Key takeaways
- Stands for
- Material requirements planning
- Inputs
- Orders, bills of material, stock, open POs, lead times
- Output
- What to buy or make, how much, and by when
- Core formula
- Net need = gross need − stock − on order (+ safety stock)
- Relationship to ERP
- MRP is the planning module inside an ERP
MRP in one paragraph
Every factory plans material, whether on a whiteboard, in Excel or in the owner's head. MRP is the disciplined version of that planning. Instead of guessing how much yarn, steel or packing material an order needs, MRP calculates it from the bill of materials, checks what is already in stock or on its way, and tells purchase and production exactly what is short and when it must arrive.
MRP was developed in the 1960s and 1970s for manufacturers with many parts and many orders. It became the core of MRP II, which added capacity and finance, and later of ERP, which extended the same shared data to the whole business. Today MRP is the planning module inside a manufacturing ERP.
The four inputs MRP needs
| Input | What it tells MRP | If it is wrong |
|---|---|---|
| Demand | Sale orders and forecasts: what to make, how many, by when | The plan solves the wrong problem |
| Bill of materials | Materials and quantities per unit, including process loss | Every quantity in the plan is off by the same error |
| Inventory | Stock on hand and material already ordered | Duplicate purchases or surprise shortages |
| Lead times | How long buying or making each item takes | Material arrives too late or sits too long |
The first lesson of MRP is that the calculation is simple and the inputs are hard. A plan is only as good as the BOM, the stock and the lead times behind it, which is why MRP works best inside an ERP where those records are maintained by the people who use them every day.
A worked example: 2,000 polo shirts
A knitwear unit receives an order for 2,000 polo shirts, to be dispatched in five weeks. The numbers below are illustrative, but the method is exactly what an MRP run does.
Step 1: The bill of materials
| Component | Per shirt | Allowance |
|---|---|---|
| Finished (dyed) fabric | 0.24 kg | 6% cutting wastage |
| Grey fabric for dyeing | from finished fabric | 7% dyeing process loss |
| Yarn for knitting | from grey fabric | 2% knitting loss |
| Buttons | 3 | 2% extra |
| Main label | 1 | 2% extra |
Step 2: Gross requirements (BOM explosion)
Working back from the finished shirt through each process:
- Finished fabric: 2,000 × 0.24 = 480 kg, plus 6% cutting wastage ≈ 509 kg
- Grey fabric: 509 ÷ (1 − 0.07) ≈ 547 kg
- Yarn: 547 ÷ (1 − 0.02) ≈ 558 kg
- Buttons: 6,000 + 2% = 6,120; labels: 2,000 + 2% = 2,040
Step 3: Net requirements
| Item | Gross need | In stock | On order | Net to buy |
|---|---|---|---|---|
| Yarn 30s combed | 558 kg | 200 kg | 150 kg | 208 kg |
| Buttons | 6,120 | 2,500 | 0 | 3,620 |
| Main labels | 2,040 | 2,600 | 0 | 0 |
Step 4: Lead-time offsetting
Each stage is scheduled backwards from the dispatch date:
| Activity | Lead time | Must start by |
|---|---|---|
| Stitching and packing | 8 days | Week 4 |
| Cutting | 2 days | Week 4 |
| Dyeing (job work) | 7 days | Week 3 |
| Knitting | 5 days | Week 2 |
| Yarn purchase | 7 days | Week 1, immediately |
| Buttons purchase | 10 days | Week 2 |
The result is a short, specific list: order 208 kg of yarn today, order 3,620 buttons by week 2, book knitting capacity for week 2 and the dyeing processor for week 3. That is what an MRP run gives the purchase and production teams.
The process losses in the BOM are where MRP earns its keep. If the real dyeing loss in your plant is 9%, not 7%, the plan will be short every time. A good ERP compares planned and actual loss by process so the BOM can be corrected.
What MRP produces
- Purchase suggestions with quantities and dates
- Production suggestions for in-house items
- Job-work suggestions for outsourced processes
- Shortage list against each open order
- Reservations of existing stock for each order
- Exceptions: late supplies, overdue stages
In practice, planners review the suggestions rather than accepting them blindly. MRP proposes; the planner decides, for example by combining two small yarn requirements into one purchase or splitting a large one across two suppliers.
MRP vs MRP II vs ERP
| MRP | MRP II | ERP | |
|---|---|---|---|
| Question it answers | What material, how much, when? | Can we make it with our machines and money? | How does the whole business run on one record? |
| Covers | Materials | Materials, capacity, some finance | All departments, accounts, GST, payroll |
| Main users | Planning, purchase | Planning, production | Everyone |
In a modern ERP, MRP is the planning engine. The advantage of running it inside the ERP is that the inputs (orders, BOMs, stock, open POs) are always the same records the rest of the business uses, so the plan is never working from yesterday's spreadsheet.
MRP in textile and engineering plants
Textile and apparel
The key is process loss and conversion between units: yarn in kilos, grey and finished fabric in kilos or metres, garments in pieces by size and colour. Shade and count are attributes that must match, so stock of the wrong shade does not count against the requirement. Much of the work is job work, so MRP suggests processor capacity as well as purchases.
Engineering and auto components
The key is multi-level BOMs and routings: a tractor part may contain sub-assemblies that are themselves made in-house from bar stock or castings. OEM schedules arrive monthly and change weekly, so MRP is run often and nets each new schedule against stock and work in progress.
Why MRP fails, and how to avoid it
- BOMs without loss allowances. Plans are short on every order. Record realistic process losses and review them monthly.
- Stock that is not trusted. If the store's numbers are wrong, planners ignore MRP. Fix stock first; see ERP modules explained.
- Lead times copied from the supplier's brochure. Use actual delivery history.
- Material at job workers ignored. It must count as available or on order, depending on the stage.
- Running MRP once a month. Orders change daily; run it whenever demand changes.
Questions buyers ask
What is MRP in simple terms?
MRP is the calculation that tells a factory what material it needs, how much and by when, based on the orders to be made, the bill of materials, current stock and lead times.
What is the difference between MRP and ERP?
MRP plans materials. ERP runs the whole business on one database and includes MRP as its planning module, along with sales, purchase, production, inventory, quality, accounts and payroll.
What are the inputs to MRP?
Demand (sale orders and forecasts), bills of material with process losses, inventory on hand and on order, and lead times for buying and making each item.
How is net requirement calculated?
Net requirement equals gross requirement minus stock on hand minus material already on order, plus any safety stock you keep. If the result is negative, nothing needs to be bought.
Does a small factory need MRP?
If you make a few products with simple BOMs, a spreadsheet may be enough. Once there are many orders, multi-stage processes or job work, MRP inside an ERP saves both shortages and excess stock.