Material Requirements Planning (MRP): A Beginner’s Guide

If you manage a manufacturing operation, you’ve probably had this experience: You’re in the middle of a busy production run, and suddenly, you get a call — there’s a delay in a final stage because you’re out of key material. The clock is ticking, and the stress is mounting as you try to figure out how to get everything back on track. 

Avoiding disruptions like this is possible — and crucial to limit stress and wasted resources. And material requirements planning (MRP) can help you do just that. By ensuring the right materials are always available when you need them, MRP keeps your production on track and avoids costly slowdowns. 

Here’s how MRP takes the guesswork out of your production process and lets you stay one step ahead.

How material requirements planning works

So, what is MRP in manufacturing? It’s a system that calculates material needs and tracks inventory to keep production schedules running efficiently. MRP manages the flow of materials, guaranteeing that you have enough stock to keep production lines in motion. 

Here’s how it works:

• Sales orders and demand forecasts: The system begins by analyzing current sales orders and demand forecasts to understand what you need to produce and when.
• Production schedule: The system determines how much raw material is required to meet production goals based on the production schedule.
• Bill of materials (BOM): A BOM lists every part and material needed for each product being manufactured. MRP uses this to ensure you have the right components for assembly.
• Inventory check: The system checks current inventory levels to see what you already have in stock and what you need to order.
• Ordering raw materials: If your stock is low, MRP suggests when to order more materials based on lead times. This way, you have what you need on time.

For example, let’s say you’re producing furniture. MRP calculates the exact amount of raw materials (like boards of lumber, screws, and cans of paint) you’ll need based on current orders and expected production. If you’re running low on any of these materials, the system will generate a purchase order for the short quantities to ensure your supply chain stays on track. MRP also helps you optimize inventory control by avoiding overstock, reducing waste, and limiting carrying costs by ensuring materials arrive just in time for production. 

With the right MRP software, you can track stock, stay on top of production planning, and make smarter decisions about ordering raw materials.

MRP inputs and outputs

MRP systems take key data points and turn them into actionable plans for production — but the quality of its outputs depends entirely on the accuracy of its inputs. Here’s how it all comes together:

MRP inputs

For an MRP system to function effectively, it needs the right information, including:

• A master production schedule (MPS): A detailed plan that outlines what products to manufacture and when.
• Bill of materials (BOM): A complete list of raw materials, components, and subassemblies required to create a finished product.
• Inventory levels: Current stock of raw materials and components, ensuring the system doesn’t reorder unnecessarily.
• Demand forecasts: Sales projections and customer orders that guide production planning.
  Lead times: The time required for materials to arrive after ordering, helping businesses plan ahead.
• Capacity planning data: Information on workforce availability and production capabilities to create realistic schedules.
  

MRP outputs

Once the MRP system processes these inputs, it generates outputs that guide manufacturing and inventory management. These include:

• Purchase orders: Instructions for suppliers to deliver the necessary raw materials.
• Work orders: Tasks assigned to production teams to start manufacturing specific products.
• Production schedules: Timelines that align material and labor availability with production needs.
  Inventory updates: Adjustments to stock levels based on usage and replenishment.
  Exception reports: Alerts for potential issues such as shortages, delays, or overstocking.

MRP vs. ERP

MRP and ERP (Enterprise Resource Planning) systems help manufacturers improve efficiency, but they do so in different ways. Here’s a quick breakdown of what each type of platform does to help you understand how each works and where they differ.

So, what’s the difference?

MRP is the backbone of your manufacturing process, helping manage inventory and ensure you have the raw materials you need without running into shortages or excess. On the flip side, ERP is the big-picture system that connects sales, finance, HR, and every other part of your business. It’s more comprehensive and allows you to track and manage all business functions in one place, making it easier to scale while staying organized.

Benefits and limitations of MRP

MRP in supply chain management helps manufacturers balance supply and demand, but it’s not without its challenges. Let’s take a look at where it helps — and where it falls short.

