Picture of a phone with Shopify software

Start Your Business with Shopify

Try Shopify for free, and explore all the tools and services you need to start, run, and grow your business.

What Is Material Requirements Planning (MRP)? Definition and Guide

what is mrp

Materials requirements planning (MRP) system is a software-based solution that works backwards from customer orders to determine when materials will be needed for production and then initiates their purchase to have delivery coincide with upcoming manufacturing runs and scheduled product delivery dates. It plans production, schedules raw material purchase and delivery, and manages completed inventory levels.

Since customers want and expect products to be delivered in a timely manner, manufacturers work to ensure they have enough inventory on hand to meet that demand, without going overboard.

A balancing act

An MRP system is designed to do three main things:

  1. Make sure raw materials and component parts are always on-hand for production, to keep the production schedule running smoothly
  2. Support just-in-time (JIT) production by enabling the lowest levels of materials and inventory to be available and still keep production on track
  3. Plan production schedules to meet customer demand for products in a timely manner.

Controlling costs

By managing materials and inventory levels, MRP systems help prevent revenue loss, which can happen when:

  • Insufficient raw materials on-hand prevents scheduled production and customer delivery deadlines to be missed, causing contracts to be cancelled
  • Overbuying raw materials causes cash to be tied up and unavailable for use in other areas of the company, such as hiring, marketing, or shipping
  • Excess inventory risks product obsolescence and ties up cash that could be used elsewhere in the business

By connecting raw material delivery to production schedules and customer purchases, MRP systems keep production running smoothly.

History

The MRP concept was developed by Joseph Orlicky, PhD, while at J.I. Case to compete with Toyota’s new lean production system. Early in its development, MRP was a basic production control system that required arithmetic, not computing power. Once converted to computer, it became faster and more accurate. Black & Decker was the first company to test the technology, back in 1964.

The next generation of MRP, referred to as MRP II, incorporates data from outside manufacturing, including human resources, finance, accounting, and marketing, to create a more holistic system.

Material Requirements Planning FAQ

What is material requirement planning with example?

Material Requirement Planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. It is used to plan manufacturing, procurement and delivery schedules for components, materials and finished products. MRP systems are used to help companies save time and money by ensuring that the right materials are available at the right time to meet customer demands. For example, a company that manufactures widgets may use MRP to determine how much of each component it needs to buy to manufacture a certain number of widgets. MRP will look at the company's inventory levels and the production schedule to calculate how much of each component is needed, when it needs to be ordered, and when it needs to be delivered. MRP will also take into account any external factors such as supplier lead times, shipping delays, and other factors that may affect the delivery of materials.

Why is material requirement planning important?

Material Requirement Planning (MRP) is an important tool for businesses to be able to plan, schedule and control the production of products and services. This system helps businesses to manage the procurement, availability and timing of necessary materials, both short-term and long-term. MRP allows businesses to anticipate and plan for potential shortages or delays in the supply chain, ensuring that materials are available when needed and that production and delivery schedules are met. This helps to ensure that the business meets customer demands and helps to reduce costs associated with over-ordering, under-ordering and excess inventory.

What is the difference between material planning and MRP?

Material planning is a broad term that includes the scheduling and control of materials used in production. It includes forecasting and inventory management, as well as ensuring the availability of materials needed for production. MRP (Material Requirements Planning) is a specific type of material planning that is used to determine the amount and type of materials, components, and parts needed to meet production and customer demand. MRP determines the timing, amount, and location of materials needed and the lead times for ordering them. It is a systematic, computer-based approach to planning and managing the supply of materials used in production.
Topics: