MRP (Material Requirements Planning)
MRP (Material Requirements Planning) is demand-driven material requirements planning: from the production schedule and the bills of materials, MRP calculates precisely which components and raw materials must be purchased or produced, in what quantity and by which date.
MRP (Material Requirements Planning) is a demand-driven method that derives, from the planned production schedule and the bills of materials of the finished goods, precisely which components, sub-assemblies and raw materials are needed, in what quantity and by which date. Instead of stocking material based on experience or fixed reorder points, MRP calculates the concrete requirement for every individual order — and only purchases or produces exactly what the production schedule actually needs.
MRP thus answers the three classic planning questions for manufacturing companies: what is needed, how much of it and when? The basis is the gross requirements calculation via the bill of materials explosion, from which the net requirement is derived by comparing it against stock and open orders. MRP was developed in the 1960s and to this day forms the planning core of nearly every ERP system with a production focus. The later extension to include capacity, personnel and financial planning is known as MRP II (Manufacturing Resource Planning).
At a glance
- Demand-driven material requirements planning from schedule and bill of materials
- Answers: which material, what quantity, which date
- Core: bill of materials explosion and net/gross requirements calculation
- Goal: on-time supply with minimal inventory
- Precursor to MRP II (incl. capacity and financial planning)
How does MRP (Material Requirements Planning) work?
MRP starts with the primary requirement — the planned and ordered finished products from the production schedule (Master Production Schedule). For each finished good, the bill of materials is exploded: the method works level by level through the product structure and multiplies the requirement quantities of the higher level by the position quantities of the respective sub-assemblies and individual parts. This produces the secondary requirement for components and raw materials. In addition, auxiliary and operating supplies are taken into account as tertiary requirement.
From this gross requirement, the net requirement is calculated by offsetting available stock, quantities already ordered or in production, and safety stock. If a shortfall remains, MRP generates a planned order. The subsequent scheduling calculates backwards from the requirement date over replenishment and lead times, so that every part is available in time. The result is concrete procurement and production proposals with quantity and date.
The three inputs of MRP
MRP requires three clean data sources. First, the production schedule or the customer orders that define the primary requirement. Second, the bills of materials (BOM) that map the quantitative composition of each finished good. Third, the stock and order data, i.e. current inventory, open purchase orders and production orders. If one of these inputs is missing or incorrect, MRP produces wrong proposals — the reputation of "garbage in, garbage out" rightly clings to the method.
Lot-sizing methods in the MRP run
Once the net requirement is fixed, the configured lot-sizing method decides into which order or production quantities MRP bundles it. With the exact lot size (lot-for-lot), exactly the missing quantity is planned per requirement date; fixed lot sizes and minimum order quantities, by contrast, combine several periods to reduce setup or ordering costs. The choice of method significantly determines how many planned orders are created and how high the resulting inventory turns out to be.
Why MRP matters: benefits and limits
The central benefit of MRP lies in the simultaneous optimization of two opposing goals: high schedule adherence with low inventory. Because the method only procures the requirement that is actually needed, capital tied up in inventory decreases while, at the same time, shortages and production stoppages are avoided. MRP makes material flows plannable, creates transparency about future requirements and provides purchasing with reliable forecast quantities for negotiations and framework contracts.
The limits of MRP lie in its modeling assumptions. Classic MRP works with fixed, quantity-independent lead times and implicitly assumes unlimited capacities — it does not check whether machines and staff can actually handle the planned orders in time. This capacity check is only provided by MRP II. In addition, MRP is sensitive to data errors and to frequent schedule changes, which can lead to "nervousness" in planning. In practice, many operations therefore combine MRP with buffers, fixed planning horizons and lean replenishment principles.
MRP in the ERP system
In modern ERP systems, MRP is not a separate tool but an integrated calculation run that brings together master data and transaction data from across the entire system. The material master supplies planning parameters such as safety stock, lot size and replenishment time, the production bill of materials the product structure, and the routing the production steps. The MRP run reconciles this data with current stock and open orders and generates planned orders, which are then converted into purchase orders for procurement and production orders for manufacturing.
The advantage of this integration is end-to-end continuity: a confirmed customer order automatically triggers the matching procurement and production proposals via MRP, without media breaks between sales, production and purchasing. Cloud-based systems often run MRP nightly or event-driven and provide the planner with an exception list in the morning. Instead of checking every item manually, the planner only handles deviations and releases the proposals.
MRP vs. MRP II and PPS
MRP in the narrow sense only plans the material. MRP II (Manufacturing Resource Planning) extends the method with capacity planning for machines and staff as well as the link to financial and cost accounting — it therefore additionally checks whether the planned quantities are feasible with the available resources. In German-speaking countries, the umbrella term PPS (Produktionsplanung und -steuerung, production planning and control) is common, which covers material, scheduling and capacity planning and functionally largely corresponds to MRP II.
Distinction: MRP and consumption-driven planning
MRP is a demand-driven method: it derives the requirement concretely from orders and bills of materials. The opposite logic is consumption-driven planning, which forecasts future requirements from past consumption and works, for example, via the reorder-point method with reorder levels. In practice, manufacturers combine both approaches: expensive, specific A-parts are planned via MRP, while cheap C-parts with steady consumption are replenished on a consumption-driven basis.
DACH specifics and classification
In the German-speaking manufacturing environment, MRP almost always appears under the umbrella of PPS or — in the case of cross-resource planning — as MRP II. Terminologically, the MRP net requirements calculation corresponds to classic German material planning (Materialdisposition), which is why both terms often appear side by side in ERP documentation. Important for classification: MRP is a planning method, not a software product. Whether an operation needs a simple order proposal or a multi-level capacity planning depends on manufacturing depth, variant diversity and lot sizes — not on the name of the system.
Example
Example: Mid-sized manufacturer of electrical devices
A manufacturer assembles chargers in several variants. For the coming week, the production schedule lists 2,000 devices of one variant. The production bill of materials specifies one housing, one circuit board, two cables and various small parts per device. The MRP run explodes the bill of materials and determines a gross requirement of 2,000 housings, 2,000 circuit boards and 4,000 cables. After deducting stock of 600 circuit boards and an order already in progress for 400 circuit boards, a net requirement of 1,000 circuit boards remains.
For this net requirement, the ERP generates a planned order and schedules it backwards over the circuit board’s replenishment time of ten days, so that the goods arrive in time before assembly begins. In the morning, the planner reviews the exception list, combines the order proposals per supplier and releases them. Without MRP, the planner would have to calculate every component individually against the requirement — with the risk of overlooking a small part and stopping the entire assembly.
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