World Class Manufacturing Practices and Profitability: A Causal Analysis
Surendra P. Agrawal
University of Memphis
Adam S. Maiga
School of Accounting - Florida International University
The performance impact of advanced manufacturing has received considerable attention in recent years. In this research, we define advanced manufacturing under the umbrella of world class manufacturing (WCM) and investigate whether there is causal relationship between the degree of WCM implementation and profitability. We collected a data set from 127 strategic business units (SBUs); six constructs of degree of WCM (degree of JIT implementation, TQC, state of technology, capacity utilization, and developmental activities, and competitive factors) and one construct of profitability were obtained, each reflected from a number of observable variables. The data were further purified and analyzed using linear structural relations (model). The results show strong positive impact of four WCM constructs on profitability; however, we do not find evidence of the impact of capacity utilization on profitability. We do not test for the impact of competitive factors construct on profitability because the indicators of this construct failed to correlate. We explain our findings and give recommendations for further research.
JEL Classification: M40, M11
Date posted: January 7, 1999
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