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BIJ
8,2 Antecedents of MRP adoption
in small and medium-sized
firms
144 Alberto Petroni and Antonio Rizzi
UniversitaÁ di Parma, Parma, Italy
Keywords MRP, Technology, Small-to-medium-sized firms, Implementation
Abstract This research seeks to provide an understanding of the MRP adoption process using
classic adoption models for prediction. To this end, four classical adoption models were used to
provide the foundation for the constructs tested in this study. The framework of research strives
to investigate the relationships between benefit analysis, feasibility studies, organizational
willingness and the mediating construct, MRP positive evaluation. A statistical analysis on a
sample of 109 small and medium-sized firms was carried out which revealed that these constructs
play an important role in the decision making process leading, ultimately, to MRP adoption. The
analysis has, thus, lent support to the adoption models considered and might provide useful
indications to managers seeking to maximize the investment in MRP packages.

Introduction
Material requirements planning (MRP) systems help manufacturers determine
precisely when and how much material to purchase and process based upon a
time-phased analysis of sales orders, production orders, current inventory, and
forecasts. They ensure that firms will always have sufficient inventory to meet
production demands, but not more than necessary at any given time. MRP will
even schedule purchase orders and/or production orders for just-in-time receipt.
MRP modules takes the guesswork out of purchasing by automatically
calculating material requirements, and coordinating purchase orders and
production orders for timely receipt. Unrealistic manufacturing plans can be
easily identified, which may arise when there is not enough time to
manufacture an intermediate for a target production date, or if a vendor is
unlikely to deliver materials by the time they are required.
Since MRP determines requirements based upon master production
schedule (MPS), the modules offer several ways to help keep schedule current.
For instance, production orders may be scheduled based upon current customer
orders and/or inventory levels, thus accommodating both ``make to order'' and
``make to stock'' procedures. The MPS can also include product forecasts, which
may be calculated automatically using data from sales or production history.
Despite its simplicity, MRP systems hold great potential for making
significant contributions in the quest for productivity that would allow small
firms to compete in an international marketplace. However, in their zeal to
quickly correct several decades of poor manufacturing practices, many small
Benchmarking: An International
companies rushed to introduce MRP which they viewed to be a magical and
Journal, Vol. 8 No. 2, 2001,
pp. 144-156. # MCB University
simplistic method of doing business. In this context, manufacturers may have
Press, 1463-5771 overlooked a very important aspect of MRP systems: implementation. Despite
the growth in MRP systems sales worldwide, their implementation is, in fact, Antecedents of
often a cumbersome process (Manthou et al., 1996; Ritter, 1992). There are still MRP adoption
many problems involved with the effective running of MRP/MRP II (Smith,
1993; Turnipseed et al., 1992) and a general lack of confidence in the system is
frequently reported (Clode, 1993). Without software adoption the considerable
resources invested in MRP will be at best under-utilized and at worst wasted.
Therefore, the research seeks to provide an understanding of the adoption 145
process by predicting what stages small and medium-sized firms are most
likely to go through before they are ready for MRP adoption. Equipped with the
knowledge, managers can employ the necessary strategies to move their
organization efficiently through the adoption process so that funds and other
valuable resources will not be lost.
The purpose of this paper is to use four classic adoption models to predict the
MRP implementation process. Toward this end, the research follows a
conceptual framework of technology adoption found in management literature.
The framework states that managers must go through several stages including
awareness, identification of specific applications and their benefits, commitment
and evaluation before technology is fully integrated into line operations.
The paper is divided into four parts. First, a description of the framework
that provides the theoretical foundation for the constructs studied is explained.
Second, the methodology used to investigate the hypotheses is described.
Third, the analyses used to test the research hypotheses are highlighted.
Finally, the research findings from this study are presented and suggestions for
future research are discussed.

