23.01
Total sum 454,918 7,238,371 100.00 15.91

In fiscal year 2004/2005, regular exports of leather footwear started with small batches delivered to
Italy. Three years later, exports of footwear were increased to US$ 10 million. Nine large
mechanized enterprises dominated the footwear industry in 2009, in which most of them are
exporters. [44]

The top-down approach in which the strategic action plan has proposed picks up the leather
footwear industry as a leading sub-sector industry to pull up the whole industry. The export,
however, started in 2005 and accounts for only 2% of all the leather-related exports in the same year
[4]. Since the industry has been targeting only the domestic market for a long time, the product
development, market development and productivity improvement are crucial issues to increase the
trade volume. At the moment, some factories have started to trade with some European countries,
such as Italy and Germany.

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c) Product Development

The main products in the Ethiopian footwear industry are men’s and children’s shoes, because they
have less model changes than women’s footwear. Product development of women’s footwear for the
domestic market is on the way. For the international market, however, the mainstream of footwear
produced is subcontracted with European factories. European companies order with a sample and
Ethiopian factories replicate it precisely. Ethiopian companies have not yet reached the level of
developing their own designs and selling them on the international market.

On the other hand, an interesting project led by UNIDO, Italian Cooperation and the International
Trade Center is under way. Considering the fact that the market for cheap, mass manufactured shoes
is highly competitive and China is far ahead of Ethiopia, these three organizations provided support
to create an Ethiopian brand named TAITU targeting the higher-priced market. TAITU is an
umbrella company, under which several Ethiopian tanneries and footwear factories have joined
together to produce leather bags, garments and shoes which are designed by an Italian designer. The
design of TAITU products is very modern and has a good reputation at international trade fairs.
Shops in New York and Paris have opened and a new one in Tokyo is planned as well. [4] This is a
good practice towards product development of shoe and so improves performance of the leather
footwear sector.

d) Comparative and competitive advantages

One of the sectors that Ethiopia (and most African countries too) seems to have a clear comparative
advantage in manufacturing is the leather sector. The major advantage that could give a competitive
edge to the Ethiopian leather sector is its large livestock base. Ethiopia’s footwear industry and its
leather sector in general enjoy significant international comparative advantages owing to its
abundant and available raw materials (leather), highly disciplined workforce with cheap prices [43].

The leather footwear sector in Ethiopia has great potential to enhance manufacturing and export
production, and thereby to increase employment opportunities and reduce poverty. It has several
competitive advantages in different areas [46]. In the natural arena, Ethiopia is endowed with the
largest livestock population in the whole of Africa, and in particular sheep and goatskins are of
exceptional quality. On the policy front, two remarkable developments are the following: firstly, the
ban on exports of raw hides and skins implemented by the previous government (the Derg) in 1986
has enhanced indigenous leather tanning and stimulated manufacturing; secondly, following the
publication of the Poverty Reduction Strategy Paper (PRSP) by the Ethiopian Government in 2002
several ministries have started promoting actively the opportunities arising through globalisation in
the international arena for, among others, leather product manufacturers, in particular the
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participation of Ethiopian enterprises in AGOA. Economically, the leather sector has been
generating substantial foreign exchange earnings since it is Ethiopia’s second export product of the
country after coffee. From a social viewpoint, the sector offers substantial employment
opportunities and will thus contribute to poverty alleviation. Institutionally, the leather sector is
relatively more advanced (e.g. compared to the textile sector). However, maximizing the benefit
from this resource requires expanding the leather products industries including footwear &
accessories, leather garments, auto upholstery, etc, and fully integrating it into the domestic
upstream industry.

The sector has many advantages and opportunities for foreign companies in terms of procuring
semi-finished and finished leather and for sourcing footwear and leather goods. These include: [44]

 Locally available raw material

 Established small and medium sized enterprises in the region (tanneries and footwear
producers)
 Direct access to finished leather (for the local footwear and leather goods production)
 Low labour costs in the region
 Governmental policies promoting export trade and foreign direct investment
 Potential for local and regional market

e) H RD (Labour force and training) and Employment trend

The work force is hard working, inexpensive and easily trainable. Moreover, the trained labour
force in Ethiopia speaks and writes English. The above characteristics should facilitate the
promotion of joint ventures and subcontracting agreements within the leather global value chain.
The African Competitiveness Report (2001-2002) when analyzing the supply of educated workers
to meet the needs of industry places Ethiopia with Kenya and Zimbabwe with a score of 3.0 on a
scale of 0 to 6, indicating that there is ample room improvements to increase competitiveness (figure
3.2) [45].

In a study of the leather industry and of the problems affecting HRD carried out in a group of nine
African leather-producing countries, including Ethiopia, a number of constraints in the area of HRD
were identified. The most frequent constraint was related to the lack of diversified and up-to-date
training programs for the improvement of competitiveness together with an insufficient use of the
existing training facilities.

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 Figure 3.2 Supply of educated workers to meet the needs of the firm [45]

As can be seen from table 3.5 below, the number of persons engaged by major industrial group -
public and private 1996 - 2000 E.F.Y, the leather sector results in employment opportunity to the
country and it shows an increasing trend.

Table 3.5 Number of persons engaged by major industrial group - public and private 1996 - 2000 E.F.Y
Industrial Group Ethiopian fiscal year
1997 1998 1999 2000 2001
Tanning and Dressing of Leather;
Manufacture of Footwear, 7,965 7,946 8,404 8,650 8,807
Luggage and Handbags

Source: CSA, 2010

f) Outputs - Contribution of the footwear sub-sector to the Ethiopian Economy

The LLPI is accounts for 9.7% of the foreign exchange obtained in 2003-2004. The LLPI
contributes between 7% and 10% to the total value of manufactures, 6% of the total salaries and
value added and almost 4% of employment [45]. Figure 3.3 presents the share (in %) of the leather
sector from the total manufacturing. This trend is even more accentuated in the footwear sector. In
spite of the increased investment (fixed capital formation) and increase in number of establishments,
the value added has decreased and the level of employment is unchanged. This is as a result of the
weaknesses of the overall Ethiopian LLPI system.

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 Source: UNIDO Industrial Statistics 2003, based on data by the Ethiopian Central Statistics Authority

Figure 3.3 Ethiopian footwear sector, share in total manufacturing (%)

g) Capacity Building

The following stakeholders are those who participate in development of Ethiopian leather footwear
sub-sector.

 Leather Industry Development Institute (LIDI)

This organization was previously known as Leather and Leather Products Technology Institute
(LLPTI) and it is the main responsive body with MoI to the development of the leather sector. The
Government of Ethiopia has identified the leather sector as one of the growth sectors capable of
accelerating economic development by creating more employment, generating income through
exports, and offering investment potential. In this context, the GoE has established the LIDI, whose
principal function is to create technical capabilities in order to improve the competitiveness of the
leather and leather products industry. Currently, the institute is conducting benchmarking for
selected leather footwear factories in cooperation with Footwear Design and Development Industry
(FDDI) of Indian.

 Ethiopian Leather Industry Association (ELIA)

This organization was known as Ethiopian tanners association in 1994 and Ethiopian Tanners,
Footwear and Leather Products Manufacturing Association (ETFLPMA) from 2004-07. The Leather
Association consists of 38 enterprises, 22 of which are tanneries, 11 footwear factories and 5 other
leather products factories; where 2 of 38 are public enterprises, which are going to be privatized in
the future.

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The Leather Association’s activities are; i) lobbying, ii) publicity of Ethiopian leather/leather
products by joining international fairs, and iii) implementation of pilot projects. In addition, it works
on promotion of the Ethiopian leather industry, ensuring quality and standards and it is the organizer
of All African Leather Fair (AALF). Since the leather industry has been enjoying privileges, such as
tax exemption and tax holidays, and the strong support from the GoE, the lobbying activities of the
leather association has been focusing on the provision of technical assistance and extension services
for quality improvement of leather rather than additional privileges. The privileges is, however,
going to be limited only to those with the capacity to process finished leather as the initiative for the
factories to upgrade their capacity [4].

 COMESA – Leather and Leather Products Institute (LLPI)

It has been established by the Common Market for Eastern and Southern Africa (COMESA) and
the GoE. It is the biggest institute in the leather sector in Africa and accepts many international
trainees from many other African countries, such as Sudan, Zimbabwe, Burundi and Rwanda. The
institute gives training, possesses demonstration factories with modern facilities. It leases the
facilities as well as provides consultations to the enterprises which have the intention to promote
trade. Since the institute is meant to build capacities to promote trade, these services are not
provided to those who only deal with the domestic market.

 Other development agents

• USAID: Quality Improvement of Raw Hides/Skins, Marketing, Web Page Development of the
Leather Association and Warehouse Construction
• UNIDO: Preparation of the Strategic Action Plan (finalized in 2005), TAITU project
• Embassy of India: support in the quality of the hides/skins, as well as in design improvement via
FDDI
• GTZ: Re-engineering in 6 Leather-related Factories, Technical Assistance to the Leather Institute
• ecbp

3.4 Performance assessment and evaluation of the leather shoe factories

To asses and analyze the existing performance of Ethiopian shoe factories and Identify related
performance problems, data is collected through;

 Previous studies and leather journals

 Discussion with experts from different leather and footwear associations: e.g. LIDI, ELIA
 Survey Questionnaire

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  Documents from MoT, MoI, LIDI, ELIA, TLIDC, CSA, etc

3.4.1 Benchmarking: Ethiopia with Bangladesh, Indonesia and China

A benchmarking analysis (Benchmarking shoe production in Ethiopia) made by Global

Development Solutions in 2006, indicates that Ethiopia is relatively competitive against Indonesia
with respect to the cost of leather shoe assembly 3, but less so against Bangladesh (Table 3.6) [8].

Table 3.6: Shoe manufacturing cost

Assembly cost Bangladesh Indonesia Ethiopia

Cost $ % of total Cost $ % of total Cost $ % of total
Labour 0.59 78.3 0.60 66.7 0.37 43.9
Other
non-material 0.16 21.7 0.30 33.3 0.47 56.1
inputs

Source: Global Development Solutions, 2006.

Ethiopia’s shoe manufacturing productivity is still very low, compared with China, the largest shoe
producer in the world; it takes 78 minutes to produce one pair of shoe uppers in Ethiopia, whereas it
only takes 30 minutes for Chinese manufacturers (see table 3.7 below) [9].

Table 3.7 Benchmarking shoe production between China and Ethiopia

Minutes/pair Total minutes Pair/persons

Ethiopia 78 510 6.5
China 30 600 20

3.4.2 Production capacity, utilization and products of ELFFs

The table below shows the types of leather and footwear articles and production trend for three
years. Accordingly, the production of leather shoes and boots, leather upper and lining shows an
increasing trend.

3
Assembly cost refers to all non-material costs such as labor, utilities...

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 Table 3.8 Production of leather and footwear articles, (1999 E.F.Y - 2001 E.F.Y)

Name of products & units 2006/2007 2007/2008 2008/2009

Leather shoes and boots (pairs) 1,748,518 1,719,413 3,144,538

Canvas and rubber shoes (pairs) 107,385 126,125 214,101
Plastic footwear (pairs) 15,901,540 15,684,111 13,317,179
Leather upper and lining ('000 sq.m) 1,052 1,687 3,884
Leather sole (pairs) 860 - -
Semi processed skins ('000 pcs.) 22,849 13,836 20,560
Leather garment ('000 sq.ft.) 356 1,673 1,022
Plastic sole (pairs) 2,696,625 2,489,780 3,353,423
Crust hides and wet blue hides ('000 sq.ft.) 17,858 24,802 24,669

Source: CSA, 2010

Next, the production capacity utilization (installed and Attainable capacity in 2009/10 (2002 E.F.Y) &
products of major shoe factories in Ethiopia are reviewed. As it can be seen below from table 3.9,
the attainable capacity of the major shoe factories, they are working below the installed capacity. On
average the production capacity utilization lie between 50 – 65%. Some factories attain more than
this percentage but this was due to production of simple models in mass; else it is believed that most
large shoe factories work far from the designed capacity.

Table 3.9 Production capacity, utilization & products of major shoe factories

S.N Company Name Installed Attainable (max) Capacity Types of products

Capacity capacity in utilization
(Pairs Per 2002E.C (attainable
Day) (pairs/ day/8hr) /installed) (%)
1. Anbessa Shoe S.C 4500 2500 55.5 gentlemen's, Ladies,
Children's, Shoe upper & last...
2. Tikur Abbay Shoe S/C 3000 2000 66.67 gents’, Military boots, working
casual, children shoes
3. Ramsay Shoe Factory 2000 1000 50 casual shoes, military, Sport,
working...
4. Gelila Shoe Factory PLC 1200 600 50 gent’s, children’s, sport,
working boots and shoes
5. Jamaica Shoe Factory 1200 800 66.7 gents’ shoes (casual, dress,
soccer)
6. Kangaroo Shoe Factory PLC 1000 800 80 men’s’ casual, children’s shoe
7. Peacock Shoe Factory 3000 2000 66.67 gentlemen’s, ladies and
children’s shoe
8. Ras Dashen Shoe Factory 2000 1000 50 gentlemen’s and children’s
shoe
9. Wallia Shoe Factory 3000 1000 33.33 children, gentle, ladies
10. Ara Shoe Factory 1500 700 46.7 Ladies upper
11. Sheba Shoe Factory 4000 2000 50 gentlemen’s, ladies and
children’s shoe
12. Ethio-International footwear 15,000 - - gentlemen's, Ladies, Children's
Cluster co. society Ltd. shoes

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13. Pu PVC Leather shoe & sole - - - leather shoes and soles
factory
15. Park Shoe & Leather products - - - children’s and ladies shoe
Factory
16. Melese Teka Shoe factory 240 - - gents’, ladies’, Reflexology
insole shoes

Source: LIDI, 2002E.C: Footwear manufacturing industries profile

3.4.3 Evaluation of development plan of the sector (2005/06 – 2009/10)

The Ethiopian industrial development strategy guides the way that the sector should involve in the
international market by producing a competitive products in quality, quantity and price. However,
the leather industry involvement in the international market was not satisfactory in the last five year.
Some of the problems were less understanding of stakeholders on the strategy, under capacity
production due to lack of skilled man power and advance technology [10].

Though Ethiopian leather shoe export is started recently, it is now showing a promising result due to
the government export led strategy. It is tried to see here first the export performance of the leather
sector (leather and leather products) (table 3.10) and then the export performance and trend of each
leather shoe factories.

Table 3.10 The export earnings performance of leather and leather products 1998 – Nov 2002E.C (In million USD)

Leather 2005/06 2006/07 2007/08 2008/09 2009/10

S.N
& leather Actual 5
plan actual plan actual plan actual plan actual Plan
products month
1 Leather 90.82 73.43 107.9 84.0 93.4 91.4 145.1 68.28 138.4 16.80
Pickle - - - - 12.7 32.1 23.75 19.13 - -
Wet blue - - - - 11.6 29.3 13.63 14.87 - -
Crust - - - - 35.2 17.7 30.78 23.13 81.95 13.40
Finished
- - - - 33.9 12.3 76.92 11.15 56.45 3.40
leather
2 Shoe 9.93 1.60 8.47 5.54 39.64 9.87 47.94 7.19 60.65 2.40
3 Leather
3.12 0.30 0.26 - 2.52 0.03 - 0.15 0.64 0.10
products
Total 103.87 75.33 116.69 89.5 143.4 101.3 193.02 75.62 199.69 19.30
Country total 1,267.6 1,482.0 1,450.0 2,927.
export
- 1,008.57 - 7
- 6
- 0 80
574.30
The share of
leather sector in
7.47 7.06 6.84 5.22 6.82 3.36
the export
performance

Source: Leather sector development plan, 2002E.C and ELIA journal, 2011

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As can be seen from the above table 3.10, the export earnings performance of shoe and finished
leather is poor compared to that of leather (pickle, wet blue and crust). This shows that more
emphasis was given to exporting leather before processed and being shoe. Table 3.11 also show the
export performance of Ethiopian leather shoe factories from 1997-2001 E.F.Y and they are
individually at low performance; however, as some of the shoe factories are investing on expansion
process, production as well as the export performance will expect to be increased, when the
companies operate in their full capacity.

Export performance of 1998 – 2002 E.C (2005/06 – 2009/10) budget year plan: Specifically this
plan has been prepared to build the capacity of the sector, to improve the supply chain of the inputs
and to support the investors to the sector. The leather industry sector export-oriented has been
supported and this sector achieved continuous foreign currency growth rate within the four years
except in 2001E.C. In the five year plan, 22 tanneries, 11 shoe firms and 5 leather goods
manufacturers were engaged in the export market [10]. It has been planned to earn 103.866 million
US dollar in the beginning of the five year plan 1998 E.C with 18% average growth rate every year
and at the end of the five year plan 199.693 million US dollars (table 3.10 above). However, the
actual performance is at low level. Based on the information of MoTI from1996 – 2000 E.C the
export performance shows the average continuous growth rate of foreign currency earning was 25%
but in the 2008/09 it was decreased by 25.3%. Hence, the average growth rate of earning foreign
currency was 15% in the six years.

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 Table 3.11: Export performance of shoe factories in the budget year of 1997-2001E.C (2004/05-2008/09). (‘000 USD),

S.N Name of 2004/05 2005/06 2006/07 2007/08 2008/09 Average 5 years

company Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual %
1 Peacock shoe 167 163 1,000 1,526 2,600 3,967 9,800 2,843 5,616 2,613 3,837 2,222 58
2 Ramse shoe 427 56 540 8 1,951 602 5,880 2,414 11,000 911 3,960 798 20
3 Anbesa shoe 108 3 500 1 125 419 4,319 1,224 10,267 2 ,128 3,064 755 25
4 Kangaroo shoe 162 - 300 - 655 - 2,940 597 2,580 460 1,328 212 16
5 Walya shoe 12 - 100 7 14 - 3,528 532 2,246 262 1,180 160 14
6 Ras dashin shoe 7,523 - 1,000 - 2,402 26 2,940 859 3,370 343 3,447 246 7
7 Tikure abay shoe 2,204 219 1,824 - 694 339 1,960 1,143 4,493 303 2,235 401 18
8 Gelila shoe - - - - - - 2,940 - 1,797 - 947 - -
9 Valino francisco - 126 - - - - - - - - 32 -
10 Tizal global - - 200 - - - - - - 40 - -
11 Others - 2,879 - 27 - 188 - 260 - 153 - 702 -
Subtotal 10,604 3,446 5,464 1,569 8,441 5,541 34,307 9,871 41,369 7,174 20,037 5,520 28
Shoe factories on investment &
expansion process
12 Sheba shoe - - - - - - 1,882 - 2,074 - 791 - -
13 Jamaica shoe 199 - 100 14 32 - 652 1 1,383 20 473 7 1
14 Ethio-Italy shoe 4,362 - 4,362 17 - - - - - 1,745 4 0.2
15 Hafde (papa guchi) - - - - - - 2,800 - 1,036 - 767 - -
shoe
16 Ethio-leather - - - - - - - - 2,074 - 415 - -
international shoe
cluster
Subtotal 4,561 - 4,462 31 32 - 5,334 1 6,567 20 4,191 10 0.2

Shoe factories total 15,165 3,446 9,926 1,600 8,473 5,541 39,641 9,872 47,936 7,195 24,228 5,531 23

Source: LIDI 2002E.C

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 Figure 3.4 Five year leather footwear export performance

To some extent, the export performance of the footwear industry reflects the stage of development
of the leather sector as a whole since, for a fully integrated leather sector, its cumulative outcome is
reflected in the end product of the leather products sub-sector. The less integrated and inefficient
footwear industry in Ethiopia, have little to export. The above figure 3.4 depicts that the export
performance is too much below from its plan for the previous five years. Especially in 2000 and
2001E.C, the planed and actual export shows high deviation. As can be calculated form table 3.11,
on average, actual exports account for about 28 percent of planned export value. To sum up, the
general trend of export is inconsistent; however, it can be said that it has somewhat an increasing
trend but at lower rate so that an improvement activities have to be done.

