kishore summer project

8/7/2019 Kishore Summer Project

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A STUDY ON THE EFFECTIVENESS OF MATERIAL

REQUIREMENT PLANNING IN PURCHASE

DEPARTTMENT IN SIMPSON & CO LTD.

By

KISHORE.P

(Reg.No.31709631047)

A PROJECT REPORT

Submitted to the

FACULTY OF MANAGEMENT STUDIES

In partial fulfillment of the requirements

For the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

IN

FINANCE AND SYSTEMS

St. JOSEPHS COLLEGE OF ENGINEERING, CHENNAI

ANNA UNIVERSITY

CHENNAI 600 025

AUGUST 2010


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ST.JOSEPHS COLLEGE OF ENGINEERING

(Affiliated to Anna University)

JEPPIAAR EDUCATIONAL TRUST

JEPPIAAR NAGAR, RAJIV GANDHI ROAD, CHENNAI-119

BONAFIDE CERTIFICATE

Certified that this project report titled A STUDY ON THE EFFECTIVENESS OF

MATERIAL REQUIREMENT PLANNING IN PURCHASE DEPARTMENT IN

SIMPSON & CO LTD is the bonafide work of KISHORE.P Reg.no.31709631047

who carried out the project work under my supervision. Certified further, that to the best

of my knowledge the work reported herein does not from part of any other project or

dissertation on the basis of which a degree or award was conferred on an earlier occasion

on this or any other candidate.

DR. S.SUDHA DR. JAYASREE KRISHNAN

M.B.A., PhD. B.Sc., M.B.A., PhD.,

INTERNAL GUIDE HEAD OF THE DEPARTMENT

Department of Management Studies Department of Management Studies

St.Josephs College of Engineering St.Josephs College of Engineering

Chennai-600 119. Chennai-600 119.


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ACKNOWLEDGMENT

First and foremost, I thankAlmighty God for the strength and blessings showered,

for successfully completing the project. I would like to express my gratitude and extentmy best wishes to all people who guided, inspired and motivated me during this project.

I express my sincere gratitude to the management ofST.JOSEPHS COLLEGE

OF ENGINEERING for having provided me an opportunity to do my master degree in

their esteemed college.

My sincere thanks and profound sense of gratitude goes to our respected

Chairman Thiru. Jeppiaar, M.A., B.L., for his sincere endeavor in educating us in his

premier institution andI also take this opportunity to thankDr. BabuManohar M.A.,

M.B.A., Ph.D., honorable director of the esteemed institution.

My heartfelt thanks to our Principal Jolly Abraham M.E., Ph.D., I am

exceedingly grateful to the Head Of the Department Dr. Jayasree Krishnan B.Sc,

M.B.A., PhD., for providing me necessary facilitates to complete this project work, and

for guiding me throughout this project without her valuable help & support, this project

work would have never been possible.

I take this opportunity to acknowledge the help, guidance and co-operation

received from the company DIEMENSIONAL SECRUTIES PVT LTD, Chennai for

providing me an opportunity to do this project in their organization.


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S.NO TITLE PAGE .NO

CHAPTER 1

INTRODUCTION

1.1 Industry Profile 1

1.2 Company Profile 3

1.3 Need for the Study 4

1.4 Scope for the Study 5

1.5 Objectives for the study 6

1.6 Limitation of the study 7

1.7 What is MRP? 8

1.8 Material requirement planning system 12

1.9 Various Processes 13

CHAPTER 2

LITERATURE REVIEW

2.1 Review ofLiterature 32

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Type of research 33

3.2 Research instrutment 33

3.3 Questionnaire design 33

3.4 Sampling design 34

3.5 Data collection 34

3.6 Period of study 34

CHAPTER 4

FINDINGS AND SUGGESTION

4.1 Findings 34

4.2 Suggestions 36

4.3 Conclusion 38

Bibliography 39

Annexure 40

TABLE OF CONTENTS


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TABLE .NO LIST OF FIGURES PAGE. NO

