Material Requirements Planning (MRP)
Material requirements planning is a time-phased calculation that explodes a production schedule through bills of materials, nets the result against on-hand and on-order stock, then offsets each shortfall by its lead time to produce dated purchase order and work order recommendations for every component in the structure.
Material requirements planning is the arithmetic that turns a statement of what will be built into a dated list of what must be bought and made. It takes three inputs: firm demand for end items, usually a master production schedule; the bill of materials defining each item's structure; and inventory records covering on-hand balances, open purchase orders, and released work orders. From those three it answers what is needed, how much is needed, and when.
The mechanics are a level-by-level explosion. The run starts at the top of the product structure and converts end-item demand into gross requirements for the components one level down. Each of those requirements is netted against projected available balance: subtract on-hand stock, subtract scheduled receipts already on order, add back any safety stock the planner wants protected, and what remains is the net requirement in that period. The net requirement is then offset backwards by the item's lead time so the order releases early enough to arrive when the parent needs it, and lot sizing rounds it to a minimum, a multiple, or a period's worth of coverage. The resulting planned order becomes gross requirement for the level below, and the pass repeats down to raw material.
MRP sits between planning and execution, and it deliberately ignores capacity. It assumes unlimited machine and labor hours, which is why capacity requirements planning exists to test the resulting plan against real work center hours, and why advanced planning and scheduling tools were built to constrain material and capacity together. MRP also plans rather than commits. Its output is a recommendation a planner reviews and firms, and the next regeneration will happily move or cancel a suggestion nobody acted on.
The mistake practitioners make is treating MRP as indifferent to data quality. Every error in a bill of materials, a lead time, or a stock balance propagates with full confidence in both directions: a part counted that is not on the shelf creates a shortage discovered on the floor, and a scrap transaction nobody posted creates one nobody sees. Nervousness is the other trap, where a small change at the top of the schedule shakes hundreds of lower-level dates on the next run. Time fences, firm planned orders, and a planner who reviews exceptions instead of chasing every message are what damp it.
In a real shop the regeneration runs overnight and the planner arrives to an action list: release these eleven work orders, expedite two purchase orders whose dates slipped behind the need date, and push one casting order out two weeks because the parent assembly moved.
Net Requirement = Gross Requirements - On-Hand Inventory - Scheduled Receipts + Safety Stock; the result is offset backwards by the item's lead time to set the planned order release date.
A pump builder needs 300 Model 40 pumps in week 12. Each pump takes one cast housing, so the gross requirement is 300 housings. Stock shows 90 on hand and a purchase order for 60 arriving in week 10, and the planner protects 50 units of safety stock. Net requirement is 300 minus 90 minus 60 plus 50, or 200 housings. The casting lead time is six weeks, so MRP plans a 200-piece release in week 6.
What is the difference between MRP and ERP?
MRP is one calculation: it nets demand against supply and times the orders. ERP is the surrounding system that also carries finance, sales, purchasing, and inventory accounting on shared records. Most ERP suites contain an MRP engine, so the choice is rarely MRP or ERP but whether the planning engine inside the suite does what you need.
Does a small job shop need MRP?
Not every shop does. MRP earns its keep when products have multiple levels of structure, components share across parents, and purchased lead times are long enough that waiting to see a shortage is too late. A shop that buys bar stock to order and builds single-level parts can usually plan from a reorder point and a schedule on the wall.
How often should you run an MRP regeneration?
Nightly is the common cadence, with a net-change run during the day when a large order drops in. The right frequency is set by how fast your inputs move: if stock balances, scrap, and order dates change hourly, a weekly run plans against a picture that was already stale when it was taken.
Does MRP account for machine capacity or labor?
No. Classical MRP assumes infinite capacity and will cheerfully schedule four hundred hours of work into a week that holds eighty. Capacity requirements planning takes the MRP output, loads it onto work centers through the routings, and shows the overload. Finite-capacity scheduling tools go further and solve material and capacity in the same pass.
Can you run MRP in a spreadsheet?
For one or two levels of structure and a few dozen parts, yes, and plenty of shops started there. The spreadsheet breaks down on pegging, on low-level coding when a component feeds several parents, and on keeping inventory current, because a plan is only as good as the balance it netted against this morning.