Some of the general reasons for the unsatisfied export performance are:-

 The movement towards the American huge market doesn’t go further than sample sales and
still there is no order for the products.
 There was shortage of power, long lead time for accessories (components take about three
months till their arrival from their suppliers) which makes it difficult to accomplish the
samples and show to the customers
 The global economic crises influence the interest of the existing potential buyers.
 The expected existing customers of the footwear industries didn’t put an order.
 There is less experience to export market, less awareness about the international selling
price ,quality and no coordination to produce in high quantity
 Even if there is some movement to find more customers in the African market, it doesn’t go
further than sample production.

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3.4.4 Next five years export plan of the sector (2010/11 – 2014/15)

The next five year development plan of the leather sector is based on the industrial developmental
strategic plan, potential of the sector and the direction of the developmental policies. The plan will
be achieved by capacitate the current competence of the private sector, promote the new investors,
create the market value chain to increase the share of export value. Moreover, the developmental
plan of the sector is based on the export performance of the last five years. Hence, in 2002 E.C
(2009/10) it was planned to earn 199.693 US dollar from the sector and 60.65 US dollar from
leather footwear by increasing the export performance by 20% in average. As a result, it has been
planned to attain 496.895 US dollars foreign currency from the sector at the end of the development
plan. This can be categorized in different sub-sector, which is 315.525 US dollars (63.5%) for shoes
manufacturers, 136.65 US dollars (27.5%) for finished leather and the rest 44.72 US dollars (9.0%)
will be for leather garments and goods, which is shown on the table 3.12 & table 3.13 below.

Table 3.12 The leather sector export plan (in million USD)

Product type Year

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Crust 81.950 49.170
Finished leather 56.450 69.730 113.18 122.19 130.39 136.65
Leather shoe 60.650 119.886 177.95 215.43 260.75 315.52
Leather clothes 0.520 0.690 4.120 11.800 21.020 36.670
Leather goods 0.120 0.150 0.910 2.580 4.610 8.050
Total 199.689 239.625 296.16 352.01 418.43 496.89

Table 3.13 The share of export plan in percentage

Product type Year

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Crust 41.04 20.52 - - - -
Finished leather 28.27 29.10 38.21 34.71 31.16 27.50
Leather shoe 30.37 50.03 60.09 61.20 62.32 63.50
Leather clothes 0.26 0.30 1.39 3.35 5.35 7.38
Leather goods 0.06 0.06 0.31 0.74 1.17 1.62
Total 100.00 100.00 100.00 100.00 100.00 100.00

Source: ELIA Journal, 2011

Footwear production and Export Plan

The footwear manufacturing primarily produce and export men’s and children’s shoes and also they
produce ladies shoe for the local and export market. From the leather sector the products of footwear
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will be expected to have a lion share in generating foreign currency. At the end of the growth and
transformation plan the share of footwear foreign currency will be increased to 63.5%. This
indicates that the leather footwear sub-sector has given more emphasis compared to the other leather
subsectors and used as a motor to drive the sector. Currently, the production capacity of the eleven
footwear manufacturers operating is 4.762 million pairs of shoes per year and when the three firms
under investment will start production in 2003 E.C (2010/11), the production capacity of the firms
will be 9.24 million pair shoes per a shift. It is possible to increase the production of firms to 14.557
million pair shoes per a year by building their capacity. It was planned to export 70% of footwear
production to earn the foreign currency. In 2003 E.C (2010/11) budget year 9.222million pair shoes
has been planned to export to earn 119.89 million USD. At the end of the plan year, it is planned to
export 21.035 million pair shoes, to earn 315.53 million USD. This will be increase from year to
year in the given plan year. To materialize this objective, building capacity of firms by support of
marketing research and trade chain will be continued and focusing on expanding the market to
America, Europe, Middle East and Africa. Moreover by establishing the new firms in footwear
manufacturing in 2011/12 to 2014/15 with production capacity as shown in the table below (table
3.14), the desired plan will become visible.

Table 3.14 Footwear production plan within the leather sector export plan

Description Time table

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Total 2.671 14.643 18.831 21.983 25.690 30.050
Amount of products (million Existed 2.671 14.643 16.108 17.718 19.490 21.439
pair shoes) new 2.724 4.265 6.200 8.611
Finished leather amount for
footwear (million sq.ft) 13.72 75.383 96.944 113.18 132.22 154.67
Finished leather for export
standard shoe (million sq.ft) 24.98 47.475 67.861 79.217 92.576 108.28
Footwear for export (million
pair shoes) 4.852 9.222 13.182 15.388 17.983 21.035
Price per pair of shoe (USD) 12.50 13.00 13.50 14.00 14.50 15.00
Foreign currency earning 60.65 119.89 177.96 215.43 260.75 315.53
(million USD)

Source: ELIA Journal, 2011

3.5 Review of recently done activities to build the capacity of the sector

1. Education and training

The institute (LIDI) produces skilled man power for the leather industry. The education and training
services provided by the institute are 10+3 diploma program, higher certificate (one year duration)
and short term training delivery based on the need of the customers in leather, footwear and leather

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garment & goods manufacturing technology. From 1998 – 2002 E.C, the institute in shoe
manufacturing technology: [10]
 Educates a total of 122 graduates of 10+3
 Educates a total of 232 graduates of higher certificate
 Trains a total of 411 trainees

2. Technical services

• The institute (LIDI) has model factories of tannery, shoe, leather garment and goods
manufacturing and CAD/CAM centre. The factories are used to provide practical training and
education services for trainees and students. The institute also provides a service of product
development by which value adding on semi-finished skins & hides and enables the leather
industry to be competitive in the international market. The institute has an internationally
certified laboratory which provides services of physical & chemical testing and waste water
treatment analysis for the leather products of export-oriented. This laboratory service will enable
the firm to export the quality products and it will reduce the high cost of quality checking for
their products in foreign countries. Nevertheless, the service laboratory is not adequate for the
need of the sector which requires more accreditation in physical and chemical testing [10].
• Benchmarking and twinning arrangement program: to make the leather and leather products
be competitive in the international market the study and implementation of benchmarking and
twining arrangement was done as a remedial.

To increase the capacity of competitiveness of the factories, benchmarking was included in the past
budget years plan. The implementation of benchmarking performed was not fast as it was intended.
The implementation of benchmarking was limited to few factories on a production process.
Moreover, the implementation was not applied from the beginning to the end of the production
process at a time. As a result of fragmented implementation of benchmarking the production process
productivity cannot be improved. By avoiding this problem in 2003 Ethiopian fiscal year, the
benchmarking implementation becomes the key activity of the sector. Hence to ensure the
technology transfer, responsible body is selected to facilitate the implementation and to coordinate
the stakeholders to contribute for the successful implementation of benchmarking. Currently its
second phase is conducted in seven shoe factories of Ethiopia.

Establishing the institute with good facilities should not only be a beginning or an end rather, other
major requirements and services should be provided through well qualified and trained staffs. In
Ethiopia, such an institute is new and lack experience on how to run the technical matters. Even
though the first twining agreement, in the half of 2001 E.C, was done with German institute, it was

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terminated because the institute could not achieve the intended plan. To make the sector competitive
globally, building the capacity of the institute is indispensable. In this essence, the twining
arrangement has been agreed between the LIDI of Ethiopia and Central Leather Research Institute
(CLRI) & Footwear Design and Development Institute (FDDI) of India to capacitate the institute in
the international level through technology transfer sustainably.

3. Enterprise Resource Planning (ERP) system practice by UNIDO

UNIDO is conducting projects for the up-grading of the technical and managerial capabilities of all
actors within the Ethiopian leather sector (to upgrade the Ethiopian LLPI) and the implementation
of ERP in Ethiopian shoe companies to manage their supply chain.

In order to upgrade the managerial capabilities of the sector, a business process analysis and
reengineering was firstly undertaken. This activity was devoted to some selected footwear
companies and will try to improve the performances related to the supply chain management:

 Increase of timely delivery of customer orders

 Reduction of lead times
 Better management of production materials
 Reduction of unnecessary inventory
 Reduction of costs due to bad utilization of production resources and recurrent lack of
material

A training activity was undertaken and the procedures was clearly understood and agreed by the
managers of the shoe companies however; the implementation of the reengineered processes was
resulted in a difficult job. This was due to the unavailability of a well-organized information system
(a pre-condition to implement the reengineered process) to collect, manage, store and retrieve all
data necessary to support the managerial and operational decisions. Therefore it was proposed to
implement an integrated information system based on ERP software specifically customized for a
footwear industry. Currently the full implementation is in course in Anbessa Shoe S.C as a pilot
experience and then, after succeeding in this first experience, to extend to other companies of the
sector.

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 3.6 Survey questionnaire analysis and results

Questionnaire was developed to assess the performance factors and management practices via
collecting qualitative and quantitative primary data regarding the current performance measurement
and improvement practices in ELFFs. It also helps to cross check whether performance factors that
are found in literatures are really shown and show their effect on performance of our country’s shoe
factories.

Research Sample

According to the information obtained from LIDI under MoI, leather shoe factories given due
attention by GoE are the larger mechanized ones (11 in number) which are export-oriented and
members of ELIA. And as this study gives more focus to these footwear factories, the distribution
and collection of the questionnaire was done with more attention on these factories. It is also tried to
include the medium and small shoe factories; in addition two other shoe factories (via internet) and
one questionnaire to an expert from LIDI (who is currently working benchmarking on seven
selected shoe factories as a coordinator). Accordingly, a total of 14 questionnaires were distributed
and 9 (64%) of it was returned. Though it looks small percentage, seven out of the eight larger
mechanized leather shoe factories’ questionnaires were collected via direct continuous contact to
facilitate the response. The major reason to do not receive all the dispatched questionnaires was
because almost all shoe factories are private companies which are not mostly voluntary to provide
information due to some misconceptions. The questionnaire is analyzed using Microsoft excel or
spreadsheet file and the results are discussed and presented as follows.

Respondents Profile

Most of the respondents were higher managers, production and plan managers and some experts
with qualification level of B.Sc. so their job positions and experience indicate that they are
responsible to involve and participate in the formulation of strategic plans and evaluation of
strategic and corporate business performances. [See appendix C, tableC1]

Interpretation of performance in the firms

The questioner has four parts as shown in appendix B in which the first part is about preliminary
information (compiled in table C1, appendix C). In the second section, it is tried to assess how
footwear companies interpret performance and the result shows that most of them interpret
performance in terms of good quality and customer satisfaction. Some of them also include cost
competitiveness, fast delivery time, and high production in their performance interpretation. From

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the result it can be drawn that ELFFs have good awareness to what good performance is though they
are at low level.

The third part of the questionnaire is about assessing factors affecting the performance of ELFFs.
Accordingly, it is tried to assess from general reasons (Qn. 15 & 35) to specific firm level factors
including to the cost and quality cases (Qn. 16, 36, & 37).

General reasons for low performance

From assessment to the main general reasons behind low performance, as shown in figure 3.5
below, suppliers’ related problem takes the highest percentage and customer related problem takes
the next share.

Figure 3.5 General reasons for low performance

Capacity utilization of firms

One of the other reasons which lead ELFFs to a low performance is not being fully operational or
not work at full capacity. And the assessment shows that the reasons behind are shown in the
following figure (figure 3.6).

Figure 3.6 Factors for not utilizing the full capacity

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As can be seen from this figure, only two of the reasons (raw material shortage and spare part
shortage) accounts about 40%. Shortage of working capital and lack of market also takes the next
share (about 31%). In addition, it can be seen that the reasons are not specifically related to the shoe
production process/ production system. Other specified reasons by respondents towards not working
at full capacity were shortage of facility, highly poor wage and incentive system.

 It was also tried to assess which of the main shoe manufacturing processes (supplies &
procurement, R&D, shoe production and sales & marketing) frequently faced with problems
which in turn affect the performance of the firm. The respondents result show that supplies &
procurement process alone takes the highest percentage, about 32.5%. As a result, this indicates
how much this process alone affects the performance of a shoe factory. (see appendix C, table
C2)

Factors affecting performance of firms

In Qn.17 (see appendix B), It was tried to collect from literatures and secondary data about 13
factors affecting performance and assess whether these factors are really appear in ELFFs and how
is their effect on the supplies & procurement process performance. As the respondents result shows
(see appendix C, table C3), most factors are existed and take slightly different percentage share
towards the effect or somewhat equally important i.e. no vital few case to be analyzed via Pareto
analysis. However, four of the factors (raw materials & accessories, lack of coordination with
suppliers & customers, machineries & equipments and management) which account about 30% of
the total factors in number result in about 42% of the total effect.

Impact of reasons towards high manufacturing cost and unsatisfactory quality

Mostly, Ethiopia’s shoes are blamed in their quality and high manufacturing cost. Therefore it was
tried to assess the reasons behind these problems in Qn.36 & 37. Regarding the quality of shoe, the
critical reasons are lack of skilled labor, lack of quality raw material especially finished leather, lack
of efficient machine & equipments and outdated technology. However, finished leather quality
problem takes the highest percentage towards low quality of Ethiopian shoes (See figure 3.7).
Regarding the high shoe manufacturing costs, high cost of spare parts & accessories and finished
leather takes the highest percentage (See figure 3.8).

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 Figure 3.7 Impact of critical reasons towards poor quality of shoe

Figure 3.8 Impact of possible facors towards high shoe manufacturing cost

Current performance management practices

The last section of the questionnaire was developed for assessing the current performance
measurement and improvement practices and related problems. Accordingly, the following results
were obtained.

 It is tried to know whether the firms use performance measurement to identify areas that
require strategic focus and the response show that some uses rarely and some of them use
sometimes. This shows that most shoe factories did not use regular performance
measurement.
 Most shoe factories use financial measures for strategic decision making. However, this is
limited to make a decision and so they have to use also non financial performance measures.
 Most of ELFFs have no a well organized & equipped department which is involved in
research and development (R & D) duties to find out and introduce innovative methods and
technologies that can improve performance. Though they have product development center
or design department it is not organized and is on the way to function well.
 Though ELFFs have training programs which are mostly on job trainings, it is not in a
regular manner. Mostly they give occasional trainings.
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  Some of the factories have standard time for each leather shoe style for all tasks required and
some of them have no yet and are on the way. As it is known using standard time helps to
increase labor productivity.

Regarding the recent performance measurement & improvement practices/methods in ELFFs, the
following points are the results from the respondents.

 For financial performance, most firms use net income & ROI, profitability and financial
ratios.
 For operational performance some firms use production & sales volume, benchmarking and
its training program.
 For marketing performance they use sales growth and for customer satisfaction producing
quality shoe as customer order.
 However, for employee satisfaction, innovation & employee learning and suppliers
performance there is no such activity done. Some of the reasons specified by the respondents
are lack of skilled staff, absence of improvement method and lack of commitment by the
private owners.
 Regarding to the firm level performance improvement methods/tools; some are ongoing in
practicing benchmarking, some plan to implement QMS or ISO, and one factory (Anbessa
shoe S.C) is ongoing to implement ERP, BSC, and BPR. So these are some indications
towards the improvement methods.

Respondents’ opinion regarding to the roles of stakeholders

The last question was about the respondents’ opinion with regard to different responsible bodies’
actions to enhance the performance of shoe factories in Ethiopia and the result is summarized as
follow.

 Government has to facilitate raw material supply to shoe factories; do different works towards
the development of the leather industry like tax relief & incentive, financial support, facilitate
infrastructures like power and communication services, provide best policy; create local
opportunities for spare parts & accessories which are now costly and time consuming to
import.
 Trade unions & manufacturing firms should work on accessibility of imported materials,
collaboration, information sharing & create good relationship between firms up to utilization
of idle stocks and outsourcing and motivating workers to be productive.
 Academic institutions have to educate and train manpower consistently, create strong
university-industry linkage and conduct applicable projects.
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  NGOs, consultants and associations have to support and consultancy to improve R&D,
technology and innovation, create trade fairs towards international market promotion and try
to bring paradigm shift among the owners to face their global competitors rather than working
alone.

To sum up performance problems, most of the critical ones which take highest share are all not only
specifically related to the shoe production rather they are also problems which are related to supply
and procurement process or suppliers and sales and marketing or customers. Accordingly, these are
external or national level problems in the sub sector.

3.7 Problems towards low performance and SWOT analysis

In this section, some sort of summary points towards problems of the sub-sector is drawn from
different studies and the previous section. In addition a SWOT analysis of the leather footwear sub
sector is analyzed.

 According to an industry survey conducted by the Ethiopian export promotion agency, leather-
producing firms report that they are operating from 30 to 90% below capacity [47]. The industry
faces constraints due to outmode equipment and machinery; lack of market information; low
quality standards; and limited supply of raw materials. Firms in the leather sector cite the need to
invest in technology upgrades and human skills development as crucial to improving productive
capacity and so performance.

 The ministry of Trade and industry has made an extensive assessment on the local leather
footwear, garment and leather product industry. As a result, it identifies eleven leather footwear,
twelve leather garment and leather product factories that have great potential capacities to
produce leather shoes, garment and leather products for the export market. In the report of MoTI
2002E.C, the ministry has estimated the production capacity of the selected shoe factories as
4,438,000 pairs of shoes per annum of this, 80% (3,550,000) is assumed to go to the foreign
market and the remaining 20% (876,600pairs of shoes) which fail to fulfill the selection criteria,
will remain to the local market. This annual production of leather shoes is estimated by
assuming that the leather factories get the required inputs. But the likelihood of achieving this
production target is very remote because the leather shoe factories suffer particularly from
shortage of finished leather. Moreover; the problem has been aggravated further by shortage of
foreign exchange for the import of accessories and components.

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According to the extensive review of previous studies and the study done by Freselam M. (Graduate
project at Addis Ababa University in 2009/10), the following problems, in the leather footwear
subsector of Ethiopia, were identified which leads to a lower performance of the sector.

1. Shortage of input (components and accessories – mostly imported ones): This is firstly due to
fragmented purchasing system, which leads to high prices paid for poor quality materials and
significantly varied prices could be paid for similar quality of material, the factories may be not
aware the opportunities of reduction in price that could otherwise have been obtained through
bulk purchase, cost of purchase, which consequently burdens its working capital and affects its
financial. Secondly it is due to Inadequate Infrastructure for information sharing and material
flow – communication system, transportation and port related problems.
2. Lack of Integration: Most of the organizations have only “companywide image not
nationwide”, this leads to disintegrated industrial system. There was almost no horizontal
linkage among enterprises partly due to lack of trust. However, the foreign market forced the
local enterprises to unify. The footwear enterprises recently started an association that may help
to solve some of their problems. On top of that, they are members of the chambers of
commerce and the Ethiopian private manufacturers association.
3. Poor Production: poor production planning and control, and low productivity (lack of
technological equipment and lack of expertise in the jobs performed)
4. Marketing: inadequate awareness about marketing and problems with the distribution system
5. Poor management of the supply chain: this has great impact on the business performances of a
company. There is poor link between marketing, planning and manufacturing functions. With
this poor link it is difficult to satisfy customer needs especially in reducing price and delivery
time.
6. Poor quality of the domestic leather: The main factors affecting the competitiveness of leather
footwear are the relatively poor quality of the domestic leather used in the industry (high
quality leather is mostly for export) and the high cost of imported inputs.

