Material Requirements Planning (MRP)

MRP rests on the difference between independent and dependent demand. Only end items need a forecast; the demand for a screw or a carton follows arithmetically from how many end items the MPS plans, so forecasting components separately adds error instead of removing it. One netting step for a component used twice in each end item:

• Gross requirement – MPS of 1,000 end items in week 6 × 2 = 2,000 units.
• Net requirement – 2,000 − 600 on hand − 500 in a scheduled receipt = 900 units.
• Planned order release – 900 units, rounded up to the lot size or minimum order quantity (MOQ), in week 4 with a two‑week lead time.

MRP in practice

MRP is only as good as the three data sets it multiplies: inventory records, BOMs and lead times, and errors compound. If 95% of inventory records are correct and a production order needs 20 components, the chance that all 20 records MRP works with are correct is, with independent errors, 0.95 to the power of 20, about 36%. Each wrong record is either a hidden shortage, where the system shows stock that is not in the warehouse, or an unnecessary purchase. A few percentage points of record accuracy decide whether planners trust the planned orders or keep their own spreadsheet next to the system.

The second trap is padded planning lead times. A planner who adds a week of safety at every level of a four‑level BOM lengthens the cumulative lead time by four weeks and releases orders at the lowest level four weeks earlier. Purchasing then commits against a forecast that is four weeks older, and work released early to the shop floor waits in queues as work in progress. Buffers belong in one visible place – safety stock on selected items or safety time on the end item – not in the lead times at every level.

Logio works on MRP inputs and parameters – BOM and inventory record accuracy, lead times, lot sizes and the link to the MPS – in production capacity planning and supply chain management engagements. Demand for end items can come from demand forecasting in Veritico STOCK, which forecasts per item, store or warehouse and day. For warehouse replenishment and supplier orders, STOCK calculates lead times from historical deliveries, including their deviation.

Related terms

• Master Production Schedule (MPS)
• Lead Time
• Phantom Inventory
• Minimum Order Quantity (MOQ)