What Is MRP? Material Requirements Planning Explained (2026)

Short answer: MRP, or material requirements planning, is the calculation a manufacturer uses to work out which materials and components it must buy or make, how many, and when, so that finished products are ready on the date customers need them. It takes three inputs (a production schedule, bills of materials and current inventory), nets demand against what is already in stock or on order, offsets each requirement by its lead time, and produces a list of planned purchase orders and work orders. MRP software automates that calculation and keeps it current as orders change.

This guide explains how MRP works step by step with a worked example, the difference between MRP, MRP II and ERP, what data you need before an MRP run can be trusted, and when a business is ready for MRP software. If you already know you need a system, jump to our comparison of the best MRP software for small and growing manufacturers.

What does MRP stand for?

MRP stands for material requirements planning. The term dates from the 1960s and 1970s, when manufacturers first used mainframe computers to replace manual stock cards and reorder points with a calculation driven by what they actually planned to build.

You will also see MRP II, which stands for manufacturing resource planning. MRP II extends material planning to the other resources a factory needs: machine and labour capacity, shop floor control, costing and a link to finance. Confusingly, many vendors and buyers now say “MRP” when they mean an MRP II style system, so when a product is described as MRP software it usually includes production scheduling and work orders as well as the material calculation.

What is MRP used for?

MRP answers three questions for every item a manufacturer uses: what is needed, how much, and by when. In practice it is used to:

• Plan purchasing so raw materials and bought-in parts arrive before production needs them, without over-ordering.
• Plan production of sub-assemblies and finished goods, creating work orders with start and due dates.
• Keep inventory lean by buying against real demand instead of holding large safety buffers for everything.
• Warn about problems early, for example a supplier delay that will make a customer order late, through exception and reschedule messages.
• Give sales a realistic promise date by showing whether materials for a new order are available or must be bought.

MRP is most valuable for dependent demand items: components whose demand depends on the finished products being built. A bicycle maker does not forecast demand for wheels separately; it derives wheel demand from how many bicycles it plans to build. Independent demand items, such as finished goods sold to customers or spare parts, are forecast or taken from sales orders and then feed into MRP.

What are the three inputs to MRP?

Input	What it contains	Common problems
Master production schedule (MPS)	Which finished products will be built, in what quantity, in which period. Driven by sales orders, forecasts or both.	Unrealistic schedules that ignore capacity; frequent changes inside the lead time
Bill of materials (BOM)	Every component, sub-assembly and raw material in one unit of a product, with quantities per unit, organised in levels.	Missing items, wrong units of measure, scrap not allowed for, engineering changes not updated
Inventory records	Quantity on hand for each item, open purchase orders and work orders (scheduled receipts), allocations, lead times and lot size rules.	Inaccurate counts, unrecorded consumption, lead times that are out of date

MRP is only as good as these three inputs. A calculation run on a BOM that is missing packaging or on stock levels that are wrong will confidently tell you to buy the wrong things. That is why most MRP implementations spend more time cleaning BOMs and counting stock than configuring software. Our glossary entry on bill of materials management covers how BOMs are structured and kept accurate.

How does MRP work? The calculation step by step

An MRP run works top down through the product structure. For each item, level by level, it performs the same five steps:

1. Gross requirements: total demand for the item in each period. For a finished product this comes from the MPS; for a component it comes from the planned orders of its parent items multiplied by the quantity per unit in the BOM. This is called the BOM explosion.
2. Scheduled receipts: open purchase orders or work orders already due to arrive in each period.
3. Projected on hand: starting stock plus receipts minus requirements, period by period, less any safety stock you want to keep.
4. Net requirements: the shortfall in any period where projected stock would drop below zero (or below safety stock).
5. Planned orders: the net requirement is rounded by the item’s lot size rule to a planned order receipt, then moved earlier by the item’s lead time to give a planned order release, which is when the purchase order or work order must be placed.

