Introduction to Manufacturing in ERP

Manufacturing is the heart of any production business. It is where raw materials are transformed into finished goods that generate revenue. Yet in many Indian SMBs, the manufacturing function operates in a silo — production schedules live in the supervisor's notebook, material consumption is tracked on paper registers, and quality records are filed away in cabinets never to be seen again.

An ERP system brings manufacturing into the same integrated environment as inventory, accounting, sales, and purchasing. When a production order consumes raw materials, the stock ledger updates in real time. When finished goods are produced, the cost is calculated automatically from the bill of materials. When a quality inspection fails, the rejection is recorded and linked to the production batch.

This chapter introduces the core manufacturing concepts that Udyamo ERP Lite implements, and explains how they connect to form a complete manufacturing workflow.

What You Will Learn

• What Material Requirements Planning (MRP) means and how ERP implements it
• The difference between production planning and production scheduling
• How work-in-progress (WIP) tracking works in an ERP context
• The end-to-end manufacturing workflow in Udyamo ERP Lite
• How manufacturing connects to inventory, accounting, sales, and purchasing modules
• The Indian MSME manufacturing context and why ERP matters for it

Prerequisites

• Familiarity with basic ERP concepts (see Chapter 1 — What is ERP and Why SMBs Need It)
• Understanding of inventory management fundamentals (see Chapter 6 — What is Inventory Management?)
• Items, units, and locations should be set up in the system (see Chapters 7-9)

Material Requirements Planning (MRP)

Material Requirements Planning is the calculation engine at the core of manufacturing ERP. MRP answers three fundamental questions:

1. What materials are needed to produce the required finished goods?
2. How much of each material is needed, accounting for current stock and scrap?
3. When must each material be available on the shop floor?

MRP works backward from demand. If a customer orders 500 MS flanges to be delivered on 15 March, and each flange requires 2.5 kg of MS plate, 4 bolts, and 1 gasket, the system calculates total material requirements, checks existing stock, and identifies shortfalls that need to be procured. If MS plate has a lead time of 7 days, the system knows the purchase order must be placed by 6 March at the latest.

In Udyamo ERP Lite, the building blocks of MRP are:

• Bill of Materials (BOM) — defines what components go into a finished product and in what quantities
• Production Orders — specify what to produce, how much, and when
• Material Issues — record the actual handover of materials from the warehouse to the production floor
• Stock Ledger — provides real-time visibility into available stock for MRP calculations

Production Planning vs. Scheduling

These terms are often used interchangeably, but they refer to different levels of decision-making:

Udyamo ERP Lite focuses on production planning through production orders with planned start and end dates. Detailed shop floor scheduling at the machine and operation level is beyond the scope of ERP Lite — most Indian SMBs with 20 to 200 employees manage scheduling through their production supervisor's daily coordination, with the ERP providing the planning framework.

Capacity Planning Basics

Capacity planning ensures that your factory can actually produce what the production plan calls for. There is no point planning 1,000 units per week if your machines and workforce can only handle 600.

Capacity planning operates at two levels:

• Rough-cut capacity planning — a high-level check at the planning stage. Does the factory have enough total machine hours and labour hours to meet the production plan for the month?
• Detailed capacity planning — a granular check at the scheduling stage. Is Machine A available on Tuesday afternoon for the cutting operation?

For most Indian MSMEs, rough-cut capacity planning is sufficient. The production manager knows the factory's approximate weekly capacity from experience. The ERP system helps by providing visibility into the volume and status of open production orders, so the manager can see whether the factory is overloaded or underutilized.

Work-in-Progress (WIP) Tracking

Work-in-progress represents materials that have been issued to production but have not yet been converted into finished goods. WIP is both a physical reality on the shop floor and an accounting concept on the balance sheet.

In Udyamo ERP Lite, WIP tracking works through the interplay of three records:

1. Material Issue — when raw materials leave the warehouse and enter the production floor, a material issue records the transfer. Stock is deducted from the warehouse location.
2. Production Order (In Progress) — while the production order is in the "in_progress" status, the materials are considered work-in-progress.
3. Production Completion — when the production order is marked as completed, the finished goods are received into stock. The WIP is resolved.

Shop Floor Control

Shop floor control is the process of monitoring and managing what actually happens during production. It bridges the gap between the production plan (what should happen) and production reality (what actually happens).

In an ERP context, shop floor control includes:

• Tracking production order status — is the order planned, in progress, on hold, or completed?
• Recording actual dates — when did production actually start and end, versus the planned dates?
• Managing exceptions — putting a production order on hold when a machine breaks down, then resuming it after repair
• Material consumption — tracking what materials were actually consumed versus what was planned
• Quality checks — inspecting production output during and after the manufacturing process

How Manufacturing Connects to Other Modules

The true power of ERP lies in integration. Manufacturing does not operate in isolation — it touches every other module in the system.

The Manufacturing Workflow in Udyamo ERP Lite

The end-to-end manufacturing workflow follows five stages:

1. Plan — Create a Bill of Materials (BOM) that defines the components and quantities needed to produce a finished good. Create a Production Order that specifies what to produce, how much, and when.

2. Issue Materials — Create a Material Issue to formally transfer raw materials from the warehouse to the production floor. This deducts stock from the source location and creates an audit trail.

3. Produce — Start the production order. The status changes from "planned" to "in_progress". Track actual start and end dates. Handle exceptions by putting orders on hold and resuming them.

4. Inspect — Create Quality Inspections at any stage — incoming (raw materials), in-process (during production), or final (before dispatch). Record pass/fail results, severity levels, and corrective actions.

5. Receive into Stock — Complete the production order. Finished goods are added to inventory at the designated location.

For outsourced manufacturing, the workflow includes two additional elements:

Job Work Orders — send materials to an external contractor for processing. Track what was sent, when it is expected back, and what was actually received.

Job Work Receipts — record the return of processed goods from the contractor, including accepted and rejected quantities.

Manufacturing in the Indian MSME Context

India's MSME manufacturing sector has unique characteristics that shape how ERP should work:

Job work is pervasive. Many Indian manufacturers outsource specific processes — heat treatment, surface finishing, electroplating, machining — to specialized contractors. The GST framework includes specific provisions for job work under Section 143 of the CGST Act, requiring careful tracking of materials sent and received.

Batch production is common. Rather than continuous production lines, most Indian MSMEs run batch production — producing a quantity of one product, then switching to another. Production orders in Udyamo ERP Lite are designed for this batch-oriented workflow.

Quality awareness is growing. With increasing participation in automotive, aerospace, and export supply chains, Indian MSMEs are adopting formal quality management practices. ERP-integrated quality inspections replace paper-based quality registers and enable traceability from raw material to finished product.

Regulatory compliance drives adoption. GST has been a significant driver of ERP adoption among Indian MSMEs. The requirement to file accurate returns with detailed transaction data has pushed businesses away from manual record-keeping toward integrated systems.

Tips & Best Practices

Tip: Before diving into individual manufacturing features, map out your complete production process on paper — from raw material receipt to finished goods dispatch. Identify which steps happen in-house and which are outsourced. This map will guide your ERP configuration.

Tip: Start with a simple, single-level BOM for your highest-volume product. Get the full workflow working — BOM, production order, material issue, completion — before adding complexity with multi-level BOMs or job work.

Warning: Do not skip the material issue step, even if it feels like unnecessary paperwork. Without formal material issues, your stock records will drift from reality, your production costing will be inaccurate, and you will lose visibility into material consumption and waste.

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