material requirements planning (mrp) practices in melaka …

Faculty of Engineering

MATERIAL REQUIREMENTS PLANNING (MRP) PRACTICES IN

MELAKA MANUFACTURING COMPANIES

Chua Keng Yew

Bachelor of Engineering with Honours

(Mechanical Engineering and Manufacturing Systems)

2005

UNIVERSITI MALAYSIA SARAWAK

R13a

BORANG PENGESAHAN STATUS PROJEK TAHUN AKHIR

Judul : Material Requirements Planning (MRP) Practices: Melaka Manufacturing

Companies

SESI PENGAJIAN: 2001-2005

Saya CHUA KENG YEW

mengaku membenarkan tesis * ini disimpan di Pusat Khidmat Maklumat Akademik, Universiti Malaysia

Sarawak dengan syarat-syarat kegunaan seperti berikut:

1. Tesis adalah hakmilik Universiti Malaysia Sarawak.

2. Pusat Khidmat Maklumat Akademik, Universiti Malaysia Sarawak dibenarkan membuat salinan

untuk tujuan pengajian sahaja.

3. Membuat pendigitan untuk membangunkan Pangkalan Data Kandungan Tempatan.

4. Pusat Khidmat Maklumat Akademik, Universiti Malaysia Sarawak dibenarkan membuat salinan tesis

sebagai bahan pertukaran antara institusi pengajian tinggi.

5. ** Sila tandakan ( ) di kotak yang berkenaan

SULIT (Mengandungi maklumat yang berdarjah keselamatan atau kepentingan

Malaysia seperti yang termaktub di dalam AKTA RAHSIA RASMI

1972)

TERHAD (Mengandungi maklumat TERHAD yang telah ditentukan oleh

organisasi/badan di mana penyelidikan dijalankan)

TIDAK TERHAD

__________________________ ____________________________

(TANDATANGAN PENULIS) (TANDATANGAN PENYELIA)

Alamat tetap:

Nama Penyelia

Tarikh: _______________________ Tarikh:______________________

CATATAN * Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah, Sarjana dan Sarjana Muda.

** Jika tesis ini SULIT atau TERHAD, sila lampirkan surat pihak berkuasa/organisasi

berkenaan dengan menyatakan sekali sebab dan tempoh tesis ini perlu dikelaskan

sebagai sulirt dan terhad.

11, Jln MJ 15, 75350,

Taman Merdeka Jaya,

Batu Berendam, Melaka

Pn. Magdalene Anak Andrew-Munot

APPROVAL SHEET

This project report entitled “Material Requirements Planning (MRP) Practices in

Melaka Manufacturing Companies” was prepared by Mr. Chua Keng Yew as partial

fulfillment of the requirement for the degree of Bachelor of Engineering with Honours

(Mechanical Engineering and Manufacturing System) is hereby read and approved by:

Madam Magdalene ak. Andrew Munot Date

(Supervisor)

DECLARATION

I hereby declare that the thesis is based on my original work except for quotations and

citations, which have been duly acknowledged. I also declare that is has not been

previously or concurrently submitted for any other degree at UNIMAS or other

institutions.

Signed

Name: Chua Keng Yew

Date:

MATERIAL REQUIREMENTS PLANNING (MRP) PRACTICES IN

MELAKA MANUFACTURING COMPANIES

CHUA KENG YEW

This report is submitted in partial fulfillment of

the requirement for Degree of Bachelor of Engineering with Honours

(Mechanical Engineering and Manufacturing System)

Faculty of Engineering

UNIVERSITI MALAYSIA SARAWAK

2005

ii

DEDICATION

To My Beloved Mum and Family…..

iii

ACKNOWLEDGEMENT

The successful completion of this project is a cumulative contribution from many

parties. The first, being my parents and family members, whom constant love and

support I could not have done without. I, hereby, would like to express my gratitude

and sincere appreciation for their unconditional love and understanding.

