BACKGROUND

Proton Holdings Berhad has become the main automobile company in Malaysia that provides
high quality cars for Malaysian even operates in at least 26 countries of which majorities are in
Asia. PROTON was incorporated on 7 May 1983 with three primary national policy objectives:
to spearhead the development of component manufacturing industries, to acquire and upgrade
technology and industrial skills within the automotive manufacturing industry and to strengthen
the international competitiveness of Malaysias industrial capability. The business of the Group
has been expanded to include engineering consultancy, manufacturing, distribution, financial
services and property investment. Currently, the Group has almost 10000 employees who are
involved in the whole spectrum of the business from research, design, development, testing,
stamping, casting, machining, and assembly to marketing, distribution and after-sales. Proton
aim to maintaining the market leadership by continuing to develop innovative products and
satisfying the customers better and more profitably than the competitors.

VISSION
To become a successful Malaysian automotive engineering and manufacturing company globally
by being customer oriented and producing competitively priced and innovative product.

MISSION
Our companys history is one of the remarkable achievements that we are proud. Our pride is in
the vital force that drives us forward and forces us to take on new challenges. As a national
project, the Protons are committed to lead the acquisition of intellectual ability in the design and
technology that will drive the nation to achieve the status of an industrialized country.

OPERATION MANAGEMENT
As Malaysias largest manufacturer of automobiles, PROTON is committed towards protecting
the environment by conforming to the Environmental Quality Act, 1974, OSHA (Occupational
Safety and Health Administration) guidelines as well as other rules and regulations. PROTONs
Environmental, Health and Safety Policy together with Quality Policy ensures that the Group is
conscientious about its operations impact on the surroundings and protecting the health and
safety of PROTONs greatest assets, its people, and the community at large.

ISO14001 Environment Management System

Reducing the carbon footprint as part of PROTONs environmental initiatives continued to be a
core focus for the Group. In 2007, we had embarked on an ambitious journey in order to achieve
international standards in managing our environment. During the year under review, PROTON
passed the pre-assessment audit on ISO14001 Environmental Management System carried out
jointly by Vehicle Certification Agency (VCA) and SIRIM Malaysia, and accredited by the
United Kingdom Accreditation Service (UKAS).

Health and Safety

Management Commitment
With the formalisation of the Environment, Health and Safety policy, the Group ensure that its
implementation was supported with adequate manpower and funds. As a result of top-down
commitment, the Company was able to sustain employees interest in various programmes which
helped to reduce, and in some cases eliminate, occupational injuries and illnesses. Numerous
Occupational Safety and Health (OSH) programmes and activities were developed to ensure the
safety, health & welfare of persons at the workplace and to protect external parties against
possible hazards.

PRODUCTION MANAGEMENT
Previous PROTON production systems and Total Productive Maintenance (TPM) activities have
already resulted in the main plant having one of the lowest downtimes in history and similar
activities were implemented successfully in the Casting and Engine Transmission Department.
An increasing number of model lines or equipment was established through yokoten, a
Japanese term which essentially means duplicating. The next stage in these intensive
improvement activities will be the implementation of Kobetsu Kaizen (which means Focus
Improvement) and the usage of Overall Equipment Efficiency (OEE) as the de facto parameter
to measure equipment efficiency. In view of PROTONs commitment to improvement, the
Manufacturing Division has started implementing the world-renowned practice of Genba
Kanri, another Japanese term this time referring to Shopfloor Control. This is to reflect how
the division is continuously improving itself by benchmarking PROTON against world-class
industry players.
Just In Time (JIT)
Just In Time (JIT) is a disciplined approach to improving overall productivity and eliminating
waste. It provides for the cost-effective production and delivery of only the necessary quantity of
parts at the right quality, at the right time and place, while using a minimum amount of facilities,
equipment, materials and human resources. JIT is dependent on the balance between the
suppliers flexibility and the users flexibility. It is accomplished through the application of
elements which require total employee involvement and teamwork. The production executive
emphasised the persistent problem Proton faces with component parts supply. Quality, even
though this is made a first priority at Proton, is still a struggle to maintain and difficult to achieve
for every car. In coping with uncertainties, he stressed that Proton handles the situation by
improving communication internally and by discussion with the vendors and suppliers. This is
done through daily meetings of all production workers such as the foremen, assistant foremen,
shopfloor workers and supervisors. Proton uses single-, double- and indeed multiple-sourcing for
parts, depending on the sizes of the parts and whether those parts are imported or not. JIT is
definitely used by Proton but it can only be adopted for certain parts. There was no mention of
working to achieve fully integrated JIT as a strategic approach for Proton It should be
emphasised that this approach resembled the ideas of transitory JIT (a temporary management

