4. Material requirements planning (MRP) & capacity requirements planning CRP

The role of material requirements planning (MRP) and capacity requirements planning (CRP)

Material requirements planning (MRP) makes sure that the right materials are available at the right time to meet production schedules, minimizing inventory costs and avoiding production delays. Capacity requirements planning (CRP), on the other hand, complements MRP by validating whether the production schedule can be achieved within capacity constraints such as labor and machines.

As introduction articles, we recommend the following ones, all having the same title:

What is MRP? According to Netsuite

What is MRP? According to SAP (this one has to be mentioned, as many companies use the MRP functionality in SAP)

What is MRP? According to Throughput

If you like a video explanation of MRP, we suggest to watch this playlist by Operations & Supply Chain management University on Youtube.

SAP provides a clear image that depicts the MPS and the MRP process:

MPS and MRP process by SAP

MRP & CRP process steps

MRP steps:

Break it down to material requirements: Break down demand into required raw materials using the bill of materials (BOM, meaning a hierarchical model of what goes into each product or subcomponent), which can include multiple levels.

Check inventory to determine the net requirements: Evaluate current stock levels, safety stock, and in-transit inventory.

Identify Issues: Highlight shortages and propose adjustments.

Purchase or order proposals to receive or produce the right materials/components in time to meet the production schedule.

Step 3 and 4 are sometimes considered as being part of Capacity Requirements Planning, although some companies just take CRP as part of MRP.

Inputs into MRP:

Input	Description
BOM (Bill of materials)	Hierarchical structure of components required for each SKU.
Inventory data	Real-time view of on-hand, in-transit, and allocated inventory.
Master production schedule (MPS)	Weekly production targets for each SKU from the previous planning step.
Lead times	Time required to procure raw materials or produce components.
Capacity data	Available machine and labor capacity, setup times, and batch sizes.

Example for an insulation manufacturing company

A company produces two types of insulation materials: fiberglass sheets and spray foam. See the earlier sections for the high-level production plan on a monthly/quarterly level and the master production schedule on a weekly level. Now, we’ll look deeper at the material requirements, which we haven’t delved into so far.

Detailed BOM

Component

FG-10mm

FG-20mm

FG-30mm

Fiberglass (kg)

1.0 per unit

1.2 per unit

1.5 per unit

Binding agent (kg)

0.1 per unit

0.12 per unit

0.15 per unit

Packaging material (kg)

0.05 per unit

0.06 per unit

0.08 per unit

Additive (kg)

0.02 per unit

0.03 per unit

0.04 per unit

Initial stock levels for raw materials

Material	Beginning inventory (kg)
Fiberglass	10,000
Binding agent	2,000
Packaging material	1,000
Additive	500

Lead times

Fiberglass: 2 weeks

Binding agent: 1 week

Packaging material: 1 week

Additive: 2 weeks

Suppose that orders are issued weekly without considering MOQs for simplicity’s sake.

1. MRP run for 4 weeks

Gross requirements

Gross requirements means without considering any inventory or safety stocks:

Gross requirements are the same each week (by SKU):

Material
Initial stock (kg)
Weekly FG-10mm
Weekly FG-20mm
Weekly FG-30mm
Weekly Total
Fiberglass
10,000
3,625
2,610
2,175
8,410
Binding Agent
2,000
362.5
261.0
217.5
841
Packaging Material
1,000
181.25
130.50
116.00
427.75
Additive
500
72.50
65.25
58.00
195.75

Week-by-week planning for net requirements

Net requirements = what is needed to be procured/manufactured, considering the existing inventory.

For weeks 2 and 3, not enough inventory is available, leading to net requirements:

Material

Week

Gross req. (kg)

Beginning available inv. (kg)

Net req. (kg)

Planned order for this week (kg)

Order date so this can be fulfilled

Fiberglass

	1	8,410	10,000	0	0	/
	2	8,410	1,590	6,820	6,820	Week 0

	3	8,410	0	8,410	8,410	Week 1
	4	8,410	0	8,410	8,410	Week 2

Binding agent

	1	841	2,000	0	0	/
	2	841	1,159	0	0	/

	3	841	318	523	523	Week 2
	4	841	0	841	841	Week 3

Packaging material

	1	427.75	1,000	0	0	/
	2	427.75	572.25	0	0	/

3	427.75	144.5	283.25	283.25	Week 2
4	427.75	0	427.75	427.75	Week 3

Additive

	1	195.75	500	0	0	/
	2	195.75	304.25	0	0	/

	3	195.75	108.5	87.25	87.25	Week 1
	4	195.75	0	195.75	195.75	Week 2

Replenishment lot size keys

It’s important to notice that the planned order changes based on the production requirements in this example. The replenishment lot size key shows how much of a material is ordered or how much is produced in each batch: you don’t want to (or even can’t) order or produce only 5 items of a material or product. Instead, you’ll want to buy a minimum quantity (to improve procurement contracts and reduce the frequency of purchases).
Here is a video with more information on lot size in SAP. This article describes some common lot size key strategies (e.g. lot for lot, fixed order quantity, periodic order quantity, or economic order quantity).

Material	Initial stock (kg)	Weekly FG-10mm	Weekly FG-20mm	Weekly FG-30mm	Weekly Total
Fiberglass	10,000	3,625	2,610	2,175	8,410
Binding Agent	2,000	362.5	261.0	217.5	841
Packaging Material	1,000	181.25	130.50	116.00	427.75
Additive	500	72.50	65.25	58.00	195.75

Material requirements planning (MRP) & capacity requirements planning CRP basics