MRP systems for manufacturers: the ultimate guide

MRP (or material requirements planning) systems are tools for calculating the raw materials, sub-assemblies, and components a manufacturer needs to create a product. 

MRP systems perform this task following three steps: 

1. Monitoring the current level of raw materials and components on hand;
2. Understanding which inventory is low and needs reordering; and
3. Scheduling the production or purchasing of those materials. 

When it comes to answering the question of what is MRP system and how they work, that’s it in a nutshell.   

However, although it appears to be this way, MRP systems aren’t considered to be lean production and are considered by many practitioners to be antithetical.   

But that doesn’t mean they don’t go hand-in-hand!   

So that’s everything you need to know about what is an MRP system. But what does it mean in terms of manufacturing?    

What Is MRP in Manufacturing?         

What is MRP system for manufacturers is a piece of software used for automating their production, scheduling, and inventory.  

Though this definition, especially for MRP systems in manufacturing, has changed over time since there have been big strides in technological advancements in this area.   

Traditionally, MRP systems used to be considered a “Pull” type of production system. However, as the software and technology improved, capable MRP systems became able to support all types of production workflows: 

• Make to Order (MTO);
• Make to Stock (MTS); and,
• Assemble to Order (ATO).     

That means the MRP systems of today allow growing manufacturers to be flexible with their production lines, to change up their production speed depending on the different challenges they encounter.   

So, we’ve already touched upon this a little bit. But, how exactly does an MRP system work in manufacturing? 

How Does MRP Work?  

The way earlier MRP system iterations automate these areas and meet demand efficiently is by following the bill of materials (BOMs) of a manufacturers product, which details: 

• The raw materials, subassemblies, and components used;
• The quantity of these items;
• Total costs; and,
• Operational steps.     

The BOMs will highlight the relationship of the items that go into making your product as either parent or child. The finished goods as the parent item, at the top of the hierarchy.   

What is an MRP system? A tool for handling your raw material, WIP inventory, and finished goods.  

But, the MRP’s of today use inventory data and your master production schedule (MPS) to automatically calculate how much material you need and how much your manufacturing process will use.  

However, back to inventory types, as the inventory items within your BOM are classified as one of two things: 

• Independent demand; and
• Dependent demand.

Dependent Demand     

These are the items you need to make your finished goods, the raw materials, and components. The demand for these items will all depend on how much is needed to make the next level component in the BOM hierarchy.  

Independent Demand      

This is essentially your finished goods, as the amount you need is all determined by several factors such as: 

• Market demand;
• Sales history; and
• Forecasted demand.  

To help manufacturers track and manage all these dependencies and figure out how many items are needed by the specific dates within the master production schedule, most turn to MRP systems to achieve this task. 

Another element of understanding what is an MRP system is how they track lead time. 

There are two common types of lead time manufacturers concern themselves with, and that’s: 

• Material lead time – the ordering and delivery time of materials; and
• Manufacturing lead time – the time it takes to make finished goods and ship them to the customer. 

MRP systems automatically estimate these lead times for you, by using the information provided with your BOM and MPS. 

And that’s the basics of how MRP systems work. But, as we already mentioned, MRP systems have evolved over the years since their inception, so what type of MRP systems are available on the market today? 

What Are MRP I and MRP II Systems?   

Let’s cut straight to the chase. Everything we’ve mentioned above is MRP I, but to condense that quickly:   

What is an MRP I System? 

MRP I (or Material Requirements Planning) is a tool for using different inputs, like: 

Material costs; 

• Material availability;
• Expected demand;
• Forecasted demand;
• Staffing ability; and
• Machinery capacity.  

And using the data to calculate if you have adequate levels of material, labor, and machinery to meet market demand or reach company production goals. 

MRP I System Features: 

• Inventory control;
• Bill of materials (BOM); and
• Master production scheduling (MPS). 

It doesn’t get any simpler than that.  

But as we already mentioned earlier, as the technology improved, the functions an MRP system performed increased, and lead the way to a beefier system, dubbed an MRP II system.  

MRP and ERP systems come from the same family of software, but perform different functions.

