What is material requirements planning? (MRP)

Having the right materials available at the right time is crucial for production efficiency.

That’s where Material Requirements Planning (MRP) comes in.

But what is MRP?

If you want to streamline your operations, reduce waste, and improve customer satisfaction, MRP is a powerful solution to have in your toolkit.

By implementing MRP, you can ensure you have the necessary materials to meet demand while minimizing inventory costs.

Understanding how MRP works and its impact on your supply chain can significantly enhance your business’s production and overall success.

Let’s take a closer look at MRP and how it can help your business.

Here’s what we’ll cover

What is MRP?

If you have a manufacturing business, MRP is essential for managing processes by calculating what materials are needed, when they’re needed, and in what quantity.

Developed in the mid-twentieth century, MRP has evolved into a critical component of modern manufacturing, helping companies streamline inventory and production scheduling.

This system works by using data from current inventory levels, the production schedule, and demand forecasts to determine what materials are required for production.

Essentially, MRP helps manufacturers answer three critical questions: what’s needed? When is it needed? How much is needed?

How MRP works

At its core, MRP is designed to balance supply and demand. It does this by taking into account current inventory levels, production schedules, and demand forecasts.

By calculating the materials required for production, MRP helps ensure timely ordering and delivery of components, avoiding shortages or overstock.

To achieve this balance, MRP breaks down production plans into detailed steps.

It starts by assessing the Bill of Materials (BOM)—a comprehensive list of all parts and raw materials required for each product.

Then, it compares the BOM with the current inventory status, determining which materials are already on hand and what still needs to be ordered.

Next, the Master Production Schedule (MPS) helps MRP align material orders with production timelines, ensuring that components arrive just in time for use.

The system also factors in lead times—the time it takes to procure materials or manufacture sub-assemblies—so that every part arrives when needed, reducing the risk of delays or bottlenecks.

These detailed calculations allow businesses to manage resources efficiently while minimizing excess stock or costly interruptions.

MRP inputs

For MRP to function effectively, it requires several key inputs.

These inputs help the system calculate material requirements and generate accurate production schedules.

Key inputs include:

1. Bill of Materials (BOM)

This is a comprehensive list of all the materials and components needed to manufacture a product.

2. Inventory status

The MRP system needs to know how much inventory is currently available to avoid over-ordering.

3. Master Production Schedule (MPS)

The MPS outlines what products need to be produced and when, serving as a guide for material planning.

4. Lead times

Accurate lead times ensure that materials are ordered well in advance and are available when needed for production.

Together, these inputs create the foundation for the MRP system to work effectively.

MRP steps and processes

An MRP system follows a series of steps to ensure efficient material planning.

These steps include:

1. Netting of requirements

This process compares what is needed for production against what’s already in stock, helping to determine the shortfall.

2. Lot sizing and ordering

The MRP system calculates the optimal order size to meet demand while minimizing costs.

3. Scheduling

Time-phased requirements are created based on the production schedule, ensuring materials arrive just in time for use.

4. BOM explosion

The system breaks down the BOM to identify all sub-assemblies and components required, ensuring every part is accounted for in the production process.

In this step the end product is “exploded” into all of its raw materials, parts, and assemblies required for production.

By following these steps—netting of requirements, lot sizing, scheduling, and BOM explosion—MRP systems provide manufacturers with a detailed and precise plan for material acquisition and production.

When executed properly, these processes allow businesses to optimize their manufacturing operations and maintain a steady flow of production, ultimately improving efficiency and cost control.

MRP outputs

Once the MRP system processes the inputs, it generates a set of outputs that help manufacturers manage production.

These outputs include:

Purchase orders

Instructions for suppliers on what materials need to be ordered and by when.

Work orders

Directives for the production team to begin work on specific products or components.

Rescheduling notices

Notifications to adjust production schedules or order timings due to changes in demand or delays in material supply.

These outputs provide a clear roadmap for manufacturing businesses, ensuring production runs smoothly and materials are used efficiently.

Advantages of MRP

Implementing MRP offers a range of benefits that can transform how businesses manage their production processes.

By ensuring that materials are available precisely when needed, MRP helps you avoid costly delays, streamline inventory management, and improve overall efficiency.

Whether you’re a small business or a large manufacturer, understanding these advantages can help you decide whether MRP is the right solution for optimizing your operations and meeting customer demands.

Here are some of the key benefits MRP can bring to your business.

Streamlined inventory management

By ensuring materials are ordered only when needed, MRP reduces the chances of overstock or
understock.

Reduced waste

MRP helps minimize excess materials and prevents costly production stoppages caused by material shortages.

Improved customer service

With better planning and scheduling, you can meet customer demand on time, improving overall satisfaction.

Better decision-making

MRP provides clear data and insights, helping manufacturers make informed decisions about production and purchasing.

MRP at work

As an example, consider a small furniture manufacturing company that produces custom tables.

Before implementing an MRP system, they often struggled with inventory management—either running out of key materials like wood or having excess stock that took up space and tied up cash.

They also faced delays in production because they didn’t have a clear view of what materials were needed and when.

After adopting a basic MRP system, the company began tracking its inventory levels and production schedules more efficiently.

The system calculated exactly how much wood and hardware they needed for each custom order and alerted the team when it was time to reorder materials.

This resulted in a 15% reduction in material costs and improved customer satisfaction by cutting lead times for deliveries.

For this small business, MRP was a game-changer, helping them stay competitive in a crowded market while maintaining lean operations.

Disadvantages of MRP

Despite its advantages, MRP systems do come with challenges, including:

Complexity

Implementing and maintaining an MRP system can be complex and time-consuming, particularly for small businesses without dedicated IT resources.

Dependence on accurate data

MRP is only as effective as the data it receives.

If inputs such as inventory levels or lead times are inaccurate, the entire process can fail.

Resource-intensive

MRP systems require ongoing management and maintenance, which can be costly for small businesses.

They may also require training and dedicated staff to ensure proper operation.

While MRP offers significant benefits in terms of efficiency and resource management, it’s important to consider the potential challenges.

The complexity of implementation, reliance on accurate data, and ongoing resource requirements can be barriers, especially for smaller businesses or those without robust IT infrastructure.

However, with proper planning, training, and a commitment to maintaining accurate inputs, these challenges can be mitigated.

Ultimately, understanding the disadvantages of MRP allows businesses to weigh the costs and complexities against the potential for streamlined operations and improved production outcomes.

MRP vs. ERP

While MRP specifically focuses on manufacturing processes, it is often a subset of a broader Enterprise Resource Planning (ERP) system.

While MRP deals specifically with planning resources needed in the manufacturing process, ERP systems integrate various business functions like finance, sales, and human resources.

Together, these systems provide businesses with a comprehensive view of their operations.

For example, MRP helps manufacturers determine what materials they need to meet production goals, while ERP might provide insights into how the cost of those materials impacts overall profitability.

Businesses looking for a more comprehensive system that covers all aspects of their operations may prefer ERP.

However, MRP offers a more focused solution for companies primarily concerned with optimizing their manufacturing processes.

Final thoughts on MRP

An MRP system can be an essential tool to optimize your production processes, reduce costs, and improve customer satisfaction.

By ensuring you have the right materials at the right time, MRP helps eliminate waste, avoids delays, and maintains efficiency.

If your business relies heavily on manufacturing and material management, consider implementing or upgrading to an MRP system.

It may be the key to driving productivity and gaining a competitive edge in your industry.