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Implementation and use of material requirements planning system in

Northern Greece: A case study

Article in International Journal of Production Economics · August 1996

DOI: 10.1016/0925-5273(95)00140-9

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Vicky Manthou Maro Vlachopoulou

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 international journal of

production
economics
ELSEVIER Int. .I. Production Economics 45 (1996) 187-193

The implementation and use of material requirements planning

system in Northern Greece: A case study
Vassiliki Manthou*, Maro Vlachopoulou, Petros Theodorou
Department of Applied Informatics, Unizjersity of Macedonia.156 Egnatia Str., P.O. Box 1591, 54006 Thessaloniki, Greece

Abstract

The efforts of the manufacturing companies to offer more advanced and quality products, fulfilment of consumer needs
and faster delivery times require efficient manufacturing controls and planning to ensure that productivity is maintained,
stocks are minimized and resources are optimized.
Material requirements planning (MRP) is a computerized information system for managing dependent demand
inventory and scheduling stock replenishment orders. Although the use of these systems in industrially developed
countries is extensive, in Greece it is still in its infancy.
The interaction of managerial tasks with MRP and the resulting effects on the adoption and its infusion was the focus
of our approach. In this paper we studied the organizational context of a company before and after the implementation of
MRP, the guidelines for its successful implementation, the level of MRP usage in the company, the problems
encountered, and the resulting benefits. Some of the findings indicate that the MRP system reduces inventories, improves
deliveries, and achieves better planning and control.

Keywords: MRP; Inventories

1. Introduction tion. It is a powerful technique for determining

when to order dependent-demand items, as well as
Competition is forcing management to conduct for scheduling production. With the help of com-
new methods for improving business and manufac- puter programs they are translated into time-
turing operations. Inventory planning and schedul- phases net requirements and planned coverage of
ing present major problems for manufacturers, these requirements for each component item
Material requirements planning (MRP) is a com- needed, taking into account any lead times. Fig. 1
puter-based information system designed to con- shows a typical MRP system.
trol manufacturing activities within an organiza- Successful MRP systems are using the systems
approach to inventory; they coordinate not only
inventory, but purchasing, manufacturing, schedul-
ing, and planning. This expanded system, known as
* Corresponding author. Tel.: 30 31 891 893; fax: 30 31 891 290. MRP II, is a computer-based information system

0925-5273/96/$15.00 Copyright 0 1996 Elsevier Science B.V. All rights reserved

SSDI 0925.5273(95)00140-9
188 V. Manthou et aLlInt. J. Production Economics 45 (1996) 187-193

External orders
Design changes
for co yts Fsts 1 Receipts
Withdrawls

Master Production
Schedule
[how much finished
product is desired
and when)

MRP
Computer
Programs

(for Inventory

(Revisions of due
dates-order quantities
cancellations )

Fig. 1.

with related financial, accounting, personnel, engin- delayed adaptation of MRP systems in Greece can
eering, and marketing information. Therefore, it be explained by the differences in demographic and
enables the operations management function to organizational characteristics (i.e. annual revenues,
coordinate its effort with the rest of the organiza- number of employees, investments, technological
tion, by providing the company with an operating infrastructure, etc.) [4]. For example, the majority
system and a total business plan. of large-sized industries in Greece are considered
medium-sized in developed countries. According to
a preliminary research (research in progress by the
2. MRP use in Greece Department of Applied Informatics, University of
Macedonia) in the industrial enterprises of North-
Although the use of MRP systems in industrially ern Greece, only few organizations have installed
developed countries is extensive, in Greece it is only an MRP system, but many of them are planning to
the beginning of their application [l-3]. The do so. Most of them who responded that they use
 K Manthou et al. lint. J. Production Economics 45 (1996) 187-193 189

an MRP system are in early stages of its implemen- The annual revenues of Siemens Tele for 1994
tation, so that it is doubtful whether these applica- amount to 44.700.000 Drs, with additional exports
tions can be considered as MRP systems. of 26%, and the number of employees comes to 400
(white collar 70, blue collar 330).
The main characteristics of the internal environ-
3. Research objective - Methodology ment of the organization are the following:
l the company-owned facilities since 1971,
Because of the limited use of these new technolo- l the high quality of the products as a result of the
gies in our country, we resolved to analyze the use of the Total Quality Management, based on
implementation of a complete MRP system based the international standard IS0 9000,
upon a case study. Therefore, we selected the l the continuous training and retraining of person-
Siemens Tele SA Co. as a pioneer in Greece in the nel, in order to keep it updated on new technolo-
area of the application of modern production sys- gies,
tems. The aim was to identify and analyze the l the implementation of new technologies in pro-
practice of MRP use, in the case of Siemens. The duction planning and control,
major issues addressed were: l the use of contemporary management,
l the organizational context before and after the l the knowhow transfer from the German com-
implementation, pany, and
l the level of MRP usage, l the access and use of the required technical docu-
l the problems arising from its use, and ments via an on-line link with the technical
l the resulting benefits. databank in Siemens AG, Germany.
An in-depth interview was carried out with the The company is confronted with the political, eco-
managers of the organization’s departments in- nomic and technological forces, which tend to re-
volved in the design, implementation, and day-to- strict and define its activities, having an impact also
day operations of the system. The procedure on its customers and competitors. Frequent politi-
followed was: cal changes, and adjustments to economic direc-
l analysis of current situation concerning MRP, tions from EU and the fact that the main customer
l identification of problems - suggestions for their of Siemens Tele is OTE (Organization of Greek
solution, Telecommunications - an organization of the
l evaluation of benefits. public sector) result occasionally in growing
uncertainty and risk. The competitive market
where the company operates is characterized
4. Research findings - Discussion as oligopoly.

