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Computerised materials requirement planning in manufacturing companies in Malaysia
73
International Journal of Production Economics, 25 ( 1991 ) 73-79 Elsevier
Computerised materials requirement planning in manufacturing companies in Malaysia Aziz A. Hamid, Arawati Agus and Mohd. Ezani Mat Hassan Department of Management, Faculty of Business Management, UniversitiKebangsaan Malaysia (Received July 3, 1991 ; accepted in revised form August 6, 1991 )
Abstract This paper reports results of a sample survey on usage ofcomputerised Materials Requirement Planning ( M R P ) system in Malaysian manufacturing companies. Although the system has been widely used in more advance countries, the degree of usage among Malaysian manufacturers is minimal. The benefits derived as reported by the users in Malaysia are similar to those indicated by the users in other countries. Among the non-users, it is found that their operating activities are suitable for the implementation of computerised MRP system and significant benefits can be derived from it, provided the financial and know-how limitations can be overcome.
Introduction
Materials Requirement Planning
Each finished good is an assembled product of various parts, components and raw materials. Since each component requires time to be completed, a thorough planning and control is needed to ensure the quantity and timing of raw materials and components needed, so that the final products are produced as required by the master schedule. The determination of quantity and timing of required materials become complicated if the end products are heterogeneous and voluminous. The situation will be more complicated if there is a supply failure at any manufacturing level caused by machine-failure or worker-problem. Since the demand for components and raw materials is dependent, failure to supply them on time may lead to failure to produce finished products on time. To overcome this problem, a system of materials planning and control known as Materials Requirement Planning system was created. Computerised M R P system was first introduced in the late 1960's and since then it has been widely used especially among the manufacturing companies dealing with dependent demands.
Several studies have been conducted on M R P as an approach towards effective manufacturing scheduling [1-14]. According to Carlson and Yano [6], when the demand between items are dependent, the relationship between them should be constant and predetermined. The usage of M R P is very effective in these situations. M R P produces a precise scheduling system, an efficient materials control system and a well-revised system should changes occur. Inventory can be maintained at a minimum level and the required materials can be supplied whenever needed. Although M R P is a good manufacturing planning method, several studies have revealed the difficulties and problems arising from implementing MRP. Lee and Adam [12] analyzed M R P system when errors occurred in forecasting the demand of end products. Billington et al. [ 15 ] conducted a series of studies on problems of manufacturing scheduling at various levels with limited capacity. They concentrated on problems arising from the failure of M R P system. Blackburn et al. [ 3 ] explored into the effectiveness of various strategies to overcome the problems of instability of demand or "nervousness"
0925-5273/91/$03.50 © 1991 Elsevier Science Publishers B.V. All rights reserved.
74 that existed in MRP. Carlson and Yano [6] explored problems related to the cost-effectiveness of safety stock level of each component in the product structure under stochastic demand when emergence and expedition setup is allowed. Kropp and Carlson [9] focused on emergency and cost relation. According to White [ 14 ], several MRP systems failed or did not achieve the required results due to several factors namely, ( 1 ) lack of upper management support, (2) lack of user-training, (3) inaccurate record keeping, (4) poor management of master production schedule, ( 5 ) very sophisticated system design and (6) other organisation problems. Orlicky [ 16 ], Adam and Ebert [ 17 ] often discussed the advantages of MRP systems. According to them, the effectiveness of MRP depends on the number of levels in the bill of materials and manufacturing lot sizes. However, the most important factor to the success of MRP system is a good planning or demand forecasting. According to Lee and Adam [ 12 ], a good forecasting is important for manufacturing effectiveness, equipment usage, processes and manufacturing planning. Inaccurate forecasting will cause problems in proper implementation of the MRP system and will lead to inconsistency in manufacturing. Several studies have been carried out to explore the effectiveness of using MRP among manufacturing companies. Studies by La Farge [ 11 ] confirmed the findings found by Anderson [ 1 ], but in a different geografical area, i.e., South Carolina, United States of America. His conclusion conformed with the findings of Anderson, stating that most companies using MRP, had been found to be successful. Landvater [ 18 ] reviewed 1,800 companies and found that 60% of them used MRP/MRPII. Advantages reported by the companies concerned are: (1) reduction in inventory, (2) increase in consumer service, (3) increase in productivity and (4) reduction in raw material costs. Based on the data concerning usage cost, Landvater found that the implementation of M R P / M R P I I gave positive returns if measured according to the investment criteria for any company. Similar findings are found by Duchess, Schaninger and Hobbs [7 ].
