Forthcoming in the Production Planning & Control Journal
The selection and application of material planning methods Patrik Jonsson Chalmers University of Technology, Department of Transportation and Logistics, 412 96 Gothenburg, Sweden E-mail:
[email protected] Stig-Arne Mattsson Lund University, Department of Industrial Management and Logistics, Box 118, 221 00 Lund, Sweden E-mail:
[email protected] Abstract Methods for planning and control of the flow of material in the manufacturing enterprise are more or less appropriate to use in a specific situation, mainly depending on the existing planning environment. How well they contribute to an effective material flow is also depending on how they are applied. This paper examines which material planning methods companies are using, to what extent these methods are perceived as efficiently supporting the operation, how the various methods are applied, and how the satisfied users apply the methods. The findings are based on a survey study carried out in 84 manufacturing companies in Sweden in 2000. From the results some conclusions concerning state-of-the-art application of material planning methods in the manufacturing industry is presented. A comparison with a similar study on the same population from 1993 is also conducted. The findings show that material requirements planning is the quite most used method. The most common ways to determine planning parameters are based on judgement and experiences. The majority of companies review the parameters less frequently than once a year. The satisfied users, however, use more analytical approaches and review parameters more frequently than others. Keywords: Material requirements planning, Kanban, Run-out time, Re-order point, Order-based planning 1. INTRODUCTION Several alternative methods for planning and control of the flow of material in manufacturing companies have been developed over the years and quite a few of those are used in the manufacturing industry. These planning methods are based on different principles but they are all basically providing the same type of support. Even though they are designed to provide the same type of support, they are to a various degree applicable. The extent to which they can be used in an efficient and effective way is mainly dependent on the environment they are used in (e.g. Newman and Sridharan 1985, Porter et al 1999, Schönsleben 2000), but also on how they are applied within the principles that they are designed. A material planning method can work quite well in a specific environment but be of less value in a similar environment depending on how the method is applied in detail in practical reality. Several studies show the importance of the planning and control tools for achieving high performances (e.g. Lane and Szwejczewski 2000, Sheu and Wacker 2001). Considering that the planning environment and the way a material planning method is applied has a major influence on how efficiently and effectively it can be used, it is of interest to know more about which material planning methods companies use, in what planning environment they use them, how they use them and how successfully they can be used. This knowledge is important because several companies fail to successfully implement and use planning and control tools (e.g. Roberts and Barrar 1992, Davenport 1998). Therefore, a state-of-the-art description of the planning and control practice would be an important input when identifying training and education needs, developing more user friendly methods and software, and to serve as a guide for choosing and applying methods and approaches with satisfied users. The objective of the paper is to describe the present use, application and motives of selecting various material planning methods, and to explain how the methods are applied by the ‘satisfied’ users. It is also to compare the current situation (2000) with the past (1993).
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Forthcoming in the Production Planning & Control Journal
Most of the material planning methods can be used in the manufacturing as well as in the distribution industry. The study covers however for various reasons only manufacturing companies mainly due to the big difference in planning environment between the two categories. 2. FRAME OF REFERENCE AND PREVIOUS RESEARCH Material planning can be seen as a tactical planning level. It concerns balancing supply and demand and it is in this respect dealing with the initiation, control and monitoring of manufacturing and purchasing orders in order to keep the material flow and the value-adding activity in manufacturing going on without interruptions. The two basic questions to address in material planning are “When to order/deliver?” and “How much to order?”, i.e. one time related question and quantity related question. The most known and widely used material planning methods are re-order point systems, run-out time planning, material requirements planning (MRP), kanban and order based planning (OBP). These methods are also included in this study. They all, in different ways, answer the two basic material planning questions mentioned above. Extensive research has been carried out over the years related to the principles that various material planning methods are built on and even more on the technical and computational issues related to them. Less effort has been spent on finding out what and how the methods are used in practice, or in what environments they are most appropriate to use and on studying how to apply them to get as efficient and effective material flows as possible. Most empirical studies covering these subjects are also pretty old. A survey study to find out to what extent re-order point systems, material requirements planning and methods based on intuition are used in the U.S. industry has been carried out by Davis (1975). 