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Procedia CIRP 26 (2015) 653 657

12th Global Conference on Sustainable Manufacturing

Manufacturing Capability, Manufacturing Strategy and Performance

Of Indonesia Automotive Component Manufacturer
Rahmat Nurcahyoa*, Alan Dwi Wibowob
a
Industrial Engineering Department, Universitas Indonesia, Kampus UI Depok, 16424, Indonesia
Agro-Industrial Technology Department, Universitas Lambung Mangkurat, Banjarbaru, 70714, Indonesia
* Corresponding author. Tel.: +62 21 7888805; fax:+62 21 78885656.E-mail address:rahmat@eng.ui.ac.id
b

Abstract
Automotive industry is believed to be the pioneer in pushing the growth of manufacturing industry in Indonesia. By implementing
manufacturing strategy, the industry will get its performance improved. Automotive component manufacturer is an important part of
automotive industry. This research discusses the relationship between influential variables with performance in Indonesia automotive
component manufacturer namely manufacturing capability and manufacturing strategy. A model is developed and data are collected from
automotive component manufacturers around Jakarta area. Data is processed using Structural Equation Modeling (SEM). The result shows that
manufacturing capability significantly influences manufacturing strategy while manufacturing strategy also significantly influences
performance of Indonesia automotive component manufacturer.

2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
2014 The Authors. Published by Elsevier B.V.
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of Assembly Technology and Factory Management/Technische Universitt Berlin.
Peer-review under responsibility of Assembly Technology and Factory Management/Technische Universitt Berlin.
Keywords:Manufacturing Capability, Manufacturing Strategy, Performance, Automotive Component Manufacturer

1. Introduction
Indonesia's economic growth is influenced by three
dominant industries, namely agriculture, mining, and
manufacturing. Manufacturing industry plays an important
role in contributing Indonesia's economic growth towards the
National Gross Domestic Product, employment, and exports.
Manufacturing industry contribution to National Gross
Domestic Product was 20,8% in 2013. However, despite
growing in a positive trend, growth of manufacturing industry
tends to become slow. The growth was increasing in 20092011 from 2,56% to 6,83%. Unfortunately, the grwoth is
stagnant in 2011-2013 (Q1) such as 6,83%, 6,32%, 6,69% [1].
This growth is below the average target of Indonesia Medium
Term Development Plan. One of the manufacturing subsectors, namely automotive industry, is a pioneer in the
growth of manufacturing industry. The growth of automotive
industry could have an impact on increasing the national
economy.
Automotive industry is a global industry so Indonesia
automotive industry must compete with automotive industry

of other countries in order to growth. However Indonesia

became the third country of automotive investment destination
in the ASEAN region after Thailand and Malaysia. In order to
compete with automotive industry of other countries, the
Indonesia automotive industry must improve their
competitiveness. On the other hand, growing of Indonesia
automotive market is followed by growing number of import
of automotive components, especially in 2010 [2]. It shows
the competitiveness of Indonesia component manufacturer is
relatively low.
In automotive industry, component manufacturers supply
nearly 70% of components in an automobile [3,4]. Component
manufacturers play a vital role in automotive manufacturers.
Many research about automotive industry have been
conducted but research focus on component manufacturers is
very limited [4], especially related with the performance.
To increase competitiveness in manufacturing industry,
many scholars have shown the influence of manufacturing
strategy [5,6,7,8]. Manufacturing strategy will lead better
performance that improve competitiveness. One of the
paradigm in manufacturing strategy is competition through

2212-8271 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of Assembly Technology and Factory Management/Technische Universitt Berlin.
doi:10.1016/j.procir.2014.07.046