1.9.1 Diagram showing purchase module 12

1.9.2 Diagram showing Purchasing general process 16

1.9.3 Diagram showing RFQ and quotation process 17

1.9.4 Diagram showing purchase requisition process 18

1.9.5 Diagram showing blanket agreement process 21

1.9.6 Diagram showing blanket release process 22

1.9.7 Diagram showing amendment process for blanketpurchase and release

23

1.9.8 Diagram showing receipts 24

1.9.9 Diagram showing GI rejection 26

1.9.10 Diagram showing line rejection 271.9.11 Diagram showing outside processing 29

1.9.12 Diagram showing internal requisition 30


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ABSTRACT

The study was undertaken to determine EFFECTIVENESS OF MATERIAL

REQUIREMENT PLANNING (MRP) IN PURCHASEDEPARTMENT IN SIMPSON & CO Ltd., Chennai.

Among the various systems which are available, the most sought after or probably the

highly opted ones are the material requirements planning (MRP). This study explores the

reasons why organizations chose to use these systems, the problems and benefits derived

from the MRP/ERP systems, and the characteristics of the types of companies that have

benefited from the use of MRP-type systems. It also figures out the factors which make

the MRP effective so that its benefits are utilized to the maximum. The study reveals

what factors will cause the effective functioning of the MRP during its usage. While most

ompanies use MRP or ERP computer system in manufacturing functions this study will

loosely refer to these computer systems as MRP- type or simply MRP systems.

The study undertaken strikes to procure an insight about the effectiveness of the MRP in

purchase department in simpson & co ltd. The population consisted of employees of the

purchase department and size of population includes 20 employees. The questionnaire

were provided to 20 employees of the purchase department. Based on the feedback, the

required study was carries out. A major finding of the study is that the employees were

comfortable with the major part of the MRP system and just needed few additional

features for better working.


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1.1. INDUSTRY PROFILE

The automotive industry designs, develops, manufactures, markets, and sells the

world's motor vehicles. The automotive industry is one of the most important economic

sectors by revenue.

The Automobile industry in India is the seventh largest in the world with an annual

production of over 2.6 million units in 2009.In 2009, India emerged asAsia's fourth

largest exporter of automobiles, behind Japan, South Korea and Thailand. By 2050, the

country is expected to top the world in car volumes with approximately 611 million

vehicles on the nation's roads.

Following economic liberalization in India in 1991, the Indian automotive industry has

demonstrated sustained growth as a result of increased competitiveness and relaxed

restrictions. Several Indian automobile manufacturers such as Tata Motors, Maruti

Suzuki and Mahindra and Mahindra, expanded their domestic and international

operations. India's robust economic growth led to the further expansion of its domestic

automobile market which attracted significant India-specific investment by

multinational automobile manufacturers. In February 2009, monthly sales of passenger

cars in India exceeded 100,000 units.

India has emerged as one of the world's largest manufacturers of small cars. According

to New York Times, India's strong engineering base and expertise in the manufacturing

of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of

several automobile companies like hyundai

Motors, Nissan, Toyota, Volkswagen and Suzuki.

In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan

Motors plans to export 250,000 vehicles manufactured in its India plant by

2011.[8] Similarly, General Motors announced its plans to export about 50,000 cars

manufactured in India by 2011.

1


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In September 2009, Ford Motors announced its plans to setup a plant in India with an

annual capacity of 250,000 cars for US$500 million. The cars will be manufactured both

for the Indian market and for export. The company said that the plant was a part of its

plan to make India the hub for its global production business.[11] Fiat also announced

that it would source more than US$1 billion worth auto components from India.

The automotive industry is no stranger to change. Many of the changes occurring in the

global marketplace today - tightened credit markets in a capital-intensive industry,

declining consumer confidence, increased government involvement - are the most recent

manifestations of this reality.