Research objective The objective of this research is to survey the status of usage of MRP among manufacturing companies in Malaysia and its influence on performance and efficiency of manufacturing. Specifically, the objectives are as follows: ( 1 ) To identify the background of the companies using MRP in Malaysia. (2) To identify the level of MRP usage in the manufacturing companies and the factors which will make the utilization of MRP more successful. (3) To identify problems resulting from the implementation of MRP.
Research methodology The respondents in this research consist of manufacturing companies which are listed in the Federation of Malaysian Manufacturers (FMM) directory. 420 companies were selected randomly for the survey. An introductory letter together with the questionnaire was sent through the mail to the managers. They were later contacted by research assistants who were students of Faculty of Business Management to provide information on how to complete the questionnaire. Seventy-two companies were willing to cooperate in this research. Table 1 to 5 contain information regarding respondents' background. TABLE 1 Location of the companies Frequency Percentage Sg. Petani/Kulim 2 Butterworth/Perai/Pulau Pinang 5 Ipoh / Menggelembu/Pdg. Rengas 4 Kuala Lumpur/Petaling Jaya 21 Shah Alam/Kelang/Pelabuhan 11 Kelang Kuala Langat/Telok Panglima 4 Garang Cheras/Bangi 3 Seremban/Senawang 2 Tanjung Kling/Air Keroh 3 Johor Bharu/Larkin/Pasir 16 Gudang/Tampoi/Masai/Tangkak 1 Kuantan
72
2.78 6.94 5.55 29.17 15.28 5.55 4.17 2.78 4.17 22.22 1.39 100.00
75 TABLE 2 Year of company establishment Frequency Before 1960 1960-1969 1970-1979 1980-1989
Percentage
5 16 28 18
7.46 23.88 41.79 26.87
67
100.00
Research findings
(i) Companies using MRP The percentage of companies using computerized M R P is small (22.7%) although the system has long been implemented. The average usage duration among the companies is 3.5 years. The most common versions used are M R P and M R P II. Most of the companies use their own software package (78.6%), while 21.4% secured consultants help in developing the software. Computerized M R P systems involve a high initial investment cost as well as maintenance and training costs. This study has identified several costs related to computerized M R P (Table 6). Average consultation cost for M R P is M$80,043. Average cost for M R P systems is M$681,800 while the average cost for maintenance and training is $37,867. However, the total costs for the whole MRP system is less than one million ringgit. The research by Schroeder et al. [13] found that the average cost for the whole system including maintenance, software, equipments and training amounted to US$618,000 with the standard deviation of US $1,137,000.
On the average seven employees are involved in MRP. The average number of end items in the master production schedule is 745 units. The average number of components in the M R P system is 724 units and the level in the Bill of Materials (BOM) is 6 (Table 7). Most of the companies which installed the M R P system signed contracts with suppliers (62.5%) (Table 8). When orders or transactions take place, M R P needs to be updated. 75% of the respondents use regenerating updating method. This method updates the production plan each time a change is posted and exploded through the system. 80% of the respondents practised cycle counting while only 43% used pegging procedure. Cycle counting is a procedure to ensure that on-hand physical inventory is equal to the quantity shown in the M R P record. Using cycle counting, each component is monitored and counted, including reduction should there be a defective unit in each level of production. Pegging is a procedure to identify which component is affected when there are changes in the master schedule or a delay in manufacturing of certain components. Pegging procedure inspects all records to identify changes at the lower level. The production capabilities of the respondents have improved after using MRP. In this research, most companies experienced a decrease in inventory cost ( - 2 0 . 2 7 % ) , lead time ( - 2 9 . 4 0 % ) , modification of product due to shortage of materials ( - 33.75%) and number of materials expediters ( - 1 6 . 5 0 % ) . On the other hand, there was an increase in percentage of inventory turnover (18.63%) and ability to fulfill promises (23.11%) (Table 9).
