CHAPTER 4

A MODEL TO IDENTIFY THE SUCCESS FACTORS OF LEAN

IMPLEMENTATION

4.1 INTRODUCTION

In the introduction chapter, it was indicated that SMEs are required to implement the
competitive strategy adopted by large size companies. It was also indicated that various
competitive strategies like total quality management, six sigma and lean manufacturing that
have been established in the world are highly applicable for practice in large-scale companies
and it is required to make them applicable in SMEs also. In this context, this chapter concerns
about identification of key success factors for the effective implementation of lean
manufacturing in small and medium enterprises.

4.2 METHODOLOGY

The survey instrument used in the research is a questionnaire that has been developed from the
literature review. Research carried out through the face-to-face interview with the small and
medium scale managers or supervisors. Analysis of the questionnaire (Annexure No1) was
conducted in Kerala SMEs in January 2015 to June 2015. The questionnaire consists of 27
questions. Five-point Likert scale from 1 (very low) to 5 (very high) was used for the total 27
questions to measure the responses. Initially, 133 SMEs considered for the survey and face-to-
face interview was conducted with 133 organizations. This represents 100% response rate. The
research details are shown in table 4.1

A pilot study was conducted beginning of the questionnaire survey. The comments about the
questionnaire during the pilot study were positive and validated that the questionnaire was
suitable for the survey .Reliability test for the questionnaire was carried out using Cronbach’s
Alpha to ensure its consistency. A minimum value of Cronbach’s Alpha of 0.6 was considered
as acceptable in this research, as it is agreed, that 0.6 is an appropriate threshold (Sakakibara
et.al, 2009). Cronbach’s Alpha value obtained in this research is 0.807 which is significantly
greater than the threshold value of 0.60and hence it is reliable. Kaiser Meyer Olkin (KMO) test
were employed to measure the sampling adequacy. It is generally agreed that 0.5(Kim, J., &
Mueller, L.W 1978) is an appropriate threshold. The validity test result of KMO value was
0.784 exceeding the minimum score of 0. 5 making it valid. The model is developed using

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confirmatory factor analysis, structural equation modelling and it is verified by the various fit
indices.

Table 4.1 Research data

Characteristics Research Data

Population under study SMEs

Geographical area in Kerala ,State of India

Data collection method face to face interview

Sample size 133 organisations

Time frame January–June 2015

Respondent profiles Industrial manager, supervisor

Response of organisation from the 100%

sample

4.3 SUCCESS FACTORS OF SMES

The researcher found that the working environment of SMEs in different countries varies.
However, the success factors of SMEs are commonly visible in global scenario. The success
factors and corresponding papers reporting the success factors were explained in detail in
chapter 2(Table No 2.3) the frequently cited success factors and notations used for the analysis
are given in the table 4.2

Table 4.2 Success factors with Notations

Success factor Notation Success factor Notation

Top management F1 Focusing on the need of the F2
commitment customer
Appointing Project F3 Establishing a Culture for F4
Facilitator Continuous improvement
Focusing on critical process F5 Focusing on employee F6
Communication with F7 Project Management F8
employees

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Table 4.2 Success factors with Notations (cont’d)
Success factor Notation Success factor Notation
Good standard documented F9 Organization Infrastructure F10
quality management system
Linking lean to business F11 Training in lean practices F12
strategy, Government target
Business strategy based on F13 Project execution and follow up of F14
customer demand the result
Investment of essential F15. Incentive or reward system F16
resources
The use of data analysis with F17 Coordination with company F18
data that is easily obtainable business strategy

Delivery time F19 Consultant Participation F20

Communication with F21 Expert availability F22

supplier
Financial availability F23 Getting shop floor commitment F24
and employee trust
Management pushes F25 Integrating supplier and customers F26
(participation in Workshop into lean transformation
and training
Creating lean promotion F27
office for organization and
training

4.4 CONCEPT OF SEM

SEM is used to analyse the relationship between the exogenous and endogenous variables.
SEM is preferred by the researchers because in a single analysis, it helps to estimate the
multiple and interrelated dependence. SEM is a statistical technique, which examines the
relationship among the multiple exogenous variable and response variables. This variable can
be manifest variable, directly measured, unobserved variable (Bagozzi and Yi 1988). SEM is
considered more flexible than other statistical method because it allows the researcher to focus

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on the structural relationship. SEM consist of two models, one is known as measurement model
and second as structural model. Measurement model represents how the measured variables
come together to represent the theory. The structural model shows how the two constructs are
related to other constructs. In this research, a two-step approach is adopted. First confirmatory
factor analysis is carried out to ensure that all indicator variables used to measure the construct
are reliable and valid. The figure no 4.1 below shows the overview, including SEM linking
lean manufacturing and its success factor indicators. A test of goodness of fit of the SEM is
conducted to determine whether the specified variable provides the adequate fit to the model.
This requires to accept the H0 which stated that the overall hypothesized model has a good fit.
For this, we look for a probabilities result more than 0.05 (Arbuckle, 2007). Furthermore, if
other statistical indices such as the goodness of fit index (GFI>0.9) (Joreskog and Sorban 1993)
adjusted goodness of fit index (AGFI>0.9) (Joreskog and Sorban1993) comparative fit index
(CFI>0.9) (HuandBentler, 1999), and root mean square error of approximation (RMSEA <0.
05) (Joreskog and Sorbom1996a) are within the recommended level, the model is considered
to be a reasonable representation of data. The summary of fit index values is given in table 4.3
Table 4.3 Goodness-of-fit statistic values

