For most manufacturing businesses, mastering Material Requirements Planning (MRP) is crucial for success. But what exactly is MRP, and how does it function within your operations? In this guide, we’ll break down the essentials of MRP, explaining how it works, why it’s important, and how it can streamline your manufacturing process, improve efficiency, and drive growth.
What is MRP?
MRP stands for Material Requirements Planning. It was the first computerised procedure for supply planning, and as you can learn within this article on the history of MRP, it was first implemented in the 1970s.
With the right MRP system in place, manufacturers are able to streamline their planning, production and inventory control. Without something to help them with their inventory management processes, they can run out of the manufacturing items they need and find themselves in a position where they are unable to fulfil their customer orders. With MRP in place, however, they will be in a better position to plan their operations and have the tools needed to control and organise the logistics of their inventory.
Ultimately, an MRP software is essential to the effectiveness and efficiency of any manufacturing operation. It can make all stages of the production process run more smoothly, especially during the later stages where there can sometimes be a risk of inventory shortages. The manufacturer will then be happy when their manufacturing operation is able to run to schedule and the client will be happy when they receive their order by the agreed deadline.
How Does an MRP System Work?
At its simplest, an MRP system needs to know four things: your bill of materials for each product, who supplies each part and how long they say they’ll take to deliver, how much you currently have in stock, and roughly when you need each item based on your production schedule.
Here’s what that looks like in practice. Say a customer places an order for a piece of equipment, or you place an internal order to build stock for the shelf. The system works through the bill of materials for that build, checks what’s already in stock and what’s already on order, and tells you what’s actually short. It can show you who to buy each shortage from, including whichever supplier you’ve previously marked as your first preference, and flags it early if the delivery date the customer’s been promised is sooner than your supplier can realistically deliver the parts. If you’ve got several jobs running at once, it combines the shortages across all of them, so you can place one larger order instead of several small ones.
That last point matters more than it sounds. Many small manufacturers end up reacting to orders as they arrive rather than looking at demand as a whole. Without an easy way to aggregate what’s needed across multiple jobs, they end up sending suppliers several purchase orders a week instead of one combined order. That means more admin for both sides, in purchase orders and invoices, and it often means missing out on volume discounts or the chance to check whether another supplier could do better on price or lead time.
Common Misconceptions About MRP
“It will make the decisions for me.” An MRP system will tell you what it thinks you need based on the information it has, but it can’t replace judgement. Experienced staff still need to review what the system suggests and use their own knowledge to sense-check it, particularly when something unusual is going on with a job.
“It will solve my planning automatically.” An MRP system is only as good as the information it has about your current constraints. If something changes that the system doesn’t know about, a supplier delay, a design change, a part that’s actually out of stock, it can’t account for that until someone tells it. It removes a lot of manual work, but it doesn’t remove the need to keep it informed.
“It’s too much work to get started.” This is understandable if you’ve got years of legacy data to clean up, or a complex bill of materials currently living in spreadsheets. But there’s a methodical way to get up and running in stages, rather than needing everything perfect on day one.
Why Small and Engineer-to-Order Manufacturers Need a Different Approach
Manufacturing resource planning was originally built for large factories running the same product over and over. Most small and medium equipment manufacturers work very differently. Customer priorities shift, suppliers occasionally let you down, and on engineer-to-order projects a design can change mid-build, throwing off a plan that assumed everything would go as designed.
Bill of materials complexity varies hugely between manufacturers, from a few dozen parts on a simple product up to two or three thousand on something more sophisticated. Getting this complexity under control tends to have a side benefit too: manufacturers who properly digitise their bills of materials often find it forces more consistency further upstream, at the design and CAD stage, since that’s where most of the information originates. Many also don’t have a formal parts numbering or categorisation scheme in place until they go through this process, and putting one in place is often as valuable as the planning benefits themselves.
There’s also a balancing act between two very different types of part. Long lead-time items are often high value, so you don’t want to order them too early and tie up cash, but you also can’t afford to leave them too late. At the same time, low-cost items like fasteners are often managed on a simple kanban basis rather than tracked precisely, because counting every screw in and out of stock isn’t practical. But when one of those inexpensive items is missed, it can hold up a build just as effectively as a missing high-value part.
Two examples show how this plays out. One generator manufacturer we worked with, building mostly to customer specification rather than a standard design, kept their stock records on a spreadsheet that wasn’t being kept up to date. The result was that electrical components costing hundreds of pounds each were being reordered for new jobs even when stock was already sitting on the shelf, a problem made worse by a disorganised stock room where items were hard to find. In another case, a manufacturer of industrial process machinery had a finished machine worth £150,000 held up in the factory for three weeks, because a washer costing less than a pound had been left off the bill of materials and was never ordered.
Quality matters just as much for smaller manufacturers, but anything that looks like extra paperwork tends to get pushed aside when things are busy, which is often why there’s a scramble when an ISO 9001 audit or renewal comes round.
The Benefits Of MRP Systems
With an MRP system in place, you can simplify the processes that are needed in your materials requirement planning. While some manufacturers will organise their MRP with spreadsheets or even just in their heads, you will find it easier to use the software that will save time and eliminate the possibility of human error. There are many benefits to using an MRP system. These include:
- Excellent customer service: When you utilise an MRP software within your business, you can deliver your project on time to the customer.
- Avoid material shortages: Shortages can lead to delays in work and unhappy customers, but with MRP, you need never run out of materials again.
- Improved production scheduling: With MRP, production managers will know when production operations need to be carried out.
- Manage cash: MRP can help you limit the amount of cash you have tied up in stock on hand, whilst ensuring on-time delivery to customers improves the invoice to cash cycle – ie. get paid faster!