The planned order releases of one level become the gross requirements of the next level down, and the process repeats until it reaches purchased raw materials.

A worked MRP example

The figures below are illustrative. A small furniture maker plans to ship 100 chairs in week 6. Each chair needs one seat and four legs. Chair assembly takes one week. Legs are bought from a supplier with a two-week lead time. There are 20 chairs and 60 legs in stock, and no open orders.

Level 0, chairs: gross requirement of 100 in week 6, minus 20 on hand, gives a net requirement of 80. With lot-for-lot sizing the planned order receipt is 80 chairs in week 6, and with a one-week lead time the work order must be released in week 5.

Level 1, legs: the week 5 release of 80 chairs explodes into a gross requirement of 80 x 4 = 320 legs in week 5. Subtract the 60 on hand and the net requirement is 260 legs. Legs are bought in cartons of 100, so the lot size rule rounds up to 300. With a two-week supplier lead time, the purchase order must be placed in week 3. The extra 40 legs become projected stock after week 5.

Item: legs	Wk 1	Wk 2	Wk 3	Wk 4	Wk 5	Wk 6
Gross requirements					320
Scheduled receipts
Projected on hand (start 60)	60	60	60	60	40	40
Net requirements					260
Planned order receipts					300
Planned order releases			300

Seats would follow the same logic, and so would the timber and fixings inside them if seats are made in house. A real product may have five or more BOM levels and hundreds of items, which is why nobody runs MRP on paper any more.

Lot sizing rules

The lot size rule decides how a net requirement becomes an order quantity. The common ones are:

• Lot-for-lot: order exactly the net requirement. Lowest inventory, most orders.
• Fixed order quantity: always order a set amount, often a supplier’s carton, pallet or minimum order quantity.
• Economic order quantity (EOQ): a quantity that balances ordering cost against holding cost.
• Period order quantity: cover the requirements of a set number of periods in one order, for example two weeks at a time.
• Minimum, maximum and multiple: constraints layered on any rule, such as “at least 50, in multiples of 25”.

Safety stock and safety lead time are separate settings that protect against variability in demand and supply. Too much of either hides problems and ties up cash; too little makes the plan fragile.

What does MRP produce?

An MRP run produces two kinds of output. Planned orders are suggestions: purchase orders for bought items and work orders for made items, each with a quantity and a release date. A planner reviews them and converts them into firm orders. Exception messages are recommendations about existing orders: expedite this purchase order because demand moved earlier, defer that work order because the customer order slipped, or cancel an order that is no longer needed.

Good MRP software lets planners filter these by buyer, supplier or urgency, so the team works on the few orders that matter each day instead of reading a long report.

MRP vs MRP II vs ERP: what is the difference?

	MRP	MRP II	ERP
Full name	Material requirements planning	Manufacturing resource planning	Enterprise resource planning
Main question	What materials do we need, and when?	Can we build the plan with our machines, people and money?	How does the whole business run on one set of data?
Scope	BOMs, inventory, purchasing and production suggestions	MRP plus capacity planning, routings, shop floor control, costing	MRP II plus finance, sales, CRM, HR, projects and more
Capacity	Assumes infinite capacity	Checks load against work centre capacity	Same as MRP II, sometimes with advanced scheduling add-ons
Accounting	Separate system	Costing, often a link to the ledger	General ledger built in
Typical buyer today	Rarely bought alone	Small manufacturers using cloud MRP	Mid-sized and larger manufacturers, multi-entity groups

Modern cloud MRP products such as Katana and MRPeasy are MRP II in all but name: they plan materials, schedule production against work centres, track costs and connect to an accounting package such as QuickBooks Online or Xero. A manufacturing ERP adds its own general ledger and a wider set of modules. Our guide to what ERP is covers the full module list, and our comparison of manufacturing ERP software covers the mid-market options.

How is MRP different from inventory management, APS and MES?