43 percent of the studied companies used MRP and 36 percent re-order point systems. The study is almost 30 years old and doesn’t say anything about the present use of material planning methods. A similar, but more recent U.S. study was conducted by Newman and Sridharan (1992). It covered re-order point systems, material requirements planning, kanban and OPT. 56 percent used MRP, 22 percent re-order point systems, and 8 percent kanban. Other, less extensive studies of the use of material planning methods are, for example, Code (1993) who studied the extent of using material requirements planning and kanban in the U.K. Moras and Dick (1992) studied the use of kanban and Im (1989) the use of re-order point systems, material requirements planning and kanban in companies that just had implemented just-in-time. A survey study similar to this was conducted by Mattsson (1993) in 82 Swedish manufacturing companies. It was conducted on the same population and covered almost the same research questions as in this study A study with similar scope and findings, but with fewer companies has also been carried out by Häggström and Laurin (1998). Beyond the study by Mattsson, no published empirical study has been found covering how material planning methods are applied with the exception of material requirements planning. Wemmerlöv (1979) interviewed 13 American manufacturing companies how they applied material requirements planning. He covered for instance which lot sizing methods they used, how they calculated safety stocks and what bucket sizes they used. A similar but more extensive study based on a survey was carried out by Anderson et al (1982). They presented for instance findings on how frequently the material requirements planning was run, how lot sizing was carried out and what bucket sizes were used. Similar studies but with a more narrow scope has been published by LaForge and Sturr (1986) and by Hadock and Hubicki (1989). Other interesting and related studies are, for example, those conducted by Ledbetter and Cox (1977) and Ford et al. (1987). They studied the use of operations research models in the material planning process. They concluded that there is a trend towards less frequent use of O.R. models in the planning process. 90 percent of the studied companies used O.R. models in 1964, compared to 44 percent in 1985. Some more studies focus on how to efficiently use and apply the methods. They, for example, deal with the effects of applying various safety mechanisms (e.g. Blackburn et al 1986) and batch sizing techniques (e.g. Kropp et al 1983) to the MRP method. Other studies compare the appropriateness and usability of the MRP, kanban and re-order point methods (e.g. Newman and Sridharan 1995, Yang 1998). Most of these studies are, however, not based on empirical data. 3. METHODOLOGY 3.1 The Sample A mailed survey was sent to 380 members of the Swedish Production and Inventory Management Society (PLAN), each representing different manufacturing companies. The members of PLAN are, more or less, distributed among manufacturing industries in accordance with the average for Swedish manufacturing industries (i.e. with about half of the companies in the mechanical engineering industry). A reason for sending the questionnaire to members of PLAN was that they were expected to
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Forthcoming in the Production Planning & Control Journal
being interested in manufacturing planning and having common knowledge about the terminology used in the survey. The membership in PLAN is personal. Therefore, the studied companies were not expected to be more advanced users of planning methods, compared to the average Swedish manufacturing company. Only one person per company responded, but they were requested to only answer those sections they were familiar with and to hand the question to those people that were most appropriate for answering certain sections. Therefore, it should be safe to assume that the responses were valid. 84 of the 380 companies, to which the survey was sent, responded. This is equivalent with a response rate of 22%. The questionnaire was rather long, which may explain the relatively low response rate. Almost half of the respondents belonged to the mechanical engineering industry and more than half were large companies (Table 1). Companies with a turnover below 100 Million Swedish Crones (MSEK) or less than 50 employees were defined as small. Those with a turnover between 100 and 300 MSEK and with more than 50 employees were medium sized companies. Table 1 Characteristics of respondents Size and industry Size Small Medium Large Industry Food manufacturing and chemistry Mechanical engineering Other industries
Respondents
Percentage
10 26 42
13% 33% 54%
20 36 28
24% 43% 33%
Note: The food manufacturing and chemistry industries include the food manufacturing, pulp and paper, chemistry and plastic industries. Other industries include the timber and iron/steel industries. 3.2 The Measures There are three types of variables in this study. The first measures the use of respective material planning method. The second describes the mode of application of a specific planning method, and the third type evaluates the perceived level of satisfaction of the used planning methods. The classifications used and criteria measured follow the general manufacturing planning and control definitions (see e.g. Vollmann et al 1997). Planning Methods The respondents were given four alternatives when evaluating the use of planning methods; 1. The method is not used, 2. The method is used as complementary, 3. The method is used as main method, 4. Do not know. Respondents marking alternatives 2 or 3 were coded as users. Modes of Application The modes of applications for the studied materials planning methods were measured in terms of choice of lot-sizing methods, ways to consider uncertainties, level of analytical determination order quantity, level of analytical determination of re-order points, level of analytical determination of safety stocks and safety times, level of analytical determination of lead times, reviewing frequency of order quantities, reviewing frequency of safety stocks and safety times, reviewing frequency of lead times, and planning frequencies (table 2). All variables were measured on ordinal scales, except for the choice of lot-sizing methods and ways to consider uncertainties that were measured on nominal scales.