The combination of these new realities with familiar industry challenges such as volatile

raw materials costs and fuel prices, tighter regulations, capacity and sourcing challenges

and the need to satisfy consumer demand for cleaner, greener cars, have combined to

create a business environment that has had a profound effect on the global automotive

industry.

2


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1.2. Company profile

In 1840, Mr. Simpson, a Scotsman, foresaw potential in developing India as a major

centre for building coaches and carriages. With a little spirit he nudged his dream and

Simpson & Co was born. Simpson became a pioneer in railway coaches, motor cars,

steam passenger buses, public service vehicles... India's Road Transport Industry was

ushered into a new era.

Simpsons became the first to recognise the potential of diesel as a fuel, and self started

the diesel era in the country in 1951. And in 1955, Simpsons became the first Indian

Company to indigenously manufacture diesel engines for surface transport vechicles.

Simpsons is the first Indian Company to indigenously manufacture diesel engines for

surface transport vechicles.

SIMPSONS WORK POLICY:

It is our policy to attain and maintain leadership in the market. We serve by providing

products and services which meet and exceed customer satisfaction ,expectation and

statutory and regulatory requirements with emphasis on continual improvement in all our

procees and with total commottment and involvement of all employees

PRODUCTS AND SERVICES:

Agriculture Application Engines

Gensets Application Engines

Industrial Application Engines

Marine Application Engines

VehicularApplication Engines

3


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1.3. Need for the study

The need for the study is to find out the effectiveness and usefulness of the materials

requirement planning which is used in Simpson & co ltd. It brings out an overall idea of

how effective is the materials requirement planning for production activity. With other

automotive companies coming out with new options to attract customers with main

concern on time and quality, the challenge of retaining the existing customers and

satisfying the same has become a top reference.

The main need for carrying out this study is to find out how much useful is the materials

requirement planning for employees working in Simpson & co ltd. How the materials

requirement planning helps them to carry out the work effectively without any hitchesand error. What can be done in order to make the materials requirement planning more

effective so that the raw materials come on time, the manufacturing process goes on

smoothly and the engines are delivered on time to the customer.

.

4


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1.4. SCOPE OF THE STUDY

The study reveals the employees preference, their needs, that is what they need in order

to make the material resource planning effective, how the material resource planning can

be effectively used in other departments of the company also. The number of respondents

includes only employees of purchase department. The study also covers the employees

awareness about materials resource planning and how to use them, factors influencing

them to use material resource planning and their most preferred options in material

resource planning. To maintain uniform levels in all levels of purchase department and

also to communicate effectively to vendor.

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1.5. OBJECTIVES

Primary Objective:

To understand how material resource planning process is implemented in the

company and to find out how effectively it is used.

Secondary Objective:

To bring out the features of materials resource planning.

To find out how effectively purchase can be done.

To find out what enhancements are required to improve the material resource

planning.

To find out the whether the information available in the MRP system is relevant

for making decisions.

To find out whether MRP software is reliable.

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1.7. LIMITATIONS OF THE STUDY

This study focuses only on the employee base of Simpson & co ltd. in Anna salaiplant Chennai and it is about the effectiveness of the material requirementplanning used in the plant.

The study does not provide a reliable source for judging the employee suggestionas it covers only 20 employees from the over all population.

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1.6. MATERIAL REQUIREMENT PLANNING

Materials requirements planning (MRP) is the logic (software system) for

determining the number of parts, components, and materials needed to produce a

product.

MRP provides time scheduling information specifying when each of the

materials, parts, and components should be ordered or produced. Based on

imputed FIXED LTs

Dependent demand drives MRP.

Example of MRP Logic and Product Structure Tree:

Given the product structure tree for A and the lead time and demand

information below, provide a materials requirements plan that defines

the number of units of each component and when they will be needed.