TABLE 3 Ownership of companies, n = 66 Ownership percentage Foreign ownership
Less than 30% 30%-50% More than 50%
Domestic ownership (non-bumi)
Domestic ownership (bumiputra
No
%
No
%
No
%
30 14 22
45.45 21.22 33.33
31 9 27
46.97 13.64 39.39
42 ll 13
63.64 16.67 19.69
Percentage of foreign ownership = 37.76%
Percentage of non-bumi ownership = 40.06%
Percentage ofbumiputra ownership = 22.18%
76 TABLE 4 Classification of workers in the companies, n = 63 Number of workers
Indirect workers
Direct workers Skilled
Semi skilled
Unskilled
M
F
50 9 1 1 1 15
M
F
M
F
M
F
Less than 30 30- 59 people 60- 89 people 90-119 people 120 and more
40 10 3 3 7
54 1 1 1 6
49 9 0
54 5 0
42 I0 2
43 8 2
1
0
2
2
4
4
7
8
40 11 3 3 5
Average number of workers in each category (rounded to the nearest one)
57
81
32
40
43
63
37
TABLE 5
TABLE 7
Paid-up capital, n = 63
MRP systems used by companies
Paid-up capital
Number
Percentage
Less than 1 million 1- 5 million 6-10 million 11-15 million 16-20 million 21-25 million 26 million or more
16 17 14 1 0 7 8
25.40 26.98 22.22 1.59 0.00 11.11 12.70
Average costs related to computerised MRP systems Mean
Total
( 1 ) Duration of MRP system (2) Number of workers involved in MRP (3) Number of end-items in the master production schedule (4) Number of components in MRP system ( 5 ) Number of levels in product bill of materials
3.56 years 6.80 people 744.55 unit "1,546 724.08 unit 6.00 *6.2
*Study by Schroeder et al. [ 13 ].
TABLE 6
( 1 ) Consulting costs (2) Systems costs (3) Training costs (4) Maintenance costs
Mean
80,043 681,800 31,200 6,667
Standard deviation 130,074 1,217,192 25,782 5,686
M$799,710
In order to gauge the opinion of managers on their experience with MRP, a list of ten five-point Likert-type questions, 5 being the most beneficial and 1 being the least beneficial was administered to the respondents. The top three most beneficial were "reduce inventory holding costs", "better inventory planning and scheduling" and "reduce inventory level without reducing customer service". Other advantages include "increase customer service and satisfaction", "en-
TABLE8 Information on MRP utilization Yes ( I ) Is there a contract with the supplier? (2) Does your company utilize regenerating updating method? (3) Does your company utilize pegging procedures? (4) Does your company practice cycle counting?
62.5%
75% (*70%) 43% (*53%) 80% (*61%)
*Study by Schroeder et al. [ 13 ].
hance ability to meet promises to customers", "faster response to changes in markets and shifts", "reduce the number of inventory expediters", "increase inventory turnover" and "reduce lead time" (Table 10). The companies also experienced problems related to the implementation of M R P system. A
77 TABLE 9
TABLE 11
Performance after using MRP
Problems of MRP system
( 1 ) Percentage of change in inventory cost (2) Percentage of change in lead time (3) Percentage of change in inventory turnover (4) Percentage of change in ability to fulfill promises (5) Percentage of change in modification of product due to shortage of materials (6) Percentage of change in the number of materials expediters
% of change
Standard deviation
Problems
Average Standard score deviation
-20.27
22.80
3.58
0.79
- 29.40
29.41
3.69
0.95
18.63
43.80
3.58
1.31
23.11
40.54
( 1 ) Lack of MRP communication in company (2) Lack ofcimpany expertise on MRP (3) Poor support form personnel in marketing and production (4) Hardware and software problems (5) High costs of adaptation
2.92 2.42
1.08 0.52
-33.75
28.10
- 16.50
13.92
TABLE 12 Characteristics of manufacturing processes Yes
TABLE 10 Benefits of MRP system Benefits
Average Standard score deviation
( 1 ) Increase customer service and satisfaction (2) Reduce inventory holding cost ( 3 ) Better inventory planning and scheduling (4) Enhance ability to meet promises to customers ( 5 ) Faster response to changes in markets and shifts (6) Reduce the number of inventory expediters ( 7 ) Reduce inventory level without reducing customer service ( 8 ) Higher inventory turnover (9) Reduce product modification
3.71
1.14
4.21 4.38
0.58 0.50
3.71
0.73
3.73
0.80
3.57
1.09
4.07
0.46
3.60 2.64
0.91 0.84
( 1 ) Do you prepare Master Production Schedule (MPS)? (2) Do you prepare product structure for fabrication/assembly? (3) Do you prepare bill of materials for fabrication/ assembly? (4) Do you have information on lead times for materials/components? (5) Do you keep proper record on inventories of materials/components?
75.5% 60.4% 67.4% 84.0% 96.2%
(ii) Companies not using M R P
list of five-point Likert-type questions was administered, with 5 being the most problematic and 1 being the least problematic. The three most problematic were "lack of M R P communication in company", "lack of company expertise on MRP", "poor support from personnel in marketing and production". Other problems stated were "hardware and software" and "high costs of adaptation" (Table 11 ).