Statistics Recommended value for good fit

χ2
Probability level ≥ 0.05
χ2/df ≤3.00
GFI ≥0. 9
AGFI ≥0. 9
CFI ≥0. 9
RMSEA ≤0. 05
Source (Joreskog and Sorban1993)

4.5 CONFIRMATORY FACTOR ANALYSIS TO VERIFY MODEL BY

STRUCTURAL EQUATION MODELLING

All the 27 items in the questionnaire were factor analysed using principal component extraction
with varimax rotation. The number of factors was constrained to five. For the convergent
validity, 0.4 was used as a factor loading cut off point. Use of these criteria resulted in four
factors with 27 items in total. The confirmatory analysis aims to improve the questionnaire
through its four structural model configuration based on criteria maximum likely hood. Each

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of the models (M1, M2, M3, M4) shown in figure no 4.1, 4.2, 4.3, 4.4 is judged by a set of
indices. These factors are labelled as strategic, organization, structure, management and
employee as shown in the figure below which is judged by a set of indices. Modifications of
theoretical model are generated from parameter estimate, modification indices and residual
values

Model (M1)

This is the model(figure 4.1), which originates from the confirmatory factor analysis as a
theoretical model. Goodness of fit index, Adjusted goodness of fit index, Root Mean Square
Error Approximation Comparative fit index, GFI, AGFI, RMSEA, CFI are not within the
recommended level as put forward by Joreskog and Sorban (1993), and the data are not
indicating the perfect fit model. The summary of fit indices is given in the below table 4.4

Figure 4.1 Model 1 (Five factor)

N1= strategic Factor, N2=organisation factor, N3= structural factor, N4=Managerial factor
N5=Employee factor

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Table 4 .4 Goodness-of-fit statistic for model 1

Statistics Model Values Recommended value for good fit

χ2 602.572

Probability level 0.000 ≥ 0.05

χ2/df 2.85 ≤3.00
GFI 0.764 ≥0. 9
AGFI 0.713 ≥0. 9
CFI 0.738 ≥0. 9
RMSEA 0.091 ≤0. 05

Model (M2)

The second model(figure 4.2) arises from the modification of the first model (figure4.1). It has
12 items and 4 factors from the M1. Goodness of fit index, Adjusted goodness of fit index,
Root Mean Square Error Approximation Comparative fit index, GFI, AGFI, RMSEA, CFI are
not within the recommended level as put forward by Joreskog and Sorban (1993) and the data
do not indicate the perfect fit model. The summary of fit indices is given in table 4.5

Figure 4.2 Model 2(Four factor)

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Table4. 5 Goodness-of-fit statistic for model 2.

Statistics Model Values Recommended value for good fit

χ2 602.572
Probability level 0.000 ≥ 0.05
χ2/df 1.951 ≤3.00
GFI 0. 903 ≥0. 9
AGFI 0. 842 ≥0. 9
CFI 0.897 ≥0. 9
RMSEA 0.085 ≤0. 05

Model (M3)

The third model (figure 4.3) represents three factors with thirteen items. Goodness of fit index,
Adjusted goodness of fit index, Root Mean Square Error Approximation Comparative fit index,
GFI, AGFI, RMSEA, CFI are not within the recommended level as put forward by Joreskog
and Sorban Joreskog and Sorban (1993) so that the data do not indicate the perfect fit model.
The summary of fit indices is given in table 4.6

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 Figure 4.3 Model 3 (Three factor)

Table 4.6 Goodness-of-fit statistic for model 3

Statistics Model Values Recommended value for good fit

χ2 181.198

Probability level 0.000 ≥ 0.05

χ2/df 3.553 ≤3.00

GFI 0. 799 ≥0. 9

AGFI 0. 692 ≥0. 9

CFI 0.738 ≥0. 9

RMSEA 0.759 ≤0. 05

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MODEL (M4)

Figure 4.4 shows the measure of fit between the empirical data and the model. The popular
measurement of the fit goodness of fit indices are adjusted goodness of fit index, Root Mean
Square Error Approximation Comparative fit index, GFI, AGFI, RMSEA, CFI and their values
are 0.968, 0.935,0.026 and 1.0 respectively, which is within the recommended level (Joreskog
and Sorban 1993) so that data indicate the perfect fit model. In this model N1 represent the
managerial factor and their contributing variables are linking lean into the business strategy,
training in lean practices, business strategy based on customer demand, the use of data analysis
with data that is easily obtainable, coordination with business strategy, shop floor commitment,
employee trust. N2 represent the structural factor, their contributing variables are
communication with supplier and financial availability.The summary of fit indices is given in
table 4.7

Figure 4.4 Model 4 (Two factor)

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Table 4.7 Goodness-of-fit statistic for model 4

Statistics Model Values Recommended value for good fit

χ2 17.896

Probability level 0.463 ≥ 0.05

χ2/df 0.732 ≤3.00

GFI 0.968 ≥0. 9

AGFI 0.935 ≥0. 9

CFI 1.00 ≥0. 9

RMSEA 0.026 ≤0. 05

4.6 SUMMARY

This research investigates the relationship between lean implementation and its success
factors. To meet the successful implementation of lean manufacturing the SMEs must focus on
two factors, one is the managerial factor, and second one is the structural factor of small and
medium enterprises. A summary of our findings suggest that variables associated with
managerial factors are linking lean into the business strategy, training in lean practices,
business strategy based on customer demand, data analysis, coordination with business
strategy, shop floor commitment and employee trust. The finding also suggest that the variables
associated with structural factors are communication with suppliers and financial availability.
The next chapter of this research will examine the empirical support of this proposed model.

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