What is MRP in manufacturing? A worked example

MRP, or material requirements planning, is the calculation manufacturers use to work out what to buy and make, how much and when. It starts from what you plan to build and works backward through your bills of materials and lead times. Here is what it needs, what it produces, and how the math works.

The three inputs

1. A demand or production plan: what you intend to build, and when.
2. Bills of materials: which components, and how many, go into each product.
3. Inventory records: what is on hand and what is already on order.

You also need lead times, safety stock and lot sizing rules for each item.

The steps

1. Explode the plan through the bill of materials to get gross requirements for each component.
2. Net them against stock and scheduled receipts.
3. Lot size the shortfall to order minimums or multiples.
4. Offset by lead time to find when each order must be released.

A worked example

Take one purchased part with 150 units on hand, 50 more due in week 2, a safety stock of 20, order multiples of 100, and a lead time of one week.

Week	1	2	3	4
Gross requirement	80	100	120	90
Scheduled receipt	0	50	0	0
Net requirement	0	0	120	10
Planned receipt	0	0	200	100
Projected on hand	70	20	100	110
Planned order release	0	200	100	0

In week 3, you start with 20 units and need 120, and you must end with at least 20 in safety stock. The net requirement is 120 + 20 − 20 = 120. Order multiples of 100 turn that into 200, and the one-week lead time means the order must be released in week 2. Week 4 works the same way.

What MRP produces

• Planned purchase orders and work orders
• Reschedule messages for orders that are too early or too late
• Shortage reports, including a clear-to-build view

Why MRP goes wrong

The math is simple, so problems usually come from the inputs. Old lead times, wrong bills of materials and inaccurate stock counts all produce confident, wrong answers. Lot sizes can also amplify small changes as they pass down the bill of materials.

MRP or something simpler?

MRP suits dependent demand, where a component’s need comes from a product you build. For items you sell directly, reorder points or min-max levels are often enough. To compare tools, read our guide to MRP software for small manufacturers.

Frequently asked questions

What does MRP stand for in manufacturing?

Material requirements planning. MRP II, a later term, stands for manufacturing resource planning and adds capacity and other resources.

What are the three main inputs to MRP?

The production plan, the bills of materials, and inventory records of stock on hand and on order.

What is the difference between gross and net requirements?

Gross requirements are the total you need. Net requirements are what is left after subtracting stock and scheduled receipts, while allowing for safety stock.