Benefits of MRP

• Better inventory control: MRP helps you track raw materials and other inventory to avoid stockouts or overstocking issues.
• Efficient production scheduling: It ensures that production schedules align with the materials and labor you have available, reducing the chances of delays.
• Cost savings: By avoiding excess orders and waste, you can lower costs and streamline your manufacturing process.
• Enhanced planning and forecasting: MRP makes it easier to align your demand forecasts with material needs, keeping production smooth and on time.

Limitations of MRP

• Accuracy is crucial: If your inventory data isn’t completely accurate, MRP leads to miscalculations that cause stock issues or delays in production.
• Narrow focus: MRP mainly deals with inventory and production, so it doesn’t handle other areas of the business like finance or HR.
• Initial setup can be tricky: Getting an MRP system up and running can take some time.
• Ongoing monitoring: It requires constant attention and updates, especially with fluctuating demand or lead times.

The MRP process explained

Here’s how to plan with MRP so your production runs smoothly:

Create a master production schedule (MPS)

Start by developing a production schedule based on customer demand and inventory levels. This step sets the tone for the entire process so you know what needs to be produced and when.

Define the bill of materials (BOM)

The BOM lists all the raw materials, components, and subassemblies needed to make the finished product. It can even include labor costs. It’s the blueprint for your production process.

Review inventory levels

Check your inventory to see what you already have and determine what you need to order. The goal is to avoid both over-ordering or running out of essential materials.

Order materials

After identifying what’s missing, your MRP software generates purchase orders for the materials you need. 

Account for lead times

Lead times — the time it takes to receive materials after ordering — are key to production planning. Factor in these delays to determine when to place orders so materials arrive just in time for production. If there are long lead times for certain materials, a good MRP system will help you plan ahead to prevent delays.

Identify and resolve potential issues

Once the system has all the inputs, it flags any discrepancies or gaps, like material shortages or long lead times. This step is crucial to spotting problems early on. 

The system may also suggest adjustments, such as changing order quantities or production schedules, to keep everything on track.

Schedule and execute production

With everything in place, production can begin. The MRP system manages the process and checks that each step proceeds according to plan and without unnecessary delays. If issues arise during manufacturing, it records them and enables adjustments to be made in the future to increase efficiency or recalibrate expectations.

Introducing the best MRP software alternative: Fishbowl Manufacturing

If you’re looking for an MRP system but don’t need all the complexities of traditional systems, Fishbowl Manufacturing might be the perfect fit. It’s not a full MRP solution, but it does offer powerful tools to help you manage inventory, production, and raw materials more efficiently. Plus, it offers some functionalities of an ERP — without the hefty price tag — to help you further streamline operations. 

How Fishbowl supports manufacturers

Fishbowl gives you control over key manufacturing processes, allowing you to:

• Track raw materials and inventory in real time: Always know what’s in stock to prevent shortages and overstocking.
• Use multilevel work orders: Manage complex products by tracking components through different production stages.
• Plan production efficiently: Allocate materials, labor, and other resources to stay on schedule.
• Generate accurate purchase orders: Avoid last-minute rushes by automatically restocking materials based on demand.
• Improve decision-making with reports: Get insights into inventory levels, costs, and production planning to optimize operations.

Fishbowl’s MRP wizard

Even though Fishbowl isn’t an MRP system, it has an MRP wizard that helps you:

• Set reorder points to avoid running out of materials.
• Determine optimal stock levels so you always have just the right amount.
• Streamline ordering to prevent delays and excess inventory.

Start simplifying your MRP process with Fishbowl Manufacturing today

Managing inventory, production schedules, and raw materials shouldn’t feel like a guessing game. With Fishbowl Manufacturing, you’ll have a smarter way to stay on top of your operations — without the complexity of a full MRP system.

Fishbowl helps you forecast demand, track raw materials, and optimize your production schedules to keep things running smoothly. No more scrambling to reorder supplies or dealing with unexpected stockouts. Plus, its built-in reporting tools give you the insights you need to make better business decisions.

Take the stress out of inventory management and production planning. Book a demo today and see how Fishbowl can help transform your operations.

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