Next, I would like to acknowledge my project supervisor, Madam Magdalene ak

Andrew Munot for her guidance and unceasing patience. I would also take this

opportunity to apologize for being an annoyance and for causing her extra stress

throughout the course of this project.

My deepest gratitude for the various manufacturing companies for allowing me to

carry out this study. My sincere thanks also go to each and every one of my

participants for sparing their time to participate in this study. Without them, this

would never materialize.

Lastly, my heartfelt gratitude for my friends and course mates for their friendship

and support throughout my mechanical course in UNIMAS. I truly appreciate our

friendship and I will treasure it forever. Thanks for making me feeling at home in a

foreign land.

Thank you.

iv

ABSTRACT

This paper explores the combinations of quantitative and qualitative aspect of

the effects of Material Requirements Planning (MRP) practices in Melaka industries.

The objectives of this study are to determine the actual practices of MRP, the failure

factors of MRP system, and methods used to cope with MRP failure. This study is

based on the data obtained from mail survey and personal interview of

manufacturing companies in Melaka. The participating companies were personally

approached through telephone before sending the questionnaire or performing the

interview. A total of 24 mail survey questionnaires were received throughout the

study and these data were analyzed using the Statistical Package for Social Science

(SPSS) version 11.5. Data obtained from the 6 interview sessions were transcribed

verbatim manually and used as the qualitative approach to support the quantitative

results for the study. The result of this study shows that most company who adopts

the MRP system modified the system according to their needs. In addition, the result

also shows that human factors, data accuracy, demand uncertainty and supplier did

actually affects the performance of MRP system. Methods for solving the materials

shortage such as rescheduling, multi-supplier, renegotiating date lines and others are

utilized in order to achieve on-time delivery. On the whole, this study found that

MRP system can be used as a tool to help a company to be competitive in global, but

improvements and proper modifications should be done in order to achieve better

performance. Furthermore, the involvement of an experienced worker is strongly

recommended to reduce the failure rate as well as increase the efficiency of MRP

system. This study is limited to manufacturing companies in Melaka only. Therefore,

v

the results obtained from this study are not suitable to be used as a guideline for other

manufacturing companies in Malaysia.

vi

ABSTRAK

Kajian ini dijalankan dengan tujuan untuk mengenalpasti akan amalan yang

diamalkan oleh kilang-kilang pembuatan di negeri Melaka dalam penggunaan sistem

“Material Requirements Planning (MRP)”. Selain itu, factor-faktor yang

mempengaruhi kegagalan MRP dan cara-cara untuk mengatasinya juga dikaji

dengan teliti. Data untuk dalam kajian ini diperolehi daripada 24 buah kilang yang

mengembalikan borang soal-selidik, dan 6 buah kilang yang terlibat dalam sesi

temuduga. Kilang-kilang tersebut dihubungi terlebih dahulu untuk meminta

kebenaran mereka untuk menjalankan kajian ini. Data daripada borang soal-selidik

dianalisis dengan menggunakan “Statistical Package for Social Science (SPSS)”

versi 11.5, dan carta pie telah dihasilkan untuk menggambarkan keputusan data

analisis. Data daripada sesi temuduga pula dianalisis dan dicatat dengan

menggunakan kaedah kualitatif untuk menyokong keputusan survei pos kajian ini.

