Material Requirements Planning (MRP)

What Is Material Requirements Planning (MRP)?

Material requirements planning (MRP) is a computer-based inventory management system designed to improve productivity for businesses.

Companies use material requirements-planning systems to estimate quantities of raw materials and schedule their deliveries.

How Material Requirements Planning (MRP) Works

MRP is designed to answer three questions: 

1. What is needed? 
2. How much is needed?
3. When is it needed?

MRP works backward from a production plan for finished goods, which is converted into a list of requirements for the subassemblies, component parts, and raw materials needed to produce the final product within the established schedule.

In other words, it's basically a system for trying to figure out the materials and items needed to manufacture a given product. MRP helps manufacturers get a grasp of inventory requirements while balancing both supply and demand.

By parsing raw data — like bills of lading and shelf life of stored materials — this technology provides meaningful information to managers about their need for labor and supplies, which can help companies improve their production efficiency.

Steps of Material Requirements Planning (MRP)

The MRP process can be broken down into four basic steps:

1. Estimating demand and the materials required to meet it. The initial step of the MRP process is determining customer demand and the requirements to meet it. Utilizing the bill of materials — which is simply a list of raw materials, assemblies, and components needed to manufacture an end product — MRP breaks down demand into specific raw materials and components.
2. Check demand against inventory and allocate resources. This step involves checking demand against what you already have in inventory. The MRP then distributes resources accordingly. In other words, the MRP allocates inventory into the exact areas it is needed.
3. Production scheduling. The next step in the process is simply to calculate the amount of time and labor required to complete manufacturing. A deadline is also provided.
4. Monitor the process. The final step of the process is simply to monitor it for any issues. The MRP can automatically alert managers for any delays and even suggest contingency plans in order to meet build deadlines.

Material Requirements Planning (MRP) in Manufacturing

A critical input for material requirements planning is a bill of materials (BOM) — an extensive list of raw materials, components, and assemblies required to construct, manufacture or repair a product or service.

BOM specifies the relationship between the end product (independent demand) and the components (dependent demand). Independent demand originates outside the plant or production system, and dependent demand refers to components.

Companies need to manage the types and quantities of materials they purchase strategically; plan which products to manufacture and in what quantities; and ensure that they are able to meet current and future customer demand — all at the lowest possible cost.

MRP helps companies maintain low inventory levels. Making a bad decision in any area of the production cycle will cause the company to lose money. By maintaining appropriate levels of inventory, manufacturers can better align their production with rising and falling demand.

Types of Data Considered by Material Requirements Planning (MRP)

The data that must be considered in an MRP scheme include:

Advantages and Disadvantages of Material Requirements Planning (MRP)

There are several advantages to the MRP process:

Of course, there are also disadvantages to the MRP process:

MRP Systems: Background

Material requirements planning was the earliest of the integrated information technology (IT) systems that aimed to improve productivity for businesses by using computers and software technology.

MRP FAQs

What Is MRP?

Material requirements planning (MRP) is a system that helps manufacturers plan, schedule, and manage their inventory during the manufacturing process. It is primarily a software-based system.

MRP's objective is threefold:

1. Make sure raw materials are available for production when required
2. Maintain the lowest possible material and component levels
3. Plan and schedule manufacturing activities

How Does MRP Benefit a Business?

MRP benefits a business in the following ways:

What Are the Inputs of MRP?

The three basic inputs of an MRP system are the master production schedule (MPS), inventory status file (ISF), and bill of materials (BOM).

The MPS is simply the quantity and timing of all end goods to be produced over a specific time period. MPS is estimated through customer orders and demand forecasts.

The ISF contains important real-time information on a company's inventory. It lets managers know what they have on hand, where that inventory is, and the overall status of the inventory.

The BOM is a detailed list of raw materials, components, and assemblies required to construct, manufacture or repair a product or service.