International Journal of Mechanical and Production

Engineering Research and Development (IJMPERD)

ISSN(P): 2249-6890; ISSN(E): 2249-8001
Vol. 9, Issue 2, Apr 2019, 75-82
© TJPRC Pvt. Ltd.

A STUDY ON ECONOMIC BENEFITS OF ISO CERTIFICATION

TO MANUFACTURING UNITS

MOHANRAJ. K1 & RAVI KUMAR2

1
Department of Management and Commerce, Amrita School of Arts and Sciences, Amrita Vishwa
Vidyapeetham, Mysore, Karnataka, India
2
Assistant Professor, Department of Management and Commerce, Amrita School of Arts and Sciences,
Amrita Vishwa Vidyapeetham, Mysore, Karnataka, India
ABSTRACT

ISO is a Non-governmental and independent organization where it voluntarily establishes the standards for
the improvement of the organization for the quality consciousness for the customers. The main benefit for seeking ISO
certification by the organizations is for the Customer relationship management by the firms. This study is conducted to
know whether the ISO certification makes the firm more efficient by analysing before and after certification of ISO. The
descriptive research method is adopted to find out the benefits of the adoption of ISO. The prime outcomes of the study
show the selected company has made considerable progress in the areas of productivity, profitability and other

Original Article
administrative areas on the adoption of ISO standards compare to before the adoption of the organization.

KEYWORDS: ISO, Manufacturing Firm, Profitability & Administrative Operation

Received: Dec 24, 2018; Accepted: Jan 14, 2019; Published: Feb 04, 2019; Paper Id.: IJMPERDAPR20197

INTRODUCTION

From the year 1987 the ISO 9000 standard for quality management system has made a huge impact on the
economy. There are firms seeking certification by the standard, the standards are being adopted globally by the
firms itself for certification. The adoption of ISO is increasing globally among the firms according to its standards.
The implementation of ISO represents the transformation from a poor performance of the management to a total
quality management of the organisation. The economic contribution of standards to the economy and company will
improve the productivity and performance in all the sectors. The main purpose of the ISO is to make it a quality
management and it deals with the overall management of an organisation. When ISO standards are applied
choosing quality goods and services becomes easier. ISO standards make the world safer, cleaner and more
efficient, from food safety to computers, from health care to new technology. ISO gives positive support for
utilising the wealth of the firms effectively.

“Economic Benefits are benefits that can be quantified in terms of money generated such as net income,
revenue, etc. Economic benefits can be measured and used in business decisions, policy decisions and market
analyses. Business will use measures such as net income, net cash flow, or return on investment as measure for
economic benefits. Policy makers will likely use consumer and producer surplus as economic benefit measures”
[study.com] in the light of the above economic benefits to the organization, the present study tries to understand
the economic benefits derived by adopting ISO standards at selected manufacturing units in Mysore.

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76 Mohanraj. K & Ravi Kumar

REVIEW OF LITERATURE

• U. H. Acharya and Sanjit Ray (2000) has done a study on “ISO 9000 certification in Indian industries” in this they
have discussed about the various criteria like benefits of certification, the hurdles faced on the path of certification
likely the study is planned and conducted. And it also gives the suggestions for improving effectiveness of the
industries like quality policy implementing, customer complaints, auditee may take over the compliant and make
benefits according to the customer satisfaction.

• Shannon. W, Anderson. J. Daniel Daly and Marilyn F Johnson (1999)has undergone a study on “Why firms seek
ISO 9000 certification” they say’s firms are not imposed by anyone to seek certification in the industry, they
voluntary obtain certification because the better alternative may exist to control the mechanisms of the market
where the quality management process occurs. They have said that the customer may indicate regulatory and
inadequate compliances when the quality signals of the management are smaller. The main motive is to know
about the ability to examine the value of the firm’s quality and its setting up in the industry.

• Jason A. Briscoe, Stanley E. Fawcett, and Robert H. Todd (2005) has conducted a study on “The implementation
and impact of ISO 9000 among Small Manufacturing Enterprises” this paper focuses on the Small Manufacturing
Firm where the successful implementation of ISO standards and its barriers to ISO certification are done. By
implementing it the firm will influence positive needs to be changed, establishing a quality culture, changes in the
infrastructure. This concludes with the key saying that how ISO adoption can be made by reducing the behaviour
that inhibit the adoption of ISO strategy where the successful environment is made with the quality conscious.