Berdasarkan data yang diperolehi dari kajian, kebanyakkan kilang yang

menggunakan sistem MRP ini telah mengubahsuaikan sistem asalnya untuk

disesuaikan dengan keperluan kilang tersebut. Hasil daripada kajian ini juga

menunjukkan bahawa MRP memang mementingkan ketepatan data. Tambahan juga,

pengaruh kepakaran dalam bidang pembelian bahan adalah amat penting untuk

menentukan ketepatan sistem MRP. Cara untuk menyelesai masalah yang dihadapi

ketika kekurangan bahan seperti kaedah mengubah jadual waktu pembuatan,

membincang semula tarikh penghantaran produk, mencari pembekal yang lain dan

sebagainya juga dibincangkan. Secara keseluruhannya, sistem MRP berupaya

membantu kilang-kilang untuk menangani cabaran globalisasi, tapi ia hanya

menjadi kenyataan sekiranya pengubahan yang betul dilakukan dan perkembangan

vii

sistem tersebut sentiasa diikuti. Sehubungan dengan itu, pengaruh pekerja

berpengalaman adalah amat penting untuk mengurangkan risiko kegagalan sistem

MRP. Kajian ini hanya dilakukan di kilang-kilang pembuatan di Melaka sahaja.

Oleh yang demikian, keputusan daripada kajian ini tidak boleh digunakan untuk

mewakili amalan MRP semua kilang pembuatan yang terdapat di Malaysia.

viii

TABLE OF CONTENTS

DEDICATION ii

ACKNOWLEDGEMENT iii

ABSTRACT iv

ABSTRAK vi

TABLE OF CONTENTS viii

LIST OF TABLES xi

LIST OF FIGURES xii

LIST OF ABBREVIATIONS xiii

CHAPTER 1 INTRODUCTION 1

1.1 Manufacturing in Global Competition 1

1.2 Material Requirements Planning (MRP) Practices 4

1.3 Problem Statements 9

1.4 Objectives of the Study 13

CHAPTER 2 LITERATURE REVIEWS 14

2.1 Introduction 14

2.2 Manufacturing in Global Competition 14


2.3.1 Material Requirements Planning (MRP) system 16

2.3.2 Constituents of MRP system 18

2.3.3 Issues Regarding MRP Practices 22

2.3.4 Method for overcoming material shortage in 27

ix

MRP

2.3.5 Criteria for MRP Success 28

CHAPTER 3 METHODOLOGY 32

3.1 Literature Reviews 32

3.2 Companies Selection 34

3.3 Data Collection Methods 35

3.4 Data Collection Instruments 37

3.4.1 Interviews 38

3.4.2 Mail Survey 39

3.4.3 Types of Questions 40

3.5 Data Analysis 42

3.5.1 Verbatim Transcription 42

3.5.2 Statistical Package for Social Science (SPSS) 43

CHAPTER 4 RESULTS AND DISCUSSIONS 45

4.1 Responses to the Study 45

4.2 Missing Responses 47

4.3 Company Profiles 48

4.3.1 Respondents to Mail Survey 48

4.3.2 Respondents to Interview Session 49


4.4.1 The applications of MRP system in industries 52

4.4.2 Failure factors of MRP system 55

4.4.3 Methods used to cope with MRP failures 63

x

CHAPTER 5 CONCLUSIONS & RECOMMENDATIONS 72

5.1 Conclusions 73


5.1.2 Failure factors of MRP practices 74


5.2 Recommendations 76


5.2.2 Failure factors of MRP practices 78


5.3 Limitations 81

REFERENCES 82

APPENDICES

Appendix A: Guarantee Letter 91

Appendix B: Participant Information Sheet 92

Appendix C: Questions to Guide/Probe Interview

95

Appendix D: Questionnaire 96

Appendix E: Company List 100

xi

LIST OF TABLES

Table Page

1. Response Rate for the Study 46

xii

LIST OF FIGURES

Figure Page

1 Competitive Priorities 3

2 Structure of an MRP system 6

3 The input and output of an MRP system 21

4. Methodology of the Study 33

5. Company profile according to industrial categories 48

6. Percentage of company adopting the MRP system. 52

7. Failure Fraction of MRP system. 56

8. The methods used to overcome MRP failure. 63

xiii

LIST OF ABBREVIATIONS

1. MRP: Material Requirements Planning

2. BOM: Bill of Material

3. MPS: Master Production Schedule

4. MPC: Material and Production Control

5. ATO: Assemble-to-Order

1

CHAPTER 1

INTRODUCTION

1.1 Manufacturing in Global Competition

Hayes and Gary (1994), claim that the competition in business environment

today changes much faster than twenty years ago due to the advance growing of

global economy. Anderson (1994) states that during the 1990s, the manufacturing

companies all over the world face stiffer competition than ever before. He also

points out that the national boundaries are becoming less and less of a constraint on

competition and in many industries, a single global market is now a reality. Cooper

(1989) believes that, there is increasing pressure upon manufacturing firms to make

their processes more efficient and effective due to the globalisation issues.

