Performance assessment and improvement directions for tanneries in ANRS

CHAPTER ONE: INTRODUCTION

1.1 Background of the study

Traditional accounting based performance measures have been characterized as being financially
based, internally focused, backward looking and more concerned with local departmental
performance than with the overall health or performance of the business. As a consequence, in
the late 1980s and early 1990s there was a great interest in the development of more balanced
performance measurement systems with the creation of frameworks. Frameworks do provide
different perspectives for categorizing performance measures, allowing one to consider the
balance between the demands on the business. But, they do not tell a company what to measure
and there is no mechanism for specifying the objectives which should be met. Performance
measurement needs to be integrated into the management of the business and there is now
management processes developed to do just this. [1]
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 improve the overall business.

Though the Government of Ethiopia is promoting tannery and leather industry as one of the
priority areas and the sector has a huge potential for developing national economy, the sector
performance is unsatisfactory due to external and internal problems that hinders its
competitiveness. [Information from the industry and urban development bureau]
This rapid assessment encompasses five tanneries and stores of hides and skins located in
different parts of the eastern part of Amhara Region and the one in Bahir Dar city. The tanneries
are at the final end of the value chain of raw hides and skins. As they are the end users of the raw
material, their role in the trade is decisive all the way along the market/supply chain. The
tanneries in the Amhara national regional state are: [2]
 Bahir Dar tannery
 Abay tannery
 Kombolcha tannery
 Mersa tannery and
 Debre Birhan tannery

BDU, IOT, SMIE, Industrial Engineering Program 1

Performance assessment and improvement directions for tanneries in ANRS

1.2 Problem statement

Ethiopia is known for its high volume cattle production, the first in Africa and at 10th level in the
world, even though quality production is a big problem, which is a very potential raw material
source for tannery and leather industries. In Ethiopia there are about 22 tanneries and about 18
leather product industries, five of the tanneries exist here in Amhara National Regional State.
This thesis is planned to cover all the five tanneries. [2]

These tannery industries in the Amhara region have one common problem that makes them all
get below 50% in their productivity [according to the information from the regional industry and
investment office]. Thus, why this is happening is a big question that needs an in-depth research
to come by certain answers.

These industries are not efficient and effective to get enough advantages or benefits of the
business due to lack of skilled human power in the sector, old production technologies and
industrial facilities, and due to capital (financial) problem to hold on raw material inventory and
processing chemicals inventory which are imported from abroad.

Therefore, since the existing tanneries have the above problems new investors do not show much
interest for this sector, the research is planned to conduct an in-depth performance assessment
over the existing tanning industries using some information and data gathering techniques like
interview, questionnaires, observation, telephone, etc and then develop possible performance
and productivity improvement directions which will help the existing industries in particular and
to prepare some guiding directions for the upcoming investors to this investment sector at large.

BDU, IOT, SMIE, Industrial Engineering Program 2

Performance assessment and improvement directions for tanneries in ANRS

1.3 Objective
General Objective

To propose a standard performance measurement and improvement guide for tanneries in the
Amhara national regional state.

Specific objectives

 To investigate and determine key areas that need performance improvement in the sector

 To assess and evaluate existing performance improvement and measurement practice, if

there is.

 To propose a guide for performance measurement and improvement.

 To prepare implementation process of the proposed performance measurements and

improvements tool

 To make relevant recommendations in order to improve the performance of the industries

1.4. Scope and limitation of the study

This research is on performance measurement and improvement of the tannery industries. The
research shows how performance of tannery industry improved and be competitive in a
sustainable manner. Even though the research aims on the general country level, the scope of this
research is limited on tannery industries in Bahir Dar. The reason is researchers think that the
assessment done at Bahir Dar will have the same result on other tanneries in the region.
Therefore, the researcher believed that the selected sample size represent total tannery industries
in the region. This research work makes an assessment on performance related problems in
selected Amhara tannery industries and studied in detail at Bahir Dar tannery. It provides
concrete and applicable performance measurement and improvement model so that the overall
activities of the industries can be improved and can be competitive in the local as well as
international market.

BDU, IOT, SMIE, Industrial Engineering Program 3

Performance assessment and improvement directions for tanneries in ANRS

1.5 Benefits of the thesis

Tanning industries have been the starting points for export led industrialization of many
countries. In Ethiopia this industry remain to be very important since they have a potential to
provide employment and boost economic growth.
Specially, Amhara region has a potential resource which needs high investment in the area. The
thesis aims to identify performance related problems that hinder the Tanning industries’
competitiveness and develop a performance measurement and improvement model, which could
be taken as guide to the Tanneries to improve their performance.
The thesis will have benefit to overcome the problems that can hinder the performance of the
sector and to make them competitive in the national and global market. It is hopefully believed
that the Tanning industries in the Amhara national regional state will implement the model and
will have a remarkable improvement.
1.5.1 Beneficiaries

The beneficiaries of this paper can be:

 Tanning industries in the region

 Ethiopian foot wear industries and other leather product industries
 Researchers
 Universities and Students
 Amhara national regional state industry and urban development bureau
 Investors, etc

BDU, IOT, SMIE, Industrial Engineering Program 4

Performance assessment and improvement directions for tanneries in ANRS

CHAPTER TWO
LITERATURE REVIEW
1. Introduction
In today’s competitive world; industries are continuously encountering challenges in the business
market. In a regulated environment, organizations can work with inefficiency for sometime but
in a competitive environment, inefficient organizations encounter challenges and consequently
leading to bankruptcy. Thus, to achieve sustainable business success in the competitive market, a
company must continually monitor and improve its organizational performance [1].
Performance is the efficiency with which inputs are converted in to outputs. It is the efficiency
and effectiveness of action [4]. Thus to improve the performance of an operation, performance
has to be measured, hence performance measurement is fundamental in organizational
management. Performance in manufacturing constitutes several aspects including quality,
effectiveness, efficiency, productivity and safety etc. In tanning industry, performance
improvement may include the increase in product quality together with increase in productivity
along with the lowering of production costs and lead times etc.
Performance measurement system can be defined as the set of metrics used to quantify both the
efficiency and effectiveness of actions. Performance measures quantitatively provide important
data and information about the products, services, and the processes that produce them.
Following are some reasons for performance measurement in organizations [2].
1. It provides a structured approach for formulation of organizational strategic goals and
objectives.
2. It provides feedback on progress and compels organizations to concentrate resources such
as time and energy on achievement of objectives.
3. It improves communications internally among employees, and externally between the
organization and its customers and stakeholders.
4. It reduces emotionalism and encourages constructive problem solving since it provides
concrete data on which to make business decisions.
However performance measurement systems have its draw back during the following
conditions;

BDU, IOT, SMIE, Industrial Engineering Program 5

Performance assessment and improvement directions for tanneries in ANRS

1. Too much or too little data; too little data may be insufficient in making business
decisions. Too much data results in information overload and managers and employees
might ignore the data or use it ineffectively.
2. Collecting inconsistent, conflicting, unclear and unnecessary data. All data should lead
to some ultimate measure of success for the company.
3. Establishing unrealistic and/or unreasonable measures - Measures must be cost-effective
and achievable.
4. Failing to link measures - Measures should be linked to the organization’s strategic plan
and should cascade down into the organization (horizontal and vertical linkage).
5. Numerical quotas do not fix defective processes - There is also a danger when
performance objectives become numerical quotas. The setting of numerical goals and
quotas does nothing to accomplish improvements in the process. Identifying the
challenges and changing the processes is what is needed to improve performance and
achieve desired outcomes.
Hence, care must be taken when formulating a performance measurement system and also make
sure that it links and aligns with strategic objectives and must be flexible along with
organizational objectives. Moreover it should have balance between various performance
indictor factors and that an improvement of certain factor should not lead to decline of another
performance factor.
1.2. Evolution of Performance Measurement Systems
Performance measurement systems go back a long way in their origin and applications. It is
thought, for instance that the double entry bookkeeping was first used in Venice around the
fourteen century. In modern history, performance measurement have been practiced to evaluate
the success of organizations since the start of the twentieth century due to the changing nature of
organizations from ownership to enterprise lead by management and so different financial
measures were applied so that owners could monitor the performance that managers were
achieving [2].
Indeed, in 1903, three Du Pont cousins consolidated their small enterprises with many other
small single-unit family firms. Then, they completely reorganized the American explosives
industry and installed an organizational structure that incorporated the “best practice” of the day.
The highly rational managers at Du Pont continued to perfect these techniques, so that by 1910

BDU, IOT, SMIE, Industrial Engineering Program 6

Performance assessment and improvement directions for tanneries in ANRS

that company was employing nearly all the basic methods that are currently used in managing
big business [2].
Though financial performance measurement methods were widely applied and known to be
sufficient, after 1980s these methods were no longer sufficient to manage organizations
competing in the current market, due to the changing nature of competition; specific
improvement initiatives; national and international quality awards criteria; changing
organizational roles; changing external demands; and the advancement of information
technology. Hence a new method of performance measurement method has to arise in order to
succeed, which considers multiple criteria’s of performance.
1.3. Financial Performance Measurement Systems
Financial performance measurement systems focus on profit and revenue of a company. It
depends on the income and return of investment. Financial performance measurement includes
cost and accounting management and activity based costing. Financial performance
measurement systems have failed to identify and integrate all those factors critical in
contributing business excellence. During the last twenty years a number of performance
measurement frameworks (multiple dimensional) have been developed in academic and business
environments to overcome the drawbacks of these measures.
Numerous researchers have exposed limitations of financial performance measurement
approaches. This can be summarized as follows; it
 Does not have strategic focus and fail to provide data on important performance
improvement factors including quality, productivity, flexibility and lead time
 Is aggregated and distorted for long-term decision -making process;
 Encourages short -term decision making, like delayed capital investment
 Encourages managers to minimize variance from standard than to improve continuously;
 They are internally rather than externally focused, with little regards for competitors or
customers; it rarely integrated with one another or aligned to the business process and
strategic objectives Do not penalize overproduction and often inhibit innovation
 Performance measures are often poorly defined
1.4. Multi Criteria Performance Measurement Systems
Following are multi criteria performance measurement method that are mostly used and are
described in different performance measurement literatures.

BDU, IOT, SMIE, Industrial Engineering Program 7

Performance assessment and improvement directions for tanneries in ANRS

1.4.1. Customer Relationship Management

Customer relationship management enables businesses to improve performance by measuring
customer satisfaction. They help focus company on the value of its customers since measuring
business activities and outcomes regarding customers are becoming increasingly complex and
increasingly important to the successful execution of a firm’s strategy. Several frameworks for
the measurement of customer satisfaction have evolved over the years. One illustrative
framework decomposes the customer problem down to major three top-level areas.
1. Value equity -refers to the customers’ perceptions of value
2. Brand equity- refers to the customers’ subjective appraisal of the brand
3. Retention equity- refers to the firm building relationships with customers and
encouraging repeat-purchasing
1.4.2 Balanced Scorecard Method
The balanced scorecard performance measurement method enables organizations to translate
their strategic objectives in to implementation by working from four perspectives: financial,
customer, internal business process, and an innovation and learning perspective.
The various perspectives of these measurement method captures both leading and lagging
performance measures, thereby providing a more balanced view of company performance.
Leading indicators include customer satisfaction, new product development, on-time delivery,
employee competency development, etc; lagging indicators include financial measures, such as
revenue growth and profitability. [12]

Financial perspective

Vision and Innovative & learning

Customer perspective
mission
perspective

Internal
business
perspective
Figure 2.1 Balanced Score Card Diagram

BDU, IOT, SMIE, Industrial Engineering Program 8

Performance assessment and improvement directions for tanneries in ANRS

Financial perspective includes analyzing financial performance of the company. It includes

measures such as return on investment, cash flow, project profitability, profit forecast reliability
and Sales backlog etc.
Customer perspective includes determining customer satisfaction as well as market share etc.
hence if customers are not satisfied, they will eventually find other suppliers that will meet their
needs. Poor performance from this perspective is thus a leading indicator of future decline, even
though the current financial performance may satisfactory. Measures included in customer
perspective are customer ranking survey, customer satisfaction index and market share.
Internal Business Process perspective - Metrics based on this perspective allow managers to
know how well their business is running, and whether its products and services conform to
customer requirements (the mission). Measures included in these are rework amount, safety
incident index, project performance index and project closeout cycle etc.
Innovation and Learning perspective - includes employee training and corporate cultural
attitudes related to both individual and corporate self-improvement. In a knowledge-worker
organization, employees are the main resource. In the current climate of rapid technological
change, it is becoming necessary for workers to be in a continuous learning mode. Measures
included in these are percentage of revenue from new services, rate of improvement index, staff
attitude survey, and revenue per employee etc.
The benefits a firm can obtain from properly implementing the BSC include [C. Johnson et al.,
2007]:
 Translating strategy into more easily understood operational metrics and goals
 Aligning organizations around a single coherent strategy
 Making strategy everyone’s everyday job
 Making strategic improvement a continual process, and
 Mobilizing change through strong effective leadership
To be “balanced” does not mean to be equal in all dimensions. A balanced scorecard is
one that contains:
 multiple perspectives of performance
 leading and lagging measures
 internally focused and externally focused measures

BDU, IOT, SMIE, Industrial Engineering Program 9

Performance assessment and improvement directions for tanneries in ANRS

 short-term and long-term measures

 quantitative and qualitative measures
1.4.3 Business Process Reengineering
BPR was introduced by Hammer and Champy in the early 1990s and has an approach of
breakthrough changes. It concentrates on radical change to improve operations. The radical change
allows new revolutionary ideas to evolve which can help to improve operations more than a Kaizen
approach. They state that small changes give small effects and small earnings whilst the radical
change gives radical increases in earnings. Its main idea is that operations should be organized
around the process instead of around functions. It aims to review and redesign organizational
processes in order to achieve improved performance in terms of cost, quality of service and
timeliness. It has the potential to bring about considerable change in systems and in the people who
operate them. BPR is often considered to be primarily about cost saving; however, it can also have a
marked effect on customer and employee satisfaction. The approach combines the hard case for
reengineering with the softer people aspects ensuring the solution can be implemented with minimum
problems.
Business Process Improvement (BPI) is related with BPR but puts its emphasis on continuous
improvement, and not only on breakthrough change. The need for BPI evolves from the fact that the
change’s positive effects decline some time after the implementation. To resolve this, further
attention should be focused on the change. [11]
1.4.4. Total Quality Management
TQM focuses on control of business processes and customer satisfaction. Activities such as
improvement, statistical control, supply control and quality engineering are ingredients of TQM.
TQM as a concept emanates from the academic field and has contributors such as Feigenbaum, Juran
and Deming. It has kaizen as a tool for continuous work. This is visualized by the Deming’s wheel.
To use this method, the improvement is first planned. The second step is implementation of the
improvement. During the third step observation is made of the effects and the last action is to learn
from the change imposed. After these four steps of improvement, it is time to find a new problem.
Statistical control is a powerful tool to gain control of manufacturing defects and it correlates to
measurement.
1.4.5 Kaizen Blitz
Kaizen means continuous improvement which is a Japanese business philosophy of making
continuous improvements and enhancements in business processes. Blitz refers to the

BDU, IOT, SMIE, Industrial Engineering Program 10

Performance assessment and improvement directions for tanneries in ANRS

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.
Kaizen Blitz is a short-term project-based approach to improving business processes which can
achieve rapid results. It is an intensive facilitated week of assessment and review of processes
designed to identify and take out anything that does not add value or hinders the process under
examination.
Overall organizational improvement is achieved via many small increments and entails relatively
little expense. However, functional changes can be dramatic and bring about improvement results in
a relatively short time.[11]
1.4.6. Six Sigma
The name Six Sigma is derived from a statistical concept of minimizing variation. In statistics the
sigma symbol is used to denote variation from the norm, measured in units of standard deviation. A
process that is ‘Six Sigma’ means that there are just six standard deviations between the average and
the minimum or maximum acceptable standard. In practice this means that very few outcomes
deviate from the ideal. The idea is that if you can measure the number of defects in a process, you
can then systematically eliminate them and optimize the process. Six Sigma is a disciplined
methodology for process improvement. It brings together a wide set of proven tools which are based
on rigorous data analysis to identify sources of variation in performance and ways of reducing them.
It promotes a management by fact philosophy of using powerful data to make decisions. The
approach is applied to an organization’s key business processes. It focuses on making improvements
in three main areas:
 customer satisfaction
 reducing errors and defects, and
 reducing cycle time
1.4.7 Investors in People
IIP is the national standard for improving organizational performance by training and developing
people to achieve business goals. It was developed in 1990 by the national training taskforce in
partnership with various private sector, personnel and trade organizations, including the
confederation of British industry, trade unions congress, and institute of personnel development. The

BDU, IOT, SMIE, Industrial Engineering Program 11

Performance assessment and improvement directions for tanneries in ANRS

standard is based on four key principles that link together people development with business
planning:
Commitment: to invest in people to achieve business goals
 Planning: how skills, individuals and teams are to be developed to achieve these goals
 Action: to develop and use necessary skills in a well defined and continuing programme
directly tied to business objectives
 Evaluating: outcomes of training and development for individuals' progress towards goals,
the value achieved and future needs. These four principles are translated into twelve
indicators of performance. Evidence is collected against each of the twelve. This evidence
may include corporate strategies and action plans, staff feedback and examples of processes
or approaches. External assessment takes place against this framework. An organization will
have to demonstrate that it meets all twelve of the indicators of the standard in order to gain
IIP status. In addition to the generic principles above, IIP aims to bring business planning and
people planning together to provide business benefits; a framework for workforce
development; improved motivation, morale, job satisfaction and retention; and higher skills
levels of staff. Since impossible to review all performance improvement models/tools, some
of well-known improvement models/tools with their some description are summarized in
table 2.4. Therefore, it gives some concepts about those models/tools [Amanda Whittaker
Brown, 2006].
1.5 Performance Prism
Performance prism proposes that a performance measurement system should be organized
around five distinct but linked perspectives of performance, which are stakeholder satisfaction,
strategies, processes, capabilities and stakeholder contribution.
 Stakeholder satisfaction – determining the stakeholders want and need.
 Strategies –focuses on what strategies to put in place to satisfy the stakeholders.
 Processes – determining critical processes that are required to execute the strategies.
 Capabilities –determining capabilities that are needed to operate and enhance these
processes.
 Stakeholder contribution – it focuses on the contributions that are required from
stakeholders in order to maintain and develop these capabilities.

