MRP explained: what to order and when
Fifty stands need 100 brackets, but you shouldn't order all 100. Work through the bill of materials, usable stock, incoming deliveries and the dates that decide the shortage.
A customer needs 50 display stands. Each stand uses two brackets, so purchasing orders 100 brackets.
There are already 20 usable brackets in the warehouse and another 30 due before assembly starts. The order should have allowed for those 50. But if the incoming delivery slips until after assembly, the quantity needed on time changes again.
Material requirements planning, or MRP, works through those quantities and dates. It starts from what you plan to make, calculates the components required, allows for usable supply, and proposes when to order or make the missing material.
It can also recommend moving existing orders. The point is to connect the finished-product plan with component availability, rather than let each order follow the gross requirement alone.
Start with what one finished product contains
A bill of materials, or BOM, lists the components and quantities used to make a product. Our fictional display stand needs two brackets, one base and four bolts.
There are no finished stands available, so all 50 must be assembled. That gives us 100 brackets, 50 bases and 200 bolts before we consider stock or deliveries. These are the gross requirements.
The component requirements follow from the stands we plan to assemble. This is dependent demand. We don't need to forecast bracket sales separately to calculate the brackets for these 50 stands.
Oracle's MRP overview describes the main inputs: the production schedule, BOM, inventory, scheduled receipts, lead times and order rules.
Work back from the finished-product date
The stands must be ready at the start of week 6. Assembly takes one week, so it starts at the start of week 5. All three components must be available then.
For this example, a delivery recorded in week 5 is usable at the start of that week. Receiving and any necessary inspection are already included in its availability date.
Those dates prevent an easy mistake: using a delivery that arrives during the right month but after the material is needed. SAP's net-requirements documentation explicitly considers requirement dates and receipt availability.
Subtract the supply you can actually use
Assume the stock below is usable, unallocated to other work and recorded in the right units. The scheduled receipts are existing orders, separate from that stock.
| Component | Gross need in week 5 | Usable stock | Existing receipt before need | Net need |
|---|---|---|---|---|
| Brackets | 100 | 20 | 30 in week 4 | 50 |
| Bases | 50 | 10 | 0 | 40 |
| Bolts | 200 | 80 | 100 in week 4 | 20 |
For brackets, net need = max(0, 100 − 20 − 30) = 50. The maximum with zero prevents a surplus from becoming a negative order.
These are the quantities missing by the assembly date. They become proposed receipt quantities only after we apply the order rules. For now, we'll order exactly the shortage, often called lot-for-lot.
The bracket lead time is two weeks. The bases and bolts each take one week. To receive the missing material in week 5, release the bracket order in week 3 and the other two orders in week 4.
A planned order release is the recommended start or ordering date. It isn't confirmation that a purchase order has been placed or the supplier has accepted it.
Try a late receipt, a longer lead time or a case pack
The example below keeps assembly in week 5. Change one condition and follow its effect on the quantity or release date. The planning date is the start of week 2.
50 fictional stands, components needed in week 5
Quantity and date both count
Planning date: start of week 2. Existing orders stay on the selected dates. Calculate the extra supply needed by assembly.
Brackets needed from extra on-time supply50100 gross − 20 stock − 30 available receipts.
Required bracket releaseWeek 3For usable supply at the start of week 5.
| Component | Gross need | Usable stock | Receipts by W5 | Net need | Proposed receipt W5 | Release | Left after W5 need |
|---|---|---|---|---|---|---|---|
| Brackets | 100 | 20 | 30 | 50 | 50 | W3 | 0 |
| Bases | 50 | 10 | 0 | 40 | 40 | W4 | 0 |
| Bolts | 200 | 80 | 100 | 20 | 20 | W4 | 0 |
50 brackets of extra supply
Assembly starts
50 stands due
All dates mean the start of that week. The bracket lead time is 2 weeks. Bases and bolts each have a one-week lead time.
Inputs, rounding and stock balance
Each stand uses two brackets, one base and four bolts. Initial usable stock: 20 brackets, 10 bases and 80 bolts. Existing receipts: 30 brackets in week 4, and 100 bolts in week 4. There are no base receipts. All stock is unallocated and all recorded deliveries are separate from stock on hand.
Net need = max(0, gross requirement − usable stock − existing receipts available by week 5). Proposed receipt = net need rounded up to a multiple of the order pack. Release week = week 5 − supply lead time. Bracket and base order multiples are one unit. No safety stock, scrap, yield loss, other demand or capacity limit is modelled.
Stock after the week 5 need: brackets 0, bases 0, bolts 0. After the later original bracket receipt, the bracket balance is 0. These are component quantities, not finished stands.
Move the existing 30 brackets to week 6. They no longer cover week 5's requirement, so the on-time shortfall becomes 80 brackets.
That doesn't automatically mean buying 80 more. First check whether the existing 30 can be brought forward. If they can, the extra requirement returns to 50. If you buy 80 for week 5 and leave the original 30 arriving in week 6, this example ends with 30 excess brackets.
The lead-time control changes a different part of the plan. A four-week bracket lead time means the order needed release in week 1. We're already in week 2. Showing that date is an exception to resolve, not an instruction to place an order in the past.
For bolts, a 100-unit case pack turns a 20-unit shortage into a proposed order of 100. With 80 already on hand and 100 already coming, that leaves 80 after the 200-bolt requirement is met. The calculation hasn't lost the surplus; the order rule created it.
Why MRP and a reorder point give different instructions
A reorder point triggers replenishment when the inventory position reaches a chosen level. MRP uses dated requirements from the production plan, with the component quantities coming from the BOM.
Both depend on reliable records. They organise the replenishment decision differently, and a company may use different methods for different materials.
The safety-stock and reorder-point example works through the trigger-and-buffer approach. ABC and XYZ analysis helps you review item value and demand patterns before choosing how closely to manage each group.
A forecast may help create the finished-product plan. That's the connection to Foreviq, the forecasting project I'm working on. The bracket requirement still comes from the BOM and the dated assembly plan.
Check feasibility before treating the proposal as a promise
Our arithmetic assumes no other demand, no safety stock, no scrap, no shortages during assembly and the same lead time for each proposed order. Real settings can change all of those conditions.
Also check capacity. Having components available doesn't establish that the assembly team, machine or supplier can do the work in the allotted time. Oracle's basic MRP documentation separates the material plan from the capacity check.
Before releasing an order, check the BOM revision, usable stock, existing commitments and receipt dates. If the finished-product plan changes, follow the effect into the component plan rather than leave yesterday's orders untouched.
Sources and calculation notes
- Oracle: Overview of Material Requirements Planning. Inputs, proposed orders and the separate capacity check.
- Oracle: Overview of Planning Logic. Material policies and dated requirements.
- SAP: Net Requirements Calculation. Stock, receipts and requirement dates. Specific system behaviour depends on settings.
The product, quantities and dates are fictional. Weeks are equal planning buckets, not calendar promises. Existing orders stay on their selected dates in the tool; no automatic rescheduling is assumed. Net need, pack rounding, release offsets and later surplus are shown separately so the same receipt isn't counted twice.