Among the companies not using MRP, 67.2% of respondents were quite responsive towards its application. These companies have personnel who are involved in planning and managing materials and components, averaging to about 4 persons per company. Although these companies do not practice M R P systems, the study found that the activities carried out in managing their materials can be organized under a computerized M R P system. These activities are listed in Table 12. As mentioned by Blackstone and Cox [4], to implement MRP, a firm needs ( 1 ) a proper list of materials (BOM), (2) a proper inventory record, (3) a stable production planning, (4) a computer and (5) an M R P software package. In this study 96.2% of the companies kept proper records of inventories and 84% kept track on the lead time of the raw materials. Most of the corn-
78 TABLE 13 Production problems Yes
( 1 ) Have you ever experienced interruptions in production due to insufficient materials/ components? (2) Have you ever experienced delay in meeting customer demand?
66.7%
75.4%
panies prepared a master production schedule (75.5%), a material list for assembly (67.4%) and product structure for production and assembly (60.4%). However, among reasons given by these companies for not using MRP were: ( 1 ) not necessary (36.8%), (2) lack of experienced personnel on M R P (21.1%), (3) financial constraints (18.4%), and (4) lack of knowledge on how to use (7.9%). These companies were probably unaware of the benefits of M R P systems in operation. Table 13 shows that production interruptions among the non-users were due to (i) insufficient materials or components (66.7%), and (ii) delay in meeting customer demand (75.4%). Due to the increasing production complexity, many manufacturers are planning to use M R P system. This research found that 56.3% of these companies intended to use M R P system in the future. Discussion and conclusions This research explores the usage level of computerised M R P in manufacturing companies in Malaysia. Although the technology has long been introduced and practised in advanced countries, the level of usage among manufacturing companies in Malaysia is still low. The benefits experienced from using the computerised M R P system appear to be similar to benefits found by studies in the United States. Among the benefits brought about were a decrease in inventory cost, a decrease in the number of materials expediters, an increase in inventory turnover and an increase in the capacity to meet the consumer demand. On the other hand, problems faced in using this system were mainly personnel problems, such as lack of communication between personnel in the
company concerning M R P system, lack of expertise and lack of cooperation from employees. Software and hardware problems, as well as systems cost were not the major problems. This study also obtains information from nonusers for the purpose of identifying whether their operations were suitable for M R P application. Indeed they were. For example, they prepare a master production schedule, keep proper records on inventories of materials or components, keep information on lead times for materials and components and prepare product structure for fabrication and assembly. Data processing technology has reached a very high level of sophistication and has helped users to be more efficient and PrOductive. In operations, M R P acts as an information technology software which has proven beneficial to the Malaysian manufactures. However, the percentage of non-users is still high due to lack of know-how, experience and money. It is hoped that the rapid development in information technology will not be ignored, especially in the area of operation management. A campaign to promote awareness concerning the existence of a technology which can increase the productivity should be carried out by relevant parties. Acknowledgement This research was funded by Universiti Kebangsaan Malaysia, Research Project No. RD88027. References 1 2
3
4
5
Anderson, J.C. and Schroeder, R.G.,1984. Getting results from your MRP system. Business Horizons, 27 (3). Billington, P.J. et al., 1983. Mathematical programming approaches to capacity-constrained MRP systems: Review formulation and problem reduction. Manag. Sci., 29 (10): 1126-1139. Blackburn, D.J., Kropp, H.D. and Millen, A.R., 1986. A comparison of strategies to dampen nervousness in MRP system. Manag. Sci., 30(4). Blackstone, Jr. J.H. and Cox, J.F., 1985. MRP design and implementation issues for small manufacturers. Prod. Invent. Manage., 26 (3). Bobko, P.B. and Whybark, C.D., 1985. The coefficient of variation as a factor in MRP research. Decision Sci., 16: 420-427.
79 6
,7
8
9
10
11
Carlson, R.C. and Yano, C.A., 1986. Safety stocks in MRP system with emergency setups for components. Manage. Sci., 32(4) 403-412. Duchess, P., Schaninger, C.M. and Hobbs, D.R., 1989. Implementing a manufacturing planning and control information system. California Manage. Rev., 31 (3). Hasting, N.A.J., Marshall, P. and Willis, J.R., 1982. Schedule based MRP: An integrated approach to production scheduling an materials requirements planning. J. Oper. Res. Source Soc. Kropp, H.D. and Carlson, C.R., 1984. A lot sizing algorithm for reducing nervousness in MRP system. Manage. Sci., 30(2). Krajewski, L.J. et al., 1987. Kanban, MRP, and shaping the manufacturing environment. Manage. Sci., 33(1) 39-57. LaFarge, R.L. and Starr, V.L., 1986. MRP practices in an random sample of manufacturing firms. Prod. Invent. Manage., 27(3).