In addition to the problem of availability of finished leather, there are a number of common
constraints affecting the competitiveness of the footwear. These are: lack of skilled manpower, the
simple production techniques, inadequate costing systems, components procurement, and marketing
skills. Insufficient knowledge of shoe design is also a specific problem in footwear.

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SWOT analysis for the leather footwear sub sector

SWOT analysis is a study about the strengths, weaknesses, opportunities and treats. In the previous
sections, the current status of the leather footwear industry has overviewed and assessed which
enabled us to see the whole image of the sub-sector. Now, the SWOT analysis for the leather
footwear sector of Ethiopia can be drawn. The strength and weakness are internal and the
opportunities & treats are external aspects or factors. The Analysis is made based on the SWOT
analysis of the Ethiopian Leather and Leather Products Industry made by UNIDO [45], review of
recent documents of ecbp [42] and overviews of the Ethiopian footwear subsector made in the
previous section.

Table 3.15 SWOT Analysis for ELFFs

SWOT SWOT analysis
components

Presence of mechanised shoe enterprises and some exports of footwear

Presence of trainable workforce
Availability of finished leather due to presence of fully mechanised tanning facilities and

Strength trend to move from export of semi-processed leather to export of finished leather
There is institutional infrastructure for quality, standardization and for services (QSAE)
Education and training by LIDI to have sufficient knowledge of shoe engineering and
modern manpower-training capacity
Availability of market access through: COMESA; AGOA.

⊗ The quality of leather is not always high enough (inconsistent)

⊗ Lack of diversified and up-to-date training programs in HRD for the improvement of
competitiveness together with an insufficient use of the existing training facilities
⊗ Shortage of skilled workers and updated technology, Poor finishing, low productivity
⊗ Slow responsiveness to changing shoe models
⊗ lack of usage of improvement practices like BSC, benchmarking, QMS and other
industrial engineering techniques
Weakness
⊗ Usage of old technology, obsolete equipment & lack of spare parts
⊗ Weak product development, design or research development capabilities and little
diversification.
⊗ Insufficient international exposure
⊗ Having insufficient working capital and difficulties to access sufficient capital for
investments and working capital.
⊗ Weak marketing: weak promotion and advertising, weak market information services
⊗ Low capacity to respond to the international demand in terms of quantity and time

Opportunity ♠ Presence of Cheap labour force

♠ Access to raw leather locally if tanneries improve their performance

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 ♠ The establishment of a trade mark or product image “Made in Ethiopia” (currently
ASSC is practicing it )
♠ Presence of LIDI as a “catalyst” to the development of the sub sector in all stages of the
chain.
♠ Export-led industrialization strategy in which LLPI included and fully supported by the
government
♠ Availability of potential local market
♠ Transfer of shoe production from developed countries to developing through
outsourcing and sub-contracting
♠ Clustering and networking between formal and informal sector (e.g. Ethio-international
footwear cluster)
♠ Regional and sub-regional market for leather products (COMESA)

 The large volumes of uncontrolled imports of footwear from Asia and second hand
shoes from Europe and North America which are seriously affecting the local shoe
manufacturing industry.
 Finished leather quality problem due to the growing spread of Ekek
Threat  Competition from Asian Countries with cheap imports of leather products, without the
application of quality standards.
 Lack of Marketing System for finished leather based on quality grading
 Incapable in getting international market share
 Negative image concerning local shoe products

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 CHAPTER FOUR

CASE STUDY (Anbessa Shoe Share Company)

4.1 Introduction

In the previous section, it was tried to assess and evaluate the performance, and analyze the
problems of Ethiopian leather shoe factories. This work has created an opportunity to know their
performance level and the problems currently faced as a whole to the sub-sector. However, for the
complete study of the research, it is needed to further assess and analyze shoe factory’s internal
situation (performance problems, working environment and improvement practices, etc.) via
primary data. It is because one can bring total performance in shoe factory whenever the whole
system has good performance. This is why the case study conducted. It was conducted in anbessa
shoe share company (ASSC). The reasons to select the case company are:

1. It is one of the largest mechanized shoe factories which help to see the complete system of
footwear production.
2. It is among the currently government focused eleven medium and large mechanized footwear
factories in the formal sector especially in export and is member of ELIA
3. It was at lower performance and working with loss in recent years [7,47,48]
4. To assess the current improvement practices such as; ERP system by UNIDO and the firm is
undergoing in BPR and QMS practices though it is currently at slow moment.
5. Data availability or easy access to get information than the private factories.

In addition, the expansion project was done in May 2002 E.C to have the company a production
capacity of 4500pairs/day but yet its max capacity is 2500pairs. This is also an indication for the
low performance of the company. Though it is the leader in capacity utilization and production
volume among Ethiopian leather shoe factories, it is not working at satisfactory productivity or
performance level.

Thus, in this case study it was tried to conduct recent overview of the company, assess the current
performance measurement and working practices, performance evaluation of the company and
related problems, performance gap analysis via benchmarking, summary and synthesis of problems
via cause and effect diagram, and finally the findings are summarized.

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 4.2 Overview of the company

This section covers: the recent profile of the company and overview of the firm’s capability, supply,
market and distribution channel, export condition and production process.

I. Background

Anbessa Shoe, formerly known as the Darmar Shoe Factory, was established in 1939 by an Italian
national. The factory was run by its Italian founder for only three years and was sold in 1942 to an
Armenian citizen, who ran the factory for 33 years as the Darmar Shoe Factory. Darmar was
initially engaged in both tannery and shoe making. In 1975, Darmar was nationalized and organized
as two public enterprises: Anbessa Shoe Factory and Awash Tannery. The firm started to export
shoes, in small quantities, in the early 1980s. In 1993, following the issuance of a new proclamation,
Anbessa Shoe Factory was restructured as a share company. The factory is located in two premises
in the capital. The main factory and administrative offices are located in the centre of the capital,
Lidetta sub city. In addition, the factory has a branch unit (MANPO Branch) in the eastern part of
the city which is now being used as local unit.

II. Nature of the business and specific company objectives

Anbessa shoe factory is engaged in both manufacturing (production) and distribution (sales) of
various types of shoes. The objective is with a view of making the profit motive a central theme in
general and to enable the factory achieve the following objectives in particular:

 Producing all kinds of leather shoes and shoe uppers which will meet the requirement of
market.
 Developing better designs of shoes, shoe uppers and components to local & international
 Developing alternative means of replacing imported raw materials by suitable local
components.

III. Vision and Mission of the company

The vision of the factory is to be a leading one producer of high quality leather footwear and leather
articles using natural leather, the latest technology and the skill of experienced personnel’s for both
local and export market.

The mission of the factory is to add value to livestock resource through processing natural leather in
to various leather-footwear, leather-articles and leather-shoe-upper that meet the requirements of
both local and export market and utilize the revenue derived from it to boost profitability of the

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organization which in turn ensures the government its deserved dividend and provide job security
for the firm’s employees.

IV. Competitive Advantages

Competitive advantages of ASSC arise from various sources (general): firstly from the global point
of view, the factory is located in a country with an immense potential source of leather (Ethiopia
ranks 10th in cattle population from world and 1st in Africa). Secondly Ethiopia’s population of
about 80 million people provides a large enough internal market. Specifically:

 ASSC has a well established network of sales outlets located in strategically important cites.
 Has relatively skilled and seasoned staff
 Has relatively new advanced machines and best layout to increase its capacity
 Has well established reputation for manufacturing durable shoes

V. Basic details

Anbessa is engaged in the production of various types of leather shoes. Due to its long years of
experience in the business, the company has highly skilled and experienced workers. Currently
(2003E.C.), the total number of employees is 825. Efforts are being made to train workers using
Italian senior shoe technologists to build their capacity through international experience.

In 2008/09, the firm had an annual turnover of about $4 million, 48% of which came from export
sales. The total assets are valued at about $5.5 million, 34% of which is financed by equity.
Currently, Anbessa shoe S.C has a payable capital of twenty four million four hundred fifty
thousand birr (24, 450, 00.00 birr). [9, 49]

VI. Current production capacity, products and activities

ASSC has made renovation of old equipment with the installation of new and advanced machineries
which enabled the company to increase its capacity. This has enabled the factory to increase its
capacity. Following with the expansion project, now the designed production capacity of the
company has reached 4500 pairs of shoes per day (single shift). Its machineries and layout are the
best in the country. It produces finished shoe and other leather articles for both local and
international market.

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 Figure 4.1 Some products of ASSC

VII. Organization and management

The general manager reports to a managing board, which deals with issues of policy. The general
manager is responsible for operational matters. Five functional managers are assigned to sales,
finance, human resources, and technical and production departments. [See appendix A,
organizational structure of ASSC]

VIII. Firm capabilities

Anbessa Shoe is recognized as a pioneer in modern shoe manufacturing in Ethiopia and is a well-
regarded brand. It is equipped with modern machinery and employs relatively skilled labour. Its
capacity has allowed the firm to be a substantial exporter.

The firm has high overhead costs and faces a serious constraint on its working capital. In addition, it
suffers the disadvantage of not having its own tannery. The firm relies on contact initiation from
customers in its export markets, and does not have a formal marketing operation. Product design
activity is limited; the design for export items is provided by the firm’s customers.

IX. Supply, marketing and distribution chain

Processed leather, which constitutes almost 50% of input costs, is mainly sourced from Batu
tannery, Ethiopian Tannery, Hafede Tannery and ELICO PLC. Other inputs (TR material for sole,
shoe components and accessories) are imported on a competitive international open tender basis.
The two major markets are the local market and the export market which the company is recently
embarked on. It uses its 17 retailing shops which are found across the country in selected major
towns to distribute its products for the local market. Some sales are made to government offices.
Though the major market share have been dominated by the local market for the past many years,
due to the export oriented market strategy employed in recent years, the export market is taking the
helm over the local.

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It uses a whole sale for distributing its products to the international market. Italy, Germany, France,
Switzerland, Austria, Sweden, Canada and Sudan are the firm’s major export destinations.
Customers are usually the ones to initiate contact, by contacting the factory directly. In addition to
the firm’s website, customers get the firm’s contact details from development partners such as
UNIDO and GTZ and through Ethiopian embassies. Although the firm participates in trade fairs,
orders obtained through such events are very limited.

X. Export

Anbessa has accomplished a lot for the past few years and motivating results has also been
achieved. Since the government of Ethiopia has made export market its priority, Anbessa is getting
all the support it needs to export its products. Anbessa has designed and put in effect an expansion
project with the aim to change its all manufacturing facilities and layout so that it can produce
export standard finished shoe using its full capacity.

The company has now a newly established (via expansion project) factory employing state-of-the art
technology with a designed production capacity of 3000 pairs of export standard leather footwear.
The main export markets are Italy (90% of exports), Germany, Kenya, Uganda, Israel and the
United States. Mostly they are exporting their products to the European market through Italy.

XI. Recent developments and Development agenda

As it described before, the firm has recently gone through an expansion project, acquiring additional
machinery. The main factory has been dedicated to exports. The firm is currently undergoing a BPR
exercise, and is developing a resource planning system (ERP system). In addition, it is working
towards achieving ISO certification (ISO 9001:2008).

A tender to privatize the firm has been repeatedly considered over the years. Recently around the
beginning of July 2011, it is sold and on process to be privatized. The firm aims to increase its
export revenue by installing a more modern production system to increase its competitiveness. In
addition, there are plans to increase productivity. The firm is working towards improving its design
activities and has recently established a design team.

XII. Production Process

Generally the footwear production system has four major processes: cutting, stitching, lasting
bottom and finishing. The description of these major processes with some other supportive
processes is shown below.

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Cutting: Cutting of finished leather to different shoe components is done by modern hydraulic
cutting machines.
Unit sole preparation: different types of unit sole, tiles, sealing and so on are produced with the
help of two press machines with four and three beds respectively.
Insole preparation: Inside parts of shoe such as toe puff, counter, insole and stock lining are
prepared by hydraulic cutting, insole forming, counter splitting and skiving, and insole trimming
and so on.
Stitching: Assembly of the different components of the upper parts of shoes is done by different
types of flat bed, post-bed, zigzag, eyeleting machines and others. Parts of shoes referred as an
upper are vamp, tongue, apron, toecap, counter, quarter, and mudguard, etc.
Lasting: Shaping the upper to the last is done by automatic counter molding machine, toe, and side
and heel seat lasting machines.
Bottoming: this is a process of attaching lasted upper to the sole
Unit sole Attaching: this line is equipped with modern roughing, insole reinforcing, sole attaching,
pressing and leveling machines.
Finishing and Packing: Trimming, polishing, shoe lacing and packing is done by different shoe
finishing machines. In addition to the main processing line, there are also auxiliary lines.

The firm’s shoe production operation process is shown in the figure 4.2 below and the description is
as follow: Shop order will be released based on production order for cutting & stitching then loading
these sections with the required raw materials; Load stitching and laired out stitching line; Cut upper
parts then inspect the quality and if there is defect show for operator, record it and replace cutting
else bundled the upper parts in to batch size and record. Then it will be transferred to stitching and
stitched. If the ordered shoe needs moccasin stitching, stitching upper will be transferred to
moccasin section and then manually stitched. Stitching upper will be transferred to mini store and
then order will be checked whether it is for upper or finished shoe. If it is for upper, it will be stored
for shipment else it will be transferred in to finished goods store and wait for lasting. When time for
last reach, loading lasting conveyors and received necessary raw materials; lasting & recording
production; finishing and bottomed shoe will be packed with shoe box and stored. Quality
inspection is done at the end of each section (cutting, stitching, moccasin stitching, bottom lasting
and finishing).

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 Shop order releasing

Loading cutting &

stitching section

Receiving raw
materials
Laying stitching
machines
Cutting

Is quality ok? Yes

No
Batching &
batch recording
Showing operator
defect & recording
Transferring to
stitching
Cutting replacement

Stitching

Moccasin stitching Transferring to mini store

(if such design) (stitching uppers)

Is the order
No for uppers? Yes

Transferring it to FG store Store upper

Loading lasting

Receiving raw material

Lasting & recording production Packing with shoe box

Figure 4.2 Shoe production operation process of ASSC

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 4.3 Existing performance measurement practices and related problems

In this section, it is tried to assess the current working and performance measurement practices of
ASSC and identify the related major problems. Next, the performance variables and measures they
use and how they measure is assessed. It is discussed, analyzed and presented under categorizing the
processes of the company in to seven major processes based on overall activity and organizational
structure of the firm. These are production, design & product development, procurement and
material stock management, sales & marketing, distribution, human resource development &
administration, and finance & accounting. Data are collected via observation, interview and
discussion with different persons in each department and from different company records.

4.3.1 Production process

This core process of the company includes shoe production processes (cutting, preparation &
stitching, bottom lasting and finishing), sole production, production plan & control, supervision,
quality control, and moccasin works.

Production plan and control: in this section their work is limited to daily production plan and
necessary inputs based on order and production capacity of the production lines (machines and
workers) – cutting, stitching, lasting and finishing. Then the production sections use this plan and do
their work. Control activity is only follow up and cross check with the order as the firm is mostly
making to order. There is no timely plan and progress control of production.

Mostly, the supervisors have no proper skill to supervise, control and motivate workers towards
high productivity because they primarily selected for the position randomly or informal means of
selection by higher bodies. This highly affects the production efficiency of the shoe manufacturing
process.

Cutting: prepared raw leather, in which defective parts are selected and marked, cut based on the
design and amount required using cutting blades. The cutting yield is 85% with 15% scrap; however
the benchmark is 5%. Some of the reasons for this high gap are: lack of cutting skill (workers
simply cut as they assume and randomly until the leather is less in area than the cutter), cutting
blade maintenance problem, and high quality problem with the raw leather. The workers are also
expected to cut 150-200 shoe leather on average and it depends on the type of shoe model because
different shoe models require different number of components. Though they measure the cutting
yield and cutting efficiency of each worker, no improvement action is taken yet. Even no incentive
for the worker who cut more and so this de-motivates the worker to increase the productivity.

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In this section, some machines have got problem of auto functioning and affects the operator’s
productivity and quality of the WIP. For example one of the rabling head machine (sponge sole
cutting) is functioning manually using the operators force to cut one by one. However, if it is auto
he/she can cut many at a time and scrap will be minimized. This is due to lack of maintenance even
breakdown maintenance. Regarding to maintenance, the firm practices generally breakdown
maintenance and this in turn increases the downtime.

Another observable problem in the cutting section, which affects the operators’ efficiency, is the
crowded working condition (improper placement of cutting blades, piling up of WIP due to absence
of timely collection, and workloads), absence of timely work environment check up (sharpness of
cutting blades, proper placement, proper scrap storage) and no exchange of work and work place
which motivate and help workers to get multiple skill.

Stitching and preparation: previously these two activities were done separately; however on the
expansion project made recently in doing the layout, these two activities are merged or combined.
This helps in minimizing activities (separately done), delay in control and handling, and man power.
However there are problems yet like delay in preparation activities of leather and lining (splitting,
marking, smoothening and stamping) due to workers efficiency and responsiveness problems which
in turn results in bottleneck for the production line. In this production line idleness of workers and
lack of responsiveness of some stitching and preparation workers is mostly shown.

Moccasin Stitching: this section has many workers who work manual works as moccasin is
manually stitching of shoe to have nice style. This work takes long time and sometimes it will be as
a bottleneck for the shoe production line. The positive thing observed in this section is the high
motivation of moccasin workers and this is due to the payment is based on the number of shoe they
stitch. On the other hand, the working condition is not ergonomically sound due to absence of
proper chair (with no back rest), no proper safety materials for hand and leg, and no proper place for
leg rest. Such easy observable problems will affect workers efficiency and health.

Lasting bottom and Finishing: in this shoe production section most quality problems (defects of
shoe) will be happen and be visible because at this operation, there is high stretching of the shoe
which makes the defected leather to be visible. In addition, finishing activities, which add more
aesthetic value, done in this process. Therefore, in this production line relatively skilled labor is
necessary to reduce defective shoes and make it have nice aesthetic value. In this section they
measure quality of shoe in terms of number of defectives per unit volume. If it has small defects
which are not accepted to the export standard, they will sale it for local market. If the defect is high
level, it will go for rework.

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Generally, the major findings from cutting, stitching, lasting and finishing processes are:

 While comparing the availability of effective plans/checks/training/samples /facilities for

cutting operations like planning for loading, daily cutting and dispatch report, cutters
performance report , calculation of departmental absenteeism , checking of dies for damages
and bends, availability of the approved samples in cutting department, and training and up
gradation of cutters against the best requirements, most of these activities are not
implemented effectively in planned and documented manner to ensure consistent
operations.
 Regarding cutting directions and understanding the quality regions in leather and shoe, and
availability of thickness reduction mechanism for components as per specification, there are
some mechanisms and tools are in place but these are not executed constantly in documented
manner
 Finishing operation is performed in traditional manner without proper planning that help to
guide and control the availability of all resource to finish the shoe according the finishing
requirement of the customer
 Minimum use of adhesive and use of environmentally friendly adhesive like latex, water
based PU & polychloroprene principle is not yet implemented effectively
 Though standard time in most process (cutting, stitching and lasting) is calculated, it is not
regularly used for every running article in documented manner for consistent application and
not linked directly to improvement action.
 There is no skill inventory chart/matrix that adequately prepared for all operators in each
department by properly considering the actual skill gaps to all operators by conducting skill
gap audits or training need assessment via proper annual planning, analysis and involving all
concerned bodies. There is no sufficient evidence that indicate attainment of Multi-skilling
of workers as result of training needs assessment conducted annually.
 Regarding overall productivity, checks for major production departments – cutting, stitching,
lasting and finishing activities are not done consistently in planned and documented manner
to generate sufficient records, although productivity targets are mostly met. Due to lack of
sufficient records, proper analyze is not done at given interval by participating all
concerned bodies to take necessary corrective and preventive action to bring continual
improvement in the major production process lines (quantitative requirements of standard)

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Sole production

It is known that sole is one of the major components of shoe. ASSC has a sole production section
which has a production capacity of 1080pairs of sole per day (180pairs of sole/shift/mold station). It
is working with two sole injection machines having three molding stations each with different molds
used for different model of shoe. The inputs used by ASSC to the sole production are TR or PVC
and master batch (for making black color when PVC is used). The firm also gives sometimes service
based on customer order and whenever the sole production is free. It has simple production process
– raw material (PVC) added and melt for some minute according to the model and then injected to
the mold then when the mild opened the required design sole will be produced.

