Two meanings of MRP
In India, MRP on a label means maximum retail price. In manufacturing, MRP means material requirements planning: working out what materials are needed, in what quantity and by when, to make what you have promised to deliver. This guide is about the second.
What MRP does
MRP starts from demand, sales orders and forecasts, and works backwards. For each product it reads the bill of materials to find the components needed, subtracts what is already in stock or on order, and allows for how long each item takes to buy or make. The result is a list of planned purchase orders and production orders, each with a date by which it has to start.
| Input | What it tells MRP | If it is wrong |
|---|---|---|
| Demand | What must be delivered, and when | You buy for orders that never come, or miss ones that do |
| Bill of materials | What each product consumes | Every requirement below it is wrong |
| Stock on hand | What you already have | You reorder what is on the shelf, or count on stock that is not there |
| Open orders | What is already coming | You order the same material twice |
| Lead times | How long each item takes to arrive or be made | Orders are placed too late |
From gross requirement to net order
Suppose a sales order needs 1,000 brackets in four weeks, and each bracket uses 0.45 kg of steel sheet. The gross requirement for steel is 450 kg. If 120 kg is in stock and 100 kg is already on order, the net requirement is 230 kg. If the supplier takes two weeks, the purchase order has to go out within two weeks, sooner if the brackets themselves take time to make.
MRP repeats that calculation for every item at every level of the BOM, which is why it is done by software rather than by hand once a product has more than a handful of components.
MRP, reorder levels, MRP II and ERP
- Reorder levels buy when stock falls below a fixed quantity. They work for steady, predictable items, but ignore what orders are actually coming.
- MRP buys against actual demand and the BOM, so it suits made-to-order work and lumpy demand.
- MRP II adds capacity whether the machines and people exist to make the plan, not only the material.
- ERP puts planning in the same system as purchase, stores, production, sales and accounts, so the plan reads live data instead of an export.
Why MRP plans go wrong
MRP is only as accurate as the data it reads. Most failed MRP projects fail on data, not on the calculation: stock records that do not match the shelf, BOMs that do not match what the floor really uses, and lead times nobody has updated in years.
That is why the usual advice is to fix inventory accuracy and BOMs first. An MRP run on bad data produces confident, detailed, wrong orders.
In short
- In manufacturing, MRP means material requirements planning, not maximum retail price.
- MRP turns demand, BOMs, stock, open orders and lead times into planned purchase and production orders.
- Reorder levels suit steady items; MRP suits demand-driven, made-to-order work.
- MRP is only as good as its data, so stock accuracy and BOMs come first.