BDU, IOT, SMIE, Industrial Engineering Program 12

Performance assessment and improvement directions for tanneries in ANRS

Stakeholder
satisfaction
Strategies

Processes

Capabilities

Stakeholder
Contribution

Figure 2.2 -Performance Prism Diagram

The strength of this performance improvement framework is that it first questions the company’s
existing strategy before the process of selecting measures is started. In this way, the framework
ensures that the performance measures have a strong foundation. The performance prism also
Strategies Capabilities Stakeholder satisfaction Stakeholder contribution Processes considers
new stakeholders (such as employees, suppliers, alliance partners or intermediaries) that are
usually neglected when forming performance measures. However, it offers little about how the
performance measures are going to be realized. Another weakness is that little or no
consideration is given to the existing performance measurement systems that industries may have
in place.
Table 2.1: Performance improvement models

Performance Summary description

improvement
model/tool
Balanced A multi-dimensional framework for managing strategy by linking
Scorecard objectives, initiatives, targets and performance measures across key
corporate perspectives
Business Process An approach to review and redesign organizational processes in
Reengineering order to achieve improved performance in terms of cost, quality of
service and timeliness
Kaizen Blitz Short term and intensive performance improvement approach to improving
business processes

BDU, IOT, SMIE, Industrial Engineering Program 13

Performance assessment and improvement directions for tanneries in ANRS

Performance A stakeholder centric, three dimensional framework for performance

Prism measurement and management
Six Sigma A disciplined methodology for process improvement that deploys a
wide set of tools based on rigorous data analysis to identify sources
of variation in performance and ways of reducing them
Statistical A technique used to reduce waste and improve consistency through
Process Control a reduction in variation
Value Organizational improvement framework incorporating a toolbox of
management proven methods that aim to raise productivity and optimize customer
outcomes within the resources

1.6 Performance Measures

Performance measure is a metric used to quantify the efficiency and effectiveness of an action. It
is composed of a number and a unit of measure. Performance measures can be represented by
single dimensional units or multi dimensional measure units. The number gives us a magnitude
and the unit gives the number a meaning [4].
Single dimensional units include; hours, meters, nanoseconds, dollars, number of reports. They
show the variation in a process or deviation from design specifications. They represent basic and
fundamental measures of process or product. Multidimensional units of measure are expressed as
ratios of two or more fundamental units and are more often applied than single dimensional
measures since almost always convey more information. These may be units like miles per
gallon (a performance measure of fuel economy), number of accidents per million hours worked
(a performance measure for safety), or number of on-time deliveries per total number of
deliveries.
Performance measures must be linked to companies’ objectives and goals and 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.
Performance measures should be expressed in units of measure that are the most meaningful to
those who must use or make decisions based on those measures.
The following reflect the attributes of an ideal unit of measure:
 Reflects the customer's and the companies needs

BDU, IOT, SMIE, Industrial Engineering Program 14

Performance assessment and improvement directions for tanneries in ANRS

 Is precise in interpreting the results and provides an agreed upon basis for decision
making
 Is compatible with existing sensors (a way to measure it exists)
 Is economical and applied broadly
1.7 Characteristics of an Effective and Efficient Performance Measures

Performance measurement systems have to fulfill the following Characteristics to be an

effective and efficient for business improvement.

a) Link and align with strategic objectives: it should be derived from the company’s
strategic objectives. Furthermore, it is important to remember that strategies usually
change over time and some performance measures must change too. Therefore there is a
need for flexibility in the performance measurement systems.
b) Have an appropriate balance between various measures: it is vita l that performance
is not solely seen from a financial point of view. A PM ought to consist of various types
of performance indicators covering all important aspects agreed as representing the
success of company’s performance in a balanced way.
c) Have a limited number of performance measures: a large number of Performance
measures increases the risk of information over load, becomes difficult to prioritize vital
performance measures, and demands more analysis time & other resources.
d) Easily accessible: one of measurement system’s goals is to give important information,
at the right time, to the right person. Hence, it must be designed in such a way that
information is easily retrieved, usefully presented and easily understood by those whose
performance is being evaluated.
e) Consist of comprehensible specifications: a performance measure should have a clear
purpose & has to be defined in an unambiguous way along with details of who will use it.
Furthermore, it is also necessary to specify a target for each performance measure and a
timeframe with in which that target should be reached.
f) Guard against sub-optimization: it is not rare that an improvement in one area leads to
a deterioration in another, even resulting in a decline in overall performance. Skinner
(1986) termed this phenomenon the “productivity paradox”. Measurement Systems must

BDU, IOT, SMIE, Industrial Engineering Program 15

Performance assessment and improvement directions for tanneries in ANRS

therefore a void sub-optimization, possibly by establishing a clear link from the top level
to the bottom, to ensure that employees ’ behaviors are consistent with corporate goals.
g) Developed by users: in order to ensure owner ship of measures, they must be developed
by the users. Measures dictated by a higher authority will usually not receive support
from downstream units.
h) Consider Improvement: although correcting non -conformance and making current
decisions are essential; the focus should be on improvement, prevention, strategic long-
term planning and goal setting. Measures have to be used to promote improvement, not to
identify poor performance and penalize the low per formers.
i) Indicate leading and lagging indicators: financial and accounting data are often
presented too late and aggregated to be actionable. This may require that measurements
are taken hourly, daily, or weakly rather than monthly or quarterly as in traditional
accounting systems. A significant portion of measurements needs to be operational rather
than financial.
j) Motivate employees: performance measures should indicate the role of evaluating and
rewarding behaviors, and encouraging improvement and learning.

1.8 Sample Performance Measures

Management performance measures may include the following;

 Percent increase in output per employee
 Percent error in planning estimates
 Percent variation from budget
 Increased percent of market
 Percent personnel turnover rate
 Percent absenteeism
 Return on investment
Manufacturing performance measures may include the following;
 Percent of products that meets customers’ orders and engineering specifications
 Percent of jobs that meet schedule
 Percent of manufacturing time lost due to incompatible layouts
 Labor utilization index

BDU, IOT, SMIE, Industrial Engineering Program 16

Performance assessment and improvement directions for tanneries in ANRS

 Percent unplanned overtime

 Percent of jobs that meet cost
 Percentage of scrap and rework cost
 Performance against best practices
 Defects during warranty period
 Accidents per month
Quality assurance performance measures may include the following;
 Number of errors detected during design and process reviews
 Percent of product that meets customer expectations
 Improvement in customer satisfaction survey
 Cost of poor quality
 Time to answer customer complaints
 Number of off-specifications approved
 Percent product cost related to appraisal scrap and rework
 Time required processing a request for corrective action
 Number of problems identified in-process
 Percent of products defective at final test

Product development performance measures may include the following;

 Percent of error-free designs
 Percent of errors in cost estimates
 Number of off-specifications approved
 Field performance of product
 Percent of repeat problems corrected
 Time required making an engineering change
 Number of unsuccessful pre-analyses
 Number of days for the release cycle
 Customer cost per life of output delivered
Procurement performance measures may include the following;
 Percent of supplies delivered on schedule

BDU, IOT, SMIE, Industrial Engineering Program 17

Performance assessment and improvement directions for tanneries in ANRS

 Purchase order cycle time

 Average time to replace rejected lots with good parts
 Time to answer customer complaints
 Percent of purchase orders returned due to errors or incomplete description
 Supplier parts scrapped due to engineering changes
 Actual purchased materials cost per budgeted cost
 Percent of error in purchase requests
 Time required to process equipment purchase orders
Maintenance plan performance measures may include the following;
 Percent of equipment maintained on schedule
 Maintenance cost/equipment cost
 Hours lost due to equipment downtime
 Number of unscheduled maintenance calls
 Number of hours used on scheduled maintenance
 Scrap and rework due to equipments calibration errors
1.9 Performance Improvement Factors
In order to improve performance effectively, organizations must identify factors of performance
that should be particularly monitored, which are either key to success or identify under-
performance. Depending on the type of the industry there are different key performance factors,
where it is impractical to review all possible measures of performance in this chapter since it is a
broad topic. Thus important key performance factors that are associated to tanning industries are
considered; these are cost, time, productivity, flexibility and quality.
1.9.1 Quality
In order to improve competitiveness of a garment industry and build better reputation amongst
consumers and competitors it is important to maintain level of quality of the skins. Quality refers
to the degree to which a product meets customers’ perceptions on a variety of characteristics of
the delivered products. Quality affects all aspects of the organization and has dramatic cost
implications. The most obvious consequence occurs when poor quality creates dissatisfied
customers and eventually leads to loss of business.
Effective quality improvements should result in a future stream of benefits, such as: reduced
failure costs, lower appraisal costs, increased market share, increased customer base and more

BDU, IOT, SMIE, Industrial Engineering Program 18

Performance assessment and improvement directions for tanneries in ANRS

productive workforce. Improved quality increases productivity, hence, many world class
industries use quality as a powerful competitive tool.
There are many aspects of quality in tanning operations including; quality of tanning process
design, quality of production, quality of inspections, and quality of sales as well as quality of
marketing of the final product which is as important as the quality of the hid itself. In tanning
industry, quality control should be practiced from the initial stage of sourcing of the raw skin to
the stage of finished hid.
Quality Measures
Quality measures are generally classified in to four types including; internal quality (produced
quality and quality costs) and an external quality (perceived quality and in-bound quality).
I. Perceived quality regards customer satisfaction and the technical assistance service
performance.
II. In-bound quality includes the results of controls on certified and non- certified purchasing,
and the supplier quality rating.
III. Produced quality includes items on the measures of the statistical process control and the
number of defective goods returned during the warranty period.
IV. Cost of quality includes cost of doing a quality job, conducting quality improvements. It
includes quality system costs such as statistical process controls costs, total quality
implementation costs. Crosby demonstrated what a powerful tool cost of quality could be to raise
awareness of the importance of quality. He referred to the measure as the “Price of Non-
conformance”.
Quality-related activities that will incur costs may be split into prevention costs, appraisal and
failure costs.
 Prevention costs are all costs incurred in the process of preventing poor quality from
occurring. They include quality planning costs, such as the costs of developing and
implementing a quality plan. Also included are the costs of product and process design,
from collecting customer information to designing processes that achieve conformance to
specifications as well as setting specifications for incoming materials, processes, and
finished products/services.

BDU, IOT, SMIE, Industrial Engineering Program 19

Performance assessment and improvement directions for tanneries in ANRS

 Appraisal costs are incurred in the process of uncovering defects. They include the cost
of quality inspections, product testing, and performing audits to make sure that quality
standards are being met against agreed specifications.
Internal failure costs occur when the results of work fail to reach designed quality
standards and are associated with discovering poor product quality before the product
reaches the customer site. Other types are internal failure costs rework, waste and scrap;
which are the costs of correcting the defective item and doing unnecessary work.
 External failure costs are associated with quality problems that occur at the customer
site. These costs can be particularly damaging because customer faith and loyalty can be
difficult to regain. They include everything from customer complaints, product returns,
and repairs, to warranty claims, recalls. A final component of this cost is lost sales and
lost customers.
1.9.2 Productivity
Productivity is defined as the effective and efficient utilization of all organizational resources,
including capital, labor, materials, machineries, energy, land, information and time. Productivity
is an output generated and input provided ratio of a production system. Thus main indicator of
improving productivity is decreasing the ratio of output to input at constant or improved quality.

Productivity =

Productivity implies a company's production ability. There are many different examples of
productivity measurements used in industries and organizations including single dimensional and
multidimensional measures. These measurements are both used for monitoring and development
of the daily operation as well as for long-term strategic considerations of the business. [1]
 Total productivity
 Direct labor productivity
 Indirect labor productivity
 Fixed capital productivity
 Working capital productivity
 Value-added productivity

BDU, IOT, SMIE, Industrial Engineering Program 20

Performance assessment and improvement directions for tanneries in ANRS

1.9.3 Cost
In manufacturing production cost mainly includes labor cost, material cost, overhead cost.
Overhead costs include all the costs except material and labor costs. Labor cost accounts for a
large portion of the total cost of garments and since garment industry is labor intensive. Hence to
calculate labor cost, each individual operation in the production of a garment should be defined
and total time of operations should be calculated. Material costs include fabric and accessory
costs. Fabric is the most costly material hence, an accurate calculation for the required amount of
fabric per garment is essential. All other direct materials such as trim, thread, buttons, zippers,
labels, shoulder pads and poly bags, quantities per garment are measured in units, sets or meters.

1.9.4 Flexibility
In today's business marketplace customers are placing greater value on flexibility of garment
designs. Flexibility deals with how a company reacts to changing demands of customers and
changing factors. The ability to be flexible in garment depends on number of factors which
includes, the advancement in product development, implemented material handling system, skill
of workers etc. And due to the garment nature, fashion styles etc, has put tremendous pressure on
product development of industries. Hence skill of designers, pattern makers, pattern graders and
marker makers should excel as well as other production departments including cutting and
sewing.
1.9.5 Time
In today's business marketplace customers are placing greater value on delivery time. In
competitive industries, short lead time will differentiate a company from its competitors, leading
to increase sales. Lead-time begins with the first receipt of a customer order and ends with
customer receipt of the product or service. Total lead-time includes four main components; order
lead times (i.e., the time it takes to process an order), supply lead times (i.e., the time it takes to
purchase item), manufacturing lead time (i.e. this refers to the time span from material
availability at the first processing operation to completion at the last operation) and delivery lead
time (i.e. this refers to the time taken to final receipt to the customer).
Generally the following performance measures are summarized in the review of Andy Neely et
Al, 2005. Therefore, any manufacturing industries can adapt their performance measures
depending on the performance measures indicated on table. [5]

BDU, IOT, SMIE, Industrial Engineering Program 21

Performance assessment and improvement directions for tanneries in ANRS

Summary of performance measures

Table 2.2: Summary of performance measures
Performance Performance measures
characteristics
1 Quality performance, features, reliability, conformance, technical durability,
serviceability, aesthetics, perceived quality, humanity, and value
2 Time rate of new product introduction, delivery lead-time, due-date
performance, and frequency of delivery
3 Flexibility material quality, output quality, new product, modify product,
deliverability, volume, mix, and resource mix
4 Cost manufacturing cost, value-added, selling price, running cost, and
service cost
5 Productivity

Depending on current situation of Ethiopian manufacturing industries and reviewed literatures,

five major performance characteristics such as quality, time, flexibility, cost, and productivity are
selected for this study. The reason for including productivity as a major performance
characteristic is that it has direct impact on performance improvement.

BDU, IOT, SMIE, Industrial Engineering Program 22

Performance assessment and improvement directions for tanneries in ANRS

CHAPTER THREE
RESEARCH METHODOLOGY AND DATA COLLECTION
3. Research methodology
To accomplish the objective of the thesis, the researcher has applied the following
methodologies.
Complete literature surveys have been conducted regarding the concept of performance;
performance measurement systems, performance improvement indicative factors and overview
about Ethiopian tanning industries. Following literature survey, in order to assess the
performance measurement and improvement of the Amhara national regional state tanning
industries, data collection has been carried out, both primary and secondary data were collected
using a well structured questionnaire, face to face interviews and telephone conversations,
personal observations and review of previous research works.

The researcher has designed the survey questionnaires for assessing the performance
improvement and measurement practices of the selected garment industries. This questionnaire
was distributed to colleagues, work mates for comments and suggestions before finalizing it. The
questionnaire was finalized taking into account the above suggestions under the guidance of the
advisor.

Hence sample sizes of two tanning industries are selected out of a five tanning industries in the
region. The sample size and the specific tanning industries are chosen considering required
acceptance sampling number, industries profile regarding the year of establishment, type of
products and market performance. Due to survey cost selected tanning industries are chosen from
Bahir Dar.

The distributions of the five tanning industries in Amhara regional state are as follows; one
factory in Debre Birhan , three factory in Wollo zone and two tanning industries in Bahir Dar.
Secondary data includes referring documented files and research studies, Central Statistics
Agency annual manufacturing industry survey report 2009, Ministry of Trade and Industry
documented files and data collected by the industries themselves.

BDU, IOT, SMIE, Industrial Engineering Program 23

Performance assessment and improvement directions for tanneries in ANRS

3.1 Survey Questionnaire

The questionnaire is developed in order to gain vital information regarding the performance
improvement and performance measurement practices of the tanning industries. The
questionnaire is developed aiming for responders’ of educational level of Diploma and above.
In general the objectives of conducting the questionnaires are to determine whether performance
improvement and measurement is practiced in tanning industries and to asses’ attitudes, tendency
and commitment of workers towards performance improvement. The survey questions contain
seventy two questions and they are varied in type. The followings are among the types.
1. Brief answer for subjective questions
2. Nominal scale such as Yes or No
3. Scales including
 No, minor, moderate, major, very severe
 Extremely Low , Low , Middle, High, Extremely High
 Weekly, Monthly, Quarterly, Twice a Year, Yearly
 Never, Rarely, Sometimes, Frequently, Always
 Very Highly, Highly, Moderately, Lowly, Very Lowly.
Furthermore the questionnaire is sub divided (categorized) as the critical performance factors
described in chapter two as described below;
 Organizational information
 Financial performance
 Productivity
 Quality practice
 Quality of work life (Ergonomics)
 Inventory management
 Product development and Innovation
 Performance evaluation practice
A total of 30 questionnaires was planned to be distributed for five tanning industries but only
around 15 questionnaires for five tanning industries were able to be distributed, Even though
personal visits as well as phone calls were used to increase response rate.

BDU, IOT, SMIE, Industrial Engineering Program 24

Performance assessment and improvement directions for tanneries in ANRS

The composition of the persons who were participated in the response of the questionnaire
includes: general managers, production and technical managers, quality control head,
administrative head, shift leaders, supervisors and manual labors.
The reasons for pre rejection to the questionnaires are firstly, most of the tanning officials
believe that it is waste of their time and has no benefit; hence most are unwilling and secondly
limited professional staff above diploma level to understand the questions presented in the
questionnaire.
Tanning industries that were contacted for the research survey are:
1. Bahir Dar tannery
2. Abay Tannery
3.2 Structured Interviews
The design of the interviews was based on the research objectives. Most of the interview
questions conducted is similar to the questions in the questionnaire. The interviews were used to
cross check the reliability of the response to the questionnaire. The interviewees were top and
senior management level officers similar to that of the survey respondents.
In general the objectives of conducting the interviews are to determine whether performance
improvement and measurement is practiced in tanning industries and to assess attitudes,
tendency and commitment of workers towards performance improvement.
3.3 Direct Observation
The researcher has also used this method for collecting the required data and information from
the respective industries. In this research direct observation is used as a means to assess the
techniques used in documentation and production processes as well as the existing facilities of
the industries. Important documents of the respective industries such as annual reports, company
profile brochure, and inspection data have been also used to perform quantitative analysis.
Moreover, the infrastructure and facilities of the industries has been observed.
3.4 Data Analysis and Interpretation
The collected data through the means of interviews, questionnaires, direct observation and using
documents are analyzed and interpreted. The results of the statistical analysis are presented in
chapter five. A total of 15 questionnaires were distributed out of which 13 were collected which
implies 86 % were completed by the respondents. The reasons for non-responsiveness were low
educational level, tight working schedule and unwillingness and poor understanding of the

BDU, IOT, SMIE, Industrial Engineering Program 25

Performance assessment and improvement directions for tanneries in ANRS

research. The researcher believed that the current situation of the tanning industries towards
performance measurement and improvement has exactly reflected in these questionnaires and
interviews responses.

