Islam, M., & Karim, A. (2011). Manufacturing practices and performance: Comparison among small‐medium and large industries. International Journal of Quality & Reliability Management, 28(1), 43-61.
Summary
This study compares how small and medium-sized industries (SMIs) and large industries (LIs) manage their manufacturing operations—and how those practices affect performance. Based on data from 72 manufacturing firms, the study offers valuable lessons on how company size influences quality management, supplier relations, information use, and competitive advantage.
The Research Approach
The researchers surveyed top managers across different manufacturing subsectors, from electronics and metal fabrication to transportation equipment. Companies were classified as:
- Small: fewer than 50 employees
- Medium: 51–150 employees
- Large: more than 151 employees
Respondents rated their firms on manufacturing practices (like quality systems, supplier collaboration, and product data management) and performance indicators (such as on-time delivery, product quality, and customer returns).
Statistical analysis (ANOVA and regression) was then used to identify where small and large firms differ—and which practices most strongly predict better performance
Key Findings
1. SMIs Compete Differently from LIs
Small and medium firms focus heavily on product quality and reliability as their main competitive advantage. Large firms, on the other hand, rely more on their company reputation—which often stems from established brands and market presence.
This distinction shows that smaller firms compete more on execution, while larger ones leverage image and brand equity. Interestingly, both groups see on-time delivery and design flexibility as important, but quality remains the strongest driver of competitiveness for all sizes.
2. SMIs Outperform LIs in Quality and Reliability Practices
Both small and large firms have embraced modern quality management systems, but SMIs are more consistent in applying them day-to-day. For example, smaller firms place stronger emphasis on ensuring every employee understands product quality and reliability targets. They also pay closer attention to customer requirements and actively monitor performance against those expectations.
Large firms tend to rely more on formal quality policies and documented systems, while smaller ones depend on hands-on management and personal accountability. Although both groups underuse advanced tools like Failure Mode and Effect Analysis (FMEA), SMIs’ greater focus on continuous quality awareness leads to stronger outcomes.
3. Shift Toward Preventive Quality
Traditionally, manufacturers relied on inspection at the end of production to catch defects. This study found that both large and small firms are now adopting prevention-based approaches, such as designing for quality, improving communication between design and production teams, and working more closely with suppliers to ensure consistent quality of incoming materials.
SMIs again demonstrate slightly higher engagement in these modern practices, suggesting their smaller size enables quicker implementation and less bureaucratic delay.
4. SMIs Build Closer Supplier Relationships
Supplier collaboration emerges as a major differentiator. SMIs tend to maintain closer and more effective relationships with suppliers than large firms. They are more likely to:
- Inspect incoming parts and record results;
- Exchange information with suppliers regularly;
- Be aware of supplier quality levels; and
- Benefit directly from supplier feedback.
Because smaller firms often depend on fewer suppliers, these relationships are more personal, flexible, and mutually beneficial. Large firms, in contrast, tend to have more formalized but less dynamic supplier systems.
5. Field Data and Customer Feedback
When it comes to using field data (like product failures or customer complaints), large firms perform slightly better. They tend to have stronger systems for collecting and recording warranty claims, updating product databases, and encouraging customer feedback.
However, small firms are catching up by improving direct customer communication channels and integrating that feedback quickly into design or process changes. This agility gives SMIs a speed advantage when responding to market issues.
6. Technology Use and Product Data Management
Surprisingly, small and medium firms report higher use of product data management (PDM) systems and automated data collection tools than large firms. This reflects their growing use of digital systems for tracking production data, engineering designs, and customer specifications.
SMIs adopt PDM not because they have more resources—but because they must compensate for smaller staff and tighter margins by using technology efficiently.
7. Performance Comparison: SMIs Marginally Ahead
Performance was measured through three indicators:
- Improvement in product quality in the last two years
- On-time delivery rates
- Customer return rates (of faulty products)
Both groups showed strong results in quality improvement, but SMIs reported lower customer return rates—2.1% compared to 2.9% in large firms—and equal on-time delivery rates. This means smaller firms, despite fewer resources, are maintaining quality and reliability at levels equal or superior to their larger peers.
8. Why Small Firms Often Perform Better
The study attributes the superior performance of SMIs to several organizational and behavioral traits:
- Simpler structures and less bureaucracy;
- Closer communication between leaders and workers;
- Faster decision-making;
- Personal leadership from owner-managers;
- Flexibility in using workforce and adapting to market changes.
Moreover, government support—such as funding for technology upgrades, training, and industrial park infrastructure—has strengthened the position of SMIs in Malaysia’s economy.
Conclusions
This research challenges the assumption that size automatically equals performance. While large firms benefit from scale, smaller manufacturers can outperform them by being flexible, customer-focused, and quick to act.
The most effective manufacturing organizations—regardless of size—combine structured quality systems with a culture of responsiveness and learning. SMIs, in particular, show that agility and close stakeholder relationships can compensate for limited resources.
In short, better manufacturing practices drive better performance—and company size doesn’t need to be a constraint when leadership, quality focus, and adaptability are strong.
10 Practical Insights for Business Owners and Managers
- Quality is the best differentiator.
Compete on reliability and consistency, not just cost—especially if your firm is small or mid-sized. - Stay close to customers.
Regularly gather and act on feedback; smaller firms’ direct communication can be a strategic edge. - Engage every employee in quality goals.
Make sure everyone understands the company’s quality targets, not just the QA team. - Adopt preventive quality practices.
Design problems out early; prevention costs less than inspection or rework. - Build deep, long-term supplier partnerships.
Share data, monitor quality jointly, and encourage two-way improvement conversations. - Use simple technology smartly.
Even affordable data management or tracking systems can save time, reduce waste, and improve decisions. - Be agile, not bureaucratic.
Empower teams to act quickly; small-scale responsiveness can outcompete large-scale inertia. - Track performance rigorously.
Use metrics like customer returns, on-time delivery, and yield to guide improvements continuously. - Leverage external support.
Tap into grants, training, and government programs designed to boost SME competitiveness. - Leadership commitment matters most.
Strong owner or manager involvement in operations and quality is often the single biggest success driver for smaller manufacturers.
Closing Thought
The study shows that manufacturing success is not about being big—it’s about being smart, disciplined, and responsive. Firms that focus on quality, collaboration, and continuous improvement—regardless of size—build resilience and long-term competitive advantage.