12
13
14
15 16 17
18
Lee, T.S. and Adam, E.E., 1986. Forecasting error evaluation in materials requirements planning (MRP) production-inventory systems. Manage. Sci., 32 ( 9 ): 11861203. Schroeder, R.G., Anderson, J.C., Tupy and White R.W., 1981. A study of MRP benefits and costs. J. Oper. Manage., 2 ( 1 ): 1-9. White, R.W., 1986. Is it time for a pysical exam of your materials requirements planning system? Prod. Invent. Manage., 27 (3). Billington, P.J., McClain, J.O. and Thomas, 1982. On MRP lot sizing. Manage Sci., 28(5): 582-586. Orlicky, J.A., 1975. Materials Requirements Planning. McGraw-Hill, New York. Adam, E.E. and Ebert, R.J., 1986. Production and Operations Management: Concepts, Models and Behavior, 3rd edition. Prentice-Hall, Englewood Cliffs, NJ. Landvater, D., 1985. How do you compare to 1,000 other companies? Infosystems, 32 ( 1 ).
International Journal of Production Economics, 25 ( 1991 ) 73-79 Elsevier
Computerised materials requirement planning in manufacturing companies in Malaysia Aziz A. Hamid, Arawati Agus and Mohd. Ezani Mat Hassan Department of Management, Faculty of Business Management, UniversitiKebangsaan Malaysia (Received July 3, 1991 ; accepted in revised form August 6, 1991 )
Abstract This paper reports results of a sample survey on usage ofcomputerised Materials Requirement Planning ( M R P ) system in Malaysian manufacturing companies. Although the system has been widely used in more advance countries, the degree of usage among Malaysian manufacturers is minimal. The benefits derived as reported by the users in Malaysia are similar to those indicated by the users in other countries. Among the non-users, it is found that their operating activities are suitable for the implementation of computerised MRP system and significant benefits can be derived from it, provided the financial and know-how limitations can be overcome.
Introduction
Materials Requirement Planning
Each finished good is an assembled product of various parts, components and raw materials. Since each component requires time to be completed, a thorough planning and control is needed to ensure the quantity and timing of raw materials and components needed, so that the final products are produced as required by the master schedule. The determination of quantity and timing of required materials become complicated if the end products are heterogeneous and voluminous. The situation will be more complicated if there is a supply failure at any manufacturing level caused by machine-failure or worker-problem. Since the demand for components and raw materials is dependent, failure to supply them on time may lead to failure to produce finished products on time. To overcome this problem, a system of materials planning and control known as Materials Requirement Planning system was created. Computerised M R P system was first introduced in the late 1960's and since then it has been widely used especially among the manufacturing companies dealing with dependent demands.
Several studies have been conducted on M R P as an approach towards effective manufacturing scheduling [1-14]. According to Carlson and Yano [6], when the demand between items are dependent, the relationship between them should be constant and predetermined. The usage of M R P is very effective in these situations. M R P produces a precise scheduling system, an efficient materials control system and a well-revised system should changes occur. Inventory can be maintained at a minimum level and the required materials can be supplied whenever needed. Although M R P is a good manufacturing planning method, several studies have revealed the difficulties and problems arising from implementing MRP. Lee and Adam [12] analyzed M R P system when errors occurred in forecasting the demand of end products. Billington et al. [ 15 ] conducted a series of studies on problems of manufacturing scheduling at various levels with limited capacity. They concentrated on problems arising from the failure of M R P system. Blackburn et al. [ 3 ] explored into the effectiveness of various strategies to overcome the problems of instability of demand or "nervousness"
0925-5273/91/$03.50 © 1991 Elsevier Science Publishers B.V. All rights reserved.