Problems in MRP implementation


The difficulties encountered by firms in the implementation process of MRP
may be traced back to a number of factors.
The first is the complexity of MRP systems, which, of course, is a relative
concept varying according to the level of knowledge and experience available
inside the firm prior to implementation (Wortmann, 1998; Wilson et al., 1994;
Luscombe, 1994). There are usually several parameters to be initiated when
implementing standard software (Bancroft, 1997).
Second, a considerable amount of intensive training is required. In fact, even
though end-users are usually trained on a limited amount of functionality, key-
users need to acquire considerable technical competence.
In general terms, many re-implementations of MRP systems are the result of
a failure to implement business changes along with the software. One of the
principal reasons why MRP and other large technologically sophisticated
systems fail is that organizations simply under-estimate the extent to which
they have to change in order to accommodate their purchase. The effective
management of technological change requires transformational leadership
(Brown, 1994).
Thus, a critical factor making implementation a hard task, is that the
implementation of MRP packages is often combined with the restructuring of
BIJ business processes. It is a feature common to large as well as smaller firms that
8,2 the adoption of advanced logistics techniques is coupled with an increased
integration of different functional areas and organizational units according to
the firm's work flows.
One of the issues largely felt as critical concerns the resistance of managers
and personnel to the organizational change that is induced by the adoption of
146 new technologies. To this regard, several authors have underlined the
importance of a sound involvement of shop-floor workers (Sommer, 1998; Weill
et al., 1991). Going from a basic to a more modern system is fraught with the
initial danger that people will not understand the capabilities and will simply
map the same processes onto the new system.
Valuable relevance has also been placed in the referring literature to
technological problems, such as the unsuitability of MRP systems to optimize
the internal workflow. In fact, frequent changes in schedules, a problem
referred to as production nervousness, is an obstacle to successful
implementation of MRP systems (Duchessi et al., 1988).
Summarising, MRP systems must be implemented as a total system and
implementation of any part of it without the rest will not be successful. A
piecemeal approach can create ``islands'' of MRP but can fall short of achieving
the company-wide improvements that increase the firm's competitiveness. This
implies that there are critical factors of MRP implementation that cannot be
overlooked without resulting in MRP failure. Obviously, implementation can be
hindered when a firm is not quite sure exactly what it is trying to implement.

Framework of technology adoption


Owing to the scarce amount of academic research pertaining to MRP
technology and methodology adoption, the foundation for this study rests in
the general technology adoption literature. Four classical adoption models
depicted in Table I were used to provide the foundation for the constructs
tested in this study. Examination of the classical adoption models reveals that
there are four basic constructs that must be tested. Below is a discussion of the
theoretical rationale for including each construct in the model.

Hierarchy-of- Innovation Communications


Stages effects model ``AIDA'' model adoption model model

Cognitive stage Awareness Attention Awareness Exposure


Knowledge Reception
Cognitive
Response
Affective stage Liking Interest Interest Attitude
Preference Evaluation Intention
Conviction
Table I. Behavior stage Purchase Desire Trial Behavior
Adoption models Action Adoption
The objective of the adoption process is to get the organization to behave or act Antecedents of
in a manner conducive to adoption. According to classical models, this MRP adoption
objective is reached after the adopting firm moves through three stages a panel
of experts have labeled: cognitive, affective and behavioral.
In the cognitive stage managers and executives of the firm mentally consider
or are exposed to the technology. After managers become aware of the
technology's existence, the firm moves into the affective stage. This stage is 147
based on managers' feelings toward the technology. If feelings are favorable
the firm will then move into the behavioral stage and adopt the technology. The
classic ``AIDA'' model supposes that the firm first becomes aware of the
technology (Strong, 1925). This awareness leads to interest. The interest in the
technology fuels a desire for the benefits the technology provides, which finally
leads to action or adoption of the technology. The ``hierarchy-of-effects'' model
(Lavidge and Steiner, 1961) follows a similar yet more detailed flow. This model
presumes the adopting firm first becomes aware of the technology's existence.
Awareness of the technology leads to fact gathering and knowledge of the
technology. From the knowledge obtained the firm's managers develop some
feelings about the technology. The positive feeling of liking leads to a
preference, which results in a conviction which ultimately leads to purchasing
or technology adoption.
The classic ``innovation adoption model'', like the previous two models,
assumes the firm travels through a cognitive stage (Rogers, 1962). During this
stage the firm becomes aware of the new innovation or technology. Then the
firm moves to the affective stage. In this stage, the adopting firm's interest
peaks and the firm begins to evaluate the benefits of the innovative technology
for its specific needs. Next, the firm moves into the behavior stage where it will
try or test the technology. Finally, after testing the technology, the firm will act
by adopting the new technology.
The fourth classic model presented is the ``communications model''. This
model was presented by Kotler in his 1984 work (Kotler, 1984). In the
awareness stage the adopting firm will first become exposed to the technology.
The exposure will lead to the technology's reception. The reception will in turn
lead to a cognitive or mental response. As the firm moves into the affective
stage, an attitude about the product will be formed. The attitude will manifest
into a firm's intention to act. According to the model this intention ultimately
leads to adoption behavior.
As previously presented, the four classical adoption models depicted in
Table I were used to provide the foundation for the constructs tested in this
study.
The constructs and definitions derived from the literature and used in this
study are the following.
. Analysis of benefits. Adoption and implementation rest on a preliminary
analysis of the potential benefits induced by the technology under
consideration. The greater the extent to which these benefits are
explored, the bigger the probability of adoption.
BIJ . Feasibility. This construct refers to the analysis of the compatibility of
8,2 the technology under scrutiny with the present technical system and an
actual estimation of both the changes required for a sound adoption and
the time required for these changes to occur.
. Organizational willingness. This refers to the openness shown by different
organizational members towards the technology and its application.
148
. Evaluation. This considers the positive outcome of decision-making
methodologies and procedures in support of a formalized or tacit
evaluation process.
Now that the theoretical rationale for including each construct in the model has
been presented, the constructs and the relationships between the constructs
will be hypothesized below.

