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System Business Manufacturing
1. Introduction: For around 25 to 30 years accounting systems and business planning have been around in manufacturing. As accounting practices became more complex they were applied first to the function of accounting to handle the massive amount of computations and data collection required. Computers were then being used during the 1970s on a broad scale to applications such as order processing, inventory control, production planning and purchasing. To model the business processes of that time and as a result create a higher effective, efficient operation, these systems were designed. Today's business systems, surprisingly enough in terms of how they operate are almost very much like those original systems. To 'professionaloze' the function of production and inventory control the American Production and Inventory Control Society (APICS) began its efforts in the 1970s. They did this by educating and certifying the practitioners of this rather obscure set of activities. In order to accomplish a widespread presence throughout industry, APICS established local chapters and created a standard curriculum of courses, segmented into specific areas of study, focusing on distinct aspects of the planning/scheduling process. The computer industry recognized the strength of APICS, realizing that APICS members were often in a position to influence decisions on computer purchases and quickly developed allegiances to the group. By the early 1980s this allegiance had developed a standard model of an integrated business system for manufacturing called material requirements planning (MRP). This model completely dominated the manufacturing industry for nearly 15 years. It led to a multi-billion dollar software and services industry. More than 60,000 MRP systems were implemented worldwide and over 4,000,000 manufacturing employees were educated on the theory and practice of MRP (AMR, 1995).
MRP was modeled after a typical 1978 manufacturing organization and designed to operate on an IBM 360 mainframe computer and this is the fundamental problem. Since the late 1800s and early 1900s, manufacturing practices in the 1970s held a close resemblance to those in use, division of labour concepts were upgraded and reinforced, when through the contributions of individuals like Samuel Colt, Henry Ford and Alfred Sloan. Published in The Wealth of Nations in 1776, these are the concepts whose origin date back to Adam Smith's theories on the division of labor (Hammer and Champy, 1993). The underlying concepts never truly changed, although MRPII evolved over the next decade to meet changing business wants and to take advantage of higher performance computer systems. Contrast this with the staggering amount of change in the manufacturing industry resulting from global competition during the same period. Manufacturers are in a constant state of change in their areas of production today, who hope to be here tomorrow. Today's market forces demand that manufacturers becom the lowest cost, highest quality, and the most agile producer of mass customized products in their industry (Sameer Kumar and David Mead, 2002).
Planning systems as a result of their heritage today are in many views counterproductive to the process of execution. In many cases planning systems dictate actually the inefficient business practices in order to support the functions of planning and accounting and they no longer model the business processes. The effects of being constrained by the system has made many manufacturers suffer which limits their agility, resulting in inventories filled with huge raw materials and finished goods, creating lead times which lead to false manufacturing and stifling the efforts in becoming more integrated throughout their information system.
Considerable attention has been shown in the last few years over the uncertainty issues that are associated with MRP systems. The most widely used production planning and control systems are in fact MRP systems (Mohan and Ritzman, 1998). Industries use MRP systems widely, even though they may be referred to as MRPII, or ERP systems These information systems are driven by MRP which is used as the basic engine, and as a result systems that are all MRP-based the effects of uncertainty makes them vulnerable. Uncertainty has been focused by a number of studies that is associated with MRP systems and examinations of various issues have been undertaken in these studies. MRP is affected by uncertainty in a number of different ways and this has been shown by recent works which have examined the impact of lead time uncertainty and demand uncertainty (Brennan and Gupta 1993, Ho and Lau 1994). A number of items are affected significantly by uncertainty which has been indicated by these findings, which also includes increase in costs (Ho and Lau, 1994) setting of lead times (Mohan and Ritzman, 1998), the choice of lot-sizing rules (Melnyk and Piper, 1985; Brennan and Gupta, 1993) and practices of shop floor control (Gupta and Brennan, 1995). These studies have however focused on the uncertainty impact, not per se on the methods to provide protection against it (Guide Jr. and Srivastava, 2000).Get help with your essay from our expert essay writers...
It is important to cope with the issue of uncertainty since it lives in an operating environment which is realistic. In order to account for different forms of uncertainty, a number of methods have been proposed. There exists uncertainty in various ways in the system of production. The product and (replacement) parts demand is forecast typically, and uncertainty to a certain degree is the result with respect to both the timing of the quantity demanded, and the quantity demanded in a particular time period. It is obvious that there is uncertainty in the quantity demanded; often, however, uncertainty in timing also exists. Due to problems of quality, shortage of wanted materials, or of required equipments for operations, uncertainty can occur in the form of yield losses for parts and assemblies which are manufactured, which may lead to timing uncertainty. At the supply level i.e. for purchased items, uncertainty exists as another major source, which could again occur in the form of quantity or timing or both.
A range of approaches have been suggested, ranging from carrying safety stock to dealing with uncertainty of quantity, and built-in safety lead times to cope with uncertainty of timing (Whybark and Williams, 1976); to where to locate the safety stock (Chang, 1985; Wacker, 1985); and how much safety stock is appropriate (Wijngaard and Wortmann, 1985). Safety lead time is preferable to safety stocks when demand is known with certainty, as suggested by recent works of Buzacott and Shanthikumar (1994), and when the demand knowledge is imperfect the user will be indifferent.
The review of past research in this area is conducted, work done is evaluated, and gaps are identified in the literature for which address is needed in order to deal fully with the uncertainty issue that are related to MRP systems. The study will also focus on the common buffering forms as stated in the literature review, i.e. safety stocks and safety lead times. Also, the MRP implementation methods and techniques will be discussed and an MRP run using 123mrp.NET software has been carried out by making data assumptions.
What is MRP?
MRP is a routine that compares your demands (order book and/or forecasts) to your current stock and suggests replenishment works orders for the appropriate dates and quantities to cover any shortfalls.
It then checks that you have enough components to build these works orders and suggests purchase orders to cover shortfalls. In doing this it takes account of current stock, outstanding orders, minimum purchase quantity rules etc.
So, in essence, MRP does some maths and then suggests what you should make and when and what you should buy and when.
A company buys an MRP system in order to drive the material requirements. In order to accept new methods of doing business, it is a change of culture for firms and companies. The success of the project will mainly depend on the interest and commitment of the top management of the company.