4.1. Organization’s environment

4.2. Situation analysis concerning MRP
Siemens Tele Industry SA was founded in 1964
as a joint venture between the following two par- An MRP system was installed 20 years ago in
ties: Siemens AG (70% participation) and the 1974, so an infrastructure of the system exists. In
National Bank of Greece (30% participation). The 1992, Siemens, taking into consideration mostly
company has been active for 30 years in the field of cost and flexibility criteria, decided, instead of up-
telecommunications with the greatest expertise in grading the existing software, to adopt a new sys-
the production of telecommunication systems in tem. Suitability of software and hardware is an
Greece. important issue that has to be taken into considera-
The plant has an on-line link with the marketing tion. Software and hardware must fit the require-
department and the company’s computer software ments of the company [3,5]. A thorough require-
center in Athens, as well as with the central Siemens ments analysis and selection process took place by
AG computer center in Munich, Germany. Siemens in Greece and in Germany in order to
190 V. Manthou et al. /Int. J. Production Economics 45 (1996) 187-193

choose a suitable software and hardware for pro- meetings between managers and executives of vari-
duction planning and control (PPC). ous functional areas making MRP a high priority
The hardware which is in use is based on a PC project increases participation and reflects manage-
architecture with 486 Dx processors. The planning ment’s support [3,8,9]. In our case regular
production manager considers the PC solution meetings take place with the managers of other
more flexible, demanding less specialized know- functional areas, but the responsibility of the opera-
ledge from users, easy to maintain, and less costly tion rests with the production planning depart-
than mainframes and minis. ment. Clear goals should be set and MRP should
“PRODSTAR”, a French integrated PPC sys- not be selected in isolation from business strategy.
tem, was selected. Support for this system in Greece Monitoring daily operational use, data accuracy,
is offered by the supplier’s representative. The fac- and using performance measures assures attain-
tor of supplier’s support, although an important ment of expected benefits and increases the level of
issue according to Shoulders [6], was not decisive performance [6, lo]. For conducting every day op-
for the system’s acquisition giving as reason the erations in Siemens, there are formal procedures
existing expertise of the personnel. The proposal of whereas each month, with the use of heuristic mod-
the new MRP system was initiated by the produc- els, the goals for work measurements are set. In the
tion managers and the German company, and was case of variances, exception reports are produced in
positively accepted by the employees due to the order to identify the arising problems.
familiarity of the previous system. A number of In order to identify the level of adoption and
employees were sent initially to France for training infusion of the MRP system in our case study, the
to the vendors and afterwards they practiced the classification scheme used by Anderson et al. [7]
system in Germany where it was already in use. The and slightly altered by Cooper and Zmud [ 1 l] was
official language used for training as well as the taken into consideration. MRP users were classi-
version of the software was German. Linguistic fied as A, B, C, D, based on how they use the
confusion does not exist, due to the fact that the system. In level A the MRP system is characterized
German language is a prerequisite for employment as MRP II and provides strategic planning.
in Siemens. One year between installation and final In level B MRP is used for decision making by
implementation was needed for the experienced top management, in particular for priority
employees to master the system, whereas for the and capacity planning. Priority planning character-
new ones about 2 years. As mentioned by Anderson izes level C, and order launching level D, which is
et al. [7] and Manthou [S], users who comprehend mainly a data processing system. In our case
the potentials of the system, the way they will be the level is characterized between B and C in
affected, and the requirements to run the system relation to the extent of infusion and adoption.
facilitate the transition period and minimize resist- Capacity planning is not used and MRP uses only
ance to change. The users of the system in Siemens the priority planning. As a result the MPS is run
feel comfortable with it and they are considered once a month.
knowledgeable, and in particular the vendor often
uses the Siemens case as a prototype for other
customers. 4.3. Identi3cation of problems - Suggestions for
Top management showed a positive attitude to- their solution
wards the transition of the new system, mainly due
to the familiarity of the previous one. There is In this section problems concerning the MRP
active participation of management both from the use in Siemens are identified, steps taken by man-
German and Greek company, as well as common agers to overcome these problems are explored and
management policy and continuous communica- criticized, taking into consideration other experi-
tion of the knowhow of every new application. ences.
Through active participation, top management can The quality of MRP output depends on the qual-
motivate others and achieve acceptance. Regular ity of data input. Therefore, the quality of planning
 V. Manthou et al. lint. J. Production Economics 45 (1996) 187-193 191