Research hypotheses
The model depicted in Figure 1 shows the hypothesized relationships among
the theoretical constructs. The model shows the relationships between benefit
analysis, feasibility, organizational willingness, and the mediating construct,
evaluation. It is the positive evaluation that ultimately leads to MRP adoption.
The hypothesized construct relationships are presented below:
H1: The manager's awareness of MRP will lead to a positive evaluation.
H2: The manager's perceptions of the benefits of MRP will lead to a
positive evaluation.

Figure 1.
Hypothesized
relationships between
constructs
H3: The manager's knowledge of the implementation milestones and the Antecedents of
prerequisites of implementation will lead to a positive evaluation. MRP adoption
H4: The project team's perceptions of the organization's openness to MRP
will lead to a positive evaluation.
H5: The positive evaluation of MRP will lead to adoption.
149
Research methodology
Sample
The research design employed in this study was a postal survey. Data were
collected from small and medium manufacturing firms (SMEs) throughout
northern Italy. The term ``SME'' (small and medium-sized enterprises) covers a
variety of definitions and measures. In OECD Member countries, employment
is the most widely used criterion for determining firm size. SMEs are usually
defined as firms with fewer than 500 employees, although a number of
countries, including those in the European Union, use a lower cut-off point of
300. The latter criterion was used in the present research. The rationale behind
this choice is that it was meant to reflect the framework adopted by the OECD
that distinguishes between:
. micro establishments (1-19 employees): those firms that are generally
family-owned and perform an almost artisan type of activity;
. small establishments (20-99 employees); and
. medium establishments (100-299 employees).
The firms included in the survey were selected within the packaging and
packing machinery industry which was chosen for the vitality shown over the
last years in the adoption of MRP systems. The choice of this specific industry
is motivated by other reasons:
. the fact that these manufacturers represent the backbone of some local
economies of northern Italy, with approximately 85 percent of
production being sold abroad; and
. the importance that the machinery-building manufacturing
environments are gaining in terms of production planning issues.
The problems which arise with this respect are so relevant that most of the
major MRP and ERP commercial packages are striving to design and
implement new products to include modules specifically designed for these
type of firms.
The initial target population (590 firms) was obtained from listings provided
by the Italian Association of Automatic Packing and Packaging Machinery
Manufacturers (UCIMA) and from CIBUS database (an international food
exhibition annually held in Parma, Italy). These were carefully verified and
cross-checked to ensure complete and up-to-date information. A follow-up letter
and a telephone call were also utilized to maximize the response rate. A total of
119 firms were identified as MRP users. The term ``MRP'' is used as a general
BIJ term to include all MRP versions, namely, MPR I (i.e. materials requirements
8,2 planning), closed-loop MRP (i.e. MRP I with capacity planning and shop floor),
and MRP II (i.e. closed-loop MRP integrated with the other functions such as
finance and marketing), as in Duchessi et al. (1988), Sum and Yang (1993) and
Sum et al. (1997). All of the firms were contacted personally and ten refused to
be involved in the research project. A total number of 109 firms were, thus,
150 included in the final sample. Typical designations of the respondents included
the master scheduler, production and inventory manager, production manager,
plant manager and material handling manager.

