Manufacturing ERP Guide: BOMs, MRP, Shop Floor and Costing

Manufacturing ERP promises a lot: automatic planning, accurate costs, real-time shop-floor visibility. Whether it delivers depends on how well the system models your production — and whether the data feeding it is good enough.

Model products realistically

Bills of materials

Multi-level BOMs describe what a product is made of. A few principles:

• Use phantom (kit) BOMs for sub-assemblies you never stock, so planning explodes straight through them.
• Use variant logic instead of duplicating BOMs for every colour or size.
• Track revisions with effective dates so engineering changes don't break work in progress.

Routings

Routings define how a product is made: operations, work centres and times. Be pragmatic. Model operations that matter for capacity and cost; don't split processes into twenty steps that nobody updates.

Make MRP trustworthy

MRP turns demand into proposed purchase and manufacturing orders. It's only as good as its inputs:

1. Stock accuracy — inaccurate stock produces wrong proposals.
2. Lead times — purchasing and manufacturing lead times must reflect reality.
3. BOM accuracy — wrong components mean wrong purchases.
4. Reorder rules — minimums, multiples and safety stock.

Start in recommendation mode. Planners review proposals and correct data issues; automation comes once proposals are consistently sensible.

Capture shop-floor data without slowing production

The shop floor determines whether WIP, labour costs and progress are real. Keep operator interfaces simple: start, stop, quantity, scrap reason. Tablets at work centres work well. If reporting takes operators longer than before, they'll stop doing it.

Machine integration — cycle counts and downtime from equipment — reduces manual entry where it's practical.

Get costing right with finance

Costing configuration is a finance decision:

• Standard costing sets expected costs and reports variances.
• Actual costing uses real material and labour costs per order.
• Overhead absorption allocates indirect costs via labour hours, machine hours or another driver.

Agree the approach before go-live. Wrong costing configuration is the most common reason manufacturers distrust margin reports.

Quality and traceability

Quality checks at receipt, in-process and final inspection capture non-conformances where they occur. Lot and serial tracking from raw material to finished goods enables recalls and answers customer questions quickly.

Phase the rollout

1. Core flows: sales, purchasing, inventory, accounting, simple manufacturing orders.
2. Shop-floor execution: work orders, operator interfaces, scrap.
3. Planning maturity: tuned MRP, capacity planning.
4. Advanced: maintenance, machine data, quality analytics.

Common pitfalls

• Turning on MRP with dirty data
• Over-detailed routings
• Ignoring operator usability
• Costing configured without finance

See our manufacturing industry page and manufacturing management solution for how we approach these projects.