What Is Material Requirements Planning (MRP)?

What material requirements planning actually does

Material requirements planning (MRP) is a computer-based production planning and inventory control system that determines what materials, components, and subassemblies are needed — and in what quantities and when — to meet a production schedule for finished goods, while keeping inventory as low as possible.

MRP is built for dependent-demand environments, where the need for a component is derived from the need for the end item it goes into. It is a push system: it works backward from a production plan for finished goods, exploding that plan through the bill of materials to calculate exactly what must be ordered or made at every level.

The three classic objectives are simultaneous: ensure materials, components, and products are available for planned production and customer delivery; maintain the lowest practical inventory level; and coordinate manufacturing activities, delivery schedules, and purchasing. MRP is most at home in discrete manufacturing with complex, multi-level bills of materials — assembly, fabrication, electronics, machinery — where missing a single fastener can stall a line.

The three inputs and the outputs MRP produces

MRP is only as good as the data it consumes. The three primary inputs are well established in operations management literature: without them, the MRP calculation cannot function.

• →Master Production Schedule (MPS): the quantities and timing of end items to be produced, driven by firm orders and forecast.
• →Bill of Materials (BOM): the hierarchical listing of every component and subassembly required to build one unit of the end item, with quantity-per at each level.
• →Inventory status records: on-hand quantities, scheduled receipts already in flight, allocations, and lead times.

How the MRP calculation works, level by level

The MRP engine processes the BOM level by level using low-level codes, so a parent is netted before its children. At each level it runs the same three steps.

First, BOM explosion multiplies the MPS quantity by the quantity-per on the BOM to derive gross requirements for each component. Second, netting subtracts what is already available: net requirements equal gross requirements minus on-hand inventory minus scheduled receipts. Third, time-phasing offsets each net requirement backward by its lead time to set the planned order release date — the moment a purchase or work order must be released so material arrives exactly when needed.

Lot-sizing rules then decide order quantities. Lot-for-lot orders exactly what is needed each period; fixed order quantity rounds to a standard pack or batch; and academic methods like Silver-Meal and Wagner-Whitin balance setup cost against holding cost. Crucially, traditional MRP assumes infinite capacity — it plans materials and validates capacity separately, which is why MRP II later closed that loop.

From MRP to MRP II to ERP: how the discipline evolved

Joseph Orlicky, working at IBM, is credited as the primary developer of modern MRP; he formalized the time-phased, dependent-demand, netting-and-offsetting logic that distinguished it from earlier reorder-point methods. The first widely recognized implementation was at Black & Decker in 1964, and APICS (now ASCM) launched its MRP Crusade in the early 1970s to professionalize the discipline through education, accelerating adoption to roughly 700 companies by 1975 and around 8,000 by 1981. (Earlier prototype installations are noted in the academic literature, but Black & Decker is the standard reference point for the first widely recognized production MRP system.)

MRP II (Manufacturing Resource Planning) extended MRP into a closed-loop system. Oliver Wight formalized it in the early 1980s as a method that adds capacity planning (rough-cut and capacity requirements planning), shop-floor feedback, financial planning expressed in dollars as well as units, and what-if simulation. The Cambridge Institute for Manufacturing summarizes the leap: MRP plans materials; MRP II plans and feeds back across the whole manufacturing resource base.

ERP (Enterprise Resource Planning), a term coined by Gartner in 1990 to describe the next-generation extension of MRP II, extends MRP II enterprise-wide to integrate finance, HR, sales, supply chain, and CRM on a shared data model. MRP is not obsolete — it is the embedded materials-planning core inside every modern ERP. Newer approaches like Demand-Driven MRP (DDMRP) and Advanced Planning and Scheduling (APS) augment rather than replace it.

How Microsoft Dynamics 365 handles MRP

Microsoft Dynamics 365 splits MRP across two products sized for different manufacturers, and Flectic implements both for SMEs across Canada, the UK, and the USA.

