Why material requirements planning (MRP) matters to a first-time founder
Once you make physical products from several parts, guessing what to order leads to two expensive problems: production stops because one cheap component is missing, or cash sits on shelves in parts you will not use for months. Working out requirements from real production plans keeps both in check and shows supplier lead times early, before they turn into a missed delivery date for a customer.
Examples of material requirements planning (MRP)
A furniture maker plans to build 200 chairs in week 10. Each chair needs 4 legs, so the plan calls for 800 legs. The workshop has 150 legs in stock and 250 already on order, leaving 400 to buy. The leg supplier needs three weeks to deliver, so the order must go out by week 7 for the legs to arrive in time for assembly.
Common misunderstanding
This MRP is not marginal revenue product, the economics measure of what one more unit of an input earns, which has its own page. Within operations, MRP is often confused with manufacturing resource planning, or MRP II, which extends the same logic to machine capacity, labour and finance. Material requirements planning on its own only answers what to order and when; it assumes your factory has the capacity to make the plan.
When to use it
Set it up when you manufacture or assemble products with several components and supplier lead times longer than a few days, and a spreadsheet no longer keeps pace with orders. Ignore it for now if you resell finished goods or make one product from a handful of parts; a simple reorder level for each item will cover you until your bill of materials and order volume grow.