BDU, IOT, SMIE, Industrial Engineering Program 26

Performance assessment and improvement directions for tanneries in ANRS

CHAPTER FOUR
OVER VIEW ABOUT TANNING INDUSTRIES
4. Overview about tanning industries
Tanning consists of a series of successive operations converting raw hides and skins into leather.
The raw material in the production of leather is a by-product of the meat industry. Tanners
recover the hides and skins from slaughterhouses and transform them into a stable material that
can be used in the manufacture of a wide range of products. The process is a complex sequence
of chemical reactions and mechanical processes. Amongst these, tanning is the most important
stage giving the hide or skin the required stability. Preserving them from decay by tanning pre-
and after-treatment generates a final product with specific properties: Stability, appearance,
water and abrasion resistance, temperature resistance, elasticity and permeability for perspiration
and air, etc. Leather is an intermediate industrial product with numerous applications in
downstream sectors. It can be cut and assembled into shoes, clothing, leather goods, furniture
and many other items of daily use. Tanners of hides and skins also generate other by-products
throughout the leather production process which find outlets in several industry sectors such as
pet and animal food production, fine chemicals including photography and cosmetics, and soil
conditioning and fertilizers.
The tanneries are at the final end of the marketing chain of raw hides and skins. As they are the
end users of the raw material, their role in the trade is decisive all the way along the market
chain. There are 20 tanneries of which 17 are operational in the country. Based on 300 working
days per year, the computed annual tanning capacity of the 17 tanneries is 1.65 million hides and
36.49 million skins. With reference to capacity utilization, taking the annual total purchase of
tanneries as 1.07 million hides and 14.3 million skins, the capacity utilization for hides is 64.8%,
while for skins it is only 38.6% (data from leather institute). It is worth mentioning here that the
demand of tanneries for raw material does not have any impact on the supply of hides and skins.
The supply rather solely depends on the slaughtering capacity of the meat consuming population
of the country. It is evident that the new emerging tanneries as well as those already in the
business will face a challenge to utilize even a certain percentage of their skin tanning capacity.
The main sources of hides and skins are in rural areas where the major proportion of slaughtering
is carried out at the household level or in plot that are not equipped with any facilities for
undertaking and following proper slaughtering, ripping and flaying procedures. A considerable

BDU, IOT, SMIE, Industrial Engineering Program 27

Performance assessment and improvement directions for tanneries in ANRS

number of the raw material is derived from slaughter slabs constructed either by local
communities, regional governments or HS development projects. Municipal slaughterhouses,
local and export abattoirs and meat and meat products processing plants are other sources of HS.
The regional distribution of the slaughtering premises is shown in Table 3 below. According to
the information obtained from regional agricultural bureaus during a field survey conducted by
the livestock marketing authority staff in 1999, there are 113 municipal slaughter houses, 53
rural slaughter slabs, 5 meat and meat products processing plants and 5 export abattoirs in the
country.
Table 4.1: Distribution of slaughter premises by region
Region Slaughter Slaughter Meat Export
House Slab Processing Abattoir
plant
SNNPR 32 27 1 -
Oromya 42 20 - 5
Amhara 15 6 2 -
Tigrai 15 - - -
A.Ababa 3 - 1 -
Afar 1 - - -
Somali 1 - - -
Harari 1 - - -
Dire Dawa 1 - 1 -
Others 3 - -
Total 113 53 5 5
Source LMA, 1999/2000
4.1 The Importance of Raw Materials
Modern leather production requires a steady supply of raw materials. This explains the
development of the tanning sector notably in those countries and regions well endowed with an
abundant supply of raw hides or skins. The production of raw hides and skins depends on animal
population and slaughter rate and is related mainly to meat consumption that is why the tanning
industry does not respond directly to the laws of offer/demand. The main centers for raw hides
and skin occurrence do not coincide necessarily with the major leather production centers and
these in turn with the places were leathers are manufactured into consumer products as well as

BDU, IOT, SMIE, Industrial Engineering Program 28

Performance assessment and improvement directions for tanneries in ANRS

with the major markets of consumption of leather articles. Trade supports the need to allocate
resources where these are required. This entails the need of proper storage and means of
transport. Typically hides and skins are traded in the salted state, or increasingly as intermediate
products, particularly in the wet-blue condition for bovine hides and in the pickled condition for
ovine skins. Hides and skins have experienced over the time increasing price volatility. This lack
of stability in the pricing of raw materials is at the source of major problems, notably for
financially weak tanneries.
Export restrictions of hides, skins and leather (wet-blue) have been proliferating at global level.
These trade barriers are increasingly a matter of concern in the leather industry due to their
adverse effect on competition and markets. While their usefulness as a flanking policy in the case
of infant industries has proven to be effective, their continued application leads to a number of
adverse effects in international trade such as the disruption of an efficient allocation of resources
and an impairment of fair competition at global stage. Indeed, on the one hand the supply of
hides and skins available on the free market tends to shrink exacerbating pressure on prices, on
the other hand, tanners protected by export restrictions benefit from the artificial price
differential landing on international markets leather at prices far below those of their unprotected
or less protected competitors driving them at term out of business.
4.2 Employment
The tanning industry in the EU provides employment directly to about 50,000 people. Most of
them are unqualified workers and many come from marginal population groups having
difficulties to find a job. The decision to join the sector is not normally based on its intrinsic
appeal, rather the opposite. This is due to the degraded image of the tanning industry and the
conceptions of young people regarding the career opportunities it offers. As a result, Europe is
currently facing an ageing of the workforce in tanneries and an increase in the imbalance of offer
and demand for appropriate skilled workers. [6]
This is an indicative for developing countries to invest on tanning industries to fill the gap
created on Europe and USA. Tanning industries are by nature labor intensive which will be help
full for unqualified workers and many marginal population groups having difficulties to find job.
The five tanneries in Amhara national regional state are small and medium sized enterprises
which employ more than 60 people in each tannery. This accounts for the fact that many tanners
have a capability to employee a number of people if they are established to achieve a long term

BDU, IOT, SMIE, Industrial Engineering Program 29

Performance assessment and improvement directions for tanneries in ANRS

strategies initiated to be competitive in the world market. In the last decade the leather sector has
struggled to maintain its competitiveness on the global market and suffered a loss of production
and jobs. In only ten years approximately 20% of jobs in the European leather manufacturing
industry were lost, due to a weakened position on the global market, caused by the competition
exerted by developing countries that have much lower labor costs and “perverse subsidies” in
terms of export restrictions of raw materials coupled to significantly lower standards in the
enforcement of environmental legislation. [6]
The sector is labor intensive and allows maximum participation of all the workers in certain
regions, by offering work opportunities to the least qualified. From this point of view, the sector
plays a role in terms of Ethiopian social inclusion. Furthermore, new technologies are offering
new opportunities for qualified employment with high added value. Although tanning is not as
such a major employer in the region, the sector is at the source of particularly labor intensive
downstream manufacturing industries forming significant value chains that all together can
provide considerable employment opportunities. In an Intergroup meeting at the ministry of trade
and industry in the late 2001 E.C it has been estimated that in the Ethiopia the overall employment
generated by the leather value chain amounts to nearly 150,000 people.
4.3 Relations with Local Communities
The interactions between tanneries and local communities have historical origins. Tanning of
hides and skins was in the past a complementary activity to agriculture and animal breeding. In
the lower season with less demanding efforts on the fields, local operators focused on the tanning
of hides and skins. This combination of agriculture and craft was at the source of important local
wealth. Today, tanneries maintain numerous exchanges with their local community. Their
relations focus on economic, environmental and cultural matters. These relations although rarely
of a controversial nature can irritate some friction, especially related to noise and odor issues,
thus the need for further developing a dialogue as we can check from other developing countries
like Nigeria and South Africa which also needs higher attention to eliminate the image in our
country.
4.4 Relations with Suppliers: - Tanners’ relations with suppliers are characterized by their
commercial nature. The relative economic strength of the counterparts constitutes the basic
feature of the relations. In this respect, it is useful to distinguish between the various types of
supplies:

BDU, IOT, SMIE, Industrial Engineering Program 30

Performance assessment and improvement directions for tanneries in ANRS

4.4.1 Raw Materials

As discussed above, raw hides and skins, wet blue or sometimes crust, are the tanner’s major
production cost factor typically representing 50% to 70% of production costs. The price and the
quality constitute essential elements in the relations between the raw materials supplier and the
tanner. These relations are fundamentally based on trust since it is virtually impossible to
ascertain with precision the quality of the raw material in the raw stage. Tanners tend therefore to
maintain close and friendly relations with their raw materials suppliers. These are either abattoirs
selling fresh hides or skins, hide-and-skin traders or hide and skin markets (auctions) or also
tanners. In general these are also small or medium sized structures and, a part of relationship
tensions in times of economic difficulties, the respective bargaining power appears to be
relatively balanced.
The leather industry, deeply regrets inhumane treatment of animals, first of all because of the
fact that tanners are just as sensitive to animal suffering as any other person or group of persons,
second, it is actually in the interest of both the meat industry and the leather industry alike that
animals are treated well and not submitted to stress or pain, let alone physical abuse before
slaughter, as a healthy animal assures better meat and undamaged hides.
4.4.2 Chemical Substances and Preparations
The relations with suppliers of chemical substances and preparations required for tanning and
finishing are slightly more complex. Here the tanner tends to be in a weaker bargaining position
due to the size and nature of his business compared to his suppliers. Chemical suppliers tend to
be larger and financially stronger than tanners. They are also global players and less dependent
from the tanning industry outlet than vice versa.
4.4.3 Tanning Machines and Tools
Tanning is a capital intensive industry sector. Investments in machines represent an important
entry barrier for departmental operators. Tanning drums and other equipment are depreciated
over a long period, typically 30 years. Tanners’ relations with machine manufacturers are similar
to those with the chemical suppliers in terms of technical cooperation. Overall the tanning sector
at national and more recently at regional level has set up the framework for conducting a
stakeholder dialogue. The topics in the dialogue with the chemical industry focus notably on
environmental and health and safety matters.

BDU, IOT, SMIE, Industrial Engineering Program 31

Performance assessment and improvement directions for tanneries in ANRS

4.5 Relations with Customers

The major customers of the tanning industries are mostly outside Ethiopia. Tanner’s relations
with customers vary depending on the various subsectors for which they work. Client industries
are craft activities and industry.
 Footwear is overall the most typical outlet for leather. Footwear manufacturers are
also SMEs apart of a number of larger brands that can be classified as multinationals.
 Clothing is generally carried out in financially weaker shops certain of which working
for large brands, of which many often have only a temporary existence. This makes it
more difficult for tanners to entertain long lasting and solid partnerships.
 Leather goods are increasingly produced by larger luxury groups reducing the
importance of smaller operations.
 Leather upholstered furniture and home decoration is developed by industrial
factories of similar characteristics to tanneries.
 Automotive and aircraft outfits. These are clearly to be classified in the group of big
industry and relations with these business activities are not balanced.
4.6 Environmental Dimension
It could be argued that the leather industry performs an environmentally important activity by
giving a new life to the leftovers of the meat industry. The transformation of this by product is,
however, potentially pollution intensive and tanning is widely perceived as a consumer of natural
resources. Environmental concerns in a tannery include wastewater, solid waste, air pollution,
soil protection and health and safety aspects. The releases potentially contain toxic, persistent or
otherwise harmful substances.
The environmental effects that have to be taken into account comprise not merely the load and
concentration of the classic pollutants, but also the use of certain chemicals: e.g., biocides,
surfactants and organic solvents. Furthermore, contamination of soil and groundwater may be
caused through accidental releases, spillages and leakages of certain agents as well as by the
treatment of effluents and wastes. A further aspect to be aware of in tanneries is the potential
hazard to human health and the environment from handling, storing, transporting and packaging
of chemicals.

BDU, IOT, SMIE, Industrial Engineering Program 32

Performance assessment and improvement directions for tanneries in ANRS

4.7 Leather tanning process

Receiving and storing
hides/skins
Re-hydration/Soaking

Liming/De-hairing Tanning Operation

Fleshing

Trimming

De-liming

Bating
Tanning Operation
Pickling

Chrome Tanning Vegetable Tanning

Wringing

Splitting and shaving

Neutralization

Re-tanning

Fat-liquoring
Post-tanning operation
Bleaching and Dyeing

Fixation

Drying

Staking and Trimming

Coating/plating

Fixation and Ironing

Finishing operation
Grading and Measurement

Packing and Storage

Figure 4.1 Leather tanning process

BDU, IOT, SMIE, Industrial Engineering Program 33

Performance assessment and improvement directions for tanneries in ANRS

CHAPTER FIVE: DATA ANALYSIS AND RESULTS

5.1 Introduction

This chapter practically discussed the following key points by using data and information
gathered from our case company that is Bahir Dar tannery. The data which is collected from the
case company are relevant to the case researchers need and researchers believe 90% of the
information from the company are filled by the appropriate personnel’s who are working in the
level that researchers need to prevent the partiality of the data. As discussed in the research
methodology part, the survey questioners are designed to have the following information.
 Performance interpretation
 Performance measurement and improvement practices
 Performance improvement problems
 Major performance factors by using cause and effect diagram

5.2 Survey result analysis

Various data collection methods were used in the success of this research. Questionnaire survey
is one of the data collection method carried out in this research. The other method used to collect
data is interview of different top and senior management level officers. The aim of the survey is
to get general information on performance awareness, performance measurement and
improvement practices, and performance factors. Hence, the result of the survey has been
discussed in this section.
5.2.1 Performance Interpretation in Tannery Industries

In this research performance interpretation is studied through survey questionnaires and

interviews for the purpose of understanding their concept about performance and its
improvement factors. As the questionnaire survey and interview shows financial performance
known to be the major performance improvement factor in the sampled tanning industries.
Tanning industries in the region measure their performance in terms of profit gained and sales
volume for the past consecutive years. If they are maximizing their profit they think as they are
performing well but they don’t take other different performance measurement factors like
quality, flexibility, time, working culture, organizational management, cost etc. Specially, in
Bahir Dar tannery, the data show as that performance is viewed from the finance angle and they
are not using any tool to improve their performance. It is known that the concept about

BDU, IOT, SMIE, Industrial Engineering Program 34

Performance assessment and improvement directions for tanneries in ANRS

performance is the first and the major concern before the implementation of performance
measurement tool in any organization. In addition to these it is difficult to say they have clear
understanding about productivity. Productivity is defined as output per input. The inputs include
labor, material, capital, energy, and other auxiliary inputs. But most of the time productivity only
defined with respect to labor productivity. When we come to tannery industries in Amhara
national regional state, most of the respondents agreed productivity as labor productivity missing
the concept of total productivity.
5.2.2 Performance Measurement and Improvement Practices in Tannery Industries
The survey result shows the financial and non financial measures are taken by the tanning
industries in the region. This result indicates that financial measures have more utilization value
than the rest performance parameters to evaluate their strategic performance. But numerous
researchers argued organizations have to use financial and non-financial performance measures
in a balanced way to enhance their business performances and to be competitive in global
market. Researchers have tried to measure the utilization rate of financial and non financial
measures through the interview made at the case company.
The financial and non financial performance parameters are:
 Financial Measures
 Customer and Market Measures
 Internal Process/Operation Measures
 Employee Satisfaction Measures
 Training & Development Measures
 Social and Environmental Measures
 Supplier Partnership Measures

BDU, IOT, SMIE, Industrial Engineering Program 35

Performance assessment and improvement directions for tanneries in ANRS

2.5
Scores given for performance
measurment practices 2

1.5
2.7
1
1.8
0.5 1.1 1.2 1.3
0.9
0
Financial Customer and Internal process Employee Training and Social and
measures market measures satisfaction development environmental
measures measures measures measures

Performance parameters

Figure 5.2: Enterprises performance measurement utilization

Source: Survey results
Performance improvement practices of Amhara tannery industries are also studied through
survey study. The result indicates the key performance driver of tannery industries are planned
utilization of raw materials, education and training of employees, investment in machinery and
equipment, government spending and security, and innovation, respectively. Moreover, they
have the following strategy to improve their performance in future by:
 Expanding total production capacity and investing in advanced production technology;
 Improving the networks with input suppliers;
 Diversifying local sales into exports; and computerizing design department,
manufacturing department, input sourcing and marketing management, and advertising
the product; respectively.
In addition obstacles in performance improvement practices also studied by classifying as major
obstacle, moderate obstacle, and low obstacle. The major obstacles for performance
improvement of tannery industries are shortage of working capital, high production cost, and
poor quality and shortage of raw materials. Following rated factors as moderate obstacle include
high lead times, less diversified production, poor inventory control and management, and poor
working conditions. Lastly, the factors which considered as no obstacle are low demand for
products, poor layout of the facilities, labor problems, wastage of times, old technology, and low

BDU, IOT, SMIE, Industrial Engineering Program 36

Performance assessment and improvement directions for tanneries in ANRS

resource utilization. However, the factors which categorized under no obstacle affect the first and
second categorization (high and moderate obstacle). Therefore, all factors should be considered
during performance improvements.
Moreover, general information about performance improvement factors such as financial status,
quality, productivity, ergonomics (quality of work life), management system, and new product
development also studied. The results were:
A. Financial Status of Tannery industries
The financial status of tannery industries is analyzed in terms of the financial source and their
ability to pay for loan according to the Payback period. In addition to these their financial status
is analyzed on the amount of profit they earn. The financial sources are:
 Own fund
 Credit from supplier
 Local loan and Foreign loan
It is known that there are six tanning industries in Amhara region. Five of them are surveyed
through the questionnaires and the result is shown in the table below.
Table 5.1: Source of finance
Financial source Percentage %

Own fund only 0%

Credit from supplier 40%
Own fund and local loan 40%

Own fund and foreign loan 20%

According to the respondents the profit and market share of all tanneries have increased for the
last years starting from their date of establishment. They also expect the continuity of the profit if
all the necessary raw materials are available in the market. 80 % of the tanneries face obstacles
for financial performance improvement. These are shortage of working capital, high production
cost, and poor quality and shortage of raw materials.

B. Quality

The survey result shows that the definition given for quality by the tanneries in the region is as
per the customers need it they consider it as a means of quality measurement. But leathers have
their own quality standards to be measured in the world market. When compared with standard

BDU, IOT, SMIE, Industrial Engineering Program 37

Performance assessment and improvement directions for tanneries in ANRS

definition of quality, quality awareness level by tanning industries in the region is 50 %. The role
of personnel’s to improve quality in the industries is 50%. All tanneries recognize and solve
quality related problems by identifying their customer requirements. The objectives of all the
tanneries are linked to customer needs and expectations. 66.6 % of the tanneries have a
procedure for evaluating subcontractors and suppliers. All the tanneries have a mechanism to
inspect and to test the in-coming, in process and final products. 25% of the tanneries have quality
management systems. 66.6% of the tanneries have customer’s complaints handling mechanism.
In raw material quality management 84.6% of the industries ensured through inspection, 0 %
ensured through ISO certification, and the remaining 7.7% through performance measurement
practices.
Causes of poor quality products and their percentage in the tanneries are given in the table
below.
Table 5.2: Causes of poor quality products and their percentage
Causes Percentage of respondent
tanneries over the causes
Defective raw materials delivered from suppliers 100%
In sufficient training of workers in the company 66.6%
Due to poor maintenance of machines in the company 33.3%
Lack of top management commitment to quality 0%
Due to carelessness of workers in the company 33.3%
Low quality awareness of workers in the company 66.6%
Others 20%

C. Productivity
Tanneries which have productivity improvement program and which determine its resource
(labor, materials, machines, etc) utilization rate are 66.6 %. 40% of the tanneries does not
identify and recognize productivity problems caused by machine shortage, low labor skill, old
machineries, poor time value, raw material defect, and spare parts problem. In addition 60.3% of
the employees in the tanneries have no awareness about productivity. The average capacity
utilization in the tanneries is 47% according to the data from regional bureau of industry.
The reasons for not being fully operational are listed in the table below.

