What is MRP (Material Requirements Planning)?
Material Requirements Planning (MRP) is a production planning and inventory control system used by manufacturers to determine what materials are needed, how much is required, and when they need to be available to meet production schedules. MRP uses bills of materials (BOMs), inventory data, and production schedules to calculate precise procurement and manufacturing timelines. Modern MRP systems, often referred to as MRP II (Manufacturing Resource Planning), extend this to include capacity planning, shop floor control, and financial integration.
Why It Matters
Manufacturing without MRP leads to chronic problems: excess raw material inventory tying up cash, production delays caused by missing components, and waste from overproduction or material expiration. MRP matters because it provides a systematic, data-driven approach to production planning that ensures every component arrives just in time for assembly. Manufacturers using MRP systems typically reduce inventory costs by 20 to 35 percent while improving on-time delivery rates above 95 percent.
Key Features
Core capabilities and components you should know about.
Bill of Materials (BOM) Management
Defines the complete list of raw materials, sub-assemblies, and components needed to manufacture each finished product, including quantities, units of measure, and multi-level BOM structures.
Master Production Schedule
Plans what finished goods need to be produced, in what quantities, and by what dates based on sales orders, demand forecasts, and safety stock requirements.
Material Requirements Calculation
Automatically calculates the net material requirements by comparing gross needs against current inventory and pending purchase orders, then generates procurement recommendations.
Capacity Planning
Evaluates whether production resources like machines and labor have sufficient capacity to meet the planned schedule, identifying bottlenecks before they cause delays.
Work Order Management
Creates, schedules, and tracks manufacturing work orders through each production stage from raw materials to finished goods with real-time status updates.
Shop Floor Control
Monitors real-time production progress on the factory floor, tracks labor and machine time, records quality inspections, and captures scrap and rework data.
How It Works
MRP works through a process called "explosion" — it starts with the master production schedule (what finished goods are needed by when), then explodes each product into its component materials using the bill of materials. For each component, it checks current inventory and pending orders, calculates the net requirement, and factors in lead times to determine when each purchase order or production order must be placed. This cascade continues through all BOM levels until every raw material procurement action is planned.
Key Benefits
Reduces raw material inventory by ordering only what is needed when it is needed
Prevents production delays by ensuring all components are available before manufacturing starts
Optimizes production scheduling to maximize throughput and minimize idle time
Provides accurate cost estimates for manufactured products based on actual material and labor consumption
Improves on-time delivery rates by aligning production capacity with customer demand
Common Use Cases
Frequently Asked Questions
What is the difference between MRP and ERP?
MRP focuses specifically on manufacturing and material planning — determining what to produce, what materials are needed, and when. ERP is a broader system that includes MRP as one module alongside finance, HR, CRM, and other business functions. Think of MRP as the manufacturing engine within a larger ERP platform.
What is MRP II?
MRP II (Manufacturing Resource Planning) is an evolution of the original MRP concept that extends beyond material requirements to include capacity planning, shop floor scheduling, financial integration, and what-if simulation. Most modern manufacturing modules in ERP systems like Odoo implement MRP II capabilities.
Is MRP suitable for small manufacturers?
Yes. While MRP originated in large manufacturing environments, modern cloud-based systems like Odoo make MRP accessible and affordable for small manufacturers. Even a business with a handful of products benefits from automated BOM explosion and material requirements calculation to prevent shortages and reduce excess inventory.
How does MRP handle changes in demand?
When demand changes — whether from new sales orders, forecast updates, or order cancellations — MRP recalculates all material requirements and adjusts procurement and production recommendations accordingly. This replanning can happen in real time or on a scheduled basis depending on the system configuration and business needs.
What data does MRP need to work effectively?
MRP requires three primary inputs: accurate bills of materials defining product composition, current inventory levels for all materials and components, and a master production schedule defining what needs to be produced and when. Inaccurate data in any of these three areas will produce unreliable results.
Related Topics
What is ERP? Complete Guide
Enterprise Resource Planning (ERP) is a comprehensive software system that integrates and manages core business processes such as finance, human resources, manufacturing, supply chain, and customer relations within a single unified platform. ERP systems serve as a central hub for real-time data flow across departments, eliminating information silos and enabling better decision-making. Modern ERP solutions are available as cloud-based, on-premise, or hybrid deployments to suit organizations of every size.
What is Supply Chain Management?
Supply Chain Management (SCM) is the coordination and oversight of all activities involved in sourcing, procurement, production, and delivery of products from raw materials to end customers. SCM encompasses the entire network of suppliers, manufacturers, warehouses, distribution centers, and retail outlets that work together to fulfill customer demand. Modern SCM leverages technology to provide real-time visibility, predictive planning, and automated coordination across this complex network.
What is an Inventory Management System?
An inventory management system is software that tracks, manages, and optimizes a company's stock of goods across the entire product lifecycle from procurement to sale. It provides real-time visibility into stock levels, locations, movements, and valuations, enabling businesses to make informed decisions about purchasing, warehousing, and fulfillment. Modern inventory management systems go beyond simple stock counting to include automated reordering, demand forecasting, multi-location management, and integration with sales channels.
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