Product Structure Tree for Assembly A

8

E 1D 2 F 2D 3


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First, the number of units of A are scheduled backwards to allow for their lead time.

So, in the materials requirement plan below, we have to place an order for 50 units of

A in the 9th day to receive them in the 10th day.

L

LT = 1 DAY

Next, we need to start scheduling the components that make up A. In the case of

component B we need 4 Bs for each A. Since we need 50 As, that means 4x50 Bs.

Back the schedule up for the necessary 2 days of lead time.

9

Lead TimesB 2 daysC 1 dayD 3 days

E 4 daysF 1 day

DemandDay 10 50 ADay 8 20 B (Spares)Day 6 15 D (Spares)

Day: 1 2 3 4 5 6 7 8 9 10

A Required 50

Order Placement 50


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Finally, repeating the process for all components, we have the final materialsrequirements plan

10

Day: 1 2 3 4 5 6 7 8 9 10

A Required

Order Placement 50

B Required 20 200

Order Placement 20 200

SparesLT = 2

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

Day: 1 2 3 4 5 6 7 8 9 10 A Required

LT=1 Order Placement 50

B Required 20 200

LT=2 Order Placement 20 200

C Required 100


D Required 55 400 300

LT=3 Order Placement 55 400 300

E Required 20 200

LT=4 Order Placement 20 200

F Required 200



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Types of Time Fences

Frozen

No schedule changes allowed within this window.

Moderately Firm

Specific changes allowed within product groups as long as parts are

available.

Flexible

Significant variation allowed as long as overall capacity requirements

remain at the same levels.

11

1 2 13Weeks

FrozenModerately

FirmFlexible

Firm Customer Orders

Forecast and available

capacity

Capacity


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1.7. Material Requirements Planning System

Based on forecasts & customer orders a Material Requirements Planning

system: Creates schedules identifying the specific parts and materials required to

produce end items.

Determines exact unit numbers needed.

Determines the dates when orders for those materials should be released,

based on lead times.

Purchase Module

12


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1.8. VARIOUS PROCESSES

Introduction:

Purchasing in Simpson can be classified as OE components, Tools and Machine Spares,

Consumables, PMD Components , Branch local items , Engine job work (Cummins) and

Capital Items.

Purchasing includes all activities starting from Raising Indents, Approved SupplierList,

Sourcing rules, RFQ, Quotation, Creating, Amending and canceling Purchase

Orders(Standard, Blanket agreements and Blanket release), managing the Suppliers and

conducting analysis of purchase activities.

Purchasing activities are done atA

nnasalai ,Sembiam, Pmd, Cummins(CUB),Bangalore,Hyderabad,Trichy,Ooty organizations.

Depending on the type of Purchase items the Purchase Orders may be classified into

Standard Purchase order for OE components, Tools & M/C spares consumables,Capital

Items.

Blanket Purchase order for OE Components

Standard Purchase Order for Imported items.(Volvo, Tools & M/C spares and others)

Purchase Order for Outside Processing

The Detailed procedures followed in various Purchase departments are given below:

1.OE Components :

The Requirement is derived from Engg Department (New Components, Marketing

Department (Sales Plan) and consolidated through MRP to arrive at the actual Purchase

requirement. For New development components the engineering drawing is sent to

vendor development department with ECO to develop new vendors. They in turn get the

quotation from multiple suppliers and based on selection criteria vendors are short Listed.

For the New Vendors quotation is created and attached to ASL.The Standard Purchase

Order is created for getting sample items. The sample item is inspected assembled and

tested by production and quality departments. Once it is fully approved, the STA

department approves and implement the ECO. From that point onwards regular

procurement and production is started. For regular item the component price is amended


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after price negotiation with retrospective effect. For SSI suppliers the ED rates are also

amended in quotation based on the supplier turn over.

Quotation are maintained at organization level which means a vendor will have three

quotation for supplying the same item to three different locations.