BDU, IOT, SMIE, Industrial Engineering Program 38

Performance assessment and improvement directions for tanneries in ANRS

Table 5.3: Reasons for not being fully operational

Reasons Respondents percentage
Yes No
Raw material shortage 100% 0%
Shortage of spare parts 60% 40%
Lack of market 0% 100%
Working capital shortage 100% 0%
Frequent machinery breakage 60% 40%
Government rules and regulation 40% 60%

D. Quality of work environment

The survey results indicate that 40% of the industries have right materials handling equipments
according to OSHA requirements. Accident preventive methods which are used in tanning
industries include implementing occupational safety and health procedures by giving trainings,
using protective apparatuses such as masks, gloves, and by covering machines that need
protection. And also 53.3% of the respondents responded that there is “more or less” suitable
physical working environment in tannery industries.
E. Management Systems
Training and motivational system, raw material supply system, and inventory control system of
tannery industries also studied. As indicated under appendix B, 75% of tannery industries have
training program and implement for workers. Regarding the amount of expenditure for training,
66.6% spend less than 6%, 22.2% spend 6-8%, and the remaining 11.1% spend more than 8% of
their total expenditure. It also indicates that about 45.6% of these industries have incentive and
motivational system for their workers, and from direct interview it clear that the incentive and
motivational system is neither efficient nor sufficient in most of the industries due to the fact that
it is not applied systematically but randomly and it is provided when the profit of the company
allows.
Regarding access to raw materials 50% of them responded that they use locally purchased and
the rest of the respondent use both locally purchased and imported input materials. In all cases
locally purchased raw materials are skins and hides while imported input materials are tanning

BDU, IOT, SMIE, Industrial Engineering Program 39

Performance assessment and improvement directions for tanneries in ANRS

chemicals, accessories etc. And on the topic of trade 90% have a cost effective delivery system
considering time, cost, reliability and safety. The problems encountered by tannery industries
during purchase of raw materials locally or partially importing is shown in the following pie-
chart. The major problems in local raw material supply are shortage of raw materials, inferior
quality of raw materials, reliability problems, and high cost of raw materials relative to imported
raw materials, respectively. And also the major problems in raw material import are delay in
clearing goods through customs, high cost of inputs, minimum order size, and non-recognized
duty exemption, respectively.
On the subject of inventory, 87% have an inventory control system to ensure the availability of
sufficient inventory and 83.3% of respondents have systems to track the number and cost of
stock on hand, purchased and sold. Major problems in local raw material supply are described in
the following figure.

Hign cost of Problem with

inputs related to reliability
quality 10%
10%
Lack of
inputs/raw
materials
40%

Inferior
quality
40%

Figure 5.3:-Major problems in local raw material supply

BDU, IOT, SMIE, Industrial Engineering Program 40

Performance assessment and improvement directions for tanneries in ANRS

0.5
0.45
0.4
percentage of causes

0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
High cost of inputs Delay in clearing goods Duty exemption is not Minimum order size
through customs recognized

Figure 5.4: - Major problems associated with importing of input materials

From the survey result, it is understood that 81.8% of tannery industries including the case
company have product design and development department, but from observation it is clear that
the design and product development department are not well organized in technology and skilled
personnel. All of the respondents responded that the company’s production system is flexible in
handling different volume of product and delivery time. However, 55% of them responded that a
trained staff member on effective design change is moderate. And also 63.3% responded that the
degree of computerization of the organization production and distribution functions is moderate
in their company.
Flexibility of manufacturing system can be undertaken by developing new product, introducing a
new joint venture, upgrading an existing product line, outsourcing a major production activity,
introducing a new technology, and brought in-house of a major production activity that was
previously outsourced.
In performance management cause-and-effect diagram is very important. Therefore, causes of
poor performance in tannery industries are prioritized in this study. The major causes of poor
performance is poor quality products, high production cost, low flexibility, high lead time, and
low productivity as their order of importance. And also the causes of each performance
perspectives are prioritized. In this research the major causes of poor quality products are
defective raw materials, low management commitment, low quality awareness and quality tool
application, and low skill of workers, respectively. And also the major causes of high production

BDU, IOT, SMIE, Industrial Engineering Program 41

Performance assessment and improvement directions for tanneries in ANRS

cost are low capacity utilization, poor resource utilization, and poor inventory control,
respectively.
In addition the major causes of low flexibility are low flexibility on machinery and facility
layout, low skill of workers in product design and development, low flexibility on time to
market, and low flexibility on product type respectively. The major causes of high lead times are
machinery breakage; poor logistics, supply and delivery management; poor machinery and
facility layout; poor ergonomics and work methods; and rework; respectively. Finally, the major
causes of low productivity are machinery breakage; low material utilization due to scrap, rework
and defects; poor layout; poor ergonomics and work method; and low workers skills, motivation,
and satisfaction; respectively.
3
Rated value Low=1, Hign=3

2.5

1.5

0.5

0
Poor quality Low productivity High production Low flexibility High lead time
product cost
Major causes of poor performance

Figure 5.5: major causes of poor performance with its rated value
Source: Survey result

5.3 Case company result analysis

As discussed in the methodology section, Bahir Dar tannery is the case company for the research. At
case company performance of the firm and gap analysis on specific performance factors are studied
through questioners, secondary data collection, observation, and discussion with supervisors,

BDU, IOT, SMIE, Industrial Engineering Program 42

Performance assessment and improvement directions for tanneries in ANRS

production manager, and other stake holders. The results of the analysis are presented in the
following section.
5.3.1 Background
The Bahir Dar Tannery is located in Bahir Dar, northwestern Amhara Region. It was established
in 1997 and has a tanning capacity of about 4000 pieces of skins and 400 pieces of hides per day.
The tannery collects considerable number of raw materials from western part of the region. It
also obtains from other parts of the country. The tannery processes hides and skins to semi-
finished and finished leather for local and export markets. Runs with capital of 33 million ETB
and has 184 human resources, leased to Indian private company in 2007.
Table 5.4: Organizational information
Company Location Working Daily capacity pcs Yearly capacity pcs
name region days per
skin hide skin hide
year
Bahir dar Amhara 300 4000 400 1,200,000 120,000
tannery

5.3.2 The Tannery Processes and flows of the company

The tannery process of the company consists of a series of physical and chemical operations to
convert the hide or skin to leather. Leather is any animal hide or skin that has been processed to
have good flexibility, high tensile strength, abrasion resistant, and good appearance for use by
man. Large animals are said to have hides, while small animals have skins. In either case, the
hide or skin is organic material composed of water and proteins and unless preserved, decays
quickly. To analyze the process, it is important to subdivide it in to three phases. The first phase
is from raw material to tanned state (wet blue), the second phase is from wet blue to crust (dry
dyed), and the third phase is from crust to finished hide.

Raw material Wet blue Crust Leather

Phase one Phase two Phase three

Figure 5.6: - process flow diagram

BDU, IOT, SMIE, Industrial Engineering Program 43

Performance assessment and improvement directions for tanneries in ANRS

Leather manufacturing involves following major steps as shown on the above chart.
1. Pre-Process
2. Pre-Tanning Process
3. Tanning Processes
4. Wet Finishing Process
5. Dry Machining
6. Finishing
In pre-processing skins/hides are received and salt is applied on the flesh side of the skins/hides.
Skin trimming is done to remove unwanted parts. After pre-processing, pre-tanning process starts
with the soaking process in which skin are made flaccid by soaking them in water. After soaking
hair is removed, lime is used to make hair loose. Unwanted flesh is removed with the help of
fleshing machines after liming process. To prepare limed skin for tanning, the skins are de-limed
using Ammonium Sulphate and then skins are washed. Bating is done for further purification of
hide. After that degreasing is done within the help of detergents, tanning process starts with
pickling which is the treatment of skin with acids and salts to bring it to desired level of pH.
Tanning may be defined as the treatment of skin for preservation. Chrome tanning uses
Chromium Sulphate as tanning agent. Tanning process stabilizes the collagen network of skin.
After tanning skins are called wet blue and are stored for some time and then they are sorted out
according to quality. If hides of cows or buffaloes are being used for leather manufacturing, then
after this they are sliced to give desired thickness. This process is not carried out on the skins of
goats or sheep. After this the hair sides of the wet blue are shaved to give the desired thickness.
In order to give desired softness, color, strength, and quality to the leather wet blue skins are
processed further through wet finishing process. Fat liquoring process is carried out to impart
desired softness and dyeing is to give it a color. After wet process different drying processes are
carried out to dry the processed leather. These processes consist of summing/setting, vacuum
drying, stacking/toggling, buffing/shaving, trimming, pressing, and segregation of the leather.
Finally finishing processes are carried out to impart durability and beauty to the leather. The
chemicals used in the leather industry can be divided into three broad categories:
1. Pre-tanning Chemicals
2. Tanning Chemicals
3. Finishing Chemicals

BDU, IOT, SMIE, Industrial Engineering Program 44

Performance assessment and improvement directions for tanneries in ANRS

Pre-tanning chemicals are used to clean and prepare skins for the tanning process and they are
mostly washed away with the wastewater. Tanning chemicals react with the collagen fibers of
the skin to convert them into leather. These chemicals are retained in the skin but a good amount
of these is discharged into wastewater. Chrome Sulphate is the basic tanning chemical. Apart
from being expensive, Chrome Sulphate is also a serious pollutant. Finishing chemicals are used
to impart certain properties to the leather like softness, color, appearance etc. Like tanning
chemicals finishing chemical also get discharged into wastewater. Only those chemicals are fully
retained which are applied as surface coating. A large amount of water is used in whole
manufacturing process. The collected data shows 50-150 liter water is used for conversion of one
kg of raw skin into leather. In tanning process water is used as carrier to facilitate different
chemical reactions and after completion of process the water leaves the system as wastewater in
the same quantity as added to the system.
First phase – From Raw material to wet blue
In this phase the raw hide or skin is changed to wet blue state. Here most of the machines are
drum and the process is as follow.

Pre soaking Soaking Liming Fleshing

Degreasing Bating De-liming Splitting

Pickling Chrome Wet blue

Figure 5.7:TANNING
- From raw material to wet blue
Second Phase – From Tanned to Crust
In this phase the tanned hide or skin that is wet blue stage is changed to crust state. The process
is as follow.
CONDITIONING STAKING MILLING SPREADING ON
BUFFING
TOGGLE FRAME

POOLISHING IRONING DRYING COATING IMPREGNATION

FINISHED LEATHER

Figure 5.8: From Tanned to Crust

BDU, IOT, SMIE, Industrial Engineering Program 45

Performance assessment and improvement directions for tanneries in ANRS

Third phase - from Crust to Leather

Finishing operation is the mechanical modification of the hide or skin outer appearance and such
properties as elasticity, softness, and feel by adhering an aesthetic covering polymeric film to the
derma. The process is as follow.

SELECTION SHAVING TRIMMING WEIGHING NATUTALIZING

Crust DRYING SETTING DYEING FAT LIQOURING RE-TANNING

OUT
Figure 5.9: - From Crust to Leather

5.3.3 Controversies in the company

Since the layout of the company is product type, the existence of bottleneck results in starvations
and backlogs for the sequentially flowing production process from pre-soaking to semi-finished
or finished leather. But the production planning and maintenance departments of the company do
not worry about high down time, starvations, backlogs, asset life depreciation, workers safety
and other related problems. Because they don’t assess the corresponding costs they incur and
profits they loss due to the mentioned cases. In addition to this they don’t have properly
scheduled maintenance program in order to repair or replace failed parts and increase the
availability of the machines and equipments. However, the company workers from sanitation to
production managers are full of complain and claim on governmental privatizations policy, laws
of workers safety and related affairs and current market inflation with relative to their salary. On
the other hand, foreign employees in the company murmur on the availability, quality and cost of
raw materials in addition to seasonal and unstable suppliers acts in varying and irrationally
setting their selling price.

5.4 Down time cost analysis

Since there are 52 weeks per year, they allowed 8 hours per week for overhaul maintenance for
each machines in their production sections. This means 8*52=416hrs/year is allowed in an
average for overhaul maintenance. Moreover, the company runs its production process for 300
days per annum in 2 shifts each working for 8 hours from Monday to Saturday. From this one

BDU, IOT, SMIE, Industrial Engineering Program 46

Performance assessment and improvement directions for tanneries in ANRS

can deduce that (300*16)-(52*8) =4384hrs/year each machines should be functional and need to
be under operation based on stated conditions for operation in both skin and hide.

Table 5.5:- Machines and their number in Bahir Dar tannery

Machines Qty Operations Remark

Total Skin hide
Paddle 4 2 2 Pre-soaking and soaking
Liming drum 2 1 1 Liming
Fleshing 3 2 1 Fleshing
Pickling drum 2 1 1 Pickling
Tanning drum 2 1 1 Tanning
Retanning drum 2 1 1 Retanning
Dying drum 2 1 1 Dyeing
Sett-out 2 1 1 Setting out
Summing 1 - 1 Squeezing
Splitting 1 - 1 Splitting
Shaving 2 1 1 Shaving
Stacking 2 1 1 Staking
Over head drier - - - Hanging
Spraying 2 1 1 Spraying
Toggling 2 1 1 Trimming and stretching
Vacuum drier 2 1 1 Drying
Milling 2 1 1 Milling surface
Polishing 3 2 1 Polishing/shining
Buffing 1 - - Buffing /removing
Embossing 1 - - Artificial grain
Measuring 1 - - Measuring
Ironing 1 - - Ironing
Total 40 18+4 18+4

BDU, IOT, SMIE, Industrial Engineering Program 47

Performance assessment and improvement directions for tanneries in ANRS

Table 5.6: Bottleneck machines of hide section, their downtime due to breakdown and
frequencies of the failure in the year 2003 E.C

Machines Qty Planned Down time Frequency of

hrs/year hrs/year failure/year
Paddle 2 2*4384 507.2 7
Liming drum 1 4384 421.25 5
Fleshing 1 4384 334.9 12
Pickling drum 1 4384 311 4
Tanning drum 1 4384 259.1 11
Retanning 1 4384 456.3 7
drum
Dying drum 1 4384 501 8
Sett-out 1 4384 312.3 6
Summing 1 4384 543.3 13
Splitting 1 4384 423 9
Shaving 1 4384 489.7 9
Stacking 1 4384 322.4 8
Over head Excess Excess 0 0
drier
Spraying 1 4384 297.5 7
Toggling 1 4384 121.2 6
Vacuum drier 1 4384 513 14
Milling 1 4384 433.7 12
Polishing 1 4384 343.5 8
Buffing 1 1696 89.5 3
Embossing 1 1696 112.6 3
Measuring 1 1696 297.7 2
Ironing 1 1696 109 7
Total 18+4

BDU, IOT, SMIE, Industrial Engineering Program 48

Performance assessment and improvement directions for tanneries in ANRS

Here as shown in the above table there are 40 machines for tanning process of both skin and hide
cases. But they have 18 machines separately for each and the remaining; buffing, embossing,
measuring and ironing machines work commonly by interchanging receipts and other operation
elements correspond respectively.

The data, presented below, helps to calculate the amount of the maintenance cost and the loss of
production due to unplanned maintenance activities. Thus the selected necessary data are:
5.4.1 Total Cost of Production in Bahir Dar Tannery
To produce leather from hide and skin there are costs associated with it. The common production
costs for leather industry are raw material cost, chemical cost, labor cost, overhead cost. And the
operating expenses are general & administration cost and selling & distributing costs. The
amount of total cost of each type for (2007/08) - (2010/11) is taken from the annual report of the
company for the corresponding period and tabulated as follow.
Table 5.7:- Organizational information
Types of costs Cost in Birr Remark
2007/08 2008/09 2009/10 2010/11
Production 18,678,425.23 20,567,234.19 21,765,987.66 25,106,582.43
cost
Operating 1975765.45 1991238.25 2007856.00 3,056,365.88
cost
Maintenance 314123.55 357456.11 485343.65 428,157.38
cost
Total cost 20968314.23 22915928.55 24259187.31 28591105.69

BDU, IOT, SMIE, Industrial Engineering Program 49

Performance assessment and improvement directions for tanneries in ANRS

Table 5.8:- Organizational information

Costs 2007/08 2008/09 2009/10 2010/11
Annual cost(Br) 20968314.23 22915928.55 24259187.31 28591105.69
Annual income (Br) 21036298 27165470 29811413 31059478
Profit 67983.77 4249541.45 5552225.69 2468372.31
productivity (P) in % 63.4 81.7 89.34 78.24
Productivity index(PI) - 0.223 0.085 0.14
Maintenance Costs in Birr Remark
costs 2007/08 2008/09 2009/10 2010/11
Employee wage 152644.04 173723.67 235877.01 208,181
Spare parts cost 128790.65 146577 198990.89 175,699.88
Over time cost 12879.06 14657.7 19899.09 17,569.95
Other costs 19475.66 22163.27 30091.30 26,706.45
Total costs 314123.55 357456.11 485343.65 428,157.38

The other main cost, which can be minimized, is spare part cost. If proper maintenance system is
applied and operators are aware about their own machine, the cost incorporated with spare parts
decreases dramatically. This shows us that the company employee spent their time in
maintaining the failed machine. The spare part cost can be decrease if the machine properly
lubricated and inspected frequently, and if the loosen parts tighten properly before it causes the
breakdown of expensive parts etc. The cost of service item (filters, lubricant…) is normally
much less than the cost of breakdown maintenance. Therefore the spare part cost can be reduced
if the preventive activities dominate total work done in the company. Unless the total view of the
company changed to preventing the failure before it occurs, it is difficult to make the cost
minimum. Overtime cost is also the one that can be minimized or totally avoided. If we take an
ideal condition that it can be totally avoided, if no breakdown occurred and if the crafts are
staffed based on the need of preventive maintenance action. Thus, as the number of breakdown
jobs decrease, the amounts of overtime will decreases. Therefore, if the amount of overtime is
directly proportional to the number of breakdown occurred, the effort should be on decreasing
the number of breakdown occurred in the company. The analysis below quantifies the loss
through the downtime of machines.