• James P, Mary Ann T. Walsh and Kim La Scola Needy (2015) “An Examination of the Economic Benefits of ISO
9000 and the Baldrige Award to Manufacturing Firms” this paper says about the economic benefits of the
financial data of manufacturing companies which are certified. He also states about the benefit of cost of the
company which is registered under ISO 9000, it's calculated to know the annual cost to know their benefits to stay
for a positive result of the company. And he also examines from the Baldrige Award Winners whether the benefit
of receiving ISO 9000 is economically attractive to the business or not. He concludes with saying that the survey
conducted will be useful for implementing the quality in it.

• Ann Terlaak, and Andrew A. King (2005) “The effect of certification with the ISO 9000 Quality Management
Standard” this paper says about the management standards of ISO 9000, and it also becomes the credibility for
communicating to buyers of the company. This study says about the value of agents of the institution and it is the
signal of superior but unobservable attributes which provide benefits. He concludes by saying that it is useful for
managers and institutional agents, whereas to reduce their problems on management standards.

• Mary J Benner, Francisco M Veloso (2008) “ISO 9000 Practices and financial performance” a technology
coherence perspective this paper says about the implementation of ISO in a sector and its performance where it is
organizational set up is made. It also says about the reduction of cost in it by improving the operational efficiency.
It says the waste and costs reduction in it since the production of defect-free products, standardized procedures are
formed for the effectiveness of the organization. He concludes by saying that this study is made for the improving
the organization in process management and strategy stream.

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A Study on Economic Benefits of ISO certification to Manufacturing Units 77

• Prof. Inaki Heras, Prof. Marti Casadesus, Prof. Carlos Ochoa has made an empirical study on the “Effects of ISO
9000 certification on companies’ profitability” this paper says about the effects on certified companies of the
implementation and certification according to ISO 9000 standards. Benefits towards the implementation of ISO
9000 Standards effect towards the profitability of the business and also its analyses on the economic outcomes of
the certified and non-certified companies in the region of the study conducted.

• P. Padma, L. S. Ganesh and C. Rajendran (2008) “A Study on the critical factor of ISO 9001:2000 and
organizational performance of Indian manufacturing firms” this paper says about the standards of quality
management systems of the firms’ total quality management where in which it includes the critical factors and
indicators of organizational performance. Where to analyse the relationship of firm attributes with critical factors
and also with the attributes of firms with the indicators of organizational performance.

• Joseph Iwaro and Abrahams Mwasha (2012) “The Effect of ISO Certification on Organization workmanship
performance” this paper says about the workmanship of more construction industry with a comparison of ISO
Certified organizations and non-ISO organizations. Where this is a case study of the specific organization where
the implementation of ISO 9001 is happening in comparing with the organization performance where the
implementation of ISO 9001 has not been held. This paper gives the result of the workmanship of all the
industries which is certified and not certified under ISO.

• Durai Anand Kumar and Dr. V. Balakrishnan(2011) “A Study on ISO 9001 Quality Management System
Certifications – Reasons behind the failure of ISO certified, certifications” this paper is prepared to know about
the effectiveness of the industry which is certified under ISO 9001. This study will be useful for all the types of
organization to evaluate the effectiveness and identify the quality, performance and develop the strategic
management system of the organization which is certified under ISO.

OBJECTIVES

• To study the impact of ISO standards on company profits, costs and revenue management.

• To study the change in Productivity levels of the firm on the adoption of ISO standards.

• To identify the changes in Administrative operations of the firm on adoption of ISO standards.

METHODOLOGY
Need for the Study

There are many Economic Benefits in case of an ISO registered company. Now-a-days most of the companies
seek certification because of the competitor company to compete with them in the market, as the certification lead to
overall development of the firm. The ISO plays a vital role in it. Hence it becomes important to understand how ISO
extends the economic benefits to the manufacturing firm.

Area Selected for the Study and Research Method

The study is made at selected firms in Mysore city, as there is development of industrial area in four phases and
most of the units are registered under ISO standards.

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78 Mohanraj. K & Ravi Kumar

The descriptive research method is adopted as the study tries to understand the changeover in productivity on
adoption of ISO standards on the previous data.

Source of Data Collection

As the study tries to understand the changes over the productivity of adoption of ISO standards, previous reports
are taken as a prime source of information for comparing productivity component before and after adoption of ISO
standards. Accordingly, secondary source of information is adopted for the study.

SCOPE OF THE STUDY

• Profit after implementation of ISO is increased or decreased.

• Sale of the product is increased or decreased.

• Productivity is maximised or minimised.

• Dealers and the external suppliers for the sales is improved or not.

• Technological differences before and after certification.