is directly proportional to the accuracy and struc- adjusted to the particular conditions of the Greek
ture of data held on the system, particularly de- environment.
mand determination, data on current inventory The MRP system may be difficult to implement
and bill of material [12,13]. because it depends heavily on the accuracy of data
For the demand determination, Siemens gathers fed into the system, particularly data on current
the data from the marketing department in Athens inventory, bill of material and master schedules
(forecasts and customer orders). The department of [ 111. In our investigated case, the human factor is
production planning, based on this information, considered as the most important aspect for the
prepares the MPS, ignoring capacity planning. The accurate and realistic input of data in order to
absence of capacity planning affects the stability of achieve the efficient function of the system. Day-to-
MPS, and MPS usually fluctuates, nearly an aver- day problems arise due to oversights of the in-
age of 10% inflated at the end of production. A ma- volved personnel during the interaction with the
jor problem emerges because of the character of the system, especially the ones responsible for updating
main customer and the process for the order desig- the input data, the bill of materials and the inven-
nation. Due to the fact that mainly the customers tory records. It is not unusual for the firm to
belong to the Greek public sector, the orders are discover that another part is being used without
given after a bidding, the approval of which usually updating the records. Although Siemens generally
takes a long time and depends on external factors accepts the importance of training, it is limited
(i.e. political, economic). On the contrary, the re- mostly in the department of production planning
quired delivery time, after the approval, is very and in the middle/top level of management. Train-
short. The company follows a three-stage process ing in relation to the MRP system should involve
to get an order: bidding, planning and carrying-out. managers of other departments (i.e. marketing,
Due to the limited number of competitors, the sales, finance), as well as personnel involved with
practice is to consider the potential customer order updating the inventory records. This will improve
as already approved. The planning process begins the accuracy of data, and the communication be-
by developing a master schedule that indicates the tween the departments in relation to MRP.
timing and quantity of required finished items. The For its MRP system, Siemens uses as servers in
end items are developed using the bill of materials its NOVELL network PCs with 486 processors.
prepared by the German company, and further- Although the network exhibits flexible behavior, it
more material requirements plans are specified sometimes suffers from slow time-responses and
showing quantity and timing for ordering or pro- periodically the system hangs-up. Certainly, a sys-
ducing the components. The company takes the tem based on a client/server architecture would be
risk to order before the confirmation and is forced more appropriate, since it is more flexible and
to choose excess inventory instead of losing the quicker.
customer. The average lead time calculated by
Siemens was 3f months.
The use of the bill of materials prepared in 4.4. Benejits
Germany creates problems, especially when
there is a long time interval between bidding and In the investigated case the benefits reported were
order approval. In the meantime, the possibility of the following: decrease of inventories, reduction in
changes in code numbers and structure of items is raw material and inventory costs, increase in con-
great. In many cases, bill of materials are outdated sumer service, faster response to changes in market
because design changes are not incorporated into environment, and better management information
the records, leading to parts lists that do not through immediate access to information. For the
correspond to actual requirements for the assembly measurement of the reduction in inventories, mod-
of the finished products. In our opinion the els are used by the production manager in order to
preparation of BOM should take place in Greece, determine an index to observe the course of inven-
based on the framework used in Germany and tories. Reduction in inventory costs for the last year
192 V. Manthou et allint. J. Production Economics 45 (1996) 187-193

was estimated to be lO_15%. The MRP system departments. The absence of familiarity and direct
enables them to achieve faster response to changes contact of the above managers hinders the possibil-
in the market environment, a necessary prerequisite ity for further expansion of the existing MRP sys-
for getting assignments from the public sector. Fur- tem to an integrated system. Training should in-
thermore, better consumer service is observed. The volve managers from other departments, as well as
above benefits conform with the findings of several the employees responsible for the input of data, in
studies [3, 7, 14-161. MRP is also used in Siemens order to comprehend the importance of accurate
as a means of allocating production time in the case records for the efficiency of the system. The effort
of unexpected or modified orders. According to for better communication between the involved
MRP users in Siemens the ability to evaluate capa- parties, aiming to improve the data accuracy and
city requirements is considered inefficient due to the diffusion of the system, is one of the most
the required time and cost. important factors to be taken into consideration.
Difficulties related to the preparation of the bill
of materials in Germany can be avoided by its
5. Conclusions preparation in Greece, based on the framework
used in Germany and adjusted to the Greek condi-
Differences in relation to the profile of the Greek tions. Software and hardware problems were not
enterprises explain the limited adaptation of MRP reported as major ones. Summarizing, we can con-
systems in Greece. This research is based on a case clude that the greater responsibility for the effec-
study exploring the use of MRP in a Greek manu- tiveness of MRP lies in the human factor, its
facturing company. The implementation of MRP expertise and ability to communicate and interact
needs to be considered in a strategic context, since with the system.
it will impact the whole company, its procedures,
methods and culture, and its ability to compete in
the market. In our case study it acts as an indis-
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