BDU, IOT, SMIE, Industrial Engineering Program 50

Performance assessment and improvement directions for tanneries in ANRS

5.5 Downtime Cost Analysis

As Bahir Dar Tannery is one of the modern tanneries in the country, it equipped with different
modern machines. These machines are arranged in product layout to process the raw hide and
skin to the finished leather. Because of this operationally series arrangement, the breakdown of
one machine affects the whole production processes especially for bottleneck machines. Under
this title the status of each machine is analyzed to know how much it costs if failed. It is better to
analyze the status of the machines by dividing the machines according to the production process
flow. The processing plant is classified in to two main sections; the hide and skin section. The
hourly capacity and the incorporated money lost due to machine failure of each section will be
analyzed as below. Since in the annual report, there was sufficient market in the year 2003E.C.
every calculation is made based on this.
5.5.1 Machinery for hide process
The hide section of the plant divided in to three sub-sections; beam house, tanning section and
finishing section. Each section equipped with different processing machines to process the hide.
The first two sections dominantly use drums. While the finishing section uses different types of
machines.
Beam house
Hides should be washed to clean compost and extraneous matter before processing. Hair and
excessive flesh should be removed. After removal of hair, excessive lime will be removed.
Generally the processes used to perform these operations are: presoaking, soaking, liming & de-
liming, fleshing and splitting. Machinery used to accomplishes these processes and the actual
hourly capacity of each machine is discussed below. Drums are used to perform presoaking,
soaking, and liming operation in this section.
Presoaking Drums
There are two drums used to perform the presoaking operation with the capacity of 2000kg dry
weight each. The presoaking operation takes 12hours before it goes to the next operation –
soaking. With full capacity each drum is charged 250 pieces of hide daily. Therefore the number
of hide processed in each drum per hour is:
The actual capacity of each soaking drum =250/ (2*12) =10.4167hides/hr
(Batch size/batch cycle time)

BDU, IOT, SMIE, Industrial Engineering Program 51

Performance assessment and improvement directions for tanneries in ANRS

Soaking Drums
Similarly, the presoaked 250hides are immersed in the two drums for the next 12hrs. The drums
are the same as the presoaking drums and so the number of hide processed in each drum per hour
is calculated in similar way to be 10.4167hides/hr.
Liming & De-liming Drums
In this case, there is one drum of 400 hides processing capacity to process the liming operation
for the other 24hrs. Thus, the hourly capacity of the drum is similarly calculated to those drums,
that is 400hides/24hr=16.67hieds/hr
Fleshing Machines
There is one fleshing machine in the beam house, which eliminate the excessive flesh and hair.
This machine should be operated for 24hrs to finish the daily batch of 400pieces of hide.
Therefore the hourly capacity of a machine is calculated as:
The actual hourly capacity of a fleshing machine =400/ (24) =16.67hides / hr
This calculation is done based on the actual operators’ capacity or based on the current trained of
working culture.
Pickling Machine
There are also two machines for the splitting operations. The period of time taken for the
400 pieces of fleshed hides is 7hrs. Thus, the number of hide processed in the machine per hour
is the same as the fleshing machine capacity 16.67hides. Thus, in the beam house the hourly
capacity of each machine with the associated cost per hour is calculated in the following table.
The failure of each machine results to decrease equal number of finished pieces of hide that the
machine can produce, if they are a bottleneck machines. Therefore the cost lost in each hour due
to the breakdown is calculated using the net profit of the final leather.
In the budget year 2003 E. C. (2010/2011) the company produces 212670 pieces of hides. The
total cost that is the sum of production cost (includes cost of hide, cost of chemicals, direct labor
cost, factory overhead cost) and other expenses (general and administration expense, selling and
distribution expense) using the cost of production approach is Birr 2859110.57. A net sale in the
year is Birr 3,700,458. Thus the average net profit of one hide leather can be calculated as:

= 3.95br/hide

BDU, IOT, SMIE, Industrial Engineering Program 52

Performance assessment and improvement directions for tanneries in ANRS

Therefore having the net profit from one piece of hide, the total amount of birr lost due to failure
of each machine is summarized as follow. The amount of birr lost per hour is calculated as:
Amount lost birr per hour = Actual capacity * Net profit per each hide piece
= 10.4167hide/hr*3.95br/hide
= 41.21br/hr
Down time loss in birr = amount lost in br/hr*down time in hr
= 41.21*507.2
= 20901.72 Birr/year
Making similar computations for the reaming tanning and finishing sections the following table
summarizes the findings as follows:
Table 5.10:- Down time loss in birr for beam house

Machines Capacity Down time Amount lost in Down time loss Remark
hide/hr in hr birr/hr in birr/year
Paddle 10.4167 507.2 41.21 20901.72 Beam
Liming 16.67 421.25 41.80 17608.25 house
Fleshing 16.67 334.9 41.80 13998.82
Pickling 16.67 311 41.80 12999.80
Total 57857.47

BDU, IOT, SMIE, Industrial Engineering Program 53

Performance assessment and improvement directions for tanneries in ANRS

Table 5.11: Down time loss in birr for all sections

Machines Capacity Down time in Amount lost Down time Remark
hide/hr hr/year in birr/hr loss in
birr/year
Tanning 20.8334 259.1 52.25 13537.97 Tanning
Re-tanning 20.8334 456.3 52.25 23841.67 section
Sett-out 20.8334 312.3 52.25 16317.67 193085.39
Summing 31.25 543.3 78.375 42587.13
Splitting 31.25 423 78.375 33152.62
Shaving 31.25 489.7 78.375 38380.23
Stacking 31.25 322.4 78.375 25268.10
Dyeing drum 20.8334 501 52.25 26177.25 Finishing
Spraying 31.25 297.5 78.375 23316.56 section
Toggling 31.25 121.2 78.375 9499.05 167129.46
Vacuum drier 62.5 313 156.75 49062.75
Milling 16.67 433.7 41.80 18128.66
Polishing 16.67 343.5 41.80 14358.30
Buffing 16.67 89.5 41.80 3741.10
Embossing 16.67 112.6 41.80 4706.68
Measuring 16.67 297.7 41.80 12443.86
Ironing 20.8334 109 52.25 5695.25
Total 418072.32
From the computation result we can conclude that 418072.32 birr/year of return lost due to
failure and down time of hide processing machines. As compared to profit gained from hide this
is much loss, 841,347.43 which is equal with 49.69% of profit almost half. But if they have been
not lost this, their profit would be 1,259,419.68 birr.

BDU, IOT, SMIE, Industrial Engineering Program 54

Performance assessment and improvement directions for tanneries in ANRS

5.5.2 Machineries for skin process

Making similar computation as in the case of hide processing machineries made above, the
actual hourly capacity of machines from each sections are tabulated as following including the
down time loss costs depending on the yearly incurred costs, got returns and number of pieces
sold in the specified year.
The total cost, in 2003 E. C. (2010/2011) is Birr 16,594,387.68 for sheep and Birr 2,849,969.86
for goat. Thus the total cost for both skins is Birr 25731995.12. The net sale for sheep and goat
skin is 22,707,986.60 and 4,651,033.40. And the total net sale of skin is Birr 27,359,020. In the
year 833,288 pieces of sheep skins and 194,318 pieces of goat skins are produced (total skin
produced is 1,027,606 pieces). Thus, the average net profit per each skin is:

= 0.773 birr/skin

Amount lost birr per hour = Actual capacity * Net profit per each skin piece
=83.3 pieces /hr*0.773birr/piece
= 64.40 birr/hr
Down time loss in birr = amount lost in birr/hr*down time in hr
= 64.40birr/hr*476.5 hrs/year
=30686.36 birr/year
Using similar approaches to hide process and down time cost analysis in all cases we have the
following summary table for skin tanning production process.

BDU, IOT, SMIE, Industrial Engineering Program 55

Performance assessment and improvement directions for tanneries in ANRS

Table 5.12:- Down tome loss in birr for skin process in all sections
Machines Down Capacity (pcs/hr) Amount lost Down time Remark
time in br/hr loss in
hrs/year br/year
Paddle 476.5 2000/(2*12)=83.3 64.40 30686.36 Beam house
Liming drum 321.7 4000/24=166.67 88.168 28363.64 90493.68
Fleshing 339 4000/(2*24)=83.3 44.065 14938.03
Pickling drum 297.1 2000/12=166.67 88.168 26194.71
Tanning drum 502.6 2000/12=166.67 88.168 44313.23 Tanning
Retanning drum 423.3 2000/12=166.67 88.168 37321.51 section
Sett-out 277.9 2000/12=166.67 88.168 24501.88 179482.47
Shaving 341.2 2000/8=250 132.25 45123.70
Stacking 213.4 2000/8=250 132.25 28222.15
Dyeing drum 345.2 2000/12=166.67 88.168 30435.59 Finishing
Spraying 136 2000/8=250 132.25 17986.00 section
Toggling 101.7 2000/8=250 132.25 13449.82 359180.27
Vacuum drier 355.25 2000/4=500 264.50 93963.62
Milling 299.3 4000/24=166.67 88.168 26338.68
Polishing 654.4 4000/(2*24)=83.3 44.065 28836.13
Buffing 411.9 4000/24=166.67 88.168 36316.40
Embossing 317.1 4000/24=166.67 88.168 27958.07
Measuring 697 4000/24=166.67 88.168 61809.96
Ironing 250.5 2000/12=166.67 88.168 22086
Total 629156.42

1,627,024.88 birr profit is gained from both skins but 629,156.42 birr was lost due failure and
down time of skin tanning process machines in the layout of the production, which is equal with
38.67% of profit gained per annum.

BDU, IOT, SMIE, Industrial Engineering Program 56

Performance assessment and improvement directions for tanneries in ANRS

In combination for hide and skins line down time losses and up time gains, they would have got
2,256,181.30 birr (from only skin) and 1,259,419.68 birr from hide and total of birr
3,515,600.98. But from this they only saved 2,468,372.31birr and lost 1,047,228.67 due to
machines down time.
Table 5.13:- Total revenue table for three years
Volume 2000 E.C 2001 E.C 2002 E.C 2003 E.C
/annum Skin Hide Skin Hide Skin Hide Skin Hide
Productio 205089 18958 211032 19322 211789 20098 210454 21267
n volume
Unit 90 136 116 139 127 145 130 174
selling
price(br)
Revenue 18458010 2510288 24479712 2685758 26897203 2914210 273569020 3700458

Total 21036298 27165470 29811413 31059478

revenue

5.6 Financial analysis

The analysis indicates that the sales performance of the company increased in respective five
years.
35000000
Annual total sale in million birr

30000000

25000000

20000000

15000000
revenue growth
10000000

5000000

0
2000 2001 2002 2003
Budjet year

Figure 5.10: - Sales performance of the company

BDU, IOT, SMIE, Industrial Engineering Program 57

Performance assessment and improvement directions for tanneries in ANRS

5.7 Machine productivity considering down time

Table 5.14: Machine productivity considering down time

Machines Down time Capacity (pcs/hr) Pieces lost due Actual

hrs/year to DT /hr production/hr
Paddle 476.5 2000/(2*12)=83.3 8.269 75.032
Liming drum 321.7 4000/24=166.67 11.17 155.5
Fleshing 339 4000/(2*24)=83.3 5.88 77.42
Pickling drum 297.1 2000/12=166.67 10.31 156.36
Tanning drum 502.6 2000/12=166.67 17.44 149.23
Retanning 423.3 2000/12=166.67 14.69 151.98
drum
Sett-out 277.9 2000/12=166.67 9.64 157.03
Shaving 341.2 2000/8=250 17.77 232.23
Stacking 213.4 2000/8=250 11.11 238.89
Dyeing drum 345.2 2000/12=166.67 11.98 154.69
Spraying 136 2000/8=250 7.08 242.92
Toggling 101.7 2000/8=250 5.29 244.71
Vacuum drier 355.25 2000/4=500 37 463
Milling 299.3 4000/24=166.67 10.39 156.28
Polishing 654.4 4000/(2*24)=83.3 11.35 71.95
Buffing 411.9 4000/24=166.67 14.302 152.368
Embossing 317.1 4000/24=166.67 11.01 155.66
Measuring 697 4000/24=166.67 24.2 142.47
Ironing 250.5 2000/12=166.67 8.69 142.47
Total

BDU, IOT, SMIE, Industrial Engineering Program 58

Performance assessment and improvement directions for tanneries in ANRS

1200

1000
Production /hour

800

600 Machine capacity /hr

400 Actual production capacity

/hr
200

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Machines in the tannery

Figure 5.11: - Performance gap of the company on machine productivity due to down time only

5.8 The learning and growth assessment

This assessment deal with how employee training and corporate cultural attitudes related to both
individual and corporate self-improvement. In the current climate of rapid technological change,
it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics
can be put into place to guide managers in focusing training funds where they can help the most.
In any case, learning and growth constitute the essential foundation for success of any
knowledge-worker organization.

Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like
mentors and tutors within the organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it is needed.
If an organization wants to achieve ambitious results for internal processes, customers, and
financial stakeholders, where are these gains found? The measures in the Learning and Growth
perspectives of an organization are really the enablers of business success. Once measures and
related initiatives are conducted, one can be certain of discovering some gaps between current
organizational infrastructure of employee skills, information systems, and organizational climate
(e.g., culture) and the level necessary to achieve the results that the organization desires. The

BDU, IOT, SMIE, Industrial Engineering Program 59

Performance assessment and improvement directions for tanneries in ANRS

measures designed in this perspective will help to close that gap and ensure sustainable
performance for the future. Employee skills, employee satisfaction, availability of information,
and alignment of such factors to the mission, vision and strategy could all have a place in this
perspective. [Introduction to the Balanced Scorecard, Hid_0471423289]
The Learning and Growth Perspective will emphasize three result categories: Employees,
Systems, and Organization.
Results for Employees: - Employee satisfaction, productivity, and retention
System Results: - Engaging to the end user, accessibility, and quality of information.
Results for the Organization are: - climate for change, strong leadership, empowering the
workforce, and other motivating factors. [The Balanced Scorecard by: Matt H. Evans]
The learning and growth perspective of the balance scorecard can be overviewed and evaluated
with the help of the following cause and effect diagram followed by evaluating questions.

Employee Employee Information and

skills satisfaction communication

Learning and
growth
perspective

Staff attitude Rate of innovation Growth rate

Figure 5.12 Components of learning and growth perspective

BDU, IOT, SMIE, Industrial Engineering Program 60

Performance assessment and improvement directions for tanneries in ANRS

Evaluating Learning and Growth of Bahir Dar Tannery

Table 5.15: Evaluating Learning and Growth of Bahir Dar Tannery
Evaluating Learning And Growth Of Bahir Dar Tannery Rank as , 1=low,
Number of participants(sample size)= 5 2=medium, high=3
1 Any ongoing process improvement activities?

2 Any measurements being taken as to their impact?

3 How operators are conscious for quality?
4 Are any targets or goals set for operators concerning their task?
5 Employee empowerment rate in the company?
6 Revenue growth of the organization?
7 Effort of the company to introduce new product?
8 Any external influence for new product introduction?
9 Is employee satisfaction currently measured?
10 Promotion for effective and productive employees?
11 Welcoming environment for employees to contribute their innovative
idea?
12 Is there equal opportunity for employees in the organization?
13 The positive impact of unskilled operators for quality?
14 The contribution of given trainings in reducing defects?
15 The organization value for employees' safety?
16 Employees' happiness about their work environment?
17 Management effort to reduce absenteeism in the organization?
18 Responsiveness of the company for employees complains?
19 The management commitment for organizational growth
20 Competency of the company in the market
21 Organizational value for Records and documentation
22 Information flow and communication among departments
23 Refining and compiling organizational information to make the
available for internal and external customers, researchers, etc
24 Experience sharing culture with other companies
25 Openness for new idea and new technology

BDU, IOT, SMIE, Industrial Engineering Program 61

Performance assessment and improvement directions for tanneries in ANRS

Summary of The Learnign and Growth performance Evaluation Of Bahir Dar Tannery
Table 5.16: Summary of The Learnign and Growth performance Evaluation
Samples Low Medium high
Sample 1 16/23=69.56% 3/23=13.04% 4/23=17.39%
Sample 2 11/25=44% 12/25=48% 2/25=8%
Sample 3 10/25=40% 12/25=48% 3/25=12%
Sample 4 15/25=60% 9/25=36% 1/25=4%
Sample 5 13/25=52% 12/25=48% 0/25=0%
Total 265.56% 193.04%/ 41.39%
Average Percentile 265.56%/5=53.11% 193.04%/5=38.61% 41.39%/5=8.27%
description
Therefore; Learnign and Growth performance of Bahir Dar tannery is not yet
effective and efficient enough for its performance status is 53.11% low.

Graph of learning and growth performance evaluation result

Learning and Growth performance Evaluation result

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
HIGH MEDIUM LOW
Series 1 8.27% 38.61% 53.11%

Figure 5.13: Graph of learning and growth performance evaluation result

BDU, IOT, SMIE, Industrial Engineering Program 62

Performance assessment and improvement directions for tanneries in ANRS

5.9 Internal business assessment

In observing the Internal business Processes, we will identify the key processes at which Bahir
Dar tannery must excel in order to continue adding value for customers. Our task in this
perspective is to identify those processes and develop the best possible measures with which to
track organizational progress.
This assessment will capture results of internal processes that lead to financial success and
satisfied customers. It is customer driven measures that must be translated into measures of what
the organization must do internally on its process to meet the customers’ expectation without
violating social and environmental obligations.
Internal processes are the mechanisms through which performance expectations are achieved. It
takes more percentages of total performance measures, for example as it is observed form some
literatures, from the four perspectives of balanced scorecard it takes about 34%. Therefore, Bahir
Dar tannery must prioritize and focus the key internal processes at which it must excel and
monitor to ensure that outcomes will be satisfactory. The common internal processes are
Management systems, product/service quality, operating costs, operating efficiency, productivity,
process lead time, employee skills, maintenance practices, etc. The reason for giving more
attention for this perspective is that it is the core for performance improvement of the company
which encompasses all performance parameters like quality, time, cost, flexibility, and productivity.

BDU, IOT, SMIE, Industrial Engineering Program 63

Performance assessment and improvement directions for tanneries in ANRS

Internal business process elements, case company: Bahir Dar

Tannery
Organizational
Management Quality
culture
systems
Production lead time
Employee skills Ethical values
Maintenance Material quality
Customer handling Time values
Inventory Process quality
Communication Informal groups
managemen
t Internal business
processes
Scheduled
Human cost
Total productive maintenance
maintenance Product & service
Preventive Machine cost
maintenance Resource utilization
Material cost
Break down
Employee empowerment
Maintenance
Productivity
Operating costs

Figure 5.14 Internal business process elements, case company: Bahir Dar Tannery

BDU, IOT, SMIE, Industrial Engineering Program 64

Performance assessment and improvement directions for tanneries in ANRS

Internal business process evaluation of Bahir Dar tannery

Management system performance evaluation of Bahir Dar Tannery

Rank as low=1,
medium=2, high=3
1 Does the company management create conductive working
environment among workers?
2 How is the horizontal and vertical communication in the company?
3 Does the top management listen to employees' complain?
4 Does the company give attention to create safe and accident free
environment?
5 As an employee are you satisfied with the existing management?
6 How responsive is the management to the complain of employees
7 As employee, do you get safety equipments, bonus and other incentives
on time?
8 How is the customer relation value of the company?
9 Is there adequate information available for customers concerning the
company' performance?
10 How the company is efficient enough in fulfilling customer
requirements?
11 Does the company's customer increase year to year?
12 Does customers report complain about the products of the company?
13 Is there customer hosting place in the company?
14 Does the company believe that customer is a king and acts
accordingly?
15 How is the awareness of maintenance values?
16 Describe the level of process interruption due to machine failures and
the management efforts to resolve it
17 How is the effort to reduce delays due to down times?
18 Do operators know how to carry out simple maintenances?
19 Does the company give continuous maintenance training to operators
20 How is the rate of new technology introduction in the company?
21 Defective rate reduction due to maintenance problem

BDU, IOT, SMIE, Industrial Engineering Program 65

Performance assessment and improvement directions for tanneries in ANRS

Table 5.17: Management system performance evaluation summary

Low Medium High
Sample 1 10/21=47.6% 11/21=52.4% 0/21=0%
Sample 2 13/21=62% 8/21=38% 0/21=0%
Sample 3 13/19=68.42% 5/19=31.58% 0/19=0%
Sample 4 15/19=78.9% 3/19=15.78% 1/19=5.26%
Sample 5 14/21=66.67% 4/21=19.05 3/21=14.28%
Total 323.59% 156.81% 19.54%
Percentile 323.59%/5=64.72% 156.81%/5=31.36% 19.54%/5=3.91%
Therefore; generally the management system performance of Bahir Dar tannery can be
taken as not effective and efficient enough for its performance status is 64.72% low.