CONCEPTUAL FRAMEWORK
About ISO
ISO is a non-governmental, independent organization with the members of 162 bodies around the nation. With the
members of ISO, they adopt the experts around the nation for the challenges faced globally for its improvement in the
standards and also they voluntarily support innovation in the terms of the products and services, systems, quality and
efficiency. In which they facilitate the international trade with its standards on every industry from safety to technology,
where it impacts lies with everyone and everywhere.

Benefits of the ISO

In the last 50 years ISO has made a family of standards, to ensure the quality and safety among the ISO certified
companies’ products which is used by the consumers. Which make the customers feel that the management system is
approved by ISO standards. And also the companies will be having the global recognition for its better management of the
ISO standards.

ANALYSIS AND INTERPRETATION

To Study about the Profitability of the Firm before and after Certification

Table 1: Shows about the Profitability before and after Certification

Before ISO 9000 Certification After ISO 9000 Certification
Year Profitability Year Profitability
2012 6.1% 2015 7.65%
2013 6.19% 2016 8.55%
2014 6.22% 2017 8.70%
[Source: company records]

The above table shows the assessments of the manufacturing Industry. These data are statistically different among
the industries’ profitability before and after certification of ISO. Where the ISO Certified firms are considered and the
profitability of the firms is collected to analyse the view of ISO on manufacturing firms, where to know the standards of

Impact Factor (JCC): 7.6197 SCOPUS Indexed Journal NAAS Rating: 3.11
A Study on Economic Benefits of ISO certification to Manufacturing Units 79

the ISO makes the firm more effective and profitable after implementing it in the firm. The firms also say that because of
implementing ISO standards in firm the quality of the firm is increasing and the profitability is also increasing where
compared to the previous years of the profitability.

To Compare about the Revenue Performance before and after Certification of the Firm

Table 2: Shows the Revenue of the Firm before and after Certification
Before ISO 9000 Certification After ISO 9000 Certification
Particulars
Product1 Product 2 Product 1 Product 2
Price 80 75 90 85
Quantity Sold 20 55 37 52
Mark-Up 20 10 20 15
Shipping Charges 25 25 25 25
Profit 41 32.5 43 37.6
Net Income 820 1787.5 1591 1955.2
Total Revenue 1140 2200 2257 2618.2
[Source: company records]

The above table shows that the Revenue of the firm before and after the Certification of ISO 9000. The firm
manufactures two products (Product 1, Product 2) and listed in the table 2 with all of the particulars of the products from
consumption of Raw material till the sale of last produced product in the market. And then the revenue for the product is
analysed by the calculation of its sales in the market, according to the amount of production of the product. On comparing
the table of both the products before and after certification of ISO 9000 the performance of the products after the ISO
Certification is good where the ISO 9000 has quality conscious on the process of installation of it in the firm.

To Understand about the Productivity Level after Adopting ISO Certification

In this category the firm’s productivity is analysed after the certification of ISO 9000. The productivity of the
firms will affect the nations in the terms of economic growth. Productivity describes the various measures of the efficiency
of production. The productivity is measured in terms of the output on the amount of input for production. The productivity
of firms can also change the performance of profit.

Table 3: Shows the Productivity Level after Adoption of ISO

Improvement in
ISO Customers
Manufacturing Technology Aiding of Employees
Certification Satisfaction
Techniques
Internal
The orders from the
The business plan is
existing customer
taken and analysed
increases and also
and updated with the On the adoption of
new customers are New technology is
new idea of ISO 9000 Standards
gained. found for the
development over the employees of the
External production process
ISO 9000 production. So that firm by extending
The outside customers with the help of R&D
Certified the quality of the training which in turn
who use the product development in the
product increases, and has helped in quality
and service increases firm
the wastage in service delivery
due to the Quality of
production has
the product on
decreased
adoption of ISO
standards
[Source: company records]

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80 Mohanraj. K & Ravi Kumar

To Know the Administrative Operations Changes and Impact on the Firms Performance

Table 4: Shows the Administrative Operation after ISO Certification

ISO
Internal Audit Human Resources
Certification
HR department is
formed to analyse the
It makes the firms to review the
TQM and the
business process to analyse the
ISO 9000 development of the
effectiveness and makes the system to
Certified firm. It focusses
control and develop according to the
mainly on the
plan.
employee’s welfare
and the society.
[Source: company records]

CONCLUSIONS
In this competitive business environment, it is difficult to sustain and succeed for business houses. ISO is like a
guide to upgrade companies to the standards that make them to compete and succeed. Adoption of ISO leads to a
systematic method of working and adoption of standard practices that will reflect as quality goods and services. The above
study narrates about the changes in the qualitative aspect, productive aspect and profitability aspects in turn all the
economic benefits that the organization gained on the adoption of ISO standards.

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