What Is Materials Requirements Planning?

Materials requirements planning (MRP) is a production scheduling and inventory control methodology used in manufacturing to determine the quantities and timing of materials and components needed to complete a production schedule. It takes demand for finished goods, explodes that demand through a bill of materials, and computes net requirements at each component level after accounting for existing stock and scheduled receipts. The result is a set of planned orders, each specifying what to order or manufacture, in what quantity, and when to release the order.

The methodology was formalized by Joseph Orlicky at IBM in the 1960s and adopted broadly in the 1970s as enterprise computing made the required calculations tractable. The Cambridge Institute for Manufacturing's overview of MRP describes how the system integrates the master production schedule, bill of materials, and inventory records into a single planning engine. By the 1980s MRP was extended into manufacturing resource planning (MRP II), which added capacity, finance, and procurement modules, and later into enterprise resource planning (ERP) systems.

Bill of Materials and Demand Explosion

The bill of materials (BOM) is the structural foundation of MRP. It defines the parent-child relationships among finished goods, subassemblies, and raw materials, forming a multi-level tree that specifies quantities, units of measure, and lead times. The demand explosion step walks down this tree, converting demand for each parent item into gross requirements for its children. After subtracting on-hand inventory and scheduled receipts, the system produces net requirements, which are then offset backward in time by the lead time to set order release dates. Errors in the BOM propagate through every planning run, making BOM accuracy a persistent operational concern.

Lot Sizing

Once net requirements are computed, MRP must decide how to group them into discrete order quantities. This is the lot-sizing problem. Simple policies include lot-for-lot, which orders exactly the net requirement each period; fixed-order quantity, which always orders in a predetermined batch size; and period order quantity, which consolidates requirements across a fixed number of periods. More sophisticated approaches, such as the Wagner-Whitin algorithm, solve the lot-sizing problem to minimize combined ordering and holding costs over a planning horizon, as described in the INFORMS Operations Research literature. Choosing the wrong lot-sizing policy inflates inventory or increases setup costs, so the choice is tied to the specific cost structure of each item.

Scheduling and Capacity Integration

MRP generates time-phased planned orders but does not, in its classical form, verify that those orders are feasible given available production capacity. Capacity requirements planning (CRP) is the companion process that loads planned orders onto work centers and identifies overloads. When capacity is insufficient, planners must either shift orders, split lots, authorize overtime, or revise the master schedule. The integration of MRP with finite-capacity scheduling has been an active area of operations research, with mixed-integer programming formulations used to jointly optimize lot sizes, sequencing, and due-date performance. NetSuite's technical overview of MRP outlines how modern ERP systems handle this integration.

Applications

Materials requirements planning has applications in a wide range of disciplines, including:

• Discrete manufacturing, including automotive and aerospace assembly
• Electronics manufacturing and printed circuit board production
• Pharmaceutical manufacturing with strict batch traceability requirements
• Supply chain management, where MRP outputs drive purchase orders to suppliers
• Defense procurement and maintenance planning for complex equipment