What is MRP? (Plus How To Use It in Manufacturing)

By Indeed Editorial Team

April 29, 2022

Keeping up with logistic details and inventory can be a challenge for businesses that manufacture and sell physical products. Knowing you have the right supplies to make and deliver a product is vital to your day-to-day operations. Understanding material requirements planning (MRP) can help you manage these details. In this article, we explain what material resource planning is and how it functions in the workplace.

Key takeaways:

  • Manufacturing businesses use MRP systems to improve productivity by estimating raw material needs and delivery.

  • MRP works backward from a production plan for finished goods to develop inventory requirements for components and raw materials.

  • MRP systems assess what manufacturers need, how much they need and when they need it.

  • The bill of materials is a critical document for MRP. It should list all of the materials, parts and equipment necessary to produce a product.

What is material requirements planning?

Material requirements planning is a system designed to improve manufacturing productivity by estimating raw material needs and delivery. The manufacturer inputs production plans into MRP software to produce a material requirements plan. The plan outlines how much of each resource the company should buy and when they should initiate each step in the production cycle. MRP is different from enterprise resource planning (ERP) and manufacturing resource planning (MRP II), both of which focus on far more than inventory levels.

How does MRP work?

MRP considers various external factors to work backward from a finished goods production plan to develop inventory and delivery requirements for components and raw materials. An MRP system automatically checks current inventory levels and allocates resources to customer orders. It then determines how much time it will take to fulfill the order and schedules labor and equipment resources for each manufacturing step. Finally, MRP determines when the items will be ready for shipping.

An MRP can send out alerts about production delays and create automatic recommendations for adjusting orders to compensate for setbacks. The software can also generate production reports to track issues and identify manufacturing trends.

Related: What Is Manufacturing?

What functions does MRP perform?

MRP serves several important roles in the manufacturing process. Improving overall production efficiency is its primary function, making it a useful tool for all stages of the manufacturing process. MRP systems assess what manufacturers need, how much they need and when they need it. Basic functions include:

  • Developing a production schedule

  • Managing production expenses

  • Adjusting production capacity

  • Assessing the demand for raw materials

  • Determining how many products to manufacture

  • Optimizing the number of products in storage

  • Tracking the manufacturing process

  • Planning shipments

  • Monitoring supply orders

  • Identifying and correcting production delays

What are the benefits of using MRP?

Manufacturers use MRP to become as efficient as possible by ordering the optimal quantities of supplies and equipment. Other benefits include:

Improving communications

MRP systems make it easier for team members in the production process to communicate with one another. Each person involved with assembling a product can use MRP to understand how much they need to produce and in what timeframe. It also assists with the scheduling process for orders and deliveries, providing a central hub where people can find updates on client and vendor interactions.

Automating production

One of MRP’s benefits is that it automates intricate production processes. It uses specific calculations to guide consistent workflows instead of requiring employees to manually determine their production standards. By automating company production strategies, MRP systems can save a significant amount of time while improving reliability.

Related: 6 Ways To Streamline Business Processes and Workflows

Preventing human error

Having an MRP system in place is a good strategy for eliminating problems caused by human error. Its software can automatically calculate optimal procedures for any given situation, which helps protect against inaccurate estimations and miscalculations.

Meeting consumer demand

To be as profitable as possible, businesses need to fulfill customer orders. This involves having production capacity to fulfill demand. Effective MRP systems allow companies to assess consumer demand and use that information to gather the right amount of supplies. MRP ensures your company can follow through on its production commitments and deliver to customers promptly.

Avoiding over-ordering

Ordering too many supplies can be just as challenging as not ordering enough. Businesses that order too many raw materials or have too much inventory can waste money on the surplus. It also can be expensive to properly store any excess or dispose of expired or out-of-date products. MRP systems help manufacturers ensure they have resources and deliveries without unnecessary material waste or surplus inventory.

Limiting disruptions

By using MRP systems, manufacturers can schedule production to begin quickly after they obtain materials, speed up their overall workflow and allow for flexible, responsive manufacturing processes. This also makes it easier to identify disruptions to the production process and prevent overall negative impact.

Saving money

MRP systems also have cost control tools to ensure manufacturers can continue production within their budget. The process identifies sources of waste that could have a negative financial impact on the company. Effective MRP helps companies capture as many sales as possible without overwhelming their production capabilities or decreasing their profit margin.

Related: 8 Tips for How To Reduce Your Manufacturing Overhead

How to use MRP in the workplace

Here are five steps to implement MRP at your workplace:

1. Select a software system

You first need to find an MRP system that works for your needs. Start by researching different MRP software providers, determining features and specifications your company needs and considering how they could support your operations. You can invest in software that exclusively deals with MRP or a complex software suite with MRP features.

2. Audit production data

For MRP to be effective, you need to have high-quality data. If your information is inconsistent or inaccurate, the final MRP will not provide the most efficient recommendations possible. Review your bill of materials, sales data and material specifications before instituting an MRP system. If you find incomplete or inconsistent data, take time to make corrections or gather new information.

Related: Guide to Operational Auditing: Definition, Process, Advantages and Disadvantages

3. Train your team

Make sure your team members understand how MRP works and use its features. Because MRP is a centralized location for all production details, everyone on your team should be able to access the software and use its features when necessary. Train your production team on the restraints of MRP and how to interpret different reports and features.

