What Is MRP Planning? How To Execute MRP Planning

Material requirements planning (MRP) helps manufacturers determine the raw materials needed for production, when to schedule production, and how to monitor and replenish inventory. 

Max Kislevitz, co-founder of fitness equipment brand Bala, says on Shopify Masters that inventory control is a constant struggle between allocating too much cash to raw materials and devoting too little, causing you to sell out or halt production. Failing to address this often results in financial underperformance. Poor planning can lead to materials shortages that stall production, while over-ordering raises your carrying costs.

Learn what MRP is, which types of businesses use it, and how Shopify can automate the process for your business.

What is MRP planning?

Material requirements planning (MRP) calculates the raw materials and components needed to fulfill production schedules. An automated MRP system makes production more efficient. Instead of relying on manual spreadsheets, MRP systems integrate data from all parts of your business to track inventory needs. Aligning raw materials procurement with customer demand and sales forecasts helps to reduce inventory costs and prevent manufacturing bottlenecks.

Key elements of MRP

The MRP process relies on the following documents:

• Master production schedule (MPS). The master scheduling document specifies which products you plan to build, how many, and by what date.

• Bill of materials (BOM). A comprehensive list of all the raw materials, sub-assemblies, and components needed to build your products.

• Inventory records. Real-time live data showing your inventory levels, safety stock buffers, items already on order with suppliers, and materials allocated to work in process.

Why is MRP important?

Continuous forecasting and tracking helps your business respond to the unexpected, from supply chain breakdowns to shifts in customer behavior. As Ecommerce Consultant Andrew Faris, founder of AJF Growth, says on Shopify Masters, the true value of a forecast is that it shows you why your numbers are off-target. An MRP system pinpoints where your projection went off-course so you can adjust your procurement and protect your profit margins. 

Who needs MRP planning?

MRP is intended for companies that mass assemble or manufacture goods from many raw materials and components. You likely need an MRP system if your business deals with:

• Complex bills of materials. Products that require dozens of individual parts or multistage assembly lines.

• Long manufacturing lead times. Production cycles with raw materials taking weeks or months to arrive from suppliers.

• Fluctuating customer demand. Businesses that must rapidly increase or cut production based on seasonal sales or shifts in the market.

Conversely, if your business produces custom goods or made-to-order items, traditional MRP might not fit. On Shopify Masters, Phantila Phataraprasit, founder of furniture brand Sabai Design, says that stocking every individual component was impractical and expensive. It opted for a lean, custom-order model to avoid holding vast component inventory when it couldn’t predict what variations customers would buy.

MRP vs. ERP: What’s the difference?

Material requirements planning is often confused with enterprise resource planning (ERP), but they have different scopes. The main difference is that MRP focuses strictly on production planning and inventory control, and ERP systems manage the entire enterprise.

An MRP system is a specialized tool designed exclusively for key manufacturing processes. It tracks raw materials, calculates manufacturing efficiency, and schedules the production cycle. It doesn’t look at your company’s bank accounts, manage human resources, or track customer relationships.

Enterprise resource planning software, on the other hand, unites various business functions under one roof. ERP systems integrate data from finance, human resources, customer relationship management (CRM), supply chain management, and logistics. MRP is typically a component of a broader ERP system, passing inventory and manufacturing data along to the accounting and sales teams.

How to execute MRP

1. Establish your master production schedule
2. Explode the bill of materials
3. Determine net requirements via inventory records
4. Calculate lead times and schedule production
5. Execute purchase orders and monitor outputs

Executing an MRP requires transforming projected demand into procurement and manufacturing. Growing ecommerce businesses can use built-in Shopify features to manage, track, and automate each phase of the process in real time. Here is the step-by-step sequence to run an effective MRP process:

1. Establish your master production schedule

Begin by estimating customer demand. Gather data from existing customer orders, open invoices, and sales forecasts to determine how many finished goods you need to deliver. Incorporate this target volume and the required delivery dates into your master scheduling document. This is the primary engine for your supply chain planning.

2. Explode the bill of materials

Take the quantity of finished goods from your MPS and break them down into individual parts. This is a process known in the manufacturing industry as “exploding” the bill of materials. 

If your master production schedule calls for making 500 winter jackets, your MRP system will extrapolate that total across your bill of materials, automatically multiplying the order by every zipper, button, yard of fabric, and lining panel required. This calculates the gross material requirements needed for the job. 

To make this method work, it helps to ground it in core inventory management methods. Merchants often use ABC analysis to prioritize high-value components, calculate economic order quantity (EOQ) to find the most cost-effective batch sizes, or use FIFO (first in, first out) to ensure older raw materials are used first.

3. Determine net requirements via inventory records

Subtract your current inventory from your gross material requirements to find your net requirements, or the amount you must buy. You can use Shopify Inventory Management to track inventory, view stock levels, and analyze inventory adjustments. 

Knowing what is on hand across separate fulfillment hubs ensures your net calculations are never skewed by phantom stock. Phantom stock is inventory that appears in your software but isn’t actually on the warehouse shelf due to data lag, tracking errors, or theft. This is also where you factor in your safety stock, or extra inventory you hold in reserve to account for unexpected supply chain disruptions or surges in demand.

4. Calculate lead times and schedule production

Map out your manufacturing timeline based on material availability and production capacity. Look at how long suppliers need to deliver raw materials and the time your assembly process takes to complete the product. Schedule your start dates based on the target delivery date, creating detailed production schedules so work begins when materials arrive. 

To keep this running smoothly without manual oversight, you can implement Shopify Flow inventory workflows. These custom automations trigger low-stock notifications and reorder alerts the moment raw materials dip below your safety stock threshold, ensuring your production lines avoid unexpected downtime.

5. Execute purchase orders and monitor outputs

Launch your procurement plan by sending Shopify purchase orders to your vendors for the raw materials needed. You can use this feature to manage inventory deliveries from suppliers, track payments, and update stock levels automatically when materials arrive at your warehouse. Production begins once materials are counted, recorded, and hit your factory floor. 

Monitor your inventory data and capacity constraints, using the system to optimize production, manage your carrying costs, and maintain high customer satisfaction.