What is MRP?
Material Requirements Planning (MRP) is a production planning and inventory control system that calculates the materials, components, and quantities needed to manufacture products based on customer demand, production schedules, and lead times. An MRP system enables operations leaders to ensure the right materials arrive at the right time in the right quantities, minimizing excess inventory while preventing stockouts that could halt production.
Understanding MRP Systems
MRP systems transformed manufacturing by replacing manual planning processes with automated calculations that determine precise material needs. By analyzing the master production schedule, bill of materials (BOM), and current inventory levels, MRP generates purchase orders and production orders to keep manufacturing running smoothly without tying up excessive capital in raw materials.
The fundamental logic of MRP operates through time-phased planning. When a customer order requires 100 finished products by a specific date, the MRP system works backward from that deadline, calculating when each component must be available based on production lead times. If a product requires assembly time of two days and uses parts with a three-week supplier lead time, the system automatically schedules the purchase order to arrive five weeks before the delivery date—ensuring materials reach the production floor exactly when needed.
Modern MRP systems have evolved from mainframe-based calculations in the 1960s to sophisticated cloud platforms integrated with broader enterprise systems. Today's MRP solutions incorporate demand forecasting, capacity planning, and real-time inventory visibility, making them essential tools for manufacturers seeking to balance customer service levels with working capital efficiency. Companies implementing MRP typically reduce inventory carrying costs by 20-35% while improving on-time delivery rates.
Core MRP Components
- Master Production Schedule (MPS): A timetable specifying what products to manufacture, in what quantities, and when, serving as the primary input driving all material planning calculations
- Bill of Materials (BOM) : A hierarchical list of all components, sub-assemblies, and raw materials required to build each finished product, including quantities needed per unit
- Inventory Records: Real-time data on current stock levels, materials on order, lead times, safety stock requirements, and material locations across the organization
- Purchase Planning: Automated generation of purchase requisitions and orders based on calculated material needs, supplier lead times, and economic order quantities
- Shop Floor Control: Production order scheduling and tracking that coordinates manufacturing activities with material availability and capacity constraints
MRP in Practice
A furniture manufacturer implementing an MRP system experiences dramatic operational improvements. Before MRP, production planners manually calculated material needs using spreadsheets, often ordering components too early (tying up cash) or too late (causing production delays). Lumber might sit in the warehouse for months while hardware supplies run out unexpectedly. After implementing MRP, the system automatically calculates that an order for 50 dining tables due in four weeks requires 200 table legs, 800 screws, and 50 square meters of finishing material—generating purchase orders timed to arrive one week before production starts. Inventory turns increase from 4x to 8x annually while production delays from material shortages drop by 75%.
Related Concepts
- MRP II (Manufacturing Resource Planning): An evolution of MRP that expands beyond materials to include capacity planning, shop floor control, and financial integration across the entire manufacturing operation
- Enterprise Resource Planning (ERP) : Comprehensive business management systems that incorporate MRP functionality alongside finance, HR, sales, and other modules in a single integrated platform
- Just-in-Time (JIT) Manufacturing: A production philosophy that complements MRP by emphasizing minimal inventory levels and synchronized material flow based on actual demand signals
- Demand-Driven MRP (DDMRP): A modern adaptation that combines traditional MRP logic with pull-based replenishment strategies to improve responsiveness in volatile demand environments
- Advanced Planning and Scheduling (APS): Sophisticated planning systems that extend MRP with constraint-based optimization, finite capacity scheduling, and what-if scenario modeling