technique to provide some inventory and labour cost savings) rather more than strategic JIT
(acknowledging the impact of JIT practices upon the total business) as outlined by CroomMorgan et al. (1992). The production executive particularly emphasised the other cost reduction
programmes adopted by Proton such as quality, cost, delivery (QCD) targets and local parts
content programme achievements through the vendor development programme (VDP).
Just In Case (JIC)
Just in Case (JIC) production more suitable to proton supplier organization. To cope with high
variability variability in the delivery schedule of suppliers, the JIC production is practiced in
Proton plant. In other words, production planner of Proton has to estimate a long lead time or
order more safety stock to tackle suppliers variability. As a result, parts arrived at the final
assembly plant well before the actual production schedule which leads to the pile-up of WIP
(work in process), an inefficiency in inventory management. This is a factor that cause turnover
ratio to decline.

QUALITY MANAGEMENT
Quality Management follows four main directions: Quality Planning, Quality Control, Quality
Validation and Quality Improvements. These directions envelope all activities necessary to
engineer and implement each product or service. Quality Planning is performed prior to each
order execution to assure that each step could be implemented meeting or exceeding our
customer requirements. The Order Quality Plan is being created at that step. The Plan is to
accumulate the expertise and to describe each step of the order execution in detail including
means of Quality Control and Validation. With manufacturing, Quality Control is being
performed per Quality Plan with test measurements taken per pre-defined procedures and test
data kept for each unit. Validation is to assure that each unit meets or exceeds the requirements.
Quality Control and Validation involves the development of a QP (Quality Passport) for each unit
containing the results of each step execution, test data taken and the unit performance
characteristics obtained. This is to effectively eliminate quality issues or rejections. Proton
Engineering uses special Quality Improvements system. This is based on continuous growth of

people skills and knowledge and is driven by our compliance to ISO 9001:2000 standards and as
well by Quality Management procedure.

TQM
Total Quality Management (TQM) is a popular approach based on a decentralized
control philosophy. This been internalized in PROTON. Proton Company had review that quality
is the discernible difference that sets apart the best. It has likely to understand the customer and
fulfills their expectation. As a result, they had committed beyond the traditional approach of
quality that is to focus on quality inspection and quality control. Proton were transforming all
aspects of quality in all areas of business, cultivating quality culture, embedding further quality
by strengthening the cross-functional organization, emphasizing more on process quality, and
instilling quality core values deeper across the business value chain to deliver the intended
quality results. TQM is a popular approach based on a decentralized control philosophy in
PROTON they implement the techniques such as quality circle, benchmarking, Six Sigma
principles, reduced cycle time, and Kaizen. As customer focus and speed are their core values,
hence Proton had committed to an effective quality improvement framework.

(i) Quality circles

In this, Quality Improvement PROTON has implemented the quality circle. To provide direction
and decision Proton had issued The Quality Improvement Committee (QIC), like comprising
members of the senior management and meet on a weekly basis, meant to provide direction and
decision on matters pertaining quality. PROTON also had done the development of Quality
ownership and quality culture in PROTON for their employees. The implementation of the
Innovative and Creative Circle (ICC), the PROTONs employees were trained to identify,
analyze, solve or enrich work related based on the Plan-Do-Check-Action (PDCA) cycle.

(ii) Benchmarking

Is a major component, it defined as a continuous process of measuring products, services and

practices against the competitors or those companies recognized as industry leaders to identify
areas for improvement. PROTON had identified in quality Design and Development for
improvement. Initiatives like benchmarking and simultaneous engineering, are some of the
detect prevention initiatives carried out. Especially customers complaints are channel back to
the design and development team so that they can act to prevent recurrence and advantage on
these new findings to emerge improvements and countermeasures in the design of new
models. New Product Introduction required ensuring strict adherences to PROTONs were
monitor. All new models will be subject to various stages of comprehensive and systematic
quality to track compliance against the set quality targets. With all these initiatives done during
the design and development stage, there have been noticeable and meaningful improvements in
the initial quality of PROTON vehicles as evidence by the reduction in customer complaints.
(iii) Six Sigma
Important for both manufacturing and service organization. They have implement edit to quality
in manufacturing. Manufacturing being one of the most important elements of quality is always
the focus of our quality improvement initiatives. The quality level of vehicle has continued
registering impressive improvement of more than 50% in all plans. Towards building inquality
into the manufacturing processes, efforts are be made to change their quality approach from
judgment control to source control by implementing initiative like Zero Quality Control to
eliminate the defects by fixing the root cause and controlling the processes at source. The year
long continuous quality campaign strategy via the implementation of Zero Defect program has
indeed helped improve the quality level tremendously. By implementing the Zero Defect they
came out with the mindset of Nothing is impossible and embedded a commitment towards
defect prevention into our work culture. This fulfills one of PROTONs TQM emphases on
people quality.