What Is an MRP II System?          

An MRP II system, unlike its predecessor, stands for Manufacturing Resource Planning as this improved system includes the original functions of MRP I, but integrates other business applications too, including: 

• Advanced demand forecasting;
• Machinery capacity scheduling; 
• Quality assurance; and 
• General accounting.   

The MRP II system quickly replaced the MRP I system as it provides the same features but also incorporates real-time functionalities given you a tool to centralize your logistics, marketing, and general financing.  

MRP II System Features:   

• Inventory control; 
• Bill of materials (BOM); 
• Master production scheduling; 
• Equipment maintenance scheduling; 
• Accounting and financial planning; and 
• Forecasting demand. 

So, there you have it, the differences between MRP I and MRP II system.  

Next, let’s look into the importance of MRP systems for your business.

PRO TIP: Why not take an MRP System for a test drive to see how it will improve your production line?

Here are the key factors that you should consider priorities when choosing the right MRP system for your small manufacturing business.   

Until recently, manufacturers had been stuck between a rock and a hard place.  

On the one hand, was the choice of working with overly complex webs of inefficient Excel spreadsheets, and on the other were the expensive ERP systems of the big players.  

It’s not been an easy ride. 

Thankfully there are now affordable Manufacturing Resource Planning systems (MRP) available to meet the needs and budgets of growing manufacturers.  

Most businesses implement MRP software when they want to rid themselves of the back and forth between overly complex webs of spreadsheets.  

But there are plenty of other advantages to MRP, all depending on which one you go for. They can offer benefits ranging from optimal inventory control to implementing better production planning strategies and more.   

That doesn’t mean that all the systems on the market are worth your time though.  

Here are 7 key factors that you should consider as priorities when choosing the right MRP for your manufacturing business.      

1.Taking Control of Your Inventory Should be a Priority           

A good MRP keeps track of your stock. An exceptional MRP gets your inventory to optimal levels.  

What you want is software that’s going to provide you with live inventory control that guides you in making purchases at the ideal times. This way the benefits of achieving optimal inventory are twofold:  

1. Excess stock is reduced, which cuts on carrying costs; and
2. You won’t run out of stock, so no more delayed deliveries.  

That means you need to look for software that manages raw materials and products, sets reorder points for when they are low, and has the capability to make stock adjustments in real-time.   

If all these features are present, you’re onto a winner. 

2. Strong Production Planning Capabilities are Key to MRP                       

Production planning processes and resources is a two-sided coin.   

Both heads and tails need to be balanced to achieve maximum efficiency.   

One side of the coin is finding an MRP which will help you schedule your operational and human resources. This means that your team are focused and do not get overwhelmed, while your machinery won’t be double-booked.   

Scheduling tasks for your team might not be something you expect from an MRP, but human resources are as critical to your operations as your material resources.   

The other side of the coin is prioritizing your productions. A smart production scheduling software will give you the control to rank manufacturing jobs whilst automatically considering the material availability.  

Make sure that both sides are covered. That way you can save money by keeping an efficient schedule and are also able to make changes to your production according to demand. 

3. Find Software that Gives You Accurate Costing                 

One of the most desirable features of MRPs is production cost reporting, and there’s a good reason too.   

Keeping track of your costs can be mission impossible using spreadsheets, especially if the cost of raw materials is not consistently stable.   

Finding the right MRP can help you gain accurate costing, and this in turn will allow you to make better pricing decisions that are based on real product margins.  

There are two key aspects to look for:  

1. The capability to create multi-level product recipes with sub-assemblies; and
2. Product recipes that track manufacturing costs as well as the cost of materials.  

Having both elements will give you a complete and up to date bill of materials so that you can sell products at the right price.

4. Get Complete Order Fulfillment Cycle                           

MRP systems should make your life easier.   

The more elements your order management system covers the better.   

Look for software that makes sales, production, and inventory one seamless flow. This is going to maximize the use of the system and reduce the amount of work you have to do as more features will be automated.  

MRP systems that have a complete order fulfillment cycle  are going to give you the flexibility to make to order or make to stock depending on your manufacturing needs.  