Questionnaire design and development


In order to provide more complete information for the hypotheses and render
the preliminary version of the questionnaire valid, ``round-table'' meetings were
organized with six managers directly responsible for implementing MRP
systems within their respective firms. Each manager reviewed the proposed
questionnaire to clarify any confusing terms or concepts. The managers were
asked to identify, based on their experiences, those questions which they felt
were irrelevant and to determine if they could disclose all of the information
asked for in the questionnaire. All six reviewers indicated they found the
questionnaire very thorough and would have no problem providing all the
requested information as long as it was expressed in ordinal scales. After the
comments and suggestions of the panel were reviewed, the survey instrument
was refined by adding, deleting and modifying items. The instrument was then
pretested by a small convenience sample of firms. The instrument was again
modified to reflect the information obtained. This stage proved to be
particularly useful since it provided a direct insight into how specific
phenomena which came to the fore during the literature survey found actual
application in the industrial practice within the context under investigation.
This activity pursued two distinct objectives: first, to build a framework for a
structured research hypothesis concerning determinants, modes and the effects
of MRP implementation practices and, second, to decide upon which data
should be collected in the subsequent questionnaire survey. The results of this
process were edited for overlaps and repetitions to produce a final
questionnaire.
Respondents were asked to gauge the extent to which they agreed with any
of the several statements concerning implementation factors and success
measures. All items were formulated as short statements and respondents were
asked to register to what degree each statement applied to their own case (on a
seven-point Likert scale).
Specifically, the instrument was designed to address the research
hypotheses and to provide data for testing. The items were written to
operationalize the four constructs of interest. Table II lists the constructs and
the items used to gather information for this study.
As far as the analysis of benefits construct is concerned, some traditional
MRP benefits were submitted to the respondents' consideration. These include:
Items Construct Antecedents of
MRP adoption
Planning and inventory management Analysis of benefits
Improved operational efficiency
Improved organizational climate
Improved know-how and competence
Estimation of the time required for implementation Feasibility 151
Unambiguous definition of the implementation project milestones
Analysis of data accuracy required
Analysis of hardware and software
Compatibility with present systems and procedures of forecasting,
planning and scheduling
Involvement and willingness of shop-floor personnel Organizational
Involvement and willingness of other functional areas (purchasing, willingness Table II.
marketing, finance, etc.) Constructs considered
Involvement and willingness of top management and relative
Involvement and willingness of the appointed project team members operationalization

. customer satisfaction, that is product quality and customisation


together with higher response flexibility to customers' demands;
. planning and inventory management, that is the traditional indicators of
inventory cost, rotation and production scheduling;
. improved efficiency both in physical (i.e. work in progress) and
economic (cost) terms;
. organisational climate, that considers higher cooperation at the shop-
floor level and improved morale and satisfaction of the workers;
. knowledge and competence, that is the set of capabilities that the
implementation of MRP systems might lead to.
In the feasibility construct, elements such as the definition of the
implementation time horizon and the definition of milestones were considered.
Also, data accuracy was included, since it represents a widely recognized key
element in the implementation process of MRP. Data accuracy often refers to
market forecast data, inventory records, manufacturing lead times records and
number of items in the bills of materials (BOM).
The organizational willingness construct stresses the importance of
involving and motivating workers, top management and other functional areas
within the organization. Shop-floor personnel must, in this perspective, be
oriented to problem-solving, be able to work in teams, take their own decisions
and adapt flexibly to new situations (Turnipseed et al., 1992). Top management
support is necessary to generate acceptance and increase participation,
facilitate project management, foster adherence to formal planning and
promote operational usage. Involvement of members from different functional
areas within the implementation team has been stressed as a critical issue, too
(Duchessi et al., 1988).
BIJ Data analysis
8,2 In order to verify that each element was grouped into the proper factor, a
confirmatory factor analysis was used. Confirmatory factor analysis requires
(at minimum) that the researcher hypothesizes beforehand the number of
common factors. The hypothesis regarding the number of factors must be
based on an understanding of the nature of the considered variables and
152 expectation of which factor is likely to load on which variables (Long, 1994).
This requirement was satisfied.
Statisticians have recommended that researchers consider only those factor
models that require some empirical constraints in the data. A general formula
for determining the number of constraints to be satisfied by the data (Kim and
Mueller, 1982) yielded 59 constraints, which more than adequately fulfilled the
requirement. However, in practice, this process alone is not enough; the
researcher must also evaluate the fit.
It was then decided to employ Kaiser's measure to evaluate the fit of the
model utilized in this study. The resulting measure of sampling adequacy was
0.8865, which is fully satisfactory. Therefore, the number of empirical
constraints in addition to the measure of sampling adequacy indicate that the
data in this research is appropriate for factor analysis.
The initial factoring step involved principal-components analysis and was
used to determine the minimum number of factors that can adequately account
for observed correlations. The resulting number of eigenvalues greater than
one indicated that six factors were extracted. Rotation of the factor matrix
grouped the variables into five large factors and two factors containing only
two variables. This result violates the empirical specification that there should
be at least three variables clearly loading on each factor. The initial effort at
factor analysis yielded results which were unusable.
Next, the data were subjected to factor analysis utilizing an orthogonal
(Varimax) rotation, this time forcing a solution at three factors. While three or
more variables loaded on each factor and the rotation resulted in clear clusters,
they were not satisfactorily separated from each other.
A second factor analysis was conducted, this time utilizing an oblique
rotation (Oblimin). The resulting factor loadings were superior to those
achieved through orthogonal rotation. Reliability for the factor scores for the
MRP implementation elements and the criteria for success elements was
computed according to Kim and Mueller (1982). The Cronbach alpha reliability
coefficients were also satisfactory and were all above 0.70 (Table III).
Composite scores of the constructs were used as measures in multiple
regression analysis. Factor scales were constructed for each of the revised