654

Rahmat Nurcahyo and Alan Dwi Wibowo / Procedia CIRP 26 (2015) 653 657

manufacturing capability [26]. It means that manufacturing

capability have positive influence to manufacturing strategy. It
is interesting to know how the relationship between
manufacturing capability, manufacturing strategy and
performance of Indonesia component manufacturers. It is
expected that this research result will be useful for Indonesia
component manufacturers to improve their competitiveness to
support the growth of Indonesia automotive industry.
2. Theoritical Background
Capabilities are modes of behavior that an organization is
able to perform in order to support its strategy [8]. There are
many different types of capabilities exposed by scholars but
can be categorised to manufacturing capabilities and
functional capabilities. This research will use manufacturing
capability as variable that divided into four factors, namely
cost, delivery, flexibility, and quality.
Manufacturing strategy is common in the manufacturing
industry. The literature on operations strategy and
manufacturing strategy has focused extensively on the
competitive priorities that act as strategic capabilities which
can help organizations create, develop, and maintain
competitive advantage [9]. Competitive priorities are defined
as the dimensions that a firms production system must
possess to support the demands of the markets in which the
firm wishes to compete [10]. The six criteria which act
competitive priorities are quality, cost, delivery, flexibility,
customer focus, and know-how [11]. However it seems that
there is general agreement among authors and researchers
[12,13] that the major competitive priorities comprise the
following dimensions: flexibility, cost, quality, and delivery.
According to Thompson [14], manufacturing performance
is the firm's fitness for the future. The size of the company's
performance helped the measurement of adaptability to
changing competitive environment [15]. Meanwhile, the
definition of companys business performance is the level of
achievement as measured in the form of performance
outcomes [16]. In this research, the company's performance is
measured in two dimensions, namely manufacturing
performance and business performance. Manufacturing
performance includes elements of cost reduction, quality,
delivery, and flexibility [17], while elements of business
performance including market share and sales levels [5,18].
3. Research Method
This research was carried out on existing automotive
companies in Indonesia especially around Jakarta area.
Automotive industry consists of automobile industry and
motorcycle industry. In 2010-2012 member of The Indonesia
Automotive (Automobile) Industries is 41 companies while
member of Indonesian Motorcycles Industry Association is 6
companies. Based on this data, then an investigation was
conducted to develop data of automotive component
manufacturers in Indonesia.
A research model comprised the variables was developed.
The number of samples is 200 companies. This number is
considered appropriate particularly in terms of overall

suitability measure with chi-square probabilistic ratio for data

processing with Structure Equation Model (SEM)[19]. The
questionaire as research instruments was also developed based
on the research model. The questionaire related to
manufacturing capabilities and manufacturing strategy consist
of 4 main variables namely cost, delivery, flexibility and
quality, while manufacturing performance questionaire is
consist of two main variables namely manufacturing
performances and business performances.
The data from respondents were processed using ANOVA
testing and by Structural Equation Modeling (SEM). Main
data processing consists of analysis of measurement model,
simplification of latent variable by calculating Latent Variable
Score (LVS), experiment result of Confirmatory Factor
Analysis (CFA) and stuctural model testing.
Structural equation modeling (SEM) is a powerful, general
purpose tool for statistical analysis and modeling of
interactions between observed and unobserved (latent)
variables [20], with the typical goal of testing causal
relationships among variables.
SEM deals with measured and latent variables. A measured
variable is a variable that can be observed directly and is
measurable. Measured variables are also known as observed
variables, indicators or manifest variables. A latent variable is
a variable that cannot be observed directly and must be
inferred from measurable variables. Latent variables are
implied by the covariance among two or more measured
variables. In this research, the variables are Manufacturing
Capability (KapMan), Manufacturing Strategy (StratMan),
and Manufacturing Performance (Kinerja). There are two
hypotheses used in this research, H1 and H2. H1 represent
that manufacturing strategy influence performance
significantly and H2 represent that capability manufacturing
influence manufacturing strategy significantly.
SEM also provides various fit statistics to assess
evaluating models. The fit statistics can be classified into two
representative categories: absolute fit indices and
incremental fit indices [21]. Absolute fit indices represent the
extent to which the hypothesized model fit the collected data.
The goodness-of-fit (GFI), the root mean square of
approximation (RMSEA), and the standardized residual
(SRMR) are all measures of absolute fit [21].
A value for the RMSEA of .06 or less and of the PNFI of
.60 or greater indicates close model fit [22]. Moreover, [23]
contend that RMSEA values less than .08 indicate an
acceptability of the fit value. A value of the CFI of .90 or
greater is also an indication of good model fit [24].
4. Result and Discussion
By the ANOVA testing, we can see whether there are
differences among the three latent variables (KapMan,
StratMan, and Kinerja). The test is evaluated from the three
profiles of respondents, based on age, division and position of
respondents.
We can conclude that for latent variable in Manufacturing
Capabilities (KapMan), Manufacturing Strategy (StratMan),
Manufacturing Performance (Kinerja) in almost all groups of
respondents profile shows the results of no difference.

