CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Production is the transformation of one set of resources into a second set. In order to describe the constraints and opportunities for production, different methods have been developed through the years both in the practical engineering context and from an academic point of view (Grubbström, 1995). For the multi-level, multi-stage production-inventory system, an analysis applying the combined methodology of input-output analysis and the place transform has proven to be useful.

In practice, the managerial information system dealing with multi-level, multi-stage production-inventory systems is referred to as Material Requirements Planning (MRP). Here, product complexity as well as lead times are essential ingredients. In this research we allow these terms to be used in a synonymous way both for the theoretical analysis and as a name for the corresponding practical information system.

In a multi-level manufacturing system finished products, subassemblies, components, raw materials, etc., (items), are distinguished. MRP reduces a master production schedule of finished products into a time-phased suggested schedule of requirements of intermediate items to be manufactured and purchased, based on the estimated external demand for finished products. This “parts explosion” determining requirements from higher levels down to lower levels (upstream to downstream) traces the product structures.

Material Requirements Planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for dependent demand items. Dependent demand items are components of finished goods—such as raw materials, component parts, and subassemblies—for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactures bicycles; dependent demand inventory items might include aluminium, tires, seats, and derailleurs.

The first MRP systems of inventory management evolved in the 1940s and 1950s. They used mainframe computers to explode information from a bill of materials for a certain finished product into a production and purchasing plan for components. Before long, MRP was expanded to include information feedback loops so that production personnel could change and update the inputs into the system as needed. The next generation of MRP, known as manufacturing resources planning or MRP II, also incorporated marketing, finance, accounting, engineering, and human resources aspects into the planning process. A related concept that expands on MRP is enterprise resources planning (ERP), which uses computer technology to link the various functional areas across an entire business enterprise.

MRP works backward from a production plan for finished goods to develop requirements for components and raw materials. "MRP begins with a schedule for finished goods that is converted into a schedule of requirements for the subassemblies, component parts, and raw materials needed to produce the finished items in the specified time frame," William J. Stevenson wrote in his book Production/Operations Management. MRP breaks down inventory requirements into planning periods so that production can be completed in a timely manner while inventory levels—and related carrying costs—are kept to a minimum. Theoretically, it is often asserted that, when implemented and used properly, MRP can help production manager’s plan for capacity needs and allocate production time. However, it is also argued that MRP systems can be time consuming and costly to implement, which may put them out of range for some small businesses. In addition, the information that comes out of an MRP system is only as good as the information that goes into it. Thus, for MRP to be successfully implemented and sustained, current accurate bills of materials, part numbers, and inventory records must be maintained. These and similar, issues relating to the concept and practice of MRP is what this research work intends to examine.

1.2     STATEMENT OF THE PROBLEMS

As stated earlier, MRP is a planning technique designed to assist production manager in scheduling and placing orders for dependent demand items such as raw materials, component parts and sub-assemblies relative to the desired level of production. However, it has been observed that the technique is not yet very popular among organization. Not only that, it is also argued that the system is so time consuming and costly that not every organization can adopt it.

In this research work, attempts have been made to critically assess the possible contribution of the MRP technique to the efficiency of manufacturing organization with particular focus on production cost.

1.3            OBJECTIVES OF THE STUDY

The objective of this study is to examine Material Requirement Planning as it ensures availability of material in an organization. The specific objectives are:

1.                 To highlight the usefulness of MRP in PAN.

2.                 To identify the various materials related operational problems in PAN that can be handled by the application of the MRP technique.

3.                 To provide knowledge for future research work.

1.4     STATEMENT OF HYPOTHESIS

The study shall be guided by this hypothesis, thus;

H0:     Material Requirement Planning is not a strategy for cost reduction in manufacturing organization

H1:     Material Requirement Planning is a strategy for cost reduction in manufacturing organization

1.5     SIGNIFICANCE OF THE STUDY

The significance of this research work cannot be over emphasized because it is a requisite for the award of higher National Diploma in Production and Operations Management.

The study will help manufacturing organizations to appreciate and understand MRP as it affects productivity and reveal ways in which it could be applied for desired benefits.

Students in business and management studies can also expand their knowledge base from this research work. It can also be used as a reference material and a base for further research.

To the government, the study will introduce an efficient system of production planning to replace the traditional, inefficient practices found in public corporations.

1.6     SCOPE OF THE STUDY

This research work covers the Material Requirement Planning (MRP) as a cost reduction strategy in a manufacturing concern. It however, limits it scope to PAN Kaduna.