Dynamics 365 Business Central (mid-market) runs MRP and MPS from a single Planning Worksheet. MPS calculates a master production schedule for end items driven by sales orders and forecast; MRP then calculates material requirements for the dependent, non-MPS components at lower BOM levels. Planners choose Calculate Regenerative Plan for a full replan or Calculate Net Change Plan for incremental updates, and the engine emits Action Messages — New, Change Quantity, Reschedule, Reschedule and Change Quantity, and Cancel — which Carry Out Action Message converts into planned or firm planned production orders, purchase orders, or transfer orders.

Reordering policies on the Item Card (Lot-for-Lot, Fixed Reorder Qty., Maximum Qty., and Order) combine with manufacturing policy (Make-to-Stock vs Make-to-Order), safety stock, reorder point, time bucket, order modifiers, and low-level codes to govern multi-level BOM planning. As in classical MRP, Business Central planning assumes infinite capacity and validates it later in scheduling.

Dynamics 365 Supply Chain Management (large enterprise) uses the Master Planning module with Planning Optimization. Coverage settings cascade from Coverage groups to Item coverage to Master plan overrides, with coverage codes including Manual, Per requirement, Per period, Min/Max, Priority, and Decoupling Point for DDMRP. Output is planned orders (purchase, production, transfer, kanban) that are firmed manually or automatically within a firming time fence, with positive and negative days shaping the action messages planners see.

How Odoo handles MRP

Odoo's Manufacturing and Inventory apps take a route-and-rule-driven approach rather than running one monolithic time-phased MRP pass — a model that suits smaller manufacturers who want lighter setup.

The building blocks are Bills of Materials (BoMs) that define components and quantities (and optional Operations when Work Orders is enabled), and Manufacturing Orders (MOs) as the execution unit. Multi-level and sub-assembly BoMs, by-products, flexible consumption, kit BoMs, and BoM variants are all supported. When Work Orders is enabled, each operation in the BoM links to a Work Center that tracks capacity, cost, scheduling, and efficiency, and operators run orders through the Shop Floor tablet interface.

Replenishment is driven by Reordering Rules and routes. A reordering rule keeps forecasted stock between a minimum (trigger) and a maximum (target) quantity; a Buy route creates an RFQ, while a Manufacture route creates a manufacturing order. The Make-to-Order (MTO) route triggers procurement or production only after a sales order is confirmed and reserves the output to that order — suited to low-volume, high-variety, or expensive items — while Make-to-Stock relies on reordering rules against forecasted quantity. A daily scheduler evaluates each product's forecasted quantity (on-hand plus incoming minus outgoing) against its minimum and fires any Auto rules, with just-in-time logic using lead times to time replenishment precisely.

What SMEs get right (and wrong) when adopting MRP

Small and mid-size manufacturers typically approach MRP incrementally — starting with spreadsheets or basic inventory tools before graduating to a lightweight cloud or SaaS MRP system, and prioritizing BOMs, inventory, production planning, and purchasing before expanding into broader ERP functions. Empirical work on manufacturing SMEs consistently recommends a phased, step-by-step rollout over a big-bang cutover, often beginning with the operational cores where pain is acute: stock control, production planning, and BOMs.

The two risks that derail SME implementations are consistent across the literature: data accuracy (the familiar 'garbage in, garbage out' problem, where BOM, MPS, and inventory records must be clean for the calculation to mean anything), and BOM accuracy specifically — incomplete or poorly maintained BOMs silently break material calculations downstream. Training and user adoption rank alongside data as the primary implementation risks, which is why process discipline matters as much as software choice.

For SMEs evaluating a platform, the practical question is fit: Business Central leans toward manufacturers who want a tightly integrated planning worksheet with deep production-order and routing control, while Odoo's modular, route-driven model appeals to teams that want to start with one app and expand. Because Flectic implements both Dynamics 365 and Odoo, our ERP Readiness Call focuses on which workflow and data model fits your operation — not on pushing a single vendor.