A Guide on What is Material Requirement Planning
Handling production without delays or excess inventory is a big challenge for manufacturers, and that’s where material requirement planning, or MRP, comes in. It allows businesses to ensure the right materials are available at the right time and in the right quantity. In this guide, we will explore what MRP planning is, how it works, and whether it’s the right fit for your business.
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How Does MRP Work?
MRP is a system that enables manufacturers to determine the materials they need, the quantity of each required, and the timing of their need. The primary purpose of MRP is to make sure that production goes smoothly without any material shortages or excessive overstocking.
Here’s how it works:
- Starts with the production schedule: products to make and their deadlines.
- Breaks down products into components and raw materials.
- Checks available stock and lead times, then calculates what must be ordered and when.
Essential Inputs of MRP
To work properly, MRP depends on three main inputs:
- Master Production Schedule (MPS): A detailed plan showing which products are to be produced, in what quantity, and by when.
- Bill of Materials (BOM): Bill of Materials (BOM) is the complete list of raw materials and parts required to make each product.
- Inventory Records: Data about current stock levels for all materials and components.
Key Outputs of an MRP System
After processing the inputs, MRP systems produce a set of useful outputs:
- Purchase Orders: Informs which raw materials to buy and their delivery dates.
- Work Orders: Internal orders for production to start manufacturing.
- Rescheduling Notices: Alerts for speeding up, delaying, or cancelling orders.
- Inventory Status Updates: Tracks stock movement and upcoming requirements.
Benefits of Using MRP
- Reduces material shortages and delays in production.
- Improves inventory management by avoiding overstocking.
- Helps meet customer delivery deadlines.
- Supports cost control by ordering only what’s needed.
- Enhances production planning and resource allocation.
Common Challenges in MRP Implementation
- Data accuracy issues: Incorrect inventory or BOM data can disrupt planning.
- Lack of staff training: MRP needs trained users to run effectively.
- ntegration issues: MRP must work with accounting, sales, and inventory tools.
- Over-reliance on software: Requires regular review and manual checks.
MRP in Modern Manufacturing
Today, material requirement planning is part of a broader digital transformation in manufacturing. Modern MRP systems are usually cloud-based and integrated with other tools like CRM, accounting, and shipping software, providing real-time updates with better visibility to operations. This makes them suitable for small and mid-sized businesses, not just large enterprises.
MRP vs ERP: Understanding the Differences
Though they may sound similar, MRP and ERP (Enterprise Resource Planning) are different.
- MRP focuses on production planning and materials management.
- EERP covers everything–finance, HR, sales, customer service, and more.
Think of MRP as one part of a bigger ERP system. Some businesses start with MRP and later upgrade to ERP when their needs grow.
Evolution and History of MRP Systems
The concept of material resource planning MRP began in the 1960s. It started as a basic method of using computers to plan production schedules. Over time, MRP systems became more advanced and evolved into MRP II (Manufacturing Resource Planning), which included more areas like capacity planning.
Eventually, these systems grew into what we now call ERP systems, covering all business functions under one roof.
Is MRP Right for Your Business?
If you run a manufacturing business with multiple products and materials, an MRP system can bring structure and clarity to your operations. It helps reduce waste, improve delivery times, and support smarter purchasing decisions.
However, to get the most out of MRP, you’ll need clean data, proper training, and a commitment to keeping the system up to date.
I am a Fellow Chartered Accountant (FCA) and LLB graduate with 10 years of experience in corporate auditing, taxation, and financial consulting. My expertise includes corporate audits, income tax planning, HSN code classification, and GST rate advisory. Through my blogs and articles, I aim to simplify corporate taxation, auditing, and GST compliance, making financial matters more accessible for professionals and business owners.
