What MRP actually means
MRP — material requirements planning — is the calculation that works out exactly what to make, what to buy, and when, so that a manufacturer acts on one coordinated plan instead of chasing shortages. It starts from demand (a sales plan or a set of confirmed orders), reads the bill of materials for every finished good, and works down level by level to figure out the requirement for each sub-assembly, component and raw material. Then, crucially, it subtracts what you already have or already have coming, so the plan buys and builds only the shortfall.
That last step is what separates MRP from a shopping list. A demand figure on its own tells you nothing about action — you might already hold every part you need, or be short on one bolt that stops the whole assembly. MRP resolves demand into a precise, netted answer for each item. It is the planning brain that sits between demand and execution, and it is the engine at the centre of any production planning system.
The net-requirement formula
At its core MRP is one formula, applied to every item at every level of the BOM:
Every term is a live number, not a guess. Gross demand is the quantity required, derived from the sales or production plan and exploded through the BOM. Stock on hand is current free inventory. Open supply is everything already on its way to you: purchase orders raised but not yet received, work orders released but not yet completed, and stock that has already been reserved against another plan so the same piece is never spent twice. Subtract all of that from gross demand and what remains is the net requirement — the only quantity the plan actually needs to act on.
Because the calculation reads live stock and each item's own planning parameters — lead time and reorder level — it decides not just how much but when. A part with a 30-day lead time has to be ordered a month before it is needed on the floor; MRP times the suggestion so the material lands in step with the plan rather than after the line has already stopped.
BOM explosion, level by level
A finished good is rarely a single part. It is an assembly of sub-assemblies, components and raw materials, described by its bill of materials (BOM) — or, on this platform, the bill of materials / bill of resources. BOM explosion is the act of multiplying the demand for a finished good by the quantity of each child part, then repeating that for every child that is itself made up of others, all the way down to raw material.
The explosion walks the structure top-down: finished good, then semi-finished sub-assemblies, then components, then raw material. At each level MRP nets the exploded requirement against stock and open supply before exploding further, so it never orders raw material for a sub-assembly you already have finished in the store. The result is a set of netted requirements for every item in the tree — some to buy, some to make in-house, some to send out for processing.
- Finished goods (FG) — the items in the sales plan, planned to demand or to a target stock level.
- Semi-finished goods (SFG) — in-house sub-assemblies, planned into work orders when short.
- Outsourced (OSL) components — items sent out for processing to a job worker, planned as a first-class category alongside in-house make.
- Bought-out items and raw material — purchased inputs, planned into purchase requisitions when short.
The explosion is only ever as accurate as the BOM behind it. A stale BOM — one that was not updated after an engineering change — quietly corrupts every requirement downstream, which is why disciplined BOM and change control is the real prerequisite for trustworthy MRP. See MRP — BOM explosion & netting for how the engine handles multi-level and order-specific BOMs.
A worked example, step by step
Take a small illustrative run. A gear-pump maker has a confirmed order for 100 pump assemblies. Each assembly needs one machined housing (made in-house), two gears (bought out) and one shaft (sent out for grinding — OSL). The store already holds some stock, there is an open work order for housings, and some gears are reserved against a different customer's plan. MRP nets each line:
| Item | Gross demand | Stock on hand | Open supply | Net requirement | Becomes |
|---|---|---|---|---|---|
| Housing (in-house) | 100 | 30 | 20 (open WO) | 50 | Work order for 50 |
| Gear (bought-out) | 200 | 250 (40 reserved) | 0 | 0 — covered | No purchase requisition |
| Shaft (OSL) | 100 | 0 | 0 | 100 | OSL work order to job worker |
Read across the table and the value of netting is obvious. Gross demand for gears is 200, and a naive plan built on demand alone would raise a purchase requisition for 200 — but 210 gears are actually free once you account for the 40 reserved elsewhere, so MRP correctly proposes nothing. The housing shows why open supply matters: 100 are needed, 30 are in stock and 20 are already on an open work order, so only 50 more must be made. And the shaft, with no stock and no supply, produces a clean requirement for 100 — routed as outsourced work because that is how the item is planned. Three items, three different answers, one formula.
How a net requirement becomes a PR or WO
A netted requirement is not just a number in a report — it is the source of a real execution document. MRP splits the net cleanly into a buy side and a make side:
- Buy side — raw materials and bought-out items short of supply become purchase requisitions, handed to purchasing to turn into purchase orders.
- Make side — in-house sub-assemblies and outsourced components short of supply become work orders, each carrying a routing of operations and standard times.