Most shoe factories have no sole production section and they buy sole from local or foreign
producers; however, ASSC uses its own sole. What is the reason to use and why doesn’t the firm
outsource this work? Some of the reasons are:

 To take advantage of the higher cost (50% more than producing within the firm) in
importing sole or buying from local manufacturers [discussion with expert]
 To get required quality and design sole for their customer ordered shoes; local manufactured
soles have high quality problem
 When producing within the firm imported raw materials are tax free; however while buying
from local manufacturers they pay tax via VAT.
 The company’s overhead cost is less than other local manufacturers since the sole production
uses the firm’s shoe production consumptions together. This is one of the reasons that local
manufacturers selling price of sole is higher than producing within the firm.
 The sole production section is working with small human resource and so less labor cost
(mostly they allocate 4 persons on the six mold sections.)

Production performance

Though the firm has high production capacity relative to other ELFFs, it is not using the capacity
effectively. It has a designed capacity of producing 4,500 pair of shoes per day but its current
attainable capacity is about 2000 – 2500 (50%) pairs of shoes per day. The firm has a trend of
preparing timely (quarterly) production reports which show production performance against the
plan.

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 Table 4.1 Production and sales of the company (1999 – 2003 E.F.Y)
1999 2000 2001 2002 2003 (9month)
Perform Perform Perform Perform Perform
Description Unit
Plan ance Plan ance Plan ance Plan ance Plan ance
Local prod. pairs - - 220114 267106 350000 314873 185435 302665 203550 191724
Export prod. pairs - - 383000 112893 287500 189549 392440 83911 309042 142701
Total prod. pairs 384819 343931 603,114 379,999 637,500 504,422 577,875 418,587 512,591 335,386
Local sale - - 17155 26226 26440 24861 16423 42422 18029 30247
(‘000) birr
Export sale - - 40674 12186 38525 23722 51986 10729 40939 23307
(‘000) birr
Total sale 32,468 32,256 57,829 38,402 64,965 48,357 68,409 53,581 58,967 54,174
(‘000) birr
pairs 384,819 392,734 603,114 421,459 637,500 416,837 577,875 456,830 512,592 376,472
Total Sales
Profit (‘000) birr - - - - 718,730 242,072 969,000 94,000 885,000 781,000

[Source: collected & summarized from annual performance reports of ASSC][50]

Figure 4.3 shows a four year production trend of the firm. Accordingly, the average four year
production performance of the company compared to its yearly plans is: local production 112%,
export production 38.6% and total production 70.3%. It can be concluded that the company was
performing better local production though the yearly export plan is higher. Generally, the trend is
inconsistent.

Figure 4.3 Production trend (local, export and total) of ASSC

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Quality control

The firm’s quality control activities are limited on checking and inspection and there is no formal
documented way of indentifying quality problems and taking corrective actions like using statistical
quality control tools. Mostly, the quality persons do checking some cutting and stitching defects,
color and size matching, thickness, scratches and cleanness. The company measures scrap level
(5%) and rework (11%); however, no corrective actions taken like determining quality cost and tries
to minimize. The scrap is mostly from cutting and some part of it will be sold in kilogram to manual
shoe workers. The cost of quality in rework is high. Rework is in one side waste of material and in
another side reduces production efficiency. Let us see it using the available and given data as
follows:

Given: rework = 11%; daily rework hour = 1hr; 520,000birr monthly labor cost; and factory
overhead = 1.05
Labor cost (for rework) = 520,000/8 = 65,000birr/month
Rework cost = 65,000 * 1.05 = 68,250birr/month

Therefore, currently on the average reworks are done on OT work period in half of the monthly
working days and so the firm on average will lose 34,125birr monthly or annual cost of 409,500birr
due to rework or quality problem. However, if there is overtime rework in all days of the month, the
company will lose 68,250 birr monthly. Regarding analysis of the quality control report, it is not
done consistently in planned and documented manner to bring improvement by taking corrective
actions to fill gaps.

Concerning the poor quality of work, one of the main reasons is not implementing any quality
management system (the company is not ISO certified). In addition, the quality awareness level is
not satisfactory and no quality related training was given. In light of this, creating awareness of
existing support structure via different trainings is an urgent task. Further, there is no quality
control analysis in documented way on weekly basis so that the major reasons of rejects must be
tackled to stop the occurrence of rejects in future and is not supported by implementing effective
quality manual, procedures and supporting formats that ensure consistent execution of QC
activities.

The firm works in a single shift and mostly uses overtime; however, it faced with high overtime cost
(up to 250,000 birr per month). Considering the above fact, the researcher tried to discuss and
analyze why the firm do not work in two shifts to increase the production performance and
minimize unnecessary manufacturing costs. Some of the major reasons they forward were: labor

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shortage and its cost (30% of OT cost), major raw material shortage, shortage of working capital,
and shortage of demand.

Regarding maintenance, though there is maintenance schedule they did not use properly and mostly
failure maintenance is used. Preventive maintenance is done only for selected machines without
defining a consistent preventive maintenance schedule for all the machines and clearly identifying
the status of all machines in documented manner and the minimum inventory level for all machines.

Generally, the shoe production process of the company faced with some major bottlenecks towards
high performance, such as:

 Raw material (Finished leather) shortage in quality and quantity

 High raw material cost (65% of total cost, see figure 4.4)
 Lack of export order though they work for local in such situation
 Working capital shortage and Low labor productivity
 There is low IT infrastructure to support planning and controlling activities which will be
solved later by ERP implementation - currently undertaken.
 Poor production plan and control, low supervisors and management skill and maintenance
problem (no preventive maintenance).
 Poor communication between departments to interchange real time and accurate data and as
a result there is no effective material, financial, purchasing, selling and distribution
management systems. This will be solved in the near future via the ERP system.

Figure 4.4 Percentage shares of costs in ASSC

Note: processed leather takes 50% of input raw material cost (components and accessories)

4.3.2 Material procurement and stock management process

As discussed in the previous sections, one of the major problems in the shoe factories was shortage
of raw material particularly finished leather and long procurement lead time (3-5 months) for

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imported materials. In case of ASSC, locally purchased materials like processed leather and some
other components like sponge can be purchased within a week; however, most of the components
and accessories which are imported will take on about three months. It is due to weak or no supplier
relationship or lack of coordination between the firm and suppliers. On the other hand, as mostly the
production is make to order, purchase is not with normal yearly production schedule rather it is
based on order production schedule. In turn such timely purchases are easy to be faced in problems
of not getting right material at right time.

The company has two types of purchasing practices: buy to stock and buy to order. The former one
is done based on stock balance and is for some common materials. Rather the later one is based on
the order requirement. Local purchases are conducted via Performa and restricted tender to the
available supplies or direct manufacturers whereas, foreign purchases are done via direct
communication (mostly email) with the available and known manufacturers. For finished leather
purchase is conducted via letter and so direct purchase. Processed leather, which constitutes almost
50% of input costs, is mainly sourced from Batu tannery, Ethiopian tannery, Hafede tannery and
ELICO plc. Other inputs (TR material for sole, shoe components and accessories) are imported on a
competitive international open tender basis.

When assessing the performance of this process, it has to be dealt with some issues like procurement
lead time, supplier relationship, potential supplier, supplier rating, etc. Considering the supplier
relationship, the firm has no selected and rated potential suppliers and so there is no such formal
relationship. The company communicates with it suppliers only when it needs materials. For
example, in buying finished leather the firm simply finds and buys from any tannery considering the
standard of the leather (quality and quantity). This is because of the presence of shortage in finished
leather. The firm evaluates the supplier comparing only with the previous purchase conditions but
no planned and documented way of supplier rating. Lack of identified potential supplier will lead to
problems in supply and procurement like not getting required material at right time. This will highly
affects the production performance of the company due to delay and not getting right quality and
quantity raw material. Regarding the procurement lead time it is known that mostly Ethiopian shoe
factories faced with delay in getting raw materials specially imported ones. In case of ASSC,
procurement lead time takes 3-5 months for imported raw materials and accessories.

The major problems faced in this process are: delay in delivery due to high procurement lead time,
inconsistent quality leather supply, random cost variation with the suppliers specially with the
accessory suppliers, not being flexible (quantity, quality parameters like thickness, delivery time),
transit problems and purchasing power problem due to shortage of working capital. To alleviate

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financial problem to some extent, the firm sometimes buy finished leather with credit from Batu
tannery.

Concerning the material stock management/inventory management of the firm, though there is
material stock and administration division, it is not functioning well with proper inventory
management. Accordingly, the firm faces mostly high inventory to some types of raw materials such
as components, accessories and stock out in finished leather and lining. As a result, the firm has
high stock and shows increasing trend; however this will affect the company in capital tied up;
excess inventory reduces cash flow, while too little inventory can decrease sales.

Table 4.2 Stock amount (birr) of ASSC (2008 - 2010)

Stock Item June 30, 2008 June 30, 2009 June 30, 2010
Finished products 4,534,009 13,481,951 14,213,744
Work in process 4,672,275 5,592,305 5,114,360
Raw materials 9,176,016 8,808,052 10,194,287
Spare parts 3,131,671 2,184,167 2,518,995
Goods in transit 151,774 155,944 46,012
Less: provision for
obsolete stock
-1,979,316 -1,979,315 -1,977,214
Total inventory (birr) 19,686,429 28,243,104 30,110,184

[Source: Financial statements of ASSC for the year ended June 30, 2008, 2009 and 2010]

As it is shown on table 4.2, the total inventory level shows increasing trend and this affects the
production (work in process), unnecessary expense (obsolete and inventory holding cost) and capital
tied up. Holding Costs include the cost due to interest, insurance, taxes, depreciation, obsolescence,
breakage, and warehousing costs (heat, light, rent, security).

The overall objective of inventory management is to achieve satisfactory levels of customer service
while keeping inventory costs within reasonable limits. The performance of inventory management
can be measured in the following terms: [51]

Customer satisfaction: This is measured by the number and quantity of backorders and/or
customer complaints. If the customers’ complaints are less, then the customer satisfaction is high
and vice-versa. It is difficult to measure in case of ASSC due to lack of recorded data.

Inventory turnover: This is the ratio of annual cost of goods sold to average inventory
investment. It is a widely used measure. The turnover ratio indicates how many times a year the
inventory is sold. The higher the ratio is the better, because that implies more efficient use of
inventory. In case of ASSC, for the year ended June 30, 2010, the annual cost of goods sold (COGS)
and inventory value was 44,757,481.20birr and 30,110,184birr. Therefore the inventory turnover

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ratio will be 1.486 which is less than turnover ratio of shoe manufacturing factories which is 1.85
[CSA, 2008]. This shows that the inventory management of ASSC is not good and the ratio has to be
increased.

Generally, area discrepancy, quantity checks and purchase cost variance application are not checked
consistently for each consignment on receipt of leather respectively in documented way and vendor
rating is not properly done by effectively rating its suppliers of the company in planned and
documented manner though it is carried out on some basis like delivery date and price.

4.3.3 Design and/or product development process

In this section, designs mostly come from customers either via drawing or sample (especially
foreign customers). Then they accept and check up to sample production and if it can be made they
accept and go to agreement. For local production, design and product development is made based on
raw material requirement, availability and previous market need. However, as there is no market
study, research and development activities, the firm is not competitive in new shoe designs and this
affects the market share and sales performance.

Some of the major problems shown are lack of design skill, no well organized design room (no
proper working material even no computerized work (not supported by CAD-CAM) always manual
works, no prepare place for sample), no trainings given since 5 years related to design and new
model development, no formal communication with other functional departments such as market,
production and quality.

Why the company did not develop its own design? Some of the reasons are: local designs are not
known abroad and accepted; most wholesalers need only to have shoes of their own design, model
and brand; lack of advanced model shoe due to technology, technique, quality in ASSC: and export
wholesalers perception problem towards Ethiopia’s designed shoe. In addition using incoming
model from export customers help us to minimize design and product development cost of the
factory. There is no R&D department in the firm however; on the BPR study (ongoing) ‘market
research and design development’ department is included.

4.3.4 Sales and marketing process

There is no marketing as a department in the organizational structure of the company; though there
are some marketing activities done under sales and distribution department. In sales and marketing
process, major works of the company were/are finding and communicating with new and previous
customers, receiving incoming orders, advertising and sometimes participating in some market fairs,

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selling locally and for export, and participating in shoe bids. Some improvement practices planned
and practiced currently are: [discussion with the commerce manager]

 They are trying to participate in some international market fairs though it is not well done due
to finance problem
 They update their website for advertising
 They prepare yearly catalogue
 They try to follow up their customers (mostly via email contact)
 Outlets assessment to now local customers need
 Advertisement through TV in addition to the outlets

Regarding the sales performance and measures, the company plans 5% increase yearly as a measure
and evaluate sales growth trend by preparing company level sales performance report. Though it is
increasing since 2002E.C, it didn’t generate such profit as expected (profit is less than 2% of sales).
The sales performance (4 year average) of the company relative to the plan is: local 158.5%, export
40.6% and total 77.8% (see figure 4.5). Therefore, local sales performance was better and the export
one is yet though it shows somewhat increasing trend.

Figure 4.5 Sales trend (local, export and total) of ASSC [data taken from table 4.1]

Keeping delivery time is one of the customer relationship measures in the company. But there is
customer complains due to long order lead time (especially locally). The major problem they faced
is lack of raw material and others are related with production. They use market share for preparing
strategic plan only but not timely assessment of their market share locally which is one of the
performance indicator relative to competitors.

There is better demand and sales locally; however, the company gives priority to export market. Due
to the following reasons:
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  Export oriented strategy of the government and so to take advantage of government support
(imported materials are tax free) and generate foreign currency which contributes for the
economic development of the country
 Export orders are better in getting raw materials (except leather) because the customers
themselves bring required materials and so this will have advantage of reducing procurement,
material management and shipment costs.
 Mass order by export wholesalers as they can get more customers and this reduces the
company’s production cost (one model production series)
 Though export market is with less unit price (to enter to the market and be competitive) than
the local one it has high sale due to large order and through time price will be increase as
becoming familiar with the international market
 Export and local market are both supportive because as one produce for export he gets new
models and design shoes. In turn, these models will be also produced for local and this
increases shoe model variety locally to satisfy customers. In addition production for export
helps in minimizing the factory’s own design & product development costs.
 Export market is a must to fill the knowledge gap in shoe technology via technology transfer
(new incoming models, designs, working condition, productivity techniques, etc).
 To sum up, one who can’t competitive in the international market couldn’t be competitive
locally

Therefore, export oriented shoe production and market strategy is not to mean only focus to export
market to get foreign currency rather it is to mean it will drive also the local production, market and
competition towards imported shoe through the technology transfer mechanism. Regarding this
issue, let us see the relation between export, local and total sales with profit using 5 year actual (not
the plan) data of ASSC.

Figure 4.6 Relation between local, exports, total sale and profit trend of the firm [data taken from table 4.1]

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The trend shows that total sale is increasing whether export or local increase or decrease because the
factory uses flexible marketing strategy. This is to mean when there is demand shortage for export it
will focus for local and vice versa. Though the trend is not that much visible due to lack of several
year data, it can be said that the export focus will not affect the local one rather it will drive due to
the technology transfer and in the long run the firm will be competitive in both.

The selling price of footwear depends on the cost of production and profit margin. Leather shoe
factories have different cost of production and so is the selling price. For example, Taiwan and
Hong Kong provides at 5.29 US $, which is the lowest price. However, the average selling prices of
Ethiopian leather shoe factories is 12 US $, which is expensive as compared to China, Hong Kong,
and Taiwan.[10, 11] Anbessa Shoe factory quotes a higher price than its competitors for the same
type of product with similar quality level for the same supplies in the export market. As a result, the
company usually losses it’s anticipated sales order to others and bid competition. The price is
calculated without margin and only considering to cover the variable costs. Currently the selling
price of the firm ranges from 13-14.5USD for gents and 12-13.5 for ladies export shoe. However,
still it fails to compete with its competitors in price which clearly justify the large overhead
manufacturing cost that the company bears.

The long delivery time or delivery delay in promised due date of ASSC is mostly affected by raw
material supply, production, and distribution; where input sourcing is the major one. This is also due
to poor production planning and control system, lack of forecasting techniques and in efficient
supply and procurement process.

Weak in conducting market research: market research is an early step in the marketing process, and
includes an analysis of market demand for a new product, or for existing products, as well as
appropriate methods of distributing those products. In case of ASSC, no major effort has been made
to access alternative markets except the long existing buyers in Europe and some African countries.
This is due to lack of expertise of know how to negotiate at international level of marketing.

To sum up, the major problems shown in the sales and marketing process and performance level are:
lateness of orders (long order lead time on average 45 days and for large orders (more than
30,000pairs though it depends on the type of model) it may take up to 60 days), lack of formal
organized and documented market study, no regular and documented assessment of outlets to know
local customer needs, customer complain due to long waiting time, lack of customer handling
mechanism (they lost some orders due this), low profitability relative to the total sales (mostly net
profit is less than 2% of sales) and inadequate awareness of marketing.

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4.3.5 Distribution process

Distribution is one of the natures of the business for ASSC next to shoe manufacturing. In addition,
it is a key driver of the overall profitability of the firm because it directly impacts both the supply
chain cost and the customer experience. That is why it used as a major core process of the firm. The
company uses its 17 retailing shops which are found across the country in selected major towns to
distribute its products for the local market. It distributes products to international market via
wholesale. Mostly, it exports products to European market through Italy. The distribution channel
(one side or right wing of the supply chain) of the firm looks like generally as follow.

Firm Main factory Export market

Customer
warehouse whole sellers
Supply (Anbessa
Shoe
Factory) Retailing shops
Teklehaymanot in A.A (7 outlets) Customer
warehouse

Retailing shops
out of A.A Customer
(10 outlets)

Figure 4.7 Distribution channel of Anbessa shoe factory (General view)

Description of the distribution channel: the company has two production sites and stores its
finished products on the two warehouses. The main factory warehouse distributes to export market,
second warehouse and retail shops in Addis Ababa. The retail shops take from the warehouse based
on order and sometimes the company distributes new products (as a sample) for testing the market.
The retail shops also get from each other. Local sales are done directly via the factory (19%) and
through the 17 retail shops (more than 80%).

