Short answer: an MRP system (Material Requirements Planning) answers three questions: what do we need to make or buy, how much, and by when? It takes your demand, explodes it through the bill of materials, subtracts what you already have or have on order, and proposes purchase and manufacturing orders with dates that respect lead times. That is the whole idea: turning “we sold 500” into “order 380 of this component today”.
Most explanations stop at that sentence. The calculation underneath is where MRP actually becomes understandable, so let us do it properly.
The MRP calculation, step by step
MRP is arithmetic, repeated relentlessly. Per item, per period:
- Gross requirement - what demand asks for (sales orders, forecast, or the parent item’s planned order).
- Available = on hand − safety stock + scheduled receipts (what is already ordered and inbound).
- Net requirement = gross requirement − available, floored at zero. If stock covers it, you order nothing.
- Planned order = the net requirement rounded up to your lot size, and at least the minimum order quantity your supplier enforces.
- Order date = date needed − lead time. This is called back-scheduling, and it is where “we are already too late” becomes visible.
Then MRP does the part that makes it worth automating: it takes each planned order, looks up that item’s bill of materials, and repeats the whole calculation one level down. A finished product with four subassemblies and forty components produces a cascade no one wants to maintain by hand.
Try it: the netting calculation
Change the numbers and watch the order proposal move. This is exactly what one line of an MRP run does.
Demand and stock
What you need, and what you already have.
Ordering rules
How your supplier and process constrain the order.
How this was calculated
- Available = on hand − safety stock + scheduled receipts
- Net requirement = gross requirement − available (never below zero)
- Planned order = net requirement rounded up to the lot size, at least the minimum order quantity
- Order date = needed date − lead time
This is the netting logic an MRP run performs, per item, per period. A real MRP run repeats it across every level of the bill of materials, which is exactly the work you do not want to do by hand.
Two things become obvious once you play with it. Safety stock is not free: raising it lowers your available quantity and pulls orders forward. And lot size and minimum order quantity routinely make you buy more than you need, which is a supplier negotiation disguised as a system setting.
MRP, MRP II, ERP and MES: where the boundaries are
These terms get used loosely, so briefly:
- MRP plans materials: what to order and make, and when.
- MRP II extends the same logic to capacity: machines, work centres and labour, so the plan also reflects whether you can physically make it in time. Almost everything sold today as “MRP” is really MRP II.
- ERP is the broad platform: sales, purchasing, inventory, accounting, HR. MRP is a module inside it.
- MES is the execution layer on the shop floor, working in minutes rather than weeks.
If you want that comparison in depth, including which layer to invest in first, we wrote a separate piece: MES vs MRP vs ERP. And if the term MES is the unfamiliar one, start at what is a MES.
Our opinion: MRP fails on data, not on features
Here is where we will be blunt, because it is the single most common reason MRP disappoints.
Nearly every failed MRP project we have seen failed for the same reason: the calculation was fine, the data was not. MRP is arithmetic on your master data, so it inherits every flaw in it. A bill of materials missing a component, a lead time that says 5 days when the supplier reliably takes 20, a stock figure that is off because returns were never booked: MRP will faithfully compute a wrong answer and present it with total confidence.
That leads to three opinions we hold firmly:
- Lead times are the most-neglected field in manufacturing software. They are usually entered once, at implementation, by someone guessing. They then quietly drive every order date for years. Reviewing them is the cheapest planning improvement available to most companies.
- Safety stock is often used to paper over unreliable data. Raising it hides the symptom of a planning problem and ties up cash. Sometimes it is genuinely the right call; often it is an expensive apology for a wrong lead time.
- If your planners override the MRP proposals every week, the system is not the problem. The overrides are information: something in the data does not match reality. Chasing that is more valuable than any new feature.
The unpopular consequence: an MRP implementation is mostly a data project wearing a software project’s clothes. Anyone who sells it to you purely as a software installation has not done this before.
Choosing MRP software: what actually matters
The market is full of comparison tables with checkmarks. In practice, only a handful of things decide whether it works for you.
- Does MRP sit on the same data as purchasing and inventory? If your MRP tool is separate from where stock and orders live, you will maintain master data twice, and the calculation will drift from reality. This is the strongest argument for MRP as an ERP module rather than a standalone tool.
- Can it handle your bill-of-materials depth and variants? Multi-level bills, phantom assemblies, and configurable products are where simple tools quietly fall over.
- Are lot sizing, minimum order quantities and lead times modelled per supplier? One global setting is not enough once you have real suppliers.
- Can planners see why a proposal exists? Traceability from a proposed order back to the demand that caused it is what makes planners trust the system, and trust is the whole ballgame.
- Does it extend to capacity when you need it? Materials first is fine, but you do not want a dead end when machine capacity becomes the constraint.
And honestly: when a spreadsheet is still enough
Few software companies will say this, so we will. A spreadsheet holds up when you have few components, stable demand and shallow bills of materials. If you make ten products from twenty parts and demand is predictable, MRP software will not transform your business.
The point where it breaks is not company size, it is change frequency and depth. When the same component appears at three levels, when lead times differ per supplier, when demand shifts weekly, every change means recalculating everything by hand, and that is when people quietly stop recalculating. That moment, not a revenue threshold, is when you need MRP software.
MRP in Odoo
In Odoo, MRP is not a separate product but the Manufacturing app on the same database as sales, purchasing, inventory and accounting. Practically that means:
- Bills of materials including multi-level and variants, with operations and work centres.
- Reordering rules with minimum and maximum levels, lead times and lot sizes per product and per supplier.
- The MRP run proposing purchase and manufacturing orders, with traceability back to the demand that triggered them.
- Capacity via work centres, so the plan reflects machines rather than materials alone.
- Direct flow-through to cost price and job costing, because the same database holds the financial side.
The advantage is not that Odoo’s planning algorithm is more sophisticated than a specialised planning tool’s. It is that the data it calculates on is the same data your buyers, warehouse and finance team already maintain. Given that MRP fails on data, that is worth more than an extra algorithm.
Frequently asked questions
What is an MRP system? Software that calculates what to make or buy, how much, and by when, by exploding demand through the bill of materials and netting it against stock and orders on the way.
How does the MRP calculation work? Available = on hand − safety stock + scheduled receipts. Net requirement = gross requirement − available, floored at zero. That net is rounded up to lot size and minimum order quantity, and the order date is the need date minus the lead time.
What is the difference between MRP and ERP? ERP is the broad platform for the whole company; MRP is the production planning module inside it. Standalone MRP means maintaining master data twice.
What is the difference between MRP and MRP II? MRP plans materials; MRP II adds capacity (machines, work centres, labour). Nearly everything sold as MRP today is MRP II.
Do I need MRP software or is a spreadsheet enough? A spreadsheet works with few components, stable demand and shallow bills of materials. Depth and change frequency, not company size, are what push you to real MRP software.
Not sure whether your planning problem is a data problem or a software problem? Book a free Odoo scan - we go through your bills of materials, lead times and planning process, and tell you honestly which of the two you are dealing with.
Read more: Manufacturing software: the categories · Production planning and scheduling · MES vs MRP vs ERP · What is a MES? · MES software: how to choose · Odoo for manufacturers · Cost price calculation · The TARGET method