On the Fast platform the buy side is the raw-material / bought-out plan and the make side is the component (SFG/OSL) plan; approved lines materialise as purchase requisitions and work orders in the shared document engine, immediately visible to purchasing and production with no re-keying. That is the whole point of MRP: it does not stop at telling you there is a shortage, it produces the exact documents that close it. See how the split feeds execution in Fast Production, Inventory & Purchase.
The planning parameters MRP relies on
MRP is only as good as the parameters carried on each item. Four settings quietly decide whether a suggestion is sensible:
| Parameter | What it controls |
|---|---|
| Procurement method | Whether the item is bought, made in-house, or outsourced — which decides PR versus WO. |
| Lead time | How far ahead the suggestion must be raised so material or capacity is ready in time. |
| Order interval | How often the item is planned, so tiny top-ups are consolidated into sensible order quantities. |
| Reorder level | The stock threshold that drives continuous replenishment between formal MRP runs. |
Wrong parameters corrupt good arithmetic. An understated lead time makes every plan look achievable until the material is late; a missing reorder level lets a fast-moving part run out between runs. Deciding who owns these numbers — usually the planning or PPC engineer — and reviewing them is unglamorous but decisive work.
Want to see MRP run on your own BOM and stock?
In a 30-minute demo we explode one of your finished goods through its BOM, net it against your live stock and open orders, and show the purchase requisitions and work orders that fall out — on your data, not a sample.
MRP runs versus the reorder dashboard
A formal MRP run is periodic — you run it for a horizon, act on the suggestions, and run it again next cycle. But demand and consumption do not wait for the calendar. That is why a good system pairs MRP with a live reorder-level dashboard that continuously watches free stock against each item's reorder point and proposes a purchase requisition the moment stock dips below it. The two are complements, not rivals: MRP plans the known, structured demand from the BOM; the reorder dashboard is the day-to-day safety net that catches fast-movers and unplanned draw-down between runs. Together they mean fewer surprise stockouts and less firefighting.
How Fast Planning runs MRP
Fast Planning Software is a working implementation of everything above, built by Improsys in Pune under the Fast Technology brand, deployable cloud or on-premise for manufacturers across India and worldwide. You enter a sales or production plan — forecast-driven for make-to-stock, order-driven for make-to-order, or both in one run — and the MRP engine explodes each finished good through its BOM and nets every item against stock, open POs, open work orders and reserved stock. Stock can be reserved against a plan so two plans never double-count the same inventory.
The netted result splits into purchase requisitions for the buy side and work orders — each carrying a process sheet / routing — for the make side, including outsourced OSL components planned as their own category. Because it runs on the shared platform, those documents flow straight to purchasing and Fast Production and Inventory with no interface, and a live reorder dashboard keeps replenishment honest between runs. If you are weighing MRP against a wider suite, read MRP vs ERP; for the benefits in mechanical terms, see benefits of production planning software.
Frequently asked questions
What is MRP in simple terms?
MRP (material requirements planning) is the calculation that works out exactly what to make and buy and how much. It takes demand, explodes each finished good through its bill of materials to find the requirement for every component and raw material, then subtracts stock on hand and open supply — open purchase orders, open work orders and reserved stock. Whatever is still short becomes a purchase requisition to buy or a work order to make. In one line: explode the BOM, net against what you already have, and act only on the shortfall.
What is the MRP formula?
The core MRP calculation is: net requirement = gross demand − stock on hand − open supply, where open supply is open purchase orders plus open work orders plus stock reserved against other plans. It is applied item by item at every level of the BOM. A positive result is a real shortfall that becomes a suggestion; zero or negative means the item is already covered and MRP proposes nothing.
What is the difference between MRP and BOM explosion?
BOM explosion is one step inside MRP: it multiplies the demand for a finished good by the quantity of each child part, level by level, to derive gross requirements. MRP is the wider calculation that also nets those gross requirements against stock and open supply and turns the shortfalls into purchase requisitions and work orders. Explosion tells you what is needed; netting tells you what to actually order and make.
Does MRP account for stock you already have?
Yes — that is the whole point. MRP subtracts current free stock and everything already on the way (open purchase orders, open work orders, and stock reserved to other plans) from gross demand. Without netting you would order material you already hold and miss shortages hiding behind an open order. Netting against live stock is the single biggest reason MRP buys the right quantity at the right time.
How is MRP different from a reorder-level system?
MRP plans structured, known demand by exploding the BOM for a horizon and netting it — it is periodic and demand-driven. A reorder-level system continuously watches free stock against a threshold and suggests replenishment the moment stock falls below it — it is threshold-driven and runs between MRP cycles. They are complements: MRP handles planned demand, the reorder dashboard is the day-to-day safety net for fast-movers.