For any implementation or re-implementation success of MRP, senior maangement must be fully committed to the project. In order to understand what is required education at senior level is needed, and more important, resources should be committed.
An MRP system doesn't work nor yield the benefits expected by magic, and companies work in a similar fashion. They sell their products by getting customer orders, buying materials and assembling the components.
Of the staff and technicians who are assigned to use and install MRP systems, the MRP systems are far ahead of them in general. In fact, people sometimes question whether the tool would work for the normal company since there can be many problems which may arise during the installation. Just loading a few discs and running the system is not a matter of MRP system implementation.
To perform as desired, a company using an MRP system should have rules and methods in place. Part numbers and dates are the two things the MRP system knows. If the system doesn't have any on-hand when there is an order for a component, manufacturing planned order will be produced to build one and have it ready on a certain date. Considered firm orders are the master scheduled parts.
The system calculates component requirements from the bill by looking through the bill of materials. It will generate purchasing planned orders by again reviewing the inventories for the needed components and also the due date for receipt will be specified.
For any MRP system to function correctly there are three requirements which must be perfect. They are:
Inventory quantities must be accurate
Bill of materials must be accurate and
Customer due dates and Master schedule due dates must be realistic
The system will either order excess or not order what is required if the inventory is incorrect. The same scenario will apply even if the bill of materials is not correct. The MRP system will not know to order if the items are missing. Also realistic ship dates is also a factor which has to be accurate.The overall lead time is obtained assuming no material in house if the lead times needed to buy the material, assemble and test the part and package for shipment are added. Purchasing is expediting orders and scrambling, priorities are changed constantly by the shop floor and Quality Control is pressured to test and ship it, if the ship dates are constantly too short.
The Early Road to Material Requirement Planning
Significant contributions were made by many individuals to the development and advancement of material requirement planning and control systems during the 20th century. Ford W. Harris (1913) was one who made the first contribution by applying mathematics to set lot sizes for manufacturing. In the following decades, dozens of researchers have studied the basic Economic Order Quantity (EOQ) model by Harris and number of variations. The Economic Order Quantity analysis, additionally, forms a key component with other variants in the field of operations management involving a discussion on inventory management.
Difficulty to predict and volatility of the world was recognized by Wilson (1934), while the focus by Harris was upon a world of certainty and demand constancy. Breaking the inventory control problem into two separate parts was found useful by an analysis in such an environment that focused upon: (1) amount of inventory determination for purchase or production, and (2) determination of level of inventory and reorder point in order to trigger a replenishment order for purchasing or producing material. However, consideration of the when needed question was not direct in this early period which is inherent in the explosion process of Material Requirement Planning.
A foundation was laid to the inventory management literature by this early work which is frequently referred to as independent demand management. Various ROP (reorder order point) systems like base stock, continuous review, (S, s), periodic review, etc were developed by this early work. Most of this work was manually carried out using pen and paper, a slide rule or a normal tabulating machine which were available during early 1930s and 1940s. Focus of the approach was normally upon stocking decisions at single level, even though multi-echelon material flow on the factory floor were being dealt by many companies.
Fig-1: Early office machinestabulator (left) and reproducing gang punch (right)
[Source: Journal of Operations Management 25 (2007) 346-356]
Fig-2: Plug board control panel
[Source: Journal of Operations Management 25 (2007) 346-356]
The improved computing technology, however, developed and changed the way for many firms regarding material planning that occurred on the factory floor. By 1940, companies such as IBM, NCR and Burroughs produced office machines that could sort, consolidate and summarize the coded data on a punch card. As shown in figure-1, on the left side, this tabulating machine had capability to make addition, subtraction, and summarization of totals and print tabulated reports. As shown in figure-2, a control panel was used which had nearly 5000 wireable plug holes as the primary processor for completion of this task. As shown in figure-1, right side, the reproducing gangpunch machine could be connected to the tab machine, as it was called frequently; summary cards could be punched which held new information for use in subsequent steps.
Material planning systems' basics were being used even during Second World War, but the means was by manually operating a punched card versus computers with RAM (Random Access Memory) and hard disks that are being used today. For example, B-24 bombers of ten various models were produced by Ford Motor Company plant at Willow Run (Michigan), at the time of war. Modular design of 24 prime sub-assemblies was used and fabricated prime components were batch scheduled to increase the production rate, and it rose at 25 planes per day coming off the line of assembly. Production flow was managed on the shop floor by using punched cards and tabulating machines for material planning process, requirements for the prime items were determined by reproducers and sorters from the set of 30,000 components that were needed in the plane. The quantity ordered, due date,
Fig-3: Requirements estimation processcard flow and machines (IBM office machines available in 1949)
[Source: Journal of Operations Management 25 (2007) 346-356]
department, work center, etc., for the order was held in the punched data of the card. As shown in figure-3, a series of steps were being used to process the keypunched order cards, by using bills of materials that were pre-punched. A material plan was built for the horizon of production for the various B-24 models by collating, summarizing, gangpunching and sorting the requirements cards. It was a very slow function and time-consuming, which required various data processing operators to handle hundreds of punched cards for a single update routine. The heart of an MRP system is the general logic, while the approach was labor intensive.
Punch cards usage with machine summarizing and sorting continued into the 1950s. During mid-1950s, Robert W Hall of Zero Inventories (Hall, 1983) fame in the department of production control at Indianapolis at Link Belt Corporation. To control the flow of production of batched orders on the shop floor, the card approach formed the heart of the planning system. When executing a planning run the logic of material requirements was regenerative in scope, because of the nature of data storage being sequential. As a result, the update of MRP was consuming a lot of time and frequently required a whole weekend to complete. Various structural characteristics of early MRP systems were defined by these types of constraints. For example, because of the typical weekly update cycle a time bucket of one week was the norm.
But things changed. The IBM 650 Magnetic Drum was introduced in 1954 and records could be accessed in a non-sequential manner which reduced time of processing. The IBM RAMAC 305 (random access memory accounting machine) disk-based system followed the IBM 650 Magnetic Drum in 1956. Whenever the status changed the manual sort effort of inventory cards was streamlined, and there was the elimination of the maintenance of multiple cards on different parts that filled huge file cabinets covering hectares of floor space. The establishment of COBOL (Common Business Oriented Language) in 1959 was done by using a simple English term-like command structure for programming applications.