According to Manthou et al. (1996), the global competition is forcing

management to conduct new methods for improving business and manufacturing

operations. Gaither and Frazier (1999), also state that the (manufacturing)

competition has become more intense and is increasing. In addition, they mention

that to succeed in global competition, companies must make a commitment to

customers’ responsiveness and continuous improvement toward the goal of quickly

developing innovative products that have the best combination of exceptional

quality, fast and on time delivery, low prices and cost.

2

Research by Ching (2004) suggests that the manufacturing industry in

Malaysia is replete with dynamic challenges. The competition is no longer limited to

other manufacturers within the same country, but open to global competition

including neighbouring Asean countries and China, many whom are able to produce

similar products at more competitive costs. Lee (2001) says that the regime

gravitated from (Malaysia) manufacturing licensing toward a more liberalized

investment environment. Hence, sustaining competitiveness in Malaysia’s economy

is vital (Mustapha, 2001). According to Victor (2001), now Malaysia stands at a

crossroad, facing challenges from both and domestic front. Besides that, Fong

(2002) also mentions that Malaysia must get ready to face the new challenges of

globalization and liberalization. According to him again, the Eight Malaysia Plan

has embarked on a new phase in industrial development with overriding objective of

strengthening the resilience and growth of the manufacturing sector.

Krajewski and Ritztman (2002) point out that manufacturing company need

to develop the competitive priorities, which are the operating advantages that the

firm’s processes must possess to outperform its competitors. They suggest that there

are eight possible competitive priorities for processes which fall into four main

groups (see figure 1.1).

Cooper (1989) also claims that productions and inventory management are

the most critical factor to be improved to achieve the higher effectiveness and

efficiency of the manufacturing processes.

3

According to Agarwal (1995), with the world of economy developing fast and

productivity norms being the focal point in the industries, the role of management to

use the resources effectively becomes more and more crucial. This is because

traditionally materials were thought of as a cheap, readily available and plentiful.

But with the changing concept the realization of cost effectiveness of products in

global market and their proper management becomes an important feature. In

addition by Agarwal, he also stated that materials management has tremendous

influences on the ultimate cost of a product because it handles the total flow if

materials in an organization. This statement is strongly supported by Arnold (1991),

by stating that proper material management can reduce costs by being sure that the

right materials are in the right place at the right time and the resources of the

company are properly used.

Cost

► Low-cost operations

Quality

► High-performance design

► Consistent Quality

Competitive

Priorities

Flexibility

► Customization

► Volume flexibility

Time

► Fast delivery on

► On-time delivery

► Development speed

Figure 1.1: Competitive Priorities (Krajewski & Ritzman, 2003)

4

Humphreys et al., (2004), observe that, many companies have come to

recognize the crucial role that purchasing and materials management activities play

in determining overall corporate performance. Hence, Groover (2001) states that all

the purchased raw materials and parts must be ordered from suppliers and all of these

items must be planned to ensure its accessibility when needed. A study by Sum et

al., (1995) found that in responds to regional and international competition, many

manufacturing companies have adopted Material Requirements Planning (MRP)

systems to improve their manufacturing operations.

1.2 Materials Requirements Planning (MRP) Practices

According to Starr (1989), MRP is an inventory management information

system. It uses forecasts of uneven, sporadic, lumpy demand as inputs to the

planning process for inventory levels. It is constructed with a principal goal which

is to reduce stock levels with consequent savings in capital, resources, and space

(Frenk and Kleijn 1998). Frenk and Kleijin also claim that the MRP was designed as

an inventory control system for manufacturing industries.