Why not the company outsources the retail shops? Some of the reasons are:

 It help for customer need or market assessment

 It used as brand promotion (Anbessa Shoe)
 It is not used only as a shop, further they do as a wholesaler
 It help to handle customer and give easy access near to them (no need to come to the factory
as other shoe factories do)

If the company does not has an organized distribution center or outlets of their own, most of the
distribution of output reached to final customers through whole sellers or retailers of third person. It

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is known that such system adds additional cost to end customers (higher price of products).
Regarding the performance of the outlet shops, their performance is currently measured or present as
a report via sales volume/value, sales and distribution expense and inventory level yearly. Though
sales performance report (sales volume and value) prepared quarterly there is no trend of taking any
corrective action.
Table 4.3 Sales performance and associated expenses of ASSC outlets
Distance
Location of distribution Sales sales transportation operating 4 from main
S.N center (Retail Shops) volume(pairs) value(birr) cost cost factory (km)
1 Lideta 45,802 5,632,182.74 2,982.90 71,723.80 -
2 Merkato 47,164 5,458,375.80 6,801.10 132,157.03 -
3 Piassa 42,030 5,355,250.53 6,806.50 179,318.27 -
4 Arada 39,469 4,999,832.37 6,537.20 132,571.27 -
5 Ambassader 15,827 1,841,415.98 3,817.75 89,775.09 -
6 T/Haimanot 24,509 1,801,075.65 6,224.40 120,430.62 -
7 Goffa 13,610 1,610,551.41 3,918.25 65,674.98 -
8 Gondar 17,005 1,469,328.68 3,976.65 108,663.12 738
9 Dessie 10,052 1,086,071.20 209.30 95,467.99 401
10 Jimma 8,721 1,075,374.48 1,058.55 96,814.32 346
11 Bahir Dar 10,186 936,417.91 3,313.00 110,457.17 563
12 Dire Dawa 7,682 748,416.71 280.90 90,878.76 515
13 Nazreth 4,965 576,633.41 1,612.60 87,778.49 98
14 Agaro 5,673 571,797.05 0.00 92,782.12 390
15 Mekelle 4,342 473,581.38 329.00 74,573.97 783
16 Awassa 3,661 391,572.30 684.00 74,883.22 275
17 Nekemete 3,106 315,827.92 853.80 72,645.92 321
Total 303,804 34,343,705 49,406 1,696,595

[Source: ASSC Factory & Shops Sales report (July 2009 - June 2010), Financial Statement for the
year ended June 2010, company records and own computation]

As it is shown on the above table 4.3, the company incurs about 1.7million birr for the ended year to
have a sales value of 34,343,705birr. It also shows that some retail shops have low sales
performance though they have high operating cost with a small difference relative to the shops with
high sales performance. This indicates that shops namely; Nazareth, Agaro, Mekelle, Awassa and
Nekemete, have unnecessary expense relative to their sales performance.

Generally, distribution centers (DC) in Addis Ababa have a higher sales performance than out of
Addis Ababa even they are less in number (41% of the total shops). Let us see this with the
following comparison analysis.

4
Operating cost is the total sales and distribution cost and it covers all expenses of the shops

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 Table 4.4 Performance comparison of ASSC outlets
DCs in DCs out of
Comparison criteria AA AA Total
No of DCs (% from total) 7 (41) 10 (59) 17
Sales value (birr) 26,698,683 7,645,021.04 34,343,705
Operating cost (birr) 791,651.06 904,944.08 1,696,595.14
Transportation cost (birr) 37,088.10 12,317.8 49,405.90
Sales share (%) 77.74 22.26
Operating cost share (%) 46.66 53.34
Transportation cost share (%) 75.07 24.93

From the total outlets’ annual sale of 34,343,705birr, about 78% is sold by DCs in Addis Ababa
which are only 41% of the total outlets. However, these DCs take about 75% and 47% of the total
transportation and operating cost respectively. These outlets are very near to the factory but the
transportation cost is high. The possible reasons are:

 High frequency of order in AA and so high transportation frequencies

 Non optimal distribution (for any quantity of order there is transportation but for outlets out
of Addis Ababa they check the quantity and capacity of car)
 Shortage of order for DCs out of AA which makes the transportation cost low

Table 4.5 below shows that the retail shops are with excessive inventory on hand which affects the
company in capital tied up and additional storage handling costs. In addition, excess inventory held
too long can become obsolete and lose value which could significantly reduce inventory value. The
table also shows that about 10,787pairs of obsolete shoe stock is registered from the finished goods
count for the year ended June 2011. As a result, the company incurs unnecessary cost (defect cost)
of 1,053,737.5birr of which, 250,529 birr is only by its retail shops. It was due to poor inventory
management of the retail shops and stores of the company.

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 Table 4.5 ASSC outlets inventory level for the year ended June 30, 2011
S.N Distribution normal shoe stock defect, damage or dispair shoe
Centers/stores quantity(pairs) value(birr) quantity(pairs) defect cost(birr)
1 Lideta shop 7869 797093 151 14647
2 Merkato shop 6183 632461 400 38800
3 Piassa shop 6015 614101 413 40061
4 Arada shop 7463 748100 420 40740
5 Ambassader shop 3778 352746 95 9215
6 T/Haimanot shop 2787 290987 0 0
7 Goffa shop 3537 361415 98 9506
8 Gondar shop 6927 827655 0 0
9 Dessie shop 4053 415740 26 2678
10 Jimma shop 867 98340 52 5356
11 Bahir Dar shop 3789 409435 226 24408
12 Dire Dawa shop 2768 291010 76 8208
13 Nazreth shop 2397 265559 0 0
14 Agaro shop 4425 412360 356 36668
15 Mekelle shop 1403 166535 52 5616
16 Hawassa shop 2022 220780 15 1545
17 Nekemete shop 3389 339850 127 13081
18 T/Haimanot store 21322 2068234 8037.5 779637.5
19 Finished G. store 19624 1903528 243 23571
Total 110,618 11,215,929 10,787.5 1,053,737.5

Note: the value of inventory (normal or obsolete) was computed considering one month (March) local sales
price.
[Source: ASSC records of outlets inventory count for the year ended June 2011 and own
computation]

Generally, some of the retailer shops are not giving much or expected importance for the company
because of the following problems:

 Low annual selling performance and high selling and distribution expense
 High damage, defective or mismatched pair
 Higher inventory (finished products)

Weak market assessment and selling; poor management of inventory or stock by shops, high sales
and distribution cost (about 1.6million birr yearly); high total stock level (30,110,185birr and
28,243,106birr for the year ended June 30, 2010 and 2009 respectively), no proper control and
management of the distribution channel, no study done yet whether the existing channel is optimum
and profitable, and high obsolete (damage, despair, defective shoe stock) are some of the major and
analyzed issues related to distribution process of the firm.

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4.3.6 Finance and accounting process

As of most Ethiopian factories, ASSC uses mostly the traditional accounting management system to
measure performance i.e. finance and accounting measures such as cost allocation technique,
income statement, statement of owners equity and statement of cash flow. In this process financial
performance measures such as sales growth, ROI, annual return on total asset (ROA), and profit and
loss are measured yearly via financial statement format. Financial statement of ASSC is done
annually and it includes profit and loss statement, statement of cost of goods sold, inventory or total
stock check up, sales and distribution expense of each retail shops.

The company is faced with working capital shortage due to financial problem i.e. capital tied up and
high inventory holding is one of the major factors. In ASSC, there are much raw materials such as
sole, texon board, counter, toe puff and different types of leather, stored for long period - six month
and above. This shows that imported raw materials (with high foreign currency) will be stored for
long time and cause extra costs (holding costs). The Company is with profitability, cash-flow and
indebtedness problems, partly due to high interest rates of debtors [52].

It is recognized practically that with the business era of more demanding customers and more
competitive markets, existing cost accounting systems and manufacturing strategies are in sufficient
to resist the changes. Therefore, the existing performance measurement ways are lagging indicators
that provide only historical financial data; they provide little indication of how performance is
achieved or how it can be improved in future; encourage short term benefits and local optimization;
they are internally focused rather than externally with little regard for competitors or customers; lack
in strategic focus and often inhibit innovation. Quantitative productivity and financial trend
indicators are done on routine basis without regularly conducted in planned manner (assigning
competent personnel) to lead continual improvement based on analysis of trends.

4.3.7 Human resource development and administration process

In this process, issues that have to be given focus are recruiting, education and training, payment
and incentives, motivation and generally employee satisfaction, development and proper human
resource management. Unless these issues are performed well they will directly or indirectly affect
the total performance of the firm. For example, in ASSC the payment is unsatisfactory and is not
based on performance so it did not motivate production workers towards productivity. Production
workers mostly are with no training and education for long time, no salary promotion, sometimes
unsatisfactory incentives or bonus which these all affects the satisfaction of employee. The
discussions with some of the workers of the firm show that there is no regular work progress
meeting and discussion with management bodies towards the working environment and timely
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problems. Trainings are mostly on job and almost insignificant in giving educational opportunity for
employee.

The training performance of the firm for the budget year 2002E.C, only 41% (463) is performed
from the plan (1125 workers) and most of them are on job trainings given in different production
section of the firm. For this budget year only 4 persons are given other trainings. In the educational
level of the permanent employees for the budget year 2003E.C, 3.3% are professional and 16% are
semiprofessional. Currently (2003E.C.), the company has 825 total number of employee. Generally,
from these conditions it can be said that training, education and development activities are low.

Performance based evaluation system/procedure to evaluate employees objectively based on defined

criterion that encourages/motivates best performer workers through bonus or other incentives and
penalizes lagging once is not in place.

4.4 Performance gap analysis of ASSC against benchmark targets

The benchmark analysis is done to show the operational performance gap of the firm from the
international benchmark or current company status against benchmark target line using the available
recent data of the firm. The international benchmark target values are taken from the study made
before by the firm under MoTI and UNIDO [7]. Accordingly, the quantitative and qualitative
analysis made shows that with regard to the operational performance and productivity, their critical
deviation is high.

The gap analysis is made up on 14 quantitative and 13 qualitative parameters. In the qualitative
parameters specific targets are not identified and specified. However, the existing reality of the
factories is included. The gap analysis of ASSC against quantitative parameter and qualitative
observation are analyzed and presented below in table 4.6 and 4.7 respectively. Illustration of the
gap identified is presented in graph (figure 4.8) in order to visualize the current status.

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 Table 4.6 Benchmark intervention for Anbessa shoe factory (quantitative analysis)
S.N Benchmark Dimension Internatio Comp Critical Comment
parameters nal Bench any Deviatio
mark (ASSC) n (%)
1. Productivity level
Labor (overall) Pairs/shift/per 16 3 -433.3 Taking nine month
son performance for the 2003E.C.
Cutting yield % 94 85 -10.6 Design allowance & scrap
2. Company size Number of 600 825 27.3 675 permanent and 150
employees contract employees in
2003E.C
3. Production Pairs/shift 6500 2250 -188.9 1500 for main factory & 750
(volume) for MANPO branch on
average in 2003 budget year
4. Capacity usage % 92 50-65 -60 Current capacity utilization
5. Lead time
Raw material Days of raw 30 7 -328.6 taking 7 days for finished leather
material (major raw m.) on average but 90
days for imported raw materials
and spare parts
Work in process Days of work 4-10 5 - On target
in process
Finished product Days of work 10 7 -43 Order based
in process
6. Overhead structure
Supervisor/ Workers per 25 31 19.4 25 supervisors
Worker supervisor
Indirect % <15 48 68.75 557 production and 268
/direct staff supportive staff in 2003E.F.Y
7. Down time % 0 25 100 Intermittent material supply,
power interruption and
machine breakdown
8. Material cost/total % 45-60 60-70 19.23 Considering the current
cost market condition & firm
practice
9. Absenteeism % <6 2.4 - On target
10. Level of defects % <3 5 40 Taking defect level reported
for lasting & finishing

Note: In the table above (table 4.6), company performance measures are made based on its
performance report for the nine month of 2003E.C. budget year. Critical (Deviation %) is calculated
using (company performance level -benchmark level)/company performance level.

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 Table 4.7 Benchmark intervention for Anbessa shoe factory (qualitative analysis)
No Benchmark Observation
parameter
1 Organizational
The company like any public enterprise has an organizational structure.
structure However, it does not correspond with a typical footwear industry. It is
functional type and overstaffed. The company has abnormal indirect to
direct labor ratio. There is no footwear technology training and R&D
departments.
2 Factory layout
The main factory is with appropriate plant layout that assures optimum
material and work flow. In terms of work environment design or
ergonomic view, there are still some gaps. The branch factory, on the
other hand has a layout problems in relative terms.
3 Marketing
The company has export strategic plan. 17 sales outlets for local market.
policy/strategy The company is dependent on some specific customers in its export
market. No proper formal marketing operations and market study.
4 Design & product
development There is a design section for local product design and development
activity. However, its capacity is highly limited to meet the needs of the
export market.
5 Human resource and
 Out of its total permanent workers, more than 50% are greater than 50
development years old and out of the total workers only about 4% are professional
and 16% semiprofessional.
 There are no records of effective training system such as lists of
property identifying training needs, report of delivered training
programs & evaluation results including assessments of impacts of
training programs
6 Information
Limited to typing purpose and recently implementing ERP system to
Technology system make information sharing easy via IT system.
7 Quality standards and
There is no quality standard implemented. Quality management system
control activities (QMS) based on ISO9001:2008 design and implementation is underway
integrated with business process reengineering (BPR). No quality
manual and Statistical Quality Control application to know reject
reasons & take correction.
8 Setting standard time
It is done some times but not performed for all process in documented
application for every
way consistently by collecting updated process, machine and related
article data to reduce work content , for capacity loading of operators and
optimizing productivity & linked directly to improvement action
9 Production planning
There is production planning and control division. But its current
and control performance is merely limited to planning daily production output based
on capacity and order. In the near future it is expected to be fine
according to ERP system
10 Performance
Periodic reports and annual employee appraisal using fixed performance

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 indicators (employee) measures is being used and no other performance evaluation system

11 Management
Poor level of performance and competence by the existing management
capabilities team and currently most of them work as acting body in their positions.
12 Upgrading
The company has recently(before 3 yrs) implemented expansion project
and created a production capacity of 4500 pairs/day (3000 pairs/day in
the main factory for export and 1500 pairs per day in the branch factory
for local market)
13 Store management
 Inventory turnover ratio of materials is not yet carried out in
documented manner (4times a year as of benchmark)
 ABC (very expensive, expensive, less expensive) analysis of
materials and checking of the shelf-life of the materials per the
standard provided by the supplier are not yet applied in the company

The gap analysis reveals that ASSC has more than 100% of gap in 4 quantitative parameters (below
target line): labor productivity, production capacity, raw material procurement lead time and
machine down time. It meets the benchmark target in 2 parameters. It has also an average 58% gap
in the remaining parameters. Moreover, out of the 13 qualitative parameters observed, the company
has critical deviations in 7 parameters: organization structure, design and product development,
human resource and development, IT system, production planning and control, quality standard and
control, and management capabilities. In general, the gap analysis shows that the firm’s overall
productivity is poor as compared to the international standards and it can be said that it is operating
at low performance. This is one of the major constraints of the company that challenges its
competitiveness in the global market.

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 Figure 4.8 Benchmark Deviation Map for Anbessa Shoe factor

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 4.5 Summary of problems and the findings

4.5.1 Cause and effect analysis

Cause and effect diagram or fishbone diagram was developed by Ishikawa (1976) to determine and
break down the main causes of a given problem [33]. Under the cause and effect analysis (figure
4.9), it is tried to illustrate the possible relationships between the major identified performance
effects and the causes influencing it. The analysis also assists in helping to uncover the root causes
of a performance problem and in generating improvement ideas. The researcher also tries to
synthesis the identified performance problems categorizing under the five basic performance
objectives (cost, quality, delivery/speed, dependability and flexibility) [13]. The interpretation or
way of usage of each performance characteristics in this study is described as follow: Cost= internal
production cost, distribution cost & price to customers; Quality= shoe quality and distribution
service quality in meeting customer perception; Speed= how quick delivery; dependability= stability
of processes in dealing with delivery of shoes & distribution services at the right time or reliable
operation and dependable delivery; Flexibility= how the company react to changed demands and
requirements of both customers (local and export) and the line of business.

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 Cost Unskilled & low Quality
training

Low labor Rework & scrap

High raw material productivity Defective
cost Low payment & motivation leather Low range of products

Poor management
High inventory Poor quality shoe Customer handling mechanism

High sell price

Resource utilization Lack of QMS Not stylish & aesthetic
Poor sell performance
Labor cost (OT) Customer misconception
Customer complain
to local products
in delivery
Poor prodn. plan&control Sales & distrbn. Cost
Low
Organizational
Performance
Financial prob.
Product dev’t & sample check time Down time Low range of products &
poor in product dev’t
Power
Lack of ICT system interruption Lateness of
orders Not cooperative with other firms
& Lack of improvement method
Supply & procurement Customer Unstable RM
lead time waiting time supply
Production management skill
Distribution Through put time Purchasing
time process Shortage of raw material
Frequency of delivery
Working capital shortage

Speed/Delivery Dependability Flexibility

Figure 4.9 Cause and Effect Analysis of organizational performance problems

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4.5.2 Classification of problems (internal/firm level and external)

In the previous sections (4.3-4.5.1), different problems within the firm are identified, discussed and
analyzed. In this section, the major problems are summarized categorizing each under two groups:
internal and external. Internal problems are problems which can be solved by the firm alone using
its potentials and resources to improve its organizational performance; whereas external problems
are mostly general or sector level problems which needs the involvement of different bodies like
government, organizations and associations in cooperation with the firm. The objective of the
classification is to identify and know the firm level problems of the company so as to prioritize and
identify the intervention areas to be addressed in the solution part and to forward improvement
directions to the external ones.

1. Internal or firm level problems

The problems are listed under the major processes of the case company as discussed in section 4.3
for ease of management.

⊗ Production Process Problems

 Low performance of supervisors in production control and in motivating workers towards

productivity
 High manufacturing cost; rework cost, non optimal resource utilization (e.g. cutting 15%
scrap)
 Poor and not well organized production plan: no organized way of approving, documenting and
recording the different levels of plans in such a way to be used as in input for evaluating to trace
performance and then taking necessary improvement actions
 High down time (25%) due to lack of proper maintenance, machine failure and power
disruption
 Production delay and delay in delivery due to poor production plan and control
 Low production capacity utilization to respond to some large export order in terms of
quantity and time
 Quality problems with the shoe (not defect free ): poor quality of raw material (processed
leather), poor lasting and finishing due to lack of skilled labour and technology
 Shortage of enough orders and small model type orders which results delay due to changing
production line (set up time)
 Lack of communication with other departments such as sales and distribution, procurement
and material stock management.

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⊗ Procurement and Stock management process problems

 Long procurement lead time (3-5months)

 High stock level (about 10million birr raw material, 5million birr WIP and 14million birr
finished goods for 2010)
 Low inventory turnover ratio (about 1.5)
 High cost of raw material (65% of total cost) and inventory holding
 Poor material and or stock management and poor components procurement system

⊗ Design and/or Product Development Process problems

 Lack of design capabilities and no design infrastructures like computer and no CAD/CAM
system
 The shoes lack in looking good, fashionable, in terms of last shapes and heel heights and are
not freely available in men’s, women’s and children’s styles.
 No documented mechanism for conducting fashion forecasting by considering competitors
found in the different region of the world
 No organized research and development department and activity: no new product
development activity, less product range

⊗ Sales and Marketing process problems

 Lack of attention to what the market demands in shoes in terms of quality and price
 There is no consistently implemented marketing system or strategy and the marketing staffs
lack adequate marketing expertise to enhance marketing endeavors for the factory
 Low sales performance of some factory outlets
 Though total sale shows an increasing trend, net profit is less relative to total sale (1-2%)
 Low export sales performance (40.6% with the planned)
 Not price competitive due to high manufacturing cost
 No market research and less promotion of their products

⊗ Distribution process Problems

 Poor management with the distribution system: high inventory hold up - finished goods
stock which leads to capital tied up, obsolete (damage, defective or dispair) stock on each
retail shops, low annual selling performance and high selling and distribution expense
 Delay in delivery time for local orders
 Lack of market assessment via the retail shops to know local customer needs
 Poor inventory management with retail shops and warehouses
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  Poor communication with the factory as well as in between shops

⊗ Finance and Accounting process problems

 Lack of access to finance or shortage of working capital

 Inadequate costing systems which lead to high price decision
 Limited to financial measures or cost accounting which is not an integrated performance
measurement technique
 Financial performance is not as expected and lack of awareness towards allocating budget to
some improvement actions or projects

⊗ Human Resource Development and Administration process problems

 Poor employee satisfaction (unsatisfactory payment, no incentive, no education and regular

training) which in turn affects the labor productivity
 The skill improvement trainings are provided not regularly in planned and documented
manner by generating sufficient training records like list of identified training topics that
arises as result of actual skill gap audit and training reports. The training effort doesn’t
include management level it only focus on operator or supervisor positions
 Lack of diversified and up-to-date training programs
 Poor training plan performance and unsatisfactory management and administration skill

Generally, there is a traditional performance measurement system (the annual performance report
and financial statement which mostly shows the financial measures), utilization of the available
performance measures in unbalanced way and no performance improvement method implemented
and used scientifically in the factory.