With the vast improvements in computing memory, processing speed and programming languages achieved by the early 1960s, time-phased replenishment planning could be done cost-effectively using the computer on the entire bill of material for the hundreds or thousands of items in the product catalogue. Time-phased requirements planning enabled efficient processing not only at the gross requirement or end item level, but also assigned a detailed schedule to the entire nested bill of material structure down to the lowest level. This moved much of the material planning from its traditional base using single level historical data and the manual reorder point method of inventory stocking to a system based upon the multi-level bill of material processing.
The Material Requirement Planning Crusades
During the 1960s, Dr. Joe Orlicky was at J.I.Case and was honoured as was being the father of Material Requirement Planning and hence, time-phased replenishment planning (Orlicky, 1975). The initiation of the first Material Requirement Planning system in 1961 is suggested by the title 'father', but this is not the case. Installations of prototypes were reported earlier. For instance, Paul Bacigalupo, who was a systems engineer at IBM working with American Bosch Armor in Springfield, Massachusetts, in 1959 he employed the IBM RAMAC 305 disk based computer and coordinated a net-change installation for his client (Lilly and Smith, 2001). In order to convert the pagan EOQ/ROP believers, Joe Orlicky who was an evangelist stepped onto the globe of manufacturing.
Joe Orlicky left J.I. Case and moved to IBM in 1962. Educating the senior executives at IBM client sites was his job so that they could benefit from the application of computer technology to manage inventory and control production. During his job as an educator and promoter of the upcoming discipline, he met Oliver Wight who was working in New Britain, Connecticut, in The Stanley Works. In 1965, Oliver Wight joined IBM and stayed there until 1968, when he left the company to work with George Plossl, who had worked with Oliver at The Stanley Works. George and Oliver started operating an education and consulting firm and separated to work individually in 1969. But their relationship led to a major contribution which resulted in a co-authored work, Production and Inventory Control: Principles and Techniques (Plossl and Wight, 1967). This book was considered as a Bible by some practitioners of production and inventory control, industry analysts, consultants, and people who showed interest on the subject. Ideas which were different from those in the book were frequently viewed as variant and may have held back other works to the field (Lilly and Smith, 2001).
Even though Plossl, Orlicky and Oliver had different personalities, they had a common vision of educating the world to the usefulness of Material Requirement Planning. Orlicky was viewed as a 'techie', while Oliver was thought of as 'marketer', and Plossl possessed a 'professional' style exhibiting quality of philosopher. Plossl made his contribution to the field for more than four decades. The ignition of the Material Requirement Planning crusade was helped by these three who formed a part of a select group.
From the Foreword of Plossl's Orlicky's Material Requirements Planning (1995), here is George Plossl's description of the origins of MRP1:
''In 1966, Joe Orlicky, Oliver Wight, and I met in an American Production and Inventory Control Society (APICS) conference. We found that we had all been working on material requirements planning (MRP) programs, Joe at J.I. Case Company and IBM, Oliver and I at The Stanley Works. We continued to meet and compare notes on MRP and other topics. In the early 1970s we organized the APICS MRP Crusade, using the resources of the Society and the knowledge of a few 'Crusaders' to spread the word on MRP among APICS members and others interested. All but a few APICS chapters participated.''
1.3.1 The First Crusade
The Material Requirement Planning crusade was the outcome of a hot debate that took place at the 14th American Production and Inventory Control Society (APICS) conference which was held in St. Louis in October 1971, as indicated by Robertson et al. (2002). The debate started around the benefits of a traditional Re-order Point (ROP) approach for material planning versus the use of Material Requirement Planning. A paper was given by Orlicky at the conference which was titled 'MRP - A hope for the future or a present reality - a case study', in which MRP was referred by him as the 'Cinderella' of inventory planning and control. Jim Burlingame from Twin Disc co-presented him by providing practitioner support to the claiming that Material Requirement Planning was very efficient than the old ROP methods. Many of the ideas were challenged by the attendees.
While the debate occurred during fall 1971, the plan to launch the Material Requirement Planning Crusade had started many months prior to that time. For example, Oliver Wight wrote a letter to Henry Sander, Executive Director, APICS, dated June 29, 1971, proposing them to sponsor the 'MRP Educational Crusade'. During the planning meeting in Boston on 9th September 1971, the key disciples - Joe Orlicky, Romey Everdell, George Plossl, Ernie Theisen, Jim Burlingame, Oliver Wight and Walt Goddard - wrote about the value of Material Requirement Planning by committing their energy and time, and used the APICS organization as the primary delivery mechanism (Clark and Newell, 1993).
Different promotional tools were employed by the 'MRP Crusade'. For example, Orlicky, Plossl and Wight, by producing 11 video films sponsored by IBM, by explaining the philosophy underlying Material Requirement Planning, illustrated its beneficial effects and applications. APICS made this available for use by the members by publicizing the series. To demonstrate the highness and advantages of Material Requirement Planning to the community that practised it, articles were published by APICS's Production and Inventory Management journal, IBM white papers and COPICS (Communications Oriented Production Information and Control System) manuals, also published by IBM, field was codified and various major books were written. Also, Oliver Wight and Walt Goddard delivered seminars and presentations at APICS national and chapter meetings praising the excellence of MRP. Similarly, various presentations were made by individuals like Joe Orlicky and Jim Burlingame at academic conferences. For example, during fall 1976 at American Institute for Decision Sciences (AIDS) national meeting, a master scheduling tutorial was conducted by Romeyn Everdell (Everdell, 1976). AIDS changed its name to Decision Sciences Institute (DSI) in 1986.
Of all the MRP disciples, Wight may have been the best front man. ''Oliver Wight was gregarious and outgoing and was gifted with the flair of a raconteur. Known as ''Red'' by intimates, and simply Ollie by everyone else, Wight was red-haired, good looking, and broad shouldered, and rarely, if ever, did he meet a fellow he couldn't warm with his easy manner and quick smile. Wight commanded a room as did few others, and before an audience of a half-dozen or several thousand, he knew how to capture the interest and generate a sense of shared commonality such that it was always a pleasure to be in his company.'' (Lilly and Smith, 2001) His quick mind was legendary and his college degree in English frequently resulted in humorous pieces. This dynamic, personal and engaging style was very effective as he built his worldwide consulting practice known as Oliver Wight Associates.