So, if you have a dedicated sales team, for example, they can then use these tools to create orders themselves. On top of that, they will know the completion dates without having to be in constant communication with your production team.   

The perfect solution is a system that integrates your entire workflow from a single dashboard.

5. Look for the Important Integrations                        

Most scaling manufacturers use multiple online services to meet their needs, whether it be for accounting or sales.  

Ideally, you want to find an MRP that integrates with a solid e-commerce platform like Shopify and accounting software like QuickBooks.   

That’s going to make a critical difference to the manufacturing seller, as it means that you have full visibility of stock, production, and sales.   

6. Friendly Face Matters                       

One of the beauties of having an MRP system is that it can be used by different members of your team while reducing miscommunications between them.   

That’s why you want software that is understandable by all the people who use it.   

Whether you’re someone that uses it every day or only needs to check on things once in a while, the interface should be friendly enough to be accessible to both.  

This might seem superficial, but the reality is that if a system looks simple then there’s probably been effort put in to make it easy to use as well.   

It will reduce a lot of anxiety in your company if you go for a colorful solution rather than a mind-numbing program that looks like it jumped out of the ’90s.  

7. Go for Cloud-Based Software If You’re Looking to the Future                    

As well as it being user-friendly you also want your MRP to be accessible anywhere by anyone. Cloud manufacturing software means that anyone in the business including yourself can have full visibility no matter where they are.  

Let’s say for example your production manager goes away for a week-long conference. As long as they have internet access, their trip will not disrupt your business workflow.  

Remote work is on the rise, and this is a solution that gives your team the flexibility to work away from the office.

The big decision for small manufacturers, how do you go about choosing software from a large collection of MRP systems for small businesses available on the market today?   

Well, first things first, you’re going to want to research the market to determine which software gives you the tools you need to manage your business. 

To get you started, there are software review sites, such as Capterra or Software Advice, that provides ratings of software based on customer reviews and even have their own top choices lists. For example:   

• Capterra’s Top 20 MRPs List; and
• Software Advice’s Front Runners Guide to Top Manufacturing Software, August 2020.

But, that’s just the beginning of a long journey, here are our 9 Insider Tips for Smooth Implementation of MRP Systems for Small Business:

1. Know Your Needs

Whether you’ve already chosen the software you want to go with or still browsing, it is vital to know your reasons.   

Otherwise, you’re going to lose focus very quickly.  

To stress this point – you need to know what your needs are and what the problems are you’re trying to solve.   

If it’s a large-scale inventory you’re struggling with, then find out if the system can handle your number of products. If it’s raw material inventory booking you need, then check if there’s support for that before you start implementing.   

An awesome place to start if you’re unsure is to look at where you’re currently using the greatest number of spreadsheets. Those are the elements you must ensure the MRP of your choice will be able to take care of. 

It’s the tediousness and inefficiency that you want to get rid of, so make it the focus when finding and implementing your chosen software. 

2. Free Trial = Everything

You can read about all the millions of features that a software has to offer and still not know what it’s like until you try it out yourself.  

It’s so often the case that a business buys into a great sales pitch and then finds that the system is much more difficult to use than expected. Or it doesn’t even match their needs.  

It can happen, for example, that an MRP software says that it tracks your stock so that you know when you are low on materials. However, it might not tell you that there is no visual cue for this, so you need to check the system manually every day to find out what you’re missing.  

This means your workload has not been reduced that much, and sadly you wouldn’t know until you had already bought in.  

That’s why you should look for MRP that offers a free trial with demo data so that you can play around and start imagining your business down the line.

3. Prime Your Data 

One of the major speed bumps in MRP implementation is the lack of organized and accurate data.   

Firstly, that means making sure that your inventory lines up with the reality of your stockroom. You can give your new system a head start by doing a thorough stock check at this time and updating your numbers.  

Secondly, you need to get your spreadsheets in order in terms of materials and products. That means having your inventory matched with their SKUs, variants, costs, categories at the ready so that you can import your data as soon as needed.  