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The next step is validity and reliability testing, to test the

measurement model latent variable towards the study of each
variable appropriate research model. Validity and reliability
testing of data that is visible from the value of the
Standardized Loading Factor (SLF) reflects whether the
observed variables have been measured Latent Variable
research and reliable or not. And viewing of Goodness of Fit
Index (GOFI) from output Lisrel juga also can reflect whether
the existing data, to support the research model that has been
previously set or not.
Something similar is also done throughout Latent Variable
research model, where all path diagrams Latent Variable LVS
has been calculated, can be seen further in the model test
results Confirmatory Factor Analysis (CFA) Model Research.
CFA test model study was conducted to determine the
Latent Variable anywhere that is valid and can be further
processed to test the structural model. If processed
simultaneously, which can be seen in Fig. 1 as follows.
0.48

Quality SML

Table 1. Goodness Of Fit Index (GOFI) Latent Variable test result of CFA
Standar
GOFI Value
GOFI Indicator
Value for
Conclusion
Calculation
Suitability
Root Mean Square
Error of
0.062
< 0.08
Suitable
Approximation
(RMSEA)
Normed Fit Index
0.97
> 0.90
Suitable
(NFI)
Non-Normed Fit Index
0.97
> 0.90
Suitable
(NNFI)
Comparative Fit Index
0.99
> 0.90
Suitable
(CFI)
IFI

0.99

> 0.90

Suitable

RFI

0.92

> 0.90

Suitable

Std. RMR

0.045

< 0.05

Suitable

0.98

> 0.90

Suitable

0.93

> 0.90

Suitable

Goodness of Fit Index

(GFI)
Adjusted Goodness of
Fit Index (AGFI)

0.72
0.57

Delivery SML

0.53

Flexibility

0.01

Quality SML

0.67

Cost SML

0.01

KinManL

0.66

Kapman

0.69

0.99

StratMan

0.57

1.00

Kinerja

Hypothesis accepted if the absolute number of t> 1.96 with

a coefficient in accordance with the proposed research
hypotheses (positive or negative) where previously measured
first value Standardized Factor Loading research model
shown in Fig. 2 below.
Besides calculating t value (T Value), we calculate
Standardized Loading Factor coefficient from structural
model research which shown ini Fig. 3 below.
To see how far the data support the model, then used the
indicator value by GOFI for all latent variables structural
model. The calculation results are listed in Table 2 as follows.
Table 2. Goodness Of Fit Index (GOFI) Structural Model Research

Chi-Square = 9.86, df =6, P-Value = 0.13058, RMSEA = 0.062

Fig. 1. Result of path diagram Confirmatory Factor Analysis (CFA)

When testing a model for fit, the complete fit of the model
as well as the individual parameters should be examined. One
of the more popular fit indices is the Goodness of Fit Index
(GOFI), which can loosely be considered as a measure of the
proportion of variance and covariance that the proposed
model is able to explain [25]. Then the indicator value of
GOFI Latent Variable Test Result CFA can be seen in Table
1.
Next step is analysis of model structural. This objective of
this analysis is to see whether the research hypothesis
acceptable or not. This is done by analyzing the processing of
the T-value (t value) to test hypotheses of significance to the
research model. T-Value is the measure of the statistical
significance of an independent variable b in explaining the
dependent variable y.

GOFI
Indicator

GOFI Value
Calculation

Standar Value for

Suitability

Conclusion

RMSEA

0.059

< 0.08

Suitable

NFI

0.96

> 0.90

Suitable

NNFI

0.97

> 0.90

Suitable

CFI

0.99

> 0.90

Suitable

IFI

0.99

> 0.90

Suitable

RFI

0.99

> 0.90

Suitable

Std.
RMR

0.048

< 0.05

Suitable

GFI

0.98

> 0.90

Suitable

AGFI

0.94

> 0.90

Suitable

Significance test results of the structural model of research,

as reflected by the t value (T-Value) and the Standardized
coefficients associated with the research hypotheses listed in
Table 6. Research hypotheses is acceptable if the absolute
value of t> 1.96, with a coefficient of positive or negative
according to the research hypothesis in the following Table 3.

