Material Requirement Planning is a special technique to plan the requirements of materials for production. For the manufacturing company to produce the end items to meet demands the availability of sufficient production capacity must be coordinated with the availability of all raw materials and purchased items from which, the end items are to be produced.
In other words, there is a need to manage the availability of dependent demand items from which the products are made. Dependent demand items are the components, i.e., materials or purchased items, fabricated parts or sub-assemblies that make up the end product.
One approach to manage the availability of dependent demand items is to keep a high stock of all the items that might be needed to procured the end items and when the on-hand stock drops below a present re-order level, the items are procured or bought as the case may be to replenish the stock to the maximum level.
However, this approach is costly due to the excessive inventory of components, fabricated parts and sub-assemblies to ensure high service level.
An alternative approach to manage these items is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the master production schedule (MPS). The technique is known as Material Requirement Planning (MRP) technique.