(iv) Reduced cycle time

The next step is systematically and effectively implements this quality initiative through out the
organization. Proton has established companies wide cross-functional Quality Improvement

Team (QIT) to positively address product quality problems. Beyond this, a single channel for the
problem solving process was also establish during the year to streamline communication
coordinate problem-solving and enhanced customer confidence. Internal quality issues more
importantly, customer complaints, now all undergo a stringent8-stage problem solving process to
ensure that the problems are resolved permanently. As a result, warranty trends have also shown
improved trends for all models implying all quality initiatives implemented so far via the QIT
have started to bear results.

(v) Kaizen - Continuous Improvement

A dynamic work culture was creates by PROTON when individuals take charge and are
empowered to make a difference. In PROTON they have implement The Kaizen Suggestion
Scheme, many of the one initiative to drive quality ownership and quality culture, is a continuous
incremental improvement and structured feedback system within PROTON especially in the
manufacturing environment. It encourages action by empowering individuals or groups to act to
improve processes and work condition.

PROTON indulges the TQM technique and now PROTON has never ending commitment
towards customer satisfaction is strongly reflected by the JD Power. PROTON also recorded
30% improvement in comparison to the (IQS) 2008 results. This achievement is indeed
significant because no other companies Original Equipment Manufacture (OEM)have ever
achieved such result.In addition, PROTONs improvement rate surpassed the industry average
which only registered 14% improvement. The strong results clearly imply that PROTON is
listening to our customers seriously and more importantly, various actions are being
implemented to relentlessly address all customers concerns, big and small, to keep
our customers satisfied. Towards a future of unrelenting progress, PROTON remains committed
to exceed expectations and continuously embark on various quality improvement by using TQM
so as to attain and maintain a world class standard of quality.

Supply Chain Management

The most basic of supply chain process is where a company purchased raw materials
from vendors and transformed it into a finished product in a single step. The company then sells
it to the end users or customers. In a realistic business world, supply chains have multiple end
products with many vendors supplying different parts of items, components and services that end
up with a complete product that is ready to be shipped out or distribute. The flow of materials is
also not usually in a linear network but sometimes along multiple networks.
The role of supply chain management in extending JIT(Just-In-Time) from an internal
approach to an external approach has been well documented. However, there are some advice on
several common pitfalls in dealing with supply chain inventory. The general desire to reduce the
number of suppliers so as to reduce variability and improve product quality. The reductions in
suppliers which were observed in that work were due to changing from multiple to single source
suppliers.
The main advantages were found to be better quality, reduced costs and the ability to
produce products which are highly desirable in the marketplace. There was also the benefit of
vertical integration but without actually taking over companies. The disadvantages were seen as
the cost involved, the openness required by the development process and the need to manage
change. There was also emphasis on long-term strategy associated with developing the supplier
base.
Mass Production
Locally produced parts initiated by Proton Parts Classification Main Parts/Items:
1. Body Parts: Body stamped-parts, fuel tank, exhaust system, safety glass, weather strips,
mouldings etc.
2. Engine Parts: Filters, radiator hoses, air filter housing, spark plug, piston, piston liners,
etc.
3. Drive, Transmission, Steering Parts and Wheel: rim, wheel nuts and studs, control cables,
rack and pinion steering assembly, etc.