2.Tools,M/C spares and Consumables:

Purchase requirements is received from various MFG departments through

Purchase indents(Manual).Tools are procured for old line, New Line and SJ3 line in the

shop floor.The production plan determines the tool requirement and planning is based on

tool life(For New line,SJ3) or min Max (Old Line). M/C spares and consumables are

procured on need basis as and when required by the shop floor. Both tools and M/C

spares can be either stocked or directly consumed.

Quotations are created for all the items based on market price and price amendments are

carried out as required.

3.P.M.D Purchase:

The part sale during the previous year forms the basis of requirement in P.M.D

department. The vendor base for O.E. components and P.M.D purchases are one and the

same, but the quotation price for parts department will be higher than OE rate. Price

amendments are similar to O.E.Components

4.Kits / Labour only engines Purchases: .

Engine components are received as KIT assemblies from Cummins B5.9 and

assembled in Simpsons. The kits are received thru 57F4 excise form and returned as

finished engines. Labour invoice is prepared for the same.

5.Capital Purchases:

Capital item purchase for plant and machinery and special projects are controlled

by Projects department. The process for imports is similar to Volvo Purchase. The Asset

purchases are not integrated to F.A. Module in E.R.P currently.

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PURCHASE SETUP ORGANIZATION WISE

Activity ASP SMP PMD Branch KMP

Types Of Purchase

OE 3 3 3 3 2Tools/Spare/Consumables

3 3 2 2Only

Consumables

OSP 3 3 2 2 2

Imports 3 3 3 2 2

Types of Purchase Documents

Blanket PO, Releasethru MRP

3 3 3 2 2

Standard PO 3 3 3 3 3

Inter Plant Transfers

STV 3 3 3 3 2

Purchasing Hierachy

Hierarchy 3 3 3 3 2

Supplier Master Maintenance

ItemCatalog

3 3 3 3 2

ASL 3 3 3 2 2

SourcingRule

3 3 3 2 2

Tax - ItemCategory

3 3 3 3 3

Note :Tax Category is defined at IMO organization level.

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Purchasing General Process:

Manage

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Vendor

Manage Qo

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Manage Domes

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Non-Apps

The purchasing activity is decentralized and managed at ASP, SMP and PMD locations

independently. The vendor base may be common or different across the different

locations.

There is a separate approval hierarchy for each organization with approval limits clearly

defined.

The components purchased will be of the following types:1.OE Components

2.Tools

3.Machinery Spares

4.Consumables

5.Capital Items 16


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PMD parts

Imported items

The buyers are allocated for each vendor/item at the Organization/Item master level and

the approval rules for Blanket order, Blanket Release, Standard PO and Purchase

requisition is configured.

The quotations forASP/SMP plant are managed at ASP material control department

while PMD quotations are managed by themselves. There is no approval hierarchy for

Quotations.

RFQ and Quotation Process (OE-New component Development)

RFQ Process for OE - For New ComponentDevelopment

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17


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Description:

The Current RFQ process is used only for Newly developed components. The

development of the vendor/item is outside the system and the quotation is finalized based

on the vendor quality and terms and conditions.

For existing items the Quotation is maintained organization level for all the vendors. It is

updated during price revision or tax changes and is used in MRP process to raise blanket

agreement and also in Standard PO thru Catalog.

Purchase Requisition process (Tools and M/c Spares)

18

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Description:

Two types of materials are purchased under Tools and Machinery spares. One is

stockable and another one is direct debits ( issued to works as a expense).

Purchase Requisition of Oracle is not currently used. The Manual Purchase requisition is

collected and pooled into a single Standard Purchase order.This is done for Machine

Spares/Tools/Consumables,Asset and Capital Items and Contractual Purchase.

The possibility of using Purchase requisition in Oracle Apps has to be explored. A new

approval hierarchy would be required in that case.

1. BLANKET AGREEMENT :

A blanket agreement is released every 6 months from ASP/SMP/PMD plants to all the

vendors for components purchase. This is based on the sales/production plan from the

marketing department. The total value of purchase is approved thru the Finance

committee and a Purchase Order is printed and sent to all suppliers.

The actual process is done in MRP module and is explained in detail in the process flow

chart attached above.

The sourcing rule is used extensively in the process and the latest quotation is picked up

for each vendor and updated in the Sourcing rule which is picked up by the MRP process.

The machine shop at ASP and SMP plants cater to the assembly line of both the plants.

The production requirement of the other plant is fed into MRP and Internal sales orders

are generated for transfer of material.

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2. BLANKET RELEASE :

Blanket release is done every month, based on the firm sales plan from marketing

department This forms the daily delivery schedule for the supplier and a daily

requirement statement is sent to all the suppliers with reference to the blanket agreement.

For blanket release process, the blanket agreement number is updated in the Sourcing rule

thru a concurrent program and MRP is run to generate releases.

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Updati0 1

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7

or2 3 6

/3

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an

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In M@

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CreationD

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Purchasing Module

PurchasingDocumentOpen

InterfaceProgram

PurchaseOrderE

eneratedA

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Populating Tax InformationForA

lanketPOcreated

PO Tax InterfaceProcess

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Blanket Release

Updation of ASL with

Quotation Process

For ASP/SMP Actual Sales Plan

given by Marketing on 20th of

every month forthe first fifteen

days of nextMonth

Loading the ForecastPlan.

Inputthe Plan Manually using

the Bucket Type -Daily

STV Demand for other

Orgs SMP/PMD/ASP

Copy the ForecastPlan as a

Demand and also copy Other

Organization STV Demand

Launch MRPProcess

ForPMD Pending Sale Order

Quantity is derived for 6 months

then arrive average Qty/Month

(Customized Report)

Loading ForecastPlan

Via Interface Process

Launch MRP

Create BlanketPurchase Release

Create Release Process

System Generates Concurrent Blanket

Release For each Item Vendorwise

Create Release Order Document

Create Vendor Schedule Statement

Send Purchase Agreement

To Vendor

Bl n et Rele se Process For OE t A P/ MP/PMD Or niz tion(Process is one t Or niz tion Level)

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Amendment Process for Blanket Agreement and Release

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Increase inOrderValue

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TaxChangeQuantity

Amendment

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ReleaseOrder

(Open)

Createnew

ReleaseOrder fo

rtheItem intheOpenBlanketPO

Approvedv

yDGM(Materials)

ReleaseOrder

Blanket

Forwardtonext

Hierarchy

ForwardtoFCB

forApproval

ApprovedOrder

1. Rate Amendments:

When there is a price revision , Quotation Price is amended with price break(for keeping

history) at each organization level for a vendor/item.

For Blanket order the price is applied from catalog manually and taxes are re-applied.The

P.O is sent for approval when the rate is increased.

For Blanket releases the existing releases cannot be corrected. A new release is done

throughA

uto create from Blanket P.O.For standard P.O catlog is re-applied and sent for approval.

2.Quantity Amendments:

Quantity amendments are done in the blanket releases and standard P.O .No approval is

required when the release value is within the blanket order value.

23


30/49

Quantity amendments are done whenever the supply schedules are not following the

agreed schedules due to various reasons like line changes, insufficient supplier capacity,

short supply and rejections.

Receipts

Receiw

tx

ry

cess fy

r

components,ools,

/

Spares &

nsumables -

Sx, S

x,

x

ReceiveMaterialat

Gate

No

Check TaxStructureand

Matchwiththe

Supplier Invoice

Vendor

CreateReceiptG1Document (using

parameters supplierand

Item, notconsideringOrders)

Check allopenoredrs

(Blanket release

Orders / StandardPOs)

SelectPO (Match

Orderquantitywith

supply)

SembiumMaterial IfSupplyQuantity is