Construct Cronbach's alpha

Table III. Analysis of benefits 0.75


Reliability of scale
Feasibility 0.83
items using Cronbach
alphas Organizational willingness 0.81
factors representing the elements of adoption stages. The regression method Antecedents of
was used to weight each variable in proportion to the strength of its relationship MRP adoption
to the common factor. The factor scales were saved as factor scores in the
analysis. These factor scores were used in testing the hypothesized cause-effect
relationships between adoption stages, positive evaluation and adoption.

Research findings 153


The data were analyzed using multiple regression modeling. The statistical
results are reported in Table IV and are graphically summarized in Figure 2.

Measures Standardized coefficients

Awarensss 0.198
Analysis of benefits 0.654*
Feasibility 0.407
Organizational willingness 0.678***
Positive evaluation 0.781**
Coefficient of determination 0.695
Table IV.
Notes: * Significant at the 0.01 level; ** Significant at the 0.05 level; *** Significant at the Multiple regression
0.1 level results

Figure 2.
Hypothesis testing
results
BIJ The model, F = 9.47, was significant at the 0.10 level and explains almost 70
8,2 percent of the variance associated with MRP adoption decision.
H2, reflecting perception of MRP benefits, was significant at the 0.01 level
(p-value = 0.001), suggesting that one can be 99 percent sure that managers
with an understanding of the benefits MRP systems provide will also have a
positive evaluation of the software.
154 Organizational willingness, represented by H3, was significant at the 0.10
level (p-value = 0.087), indicating that one can be 90 percent certain that
managers working in organizations that are open to adopting new technologies
will also have a positive evaluation of the technology.
The mediating construct, evaluation (H4), was found to be significant at the
0.05 level (p-value = 0.038). Therefore, as hypothesized, having a positive
evaluation of the MRP package will lead to organizational adoption.
No statistically significant support was found to H1 and H3, that,
respectively, link the awareness and the feasibility construct to positive
evaluation of the MRP system.

Conclusion
In conclusion, this research provides valuable insights into the MRP adoption
process. By using four classic adoption models as the theoretical foundation of
hypotheses development, a multiple regression model was formulated that
explains almost 70 percent of the adoption process. Preliminary analysis of
benefits, organizational willingness and positive evaluation of the technology
are all significant stages of the adoption process. With this knowledge,
managers can establish strategies that will help the organization pass through
these stages quickly and effectively. Most managers would agree that one of
the greatest barriers to implementing new technology is overcoming
employees' resistance to organizational change. This study can be extremely
helpful to managers because it alerts them to the stages that must be passed
through before adoption, thereby allowing time to develop strategies to
alleviate some resistance.
It is interesting to note that awareness of the MRP technology was not
significant and therefore does not contribute to the adoption process. Thus, just
informing managers about the technology will not lead to a positive evaluation.
It also seems that being aware of the time needed and the technical constraints
(feasibility) is also not significant and will not lead to a positive evaluation.
Therefore, while awareness of the technology's existence is necessary it is not
correlated with evaluation or MRP adoption. Likewise understanding the pre-
requisites of the technology application, while informative, is also not
significant to MRP adoption.

Future research
As for the possibility of generalization of the findings, it is worth noting that
both the research framework and the results obtained may generally be
representative of any firm belonging to the machinery-building industries (e.g.
machine tools, wood machinery manufacturers and so on). On the other hand, Antecedents of
when dealing with other types of production types (e.g. process, one-of-a-kind, MRP adoption
batch, etc.) the emphasis placed on some of the items considered in our study
will probably vary. For example, the problems related to data accuracy may
largely differ from a machinery manufacturer to a process firm.
This study applied four classical adoption models to understanding the
adoption of MRP technology at major railroads. Thus, only constructs included 155
in the classical models were tested. Future studies could test the impact of cost,
employee training, competition and other environmental factors on the
organizational adoption process.

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