74 that existed in MRP. Carlson and Yano [6] explored problems related to the cost-effectiveness of safety stock level of each component in the product structure under stochastic demand when emergence and expedition setup is allowed. Kropp and Carlson [9] focused on emergency and cost relation. According to White [ 14 ], several MRP systems failed or did not achieve the required results due to several factors namely, ( 1 ) lack of upper management support, (2) lack of user-training, (3) inaccurate record keeping, (4) poor management of master production schedule, ( 5 ) very sophisticated system design and (6) other organisation problems. Orlicky [ 16 ], Adam and Ebert [ 17 ] often discussed the advantages of MRP systems. According to them, the effectiveness of MRP depends on the number of levels in the bill of materials and manufacturing lot sizes. However, the most important factor to the success of MRP system is a good planning or demand forecasting. According to Lee and Adam [ 12 ], a good forecasting is important for manufacturing effectiveness, equipment usage, processes and manufacturing planning. Inaccurate forecasting will cause problems in proper implementation of the MRP system and will lead to inconsistency in manufacturing. Several studies have been carried out to explore the effectiveness of using MRP among manufacturing companies. Studies by La Farge [ 11 ] confirmed the findings found by Anderson [ 1 ], but in a different geografical area, i.e., South Carolina, United States of America. His conclusion conformed with the findings of Anderson, stating that most companies using MRP, had been found to be successful. Landvater [ 18 ] reviewed 1,800 companies and found that 60% of them used MRP/MRPII. Advantages reported by the companies concerned are: (1) reduction in inventory, (2) increase in consumer service, (3) increase in productivity and (4) reduction in raw material costs. Based on the data concerning usage cost, Landvater found that the implementation of M R P / M R P I I gave positive returns if measured according to the investment criteria for any company. Similar findings are found by Duchess, Schaninger and Hobbs [7 ].
Research objective The objective of this research is to survey the status of usage of MRP among manufacturing companies in Malaysia and its influence on performance and efficiency of manufacturing. Specifically, the objectives are as follows: ( 1 ) To identify the background of the companies using MRP in Malaysia. (2) To identify the level of MRP usage in the manufacturing companies and the factors which will make the utilization of MRP more successful. (3) To identify problems resulting from the implementation of MRP.
Research methodology The respondents in this research consist of manufacturing companies which are listed in the Federation of Malaysian Manufacturers (FMM) directory. 420 companies were selected randomly for the survey. An introductory letter together with the questionnaire was sent through the mail to the managers. They were later contacted by research assistants who were students of Faculty of Business Management to provide information on how to complete the questionnaire. Seventy-two companies were willing to cooperate in this research. Table 1 to 5 contain information regarding respondents' background. TABLE 1 Location of the companies Frequency Percentage Sg. Petani/Kulim 2 Butterworth/Perai/Pulau Pinang 5 Ipoh / Menggelembu/Pdg. Rengas 4 Kuala Lumpur/Petaling Jaya 21 Shah Alam/Kelang/Pelabuhan 11 Kelang Kuala Langat/Telok Panglima 4 Garang Cheras/Bangi 3 Seremban/Senawang 2 Tanjung Kling/Air Keroh 3 Johor Bharu/Larkin/Pasir 16 Gudang/Tampoi/Masai/Tangkak 1 Kuantan
72
2.78 6.94 5.55 29.17 15.28 5.55 4.17 2.78 4.17 22.22 1.39 100.00
75 TABLE 2 Year of company establishment Frequency Before 1960 1960-1969 1970-1979 1980-1989
Percentage
5 16 28 18
7.46 23.88 41.79 26.87
67
100.00
Research findings
(i) Companies using MRP The percentage of companies using computerized M R P is small (22.7%) although the system has long been implemented. The average usage duration among the companies is 3.5 years. The most common versions used are M R P and M R P II. Most of the companies use their own software package (78.6%), while 21.4% secured consultants help in developing the software. Computerized M R P systems involve a high initial investment cost as well as maintenance and training costs. This study has identified several costs related to computerized M R P (Table 6). Average consultation cost for M R P is M$80,043. Average cost for M R P systems is M$681,800 while the average cost for maintenance and training is $37,867. However, the total costs for the whole MRP system is less than one million ringgit. The research by Schroeder et al. [13] found that the average cost for the whole system including maintenance, software, equipments and training amounted to US$618,000 with the standard deviation of US $1,137,000.
