Production Planning and MRP Basics for Small Manufacturers

By Grocito15 October 2026

Production planning is deciding what to make, how much, when and with which people, machines and materials. Material requirements planning (MRP) is the calculation behind it: it takes your demand, your bill of materials, your current stock and supplier lead times, then suggests what to buy and what to produce, and by when. It only works if the underlying data is accurate.

Key takeaways

Production planning connects demand, materials, machines and people so you can promise realistic delivery dates.
A bill of materials (BOM) lists everything that goes into a product. A routing lists the steps and work centres that make it.
MRP turns demand, BOMs, stock and lead times into purchase and production suggestions. It is arithmetic, not magic, so bad data gives bad plans.
Your production style matters: make-to-stock, make-to-order and engineer-to-order need different planning approaches.
Inventory accuracy is the foundation. Fix counts and BOMs before buying software.
Introduce software in phases, starting with items, BOMs and stock, then planning, then shop-floor tracking.

What is production planning?

Production planning answers four practical questions every week:

What have customers ordered, and what do we expect to sell?
What do we need to make or buy to meet that?
Do we have the materials, machines and people to do it in time?
What is the order of work that gets things out the door on schedule?

A small workshop can answer these in someone's head for a while. As products, customers and suppliers multiply, that person becomes a bottleneck and a risk.

What is a bill of materials?

A bill of materials (BOM) is the recipe for a product: every component, raw material and sub-assembly with the quantity needed for one unit. BOMs are usually multi-level. A finished chair may contain a seat assembly, a frame assembly and a packaging kit, and each of those has its own BOM beneath it.

What makes a good BOM?

One clear version that production actually follows, with a change history.
Units of measure that are consistent (metres, kilograms, pieces) and conversions that are correct.
An allowance for normal scrap or wastage where it is predictable.
Alternative or substitute components recorded where they are genuinely allowed.

If the BOM on the system differs from the one on the factory floor, MRP will order the wrong things with great confidence.

What are routings and work centres?

A routing lists the operations needed to make a product, in order: cutting, welding, painting, assembly, inspection. Each operation takes place at a work centre, which is a machine, a bench or a group of workers treated as one unit of capacity. Each operation has a setup time and a run time. Routings let you calculate how long a job takes and which resources it occupies.

How does MRP work in plain English?

Think of MRP as a patient planner that does the same thing for every item:

Demand: how many are needed, from customer orders and forecasts.
BOM explosion: break each finished product into the components required.
Stock and open orders: subtract what you already have and what is already on order.
Lead times: work backwards from the due date using supplier and production lead times.
Suggestions: the result is a list of purchase orders to place and production orders to start, with dates.

The planner then reviews the suggestions. MRP does not know that a supplier is on holiday or a machine is broken unless you tell it. Treat its output as an informed draft, not an order.

How do you plan capacity?

Materials are only half the picture. Capacity planning compares the hours the plan needs at each work centre with the hours available, after allowing for maintenance, breaks, shifts and realistic efficiency. If a machine is overloaded, your options are to move work to another week, add a shift, outsource an operation or change the promised date. It is better to find that out when you accept the order than when the customer chases.

Make-to-stock, make-to-order or engineer-to-order?

Make-to-stock: you produce based on a forecast and sell from finished stock. Fast delivery, but a risk of excess stock. Forecast quality matters most.
Make-to-order: you start production when an order arrives, usually holding raw materials and sub-assemblies. Less finished stock, but customers wait for the lead time.
Engineer-to-order: each order needs design work before production. BOMs and routings are created per project, so project tracking and change control matter more than classic MRP.

Many businesses mix these, for example making standard components to stock and assembling final products to order. Planning each product family in the way that fits it is better than forcing one method across everything.

How do scheduling and shop-floor tracking fit in?

Once orders are released, a schedule decides the sequence. Shop-floor tracking records what is actually happening: which job is at which work centre, how much has been completed, how much was scrapped, and how long it took. Simple methods work: a tablet at each station, a barcode scan to start and finish a job, or a quantity entered at the end of a shift. The value is in comparing plan with actual so the next plan is more realistic.