Graph of management performance evaluation of Bahir Dar tannery

Management performance evaluation of bahir dar tannery

70.00%

60.00%
PERCENT OF PERFORMANCE

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
HIGH MEDIUM LOW
3.90% 31.58% 64.72%

Figure: 5.15 Graph of management performance evaluation of bahir dar tannery

BDU, IOT, SMIE, Industrial Engineering Program 66

Performance assessment and improvement directions for tanneries in ANRS

5.9 Productivity evaluation of Bahir Dar Tannery

Productivity means how much of management resources are required for a certain amount of
management results. This is why productivity is required to improve constantly no matter the
economic climate. [Beyond World-Class Productivity; industrial engineering practice and
theory]
Therefore for better understanding of Bahir Dar tannery' productivity performance, human
resource performance, machine performance and material performance are evaluated as follows;
Human resource productivity of Bahir Dar Tannery
Table 5.18: Human resource productivity

Productivity measurement due to working hours Rank as poor =1,

Sample size= 5 workers medium=2, high=3
1 Employees punctuality
2 Starting work On time
3 Effective use of time on process
4 Effective use of break times
5 managing time waste related to break times
6 Supervisor control of time management
7 Employees' attitude and self initiatives towards proper
use of time

BDU, IOT, SMIE, Industrial Engineering Program 67

Performance assessment and improvement directions for tanneries in ANRS

Employee break times of Bahir Dar Tannery

Table 5.19: Employee break times of Bahir Dar Tannery

Breaks Time span Extra times lost Reason behind the extra
/day times wasted
1 Morning tea 10:15-10:30 AM 5-8 minutes Toilet, washing, talking
time with friends
2 Lunch 12:00–1:00 PM 8-12 minutes Toilet, washing, talking
with friends
3 Noon break 3:00 – 3:15PM 5-8 minutes Toilet, washing, talking
with friends
4 Leaving time 5:00 PM 30 minutes before For washing and clothing
leaving time

Extra times wasted and their associated costs at Bahir Dar Tannery

Table 5.19: Extra times wasted and their associated costs

Breaks Extra times lost Commutative Annual wasted Assume
/day extra times minimum of 10
workers
1 Morning 3 - 5 minutes 4minutes/day*300days/year=1200 200 hrs
tea time Average=4 minutes =20 hours
2 Lunch 5 - 10 minutes, 7.5minutes/day*300days/year 375 hrs
Average=7.5 = 2250minutes = 37.5 hours
3 Noon 5 - 8 minutes, 6.5minutes/day*300day/year 325 hrs
break Average =6.5 =1950minutes=32.5hours
Total wasted hours/ year 90 hours 900 hrs
900 extra hours is wasted per year associated with break times, assuming only 10
employees. This time waste will increase as the number of time careless employees
increase.

BDU, IOT, SMIE, Industrial Engineering Program 68

Performance assessment and improvement directions for tanneries in ANRS

Material productivity
Table 5.20: Material productivity
Measuring material productivity of Bahir Dar Tannery Rank as low=1,
Sample size=5 workers medium=2, high=3
1 Proper raw material inspection
2 Proper work in process material handling
3 Store management of raw material, chemicals, spare parts,
etc
4 Quality control activities from the beginning to the end of
production process
5 Operators' awareness to reduce the cost of defective
products
6 Proper machines and equipments usage to reduce material
waste
7 Finished goods handling effectiveness for quality product
delivery

Machine productivity
Table 5.21: Machine productivity
Machine productivity evaluation at Bahir Dar tannery Rank as low=1,
Sample size = 5 workers medium=2, high=3
1 Annual Production volume compared to the expected
volume?
2 Machines working capacity compare to its design capacity
3 Machines and equipments effect for defective products
4 Preventive maintenance to reduce Production interruption
due to machineries break downs
5 Maintenance Effort to reduce Production delay due to
machines and equipments failure
6 Operators skill to follow up proper working of machines

BDU, IOT, SMIE, Industrial Engineering Program 69

Performance assessment and improvement directions for tanneries in ANRS

Summary of productivity performance evaluation of Bahir Dar tannery (result of one

sample)
Table 5.22: Summary of productivity performance evaluation
Productivity evaluation Low Medium High
Human resource 3/7 low ranks 4/7 medium ranks 0
productivity
Machine productivity 3/7 low ranks 4/7 medium ranks 0
Material productivity 1/7 low rank 6/7 medium ranks 0
Total 7/21 low ranks 14/21 ranks 0
Percent of the ranks 33.33% 66.67 % 0%

PRODUCTIVITY EVALUATION RESULT OF BAHIR DAR

TANNERY FOR ONE SAMPLE

MEDIUM,
33.33%

LOW, 66.67%

Figure 5.16: Productivity evaluation of Bahir Dar tannery

BDU, IOT, SMIE, Industrial Engineering Program 70

Performance assessment and improvement directions for tanneries in ANRS

Summary of productivity evaluation

Table 5.23: Summary of productivity evaluation
Low Medium High
Sample 1 15/21=71.43% 5/21=23.81% 1/21=4.71%
Sample 2 11/21=52.38% 10/21=47.62% 0/21=0%
Sample 3 8/21=38.09% 10/21=47.62% 3/21=14.28%
Sample 4 7/21=33.33% 14/21=66.67% 0/21=0%
Sample 5 10/21=47.62% 9/21=42.85% 2/21=9.52%
Total 242.85% 228.57% 28.51%
Percentile 242.85%/5=48.57% 228.57/5=45.71% 28.51%/5=5.70%
Therefore; productivity performance of Bahir Dar tannery is not yet effective and
efficient enough for its performance status is 64.72% low.

Productivity evaluation result of Bahir Dar tannnery

50.00% 48.57%
45.71%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00% 5.70%
5.00%
0.00%
HIGH
MEDIUM
LOW

HIGH MEDIUM LOW

PERCCENT OF ASSESSMENT 5.70% 45.71% 48.57%

Figure 5.17 Productivity evaluation result of Bahir Dar tannery

BDU, IOT, SMIE, Industrial Engineering Program 71

Performance assessment and improvement directions for tanneries in ANRS

5.10 Evaluating the organizational culture of Bahir Dar tannery

Organizational culture is defined as “A pattern of shared basic assumptions invented,

discovered, or developed by a given group as it learns to cope with its problems of external
adaptation and internal integration" that have worked well enough to be considered valid and
therefore, to be taught to new members as the correct way to perceive, think and feel in relation
to those problems. It has also been defined as "the specific collection of values and norms that
are shared by people and groups in an organization and that control the way they interact with
each other and with stakeholders outside the organization." organizational culture is a set of
shared mental assumptions that guide interpretations and actions in organizations by defining
appropriate behavior for various situations.

Corporate culture is the total sum of the values, customs, traditions, and meanings that make a
company unique. Corporate culture is often called "the character of an organization", since it
embodies the vision of the company's founders. The values of a corporate culture influence the
ethical standards within a corporation, as well as managerial behavior.

And if organizational culture is such an important factor in a business the following assessment
will help us to evaluate Bahir Dar's tannery organizational culture.

Bahir Dar tannery's organizational culture evaluation

Table 5.24: Bahir Dar tannery's organizational culture evaluation
Ranking
Evaluating Bahir Dar tannery organizational culture Low medium High
=1 =2 =3
1 Does the company have a clear set of vision, mission and
goals?
2 Employees awareness of the company's vision and mission
and their effort to better aligning the company towards
achieving its vision, mission, and goals
3 Employee pride and eagerness for the organization and the
work performed
4 Equal opportunity for each employee to realize their full
potential within the company

BDU, IOT, SMIE, Industrial Engineering Program 72

Performance assessment and improvement directions for tanneries in ANRS

5 Strong communication with all employees regarding policies

and company issues
6 Strong company leaders with a strong sense of direction and
purpose
7 Ability to compete in industry innovation and customer
service, as well as price
8 Management effort to reduce turnover rates
9 Investment in learning, training, and employee knowledge
10 Regard for and fair treatment of each employee as well as
respect for each employee’s contribution to the company
11 Employee motivation and loyalty
12 Increased team cohesiveness among the company' various
departments and divisions
13 Promoting consistency and encouraging coordination and
control within the company
14 Shaping employee behavior at work, enabling the
organization to be more efficient
15 Acceptance and appreciation for diversity
16 Management role to reduce rate of conflict among employees
17 Existence and contribution of Informal groups in the
company
18 Employees punctuality
19 Employees attitude towards reducing absenteeism
20 Employee attitude towards effective use of productive time
21 The management role in creating strong organizational
culture that would drive the company towards achieving its
vision, mission and goals through an overall participation of
all workers.

BDU, IOT, SMIE, Industrial Engineering Program 73

Performance assessment and improvement directions for tanneries in ANRS

Organizational culture evaluation at Bahir Dar tannery for a single data

Organizational culture evaluation at Bahir dar Tannery

High፣ 5%

Medium፣ 33%

Low፣ 62%

Figure 5.18: Organizational culture evaluation at Bahir Dar tannery for a single data

Summary of the organizational culture evaluation of Bahir Dar tannery

Table 5.25: Summary of the organizational culture evaluation of Bahir Dar tannery
Low Medium High
Sample 1 18/21=85.71% 2/21=9.5% 1/21=4.76%
Sample 2 14/21=66.67% 7/21=33.33% 0/21=0%
Sample 3 11/21=52.38% 6/21=28.57% 4/21=19.04%
Sample 4 13/21=61.9% 7/21=33.3% 1/21=4.76%
Sample 5 12/21=57.14% 5/21=23.81% 4/21=19.05%
Total 323.8% 128.51% 47.55
Average Percentile 323.8/5=64.76% 128.51%/5=25.70% 47.55/5=9.51%
Therefore; Bahir Dar tannery, in its organizational culture can be considered as poor for
its performance status is 64.76% low.

BDU, IOT, SMIE, Industrial Engineering Program 74

Performance assessment and improvement directions for tanneries in ANRS

Organizational culture evaluation result of Bahir Dar tannery

Organizational culture evaluation result of Bahir Dar Tannery

Percent of the assessment

64.76%
9.51% 25.70%

HIGH
MEDIOUM
LOW

Figure 5.19: Organizational culture evaluation result of Bahir Dar tannery

Research indicates that organizations may derive the following benefits from developing strong
and productive cultures:

 Better aligning the company towards achieving its vision, mission, and goals
 High employee motivation and loyalty
 Increased team cohesiveness among the company' various departments and divisions
 Promoting consistency and encouraging coordination and control within the company
 Shaping employee behavior at work, enabling the organization to be more efficient.

BDU, IOT, SMIE, Industrial Engineering Program 75

Performance assessment and improvement directions for tanneries in ANRS

CHAPTER SIX

PROPOSED SOLUTION
6. INTRODUCTION
Performance management has become a mandatory requirement for the private and local sectors.
Unfortunately, not many tools exist to measure and monitor public and private service delivery
effectively. Managers require accurate information to ensure that their decisions are not based on
emotions and assumptions but that the information with regard to service delivery is accurate and
relevant. In modern business models, intangible assets such as employee skills and knowledge
levels, customer and supplier relationships, and an innovative culture are critical in providing the
much-needed cutting-edge to the organization. This is where tools like the balanced scorecard
method hold relevance for the enterprise. Developed by Robert Kaplan and David Norton, the
balanced scorecard method translates an organization’s strategy into performance objectives,
measures, targets and initiatives. It is based on four balanced perspectives, and links them
together with the concept of cause and effect. A proper balanced scorecard can predict the
effectiveness of an organization’s strategy through a series of linked performance measures
based on four perspectives including finance, customers, internal processes, employee learning
and growth. [7]
6.1 Selection of an appropriate model or tool
At first glance, it cannot be said that one concept or tool is better than another. The reason for
this is that all concepts and tools have both positive and negative components and the situation
and where it is used affects the applicability. Another aspect is that not all concepts and tools are
applicable in all businesses. It is important to see what that needs to be accomplished with a
specific method, so that an adoption to dominant conditions can be made [Thomas Grunberg,
2007]. Therefore, since it is unlikely that a single approach would address all the organization
needs, the organization need to be clear what they are trying to achieve and why before selecting
a particular performance assessment and improvement model. This will involve asking a series
of questions, including:
 What are the changes and improvements required?
 What outcomes are looking for?

BDU, IOT, SMIE, Industrial Engineering Program 76

Performance assessment and improvement directions for tanneries in ANRS

 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?
 What resources are available?
 To what extent do involve staff in the changes?
"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".
[Amanda Whittaker Brown, 2006].

BDU, IOT, SMIE, Industrial Engineering Program 77

Performance assessment and improvement directions for tanneries in ANRS

Table 6.1: Selection overview for an appropriate performance assessment model or to

Selection overview for an appropriate performance assessment model or tool
PM Models Scope Time Resource Staff involvement
Balanced Holistic model that can Four to six months to implement Low resource investment – often just Inclusive if scorecards are
Scorecard be used at various depending on level of measurement facilitation costs and staff time cascaded and widely
(BSC) levels across the in place deployed
organization, service,
team or group
Improvement tool used Improvements anticipated in 6-12 Investment of resources can be high Inclusive of staff in the
Business to bring about change months from the start of the project due to the intensive nature of the areas of activity being
Process in systems and people for general processes approach. improved
Reengineering who operate them
Processes and Implementation to assessment Organizations of 60-70 would pay inclusive of staff in the
ISO9001:2000 documentation takes approx £3000 for the assessment and areas of activity being
quality approx six to nine months £1600 a year for audits improved
system
Processes or functions Usually two to three months from Consultant costs within the region of Fully inclusive of staff in
Kaizen Blitz conception to bedding in of new £7000-10,000 per blitz event the areas of activity being
processes blitzed
Stakeholder centric- Up to approx 6 months to Relatively low Resource investment. Inclusive of
Performance model implement depending on strategies Independent facilitation may be organizational
Prism and performance measures in place required to maximize the effectiveness managers and
of workshop sessions stakeholders
Processes, functions or Black belt projects will normally Costs vary depending on methods Inclusive of staff in areas
Six Sigma services take adopted and consultancy requirement of activity being improved
three to nine months
Statistical Processes or functions Less than 6 months to implement Moderately resource intensive. Inclusive of staff in areas
Process improvements to processes or External Support often required of activity being improved
Control functions
BDU, IOT, SMIE, Industrial Engineering Program 78
Performance assessment and improvement directions for tanneries in ANRS

6.2 Why Balanced Score card?

The above review does not aim to provide definitive information on each approach but is
provided to help informed decisions. As a result and keeping in mind what the researchers have
observed while assessing the tanneries performance status, a tool that is capable of solving those
analyzed problems through building a holistic performance frame work has to be found.
In response to competitive pressures, customer demands and ever-changing regulatory
conditions, many companies are fundamentally rethinking the way they do business. The reality
of the current business environment, whether it is service giving or manufacturing, is expressed
by fierce competition, globalization, liberalization and privatization. The business environment
has no mercy for inefficiency and weakness.
Regardless of the size or the type of business a company is involved in, there are processes and
operations that could be done better than they are currently being done. Improving business
process is a necessity for businesses to stay competitive in today’s marketplace. Traditionally
many companies began business process improvement with a continuous improvement approach.
This approach attempts to understand and measure the current process and make gradual
improvement overtime. Such method of improving business process is effective to obtain
gradual, incremental improvement.
Now days several factors have accelerated the need for a rapid improvement to business
processes. Technology is the most obvious one. New technologies are rapidly bringing new
capabilities to the business, thereby raising the competitive bar and the need to improve business
processes dramatically. Another apparent trend is the opening of the world market and increased
free trade. Such changes bring more companies into the market place, and competing becomes
harder and harder. In today’s market place, major changes are required to just stay in the market.
Either improve the business and shape up to the demands of the global situation or go out of
business for performance excellence has become a matter of survival for most companies. Thus;
tanneries of the Amhara region has to get the most efficient, effective and cost wise performance
assessment and improvement tool. Balanced score card is the best tool for this purpose because
of its holistic approach, short implementation period (4 to 6 months), low resource investment
(often just facilitation costs and staff time) and inclusive staff involvement.

BDU, IOT, SMIE, Industrial Engineering Program 79

Performance assessment and improvement directions for tanneries in ANRS

The researchers have used benchmarking (A standard by which something can be measured or
judged) or international model companies that are benefited from BSC by which to justify why
BSC is selected to win the tanneries openness for the BSC introduction and encourage holistic
changes as well as strategic reforms in the tanneries.
BSC is the most widely used organizational system in the world for measurement and
management of enterprise business performance. [8] It is being used by non-profit government
and state-owned companies to improve performance and achieve strategic alignment and focus.
For example, it is used by more than 70% of 500 companies in developed countries. Dubai, PRC,
Thailand, Malaysia, and Fiji are among the transitional governments using the BSC to monitor
and improve performance. The BSC is also a popular management tool for public sector
enterprises in the United States, Australia, United Kingdom and Scandinavia. Numerous studies
on BSC have proven the following BSC effectiveness [Asian Development Bank, 2007].
 Mobil Oil (North America) increased cash flow by $1.2 billion and return on
investment from 6% to 16% between years 2 and 5 after implementing the BSC.
Within 2 years of implementing the BSC, Mobil moved from last place in industry
profitability to first place. [9]
 UPS (United Parcel Service) increased revenues by 9% and net income by 33% within
two years after BSC implementation. [9]
 Three years after implementing the BSC, Wells Fargo Bank increased its customer
base by 450% and was rated the best online bank. As a result of the BSC
implementation, the company also added 750,000 online customers over a 2 year
period and decreased its costs per customer by 22%. [9]
 Chemical Bank increased its group company profits 20- fold over a 4-year period after
implementing the BSC. The Chemical Bank vice-chairman, Michael Hegarty, (of what
is now Chase Manhattan Bank) stated: “The balanced scorecard has become an
integral part of our change management process, enabling us to look beyond financial
measures and concentrate on factors that create economic value: quality, organizational
learning, and focusing on customers. The scorecard has delivered on our major goals in
communication, teamwork, learning, and commitment.”[9]
 The world famous advertising firm, Saatchi achieved a five-fold increase in market
capitalization to $2.5 billion within 3 years of implementing the BSC. William H.