4. Closely monitor implementation

When you first start using MRP, carefully supervise its output. You may have to make adjustments to troubleshoot the software to provide the results you want. Pay attention to order quantities and schedules and manually check critical information during the initial transition period. This step confirms that your MRP strategy works properly and provides the intended improvements in efficiency and productivity.

5. Generate frequent reports

To get the most out of MRP in the workplace, regularly run reports to find trends and patterns in your production habits. Because MRP is based on data analysis, its software typically includes options for various types of analytical reports. This provides you with the ability to apply manufacturing data to different scenarios and create projections for future needs.

Advantages of using MRP

Manufacturers use MRP to become as efficient as possible by letting businesses order optimal quantities of supplies and equipment. Other benefits include:

Improving communications

MRP systems make it easier for coworkers in the production process to communicate with one another. Each person involved with assembling a product can use MRP to understand how much they need to produce and in what timeframe. MRP also assists with the scheduling process for orders and deliveries, providing a central hub where team members can find updates on client and vendor interactions.

Automating production

One of MRP’s primary benefits is that it automates intricate production processes. It uses specific calculations to guide consistent workflows instead of requiring employees to manually determine production standards. By automating company production strategies, MRP systems can save time while improving reliability.

Related: 6 Ways To Streamline Business Processes and Workflows

Meeting consumer demand

To be as profitable as possible, businesses need to fulfill customer orders. This involves having a production capacity that meets demand. Effective MRP systems allow companies to assess consumer demand and use that information to gather the right amount of supplies. MRP ensures that companies can follow through on production commitments and deliver to customers promptly.

Avoiding over-ordering

Ordering too many supplies can be just as challenging as not ordering enough. If you order too many raw materials or have too much inventory, it can be costly for your company. It also can be expensive to properly store excess materials or dispose of expired or out-of-date products. MRP systems help manufacturers ensure they have enough resources and deliveries without having unnecessary material waste or surplus.

Limiting disruptions

By using an MRP system, you can schedule production to begin quickly after the proper materials are obtained. This can speed up the overall workflow and allow for flexible, responsive manufacturing processes. MRP also makes it easier to identify disruptions to the production process and prevent their overall negative impact.

Saving money

MRP systems also have cost control tools to ensure that manufacturers can continue production within their budget. The system identifies sources of waste that could have a negative financial impact on your company. Effective MRP helps companies capture as many sales as possible without overwhelming their production capabilities or decreasing their profit margin.

Related: 8 Tips for How To Reduce Your Manufacturing Overhead

Disadvantages of using MRP

Some of the potential disadvantages of an MRP system include:

Heavy reliance on input data accuracy 

MRP is only as good as the data it receives. The better your business understands and documents its processes, the better an MRP system can provide accurate and efficient results. For example, if your production schedule or input data is incorrect, MRP can’t define the production timeline and materials required. Data that is either not up to date or has errors can end up costing your business money. 

Difficulty and expensive

MRP systems can often be difficult and expensive to implement depending on how well your current production control system is working. It requires a financial investment to purchase the system and train employees on its most efficient use. MRP systems also can be complex. If something goes wrong, the entire system collapse. It’s crucial to stay on top of every aspect to keep the system running smoothly.

Lack of flexibility

MRP can be very rigid in its planning. This can restrict flexibility in production schedules when unforeseen obstacles occur. MRP assumes that the lead times and schedules are always the same for each product regardless of changes in supply, required quantities or the possible simultaneous production of other products. It also can fail to account for capacity in its calculations. This means it will give results that are impossible to implement due to manpower, machine or supplier capacity constraints.

Unpredictable sales conditions

Since an MRP system operates off sales forecasts, an incorrect prediction can lead to mismatched sales order quantities. However, this is a general problem for material requirements planners since no amount of predictive analysis can foresee every possible element.

What information does MRP need?

To function properly, MRP systems need access to raw data. When setting up MRP, you will enter some basic parameters to help the system operate. MRP systems also need additional data to respond to changes in customer ordering habits or material availability. 

The primary types of information you'll need for an MRP system are:

  • Product name: The product name in MRP is an identifier for each product your company produces to keep MRP organized and accurate.

  • Bill of materials: The bill of materials (BOM) is a critical document for MRP. The list includes all of the materials, parts and equipment necessary to produce a product.

  • Material specifications: Material specifications include details like shelf life, expiration date and storage conditions for both raw materials and finished products.

  • Inventory status information: Your MRP should be able to integrate with an inventory tracking system that shows where a finished product is between the final production step and delivery to the customer.

  • Production timelines: Include details about how long each step in production takes and what conditions you need to meet before the next step can begin.

  • Capacity limitations: Enter information about how many products your current production infrastructure can produce at maximum capacity. If you have minimum production requirements, you can also include these details.

  • Sales forecasts: Sales forecasts help MRP predict how much customers will order in the future. The system operates most efficiently when it has specific incoming order information and a history of past orders.

  • Customer orders: An MRP system adapts your plan based on individual orders as well as overall trends. You can enter individual orders or work in batches.


Browse more articles