A STUDY ON MATERIAL MANAGEMENT AT AN

AEROSPACE PRODUCTION

MOHAMAD NAUBFAL BIN AHAMAD

B051010158

UNIVERSITI TEKNIKAL MALAYSIA MELAKA

2014

UNIVERSITI TEKNIKAL MALAYSIA MELAKA

BORANG PENGESAHAN STATUS LAPORAN PROJEK SARJANA MUDA

TAJUK: A Study on Material Management at an Aerospace Production

SESI PENGAJIAN: 2013/14 Semester 2 Saya MOHAMAD NAUBFAL BIN AHAMAD mengaku membenarkan Laporan PSM ini disimpan di Perpustakaan Universiti Teknikal Malaysia Melaka (UTeM) dengan syarat-syarat kegunaan seperti berikut:

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untuk tujuan pengajian sahaja dengan izin penulis. 3. Perpustakaan dibenarkan membuat salinan laporan PSM ini sebagai bahan

pertukaran antara institusi pengajian tinggi.

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Pustakawan Perpustakaan UTeM Universiti Teknikal Malaysia Melaka Hang Tuah Jaya, 76100 Durian Tunggal, Melaka. Tuan/Puan, PENGKELASAN LAPORAN PSM SEBAGAI SULIT/TERHAD LAPORAN PROJEK SARJANA MUDA KEJURUTERAAN PEMBUATAN (MANUFACTURING MANAGEMENT): MOHAMAD NAUBFAL BIN AHAMAD Sukacita dimaklumkan bahawa Laporan PSM yang tersebut di atas bertajuk “A Study on Material Management at an Aerospace Production” mohon dikelaskan sebagai *SULIT / TERHAD untuk tempoh LIMA (5) tahun dari tarikh surat ini. 2. Hal ini adalah kerana IANYA MERUPAKAN PROJEK YANG DITAJA OLEH SYARIKAT LUAR DAN HASIL KAJIANNYA ADALAH SULIT. Sekian dimaklumkan. Terima kasih. Yang benar, ________________ Dr. Zuhriah binti Ebrahim Pensyarah Fakulti Kejuruteraan Pembuatan 06-3316760 * Potong yang tidak berkenaan

UNIVERSITI TEKNIKAL MALAYSIA MELAKA

A STUDY ON MATERIAL MANAGEMENT AT AN

AEROSPACE PRODUCTION

This report submitted in accordance with requirement of the Universiti Teknikal

Malaysia Melaka (UTeM) for the Bachelor Degree of Manufacturing Engineering

(Manufacturing Management) with Honours.

by

MOHAMAD NAUBFAL BIN AHAMAD

B051010158

871202-38-5273

FACULTY OF MANUFACTURING ENGINEERING

2014

DECLARATION

I hereby, declared this report entitled “A Study on Material Management at an

Aerospace Production” is the results of my own research as cited in references.

Signature : ………………………………………….

Author’s Name : ………………………………………….

Date : ………………………………………….

APPROVAL

This report is submitted to the Faculty of Manufacturing Engineering of UTeM as a

partial fulfilment of the requirements for the degree of Bachelor of Manufacturing

Engineering (Manufacturing Management) with Honours. The member of the

supervisory committee is as follow:

(Signature of Supervisory)

………………………………………….

(Official Stamp of Supervisor)

i

ABSTRAK

Dalam setiap organisasi perkilangan memegang stok dari beberapa jenis. Kerana

stok ini adalah mahal dan memerlukan pengurusan yang berhati-hati untuk

membolehkan perubahan dan ketidaktentuan dalam membekal dan permintaan.

Masalah kawalan inventori adalah hampir universal dan telah membangunkan

pelbagai pendekatan untuk mengatasi masalah ini. Kajian ini adalah diarahkan untuk

mencadangkan alat-alat dan teknik-teknik yang sesuai bagi pengurusan inventori

yang lebih baik bagi kos inventori yang tinggi di Syarikat X. Kajian ini bertujuan

untuk mencadangkan penyelesaian untuk peningkatan produktiviti di unit

Pengurusan Bahan pengeluaran Aeroangkasa. Matlamat ini disokong oleh tiga

objektif: i) untuk mengenal pasti item-item kos inventori yang tinggi dan mungkin

memberi kesan kepada prestasi pengeluaran, ii) untuk menganalisis punca kos

inventori yang tinggi iii) untuk mencadangkan penyelesaian untuk mengelak /

mengatasi kos inventori yang tinggi. Rajah Ishikawa dan FMEA telah digunakan

untuk menganalisis punca inventori yang tinggi bahan masuk. Hasil analisis

menunjukkan prepreg telah dikenalpasti sebagai item kelas A bahan masuk yang

menyumbang kepada kos inventori yang tertinggi dalam Syarikat X. Punca-punca

utama kos inventori yang tinggi prepreg telah dijelaskan sebagai SOP yang tidak

sesuai daripada Sistem Pesanan Bahan yang ditentukan melalui skor RPN tertinggi

analisis FMEA. Secara keseluruhannya, kajian ini mempunyai penyelesaian yang

dicadangkan seperti SOP, Pengurusan Visual, Penggunaan Ruang, Perancangan

Kemudahan dan model EOQ di mana alat-alat dan teknik-teknik untuk

mengurangkan kos inventori yang tinggi dalam pengeluaran Aeroangkasa di

Syarikat X.

ii

ABSTRACT

In every manufacturing organisation holds stocks of some kind. As these stocks are

expensive and need careful management to allow for variations and uncertainty in

supply and demand. Problems of inventory control are almost universal and has

developed many approaches for overcome these problems. This study is directed to

propose appropriate tools and techniques for better inventory management of high

inventory cost at Company X. This study aims to propose solutions for productivity

improvement at Material Management unit in Aerospace production. The aim is

supported by three objectives: i) to identify high inventory cost items and its effects

to production performances, ii) to analyse the root-causes of high inventory cost, iii)

to propose solution for avoiding / overcoming the high inventory cost. Ishikawa

Diagram and FMEA have been used to analyse the root-causes of the high inventory

of incoming material. Result of the analysis shows prepreg has been identified as

Class A item of the incoming material which contributes to the highest inventory

cost in Company X. The main root-causes of high inventory cost of prepreg have

been clarified as inappropriate SOP of Material Ordering System which determined

through the highest RPN score of FMEA analysis. Overall, this study has proposed

solutions such as SOP, Visual Management, Space Utilization, Facilities Planning,

and EOQ models that are the tools and techniques to reduce high inventory cost in

Aerospace production at Company X.

iii

DEDICATION

To the soul of my beloved parents, Ahamad A. P. Mustaffa and Sahubarnisa M.

Ibrahim and lovely friends and housemates. There is pleasure to working with all of

the persons who contribute and thank you for the support and encouragement.

iv

ACKNOWLEDGEMENT

First of all, my acknowledgement goes to my PSM supervisor, Dr. Zuhriah binti

Ebrahim for her thought, patience and continues guidance towards this case study. I

also would like to thank all academics staffs in UTeM for teaching me so many

things that I have never been thought before. Also to all staffs in other departments

in this university for the cooperation they have given. Besides, I would like to thank

Head of Continuous Improvement Departmnet, who makes this case study possible

through supportive information and allowing me to conduct case study at his

employed company. My special thanks to the soul of my family and friends for the

continuous support and encouragement.

v

TABLE OF CONTENT

Abstrak i

Abstract ii

Dedication iii

Acknowledgement iv

Table of Content v

List of Table ix

List of Figures x

List of Abbreviations, Symbols and Nomenclatures xii

CHAPTER 1: INTRODUCTION 1 - 8

1.0 Preliminary 1

1.1 Background of the Study 1

1.2 Problem Statement 2

1.3 Aim and Objectives 4

1.4 Scope of the Study 4

1.5 Background of Company X 5

1.5.1 History of Company X 5

vi

1.5.2 Core Business 5

1.5.3 Process Flow 6

1.5.4 Inventory Level 6

1.6 The Importance of Study 8

1.7 Expected Outcome 8

CHAPTER 2: LITERATURE REVIEW 9 - 22

2.0 Preliminary 9

2.1 Material Management 10

2.1.1 Types of Inventories 12

2.1.2 Inventory Models 14

2.1.3 Selective Inventory Control 16

2.1.4 ABC Analysis 18

2.2 Lean Tools and Techniques 20

2.2.1 Ishikawa Diagram 20

2.2.2 Failure Modes and Effects Analysis 20

2.2.3 Standard Operating Procedure 21

2.3 Summary 22

CHAPTER 3: METHODOLOGY 23 - 34

3.0 Preliminary 23

3.1 Planning and Activities 23

vii

3.2 Data Collection and Sample Size 24

3.2.1 Quantitative Data 24

3.2.2 Qualitative Data 26

3.3 Methodology 26

3.3.1 Identify High Inventory Cost Items and Its Effects to

Production Performances (Objective 1) 27

3.3.2 Analysing the Root-causes of High Inventory Cost

(Objective 2) 29

3.3.3 Propose Solution for Avoiding / Overcoming the High

Inventory Cost (Objective 3) 32

3.4 Summary 34

CHAPTER 4: RESULT AND DISCUSSION 35 – 65

4.0 Preliminary 35

4.1 Identify High Inventory Cost Items and Its Effects to Production

Performances (Objective 1) 35

4.1.1 Data Analysis 35

4.1.2 Result and Discussion 38

4.2 Analysing the Root-causes of High Inventory Cost (Objective 2) 43

4.2.1 Data Analysis 43

4.2.2 Result and Discussion 46

4.3 Propose Solution for Avoiding / Overcoming the High

Inventory Cost (Objective 3) 51

4.3.1 Data Analysis 51

viii

4.3.2 Result and Discussion 52

4.4 Summary 65

CHAPTER 5: CONCLUSION AND RECOMMENDATION 68 – 69

5.0 Preliminary 68

5.1 Conclusion 68

5.2 Recommendation 69

REFERENCES 70

APPENDICES 74

Appendix A1 Data for Actual Total Inventory Cost (January 2013)

Appendix A2 Data for Actual Total Inventory Cost (February 2013)

Appendix B Actual Total Inventory Cost

Appendix C Gantt Chart for Final Year Project (PSM I & PSM II)

Appendix D Interview Questions

Appendix E FMEA for High Inventory Cost of Incoming Material

at Company X

Appendix F1 FMEA Scale Description (Severity)

Appendix F2 FMEA Scale Description (Occurrence)

Appendix F3 FMEA Scale Description (Detection)

Appendix G Standard Operating Procedure (SOP)

Appendix H Proposed Manual for MRP System User

Appendix I Facility Planning and Design for Production Lines

ix

LIST OF TABLES

Table Description Page

No. No.

2.1 Process of Management (Datta and Menon, 1998) 11

2.2 Type of Inventories (Datta, 1996) 13

2.3 Selective Inventory Control Titles and Criteria

(Chitale and Gupta, 2006) 17

2.4 Purpose of ABC Analysis (Gopalakrishnan and

Sundaresan, 2006) 19

4.1 List of Inventory Items and Cost (RM) in 2013 37

4.2 Production Performances for Whole Inventory In

Terms of Costs and Units 37

4.3 Production Performances for Prepreg (Class A item) 37

4.4 Results of ABC Analysis 39

4.5 Price and Consumption of Class A Items 39

4.6 Production Performances for Total Inventory Cost In

Terms of Prepreg Cost Contribution 44

4.7 Possible Root-causes sorted From Highest to Lowest

RPN Score with Proposed Solution 53

4.8 Current Practice of Ordering Decision 64

x

LIST OF FIGURES

Figure Description Page

No. No.

1.1 Actual Total Inventory Cost and Budget in January

2013 3

1.2 Actual Total Inventory Cost and Budget in February

2013 3

1.3 The Business Process Flow of Company X 7

2.1 Material Flow Process (Chitale and Gupta, 2004) 11

2.2 Types of Inventory Model (Hadley and Whitin, 1963) 15

3.1 The Process Flow of the Study 25

3.2 Objective 1 Flow Chart Activities 28

3.3 Objective 2 Flow Chart Activities 30

3.4 Objective 3 Flow Chart Activities 33

xi

Figure Description Page

No. No.

4.1 Comparison of Production Performance In Terms

of Output and Target Quantity versus Costs

Contribution 41

4.2 Comparison of Production Performance In Terms

of Output and Target Quantity versus Costs

Contribution 42

4.3 Percentage of Prepreg Cost Contribution in the

Total Inventory Cost 45

4.4 Ishikawa Diagram 47

4.5 Flow Chart of Current Practice SOP’s 54

4.6 Flow Chart of Proposed SOP’s 55

4.7 Current Shelf Life Information Tag 59

4.8 Proposed Shelf Life Information Tag 59

4.9 Current Freezer Layout 60

4.10 Proposed Space Linings Freezer Layout for

FIFO System 60

4.11 Proposed FIFO Tag 61

4.12 Current Layout in Production Lines 63

4.13 Proposed Layout in Production Lines 63

4.14 EOQ Models 64

4.15 Costs by Order Quantity 66

4.16 Inventory Level 67

xii

LIST OF ABBREVIATIONS, SYMBOLS AND

NOMENCLATURE

ABC - Always Better Control

EOQ - Economic Order Quantity

FMEA - Failure Modes and Effects Analysis

JIT - Just In Time

MRP - Material Requirement Planning

RPN - Risk Priority Number

SOP - Standard Operating Procedure

1

CHAPTER 1

INTRODUCTION

1.0 Preliminary

This chapter consists of background of the study, problem statement, aim

and objectives, scope of the study, and background of Company X. The importance

and the expected results of this study are also presented at the end of this chapter.

1.1 Background of the Study

The term inventory used in daily life as manpower inventory, equipment

inventory, documents inventory, raw materials inventory, spare parts inventory,

semi-finished items inventory, finished goods inventory, and others. There is a

different between stock and inventory which; stock consists of all goods and

materials stored by an industry or organisation where supply of items which kept for

future use; but inventory is a list of items held in stock. Waters (2002) have

explained that an immediate problem here is that Americans use “inventory” to

mean both the list of items in stock, and the stock itself. The primary function of

inventory is to serve the customer demand and the primary goal is to minimize

2

inventory investment while still meeting functional requirements. The system that

controls the inventory must be compatible with the goals, functions, and demands of

the particular inventory (Toomey, 2000).

Continuing inventory management effort is required to achieve goals. When talking

about financial aspects, management of an organization inventory to be at the top of

the agenda in the manufacturing industry. An important problem is to make decision

which inventories control system should be chosen so as to counter back

appropriately when the system is subject demand fluctuating. Booney (2000)

discussed the product introduction process, which was taken to include product

design, together with manufacturing systems design that is need to control the

inventory.

Thus, this study focus on investigate the high inventory cost in Company X which

using selective control analysis to find the root-cause. From the understanding of the

problem, this study attempts to propose solutions using appropriate Inventory

Management Tools and Techniques; and Lean Tools and Techniques in order to

reduce the high inventory cost at Company X.

1.2 Problem Statement

Company X experiences problem on frequent high inventory at incoming

material that contribute to additional costs in production operation. There is no

specific guideline to control the incoming material. When come to the material

management, it is more concerned with planning, organizing, and control the flow of

material to achieve quantity at right time and right place at good quality with a

minimum cost. Though the ordering decision mostly made by Supply Chain

Department, but there is still lack of communication within the departments (e.g.

Warehouse and Production Line). Therefore, it is crucial for Company X to improve

the efficiency of its inventory system. As can be seen in Figure 1.1 and 1.2, there

was a fluctuation on the actual total inventory cost for the two months; January (see

Appendix A1) and February (see Appendix A2) of 2013.

3

Figure 1.1: Actual Total Inventory Cost and Budget in January 2013.

Figure 1.2: Actual Total Inventory Cost and Budget in February 2013.

4

There is also providing actual total inventory cost from March 2013 until September

2013 in Appendix B. The actual total inventory cost (red font) is compared with

budget (blue font). Most of the actual total inventory cost of the inventory item

exceeds the budget. The figures prove that high inventory has occurred in the

Company X. Thus, these studies end up proposing solutions using appropriate tools

and techniques for avoiding / overcoming the high inventory cost.

1.3 Aim and Objectives

The aim of this study is to propose solutions for productivity improvement at

Material Management unit in Aerospace production. Thus, three objectives set to

achieve this aim:

i) To identify high inventory cost items and its effects to production

performances.

ii) To analyse the root-causes of high inventory cost.

iii) To propose solution for avoiding / overcoming the high inventory

cost.

1.4 Scope of the Study

The emphasis of this study is concerned on the improvement of incoming

material management which are the main ingredients used to manufacture the

composite parts that having high inventory cost. The study was conducted in Supply

Chain Department, Warehouse, and Production Line in Company X (e.g. Boeing,

Airbus, etc.). The solution will be proposed for productivity improvement at

Material Management unit in Aerospace production.

5

1.5 Background of Company X

1.5.1 History of Company X

Company X is a wholly owned subsidiary of Company XY. It was

incorporated on 1994 as the manufacturing unit of Company XY, focusing on the

manufacturing of composites components for both aerospace and non-aerospace

segments. As the manufacturing unit of Company XY, Company X is equipped with

state-of-the-art equipment and machineries situated in Composites Technology City

in Batu Berendam, Melaka, Malaysia. Their main customers are Spirit Aero

Systems, Goodrich Aero structures, Airbus UK, EADS CASA, SONACA SA,

EADS MAS, GKN Aerospace Services, and BAE Systems Land System. Company

X is set to bring the local aerospace industry to a greater height amidst the stiff

competition in the global aerospace industry. Their strengths are their experience

and skilful personnel, who have attracted a number of leading aerospace companies

offering similar contract work.

1.5.2 Core Business

The core business of Company X is manufacture panel or parts by using

composite technology. Composite technology main ingredients are the prepreg

which use to place inside the panel or parts before curing. Company X has supplier

and customer mostly in foreign country and few in Malaysia.

6

1.5.3 Process Flow

In Company X, same like all other manufacturing organisation start from

supplier until customer. Figure 1.3 shows the flow of inventory system for the

Company X. In the system, invoice between internal customers are used to control

the inventory inside Company X. Each colour in the flow and figure indicates by the

legend box for each category from internal process owner until general which is

Company X.

1.5.4 Inventory Level

Company X produces many panel and parts in order to meet customer

demand by using main ingredient which is prepreg inventory, indirect inventory, and

inventory of chemical, AGS inventory, inventory of honeycomb, inventory of

metallic parts, and inventory of BOF. This entire inventory consumes total cost from

January 2013 until September 2013 with RM558,500,437.00. From this point of

view, this inventory are invest by Company X such a huge amount if estimate for

one year.