BDU, IOT, SMIE, Industrial Engineering Program 80

Performance assessment and improvement directions for tanneries in ANRS

Cochrane, chief financial officer, stated: “The balanced scorecard has not only helped
us manage our human capital, it has transformed our agencies into being action-
oriented and client focused. And it has put everyone in the same ballpark with a
consistent definition of what we call ‘permanently infatuated clients’ and consistency
in measures.”[9]
 Siemens IC Mobile increased sales by 76% to €9 billion within one year of BSC
implementation. Rudi Lamprecht, member of the managing board at Siemens AG and
President of Siemens IC Mobile, stated: “We’ve always had strategies, but through the
balanced scorecard we bring them to life.”[9]
 The US Postal Service (USPS) first implemented the BSC in 1996. Since then, USPS
has been able to increase on-time delivery of mail by 20%, increase productivity by
almost 3% per year while decreasing overall employment by full-time equivalent
(FTE) of 60,000, increase employee and customer satisfaction, and deliver mail at rates
about a half of those of Germany or Japan.[9]
 The Defense Accounting and Finance Service (DFAS) of the US department of defense
first implemented the BSC in 2001. Since then, DFAS has been able to increase customer
satisfaction by an average of 2% per year; increase employee satisfaction by 14%; reduce
overall employment by 30%; cut its federal budget allocation by half; and most
importantly align and clarify its mission to its customers, employees, and managers.[9]
 The UK ministry of defense implemented the BSC in April 2000. The ministry is one of
the largest government departments in the United Kingdom with a budget of £25 billion
or 2.5% of GDP. It employs more than 300,000 military and civilian personnel and has
fixed assets of £87 billion. As a part of the UK government’s wider modernizing agenda,
in April 2000, the ministry released its first BSC that established clear strategic goals,
targets, measures, and initiatives. The results have been clear and visible: simplified
strategic objectives, better communication of strategic intent, improved resource
allocation, greater accountability, better decision making, and enhanced military
capability and readiness.[9]

BDU, IOT, SMIE, Industrial Engineering Program 81

Performance assessment and improvement directions for tanneries in ANRS

Engineering Capacity Building Program (ecbp) Vs tanning industry

Ecbp is made up of four components:
1. University reform
2. Reform of the technical and vocational education and training system
3. Improvement of the quality infrastructure
4. Private sector development
Private Sector Development
ECBP has identified strategic value chains in Ethiopia which are now the recipients of
continuous technical and matchmaking support. The companies in these selected value chains
benefit from technical and management training in addition to having stronger business
development services (BDS) at their disposal as a result of ecbp’s work in this area. In addition,
ecbp has helped companies build international contacts with potential investors and clients.
The impact of these initiatives has been astounding. Exports in the Leather Sector have risen by
13% in the last year. Through matchmaking activities which found buyers for leather products,
ecbp was responsible for 9.7% of the exports in finished leather and 13.1% in the shoe sector.
[Evaluation Reports 039 “The Engineering Capacity Building Program” in Ethiopia]
Therefore; since tanneries can be advantageous from ecbp, they need to have a compatible
performance assessment tool that would foster their business from all business perspective
and BSC would be that tool.
Therefore; these successful achievement resulted from BSC implementation and the holistic
nature of BSC have made us decide to select this performance assessment tool and develop the
implementation guide to assist its success in the tanneries.
Balanced scorecard is a management system that enables organizations to translate the vision and
strategy into action. [8] This system provides feedback on internal business processes and
external outcomes to continually improve organizational performance and results. Robert Kaplan
and David Norton created the balanced scorecard approach in the early 1990s. Most traditional
management systems focus on the financial performance of an organization. According to those
who support the balanced scorecard, the financial approach is unbalanced and has major
limitations such as:

BDU, IOT, SMIE, Industrial Engineering Program 82

Performance assessment and improvement directions for tanneries in ANRS

1. Financial data typically reflect an organization’s past performance. Therefore,

they may not accurately represent the current state of the organization or what is
likely to happen to the organization in the future.
2. It is not uncommon for the current market value of an organization to exceed the
market value of its assets. There are financial ratios that reflect the value of a
company’s assets relative to its market value. The difference between the market
value of an organization and the current market value of the organization’s assets
is often referred to as intangible assets. Traditional financial measures do not
cover these intangible assets. The main purpose of this thesis is to propose and to
prepare an implementation guide for Balanced Scorecard method. [8]
Implementing Balanced Scorecards typically needs the following points.
1. Translating the vision into operational goals;
2. Communicating the vision and link it to individual performance;
3. Business planning;
4. Feedback and learning, and adjusting strategy accordingly

The BSC is proposed primarily as a measurement system and as an answer to a question

concerning the unilateral measurement of the performance of a company and it is organized
through four Kaplan and Norton different perspectives. The researchers also added two
perspectives that can help the tanneries to solve their problems by aligning them with other
perspectives.

In order to implement BSC fully, the following vision and mission of the case company are
considered.

Vision:-To become a fully fledged best in class tanning company in the tanning and leather
industry through playing a leading role in the domestic and export markets for tannery products.

Mission: - Create superior values to the company’s and employees and be a pioneer in the
tanning industries development of Ethiopia.

BDU, IOT, SMIE, Industrial Engineering Program 83

Performance assessment and improvement directions for tanneries in ANRS

6.3 Implementation process of balanced score card

Vision and mission of

Bahir Dar tannery

Strategic result

Financial

Customer

Product innovation
Sustainability

Internal process
Operational

partnering
excellence

Strategic
Innovation and growth

Partnership

Organizational culture

Committed leadership and effective communication

Figure 6.1: Strategic Themes are the Pillars that Support the Mission and Vision

The roof represents the mission (what is the purpose) and vision (what they are trying to
achieve). The balanced scorecard perspectives represent the floors of the house. These are the
lenses, the dimensions of performance through which we view the organization. The foundation
of the house represents the personnel dimensions of the system without fully engaged leadership
and proactive communications and change management, the house is built on unstable ground.
The strategic themes are the load bearing walls which support the mission and vision of the
organization and provide stability by linking all the way from the foundation, through each
perspective level, to the roof.

BDU, IOT, SMIE, Industrial Engineering Program 84

Performance assessment and improvement directions for tanneries in ANRS

Strategic result

Financial

Customer

Internal process

Innovation Strategic
& learning objectives

Supplier
partnership
Strategic themes

Organizational
Culture

Figure 6.2: Executed Strategy Leads to Desired Strategic Results

The above strategy based balanced scorecard system involves the collaborative development of
an organization’s initiative of the Strategy and identifies the connection between financial,
customer, internal process, innovation and learning, supplier partnership and organizational
perspectives.

The figure illustrates how strategic themes are translated into strategy maps. It is important to
note that the leadership team, by setting the themes and results, has deliberately defined certain
strategic boundaries or parameters to give guidance to the strategic theme .It is also important to
note that the guidance is wide enough to allow the strategic theme teams to have some creative
attitude to develop the “which” of the strategy to consider many options for achieving the desired
strategic result.

BDU, IOT, SMIE, Industrial Engineering Program 85

Performance assessment and improvement directions for tanneries in ANRS

Strategic theme Strategic theme Strategic theme

11
Finance

Customer

Internal process

Innovation & learning Objective

s
Supplier partnership

Organizational culture

Finance Measures Targets

Customer

Internal process

Innovation and
learning

Supplier partnership

Organizational culture

Figure 6.3: Theme Maps are combined into a Single strategic map

BDU, IOT, SMIE, Industrial Engineering Program 86

Performance assessment and improvement directions for tanneries in ANRS

Kaplan and Norton recommend a nine step process for creating and implementing the balanced
scorecard in an organization. In assessing the performance of the tanning industries in the region
researchers are going to use these nine steps. [7]
6.3.1 Perform an overall organizational assessment
The organizational assessment is done in chapter five and it is found to be extremely low as
compared to their design capacity. The organizational assessment is done based on the factors
that have to be considered in any organization. The factors that are considered by the researchers
are management responsibility, productivity, quality, flexibility, time and production cost.
6.3.2 Identify strategic themes
Strategic Elements Form the Structure of the Balanced Scorecard. The followings are strategic
themes.
 Operational excellence
 Sustainability
 Product innovation
 Strategic partnering
6.3.3 Define perspectives, strategic objectives, and performance metrics
Financial perspective: it examines the tannery‘s implementation and execution of its strategy by
contributing to the bottom-line improvement of the company. It represents the long-term
strategic objectives of the tanneries and thus it incorporates the tangible outcomes of the strategy
in traditional financial measurement system terms. The three possible stages as described by
Kaplan and Norton (1996) are rapid growth, sustain and harvest. Financial objectives and
measures for the growth stage will emanate from the development and growth of the
organization which will lead to increased sales volumes, acquisition of new customers, growth in
revenues etc. The sustain stage on the other hand will be characterized using measures that
evaluate the effectiveness of the organization to manage its operations and costs, by calculating
the return on investment, the return on capital employed, etc. Finally, the harvest stage will be
based on cash flow analysis with measures such as payback periods and revenue volume. Some
of the most common financial measures that are incorporated in the financial perspective are EVA,
revenue growth, costs, profit margins, cash flow, net operating income etc. [7]

BDU, IOT, SMIE, Industrial Engineering Program 87

Performance assessment and improvement directions for tanneries in ANRS

Overview of the financial perspective’s goals and measurements of tanneries

Table 6.2: Overview of the financial perspective’s goals and measurements of tanneries

Elements of financial Goal (quantitatively) Measurement

perspective (quantitatively)
Growth stage Maximization of sales volume % of sales volume growth
Acquisition of new customer % increase in customer
Revenue maximization % of growth in revenue
Sustain stage Effectiveness of the organization Return on investment
to manage its operations and costs Return on capital employed
Harvest stage Cash flow analysis Payback periods
Revenue volume
Financial management Effectiveness of financial Expansion budget
management % of Budget to be allocated
for each department

Customer perspective: it defines the value proposition that the tanneries will apply in order to
satisfy customers and thus generate more sales to the most desired (i.e. the most profitable)
customer groups. The measures that are selected for the customer perspective should measure
both the value that is delivered to the customer (value position) which may involve time, quality,
performance and service and cost and the outcomes that come as a result of this value
proposition (e.g., customer satisfaction, market share). The value proposition can be centered on
Operational excellence, customer intimacy or product leadership, while maintaining doorstep
levels at the other two. [7]

BDU, IOT, SMIE, Industrial Engineering Program 88

Performance assessment and improvement directions for tanneries in ANRS

Overview of the customer perspective’s goals and measurements of tanneries

Table 6.3: Overview of the customer perspective’s goals and measurements of tanneries

Elements of customers Goal (quantitatively) Measurement

perspective (quantitatively)
Customers Addressing large customers % increase of customers
Value creation on customers % of loyal customers
Customer satisfaction % of customer complaints
To have large market share % of market increase
Government Contributions to the % of financial contribution to
government in terms of the government
finance
Supporting the policies and % of share to countries
strategies of the government development

Internal process perspective: it is concerned with the processes that create and deliver the
customer acceptance and value proposition. It focuses on all the activities and key processes
required in order for the company to outshine by providing the value expected to the customers
both productively and efficiently. These can include both short-term and long-term objectives as
well as incorporating innovative process development in order to speed up improvement. In
order to identify the measures that correspond to the internal process perspective, Kaplan and
Norton propose using certain clusters that group similar value creating processes in an
organization. The clusters for the internal process perspective are operations management (by
improving asset utilization, supply chain management, etc), customer management (by
expanding and deepening relations), innovation (by new products and services) and regulatory &
social (by establishing good relations with the external stakeholders). [7]

BDU, IOT, SMIE, Industrial Engineering Program 89

Performance assessment and improvement directions for tanneries in ANRS

Overview of the internal process perspective’s goals and measurements of tanneries

Table 6.4: Overview of the internal process perspective’s goals and measurements

Elements of internal process Goals (quantitatively) Measurement

perspective (quantitatively)
Operations management Improving asset utilization % of asset utilization
Improving supply chain % of supply chain
management improvement
Customer management Expanding relations with % of customer increment
customers
Deepening relations with % of loyal customers
customers
Innovation New products introduction Number of new products
New service delivery Number of new services
Productivity Improve machine productivity Over all equipment
effectiveness
Improve material productivity Input / out put
Improve labor productivity Input / out put
Improve total productivity Input /out put
Quality Producing quality products Number of quality products
Efficiency and effectiveness Production efficiency % of budget dedicated to
of service
production
% of raw materials used
Service effectiveness % of effective services

Innovation and learning perspective: it is the basis of any strategy and focuses on the
intangible assets of an organization, mainly on the internal skills and capabilities of workers that
are required to support the value creating internal processes of the organization. The innovation
and learning Perspective is concerned with the jobs (human capital), the systems (information
capital), and the climate (organization capital) of the enterprise. These three factors relate to what
Kaplan and Norton statement that is the infrastructure that is needed in order to enable ambitious
objectives in the other three perspectives to be achieved. This of course will be in the long term,

BDU, IOT, SMIE, Industrial Engineering Program 90

Performance assessment and improvement directions for tanneries in ANRS

since an improvement in the learning and growth perspective will require certain expenditures
that may decrease short-term financial results, whilst contributing to long-term success. [7]
Overview of the Learning and growth perspective’s goals and measurements of tanneries

Table 6.5: Overview of the Learning and growth perspective’s goals and measurements of
tanneries

Elements of learning and Goal (quantitatively) Measurement

growth perspective (quantitatively)
Human capital Increasing skill of operators % of trained operators
Increasing skill of % of trained maintenance
maintenance personnel personnel
Empowering managers % of trained managers
Increasing employee number % of employee recruited
Information capital Experience exchange to with % of experience exchanged
other tanneries
Training from leather institute % of information from leather
institute
Information enrichment % of information gained from
any source
Search for new market % of new markets addressed
Organization capital Incorporation of financial Effectiveness of financial
accounting accounting
Implementation of total Effectiveness of total quality
quality management management
Implementation of continuous Effectiveness of the
improvement in tanneries continuous improvement

Organizational Culture perspective: Any change programmed is dependent for its success on
the culture in which it operates. It is a fundamental prerequisite in order to implement new
systems successfully companies have to look at culture and understand the problems and
opportunities that may result. Performance metrics may indeed show that in some key areas the
company is flying high, but the need for change is still wanting. An organization adopts

BDU, IOT, SMIE, Industrial Engineering Program 91

Performance assessment and improvement directions for tanneries in ANRS

benchmarking for a variety of reasons; it continues benchmarking for only one reason which is
recognizing the need to change. [7]
Over view of organizational work Culture perspective of tanneries

Table 6.6: Over view of organizational work Culture perspective

Elements of organizational Goal (quantitatively ) Measurement

work Culture perspective (quantitatively)
Organizational culture Increasing morale towards % of workers efficiency
work
Awareness creation about the % willing workers for job
character of the work rotation
All the workers ability to Number of conflicts
resolve conflicts
Maximize social life % of satisfied workers by their
cooperation family

Supplier partnership perspectives: Partnership with suppliers in a long term relationship of

loyalty and trust is very essential to improve the quality of incoming raw material and decrease
costs. Since the major problems of tannery industries in the region are raw material quality
problem, delay in delivery of raw materials and material cost fluctuation. They should work
together with their suppliers to improve delivery of their products and also to minimize incoming
inspection, internal and external failure costs. It encourages a joint approach to problem solving,
offering cost reduction and quality improvement. The common indicators of this perspective are
material quality, delivery time, and materials cost. [7]

BDU, IOT, SMIE, Industrial Engineering Program 92

Performance assessment and improvement directions for tanneries in ANRS

Over view of Supplier partnership perspectives of tanneries

Table 6.7: Over view of Supplier partnership perspectives of tanneries

Elements of supplier Goal (quantitatively) Measurement (quantitatively)

partnership perspective
Raw material suppliers Increasing hid and skin suppliers Increased number of hid and skin
suppliers
Increasing chemical suppliers Increasing number of chemical
suppliers
Machine suppliers Increasing machine suppliers Increasing number of m/c suppliers

BDU, IOT, SMIE, Industrial Engineering Program 93

Performance assessment and improvement directions for tanneries in ANRS

.3.4 Develop strategy map

REVENUE GROWTH STRATAGY FINANCIAL BUDGET ALLOCATION SALARY & INCENTIVES

MANAGEMENT STRATEGY STRATEGY
Financial
perspective
Increasing market Asset management Project budgeting, Salary growth,
share, product mix, cash flows, return new technology promotion, bonus
sells volume on investment introduction

CUSTOMER QUALITY MANAGEMENT MARKETING SHARE COMPANY NAME

SATISFACTION MAXIMAZATION

Customer
perspective High Quality, Material Quality, Increase Product Bran Dame
Less Price, Process Quality, Mix & Volume Quality Product
Delivery

ORGANIZATIONAL INFORMAL TIME VALUE TEAM SPIRIT

Organizational ETHICS GROUPS

Culture
Job Respect, Conflict Staff Relation,
Perspective Productive Time Ideal Difference,
Resolution, Company Social Groups
Secret, Accountability, Break Time, Submission for
Transparency Absentisim Team Values

MANAGEMENT COMMITMENT BUILDING QUALITY REDUCE OPERTING MAINTENACE PRACTICES

COSTS

INTERNAL PROCESS Tpm, Pm, Safe

Human Resource, Customer Requirement, Transporting Cost
Inventory Cost, Cost Of Working Condition
Inventory, Customer Deliver Speed, Quality
Product Rework & Defect
Relation

RAW MATERIAL SPARE PARTS AND TANNING CHEMICALS

ACCESSORIES
Supply
partnership Continuous
Stock handling, Accessories
continuous supply, availability, supply, stock
quality control inventory handling

CLIMATE FOR ACTION COMPETENCE INFORMATION &TECHNOLOGY GROWTH AND INNOVATION

Growth and MIS Process Improvement

Learning Staff Attitude and Functional New technology Production Capacity,
Employee Skill and Excellence
Customer Relation
Employee Leadership Skills
Satisfaction Quality Product

BDU, IOT, SMIE, Industrial Engineering Program 94

Performance assessment and improvement directions for tanneries in ANRS

3.5 Refine and prioritize strategic initiatives

In this step of the implementation process the strategic initiatives are refined again and again to
identify long term strategic initiatives from short term strategic initiatives. The most common
problem in driving strategic initiatives is unable to identify long term strategic initiatives from
short term strategic initiatives due to inconsistent and conflicting data. The other problem is
establishing highly ambitious, unrealistic and unreasonable metrics to measure the actual
performance of the companies. The other point why refinement is needed is to identify strategic
initiatives which have a direct and indirect link just to put the strategic map with its natural relation.
In addition to refinement, prioritization among strategic initiatives is very important to achieve
objectives based on the available resources and the time needed to accomplish the strategic
objectives.
6.3.6 Automate and communicate
The purpose of this step is to give an understanding of performance measurement and
improvement. It is not intended to be an in-depth look at the subject, only a briefing for the not-
so-experienced company workers. Moreover, leadership commitment to the development and use
of performance measures is a critical element for the success of the performance measurement
system. All the workers in the company should be aware of the system which is going to be
implemented in order to align workers perspective with the organization’s perspective.
Organizational wide communication among workers and management personnel’s is the basis
for the system to be effective and efficient in the intended period of time.
6.3.7 Implement the balanced scorecard throughout the organization
This is the step where balanced score card is used as a performance measurement tool in every
department of the organization.
6.3.8 Collect data, evaluate and revise
After the desired and actual levels of performance have been defined and collected, identifying the
performance gaps becomes a matter of comparing the two levels which are desired and actual. The
gap should be described using the same indicators that were employed to describe desired and actual
performance. The gap description shows the difference between actual performance and the
performance the company wants to achieve. Hence, based on the result further decision can be taken
whether correction and intervention are required in order to eliminate the gap or improve desired
goals. After performance gaps have been described and if the result is under performance

BDU, IOT, SMIE, Industrial Engineering Program 95

Performance assessment and improvement directions for tanneries in ANRS

improvement is required, the next step is to determine the cause of those gaps by cause and effect
analysis. Performance factors which affect management system, quality, productivity, flexibility,
time and cost should be deeply examined using cause and effect analysis. Using the performance
factors as a starting point, the stakeholder group should participate in a root cause analysis. The
researchers developed cause and effect analysis in the previous chapter. So the company can use and
improve this cause and effect diagram during performance measurement and improvement practices.

BDU, IOT, SMIE, Industrial Engineering Program 96

Performance assessment and improvement directions for tanneries in ANRS

CHAPTER SEVEN

CONCLUSIONS AND RECOMMENDATIONS

7. 1. Conclusion
After passing through carrying out all the tasks and the procedural steps of this thesis paper, the
performance of tanneries in Amhara Region is found to be low. After assessment, the researchers
have decided to develop an organized, effective, efficient and cost wise performance system, as a
result Balanced Scorecard is selected and the necessary implementation process is suggested.
Performance Assessments and Improvement Directions for Tanneries in Amhara Regional
State is summarized as follows:
 Almost all the observed tanneries have the traditional financial management and
departmental fragmented auditing practices as performance evaluation methods. They
have no systematic, organized and efficient performance assessment tools that are
capable of assessing the overall performance levels of the tanneries.
 Based on the assessment done on tanning industries financial status, Management
Systems, Productivity, Quality of work environment, Quality, Organizational culture and
Supplier partnership is low as it is described quantitatively on chapter six.
 The tanneries are poor in their documentation and data handling practices. They don’t
handle maintenance histories, inventory files, production and operation histories,
machines and equipment inspection and status reports and other important information.
 They have skilled maintenance personnel problems.
 All the tanneries are facing very huge raw material shortage due to the seasonality of raw
material availability
 Tanning chemicals, spare part and accessories are being huge cost area in foreign
currency for they, all most all, are imported supplies
 Defective raw materials, Insufficient training of workers, poor maintenance of machines
and equipment, Lack of top management commitment to quality, carelessness of workers
and Low quality awareness of workers are the major sources of quality problems
 Raw material shortage, shortage of spare part, working capital shortage, Frequent
machinery breakage, Government rules and regulation are weighted reason for the
tanneries not to be fully operational.