Various articles were written and numerous discussions were made about the 'rust belt' industries of America and performance failure in manufacturing by the early 1980s. This gave rise to searches for corrective action from various directions. During this time, liver Wight was considered as leading global expert in the world of Operations Management (Ralston, 1996). The need for Integration of production and planning was endorsed by him and control of resources related with manufacturing such as finance and distribution. The title Manufacturing Resource Planning or MRPII was put forth by Oliver during a meeting at Wight's home that was attended by Jim Burlingame, Walt Goddard and others (Lilly and Smith, 2001). Standardized software applications supported MRPII (Wight, 1984) by integrating various functions, which led to the establishment of the basics of Enterprise Resource Planning (ERP), from which resources could be utilized very effectively by manufacturing firms. Additionally, a methodology was proposed by Oliver Wight for implementation of MRPII - the 'Proven Path' - also a 'Class A-D' checklist that was standardized against which companies pursuing to become 'A-Class' were able to audit their process of MRPII implementation (Robertson et al, 2002). In the past two decades, this checklist has been revised many times and now the 'Oliver Wight ABCD Checklist for Operational Excellence' includes these areas: strategic planning, people/team systems, total quality, continuous improvement, new product development, planning and control. The integrated nature the field has matured to in the 21st Century is reflected by it.
The APICS organization was used by Orlicky, Plossl and Oliver to educate and influence the path the production planning and control methods were implemented in the field of manufacturing. A desire to influence future managers in the coming decades was also present.
1.3.2 The Second Crusade
During the initiation of MRP crusade through APICS, a clear and highly visible focus existed on re-educating both APICS and non-APICS members in firms of manufacturing, also the approaches to material planning and control was planned to be changed the way the academic world described and taught. Future managers and business leaders had to be exposed to the fact that MRP was an ideal approach for control and planning of flow of materials. The necessity of this second crusade was a question and figure-4 lists the textbooks for the field from 1965 to 1975 and the answer to the question is highlighted by this. When the content of these books was reviewed, it indicated that MRP was absent from all prior to 1973. But a report by Plossl and Wight entitled 'Material Requirement Planning by Computer' was an exception which was published by APICS in 1971. Authors of textbooks used the approaches of operations research, modelling, systems analysis, etc. which were common themes and described different procedures for lot sizing
Fig-4: (a) Operations management textbooks, 1965-1975.
(b) Production planning and inventory control textbooks, 1965-1975
[Source: Journal of Operations Management 25 (2007) 346-356]
and reactive inventory systems like reorder point. Thomas Vollmann (pp. 577-582, 1973) authored the first American academic oriented textbook identified by this writer to discuss MRP. Data inputs and information outputs were discussed, the presentation being very descriptive and rudimentary in nature. Also, a book by Colin New in 1973 in Great Britain was published which was titled 'Requirements Planning'.
James Green (1974) was the next American to sight a presentation on Material Requirement Planning. He presented a detailed Bill of Material explosion example in which the primary tool used was matrix algebra (pp. 253-267) and he also discussed the basic system design of Material Requirement Planning. Although he was exquisite, the intermediate part inventory levels requirements estimation and lead times were ignored by his approach.
Fig-5: Academic faculty members' seminar on MRP, February 17-20, 1974
[Source: Journal of Operations Management 25 (2007) 346-356]
During this time (1973 to 1974) Orlicky discussed with Thomas Vollmann. Orlicky was supported by Vollmann to start work with the faculty of academics and educate them in the logical supports of Material Requirement Planning. Vollmann's leadership led to the beginning of the 'second crusade' plan at the 1973 DSI Annual meeting. Small teams of interested academics were invited by Orlicky and later he designated his MRP Mafia to focus seminars on MRP. In 1974 and 1975 IBM sponsored two seminars that were conducted at the IBM Executive Training Center in Poughkeepsie, New York. Figures- 5 and 6 shows the professionals who attended the seminar from North American Institutions, Jay Ross and John Ruhl - the industry professionals, and directors - Joseph Orlicky and James Clark.
Fig-6: Advanced MRP seminar June 29-July 3, 1975
[Source: Journal of Operations Management 25 (2007) 346-356]
Orlicky delivered most of the presentations for the seminars and the faculty tried their best to puzzle him and make him dumb. He was able to counter every single point put forward, and was persistently calm throughout. His desire was that this team of scholars should be followers and disciples of Material Requirement Planning. He took the logical inference of Nicolas Copernicus (1473-1543) who is accepted as the establisher of modern astronomy.
A work by Nicholas Copernicus in 1530 which was entitled De Revolutionibus was completed, which explained that the earth revolves round the sun in its own axis, which was a very brave concept at those times. Ptolemaic theory was the accepted concept by the western world thinkers which meaned that the Universe was bounded in an envelope beyond which nothing existed until Copernicus put his theory. The proposals put forth by Copernicus was opposing to the philosophical and religious rules which people believed during medieval times. Galileo and Giordano Bruno were the scientists from Italy who comprehended Copernicus' concept undoubtedly and were punished by authoritative church investigators.
Orlicky used the same concept parallely with some humor that his dedication to reveal the true benefits and highness of the MRP system against the traditional EOQ/ROP concept was like Copernicus changing the present thoughts about the world about mankind in the 1500s. In figure-6, the name Copernicus can be seen on the T-shirts of all those who attended the seminar. He had the enthusiasm and determination to be the active medium for change. The teaching of inventory management is what he wanted to change and he even conducted research.
