Businesses need to coordinate purchasing, manufacturing, and delivery to customers. To help them, many use a material requirements planning system, or MRP. In this lesson, we’ll explore what an MRP is and the steps in the MRP process.

## Material Requirements Planning

Malik owns a company that makes t-shirts. He has to buy lots of materials to make his t-shirts: material, thread, ink for the designs, and many others. Malik worries that his business is too complicated.

It’s not just all the materials from different vendors that he has to buy. He wonders how he can keep track of what needs to be ordered, what needs to be made, and what needs to be delivered to his customers. Malik might want to use a **material requirements planning system**, or **MRP**, which is a computer-based system to coordinate purchasing, manufacturing, and delivery in a company.With an MRP, Malik can easily see what he needs to order from his suppliers, how many t-shirts he needs to make, and what he needs to deliver to the stores that order from him. How does an MRP work? To help Malik plan, let’s look at scheduling and the MRP process.

## Scheduling

Malik’s business has a lot of moving parts. He has to order materials, put the materials together to make his t-shirts, then move the t-shirts from his warehouse or factory to his customers, the stores who will ultimately sell his t-shirts to the people who will wear them. How can Malike coordinate all that? And more specifically, how can he make sure that his schedule meets the needs of his customers?In MRP, there are two ways of scheduling: backward and forward. **Backward scheduling** involves starting with the date the stores need to have the product on the shelf and working backwards from there.

For example, if a store calls Malik and tells him that they need to have his t-shirt on their shelves in 45 days, he can work backwards from there. If he knows that it takes about 5 days to deliver the shirts to the store, 27 days to manufacture an order the size the store needs, and 10 days to order and receive materials, then Malik can work backwards to figure out that he needs to order supplies in the next 3 days to have that order delivered on time.Backward scheduling works well if there is a specific deadline to meet. But what if there isn’t? For example, what if Malik’s customer calls and says they don’t have a deadline, but they’d like to have the t-shirt order as soon as possible. Then Malik could use **forward scheduling**, which involves calculating a schedule based on the starting date of the manufacturing process.

For example, Malik can calculate that he will order the materials in 3 days, he’ll have the materials in 10 days, take 27 days to manufacture the t-shirts, and 5 days for delivery. Thus, Malik can then tell the client they will have the order in their hands in 45 days.

## MPR Process

Malik understands forward and backward scheduling, but he’s still not sure how to use an MRP to help him coordinate all the different parts of the manufacturing process.

What are the steps for material requirements planning? Though it is a computer-based program, there are certain steps that the computer goes through and inputs that Malik needs to put into the computer. They are:Step 1: Net requirement calculation.The first thing that the computer must do is to calculate the **net requirement**, or how many units are needed to meet an order.

This might seem straightforward if Malik gets an order for 1,000 t-shirts, then the net requirement should be 1,000, right? Well, maybe. But Malik might have 300 t-shirts already made and in his warehouse. In that case, the net requirement would be 1,000 – 300, or 700 t-shirts. So, the calculation for the net requirement is the total number of units needed minus available stock.

Step 2: Bill of materials calculation.After the net requirement, the MRP program will need Malik to help it figure out the **bill of materials**, or how much of each raw material needs to be purchased for each unit manufactured. For example, Malik might need 1.5 yards of material and 4 ounces of red paint for each t-shirt manufactured. He would input that information into the computer system. Together with the net requirement, the bill of materials tells the MRP program how much in the way of materials that Malik needs.Step 3: Scheduling.

As we’ve already seen, scheduling can be done backward or forward. Either way, Malik will input information into the computer, such as the fact that it takes 5 days for the product to be delivered to the store, and the computer will figure out the scheduling.Step 4: Forecast calculation.

Finally, based on the information gathered in the previous three steps, the MRP system will tell Malik what to order and when.

## Lesson Summary

A **material requirements planning system**, or **MRP**, is a computer-based system to coordinate purchasing, manufacturing, and delivery in a company. In MRP, there are two ways of scheduling the manufacturing process. **Backward scheduling** involves starting with the date the stores need to have the product on the shelf, and working backwards from there. Whereas **forward scheduling** involves calculating a schedule based on the starting date of the manufacturing process.

The steps of material requirements planning include:

- Step 1: Net requirement calculation, which involves figuring out the
**net requirement**, or how many units are needed to meet an order. - Step 2: Bill of materials calculation, which involves figuring out the
**bill of materials**, or how much of each raw material needs to be purchased for each unit manufactured. - Step 3: Scheduling.
- Step 4: Forecast calculation.