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FAQ - How does MRP work (step by step)?

A simple summary of the Material Requirements Planning (MRP) process steps is as follows:

  1. The orders and forecast for each time period, usually 1 day, for each end item are subtracted from the stock on hand plus any scheduled receipts to give the day to day projected available balance.
  2. If the projected available balance falls below zero, or the safety stock if there is one, the MRP program will suggest rescheduling an existing order. If there are no orders to re-schedule, MRP will create a planned order to correct the projected available balance.
  3. The planned order quantity is set to either just enough to restore the projected available balance (lot for lot), a fixed quantity multiple (lot size) or can be a number of more complex calculations involving looking periods ahead, minimums, maximums, multiples etc..
  4. All planned orders, offset by the lead time either create purchase orders or, for manufactured parts, are exploded into the component parts using the part’s bill of material.
  5. Planned orders at one level are exploded into projected gross requirements at the next level down in the bill of material.
  6. The above steps are repeated for all components starting with the end item and back down the bill of material to all purchased parts. The demand for components is generally call "projected gross requirements" which is a combination of orders and forecast.

This is, of course, a very simplified explanation.

Top level items should be planned using a Master Production Schedule where the planner is in control not the computer although the underlying logic is the same. Master production scheduling is a key element of the change from Material Requirements Planning (MRP) to Manufacturing Resource Planning (MRPII) along with capacity planning. I am afraid you will have to buy my book "Business Excellence" (more details) to really understand the MRP, MRPII / ERP process.

Jargon Warning - If you are not familiar with any of the terms used above, you can look them up in the free Jargon Buster on this site or, for more details, purchase the book "Business Excellence" mentioned above. Business Excellence is available in e-book format in addition to the paperback and is a component of the ERP Class "A" toolkit which you can also purchase and download from this site. Click here for more details.