The works of Joe Orlicky, George Plossl and Oliver Wight were all rewarded from early to middle 1970s. Perception and conversation gives rise to examination and dispersion in text books and journal publications written by academicians. Berry (1972) and Thurston (1972) who were considered favorites made publications of their ideas that were constructed upon by many others in the approaching years. Elwood Buffa of 1970s was a renowned author whose textbooks were used by the academicians of the United States. He wrote textbooks on various topics to reach the different faculty choices, one of his edition of 1976, 'The Management of Productive Systems' (Buffa, 1976), demonstrated the explosion, netting and off-set procedures for lead-time, and was the first to hold a topic on Material Requirement Planning. Other academicians and writers soon followed similar methods which became the standard for most of today's textbooks.
While Joe Orlicky, George Plossl and Oliver Wight were the thrust for the MRP crusade, other professionals as shown in figures-6 and 7 also contributed in revealing the doctrines of MRP among academicians in late 1970s and 1980s. For example, APICS presented an accumulation of MRP associated cases penned by University doctorates for use in the academic field (Davis, 1977), and figure-7 shows the list. Also, local APICS teams frequently met every month and conducted educational seminars, making use of academicians to present MRP lessons and details of interest. Some of the well-liked places visited were to Indiana, New Jersey, Pennsylvania and many more.
Fig-7: Cases and authors in studies in materials requirements planning: a collection of company case studies
[Source: Journal of Operations Management 25 (2007) 346-356]
Aims and Objectives
AIM - To Implement Material Requirement Planning using 123Mrp.NET Software
Objectives - The objectives of the project are:
Inventory reduction: To Maintain the lowest possible level of inventory
To reduce lead times: To reduce manufacturing and delivery lead times
Realistic delivery commitments: Ensure materials and products are available for production and delivery to customers
Planning: Plan manufacturing activities, delivery schedules and purchasing activities
Increased efficiency: To achieve uninterrupted flow of materials through the production line and to increase the efficiency of the production system
Review of Report Contents
The rest of this report is separated into four chapters. Chapter 2 is a range of national and international literature on Material Requirement Planning. Chapter 3 presents a detailed overview of the techniques used to gather new data for the project, which include case studies. The findings from the analysis of the new data sets are presented in chapter 4. Chapter 5 brings together the results from the literature review and new data. Recommendations are written and actions suggested to substitute the recommendations into effect.
2. Literature Review
The MRP implementation literature can be discussed by categorising into case studies and theoretical modelling studies. Case studies are descriptions of implementation experiences at some companies who had implemented MRP (Brown, 1994). Many of these studies gifted appraisals of successful MRP implementations (D. Sheldon, 1994), while others gave instances of failed implementations and fruitless efforts (C.G. Andrews, 1978). Experimental study on MRP has basically focused on finding factors that alter or donate to all round implementation success (Burns and Turniseed, 1991; Cerveny and Scott, 1989; Duchessi et al, 1988; Wacker and Hills, 1977; White et al. 1982).
One of the first explanations of successful MRP implementation was provided by Bevis (1976) at Tennant Company. He stressed the vitality of dedication during process of implementation. Studies have also found out other major implementation variables; commitment of top management and contribution (J.C. Anderson, 1984); MRP education and training; committed project team; data combination; understanding between individual department inside a company; and unambiguous project goals. Theoretical modelling studies may be sub-divided into modelling of the implementation process using contextual variables and modelling the process of implementation as change processes.
Contextual protean studies paid attention on various individual, organisational and technological proteans which were vital to MRP implementation (E.M. White et al. 1982). Majority of these experimental studies made use of statistical modelling techniques such as regression, discriminant analysis, and chi-square tests to investigate the corresponding of victorious MRP implementation.
Wacker and Hills (1977) pointed out that the acceptance of the MRP system by people and individuals was a major factor for implementation success. They put forward various methods for defeating human resistance such as structured management style, communications, consultation with altered parties, education, piloting and a proper reward process.
White et al. (1982) investigated the difficulties faced during the MRP implementation process. The investigation revealed that accuracy of data, top management commitment, marketing management dedication and training in-house and knowledge were all forecasters of victorious MRP implementation. White et al. (1982) conducted a distinguished analysis to find out factors impacting successful implementation based on United States survey of 422 MRP users. Companies were successful who were high on two factors: an implicit performance measure, and a summarized interval-scaled measure on user fulfilment. Accuracy of data and heights of computerisation were found to be major factors of implementation success.
Schroeder et al. (1981) conducted a regression analysis to associate MRP advantages and various independent variables. The study pointed out that company size, accuracy of data and implementation process altered the heights of MRP advantages achieved.
Duchessi et al (1988) experimentally found out the determining factors of success in implementing MRP systems. The results revealed various variables identified by White et al. as principal to successful MRP implementation. Dedication from top management, marketing department and production department were specifically vital for victorious MRP implementation. Data accuracy after implementation, formal steering committee, lack of unambiguous goals and firm dimension were all found to be considerably associated to successful MRP implementation.
Duchessi et al. (1988) revealed on another US survey to find out the variants of implementation sucess. A rough success score was utilized to assert implementation results. Since data was missing, no mathematical modelling was conducted. Primary statistical examinations showed that the findings resembled to those in (White et al. 1982)
Burns and Turniseed (1991) utilized free chi-square tests to determine variables important to MRP implementation success. The results pointed out that the formation of a project team and accuracy of data were related with thriving MRP implementation. Burns and Turniseed (1991) examined 238 users and identified that higher success was gained when a company is more dedication to change and the technology of product is reasonable. Success was also related with process factors such as utilization of project group and consultant, software application, and the availability of a clear implementation plan. Two dimensions of success were utilized. The first scaled measure associated to the range to which MRP has reached the respondent's anticipation and the other one was Wight's (Wight, 1984) A to D user classification.
Sum et al. (1995) determined determinant variables for particular MRP advantages such as operational efficiency, customer support, and co-operation. Data accuracy, people dedication, company dimensions, level of integration were important determinant factors for MRP implementation success.
Cerveny and Scott (1989) utilized four comprehended scaled measures, two objective measures, and user class to delineate success. Their findings revealed that success was not associated with the type of system but is altered by the size of outside support and education rendered.