4. Suspension Parts: Coil and leaf spring, U-bolt and shackle assembly, shock absorber, disc
pad, etc.
5. Electrical Parts: Battery, horn, wiring harness, alternator, starter motor, voltage regulator,
wiper and washer assembly, instruments cluster, relays, fuse box, etc.
6. Trim and Upholstery: Carpet, floor mat, rear parcel shelf, seat assembly, safety belt, melt
damping sheet, etc.
7. General Parts: Paint and thinner, underseal, tyre, air conditioner, radio, screw jack,etc.
Supply Chain Operation
Proton plant is surrounded by a network of supplier plants near to each other. Although
having geographical advantage, these suppliers have not the good quality of the parts supplied by
some microelectronic manufacturers located relatively far from Proton plant. This means
suppliers to Proton are also suppliers to other local automobile assemblers. However, due to the
fact that the overall quality performances of these suppliers are not satisfactory plus the
protectionism policy exercised by the Malaysian government, competitions among suppliers do
not achieved as in the Toyota case. In addition, this kind of pattern has limited the program of
supplier development and cultivation by Proton.
With regard to firm-specific variables, the extent of production experience of the local
suppliers is probably positively related to increased buyer sourcing from local firms. In fact, the
shift from old to new suppliers, adaptation to the new economic environment, the simulation
effect on the local suppliers created by the procurement practice of PROTON, and a number of
other related factors, require some time to become significant.
Supply Chain Planning
Their goal is to be able to send order confirmation within 24 hours after the goods arrive
at the plant or that we receive order requests for products that are already available with us for
surface treatment. One condition is the product already is production ready and priced.
Push/Pull View of Supply Chain
Proton employs push production system instead of pull production as in the Toyota case.
In push system, production is based on demand forecast and is not flexible to adjust to demand
fluctuations. One of the common consequences of push production is the pile-up of inventory
due to inaccurate forecasting. The artifact of the cell designer x what reveals that the

parameters under the push system are insufficient in generating high competence for the
company. For example, the variability is high due to poor delivery schedule by the suppliers.
This is the reason why Proton set a longer safety lead time to suppliers that cause the cycle time
of overall production lengthy. Besides, the reliability of Proton car is unsatisfactory.
The results of 1st JD Powers Initial Quality Study (IQS) indicate that the quality of
Proton car is below industry average with a dismal 303 problem reported per 100 vehicles (Chips
2003). We suppose these are the reasons to the decline of sales volume as customers have shifted
their choices to other automobile manufacturers.
Supply Chain Strategy
Strategic decision making and efficient management is essential in determining the
success of the collaborative effort between the suppliers. Setting a clear goal post for the
suppliers will help them in steering towards the same direction regardless of any setback they
suffer along the way. Proton has formulated a three-pronged strategy to meet the high demand
for its cars. The strategy attempts to address shortages in production capacity for the short,
medium and long term. A feasibility study on the plan, however, was done in 1995. Protons
immediate plans to meet the short-term demand involves operating its plant on three shifts so
that it could meet the sharp rise in the domestic demand for its cars. Although this extra shift
would not involve the installation of an extra production line and new machinery, Protons
managing director, Datuk Mohd Nadzmi Saleh, said in an interview with the company newsletter
on 8 July 1995 that the company may have to increase its manpower substantially.
Supply Chain Capabilities
The production executive emphasised the persistent problem Proton faces with
component parts supply. Quality, even though this is made a first priority at Proton, is still a
struggle to maintain and difficult to achieve for every car. In coping with uncertainties, he
stressed that Proton handles the situation by improving communication internally and by
discussion with the vendors and suppliers. This is done through daily meetings of all production
workers such as the foremen, assistant foremen, shop floor workers and supervisors. Proton uses
single-, double- and indeed multiple-sourcing for parts, depending on the sizes of the parts and
whether those parts are imported or not. JIT is definitely used by Proton but it can only be

adopted for certain parts. There was no mention of working to achieve fully integrated JIT as a
strategic approach for Proton.
Proton quality control
It uses 'Zero-Defect' Campaign. Proton launched a 'zero-defect' campaign aimed at erasing a
reputation for poor quality that has left it struggling to compete against foreign competitors
Process design and manufacturing layout
In a production plant of Malaysian leading automotive manufacturer PROTON. The plant runs as
mixed model assembly lines where the area of the line covers approximately 814 m2. The
storage area before SPS was about 100 m2 and the component racks that contained parts to be
assembled was about 80 m2. Since the line consists of large varieties of different parts, the
assembly line was always congested and this increased the inventory holding cost. In order to
improve the JIT in the production line, the management had approved to implement SPS as part
of their kaizen effort to solve the congested problem. The area of implementation is called as SPS
Island.
Set Parts System(SPS) implementation
New concept of material handlings system called SPS implemented in Malaysian automotive
manufacturer. The SPS is regarded as one of the alternatives of JIT practices that used to improve
the number of defect, repair and reject and avoid missing process and wrong installation of parts.
SPS can reduce the usage of racking at line side area and the ultimate goal is cost reduction. The
damaged materials and part shortage can be identified earlier by creating the clean area, wider
and well-ordered workplace. The continuous improvement at the line side is carried out as part of
lean strategy to the SPS Island.
Design capacity
PROTONs original factory plant, covering 99,400 sqm, is located at Shah Alam near Kuala
Lumpur in central Malaysia. The site houses an engine and transmission factory, 2 assembly
plants, R&D centre and a semi-high speed test track. The factory has the capacity to produce
240,000 units vehicles per annum.
WITHIN 25 YEARS, PROTONS MANUFACTURING CAPABILITIES HAVE