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Forthcoming in the Production Planning & Control Journal
Table 2 Modes of application variables Variable (Mode of application)
Planning methods
Level of analytical determination of order quantities
ROP; ROT; MRP
Level of analytical determination of re-order point
ROP; ROT
Level of analytical determination of lead times
MRP; OBP
Level of analytical determination of safety mechanisms
ROP; ROT; MRP
Reviewing frequency of order quantity
ROP; ROT; MRP
Reviewing frequency of safety mechanisms
ROP; ROT; MRP
Reviewing frequency of lead times
MRP; OBP
Planning frequency
ROP; ROT; MRP
Note: ROP = Re-order point system, ROT = Run-out time planning, MRP = Material requirements planning; OBP = Order based planning Perceived Satisfaction The perceived satisfaction of planning methods was based on the question "How well do you consider that the method works in its practical application?". The answers were measured on a five point Likert scale, where "1" was equivalent with "bad", "3" with satisfactory, and "5" with "very well". Respondents marking either of the alternatives "1" or "2" were defined as "unsatisfied" users, while those marking "4" or "5" were "satisfied" users. This is not an objective measure, but it only measures the perception of the manager. It is, for example, not directly related to relevant operations performance metrics. 3.3 The Reliability and Validity To make it easier to put together and analyse the data, almost only questions with closed reply options were included in the questionnaire. In cases where the risk for having included all relevant optional replies was considered high, an open alternative was added to the bounded ones. This allowed for individual alternatives for the respondent. To increase the reliability and validity of the questionnaire, it was pre-tested and some questions were adjusted before sent out. All respondents were members of PLAN. This should secure a common knowledge about planning methods. The industry and size representations of the respondents closely resembled the demographics of Swedish manufacturing firms in general. To increase the response rate and to identify the reasons for the non-responses, potential respondents were reminded by phone. No available time to fill in the quite extensive questionnaire was the most common reason for not answering. Chisquare tests could not reveal any significant difference between respondents and non-respondents regarding company size or industry. Therefore, it should be possible to generalise the findings for most manufacturing industries. Several parts of the survey had been successfully used before (Mattsson, 1993). A twelve page packet with definitions and descriptions of the methods for material planning was attached to the survey. This should assure that the measures were valid and that the respondents had the same definitions of the planning methods, which further improved the understanding and validity of the study. 3.4 The Statistical Tests The level of measurement of the included questions differed between nominal, ordinal and interval scales. Therefore, various statistical methods were applied to analyse the data. Selection of the methods followed the guidelines of, for example, Siegel and Castellan (1988). For the scales that were of nominal type the statistical tests were carried out through chi-square statistics. Kruskal-Wallis one-way analysis of variance and pair-wise Mann-Whitney tests were used for scales of ordinal type. One-way ANOVA tests were used for the interval scale.
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Forthcoming in the Production Planning & Control Journal
4. MATERIAL PLANNING METHODS USED The results from the survey concerning which material planning methods that are used in the manufacturing industry, how well they support the material planning activities and what the motives have been to select them is covered in this section. The presentation and analysis includes a comparison with the results from the previous study (Mattsson,1993). 4.1 Material planning methods selected The percentage of companies that to any extent are using each of the five included material planning methods is presented in table 3. Re-order point systems and material requirements planning are clearly the by far most frequently used material planning methods. This is the case in the current study as well as in the 1993 study. Compared with the results from the 1993 study, significant increases in the use of kanban and order based planning are observed. This is in line with what could be expected. From the end of the 1980s lots of companies have applied a just-in-time approach and implemented more customer order oriented production as a way to become more efficient and competitive. The results of these initiatives have led to a more extensive use of pull based material planning. This is not least the case for the use of kanban showing a significant increase from 9 % of the companies in 1993 to 51 % year 2000. Table 3 Percentage of companies using various material planning methods 2000
1993
Re-order point systems
83
71
Run-out time planning
31
10
Material requirements planning
82
59
Kanban*
51
9
Order based planning*
69
46
Note: Chi-square = 18.66 (p = 0.001), * Significant difference at the p