Implementation studies have also considered the process of implementation (Bevis, 1976; Blasingame and Weeks, 1981; Cooper and Zmud, 1989, 1990; Cox and Clark, 1984; Hall and Vollmann, 1978; White, 1980). Bevis (1976) presented a case study of the implementation program at Tennant Company. Cooper and Zmud (1989, 1990) and White (1980) suggested that MRP implementation process should be managed as a change process within an organisation. Blasingame and Weeks (1981) proposed a questionnaire instrument to assess an organisation's readiness in implementing MRP. Cox and Clark (1984) and Hall and Vollmann (1978) highlighted pitfalls in implementing and operating an MRP system.
MRP implementation research had also been directed by the change theories of organizations. These researches reasoned that the difficulties on MRP implementation were primarily deportmental, originating from a natural opposition to differ on the part of individuals. Thus, MRP implementation is associated to negotiating a change methodology within the firm. These thoughts stood on Lewin-Schein's (1947-1964) change theory of unfreezing, change and refreezing stages. The main concept of this theory is that in order to study something new, an individual must first unfreeze previous ideas and thoughts and go through a felt need to change. Brown (1994) reasoned that trenchant management of technological shift such as MRP implementation needs dedicated and transforming leadership and wide and spectacular planned sets of rites are essential to support change in people both at psychological and behavioural level (International Journal of Production Economics, Volume 58, Issue 3, 25 January 1999 Chee-Chuong Sum, Ser-Aik Quek and Hoon-Eng Lim, pages 303-318).
Studies dealing with specific MRP benefits are limited (Cerveny and Scott, 1989; Duchessi et al., 1988; Schroeder et al., 1981). Ceweny and Scott (1989) reported turnover increase and lead time reduction benefits but did not provide any mathematical model to relate these benefits to its determinants. Duchessi et al. (1988) grouped benefits into three categories: better manufacturing planning and control, improved manufacturing performance, and improved business/financial performance. These categories were basically derived from Schroeder et al. (1981). No mathematical model was presented because of the large amount of missing data.
Schroeder et al. (1981) presented a comprehensive study of MRP benefits. The five benefits studied were inventory turnover, delivery lead time, delivery promise, split orders, and expediters. Regression models were constructed for each benefit. The independent variables included company characteristics, type of MRP system, type of implementation approach, and starting performance levels prior to implementation. A major finding was that all categories of the independent variables affected performance.
A handful of empirical studies exist on MRP implementation in Singapore. Based on a sample size of 26, Yeo et al. (1988) reported that reduced stock inventory, reduced material waste, and reliable delivery were the major advantages of MRP. Yuen (1990) developed an instrument for measuring MRP effectiveness and tested the instrument on 36 respondents in a mail survey. The study proposed that MRP effectiveness can be measured by the degree of data integrity, level of management commitment, and amount of effort expended on education and training. Sia (1990) conducted a mail survey and collected 33 responses, of which only 21 had implemented MRP. No mathematical models were built in any of the studies because of the small sample sizes and the limited scope of the studies.
2.1 Literature review - Uncertainty
Although there exists' a broad bulk of literature which may transact with MRP and uncertainty, the focal point in this segment is to inspect buffering issues, particularly, safety stocks and safety lead times in MRP systems. The review is restricted to those paprs considered pertinent to these issues. Uncertainty could arise in demand, supply, or in both. In each of the two circumstances, uncertainty could subsist in either the quantity or in the timing, or both. Preceding researches have inspected one or more of these uncertainties.
2.1.1 Demand quantity uncertainty
The majority of the current literature deals with the subject of demand quantity uncertainty in the perspective of buffering in MRP systems. Yano and Carlson (1987) produced a trial-and-error approach to attain a fairly precise clarification to the safety stock quantity trouble in the context of no urgent setups. There is no capacity restraints enforced in the lot-timing assessments. Lead times, yields, and supply timing and quantity were also supposed to be settled in this research. A fixed demand model was used. The intention is to establish the preset safety stock quantities, which reduce inventory expenses with respect to a fill-rate constraint. Safety stocks are examined at two stages. Their results illustrate that below the specified set of suppositions the safety stock level for second stage components must be zero, i.e. no component safety stock. In a later research, Carlson and Yano (1986) investigated the same trouble in the circumstance of systems with urgent situation setups for components. They produced a heuristic technique to the demand quantity trouble, which was categorized as a common non-linear random integer optimisation problem. Known the nonexistence of recognized solution methods, the authors utilized a heuristic technique to resolve the difficulty. They acquired a loose lower bound and an upper bound, which recreation results designated, was nearer to the explanation. The conclusion was that there is advantage from safety stock at those production levels where the setup expenses are more; there are a number of advantages still when the setup expenses are small.
In an additional study, Yano and Carlson (1987) investigated the impact of frequency of reschedule on safety stocks, which are used to defend in opposition to demand quantity uncertainty. All other timings and quantities were supposed convinced, and the prospect analysed was a rolling one. The performance assessments were service level calculated by the fill-rate and the inventory expenses. Reschedule rules inspected were entirely preset agenda for the planning perspective and absolutely flexible ones, which are the boundaries in requisites of rescheduling rules. A solitary product with two procured components was taken into consideration. Thus, there are probable troubles in simplification of the results. A recreation technique was adopted. The outcomes pointed out that if fixed scheduling is used then rising safety stock amplified both fill-rate and expenses with declining trivial profits. In the context of flexible rescheduling at the end-item phase, all four probable groupings of the two performance assessments were examined. The performance assessments were examined to progress in the similar direction (up or down) or in reverse directions. The recreation of phase 2 component safety stock pointed out that for preset scheduling, enhancing safety stock augmented both expenditure and service levels, but in general this was not cost effectual. In the context of flexible scheduling for phase 2 items with preset scheduling for phase 1 items, the key outcome of added safety stock at phase 2 was to augment expenses while not altering the service level considerably. The conclusions revealed were that under the set of suppositions made in the examination, fixed scheduling was further cost-effective and recurrent rescheduling must be carried out with vigilance. Their study also designated that if flexible scheduling was utilized at equal phases in the product structure then the outcome of component (phase 2) safety stock is very unforeseeable.
De Bodt and Van Wassenhove (1983) inspected the situation of a company that used MRP in an energetic environment with substantial demand uncertainty. They utilized a simulation technique in a rolling perspective atmosphere with service level as the performance assessment. It was revealed that the company's rule of one month safety lead time can be enhanced on by retaining safety stock at component and end-item levels in reply to demand quantity uncertainty.