On the average seven employees are involved in MRP. The average number of end items in the master production schedule is 745 units. The average number of components in the M R P system is 724 units and the level in the Bill of Materials (BOM) is 6 (Table 7). Most of the companies which installed the M R P system signed contracts with suppliers (62.5%) (Table 8). When orders or transactions take place, M R P needs to be updated. 75% of the respondents use regenerating updating method. This method updates the production plan each time a change is posted and exploded through the system. 80% of the respondents practised cycle counting while only 43% used pegging procedure. Cycle counting is a procedure to ensure that on-hand physical inventory is equal to the quantity shown in the M R P record. Using cycle counting, each component is monitored and counted, including reduction should there be a defective unit in each level of production. Pegging is a procedure to identify which component is affected when there are changes in the master schedule or a delay in manufacturing of certain components. Pegging procedure inspects all records to identify changes at the lower level. The production capabilities of the respondents have improved after using MRP. In this research, most companies experienced a decrease in inventory cost ( - 2 0 . 2 7 % ) , lead time ( - 2 9 . 4 0 % ) , modification of product due to shortage of materials ( - 33.75%) and number of materials expediters ( - 1 6 . 5 0 % ) . On the other hand, there was an increase in percentage of inventory turnover (18.63%) and ability to fulfill promises (23.11%) (Table 9).
TABLE 3 Ownership of companies, n = 66 Ownership percentage Foreign ownership
Less than 30% 30%-50% More than 50%
Domestic ownership (non-bumi)
Domestic ownership (bumiputra
No
%
No
%
No
%
30 14 22
45.45 21.22 33.33
31 9 27
46.97 13.64 39.39
42 ll 13
63.64 16.67 19.69
Percentage of foreign ownership = 37.76%
Percentage of non-bumi ownership = 40.06%
Percentage ofbumiputra ownership = 22.18%
76 TABLE 4 Classification of workers in the companies, n = 63 Number of workers
Indirect workers
Direct workers Skilled
Semi skilled
Unskilled
M
F
50 9 1 1 1 15
M
F
M
F
M
F
Less than 30 30- 59 people 60- 89 people 90-119 people 120 and more
40 10 3 3 7
54 1 1 1 6
49 9 0
54 5 0
42 I0 2
43 8 2
1
0
2
2
4
4
7
8
40 11 3 3 5
Average number of workers in each category (rounded to the nearest one)
57
81
32
40
43
63
37
TABLE 5
TABLE 7
Paid-up capital, n = 63
MRP systems used by companies
Paid-up capital
Number
Percentage
Less than 1 million 1- 5 million 6-10 million 11-15 million 16-20 million 21-25 million 26 million or more
16 17 14 1 0 7 8
25.40 26.98 22.22 1.59 0.00 11.11 12.70
Average costs related to computerised MRP systems Mean
Total
( 1 ) Duration of MRP system (2) Number of workers involved in MRP (3) Number of end-items in the master production schedule (4) Number of components in MRP system ( 5 ) Number of levels in product bill of materials
3.56 years 6.80 people 744.55 unit "1,546 724.08 unit 6.00 *6.2
*Study by Schroeder et al. [ 13 ].
TABLE 6
( 1 ) Consulting costs (2) Systems costs (3) Training costs (4) Maintenance costs
Mean
80,043 681,800 31,200 6,667
Standard deviation 130,074 1,217,192 25,782 5,686
M$799,710
In order to gauge the opinion of managers on their experience with MRP, a list of ten five-point Likert-type questions, 5 being the most beneficial and 1 being the least beneficial was administered to the respondents. The top three most beneficial were "reduce inventory holding costs", "better inventory planning and scheduling" and "reduce inventory level without reducing customer service". Other advantages include "increase customer service and satisfaction", "en-
TABLE8 Information on MRP utilization Yes ( I ) Is there a contract with the supplier? (2) Does your company utilize regenerating updating method? (3) Does your company utilize pegging procedures? (4) Does your company practice cycle counting?
62.5%
75% (*70%) 43% (*53%) 80% (*61%)
*Study by Schroeder et al. [ 13 ].