2. External or national level problems

These problems are mostly sector level which cannot be solved only by the firm alone and so
integrated national wide or level solutions are required. These include:

Lack of finished leather which is a serious constraint to the operation and to the development of
the firm. Relatively high quality leather is mostly for export
Lack of skilled labor supply
High cost of RMs and price variation: finished leather, imported accessories and components
Delay in delivery due to long procurement lead time and shortage of processed leather
The negative image of Ethiopia and ‘made in Ethiopia shoes’ makes the promotion of Anbessa
shoe difficult to international market

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 Lack of co-ordination of activities by the firm with other enterprises, the raw material suppliers
and the supporting institutions, both public and private that operate in the different segments of
the value chain. This is the basic requirement in serving the export market
Lack of subcontracting or share of resources or ideas among firms
In adequate management of the supply chain, even within the firm (poor communication and
link within departments of the firm) due to lack of information system.

4.5.3 Summary of the findings

From the study conducted, though there are both internal/firm level and external problems, the focus
of the study is to the firm level problems because these problems can be solved by the firm using its
own potentials, resources and appropriate method to improve the organizational performance.
However, the external problems need participation of different bodies – government, associations
and organizations.

The intervention areas in one or another way are related with the problems of financial, operational,
employee satisfaction, quality performance and customer satisfaction which are all total
organizational performance problems. To solve such problem, it is a need to use a total performance
improvement method which can have a balanced performance measures and management
philosophy.

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 CHAPTER FIVE

SOLUTION PROPOSAL

5.1 Selection and proposal of performance improvement method

As discussed and argued in section 4.5.3, it is needed to use a performance improvement method
which have a total performance management concept, balanced measures and continuous
improvement. To select and propose appropriate method having such management philosophy, let
us review some of the recent and available performance measurement and improvement methods.

Business excellence in the 21st century will be driven by a structured methodology for using
performance measurement information. In order for an organization to make effective use of the
results of performance assessment, it must be able to make the transition from assessment to
management. It must also be able to anticipate needed changes in the strategic direction of the
organization, and have a methodology in place for effecting strategic change. Successful
accomplishment of these two tasks represents the foundation of good performance management.
Both of these tasks can be greatly facilitated by use of the balanced scorecard. In other words,
besides simply assessing performance, the balanced scorecard provides a structured framework for
performance management [53].

Performance improvement is high on the agenda of many companies around the world and with the
growing number of improvement models now available care has to be taken to adopt an approach
that will yield the most attractive return on investment. A common theme in the newer integrated
performance models or frameworks has been a determined attempt to the performance metrics more
closely to a firm’s strategy and long term vision. One of the more comprehensive frameworks which
has received wide publicity and has recently been adopted by many organizations worldwide
particularly in Europe and USA is balanced score card [54]. Though BSC is the better performance
measurement and improvement method recently used worldwide, it has got many pitfalls and critics
by different authors as discussed below.

Failures of the balanced scorecard concept

Numerous case studies indicate that the implementation of the BSC according to Kaplan & Norton
in North America have been disappointing at best, and in Europe and South America even more so
(Angel & Rampersad, 2005). An estimated 65% to 70% of organizations within corporate Canada
have adopted BSC’s. A few users — some 10% — insist their scorecards are achieving positive
results and meet with spirited rebuttal suggestions that balanced scorecards do not work. In contrast,
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a much larger group doubts that scorecards achieve sustained financial performance improvement.
The view from hands on experience is that scorecards rarely achieve sustained financial
improvement break-through. BSC implementations tend to be insufficiently committed to learning and
rarely take the personal ambitions of employees into account. The researchers do not argue that
balanced scorecards are fundamentally inappropriate as management tools. Quite the reverse, the
researchers support the philosophy of balanced scorecards — but with a modified approach,
according to the organizational balanced scorecards (OBSC) system, to implementation that has
been proven to produce better results. Our position is that organizational scorecards need to be
aligned with individuals’ scorecards to turn the BSC into a powerful tool for sustained organizational
performance [32].

The researchers’ (TPS founder) conclusion, based on 20 years of research, is that scorecard
performance depends on alignment between the goals of the organization and the personal goals of
the employees to realize transformational performance change. What they referring to is the aligning
of individuals’ personal ambition with the shared ambition, which is a prerequisite for sustainable
cultural change and development of organizations. Alignment means linking the organization’s
mission, vision, and core values with the individual’s personal mission, vision, and core values. This
lies at the heart of successful organizational change and development.

Traditional balanced scorecard implementations tend to be insufficiently committed to learning and

rarely take the personal ambitions of employees into account. Without a set of rules for employees
that addresses continuous process improvement and the personal improvement of individual
employees, the experience is that too little employee buy-in and insufficient change in the
organization’s culture underlies BSC disappointment. The result, experienced in so many BSC
implementations, is that any improvements tend to be superficial and temporary. The researchers
have seen many examples of scorecards that did not achieve alignment and resulted in an apparent
performance improvement that dissipated very quickly. In other cases, the improvement never
materialized. Frequently in such cases, management’s efforts to improve performance were seen as
divisive, viewed by employees as aimed at benefiting senior management compensation plans and
fostering a “what’s in it for me” attitude among the employees. In the aligned environment, metrics
needs to support the people alignment to organizational alignment. The text box below shows ten
reasons for BSC failures (Angel & Rampersad, 2005). [31, 32]

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 1. Emphasis mainly on financial rather than nonfinancial measures, leading to measures that
do not connect to the drivers of the business and are not relevant to performance
improvement.
2. Accounting approach with a systematic neglect of the human capital; no linkage between
the critical success factors of the organization and the personal critical success factors of
individual employees — creating human capital tensions between work and non-work
aspirations.
3. No explicit link between shared ambition and specific organizational objectives; results in
insufficient employee support to work according to organizational performance measures
and an implementation plan that is not grounded in reality and unable to respond quickly
to unforeseen events.
4. Too many objectives defined and too many performance metrics being measured to
enable the organization to prioritize improvement steps adequately
5. Data on current individual and organizational performance insufficiently available; poor
data on actual performance, negating most of the effort invested in defining performance
measures by not being able to monitor actual changes in results from changes in behavior.
6. An implementation plan that is not grounded in reality and unable to respond quickly to
unforeseen events
7. An employee mentality that is hostile to management messages (the obverse of the
previous point), often because communications have tended to be one-way and forced on
an unwilling labour force
8. Results in an individual performance plan that focuses too much on the money side and
not enough on delivering organizational values, leading to a “what’s in it for me” culture.
9. Self learning and team learning are not stimulated; results in creation of a climate of
defensiveness and mistrust and a business strategy that is poorly understood and therefore
impossible to execute.
10. No explicit link between personal ambition and shared ambition/organizational.

Due to the failureties, pitfalls and critics towards BSC, as discussed above, another performance
improvement method for creating a learning organization is needed in which personal and
organizational performance and learning mutually reinforce each other on a sustainable base.
Traditional business management concepts are insufficiently committed to learning and rarely take
the specific personal ambitions of employees into account. In consequence, there are many
superficial improvements, marked by temporary and cosmetic changes, which are coupled with
failing projects that lack sufficient buy-in by personnel and, in some cases, even have an adverse
effect. Accordingly, this study selects and proposes a new holistic business management concept,
called Total Performance Scorecard (TPS). It stresses the importance and need of developing an
organizational structure and philosophy that combines the goals and aspirations of the individual
with those of the company. It is a melding process, which results in a corporate culture that is both
individually and organizationally driven. The concepts embodied in this management concept
provide solutions to preserving and utilizing individual rights and capabilities while adjusting the
organizational structure and philosophy to this new environment. TPS has been done by expanding
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and integrating concepts such as the Balanced Scorecard, Total Quality Management, Performance
Management and Competence Management into one overall framework.

5.2 Total performance scorecard (proposed method)

The definitions of the method (TPS) given in different sites, scope and elements of the model are
discussed before in the literature part of the study (refer section 2.3.2). In this section it is tried to
show how the scorecards in the model (personal balanced scorecard and organizational balanced
scorecard) formulated and implemented, what elements they contain, how they will be
communicated and linked to bring the total personal and organizational performance.

5.2.1 The Personal Balanced Scorecard (PBSC) of the model

The PBSC forms the total of the personal mission, vision, key roles, critical success factors,
objectives, performance measures, targets, and improvement actions (divided along the four
perspectives: financial, customers, internal processes, and knowledge & learning), see table 5.1. The
formulation and use of the PBSC make up the first step in change management. It enables the
factory’s workers to distance themselves from their mindsets (ones mental frame work, assumptions
and beliefs coloring the world) and allows them to listen effectively to their inner voice. By
scrutinizing ourselves (through a better self-image and self-knowledge) our learning ability can be
improved. Self-knowledge means self-awareness.

Formulating the PBSC

Formulating your personal ambition is a search for your identity. Understanding your identity is the
key to action. Through this a stable basis will be created for your own credibility. This also has a
positive effect on loyalty, motivation, and dedication of others around you (in the factory and out of
the factory). This also involves self-guidance, motivation, enjoyment, passion, commitment, energy,
inspiration, and enthusiasm.
Table 5.1: PBSC-elements and related questions (Rampersad, 2003)
Elements of PBSC Objectives / related questions
Personal Mission Who am I?
Personal Vision Where am I going?
Personal key roles What type of relationship would I like to have with others?
Personal critical success factors Which factors make me unique?
Personal objectives Which results do I want to achieve?
Personal performance measures
How can I measure my personal performance results and what are my targets?
and targets
Personal improvement actions How do I want to achieve the results?

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The development of the shared ambition and the personal ambition takes place simultaneously;
when answering the question of what we want for the organization and where we want to go
together, we also ask ourselves at the same time, what we want for ourselves and which win-win
situation lies between both interests. Hidden behind our behavior are the inner needs (incentives)
related to our mindsets. These needs and those of the organization have to be aligned for the sake of
more labor productivity. Moreover, it can be seen in practice that if one has a clear personal
objective, it gives meaning and direction to one’s life. By formulating a PBSC and reflecting on it,
you’ll gain more control over your own life and finally you’ll learn to get to know yourself better.

The same four perspectives in the BSC-concept form the starting point in the PBSC-concept.
However, in their content they have a different meaning. The perspectives include the personal
results that are of essential importance to your self-development, personal well being and success,
namely:

1. Financial: financial stability. To what degree are you able to fulfill your financial needs?
2. Customers (external): relations with your spouse, children, friends, employer, colleagues, etc.
How do they see you?
3. Internal processes (internal): your physical health and mental state. How can you control these
in order to create value for yourself and others?
4. Knowledge and learning: your skills and learning ability (the ability to learn, that is, how to learn
learning). How can you remain successful in the future?

Implementing the Personal Balanced Scorecard

After formulating the PBSC, the next step is the implementation of the formulated PBSC in the
(self) coaching process. This is necessary to see employee’s awareness grow step-by-step, to
continuously develop his/her skills and to keep improving and become more creative on the basis of
the PBSC. The founder of TPS introduces a new learning cycle to accomplish this, the Plan-Do-Act-
Challenge (PDAC), which keeps running continuously (see figure 5.1).

To live in accordance with the PBSC and the implementation thereof as per the PDAC cycle, results
in a cyclical learning and step-by-step process in order to increase awareness, joy, fun and creativity,
at work as well in your spare time. This cycle consists of the following four phases (Rampersad),
2005):

 Plan: Formulate or update your Personal Balanced Scorecard (PBSC), which focuses on job and
free time.

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 Do: Start with a simple objective from your PBSC with corresponding improvement action,
keeping in mind the priority this has been given. Submit yourself with courage to this objective,
even when you run into resistance. Root your good intentions with an agent (spouse, friend,
colleague or manager), or with your group, which will ask questions and gives you honest
feedback. After that you start your improvement action with emotional dedication, self-
confidence, willpower and purpose and concentrate on your actions. This must be in accordance
with your present skills. The “doing” is related to acting with purpose and to deliver efforts to
realize your objective. Ask often for feedback from your agent. This gives you the opportunity
to measure the improvement you have made. Start with habits, which restrict you, influence your
life unfavorably, and deliver poor results.

Increase Step by step increase of

awareness, enjoyment,
fun, learning & creativity
Challenge PLAN
- accept larger -Formulate or update
challenges your PBSC, focus on
-choose more objective your work & spare
with your new skill time
-develop your skill
-enjoy the experience

Act Do
- check the imprv’t - Start with a simple
action objective with its
-evaluate the results impv’t action
-develop your skill -execute it
-ask for feedback

Figure 5.1: The personal PDAC Cycle (Rampersad, 2005)

 Act: Check if the improvement action is working and take action when it is not. Review the
results according to defined personal performance measures and targets; check to what extent
you have realized your personal objectives. If you have not been able to realize your objective,
please do not worry about it. Just start again. You will improve steadily and it becomes a habit
to do good things, if you evaluate your PBSC each month with your agent, and learn from the
acquired experiences. Develop your skills and competencies to achieve the target you selected.
Implement the proven personal improvements, assess the personal results, document the lessons
learned, and improve and monitor your actions and thinking continuously. Also think about
bringing your personal ambition and your personal behavior in balance, which will result in
influencing your ethical behavior.

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 Challenge: Accept larger challenges by selecting a more difficult objective and corresponding
improvement action from your PBSC and get on with it. Take your chance and be conscientious
to choose a more challenging objective in line with your improved skills when the current
improvement action starts being boring. Enjoy the pleasant experience and document what you
have learned and unlearned.

Generally, what are the reasons for applying the personal balanced scorecard?

 Self-learning and working smarter; formulation and implementation of your PBSC results
in (if you are open to it) a better self- image and self-knowledge, which results in a larger
self-learning ability, higher creativity and real learning.
 Personal integrity; on the basis of the balance between your personal ambition and your
personal behavior, you will create inner peace and improve your own credibility
 Effective talent management and becoming a highly disciplined time manager by using
your time effectively.
 Team learning; to stimulate individuals to share their personal ambition with each other
 Reducing stress, driving out fear and enjoyment at work
 Recruiting employees effectively – job fit

Aligning Personal Ambition and Personal Behavior

The next step on the way to sustainable personal improvement is to give attention to your personal
ambition. Aligning your ambition with your behavior is necessary for developing inner peace and
personal charisma, as well as for improving your credibility with others (Rampersad, 2003). When
you do this you avoid conflict with your conscience and act in an ethical manner. To become the
person you have envisioned in your personal ambition, you also have to know how others see you
and what they think of you. When you know this, your self-knowledge increases and you are able to
improve the effectiveness of your actions. Therefore, this process of developing self-knowledge
involves the establishment of a balance between your personal ambition (which envisions a higher
level of consciousness) and your personal behavior (which refers to your present behavior).
Aligning your personal ambition with your behavior ensures that your actions in society are right
and in accordance with your conscience.

5.2.2 The Organizational Balanced Scorecard (OBSC) of the model

The Organizational Balanced Scorecard (OBSC) is a top-down management instrument used for
making an organization’s strategic vision operational at all organizational levels [55]. It has the

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same framework as the PBSC and therefore the formulation will not be discussed here in detail. The
elements of this strategic management concept are presented below in table 5.2

Table 5.2: Elements of OBSC and related questions (Rampersad, 2003)

Elements of OBSC Objectives / related questions
Organizational Mission Why does our organization exist?
Organizational Vision What is the most ambitious dream of our organization?
Organizational key roles Which values are precious to us?
Organizational critical success
Which factors make us unique?
factors
Organizational objectives What results do we want?
Organizational performance
How can we measure the results?
measures and targets
Organizational improvement How do we want to achieve the results?
actions

OBSC = organizational mission + vision + core values + critical success factors + objectives +
performance measures + targets + improvement actions (divided along the four perspectives:
financial, customers, internal processes, and knowledge & learning).

Aligning Shared Ambition with Ethics

Business ethics is an essential part of the TPS concept. This implies that organizations must care
about ethics and corporate social responsibility to ensure that their actions have integrity and reflect
high ethical standards. The shared ambition should, therefore, be inspired by ethics. Ethics concerns
human duty and the principles on which this duty is based (Thompson and Strickland, 2002). Every
company has an ethical duty to its shareholders, employees, customers, suppliers, and the
community at large. Each of these stakeholders affects the organization and is in turn affected by it.
A shared ethical ambition requires ethical behavior of everyone within the organization. In order to
be successful, management and employees should act in accordance with the formulated and values.

Aligning Personal Ambition with Shared Ambition

Previously it is tried to discuss the alignment of personal ambition and personal behavior for the
purpose of acting ethically, creating inner peace, developing personal charisma, and improving
personal credibility. The alignment of the personal ambition with the shared organizational
ambition is central for the purpose of stress and burn-out reduction, stimulating the enjoyment,
active participation, and motivation of employees. Once these two ambitions have been formulated,
there is the need for a period of reflection, a time in which to think profoundly about balancing these

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two scorecard elements. This process of balancing deals with obtaining a high level of concordance
between personal and organizational goals and a mutual rise in value.

It is known that ‘people do not work with devotion and do not spend energy on something they do
not believe in or agree with’. Clarity and uniformity of personal and organizational values and
principles are, therefore, essential for the active involvement of people. Experience teaches us that
identification with the organization is the most important motive for employees to dedicate
themselves actively to the organizational objectives. To sum up aligning personal ambition with
shared ambition deals with the mutual concordance of the Personal and Organizational BSCs or
individual versus collective learning towards high firm performance.

Communicating and Linking

Now, it is necessary to link the corporate (OBSC) to the scorecard of the business units and teams,
as well as to the individual performance plans of the employees to be able to put the strategic vision
into action. In case of ASSC, this is to mean linking the firm’s scorecard to the scorecards of each
department, divisions and sections, as well as the individual employee performance plans. Figure
5.2 below illustrates the different cascading layers in this process. Each process participant
formulates his/her own PBSC, which is then situated on a higher abstraction level than the related
individual performance plan. With this approach, a bridge is drawn between the successive
organizational levels; the message from top management is consistently articulated to the lower
levels-shop floor and vice versa.

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 Figure 5.2: Linking the OBSC to the Business Units’ BSC, Team BSC and Individual Performance Plan

By linking the objectives as such, the local efforts are aligned to the overall organizational strategy.
The formulating process is identical for the first three organizational sections mentioned. The
formulated organizational mission in the OBSC and the perspectives apply to all organizational
levels. The organizational vision and linked critical success factors, objectives, targets, and
improvement actions are adjusted and fine tuned to the related business units (departments) and
teams. The OBSC is used here as a frame of reference. Each lower level member should also reflect
upon the alignment between the own personal ambition and the organizational, business and team
ambition.