Katana offers a data import template, which makes transferring your inventory from your spreadsheets effortless. Or, if you already have a Shopify store, then you can use the integration to bring your finished products over from there at the touch of a button.

PRO TIP: Learn everything you need to know about Shopify inventory management and take your e-commerce manufacturing business to the next level.

4. Do an Integrations Checklist

Most cloud manufacturing software works with other online applications to give you a broader set of options for areas like accounting and online sales.  

That’s why you must consider the current and future integrations of the system you’re going for. Make sure that you can, for example, connect to QuickBooks for accounting and that you have a Shopify inventory integration available.  

But even more importantly, you need to know how far the integrations go and what the limitations are.   

Just because there is an integration in place doesn’t mean that you can do everything you imagined. There could be workarounds involved, and you want to know if they’re worth investing the time in. 

5. Look for Expert Support  

Every discipline has its guru, and MRP implementation is no different.  

See if there is an implementation meeting offered by the company you’re signing up to. Having a guru by your side to set things up (even if virtually) can make a huge difference in the time you save working it all out yourself.  

You also want to find out if there are demo videos available to give you an idea of how the whole system works.  

Here’s a demo video from Katana Smart Manufacturing Software to give you an idea of what to be looking for in terms of expert support.

6. Separate Testing and MRP Implementation

You want to know how your new system works before you go all in, right?  

That’s why it’s useful to start with a testing period where you can play around and iron out the details. You could start with one product to keep the process simple. Probably best to go with your key product if you have one, and that can serve as the centerpiece to work around.  

After you’ve tested that, and the ironing has been done you can move on to implement your system to its full capacity. If you’ve already run your tests properly, then you shouldn’t be overwhelmed by any unexpected jabs.  

But even then, you want to constantly be reviewing your processes to make sure that you’re getting the most out of it. Especially in the first couple of months. 

7. Get Everyone in the Loop                    

It becomes a lot easier to make sure your MRP implementation goes to plan if you have your team to support you. Doing this alone just means you’re going to have to go back on yourself later down the line. Better to get it right on the first run, right? 

MRP implementation can be a lengthy process. Depending on the complexity of your business, it could be a matter of weeks, but more realistically it’s a matter of months.  

Still not bad considering ERPs take an average of 6-24 months to implement.  

But that’s why everyone who’s going to be using it must be kept up to date with the potential changes and training required ahead of time. This is a significant incoming change and should be treated as such.   

It’s going to make the transition a lot smoother if the team is less resistant and more receptive to the change.   

Give regular updates as to what stage you’re at, but even more importantly, use the opportunity for feedback. Especially from those who will be using it most frequently – like the production planner.  

Your team can give insight into the nuances and details you might miss.   

Remember: Team effort required. 

8. Be Prepared for Change

Your processes might have to be slightly adjusted when executing MRP software.   

Each system works differently, so your workflow could be affected by features like reorder point and perpetual inventory. 

Take this as a positive step and run with it. Otherwise, you’ll be fighting against the system you’re trying to implement. 

That’s only going to slow things down.   

It’s much better to understand the benefits and spread the love to your team.

PRO TIP: There should always be someone with executive decision-making power involved so that the MRP implementation can be as effortless as possible. 

9. Set Aside Sufficient Time and Resources

Failing to plan is planning to fail. So, make sure you set the time aside to come up with a detailed plan and checklist of your MRP implementation process. It’ll be worth the effort. 

The process of MRP implementation could be one of the biggest projects you embark on.   

A common mistake is underestimating the amount of time and energy it takes to set up.  

The implications are wide-spanning, and so there should be at least one person who is wholly responsible for the implementation.   

That means taking the time to get things right, understanding the system, and swinging into action.

It can be a great idea to have an implementation plan written out, which you update every time you take the next step.   

Here’s an example list of steps:  

1. Analyze requirements;
2. Confirm that MRP has capacity for requirements;
3. Ready the test data;
4. Go into testing;
5. Ready the full data;
6. MRP implementation with full data;
7. Run integrations;
8. Make adjustments for optimization; and
9. Review progress and whether requirements reached.