ACCELERATED FROM AN INITIAL CAPACITY OF 17,001 UNITS TO A

RECORD HIGH OF 173,057 UNITS LAST YEAR. THIS 918% GROWTH
AVERAGES AN ANNUAL INCREASE OF 11% PER ANNUM.
PROTON SHAH ALAM
The Main Plants capacity is 150,000 units while the MVFs capacity is 50,000 giving a total
capacity of
200,000 units per year.
The Main plant currently produces the Saga, Waja and Arena models. The Saga model is the
highest volume
model produced, averaging about 6,600 units a month. The capacity of the Saga has also been
reviewed
from 72,000 units to 96,000 units to accommodate the good demand especially from the
domestic market.

PROTON TANJUNG MALIM PLANT

PROTONs Tanjung Malim plant in Perak has an annual capacity of 150,000 units (involving
2 shifts) with a 60 per cent automation level
Forecast
For the purpose of forecasting Proton sales in successive year, casual method, or the multiple
Regression method is chosen. As for our first objective, the methodology chosen for this study is
Multiple Regression. It is a causal method in which one variable, called a dependent variable, is
related to one or more independent variables. The case study of Proton is seen to be
corresponding with the method employed, bearing four elements for computation, the fuel prices
(petrol pricein Ringgit Malaysia), The GDP per capita (PPP), inflation rate and sales revenue.
Sales revenue is dependent variable which the manager wants to forecast, and petrol price, GDP
per capita, and inflation rate are independent variables, assumed to affect the dependent variable.

The result of the multiple regression analysis is as table 2. The r value (0.54) for the model
represents a middle strength of correlation, and the significance F value (6.4E-05) show there is a
linear relationship. This value of r implies 54 percent of variation in sales revenue is explained
by these three variables of fuel price, GDP per capita and also inflation rate. There are three
independent variables in the model. Three significance tests are performed to determine if fuel
price, inflation rate and GDP per capita are significant. Using a 5% level of significance, the pvalue of the fuel price is 0.54 greater than 0.05, so we cannot prove that the fuel prices have
effect on sales revenue. Therefore, we got a regression line = 3342.5 + 337.49 X1 + 200.49X2
0.457X3, which is a less strong model to forecast the quarterly sales revenue of Proton.
Actually, the dramatic fluctuation of fuel prices in Malaysia is in 2008.
Behavioral approaches to job design in proton Malaysia
Proton use SMART goal setting theory for motivation. This theory is based on the concept that
people work harder when they have specific, measurable goals to work toward. Goals provide a
clear, engaging sense of direction and specify what is to be accomplished.
Proton holding berhad use behavioral theory which is effective leadership behaviors can be
learned or trained. It focus on what effective leaders do rather than what effective leaders are. In
behavioral theory, theory of Michigan Studies is chosen by Proton Holdings Berhad which is

introduced by Rensis Likert. A researcher at University of Michigan. He identified 2 basic forms

of leader behavior.
A job centered leader-the managers pay close attention to subordinates work, explain work
procedures and are keenly interested in performance. Employee-centered leader-the managers are
interested in developing a cohesive work group and ensuring that employees are satisfied with
their jobs. Their primary concern is the welfare of subordinate.
Proton Holdings Berhad focus most on Employee-centered leader since we think that this type of
behavior tends to be more effective, this is because the welfare of the employees are guaranteed
by Porotn Holdings Berhad. From this action, Proton Holdings Berhad tend to increase the
production of the car produced.

http://www.proton.se/en-us/finishing/about-finishing/logistics/
http://www.gartner.com/it-glossary/scp-supply-chain-planning/

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