Bill of Materials Management
Many small manufacturers struggle to keep on top of the latest and most accurate versions of their product and sub-assembly bills of materials. In many cases this information isn’t stored, but remains in someone’s head. This is a huge risk, if that knowledge leaves the business, even for a week’s holiday!
MRP systems can benefit small machinery and equipment manufacturers by capturing and maintaining up to date bills of materials for finished goods and sub-assemblies. With version control and historical information you have a record of changes and customer order patterns too.
For example if you need to find orders for a certain version of a product and refer to the bill of materials active at that time, how easy would it be with your spreadsheet based systems?
Benefits of MRP software for small businesses also include traceability of serialised parts and finished products, another task usually handled on spreadsheets. When something goes wrong, you’ve got the information at your fingertips, rather than hours or days trawling through paper and spreadsheets.
How often have you had to trace back through emails and spreadsheets to find the serial number of a faulty component? The process of adopting MRP software usually provides the added benefit of structuring your parts, BOMs (bill of materials) and product serial number data to create a clear and consistent method that the business can follow.
Accurate Material and Job Costs & Profitability
Modern MRP systems will track the materials and labour used on each manufacturing job, enabling tracking of how much individual jobs are contributing to the bottom line.
By enabling real-time allocation and stock adjustments, it becomes easier to track actual material usage, rather than relying on after-the-fact manual stock reconciliations.
Parts and Supplier Management
Keeping on top of parts data is a time consuming job for most equipment / machinery / plant manufacturing businesses. Parts lists are usually spreadsheet based and require a lot of maintenance to avoid the kind of errors and discrepancies that eventually lead to shortages in production.
On top of this, there is very little time left to review and challenge supplier performance. Information about supplier delivery performance as well as price competitiveness is not readily available when manual systems are in play.
Small manufacturing companies benefit from joined up stock management, MRP / requirements planning and purchase order processing which provides supplier performance information, on-time (or not) delivery data, returns etc at the touch of a button. Furthermore, supplier price fluctuations can be hard to track over time, but these variations can also be easily spotted when data is captured in a structured and easy to interrogate way.
Trust Your Financial Data
With sales pipeline, orderbook, purchase ledger and work in progress data often spread over various independent systems or spreadsheets, small manufacturing businesses can struggle to get real-time and reliable information. This leads to cashflow constraints, either because orders are delayed, or cash is committed to inventory for longer than needed.
Modern MRP forms part of integrated suites of tools designed to benefiting owners, managers and team with one centralised business management system. Current order book, future pipeline, purchase orders and work in progress can be monitored live in one place, enabling better budgeting, smarter decisions and less stress.
Release time for more valuable work
MRP Softwares provide other less tangible benefits that usually make the difference to business sustainability and growth in the longer term.
Whether it is company directors who still spend hours in manual spreadsheets for operational or reporting reasons, or team members who spend hours every day chasing purchase orders, an MRP software saves time across a small manufacturing business.
Not only does this release time for more valuable tasks, its reduces dependence on manual admin resource allowing the business to become more sustainable.
“So it was really important that we had a system that wasn’t just a standard CRM system that managed communications with the customer, but allowed us to be able to manage our stock levels and coordinating as well to make sure we had the right stock at the right time. So we were able to manage the business more effectively.”
David Lincoln-Lewis – Commercial Director Industrial Switchgear
Quality Management
Many equipment and device manufacturing companies run standalone Quality Management Systems in order to evidence their compliance with standards such as ISO9001. A well implemented integrated cloud manufacturing CRM and MRP system can provide the basis for real-time quality management.
Key to any QMS is demonstrating clarity and consistency of the business process followed, with key data captured at relevant stages, and exceptions or problems captured and handled. This enables an culture of continuous improvement that only leads to better ways of working and adding value to the customer.
However most companies still scramble to manually provide evidence of quality management prior to an auditor visit, something that consumes hours or days effort for no return.
By embedding your Quality Management System within your MRP system you can provide evidence in real-time and know that your team are following a well defined process.
Frequently Asked Questions
What does MRP stand for?
MRP stands for Material Requirements Planning. It’s a system for calculating exactly what materials and components a manufacturer needs, and when, based on production schedules and current stock.
Is MRP the same as ERP?
Not quite. MRP focuses specifically on planning materials and production, while ERP (Enterprise Resource Planning) is a broader system covering finance, HR, and other business functions too. Many small manufacturers only need the MRP piece, not a full ERP. See our full breakdown of MRP vs ERP for more detail.
What's the difference between MRP and MRP II?
MRP calculates material and component needs. MRP II expands on this to also cover capacity planning, scheduling, and financial data, giving a fuller picture of production operations. Most modern small-manufacturer software, including Flowlens, covers MRP II-level functionality under the simpler “MRP” name.
What information does an MRP system need to work?
Three things: your bill of materials (BOM), your master production schedule, and current inventory data. The system uses these together to calculate what needs to be ordered or made, and by when.
Do I need MRP software, or can I manage with spreadsheets?
Spreadsheets can work for very small or simple operations, but they don’t update in real time, can’t flag shortages automatically, and rely on manual accuracy. As order volume or product complexity grows, most manufacturers find spreadsheets become a source of errors and missed deadlines rather than a time-saver.
Is MRP only useful for large manufacturers?
No — MRP was originally built for large manufacturers, but modern cloud-based systems are specifically designed and priced for small and medium-sized manufacturing businesses, without the cost or complexity of legacy systems.
Ready to get started?
In summary, if you are ready to put old and disjointed ways of working to one side, MRP systems have many benefits, transforming small manufacturer’s processes and improving communication. This reduces strain on the owners and team, reduces errors and gives better outcomes for customers.
Watch a demo to see how Flowlens can help you save time, improve profit and customer satisfaction.
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