Why is inventory accuracy the foundation?

MRP trusts your stock numbers. If the system says you have fifty units of a component and the shelf holds twenty, the plan will not order more and production will stop. Build habits first:

Give every material a fixed location and a label.
Record receipts, issues to production and scrap at the time they happen.
Run regular cycle counts on key items and investigate differences.
Use the same units of measure everywhere.

Our guide to inventory management mistakes and how software fixes them covers these habits in more detail.

How do you manage supplier lead times?

Record the real lead time for each supplier and item, based on what actually happens, not the quoted figure.
Identify long-lead and single-source items and plan buffer stock or alternatives for them.
Review late deliveries regularly and update the lead time when it has drifted.

How do you handle changes and rework?

Orders change, designs change and things go wrong. Plan for it:

Use controlled engineering changes: a new BOM version with an effective date, so work in progress is not confused.
Record rework as its own operation with its own time and reason code, rather than hiding it.
Re-run planning when major changes occur, and communicate revised dates to customers early.
Track reasons for scrap and rework, because patterns point to the real cause.

What about quality records and traceability?

Depending on your products and customers, you may need to show which materials went into which finished batch, what checks were done and who did them. At a general level this means recording batch or lot numbers for key materials, linking them to production orders, saving inspection results and keeping records for as long as your customers, industry or local rules require. Requirements vary by product, sector and country, so confirm what applies to you with a qualified quality or compliance professional.

When do spreadsheets stop working?

The same BOM exists in several versions and nobody is sure which is current.
Planning takes a day or more each week and depends on one person.
Shortages are discovered at the machine, not in advance.
Delivery dates are promised without checking capacity or materials.
You cannot tell what a job really cost.

How do you choose software and roll it out?

Most small manufacturers use MRP or ERP modules rather than building their own. Our guide on ERP versus standalone apps will help you decide whether to use an all-in-one system or connect specialist tools.

Data prerequisites: a clean item master (codes, descriptions, units), accurate BOMs, routings with realistic times, supplier lead times, and opening stock that matches the shelf.

A phased rollout:

Items, BOMs and stock control with scanning.
Purchasing and MRP suggestions, reviewed by a planner.
Production orders and shop-floor tracking.
Capacity planning and costing.

Starting small lets the team trust the numbers before the system drives decisions. If you want to explore tailored tools, look at our inventory and supply chain software and our work for the manufacturing and distribution industry.

Common mistakes

Switching on MRP with inaccurate stock and BOMs.
Treating suggestions as orders without a planner's review.

A worked example

Imagine a small furniture maker that builds tables to order. Their old process was a shared spreadsheet and a lot of memory. They first clean up their item list and write one BOM per table model, then count stock by bin. Next, MRP reads a customer order, explodes the BOM, notices that the oak tops have a long supplier lead time and suggests ordering them immediately, while the legs, which they make in-house, are scheduled for later. The owner can now quote an honest delivery date, and the planner spends time reviewing exceptions instead of rebuilding the spreadsheet.

FAQ

What is MRP in simple terms?

MRP, or material requirements planning, calculates what materials you need and when. It combines customer demand, the bill of materials, current stock and lead times to suggest purchases and production runs.

What is the difference between a BOM and a routing?

A BOM lists the materials and components needed to make a product. A routing lists the operations and work centres needed to turn those materials into the finished item, in order, with times.

Does a small manufacturer need MRP software?

Not always. If you have few products, short lead times and a person who keeps everything accurate, spreadsheets can work. When shortages, version confusion and planning time start to hurt, software becomes worth considering.

Why does MRP give wrong suggestions?

Almost always because the inputs are wrong: inaccurate stock counts, outdated BOMs, unrealistic lead times or missing open orders. Fix the data and the habits that maintain it before you blame the software.

Next steps

Pick your five most common products and check that their BOMs match what the shop floor really uses, then count the stock of their components. If you would like help choosing or building production planning software that fits your workshop, you can contact us.