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Material Requirements Planning (MRP)

Quick Definition

Material requirements planning (MRP) is the computer-based process of preparing, scheduling, and controlling inventory and raw materials to be purchased and used in the manufacturing process. MRP is a part of push manufacturing as raw materials are purchased based on forecasted demands.MRP works backward from production utilizing forecasted sales to determine raw materials and components needed to meet anticipated sales. Using this method it is important to understand the manufacturing cycle so raw materials arrive on time and to the right place of production.Proper MPR is a crucial aspect in manufacturing as an abundance of unused inventory can negatively affect profitability and a short supply of inventory slows production.

What is Material Requirements Planning (MRP)?

Material Requirements Planning (MRP) is a comprehensive and integrated system for efficiently managing the flow of materials and resources within a manufacturing company. MRP is a critical component of both manufacturing operations and Enterprise Resource Planning (ERP) systems, providing real-time insights and tools to streamline inventory management, production planning, and overall supply chain operations.

Key aspects and components of Material Requirements Planning (MRP) include:

  1. MRP System: An Material Requirements Planning system is a software application that automates and facilitates the MRP process. It allows manufacturers to efficiently manage their materials, production schedules, and inventory levels.
  2. Bill of Materials (BOM): The BOM is a structured list of all components, subassemblies, and raw materials required to manufacture a specific finished product. It serves as a foundational document for MRP.
  3. Inventory Levels: MRP helps businesses maintain optimal inventory levels by calculating how much raw material and components are needed to meet production demands while minimizing excess inventory and associated carrying costs.
  4. Production Planning: MRP assists in developing a comprehensive production plan by aligning customer demand, sales forecasts, and the availability of resources to ensure timely and cost-effective production.
  5. Master Production Schedule (MPS): The MPS is a critical output of MRP, outlining the production schedule for finished products based on sales orders and demand forecasts.
  6. Lead Times: MRP considers lead times for the procurement of raw materials and components, allowing manufacturers to plan ahead and avoid production delays.
  7. Raw Materials: Raw materials are the inputs necessary for manufacturing processes, and MRP ensures their availability when needed.
  8. Manufacturing Resource Planning (MRP II): MRP II is an extended version of MRP, encompassing broader aspects of manufacturing operations, including human resources, capacity planning, and financial management.
  9. Real-Time Data: MRP operates in real-time, providing up-to-the-minute information on inventory levels, production progress, and materials availability.
  10. Inventory Control: MRP helps control inventory by minimizing excess stock, reducing the risk of stock-outs, and optimizing order quantities through lot sizing.
  11. Profitability: By efficiently managing materials and resources, MRP contributes to improved profitability by reducing carrying costs, minimizing production downtime, and meeting customer demand.
  12. Order Management: MRP generates purchase orders and work orders to ensure timely procurement of materials and the initiation of production processes based on customer orders, reorders, and forecasts.
  13. Supply Chain Management: MRP is closely linked to supply chain management, as it helps optimize the flow of materials, streamline production, and enhance overall supply chain efficiency.
  14. Shortages: MRP identifies potential material shortages in advance, allowing businesses to take proactive measures to avoid production disruptions and stock-outs.
  15. ERP Integration: MRP is often integrated within ERP systems, ensuring seamless communication between various business processes, including finance, procurement, and customer relationship management.
  16. Workflow: MRP streamlines the workflow within manufacturing companies, enhancing coordination between planners, production teams, and procurement departments.
  17. High-Quality Outputs: MRP provides accurate and high-quality outputs, enabling planners to make informed decisions and improve overall production quality.
  18. Modules: MRP system providers consist of various modules that address specific aspects of planning, such as materials planning, capacity planning, and order management.

Material Requirements Planning software is a vital tool for manufacturing companies, helping them balance customer demand, materials procurement, and production capacity. By utilizing MRP software and systems, businesses can enhance their planning processes, optimize inventory management, and ultimately improve their competitiveness and profitability in a dynamic and highly competitive market.