• Inventory management software tracks what you have and reorders when stock falls below a reorder point. It looks backward at consumption. MRP looks forward at planned production and orders against future need. Many small businesses start with inventory management software and add MRP when they start assembling or manufacturing.
• Advanced planning and scheduling (APS) tools sequence jobs on each machine against finite capacity, setup times and constraints. Classic MRP assumes infinite capacity, so plants with bottleneck machines often pair MRP with a scheduler. See our list of production planning and scheduling software.
• Manufacturing execution systems (MES) run the shop floor in real time: dispatching work, collecting machine and labour data, recording scrap and quality checks. MRP plans; MES executes and reports what really happened.
• Demand-driven MRP (DDMRP) is a planning method that places strategic inventory buffers at chosen points in the BOM and replenishes them based on actual demand, to reduce the “nervousness” of a plan that changes every time the forecast does. Some ERP and planning tools support it.

For a map of all these system types and where each fits, read our guide to manufacturing software.

What are the benefits and limitations of MRP?

Benefits. A working MRP process reduces stockouts of the components that stop production, lowers the stock of items nobody needs yet, and replaces a planner’s spreadsheet with a calculation that updates in minutes when an order changes. It also gives purchasing a forward view of spend and makes delivery promises to customers more reliable.

Limitations. MRP has well known weaknesses that a buyer should plan around:

• Data dependency. Inaccurate BOMs, stock counts or lead times produce wrong plans. Inventory record accuracy is the most common failure point.
• Infinite capacity. Basic MRP assumes any work order can start when needed. If a machine is already full, the plan is not achievable until capacity planning or scheduling adjusts it.
• Nervousness. Small changes at the top of the BOM ripple down and produce many reschedule messages. Planning time fences and firm planned orders reduce this.
• Fixed lead times. MRP treats lead times as constants, while real lead times vary with load and supplier performance.

What data do you need before running MRP?

Before trusting the first MRP run, check that you have:

1. An item master with a unique code, unit of measure, make or buy flag, lead time and lot size rule for every item.
2. Multi-level BOMs for every product you plan to build, including packaging, consumables where material, and a scrap allowance where relevant.
3. Routings (the sequence of operations, work centres and times) if you want capacity planning or accurate costing.
4. Accurate stock on hand. A full count or a cycle-count programme in the weeks before go-live is normal.
5. Open purchase orders and work orders entered with correct due dates.
6. A demand source: sales orders, a forecast or both, and a rule for how they combine.
7. Someone who owns the plan. MRP suggestions still need a planner or buyer to act on them daily.

Which metrics show MRP is working?

• Inventory record accuracy: the share of cycle-counted items where the system matches the shelf.
• BOM accuracy: how often a job needs unplanned material or leaves parts unused.
• Supplier on-time delivery against the dates MRP asked for.
• Production schedule adherence: work orders started and finished on the planned dates.
• Shortages and expedites per week: a direct measure of plan quality.
• Inventory turns and days of supply for raw materials and work in progress.

When do you need MRP software?

Spreadsheets and reorder points work while a business makes a handful of products with shallow BOMs. The usual signs that it is time for MRP software are:

• Production stops because a component ran out, even though other stock is piling up.
• Planning the week takes a person a day, and the plan is out of date by Wednesday.
• Products share components, so it is hard to see which orders compete for the same stock.
• You cannot give customers a reliable ship date without checking stock by hand.
• Costs per product are guesses because material and labour are not tracked per job.
• You need batch or lot traceability for food, cosmetics, supplements or regulated parts.

Small manufacturers usually start with a cloud MRP; our best MRP software guide compares Katana, MRPeasy, Fishbowl, inFlow, Craftybase, Odoo and others, and Katana vs MRPeasy compares the two most common choices in depth. Growing firms with complex routings, multiple sites or their own finance team should also look at manufacturing ERP software. For where machine learning is starting to help planners, see AI in manufacturing.

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