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 Material Requirements Planning (MRP) Practices 16
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 Material Requirements Planning (MRP) Practices 51
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
5.1.1 The applications of MRP system in industries 73
5.1.2 Failure factors of MRP practices 74
5.1.3 Methods used to cope with MRP failures 75
5.2 Recommendations 76
5.2.1 The applications of MRP system in industries 76
5.2.2 Failure factors of MRP practices 78
5.2.3 Methods used to cope with MRP failures 80
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.