1.7     LIMITATIONS OF THE STUDY

1)    Finance: with the present doomed financial situation the researcher finds it difficult to purchase necessary materials for the project at reasonable cost and also to carryout other relevant facts find exercise with ease.

2)    Time constraint: It is very important for one to get enough time to accurate and up to date, but the time available for this work is not adequate as a student, the researcher has to face the project, at the same time coupling with the class work, preparation for final examination as well as numerous assignments.

3)    Another problem is the acute shortage of qualified, skilled and experienced personnel to effectively provide the researcher with appropriate data in course carrying out the research.

1.8     HISTORICAL BACKGROUND OF PAN

The entry of most popular and favourite vehicle Peugeot brand into Nigeria dates back to 1957 when the first set of 100 units of Peugeot 403 car were imported by individual into the country. Within a period of two years Peugeot 403 became so popular as a result of its dependability, suitability in Nigeria roads that assumed the status of official cars for many top government officials and wealthy business people. This unprecedented achievement led to the appointment of SCOA in 1957 as the sole agent for Peugeot cars in Nigeria and imported the first set of 403 Peugeot cars.

Since independence in 1960, the growth rate of Nigerian economy had taken such a proportion that the number of imported cars could no longer cope with the demand, the military government of Nigerians opened negotiation with automobiles Peugeot of France for the setting up of an assembly plant in the country. That dream became reality when on December 15th 1972 Peugeot Automobiles of Nigeria was incorporated with an authorized share capital of N3, million and paid up capital of N2, million on 14th march, 1975 the assembly plant in Kaduna was commissioned by general Yakubu Gowon, the Head of state. That same year the first set of Nigeria Peugeot cars rolled out of the plant.

However, with time a further rise in demand for production at the plant in the country necessitated the federal government introduction of the structured adjustment programme (SAP). Since its inception, PAN has turned out over N370, 000 cars with total assets amounting to N1, Billion at the end of 1990.

OBJECTIVE OF PAN

The Peugeot automobile of Nigeria was established in 1975 with the following objective

To Chart a course for Nigerians industrialization in the area of assembly and manufacturing of automobiles vehicles

To engage in a local assembly or production of cars suitable to Nigerians physical environment and chaotic condition.

To produce vehicle spare parts and accessories

To reduce dependence on importing the automobile industry and therefore help conserve foreign exchange for the country.

To serve as an avenue for the transfer of technology by providing on the job training to Nigeria workers techniques and managers who would eventually develop technology usable in many aspect of the economic life of the country

To create employment opportunities for the growing arms of skills, semi skilled and unskilled Nigerians by developing on industrial network of supplies that would contribute to the establishment of basic technology in the field of machinery stamping manufacturing of plastic parts etc.

ORGANIZATION STRUCTURE

To function effectively, every business organizations need a structure which has the characteristics of unity, continuity, flexibility and predictability required for efficient interactions with its environment. The problem of planning and monitoring when management must overcome to be successful is to ensure that the objective of each part of the organization are securely welded together (unity) using both start and long term forecasting (continuity) being able to adopt the plan in the light of changing circumstances (flexibility) and attempting to accurately predict course of action (predicting) to meet the increasing challenges of its responsibility and expectation of its performance. At the apex of the pyramidal chart is a board of directors headed by a chairman appointed by the federal government. The board of directors is the highest hierarchy. The board responsibility is that of formulating policy guideline for implementation by the general management teams.

They plan, organize, set goals and formulate policies. The collective policies and decisions of the board are carried out by the chairman. The general management team is headed by a managing director (a foreigner) assisted by a deputy director (a Nigeria). Directly attached to the office are company’s secretary department and three functional department namely, internal audit, corporate planning and data processing.

There are four general managers who run the affairs of the company’s (4) major division. These divisions are personal, administration, commercial, finance and finally industrial.

1.9     DEFINITION OF TERMS

Quality: - this is the ability of a product to meet with customer expectation.

Materials: - these are components, parts, raw materials that are used to produce other goods that are kept in the storehouse.

Specification: - this is the detail description of requirement laid down for material component or process or service.

Quality control: - is the process of setting standard for acceptability of goods purchase or goods manufacture where actual is compare with expected quality.

Standard: - It is the level used as a measure for weight, length, quality, tests or for the required degree of excellence.

Inspection: - is the logic checking of conformance with specification or standard.

Monitoring: - Is the process of continuous inspection to see that tests are been carried out in accordance with specification.

Cost: monetary value of goods or service purchase.

Product: bundle of an item(s) that provide satisfaction, manufacturing output or performed services.

Reliability: - products or service that have all the characteristics expected of them in terms of functional performance, taste etc.