The bill of materials defines what components are used to assemble or manufacture one item. The components in the bill of materials are also items, so before creating a new bill of materials, all component items must be created in the system.

Material requirements planning (MRP) was introduced in the 1960s as a calculation method for production scheduling and was quickly replaced by Manufacturing Resource Planning (MRP II).

While ERP replaces MRP, MRP is still a crucial part of ERP applications.

Microsoft Dynamics NAV has a built-in MRP algorithm but also allows developers to create their own algorithms using the built-in data model. MRP analyzes dependent demand, which is demand that comes from production orders for components.

Master Production Schedule (MPS) is the term used for production planning and scheduling. An MPS is used for decision making, linking supply and demand. It analyzes independent demand, that is, demand that comes from sales orders, service orders, and the production forecast.

For manufacturing companies, it is crucial to be able to calculate real item costing and profitability. The cost of an item consists of the costs of all the components it was created from, as well as the production time and cost of any machinery used.

In production companies, high costs are incurred before an item can be even manufactured and sold. Machines need to be purchased and installed and new manufacturing plants may need to be built.

Item tracking is a relatively new concept that was introduced due to the need to be able to trace back an item to its original production batch in the supply chain. Whenever something is wrong with a specific item, it is interesting to see whether other items that were produced in the same batch have the same issue and maybe even require a recall of all items.

During the production process and especially at the end, quality control is a crucial stage. Items can be rejected completely or may require extra handling.

In quality control, items are checked for mistakes. The way this is done depends on the production process. In the automobile industry, all cars are checked individually, while in the chemical industry, parts of batches are taken out and checked, assuming that the rest of the batch has the same quality.

Quality control is always at the end of the production process but can also be in between each of the main production processes. Sometimes, the item that is manufactured depends on the result of quality control. In this case, each level of quality is represented by a special item number.

When manufacturing an item, the obvious components are the items in the bill of materials. It is becoming exceedingly crucial to use less energy and leave less waste materials in this process as our environment is becoming more and more vulnerable. As recycling is becoming increasingly important, these components have a bigger pressure on production cost and planning.

To learn more about production, it is interesting to study the materials provided by the Association for Operations Management (APICS). APICS is the organization that is recognized worldwide as the leading authority on manufacturing standards, similar to how the W3C is considered the authority on XML standards.