hance ability to meet promises to customers", "faster response to changes in markets and shifts", "reduce the number of inventory expediters", "increase inventory turnover" and "reduce lead time" (Table 10). The companies also experienced problems related to the implementation of M R P system. A
77 TABLE 9
TABLE 11
Performance after using MRP
Problems of MRP system
( 1 ) Percentage of change in inventory cost (2) Percentage of change in lead time (3) Percentage of change in inventory turnover (4) Percentage of change in ability to fulfill promises (5) Percentage of change in modification of product due to shortage of materials (6) Percentage of change in the number of materials expediters
% of change
Standard deviation
Problems
Average Standard score deviation
-20.27
22.80
3.58
0.79
- 29.40
29.41
3.69
0.95
18.63
43.80
3.58
1.31
23.11
40.54
( 1 ) Lack of MRP communication in company (2) Lack ofcimpany expertise on MRP (3) Poor support form personnel in marketing and production (4) Hardware and software problems (5) High costs of adaptation
2.92 2.42
1.08 0.52
-33.75
28.10
- 16.50
13.92
TABLE 12 Characteristics of manufacturing processes Yes
TABLE 10 Benefits of MRP system Benefits
Average Standard score deviation
( 1 ) Increase customer service and satisfaction (2) Reduce inventory holding cost ( 3 ) Better inventory planning and scheduling (4) Enhance ability to meet promises to customers ( 5 ) Faster response to changes in markets and shifts (6) Reduce the number of inventory expediters ( 7 ) Reduce inventory level without reducing customer service ( 8 ) Higher inventory turnover (9) Reduce product modification
3.71
1.14
4.21 4.38
0.58 0.50
3.71
0.73
3.73
0.80
3.57
1.09
4.07
0.46
3.60 2.64
0.91 0.84
( 1 ) Do you prepare Master Production Schedule (MPS)? (2) Do you prepare product structure for fabrication/assembly? (3) Do you prepare bill of materials for fabrication/ assembly? (4) Do you have information on lead times for materials/components? (5) Do you keep proper record on inventories of materials/components?
75.5% 60.4% 67.4% 84.0% 96.2%
(ii) Companies not using M R P
list of five-point Likert-type questions was administered, with 5 being the most problematic and 1 being the least problematic. The three most problematic were "lack of M R P communication in company", "lack of company expertise on MRP", "poor support from personnel in marketing and production". Other problems stated were "hardware and software" and "high costs of adaptation" (Table 11 ).
Among the companies not using MRP, 67.2% of respondents were quite responsive towards its application. These companies have personnel who are involved in planning and managing materials and components, averaging to about 4 persons per company. Although these companies do not practice M R P systems, the study found that the activities carried out in managing their materials can be organized under a computerized M R P system. These activities are listed in Table 12. As mentioned by Blackstone and Cox [4], to implement MRP, a firm needs ( 1 ) a proper list of materials (BOM), (2) a proper inventory record, (3) a stable production planning, (4) a computer and (5) an M R P software package. In this study 96.2% of the companies kept proper records of inventories and 84% kept track on the lead time of the raw materials. Most of the corn-
78 TABLE 13 Production problems Yes
( 1 ) Have you ever experienced interruptions in production due to insufficient materials/ components? (2) Have you ever experienced delay in meeting customer demand?
66.7%
75.4%
panies prepared a master production schedule (75.5%), a material list for assembly (67.4%) and product structure for production and assembly (60.4%). However, among reasons given by these companies for not using MRP were: ( 1 ) not necessary (36.8%), (2) lack of experienced personnel on M R P (21.1%), (3) financial constraints (18.4%), and (4) lack of knowledge on how to use (7.9%). These companies were probably unaware of the benefits of M R P systems in operation. Table 13 shows that production interruptions among the non-users were due to (i) insufficient materials or components (66.7%), and (ii) delay in meeting customer demand (75.4%). Due to the increasing production complexity, many manufacturers are planning to use M R P system. This research found that 56.3% of these companies intended to use M R P system in the future. Discussion and conclusions This research explores the usage level of computerised M R P in manufacturing companies in Malaysia. Although the technology has long been introduced and practised in advanced countries, the level of usage among manufacturing companies in Malaysia is still low. The benefits experienced from using the computerised M R P system appear to be similar to benefits found by studies in the United States. Among the benefits brought about were a decrease in inventory cost, a decrease in the number of materials expediters, an increase in inventory turnover and an increase in the capacity to meet the consumer demand. On the other hand, problems faced in using this system were mainly personnel problems, such as lack of communication between personnel in the
company concerning M R P system, lack of expertise and lack of cooperation from employees. Software and hardware problems, as well as systems cost were not the major problems. This study also obtains information from nonusers for the purpose of identifying whether their operations were suitable for M R P application. Indeed they were. For example, they prepare a master production schedule, keep proper records on inventories of materials or components, keep information on lead times for materials and components and prepare product structure for fabrication and assembly. Data processing technology has reached a very high level of sophistication and has helped users to be more efficient and PrOductive. In operations, M R P acts as an information technology software which has proven beneficial to the Malaysian manufactures. However, the percentage of non-users is still high due to lack of know-how, experience and money. It is hoped that the rapid development in information technology will not be ignored, especially in the area of operation management. A campaign to promote awareness concerning the existence of a technology which can increase the productivity should be carried out by relevant parties. Acknowledgement This research was funded by Universiti Kebangsaan Malaysia, Research Project No. RD88027. References 1 2
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5
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