What is MRP? The difference between MRP1, MRP2, and ERP

Delivering a product on time seems simple at first glance. You sell a product, check the inventory, and ship it. But as soon as you need to purchase, assemble, or fully produce the product, the delivery time becomes a chain of dependencies.

A component may come from the Far East. Another component may need to be processed first. Then, production capacity must be available, and the final product still needs to be checked and packaged. The total delivery time is determined by the critical path: the longest sequence of necessary steps.

Therefore, MRP is not just about which materials you need. A good MRP system provides insight into the entire supply chain. You see which materials, people, machines, and production steps are needed to fulfill a customer promise.

MRP1 primarily plans the material requirements. MRP2 also looks at the broader production capacity. ERP connects this information with sales, purchasing, inventory, and finance. For manufacturing companies that want to gain more control over this, Odoo manufacturing provides an integrated foundation for inventory, planning, and production orders.

What does MRP mean?

MRP stands for Material Requirements Planning. In English, we call this material requirements planning.

An MRP system calculates:

• which materials and components are needed;

• how much of them is needed;

• when they need to be available;

• which production orders or purchase orders are needed;

• if the planned production aligns with the demand.

The calculation usually starts with a bill of materials, also known as Bill of Materials or BoM. It specifies which raw materials, components, and semi-finished products a product consists of.

Suppose you are producing a machine. The bill of materials then contains, for example, a frame, motor, control cabinet, cable set, and fastening materials. Some components are purchased. Others are made in-house. A semi-finished product can in turn consist of multiple components.

MRP calculates this structure. If ten end products need to be made, the system calculates how many motors, cable sets, screws, and other components are needed for that. It then compares this need with the available stock, planned receipts, and ongoing production.

This results in a proposal for new purchase and production orders.

What is MRP1?

MRP1 is the original form of material requirements planning. The central question is:

What materials do we need to carry out the planned production, and when do they need to be available?

MRP1 uses, among other things:

• the bill of materials of the product;

• the expected demand or sales orders;

• the current stock;

• existing purchase orders;

• existing production orders;

• supplier lead times;

• scheduled production dates.

The system looks ahead. If a customer needs a product in four weeks, MRP1 calculates which parts need to be available for that. When a part has a lead time of three weeks, the purchase order must be placed on time. If a semi-finished product then needs another two production days, that time must also be taken into account.

MRP1 is therefore more than a simple inventory minimum. The system tries to link material requirements to the production schedule.

However, MRP1 has a clear limitation. The system can determine that there is enough material available, but that does not guarantee that you can make the product on time. Perhaps the machine is occupied. Perhaps a staff member with the right knowledge is missing. Or perhaps a process takes longer than planned.

MRP1 primarily plans what is needed. It checks to a limited extent whether you can actually execute the entire plan.

What is MRP2?

MRP2 stands for Manufacturing Resource Planning. It is an extension of MRP1.

The question changes from:

What materials are needed?

to:

Can we actually make the planned product with the available resources?

MRP2 therefore looks not only at materials but also at production resources. Think of:

• machines and work centers;

• available machine capacity;

• employees and available hours;

• production routings;

• processing times;

• tools;

• maintenance and downtime;

• quality controls;

• production costs.

A routing describes the steps needed to create a product. For example, sawing, welding, painting, assembling, and testing. Each step has a processing time and often a specific work center.

If a production order seems technically feasible, but the required machine is fully occupied for the next two weeks, the planning must be adjusted. You can then deploy another machine, shift the production, organize extra capacity, or inform the customer about a later delivery time.

That is the added value of MRP2. The system makes visible where the actual constraint lies.

MRP1 and MRP2: the difference

The terms MRP I and MRP II are often used interchangeably with MRP1 and MRP2. The meaning is the same. Both spellings appear in searches. Therefore, in this article, we consciously use both MRP1 and MRP2 as well as MRP I and MRP II.

In modern software, the term MRP is also often used for functionality that goes beyond the original MRP1. An MRP module nowadays regularly includes functions for production orders, work centers, capacity, quality, and maintenance.

A lead time is a supply chain

For a product that you need to produce, the lead time consists of a sequence of delivery and production times.

A simplified example:

• a motor has a lead time of six weeks;

• a control cabinet has a lead time of three weeks;

• the frame can be produced in five days;

• the final assembly takes two days;

• the quality control takes one day.