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Rahmat Nurcahyo and Alan Dwi Wibowo / Procedia CIRP 26 (2015) 653 657

Delivery KML

6.76

StratMan

10.2
6
Quality KML

7.84

8.94

Quality SML

0.00

Cost SML

9.70

KinManL

0.00

4.70
Kapman

10.34
2.40

6.54
6.69

Flexibility
KML

Kinerja

Chi-Square = 11.01, df =7, P-Value = 0.13615, RMSEA = 0.059

Fig.2. Path diagram of structural model research (T-Value)

0.47

0.99

Delivery KML

StratMan

0.73
0.59

Quality KML

0.54

0.39

Quality SML

0.01

Cost SML

0.57

KinManL

0.01

0.57

Kapman
0.15

0.58
0.53

Flexibility KML

Kinerja

1.00

Chi-Square = 11.01, df =7, P-Value = 0.13815, RMSEA = 0.059

Fig. 3. Path diagram of structural model research (Standarized)

Table 3. Result of Significance Testing Structural Model Research

Interaction
Latent
t Value Coefficient
Conclusion
Variable
(H1)
StratMan influence
StratMan
2.40
0.16
Kinerja significantly,
Kinerja
H1 accepted
KapMan influence
(H2) KapMan
4.70
0.39
StratMan significantly,
StratMan
H2 accepted

5. Conclusion
Based on ANOVA testing, we can conclude that for latent
variable in Manufacturing Capabilities (KapMan),
Manufacturing
Strategy
(StratMan),
Manufacturing
Performance (Kinerja) in almost all groups of respondents
profile shows the results of no difference.
Latent Variable Test Results CFA as a whole has a good
fit. It can be concluded that the suitability of variable model
Test Results CFA is good and the data support the model for
these variables. Model Structural Research has overall good
fit. It can be concluded that the suitability of Structural
Research is a good model and the data support the model.
As a final conclusion, all hypotheses can be accepted by
the path : KapMan StratMan Kinerja. This path is shown
proving the truth of the hypothesis that manufacturing
capabilities will affect the manufacturing strategy to be
applied in the company, and the priority of the chosen strategy
will also affect the performance of the company.

Manufacturing capability in component manufacturers

such as operators skills and knowledge can practically serve
as the spearhead in manufacturing strategy, because they are
involved directly in the field related to the quality of the
products. If they are high skilled, the quality of the products
can be guaranteed. By guaranteeing the product quality, the
company itself will be able to implement manufacturing
strategy, particularly in the areas of quality.
Manufacturing strategy in component manufacturers such
as delivery, quality and cost strategies implied positive effect
on manufacturing performance. Delivery, quality, and cost
strategies are influential in determining manufacturing
performance due to these three things are things that are
considered important in the automotive companies. Delivery
strategy leads to the ability of component manufacturers the
in meeting the appropriate level of automotive company
demand at the time quickly and precisely. Automotive
company tend to provide punishment system like penalty fee
if the delivery is delayed. If the delivery performance is bad
and occurs over and over again, then it is likely that
termination of contracts. However, if the delivery
performance tends is good, then automotive company tend to
give new projects, so that it could increase the company's
business performance to be better developed. Other
fundamental problem often encountered in the component
manufacturers is the component quality issues. When
implementing the company's manufacturing strategy, quality
needs to be set as a top priority strategy. If the price offered
by the company is low, but the quality of goods produced is
not good, still the consumer choice will definitely go for the
company with higher quality products. This explains why

Rahmat Nurcahyo and Alan Dwi Wibowo / Procedia CIRP 26 (2015) 653 657

these three strategies are considered influential enough to

increase manufacturing performance.
Acknowledgements
The authors acknowledge the support of Universitas
Indonesia through Hibah Riset Awal grant number
DRPM/Hibah Awal/2010/I/3851.
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