Graves (1988) offered a review of the current literature on safety stocks and a model technique to inspect the transaction between safety stocks and manufacturing resilience. In his review he pointed that there was not a big literature on safety stocks in manufacturing systems. Major portion of the literature concentrated on demand uncertainty, which was as well the case of Graves' research. The literature review lengthened further than MRP systems, and was characterized by precise and fairly accurate models. The fairly accurate models reviewed were inclusive and exclusive lot sizing. In addition, erstwhile research attempts which do not match into the best possible and fairly accurate models groups were reviewed. These were characterized into simulation-supported documents, issues and procedures documents, parts commonality supported issues in safety stocks, and documents which transact with sources of uncertainty other than demand quantity uncertainty. In his representation, Graves presented a technique that involved a cumulative component and a thorough component to represent both the multi-item and single-item performance in the system. Once more, the technique included numerous suppositions. Demand was thought-out motionless with no forecasts. Lot sizing was left off by supposing lot-for-lot scheduling and capacity practicability tests were not completely included into the linear control policy used for positioning manufacturing output. Graves' work elevates questions, which stay mainly unanswered. There has been awfully small work on this subject consequent to Graves' work.
Guerrero et al. (1986) in a recreation research investigated the issue of position of safety stocks in the existence of uncertain demand. The recreation model depicted a hedged system and replicated the reply to dynamic demand at the end-item phase. The product had a serialized, three-phase product configuration. Lead times were supposed preset, no backorders were approved at the end-item phase, demand was conceived motionless, and no lot sizing was inspected. Operation assessments made use in the research incorporated service phase, replacement rate for service stock, and normal readily available inventories at every phase of the product configuration. Hedging directed to the position of safety stocks, conduit hedging arised when safety stocks were present at numerous phases of the product configuration, whereas end-item hedging inferred the subsistence of safety stocks at the end-item phase only. Their results designated that conduit hedging offered a service level superior than expected. The worth of safety stock investment in the two options was recorded to be relying on value added at the numerous phases in the product configuration. Conduit hedging would be beneficial every time there is considerable worth added.
Lagodimos and Anderson (1993) also investigated the case of arrangement of safety stocks in MRP surroundings. Their intention was to enhance the service level for a specified quantity of safety stock by means of a methodical approach. The authors recorded the restricted methodical results accessible and the limited applicability of recreation-based literature. The suppositions prepared in the research incorporated preset lead times, no capability constraints, no reschedule of orders, lot-for-lot ordering at every stock point, steady MPS components, and uncertainty subsists exclusively as a consequence of demand quantity. A progressing schedule was executed. Three service phase-related operation assessments were used in the research. The judgement revealed was that the best possible location of safety stocks is system explicit. The outcomes also supported the placement of each safety stock at the end-item phase. The generalisability of the outcomes stayed open to discussion.
Lambrecht et al. (1984) investigated the matter of safety stocks in multi-phase manufacturing systems in the circumstance of MRP systems. They constructed logical best possible models and a computationally well-mannered heuristic for establishing safety stocks specified uncertainty in demand measure. An energetic programming model was constructed to determine the best policy when the solitary uncertainty was demand changeability, a limited planning prospect was supposed, and an intermittent review strategy was adopted. Lead times were supposed known and preset, and surplus demand backordered. The best possible explanations could only be answered for minute troubles and a trial-and-error technique was constructed for resolving bigger difficulties, restricting the method to serial type of systems. They concluded that values of strategy variables only were inadequate to establish the quantity of safety stock or safety lead time; instead, the operational strategies were used. Safety stock was detected to subsist at either of the two phases constructed, while safety time subsisted at stage two.
Sridharan and LaForge (1989) made use of a recreation technique to examine the efficiency of accessing safety stock at the MPS (end-item) level to decrease schedule volatility. The uncertainty conceived in this research was in the appearance of demand quantity changeability. Performance assessments made use in this study incorporated schedule unsteadiness, lot-size cost inaccuracy, and client service level. Their outcomes designated that augmented safety stock at the end item phase referred to superior client service but not essentially added steadiness. Their outcomes revealed that little quantities of safety stock did develop steadiness and reduced the expenditure inaccuracy; nevertheless, augmented levels of safety stock had the reverse consequence. They came to conclusion that safety stock must be used with vigilance if it is to be used for the reason of steadying schedules.
2.1.2 Demand quantity and timing uncertainty
There are a few informed literatures that conceive this situation. This is significant as in actuality lead times are not often recognized and preset. Schmitt (1984) inspected the efficiency of three generally applied procedures made use to determine uncertainty in MRP systems: safety stock; safety capacity; and net change updates. As indicated by Schmitt, large portion of the study has conceived safety stock as a shield in opposition to uncertainty for a single-product and single-production phase. Modest work has been carried out on assessing safety stock as a buffering technique comparative to other procedures, e.g. safety times or often recurrent planning reviews. Furthermore, a number of studies have concentrated on the MRP surroundings to be an assembly system or a sequential production process, exclusive of the real multi-phase character of the system. In this research, Schmitt supposed demand quantity and timing uncertainty. Four operational measures were made use in the research: average service level; average work centre ability level; unpredictability in work centre capacity level; and average inventory level. The simulation model symbolized a two phase procedure of manufacture and assembly. His outcomes designated that as demand uncertainty augmented, additional capability and inventory was necessary to uphold the identical service level. One more result was that safety capacity (time) generated enhanced inventory levels contrasted to erstwhile procedures at the similar service level. The use of safety capacity condensed real lead times contrasted to erstwhile procedures which led to superior service levels. Erstwhile results pointed were that option of safety stock over safety capacity engages a trade-off connecting direct labour expenses and inventory expenses. In many instances the two buffering procedures generated fewer dissimilarities in capability contrasted to the overall change technique, though, with adequately low setup times the contrary may perhaps be factual.