As an inventory control system, Groover (2001) added that the details MRP

schedule identifies the quantities of each raw materials and component item. It also

indicates when each item must be ordered and delivered to meet the master schedule

for final product. Lopez (2004) agrees with Groover by stating that the main function

of MRP is to guarantee material availability, that is, it is used to procure or produce

the requirement quantities on time both for internal purposes and for sales and

distribution.

5

Jensen (2004) stated that, with given information describing the production

requirements of the several finished goods of the system, the structure of the

production system, the current inventories for each operation and the lot sizing

procedure for each operation, MRP determines a schedule for the operations and raw

material purchases.

Plossl (1994) found that MRP is a highly effective tool of manufacturing

inventory management with the following benefits;

i. Inventory investment can be held minimum.

ii. Planning is change –sensitive and reactive.

iii. It provides future data on an item –by-item basis.

iv. Inventory control is proactive, not reactive.

v. Order quantities are related to requirements.

vi. It focuses on timing of requirements order actions.

With all possible benefits mentioned above from the MRP system, it is

undeniable that Bott and Ritzman (1983), claims that the MRP systems have been

widely applied in industry to better manage multi-product, multistage production

environments. Krajewski and Ritztman (2002) also point out that MRP systems have

proven to be beneficial to many companies.

Stevenson (1990) points out that there are three major sources of information

in a MRP system. They are the master schedule, the bill-of–materials, and the

inventory records (See figure 1.2). He also states that all these information is known

as inputs to MRP system. Krajewski and Ritztman (2002), using the three

6

information (MPS, BOM and inventory records), the MRP system identifies actions

that operation must take to stay on schedule, such as releasing new production

orders, adjusting order quantities, and expediting late orders.

Arnold (1991) suggests that the master production schedule (MPS) is a

statement of which end items are to be produced, the quantity of each, and the dates

they are to be completed. It drives the MRP system by providing the initial input as

to what components are required so the MRP system can produce orders for

manufactured and purchased parts. Groover (2001) also claims that the MPS lists the

types of product to be manufactured and the quantity to be produced and the time

that the product needs to be completed for delivery. According to Groover (2001), a

manufacturing firm generally works toward monthly delivery schedule.

Figure 1.2: Structure of an MRP system. (Groover, 2001)

Inventory

Record File Bill of

Materials

Master Production

Schedule

Material

Requirements

Planning

Planned order

releases form

1. Purchasing

2. Manufacturing

and other

output

Capacity

Planning

7

Stevenson (1990) suggests that the bill of materials (BOM) contains a listing

of all the assemblies, sub-assemblies, parts, and raw materials that are needed to

produce one unit of a finished product. Thus, each finish product has its own BOM.

Groover (2001) points out that the BOM file is used to compute the raw material and

component requirements for end product listed in the MPS. It provides information

on the product structure by listing the component parts and subassemblies that make

up each product.

Stevenson (1990) points out that inventory records file is used store

information on the status of each item by time periods. Arnold (1991) believes that

inventory is the major input to the MRP system. In his view, when a calculation is

made to find out how many (material) are needed, the quantities on hand must be

taken into account. Krajewski and Ritztman (2002) also say that the purpose of the

inventory records is to keep track of inventory level and component replenishment

needs.

Arnold (1991) claims that there are two kinds of information needed in the

inventory records. The first is known as planning factors, which includes

information such as order quantities, lead times, safety stock, and scrap. All of these

factors do not change often but it is needed in the planning for on time delivery

purpose. The second kind of information needed is on the status of each item. The

MRP system needs to know how much (item) is on hand, is allocated, and is

available for future demand. According to Arnold, this type of information is

dynamic and changes with every transaction that takes place.

material requirements planning (mrp) practices in melaka …

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