Structural Equation Modeling of Relationships Among Lean Operational, Financial Performance, and Customer Satisfaction

Abstract

Objectives: The challenges of implementing a lean business system can be solved by Structural Equation Modeling. In this research, the link between lean operational, financial performance, and customer satisfaction has been investigated in the Akaki Basic Metal Industry in Ethiopia. Methods: A lean operational performance that met the needs of the industry was identified by conducting a structural survey questionnaire to collect feedback data from experts. The model was developed including 28 variables from the experts in the industry. The collected responses were tested for reliability and validity using Cronbach's alpha, composite reliability, convergent, and discriminant validity. Findings: From the use of Analysis of Moments and Structures (AMOS-SEM), the results confirmed that C.R. > 1.96, p < 0.001, and p < 0.05 on quality and delivery. This shows a significant positive direct effect on customer satisfaction by 25.8% on quality, 24.9% on delivery, and 10.3% on cost. Novelty: Even though LM has become a fundamental aspect of industrial manufacturing processes, lack of understanding (knowledge) and practicing how to implement the positive impact on lean operational, financial performance, and customer satisfaction are still not sufficiently exploited particularly in developing countries. This research adds values to the practical use of the concept by examining the relationship among lean operational, financial performance, and customer satisfaction within basic metal manufacturing industry in Ethiopia. In addition to this, the findings have demonstrated improved organizational performance through structural equation modeling. It also helps leaders to focus more on training employees on quality issues and developing an awareness of quality achievement as a core value in the industry. Keywords: Confirmatory factor analysis, Exploratory factor analysis, Lean operational performance, Structural equation modeling, Customer satisfaction