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 FORMULATING

Personal Mission, Vision and Key Roles

Financial Perspective Personal Critical Success Factors External Perspective

PBSC Personal Objectives

Personal Performance Measures and Targets

Personal Improvement Actions

Knowledge and Internal Perspective
Learning Perspective
Organizational Mission, Vision and Core values

Organizational Critical Success Factors

OBSC Organizational Objectives

Personal Performance Measures and Targets

Organizational Improvement Actions

Continuous
Personal
Competence Result
Improvement
Development Planning COMMUNICATING
Challenge Plan
and LINKING

Appraisal Coaching Act Do

DEVELOPING
and LEARNING

Act Plan

Check Do Continuous
Process
Improvement
IMPROVING

Figure 5.3: Proposed TPS model or cycle [adapted from Rampersad, 2003, 2005]

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Elaborated at the beginning of the 90’s by Robert Kaplan and David Norton, TPS provides a method
for maintaining equilibrium between the financial and non financial indicators and for making the
connection between the strategic and operational management [56]. For example, when we intend to
improve the sales management, TPS can represent a feasible solution. In this case the Organizational
Scorecard Balance transforms itself into the Sales System Scorecard Balance, and this includes:
mission, vision, critical success factors, objectives, performance indicators, the improvement targets
and actions within the sales system. In this sense, the concept would include continuous
improvement and functional processes control within the Sales System as well as the development
of certain strategies that focus on obtaining the competitive advantages of the sales activity.

5.3 Development of performance measurement framework/scorecard

Performance measurement plays a significant role in order to sustain an improved performance as it

is the first step for business performance improvement. The framework contains key performance
indicators or measures. Key Performance Indicators, also known as KPI or Key Success Indicators
(KSI), help an organization define and measure progress toward organizational goals. Once an
organization has analyzed its mission, identified all its stakeholders, and defined its goals, it needs a
way to measure progress toward those goals. Key Performance Indicators are those quantifiable
measurements.

The proposed measurement framework/scorecard is developed based on TPS concept and the key
performance indicators of the case company (personal and organizational KPIs) are selected
according to the intervention areas identified from the case study analysis. Accordingly, the personal
scorecard (personal performance measurement framework) contains the four performance
perspectives, personal goals of each perspective, personal objectives and performance indicators of
the goal, measures to each KPIs and the format for personal performance targets and improvement
actions is placed (see table 5.2). Similarly, the organizational scorecard contains these all issues (see
table 5.3).

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 Table 5.2 Proposed performance measurement framework/personal scorecards

Pers.
Performance Personal Personal Personal Perform.
Perspectives Performance performance performance Improvement
Personal Goals Personal objectives indicators (KPIs) Measures Targets Actions
Annual salary
More income or Salary percentage growth
increase salary Incentives Annual % growth
Financial Pension % of gross salary
Safer income
Financial health or Insurance % of gross salary
stability Expenses control % of the income % growth in a period of
destined to expense time
number of times
To have good r/ship you went out
To be appreciated by together in a nice No. of meetings/time
and be appreciated
the life partner place period
by family, friends,
colleagues and To be appreciated by
employer friends true friends Number of true friends
Level of the
Customer To be appreciated by received Type and number of
(external) the employer reward reward
To improve
employees’ satisfaction Employees’ % of employees’
level satisfaction level satisfaction level

To get higher amount

of trust from the The employer’s % of employer’s
To provide high employer in carrying satisfaction level satisfaction level
quality work out my work

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 To be physically and Sick leave % of sick leave
Pressure level Level of pressure
psychically in good
Internal Immunity level under
health stress conditions immunity level
personal
Process To fight for physical The number of paid holiday
and psychical health To get more spare time Spare time days per year
(physical health & To enjoy good thinks in
mental state) life Pleasure Happiness level
To have initiative, to To increase work
learn from one’s productivity Work productivity Personal outputs/inputs
own mistakes, to
improve myself and To improved
to develop myself management Number of efficient
continuously competences Initiatives Initiatives
# of success strategic
Knowledge success improvements
Strategic proposals proposals
& Learning
Self-improvement
opportunity in the management % of available management
management field competences competences
Attended # of attended management
management trainings trainings
% of employees that feel
Leadership abilities Employees feeling in they work under an
To learn every day improvement the leadership efficient leadership

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 Table 5.3 Proposed performance measurement framework /organizational scorecard

Performance Org. Org. Org. Perf.

Perspectives Organizational Performance Organizational Org. performance Performance Improvement
Goals Indicators objectives Measures Targets Actions
Delivery Increase on time delivery % of deliveries on time
Continuously Customer
Customer improve satisfaction Satisfying customers # of complaints
customer Competitive
satisfaction Price Competitive price comparison
Cycle time Reduce product cycle time Average cycle time
Average O/P per
Internal Labor productivity Increase productivity employee
Business # of defects & # of
Continuously Quality Produce defect free product items reworked
Process improve
business Material utilization Increase material utilization Percentage
processes Capacity utilization Increase capacity utilization Percentage
# of new
R&D Enhance R&D activities products/services
Continuously
develop and Improve interchangeability of
Innovation Modularization shoe parts # of reused parts
and Growth deliver new
innovative Improve employee skill Skill level
products & Training & Improve employee qualification
services education status Qualification growth
Sales growth Increase revenue Growth rate in sales
Continuously Market share Increase market share Company’s share
Financial improve
financial Cost of goods sold Reduce cost/expense Average unit cost
performance Profitability/ROI Increase return on investment ROI or ROA

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 5.4 Development of TPS implementation guideline

This section describes how to start a TPS program and bring it to a state where the process of
continuous improvement is institutionalized in the shoe factory. Primarily the implementation of
TPS to any organization is not an easy task because it requires investment, patience, organization
wide commitment etc. It is not a program that is applied and leaves it rather it requires continuous
improvement. Since organizations differ in their orientation, the application of one canned TPS
system will not generally provide the expected results of the cultural change to others. Nevertheless,
seven general steps are developed here to be applied to the footwear company and this is done based
on TPS concept and TQM implementation concept (see figure 5.4).

Step 1:
Need for TPS and
Management Commitment

Step 2:
Company Wide Awareness

Step 3:
TPS Team Formation

Step 4:
Formulating (PBSC & OBSC)

Step 7: Step 5:
Developing & Learning Communicating & Linking

Step 6:
Improving (personal & process)

Figure 5.4: Proposed implementation Steps of TPS

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The first three steps are considerations and activities to be taken by the shoe company before the
application of TPS concept. The TPS cycle has been developed in order to guide in the successful
implementation of the TPS concept. This cyclic model (see figure 5.4) consists of the remaining
four steps of the implementation guide line.

1) Management Understanding and Commitment

In this first step of the TPS implementation, there has to be a need for performance improvement of
the shoe factory using TPS method then understanding and commitment. As the study investigates
problems, there is a need to use performance improvement method in the factory. The main thing to
know is which method to be used? To do so the management body of the shoe factory has to
understand the method (TPS) and show commitment. Top management understanding and
commitment is the first step and prerequisite for a firm’s TPS implementation efforts. Lack of
management commitment is one of the reasons for the failure of performance improvement efforts.
Top managers need to demonstrate their commitment through their actions rather than words. The
management shall express its commitment and provide evidence for its commitment by allocating
the right and efficient resource, give time and participation, and empowerment (giving permission to
the workforce to unleash, develop, and utilize their skills and knowledge to their fullest potential for
the firm). In addition, it shall establish performance policy (statement on system and training) and
ensure the availability of the resources.

Top management commitment can positively affect employees’ commitment to improvement

method and culturally change people involved. Particularly in a firm with an autocratic general
manager, there is a strong trend that employees act on something only in proportion to the
manager’s degree of interest. However, if top management is committed and empowers workers, it
will benefit in increasing employees’ motivation to reduce mistakes, increasing the opportunity for
creativity and innovation, improving employee loyalty, and allowing top and middle management
more time for strategic planning. In case of ASSC, the management bodies includes: the general
manager, each heads/leaders of the five main departments and head of ‘Information, productivity &
service improvement office’. The general view of the method will be given first by expert. The
management has to examine how their company’s performance compares to the benchmark. This is
very much a basic set of rules and helps to set target. The proof that you have top management
commitment is given when you establish a steering committee of senior functional managers chaired
by the chief executive (top management body). The steering committee should then meet at least
once a month, to provide direction and identify priorities.

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 2) Companywide Awareness Creation

Whatever the level of awareness shown in the firm, there will be some need to explain Total
Performance scorecard (especially PBSC) throughout the organization. A top-to-bottom briefing
exercise is often the best way to get this message across. It is essential to avoid mere slogan sing and
to emphasize the concrete nature of the activities and the objectives of improved competitiveness. In
conveying the initial message, articles in company papers will be used. Culture is about the attitude
of a society at large. If it is found appropriate, a cultural change needs to be engendered through
induction, education and training for all personnel in the company to ensure that the attitude and
acceptance of ownership and commitment to TPS will be forged. This will be given first by the
expert and later in detail by the TPS team.

There is a need to carry out an attitude and awareness survey to find out how far the staff of the
factory understands total performance (personal and organizational). This can be done using some
questions, covering some of the key points in this material, e.g. ‘what do you mean by
performance?’ and ‘who is most responsible for performance improvement in the organization?’
When we carry out these exercises we like to look some percent of employees (may be at about
10%), with the bias being towards management, but not excluding the shop-floor.

3) Team Formation (TPS Team)

The complexity of most of the processes that are operated in the industry places them beyond the
control of any one individual. The only efficient way to tackle process management and
improvement is through the use of some form of teamwork which has many advantages over
allowing individuals to work separately. Without teamwork, the development of a flexible and
effective workforce, TPS will not operate. TPS requires the development of a more unified
organization, where individual workers, for example, will have to adhere to group’s standards. So
everyone in the company must be trained to work on a team bases. In case of ASSC, the
implementation of TPS has to be done by a TPS team consisting at least one member of the top
management and the information, productivity and service improvement head. This implementation
task force has to be empowered to all accesses of the organization and it is better if the team is
composed of multi-departmental members.

4) Formulating

This phase involves the formulation of the Personal and Organizational Balanced Scorecards.
Previously the issues of how PBSC and OBSC will be formulated and what elements they contain
are discussed in detail (see section 5.2.1 & 5.2.2). In general, the following four-step process that
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has been used across a wide range of organizations, are defined by Kaplan and Norton to develop a
Balanced Scorecard [53]:

 Define the measurement architecture - When a company initially introduces the

Balanced Scorecard, it is more manageable to apply it on the strategic business unit level
rather than the corporate level. However, interactions must be considered in order to avoid
optimizing the results of one business unit at the expense of others.
 Specify strategic objectives - The top three or four objectives for each perspective are
agreed upon. Potential measures are identified for each objective.
 Choose strategic measures - Measures that are closely related to the actual performance
drivers are selected for evaluating the progress made toward achieving the objectives.
(See the scorecard developed in section 5.3)
 Develop the implementation plan - Target values are assigned to the measures. An
information system is developed to link the top level metrics to lower-level operational
measures. This is already done in case of ASSC in ERP system implementation. The
scorecard is integrated into the management system.

From the intervention areas identified, there should be a time-phased plan for each project
identifying targets and milestones, resources required, costs and projected benefits. All the
interventions are important for the realization of the performance improvement targets of the shoe
factory. However, for efficient resource utilization and sequential implementation of the
interventions, prioritizing the interventions will be vital. Once the plans are prepared, it is the task of
the steering committee to prioritize them and to allocate resources.

5) Communicating & linking

In the previous section 5.2.2, it tried to see the formulation of both PBSC and OBSC and how
communication and linkage is conducted. All stakeholders share in the business strategy by
effectively communicating and translating (rolling out) the corporate scorecard to all scorecards of
the underlying business units and teams, and finally linking the team scorecard to the individual
performance plan of the employees. This top-down and bottom-up process is implemented, step-by-
step, to all successive organization levels in increasing detail. In this way, the overall strategy of the
organization is systematically translated into more specific plans on each organization level. This is
needed to shift the strategic version into action. Every individual on these three organizational levels
formulates his own PBSC and share this with colleagues.

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 6) Improving

This indicates continuously improving employees’ themselves and their work performance. It
concerns the implementation of the personal and organizational improvement actions based on the
PBSC and OBSC, respectively. The focus is on correct mistakes, improve existing things, do things
right the first time, and obtain new skills and capabilities through step-by-step improvement. The
personal improvement actions are implemented according to the introduced Plan-Do-Act-Challenge
cycle and the developed scorecard (see section 5.2.1 and 5.3 respectively). This result in a step-by-
step increase in happiness, awareness, joy, pleasure, learning and creativity occurs at work as well
as in your free time. The alignment of personal ambition with personal ethical behavior is also part
of this process. The organizational improvement actions are implemented according to the Plan-Do-
Check-Act cycle of Deming. This cycle consists of the following 4 phases: 1) Plan (develop an
improvement plan based on the benchmark gap); 2) Do (execute this improvement plan on a limited
scale); 3) Check (review the results of the improvement actions via the developed scorecard; and 4)
Act (implement the proven improvements by giving priority).

7) Developing & learning

The emphasis is on job-related talent management and learning. To be able to manage and use the
talents within the organization effectively, it is necessary to embed the personal and organizational
BSCs together with the ambition meeting in the talent management process. This is done on the
basis of the introduced talent management cycle that consists of the following phases: Result
Planning, Coaching, Appraisal and Talent Development. The learning process in this phase
encompasses the review of the scorecards, the actualization of these scorecards based on changing
conditions, the documentation of the lessons learned, and checking which things went well and
which went wrong during the previous phases. Depending on these evaluation results the
implementation or the formulation of the scorecards may be adjusted. This deals with learning from
gained experiences. It refers to internalizing acquired knowledge and actualizing it through
experience in order to change both the individual and collective behavior of employees and thus
enable the organization to perform better. The concordance of personal ambition and the shared
organizational ambition is taken place at all lower levels of the organization. The alignment of the
shared ambition with business ethics is also taken place in this phase of the TPS cycle.

Once TPS is implemented, it must be geared to continuous improvement i.e. seeking new ways of
opportunities, adapting new changes etc. In this phase continuous follow-up is needed to go on with
the dynamic world. The goals which were set at the previous implementation must be evaluated
whether they are achieved or not. If they are not achieved corrective actions must be taken before

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the improvement proceeds. So after completing the last step in the TPS-cycle, it will again be
followed through in order to continuously align the BSCs to the surroundings. Through the thereby
created learning effect, the shoe factory will get to know itself and its surroundings better and will
thus improve. This will continuously improve the organization’s learning ability. Naturally, the
same also applies to the employee. For example, by reviewing your PBSC quarterly with a trusted
representative and by learning from previously obtained experiences, you’ll learn to get to know
yourself and your surroundings better and through this you will improve. Strategy formation,
improvement, development of human potential and learning are thus a perpetual process.
Continuously going through the TPS-cycle will result in the continuous improvement of business
results through the years.

5.5 Role of stakeholders in the performance improvement of the footwear

sub-sector

The GoE has currently a vision to create globally competitive leather footwear companies. It is
shown in this thesis that the ELFFs are associated with firm level as well as external or sector level
problems. To fill the gap, the existing problems associated with the companies have to be solved
using firm level solutions as of the proposed method. However, involvement of different bodies or
stakeholders is needed to solve the external or sector level problems. Thus, to solve such problems
associated with the leather footwear sector and make the vision happen, the following improvement
directions or roles of stakeholders are suggested.

 The GoE have to play supreme role for the change to happen. Thus, the Government (under MoI
and LIDI) and other parties such as ELIA, UNIDO, GTZ, EQA and ecbp have to provide
necessary supports such as training, facilitating different activities and finance aids to the
companies. The government particularly has to work on not exporting finished leather before
processed and control price fluctuation of finished leather.

 A systematic pull approach (co-operative supply chain partnership) which was started by the
GoE is essential to improve the coordination between all the actors in the supply chain of
footwear manufacturing; therefore, this strategy has to be further supported to create favorable
condition for the sectors’ competitiveness.

 Regarding to the problem of accessories and components immediate and long-term solutions are
required.
Immediate solution: LIDI and other collaborating organization must help the factories getting
reliable supplier of accessories and components.

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 Long term solution: There must be integrated accessory and components manufacturing unit in
Ethiopia producing molds, cutting Knife eyelets, shoeboxes, and shoe rapping papers. This
initiative should be taken by the government at first stage by establishing these integrated
manufacturing units in the industry zone area later when the market demand for these inputs
matures the responsibility can be given to the privet sector.

 To improve the national level problem of labor productivity and technology, LIDI in
cooperation with each footwear firms has to work more on it by giving different advanced
footwear technology trainings by its local trainers as well as by foreign expertise. The purpose
of this intervention is to build in house capacity with footwear knowledge equitable against the
best practice in the world. Such capacity will be crucial to retain knowledge from expatriate
experts and to supplant them effectively afterwards. It will also aid to facilitate technology
transfer which will be crucial for the realization and subsequent improvement of the benchmark
targets.

 Regarding to the problems of Marketing either local or international: conduct market study and
research, access market information, conduct advertising and promotion by available national
media and participating in international fairs. This can be done cooperatively with LIDI,
COMESA, ELIA and government media.

 Regarding the Design and development problems: it is known that ELFFs have no potential to
this but they can develop partnership with other developed countries and get knowledge via
technology transfer. For example, Italy is well developed in design shows so developing
partnership is better.

 Generally, the export led strategy of the government is better means for developing
competitiveness of ELFFs internationally due to the technology transfer (knowledge, new
designs, techniques and methods while bringing their design) in between local firms and foreign
customers. In addition, it is highly recommended ere that ELFFs has to work more on it because
export strategy will drive the local one.

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 5.6 Summary

In this chapter a total performance improvement method, total performance scorecard, which can
address the total performance problems of the firm is proposed. Though BSC is currently the better
performance measurement and improvement method, it has many pitfalls as described in the
previous section. Most performance measurement and improvement methods give less emphasis to
persons and give most considerations only to the organization. However, TPS concept can be more
successful than traditional ones (where improvement is often cosmetized), since real change and
organizational improvement can be obtained if people change and improve themselves from the
inside, this internal involvement being an integrant part of TPS whose purpose aims at maximum
involvement and loyalty of all the involved persons, as well as encouraging individual learning,
learning within a team and creativity. The main argument brought to this theory is that, if an
employee’s personal goal corresponds to the organization purpose, then he/she will think and work
in the direction of reaching the company’s shared purpose.

Balanced scorecard (BSC) is being implemented in some Ethiopian manufacturing industries like
Kombolcha textile S.C and Adey Abeba yarn S.C and recently it is widely tried to implement in
service industries of government. As ISO is a base or a good starting way to easily implement TQM,
BSC implementation is also a better way to implement TPS. Therefore, as implementing scorecard
of BSC is somewhat similar to that of OBSC of TPS, it is not difficult to Ethiopian footwear
industries to implement TPS whether they start BSC or not.

The proposed personal scorecard using PDAC cycle has to be implemented to all manufacturing
firms of Ethiopia because the labor productivity problem is national level and trainings (short term
or long term) could not alone bring satisfactory labor productivity improvement. However, it is
believed that in addition to on job trainings there has to be a mental setup change within employee
and this can be achieved through proper implementation and use of PDAC method.

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 CHAPTER SIX

CONCLUSION, RECOMMENDATION AND FUTURE RESEARCHS

6.1 Conclusion

Though performance is a widest term, which covers overall economical and operational aspects and
has many definitions, this study accepts it as “the progressive achievement of tangible, specific,
measurable and personally meaningful goals." Nowadays there is a need for business enterprises to
measure, analyze and improve performance as they encounter increasing competition from an ever-
changing business environment. Performance measures are the lifeblood of organizations, as
without them no decision can be made, as it is the first step to control and improvement.