BDU, IOT, SMIE, Industrial Engineering Program 97

Performance assessment and improvement directions for tanneries in ANRS

Case company (Bahir Dar Tannery)

 According to the down time analysis, Bahir Dar Tannery is exposed for, from hide and
skins line down time, 1,047,228.67 birr losses, they would have got 2,256,181.30 birr
(from only skin) and 1,259,419.68 birr from hide and total of birr 3,515,600.98. But from
this they only save 2,468,372.31birr and loss the rest due to machines down time.
 The Learning and Growth performance of Bahir Dar tannery is not yet effective and
efficient enough for its performance status is 53.11% low
 The management system performance of Bahir Dar tannery can be taken as not effective
and efficient enough for its performance status is 64.72% low.
 Productivity performance of Bahir Dar tannery is 48.57 % low. That shows that they are
not productive enough.
 Bahir Dar tannery, in its organizational culture is definitely poor for its performance
status is 64.76% low which is according to conducted survey result. And only 9.51% of
the organizational culture of Bahir Dar tannery is responded as high by the respondents.
 In addition to the former four perspectives balanced scorecard, organizational culture and
supply partnership are added as major perspectives in this balanced scorecard to make it
contextual to the selected case company.
 As observed from BSC adopters, BSC will take about two years to see it significant
impact. In return it will improve the overall performances, financial, customer, internal
business process, learning and growth, supply partnership and the organizational culture
of the company by creating a balanced business atmosphere in achieving vision mission
goals of the company.

BDU, IOT, SMIE, Industrial Engineering Program 98

Performance assessment and improvement directions for tanneries in ANRS

7.2. Recommendation
According to the researches logical perspectives and based on the overall observation while
working on the thesis, to truck the bright future for the tanneries in Amhara regional state and to
enable them becoming potential competent tanneries and at the same time to support the
successful implementation of the proposed performance assessment tool, BSC, the following
recommendations are provided:
 To be competent in today's dynamic market, these tanneries must work in the most
efficient, effective and cost wise business ways, and the first thing, to become such a
competent firm, they have to evaluate their overall performances continuously in order to
take appropriate corrective measures when and where ever necessary.
 Tanneries of the Amhara region have to give strong attention towards changing their
organizational culture and employees before going to bring any physical system change,
otherwise like BPR and other business tools, any incoming business tools may fall short.
 These tanneries must work with government bodies, agro-industries, food processing
industries to solve their huge raw material shortages.
 Managers role in bringing organizational wide multi-dimensional improvements should
be remembered, and managers must play those roles to put their firm firs in the market
 Following the results of our investigations, BSC is selected and its implementation plan is
also prepared to help the overall performance improvements of these firms particularly,
Bahir Dar tannery. But the effectiveness of this BSC implementation needs full attention
and commitment of every member of the organization especially management
commitment is very vital.
 For there is no an overnight change, the firms have to wait until they see the result of this
new performance assessment tool carrying out all the necessary tasks continuously.

BDU, IOT, SMIE, Industrial Engineering Program 99

Performance assessment and improvement directions for tanneries in ANRS

REFERENCE
1. Fentahun Moges, Multi criteria performance measurement model development for
Ethiopian manufacturing enterprises, AAU, Technology faculty, thesis, 2007.
2. Andy Neely, the performance measures revolution “why now and what next?”
International journal of operations and productions management Vol 19 No.2, MCB
university press, 1999.
3. Andy Neely, Mike Gregory and Ken Platts, performance measurement system design
original paper, , international journals of operation and production Vol 25, No 12,
Emerald group publishing limited, 2005
4. Neely, A., Mills, J., Platts, K., Richards, H. and Bourne, M. (2000), “Performance
measurement system design: developing and testing a process based approach,
International Journal of Operations & Production Management”, Vol. 20, No. 10, pp.
1119-45.
5. Neely, A., Richards, H., Mills, J., Platts, K. and Bourne, M. (1997), “Designing
performance measures: a structured approach”, International Journal of Operations &
Production Management, Vol. 17, No. 11, pp. 1131-52.
6. COTANCE, The European Tanning Industry Sustainability Review, May 2002
7. Margarita ISORAITE, The Balanced Scorecard Method: From Theory to Practice
Mykolas Romeris Universities
8. Modern Techniques of Performance Measurement (Balanced Scorecard and Six Sigma)
9. Ruth A kasul, Jaideep G Motwani; Performance measurement in world class operations,
benchmarking for quality management and technology; Volume 2 No2, Emerald group
publishing limited, 1995.
10. Tadele Mamo, Performance measurement and Improvement for Ethiopian Tannery
Industries, Addis Ababa university
11. Kaplan, Robert S. and David P. Norton. (1996) Translating Strategy into Action: The
Balanced Scorecard. Boston: Harvard University Press.

BDU, IOT, SMIE, Industrial Engineering Program 100

Performance assessment and improvement directions for tanneries in ANRS

BIBLIOGRAPHY

1. http://www.controllerverein.com/Balanced-Scorecard.128144.html, Introduction
to the balanced Score card
2. Rahel Sorri, Performance measurement and improvement of Ethiopian garment
industries August, 2010, Addis Ababa university
3. Modern Techniques of Performance Measurement (Balanced Scorecard and Six
Sigma)
4. William K. Hoehn, Ph.D., Raytheon Systems Company Managing Organizational
Performance: Linking the Balanced Scorecard to a Process Improvement Technique
Tucson, Arizona
5. Gail S. Perry, Vice President of Balanced Scorecard Institute, Balanced score card –
How it used and why?
6. Christopher D. Ittner, David F. Larcker, and Marshall W. Meyer, Performance,
compensation, and The balanced score card, Wharton School, University of
Pennsylvania November 1, 1997
7. Gail S. Perry, Vice President of Balanced Scorecard Institute, Balanced score card –
How it used and why?
8. Kaplan, Robert S. and David P. Norton. (1996) Translating Strategy into Action:
The Balanced Scorecard. Boston: Harvard University Press.
9. William K. Hoehn, Ph.D., Raytheon Systems Company Managing Organizational
Performance: Linking the Balanced Scorecard to a Process Improvement Technique
Tucson, Arizona
10. Wolfhart Goethert and Matt Fisher Deriving Enterprise-Based Measures Using
the Balanced Scorecard and Goal-Driven Measurement Techniques ,October 200
11. Abiot, M. (2006), “ The Balanced Scorecard as a Performance Management
Model and the Feasibility of Its Application in Ethiopian State-owned
Enterprises” Ethiopian Journal of Business and Development, Vol. 01, No 01, pp.
41-52.

BDU, IOT, SMIE, Industrial Engineering Program 101

Performance assessment and improvement directions for tanneries in ANRS

APPENDIX

Survey questionnaires
Performance assessment and Improvement directions for tanning Industries in Amhara
region
Dear Participants;
With sincerity we would like to extend our deep appreciation to your company and the staff for
the willingness and cooperation in undertaking this valuable research. We ask your kind
cooperation in answering the questions as truthfully as possible and your response will be highly
confidential.
This questionnaire is developed to conduct a scientific research by our students, Migibar
Shibabaw and Mindaye Yirga on Performance assessment and Improvement directions of
tanning industries in Amhara region.

For other questions pertaining to this project, please contact Bahir Bar University, institute of
technology, and school of Mechanical and Industrial engineering. Tel: 0582223640 or
0582200277, Fax 0582202027, P. o. box 26

Thank you for your assistance!

PROFILE OF THE COMPANY (by the manager)

Name of the company _______________________________________________________
 Date of Establishment…………………………………………………
 Company location ……………………………………………………..
 Current capital of the company …………………………………………….
 Products of the company 1)……………………………………………….
2) ………………………………………………….
I. PERSONAL DATA (not necessary to write your Name!)
Current position (GM, Production Head, shift leader, etc) ______________________________
Qualification_________________________________
Service year _________________________________
Gender ____________________________________

BDU, IOT, SMIE, Industrial Engineering Program 102

Performance assessment and improvement directions for tanneries in ANRS

II- Organizational Information

1. Has the company an organizational structure? List out the main departments/sections?
--------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
2. Does the organizational structure create suitable working environment? Yes � No �
3. What are the objectives and mission of the company for its performance? -------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------
4. Does the company set its goals and targets for its performance? Yes � No �
5. Does the company establish its clear vision of the future for its performance? Yes � No �
6. Does the company evaluate its performance activities regularly? Yes � No �
7. Does the company identify problems of performance improvement? Yes � No �
If the answer is yes, what are they? --------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
------------------------------
8. Does the company have a training program? Yes □ No □
If the answer is yes, provide the number of employees involved in training per annum, by
mode of training:

Types/topics of Abroad Local In house

training delivered

9. Provide an average expenditure on training (as a percentage of total expenditure) in a year.

□ < 2% □ 2-4% □ 4-6% □ 6-8% □ > 8%
10. Does the company provide incentive based on performance for its operators? □ Yes □ No

BDU, IOT, SMIE, Industrial Engineering Program 103

Performance assessment and improvement directions for tanneries in ANRS

III. Financial Performance of the Company (by finance department)

11. What are the sources of finance for company?
□ Own fund □ foreign loan □ Local loan □ Credit from supplier
12. Does the company have working capital problems? � yes � No
13. Does the organization have arrears in payment of bank loan or exceed overdraft limits?

14. Please give the financial performance data of your company for the six years.

Performance 1998 E.C 1999 E.C 2000 E.C 2001 E.C 2002 E.C 2003 E.C
criteria
Sales (Birr)
Cost of Production
(Birr)
Return on
investment (Birr)
Net profit after tax
(Birr)
Total Assets (Birr)
15. Is the company’s profit increasing for the last six years?
Yes � No �
16. How much percentage of profit is reinvested per year at average? ---------------------------------
17. What was the company’s market share in the last six years? Local ______% and foreign
(export) ______%
18. Has the company’s market share increased for last six years?

IV. Productivity (by production section and human resource department)

19. Does the company have Productivity Improvement Program? � yes � No

20. Does the company determine its resource (labor, materials, machines, etc) utilization rate?
� yes � No
21. Does the company identify and recognize the productivity problems? � yes � No
If the answer is yes, what are they? --------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

BDU, IOT, SMIE, Industrial Engineering Program 104

Performance assessment and improvement directions for tanneries in ANRS

---------------------------------------------------------------------------------------------------------------------
------------------------------
22. Does the employees in the company aware about productivity improvement? � yes � No
23. What was company’s average capacity utilization in the production over the last six years?
24. What are the reasons for not being fully operational? (Select one or more of the following).
Yes No

a. Raw material shortage �

b. Shortage of spare parts �
c. Lack of market �
d. Working capital shortage �
e. Frequent machinery breakage �
f. Government rules and regulation �
g. Other please specify-----------------------------------------------------------------------

25. Do you think trial runs save time, save cost and minimize production errors and faults?

□ Yes □ No

Labor productivity
26. How labor productivity measured in your company? -----------------------------------------------
27. Are the company’s work standards compared with both national & international standards?
□ Yes □ No
28. How do you rate the productivity of the following workforces? (Tick the rating level in the
box)

Work force High Medium Low Poor

Top manager’s
level
Middle manger’s
level
Experts’ level
Supporting staff
Shop floor level

BDU, IOT, SMIE, Industrial Engineering Program 105

Performance assessment and improvement directions for tanneries in ANRS

29. Do you have "standard time" for all tasks required? □ Yes □ No
30. Please provide the following labor productivity measurements:

product type Number of product pieces per Number of product pieces per
operator per shift operator per machine per shift
1
2
3
4
5
31. What is the workers’ absenteeism and labor turnover in your company? Indicate the
percentage in the box.

Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug
Monthly
absenteeism
Labor
turnover/month
(%)

Machine Productivity

32. Please provide the following information /data on the utilization of your machines
/equipments.

Machine/equipment Machine running Machine Idle Machine failure Average Age

type hrs/Day hrs/day hrs/day

BDU, IOT, SMIE, Industrial Engineering Program 106

Performance assessment and improvement directions for tanneries in ANRS

33. What are the reasons of machine failure?

□ Lack of preventive maintenance □ Due to aging of machines/ equipments
□ improper handling of machines □ other, please specify _____________
34. Are machinery maintenance services available locally? □ Yes □ No
35. What is the lead time to obtain spare parts? _____________________________

Material productivity
36. Please give the average percentage of the rework, defects, and scrap in the production
process.

Rework% Defect % Scraps %

37. Please provide the percentage cost of each of the following issues as a percentage of total
costs.

Labor Raw material Accessories Electricity, Rent Other

water & gas expenses

38. What is the cost of workers’ overtime with a month? _______________Hrs

39. Does the company calculate the cost of quality? □ Yes □ No
V. Quality Practices in the company (by quality department)
40. What is the quality awareness level in the company?
---------------------------------------------------------------------------------------------------------------------
---------
41. How high is your role and participation in quality activities? ---------------------------------------
-----------------------------------------------------------------------------
42. How is quality defined in the company? ---------------------------------------------------------------
-----------------------------------------------------
43. Does the company recognize and solve the quality related problems? □ Ye □ No
44. Does the company identified customer requirements? □ Yes □ No
45. Are objectives of the company linked to customer needs and expectations? □ Yes □ No
46. Does the company have a procedure for evaluating subcontractors or suppliers? □ Yes □ No

BDU, IOT, SMIE, Industrial Engineering Program 107

Performance assessment and improvement directions for tanneries in ANRS

47. Are there inspection & tests for incoming, in-process and final products? □ yes □ No
48. Does the company have quality management system (TQM, ISO 9000 QMS, etc)? □ Yes □
No
49. Does the company have customer’s complaints handling mechanism? □ Yes □ No
50. What are the causes of poor quality products?

□ Defective raw materials delivered from suppliers

□ In sufficient training of workers in the company
□ Due to poor maintenance of machines in the company
□ Lack of top management commitment to quality
□ Low quality awareness of workers in the company
□ Due to carelessness of workers in the company
□ Other -------------------------------------------------------------------------------------------------------
51. Do the company’s products satisfy customer needs? □ Yes □ No.

VI. Quality of Work Life in the company (by safety department)

52. Do you have the right materials handling equipments?
(For safety and efficiency) □ Yes □ No
53. What preventive methods do you apply to avoid accidents/ risks? ---------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
54. Is the physical working environment suitable for workers? □ Yes □ No

VII. Status of Inventory Control/Management in the Company (by store supervisor)

55. Access to the raw materials:
□ Own made
□ locally purchased
□ Imported
□ Partially Imported
56. How is a raw material purchase done?
□ Directly from export customer
□ Through agent/sourcing office
□ Subcontractor

BDU, IOT, SMIE, Industrial Engineering Program 108

Performance assessment and improvement directions for tanneries in ANRS

□ Other---------
57. If the raw materials locally supplied then, what are the problems with local inputs?
□ Lack of inputs/ raw materials □ Inferior quality □ Problem with reliability
□ High cost of inputs relative to imported □ other, please specify ------------------------
58. If the inputs are fully or partially imported then, what are the problems with importing
process?
□ Delay in clearing goods through customs □ Duty exemption is not recognized
□ Reliability on foreign suppliers is problematic □ High cost of inputs
□ Minimum order size □ other, ----------------------------------------
59. What is the average lead time for your customer orders? ______ Weeks
60. What is the average lead time for your supplier’s orders? _______Weeks
61. Are you purchasing raw materials from your suppliers at the best possible price?

□ Yes □ No

62. Are you purchasing raw materials in economical quantities? □ Yes □ No

63. How the Company ensure the quality of goods (raw materials) from your suppliers?
□ Inspection □ Auditing □ ISO certification □ Performance measurement □ other --------
64. Have you negotiated suitable terms of trade with suppliers and customers? □ Yes □ No
65. Have you arranged cost effective delivery? (Consider time, cost, reliability, safety)
□ Yes □ No
66. Does the company have an inventory control system to ensure ideal stock levels (no
overstocks or out of stocks)? □ Yes □ No
67. Are goods handled carefully and promptly and securely stored to prevent breakage, spillage
and other deterioration and wastage? □ Yes □ No
68. Do you have systems and records in place (electronic or manual) to track the number and
cost of stock purchased, sold and on hand? To track sales trends (seasonal demand, lifecycle)?
□ Yes □ No
69. Are your records checked against a physical stock take regularly? □ Yes □ No

VIII. Product Development /Innovation (by design and information system department)
70. Does the company have product design department? □ Yes □ No

BDU, IOT, SMIE, Industrial Engineering Program 109

Performance assessment and improvement directions for tanneries in ANRS

71. How many new products (i.e. those that involve a significant change in the production
process) has your company introduced in the last three years?
_________________________________________________
72. How long does it take to develop a new product to market? Please state for each product
type. --------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------
73. Does the company production system flexible in handling different volume of production and
delivery time adjustments? □ Yes □ No
74. How trained is the staff for effective design change? ------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
------------------------------------
75. Does the company consider the customer requirements in the product design? □ Yes □ No
76. How is the degree of computerization of the organization production and distribution
functions?
a. Preproduction including Product design, pattern makeup, layout, cutting, --------------------------
----------
b. In the Production process, ----------------------------------------------------------------------------------
-------
c. Inventory management; customer relation, input sourcing searches, output marketing, ----------
-----------
77. What are the sources of information for learning about market? -----------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------

78. What are the sources of information for learning about new technology? -------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------
79. What are the sources of information for learning about product design? --------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------

BDU, IOT, SMIE, Industrial Engineering Program 110

Performance assessment and improvement directions for tanneries in ANRS

80. Has your company undertaken any of the following initiatives in the last three years?
� developed a major new product line �agreed a new joint venture with foreign partner
� Upgraded an existing product line � obtained a new licensing agreement
� Discontinued at least one product (not produced) line
�Closed at least one existing plant or outlet
� outsourced a major production activity that was previously conducted in-house
� Brought in-house of a major production activity that was previously outsourced
� Introduced new technology on the way that the main product is produced
81. Please tell us if any of the following issues are a problem for performance improvement;
please judge its severity as an obstacle on four point scale (0 = No obstacle, 1= minor obstacle, 2
= moderate obstacle, 3 = major obstacle, 4 = very severe obstacle).

No minor moderate major Very severe

Obstacle Obstacle Obstacle Obstacle Obstacle
a) High production cost
b) Old technology (machines,
methods, etc)
c) Less diversified production
d) Poor quality & shortage of
raw materials
e) Wastage of time, materials,
etc
f) Labor problems (shortage,
low skill)
g) Poor management
h) Poor inventory control
system
i) High lead times (production
& order)
j) Shortage of working capital
k) Low demand for the
products

BDU, IOT, SMIE, Industrial Engineering Program 111