Wijngaard and Wortmann (1985) assessed buffering in opposition to demand uncertainty in multi-phase manufacturing inventory systems beneath diverse circumstances. In the no reschedule circumstance, i.e. fixed lead times, standard suppositions analogous to those prepared in previous studies (Whybark and Williams 1976, Meal 1979, Lambrecht et al. 1984) were prepared. Investigative answers were explained for the safety stock in this surrounding for the distinct and multi-phase situation inclusive and exclusive of lot sizing. One inference is that in context of bulky lots made use safety time at phase 1 would work improved than safety stock. In the rescheduling situation, three potentials to produce stocks (inter-phase slack) were estimated: safety stock; safety time; and hedging. The writers indicate that inside MRP-software packages safety stock is executed as `dead stock', i.e. the system will not utilize; instead it attempts to avert safety stocks from being accessed. Consequently, rescheduling could be an outcome of an actual scarcity or of stock merely being beneath the safety stock level. Safety times were as well assessed in contrast to safety stocks. It was identified that making use of safety times would result in the formation of time-differing safety stocks. If safety stocks are made use and there is no actual demand in the coming prospect, safety stocks would be produced. A difficulty with safety times is that the planning prospect at the MPS level might require to be elongated. The third likelihood assessed was that of hedging, i.e. intentionally planning excesses the master schedule. The writers never supplied common policies to share out the slack (i.e. buffers) above the three levels on control intrinsic in MRP II, i.e. MPS, material synchronization, and shop floor control. They pointed that such a sharing would be relying on the resilience and uncertainty which depends on the condition. Effectual buffering was as well indicated to be relying on the accessible MRP software.
Buzacott and Shanthikumar (1994) produced methodical models to estimate the alternative among safety stocks and safety lead times. They put forward an incessant MRP system instead of the periodic systems communicated formerly and rightly examined that the lone restraint (to constant review MRP) is the database system that is in use. The base context situation modelled is when MPS capacity are identified up to certain point in time (t), and that previous to this point (t) an normal steady rate of demand is recognized. The research revealed that when t â‰¥ t' the usage of safety stocks or safety time enhanced performance evenly. In the context of 0 â‰¤ t â‰¤ t', the situation of ideal forecast demand above the lead time, then safety lead time must for all time made use till t'= t, the case where demand might never be absolutely estimated. Numerous erstwhile circumstances were inspected, and the results revealed that recurrent alterations in the timing of orders preferred the usage of safety stocks, except that safety lead times were preferred when schedules were excellent (Buzacott and Shanthikumar 1994). An attractive surveillance prepared is that in the attendance of meagre master production scheduling, erstwhile techniques, e.g. kanban or fixed (s, S) strategies are preferred to MRP. Nevertheless, there are no procedures specified as to fixing factors for safety stock allotment or safety lead time permissions. The effort by Buzacott and Shanthikumar (1994) is particularly appealing since it is the first attempt to respond to queries regarding MRP systems by means of analytical modelling. A possibly prolific region for exploration can be amending traditional continuous review inventory models within a continuous review MRP system. The model generated was restricted to a single-phase manufacturing system, and cautious investigation is necessary to guarantee that the outcomes are certainly appropriate to multi-stage production systems. Bitran and Tirupati (1993) present a total conversation of the complications of planning for multi-phase production systems.
An additional latest work including both lead time and demand uncertainty is by Molinder (1997), where lot sizes, safety stocks and safety lead times were enhanced in MRP surroundings. Molinder (1997) made use of a mixture of simulation modelling with optimisation, through simulated annealing. The objective of the study was to recognize the best possible intended lead times, which incorporated a safety lead time allowance, and to optimise the height of safety stock alleged at the similar time as the constant order quantity was optimised. Molinder (1997) wanted to check the hypothesis presented by Whybark and Williams (1976), i.e. that safety stocks are most excellent for quantity uncertainty and safety lead times are ideal for lead time uncertainty. The inferences designated that as demand variability enlarged, safety stocks were favoured, and as lead time inconsistency reduced, safety lead time was favoured. In the context of elevated lead time unpredictability and elevated demand unpredictability, safety lead time was the most excellent choice. The work supposed that stock out expenses are just pertinent for outside demanded items and that there are no capacity boundaries.
2.1.3 Demand and supply quantity and timing uncertainty
A few studies are present that have conceived the four types of uncertainty which might subsist in the circumstance of buffering, i.e. capacity uncertainty for demand or supply, and timing uncertainty for demand and supply. New (1975) talked about the benefits and drawbacks of the numerous processes of buffering. General operational measures of expenditure and service levels were also conversed. Three fundamental techniques to safety stocks were recommended: preset quantity safety stocks where the matter is the appropriate estimation of this quantity; safety time where the situation of this time is conceived appropriate; and the technique of hedging that means manufacturing extra than the demand estimate. New even talked about the effect of part generality on safety stock. New even indicated the necessity for energetic control of safety stocks and service levels.
Whybark and Williams (1976) investigated MRP beneath uncertainty through a recreation experimentation. They contrasted safety stocks and safety lead times as methods for defence against quantity and timing uncertainty together with demand and supply. Their research was the first methodical investigation of the buffering judgment in MRP systems. Demand timing uncertainty was categorized by the timing alterations in the overall needs from stage to stage. Demand quantity uncertainty was revealed to take place when the MPS was altered to mirror variations in client orders or the demand estimate. Supply timing uncertainty is an outcome of differences in retailer lead times or shop flow times. Supply quantity uncertainty was thought-off as the outcomes of lots sustaining scrap losses or of manufacturing overruns. To transact with such doubts, the two inventory-constituted buffering methods of safety stock and safety lead times were assessed. The operation measure made use was the service level (fill-rate). The outcomes of their research were that in all situations of timing ambiguity, a discrete liking for safety lead time was noticed. Safety stock was chosen for the capacity uncertainty situations. These outcomes did not vary with alterations in the stage of uncertainty, but as uncertainty augmented, the significance of deciding the right option among safety stock and safety lead time amplified.
Meal (1979) produced a procedure to compute the safety stock or the safety time necessary to buffer in opposition to uncertainty occurring from the demand and supply foundation in the circumstance of MRP systems. Meal even indicated that hedging may be suitable when little general parts are present so that the association difficulty amongst the agenda alterations for the parts does not survive. Though, if the parts and subassemblies are made use in numerous diverse products then the safety stocks and safety times m