In this research, many investigations are made. In the first place, most ELFFs are operating at low
total performance and are faced with many performance problems, mainly with shortage of inputs,
poor production planning and control, low productivity, high manufacturing cost and lack of
marketing strategy. Though the leather sector is envisaged to generate export income amounting to
500 million USD at the end of the plan year (2014/15) which will focus mainly on finished leather,
footwear (63%), gloves and leather garment and articles, it can be concluded that unless an
improvement action is designed and a proper performance improvement method is used, this plan
cannot be achieved due to the problems listed above, the previous plan year (2004/05-2008/09) low
export performance (on average, actual exports account for about 28% of planned export value) and
mainly with the current shortage (quantity and quality) of finished leather.

Secondly, from the case study, it can be concluded that the firm (ASSC) is operating at low
performance as the statistical values shows:

 The firm on average loses annual cost of 409,500birr due to rework or quality problem and
high cutting scrap of 15% (where international benchmark is 5%).
 The inventory management of ASSC is not good (low inventory turnover ratio - 1.48 in
2010)
 The performance of ASSC relative to the benchmark target line is low (show high critical
deviation) especially in the parameters like: labor productivity (-433%), production capacity
(-189%), raw material procurement lead time (-328.6%) and machine down time (100%).

Further, regarding the export oriented strategy and its impact towards the local market development,
it can be concluded that export oriented production drives also the local one. It can be clearly seen
from the case company’s four year (2000 – 2003E.C) production and sales trend that it was
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performing better in local production and sales though the yearly export plan was high. This depicts
that the export oriented strategy of the government is not only to get foreign currency.

The intervention areas identified in one or another way reveal that they are problems of financial
performance, operational performance, employee performance/satisfaction, quality performance and
customer satisfaction. These are all total organizational performance problems which cannot be
solved unless a total performance improvement method (which can have a balanced performance
measures and management philosophy) is used.

BSC has many pitfalls though it is currently the better performance measurement and improvement
method. In addition, most performance measurement and improvement methods give less emphasis
to persons. However, the proposed method, total performance scorecard (TPS), can be more
successful than traditional ones, since real change and organizational improvement can be obtained
if people change and improve themselves from the inside, this interior involvement being an
integrant part of TPS whose purpose aims at maximum involvement and loyalty of all the involved
persons, as well as encouraging individual learning, learning within a team and creativity. The main
argument brought to this theory is that, if an employee’s personal goal corresponds to the
organization purpose, then he/she will think and work in the direction of reaching the company’s
shared purpose. When we intend to improve the firms total performance management, TPS can
represent a feasible solution particularly with the support of ERP system as of ASSC. Therefore,
TPS is the best method to solve the firm level performance problems.

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 6.2 Recommendation

In this study, two types of recommendations are forwarded. The first one is towards the
implementation of the proposed method to alleviate firm level problems whereas the second one is
about the recommended improvement directions or stakeholders’ role towards the external or sector
level problems identified in the study. Accordingly, the following recommendations are forwarded:

 Though the company, ASSC, has both internal and external or sector level problems it has to
give more emphasis to the internal or firm level problems, where it can address using only its
potentials and resources with the appropriate improvement method. Therefore, the company is
highly recommended to implement the proposed method, total performance scorecard, to solve
these problems so as to bring total company performance improvement and being competitive.

 While implementing the method, the primary activities to be done by the company are: firstly,
the TPS method has to get management understanding and commitment because without top
management commitment, trying to implement is simply losing resources. Secondly, it is highly
recommended to create companywide awareness and cultural changes regarding the proposed
TPS method which helps specially to easily implement the personal balanced scorecard. Finally,
it is known that results of individual works are far from that of team work results, so it is highly
recommended here to formulate and work with team and the team has to have strong members
with at least one member of top management.

 Since IT based management system is the requirement towards better communication within the
firm, it is recommended to use the ERP system integrated with the TPS. Fortunately, it is already
on implementation in ASSC. Since ERP system can facilitate to improve several business
performances of the company, particularly those related to the supply chain (improve
coordination within the firms departments, management of customers and suppliers, and
improve monitoring business performances and supporting management decisions because of
the available reliable updated information in the ERP database), it is highly recommended here
to facilitate the current implementation and integrate with the proposed improvement method.

 This performance improvement method is recommended not only to the case company but also
to all large and mechanized leather footwear companies of Ethiopia as they all share common
firm level problems. The proposed personal scorecard, using PDAC cycle, has to be
implemented to all manufacturing firms of Ethiopia because the labor productivity problem is
national level and trainings (short term or long term) could not alone bring satisfactory labor
productivity improvement. However, it is believed that in addition to on job trainings there has

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 to be a mental setup change within employee and this can be achieved through proper
implementation and use of PDAC method.

 The export led strategy of the government is better means for developing competitiveness of
ELFFs internationally due to the technology transfer (knowledge, new designs, techniques and
methods while bringing their design) in between local firms and foreign customers. So it is
highly recommended that ELFFs has to work more on it because export strategy will drive the
local one.

 To solve the external or sector level problems, it is highly recommended that ELFFs has to work
cooperatively with stakeholders of the subsector; primarily with the GoE (under MoI and LIDI)
and other parties such as ELIA, UNIDO, GTZ, EQA, COMESA and ecbp.

6.3 Future research areas

The following research areas are suggested to be conducted in the future:

1. Investment analysis of Total Performance Scorecard implementation in ELFFs

2. Designing Supply chain network of ELFFs: Many companies are not achieving a
corresponding improvement in their business performance due to a failure to address the
whole spectrum of their supply chain.
3. Developing market strategy for ELFFs
4. Clustering to improve performance of ELFFs

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Appendix A: Organizational structure of Anbessa shoe share company

Bard of Directors Audit committee

Audit service
General Manager Directors

Quality Inspection Information, productivity &

service service improvement office

Product development committee

Production Technic Commerce Finance Admin &

Department Department Department HRD Dept
Department

Prod. Plan, Mechanical Procureme General Profession

design & maintenanc nt Division account security &
dev’t e Division Division healthiness
service service

Main Sales & Personnel

factory Electrical distribution Cost & & training
Prod. maintenanc Division budget Division
Devis ion e Division Division

MANPO Material General

branch stock & Service
Prod. adminst. Division
Devis ion Division

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 Appendix B: Survey questionnaire

ADDIS ABABA UNIVERSITY

ADDIS ABABA INSTITUTE OF TECHNOLOGY (AAiT)
MECHANICAL ENGINEERING DEPARTMENT
GRADUATE PROGRAM IN INDUSTRIAL ENGINEERING

Survey Questionnaire for Ethiopian Leather Footwear Factories

Prepared by: Tomas Cherkos

Mobile: +251-913311337 E-mail: tomaspoly@gmail.com
Advisor: Dr.Ing. Daniel Kitaw (Associate Professor of Mechanical Engineering - AAIT)
Co-advisor: Mr. Temesgen Garoma (AAIT - Mechanical Engineering Department)
Phone: 0111232439 Fax: 0111239480

I am at present conducting research in the Ethiopian leather footwear manufacturing companies, at

Addis Ababa University Institute of technology, department of Mechanical Engineering towards
Masters in Industrial Engineering. The title of the study is “Performance Analysis and
Improvement of Ethiopian Leather Footwear Factories”. The objective of the questionnaire is
to assess the current performance status, existing performance management practices and factors or
problems that affect performance of Ethiopian footwear manufacturing firms.

I should appreciate and like to express my gratitude if you would complete the attached
questionnaire or direct it to the person in charge with this responsibility. Moreover, your response is
very crucial to the success of the survey. All information will be treated in the highest confidential
and the respondent’s name (optional information) will not be revealed.

For further information you can contact using the above mentioned address.

Thank you for your committed cooperation, time and consideration!!!

April 18, 2011

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Section I: Preliminary Information

Respondent Profile
1. Your current position in the company:___________________________________________
2. Qualification level: College diploma BA/BSc MA/MSc & Above
3. Your work experience in this company:__________________________________________
Company Information
4. Name of your company_______________________________________________________
5. Owner ship  Public  Private
6. Type of establishment  Domestic  Foreign
 Joint venture
7. Start-up year (established in)___________________________________________________
8. Three main products of the company____________________________________________
9. Number of employees currently working in the firm: Direct labor______ Indirect labor____
10. Latest capital assets (Birr)_____________________________________________________
11. Contact address Tel.__________________________ Email_______________________

Section II: Considerations and Interpretations of Performance in the Firm

12. Select and circle (more than one is possible) among the following in which your company
interpret good performance? It is in terms of...
a) Cost competitiveness b) high production c) good quality
d) fast delivery time e) High sell f) high profit
g) customer satisfaction h) Specify if any.........................
13. Rate how the following issues drive performance in your company: [1= low/slightly; 2=
medium; 3=highly] [Please, put a  mark on the number that applies]

S.No. Performance drivers 1 2 3

13.1 Investment in machinery and equipment or technology
13.2 Education and training of employees
13.3 Planned utilization of raw materials
13.4 Research & Development and Innovation
13.5 Government spending (initiative , policy & strategy...) and security
13.6 Use of branding

Section III: Factors Affecting the Performance of the Company

14. At what performance level (in terms of capacity utilization, production, export, customer
satisfaction, etc) is found your company compared to other shoe factories?
Low Medium High

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15. Rate the impact of the following General reasons to do not work at high performance in
Ethiopian leather Footwear Manufacturing Industries. [1 = medium; 2 = high; 3 = Critical ]

S.No Reasons to do not work at high performance 1 2 3

15.1 Supplier related problems
15.2 Problems within the Focal firm (shoe factory)
15.3 Customer related problems
15.4 Government policies & regulations
Others ( Please specify)________________

16. Which of the following shoe manufacturing processes faced frequently with problems which
in turn affect the performance of your company?
Rate their impact [1 = medium; 2 = high; 3 = Critical]
S.No Footwear manufacturing processes 1 2 3
16.1 Supplies and procurement process
16.2 Research and development process
16.3 Shoe production process
16.4 Sales and marketing process

17. How do you rate the effect of the following factors on the performance of your company
[Please, put  mark on the number that applies] Rating scale:

Low Effect Medium Effect High Effect

=1 =2 =3
S.No Factors affecting performance 1 2 3
17.1 Management (plans & schedules, instructions, ability to adjust staff size &
duties, coordination & balancing of material flow, supervision etc )
17.2 Materials (raw materials & accessories -availability, quality, timeliness, import
substitutes etc)
17.3 Machineries & equipments (relevance, quantity, accuracy, speed,
maintainability, age, etc)
17.4 Government regulations , policy and strategy
17.5 Technology (innovation, research & development, automation, information
technology, etc)
17.6 Infrastructures (transport facilities, means of communication etc)
17.7 Physical environment or working condition
17.8 Organizational structure and culture
17.9 Human resource (Labor force -availability, mix, knowledge, skill, attitude,
management, etc )
17.10 Existing marketing conditions
17.11 Lack of coordination with suppliers and customers
17.12 Energy
17.13 Demographic & social changes

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Section IV: Performance Measurement, Improvement Practices and Problems
Please circle the appropriate response for question 18 - 21.

18. Over the last five years, how would you describe your organization’s approach to the use of
performance measurement?
a) Falling interest b) unchanged c) increasing interest d) Heavy emphasis
19. What is your assessment of value of performance measurement to the organization?
a) Waste of time b) Limited value c) Effective d) A key managerial control
20. Does your organization use performance measurement to identify areas that require strategic
focus?
a) Never b) Rarely c) Sometimes d) Frequently e) As a matter of policy
21. How often do you prepare your formal performance measurement reports?
a) Quarterly b) twice a year c) annually d) If other please specify............................
22. What performance measures do you use for strategic decision making? Please specify if any
____________________________________________________________________________
____________________________________________________________________________
23. Over the past 5 years (1998-2002EC) indicate [with a  mark] the general trend in your
enterprise.

S.No. Performance types Decreasing Constant Increasing Seasonal

23.1 Financial performance
23.2 Operational performance
23.3 Product/service quality performance
23.4 Employee satisfaction/performance
23.5 Supplier performance
23.6 Export performance
23.7 Market performance
23.8 Customer satisfaction
23.9 Other.......................................

24. Does your company have a well organized & equipped department which is involved in
research and development (R & D) duties to find out and introduce innovative methods and
technologies that can improve performance? Yes on the way No

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25. Based on the performance measurement report please indicate the following information for the
last five years.
Performance Item Unit 1998E.C 1999 E.C 2000 E.C 2001 E.C 2002 E.C
Capacity utilization %
Production Pairs
Production cost Birr
Sales volume Pairs
Sales value Birr
Export volume Pairs
Export value Birr
Operating profit / profit margin Birr
Market share (local/foreign) %
Level of scraps and rejects %
Unfinished production order due to %
lack of material
New shoe models introduced Qty

26. Have you introduced any method (model) or performance improvement program to measure &
improve performance within the past 3 years (2000-2002 E.C)? [put mark]

S.No. Performance types Yes No If your answer is “Yes” please specify

26.1 Financial performance
26.2 Operational performance
26.3 Product/service quality
26.4 Employee satisfaction
26.5 Supplier performance
26.6 Marketing performance
26.7 Customer satisfaction
26.8 Innovation and employee
learning

If your answers are ‘No’, please indicate the reason(s)

________________________________________________________________________________
________________________________________________________________________________

27. Does the company identify problems of performance improvement? Yes No

If your answer is yes, list them
____________________________________________________________________________
____________________________________________________________________________

28. Does the company have a training program? yes No

If the answer is yes, provide the number of employees involved in training per annum and list
type of training_______________________________________________________________-
___________________________________________________________________________

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29. Does the company production system flexible in handling different volume of production and
delivery time adjustments? Yes No
30. Do you have "standard time" for each leather shoe style for all tasks required?
Yes No
31. Does the company recognize and solve the quality related problems?
Yes No
32. Does the company identified customer requirements? Yes No

33. Does the organizational structure create suitable working environment? Yes No

If your answer is “yes”, list them _______________________________________________

__________________________________________________________________________

34. Have you implemented or going to implement the following performance measurement and
improvement tools? If so, give your comments regarding the practices in your enterprise (like
BSC, BPR, benchmarking, Quality management system, ERP etc...).
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
___________________________________________________________________________

Your Experience based valuable Suggestions

35. What are the reasons to Ethiopian shoe factories for not being fully operational or work at
full capacity? (You can circle more than one).
a) Raw material shortage b) Shortage of spare parts c) Frequent machinery breakage
d) Lack of market d) Working capital shortage e) Management problem
g) Lack of skilled man power h) other please specify___________________________

36. Rate the impact of following possible reasons to Ethiopian shoe factories to do not produce
quality shoe which can be competitive globally. [1 = medium; 2 = high; 3 = Critical]

S.No Reasons to low quality shoe 1 2 3

36.1 Lack of skilled labor/expert
36.2 Lack of quality raw material (finished leather)
36.3 Lack of efficient machines & equipments
36.4 Lack of technology (IT, R&D, automation, innovation)

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37. Rate the impact of following possible reasons to Ethiopian shoe factories to have high
manufacturing cost compared to the standard. [1 = medium; 2 = high; 3 = Critical]

S.No Reasons to high manufacturing cost 1 2 3

37.1 High cost of raw material (finished leather)
37.2 High cost of spare part and accessories
37.3 High rework and scrap
37.4 Lack of efficient machines & equipments
37.5 Lack of technology (IT, R&D, method, innovation)
37.6 Other (please specify)..................................................

38. In your opinion, what can be done by the following agencies to enhance performance of
footwear manufacturing companies’ in Ethiopia?

a) Government_________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
b) Trade Unions & Manufacturing firms_____________________________________________

___________________________________________________________________________
c) Academic institution
___________________________________________________________________________
___________________________________________________________________________
d) NGOs &Consultants__________________________________________________________

___________________________________________________________________________
___________________________________________________________________________
e) Associations_________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
f) Any other agency (please specify)
___________________________________________________________________________
___________________________________________________________________________

Thank you for your cooperation and

valuable information!

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 Appendix C: Questionnaire analysis
Table C1: Respondent profile and company information

S.N Name of company Respondent’s position Qualificatio Type of establishment

n level and year
1 Ramsay shoe factory (S.C) Manager B.Sc. Domestic, 1999E.C
2 Peacock Shoe factory Planning manager B.Sc. Domestic, 1993E.C
3 Ras Dashen shoe factory P.L.c Production manager B.Sc. Domestic, 1981E.C
4 Ok Jamaica shoe factory Production plan & B.Sc. Domestic, 2001E.C
control head (reorganized year)
5 Kangaroo shoe factory Planning & production manager B.Sc. Domestic, 1978E.C
6 Anbessa shoe S.C Production division head B.Sc. Domestic, 1939E.C
7 Tikur Abay shoe S.C Production supervisor B.Sc. Domestic, -
8 LIDI Footwear technologist and B.Sc. Public, -
researcher
9 Productivity improvement Head B.Sc. Domestic, 1939E.C
officer (ASSC)

Note: The companies listed are only those that respond the questionnaire.

Table C2: Shoe manufacturing processes (percentage of being faced with problems)

S.No Footwear manufacturing processes 1(2) 2(4) 3(8)

Total Percentage
score from total (%)
16.1 Supplies and procurement process x xxxx xxxx 50 32.5
16.2 Research and development process xxxxxxx x x 26 16.9
16.3 Shoe production process xxxx xx xxx 40 26
16.4 Sales and marketing process xxx xxxx xx 38 24.6

Note: ‘x’ represents frequency. Score is given according to the impact level, i.e. medium effect (1) =
2; high effect (2) = 4 and critical effect (3) = 8. Similar fashion was considered to all questions.

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 Table C3: Effect of factors on the performance of ELFFs

Total %
S.N Factors affecting performance 1(2) 2(4) 3(8) score share
17.1 Management (plans & schedules, instructions, xxxxx xxxx 52 9.8
ability to adjust staff size & duties, coordination &
balancing of material flow, supervision etc )
17.2 Materials (raw materials & accessories -availability, xxxx xxxx 56 10.53
x
quality, timeliness, import substitutes etc)
17.3 Machineries & equipments (relevance, quantity, x xxxx xxxx 50 9.4
accuracy, speed, maintainability, age, etc)
17.4 Government regulations , policy and strategy xx xxxxx xx 40 7.5
17.5 Technology (innovation, research & development, xx xxxxx xx 40 7.5
automation, information technology, etc)
17.6 Infrastructures (transport facilities, means of xxxx xxxx x 32 6
communication etc)
17.7 Physical environment or working condition xxxx xxxx x 32 6
17.8 Organizational structure and culture xx xxxxx x 36 6.7
x
17.9 Human resource (Labor force -availability, mix, x xxxxx xx 42 7.9
x
knowledge, skill, attitude, management, etc )
17.10 Existing marketing conditions xxx xxxx xx 38 7.1
17.11 Lack of coordination with suppliers and customers xxxx xxxx 56 10.53
x
17.12 Energy xxx xxxxx x 34 6.4
17.13 Demographic & social changes xxxx xxx 24 4.5
xx

Note: 1= low effect, 2 = medium effect and 3 = high effect

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 Declaration

I hereby declare that the work which is being presented in this thesis entitled “Performance
Analysis and Improvement of Ethiopian Leather Footwear Factories: With special reference
to Anbessa Shoe S.C.” is original work of my own, has not been presented for a degree of any
other university and all the resource of materials used for this thesis have been duly acknowledged.

Tomas Cherkos ________________ _______________

Candidate Signature Date

This is to certify that the above declaration made by the candidate is correct to the best of my
knowledge.

Dr.-Ing Daniel Kitaw ________________ _______________

Advisor Signature Date

Mr. Temesgen Garoma ________________ _______________

Co-Advisor Signature Date

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