The total lead time is not determined by the sum of all activities. Some activities can occur simultaneously. The total lead time is determined by the critical path: the longest chain of activities necessary to get the product ready.

In this example, the frame can already be produced while the motor is on its way. However, the final assembly can only start once both are available. The motor with a lead time of six weeks will likely determine the earliest possible production date.

Without this insight, a seller can promise a lead time that seems feasible on paper but is not actually executable.

A good system must therefore not only show how much inventory is available today. It must also show:

• which parts are on the way;

• when they are expected;

• which production orders depend on them;

• which operation is delaying the schedule;

• which customer orders will be affected if a delivery is delayed.

Safety times and inventory buffers

Delivery times are not always reliable in practice. A supplier may deliver later, a ship may be delayed, or a part may be rejected upon receipt.

Therefore, safety times and inventory buffers can be wise. A buffer is especially logical for products or parts with a long or unreliable delivery time. This applies, for example, to parts that come from the Far East and whose delivery time can vary greatly.

A buffer can help make planning more stable and predictable. You are not only buying inventory but also time and certainty.

There is an important difference between a conscious buffer and extra inventory due to uncertainty.

Holding extra inventory because you do not have a good view of your stock is a bad idea. You are then using inventory as a band-aid for an information problem. The result is extra capital on the shelf, without really knowing if you have the right parts.

This problem arises, for example, when inventory levels are not reliable, bill of materials are outdated, or purchasing and production orders are not well tracked. More inventory does not solve that. You first need better registration, clear processes, and reliable data.

A buffer must therefore be a conscious choice based on risk and delivery time. Not a reaction to uncertainty that you can eliminate with better information.

Another inventory strategy, such as just-in-time delivery, can work well in some situations. But reliable inventory data and supplier agreements are also needed. Read more about the Odoo just-in-time inventory system.

From MRP2 to ERP

MRP2 focuses on the production organization. ERP goes a step further.

ERP stands for Enterprise Resource Planning. An ERP system connects the main processes of a company in one integrated environment. Besides production, it involves:

• sales;

• purchasing;

• inventory;

• warehouse;

• finance;

• projects;

• quality;

• maintenance;

• customer relationships.

This is important because production is never separate from the rest of the company.

A sales order can lead to a production order. That production order requires the purchasing of parts. The purchasing affects the inventory. The inventory and production costs then have consequences for the financial administration and the margin on the sales order.

If each process is in a separate system, you have to constantly bring that information together again. This leads to discrepancies between the sales planning, the inventory administration, and the production planning.

A customer receives a delivery date that production cannot meet. The purchaser sees a different need than the planner. The financial administration only gains insight into the actual costs late.

ERP makes that interconnection visible.

MRP is therefore not an alternative to ERP in the sense that you always have to choose between the two. MRP is often a component of an ERP system. MRP1 and MRP2 form the production planning within a broader context.

If you want to know more about the broader role of ERP, also read what an ERP system is or how to properly implement an ERP system.

How does Odoo support MRP?

Odoo includes a Manufacturing app for production orders, bill of materials, and production routings. This functionality works together with inventory, purchasing, and warehouse processes.

In addition, Odoo offers apps for, among others:

• Quality

• Maintenance;

• PLM;

• Inventory;

• Purchasing.

With the Production apps, you document how a product is made. In the Inventory app, you see which materials are available. The Purchasing app supports the procurement of missing parts. With the Quality app, you document inspections, and in the Maintenance app, you account for maintenance on machines and work centers. PLM supports changes to products and bills of materials.

For companies that want to know more about Odoo Manufacturing and work orders, the page about Odoo production, MRP, and work orders is also relevant. For changes to bills of materials and production methods, we refer to the article What is PLM or Product Lifecycle Management?.

Whether you formally call this MRP2 is less important than the question of whether the necessary information is available. Can you see which materials are needed? Do you know when they will arrive? Is there enough capacity? Do you see which orders are affected by a delayed delivery?

The system must provide answers to that.

A system does not make bad data good.

An MRP system can only plan reliably with reliable data.

The quality of the planning depends, among other things, on:

• correct bills of materials;

• realistic lead times;

• accurate inventory levels;

• current production orders;

• correct processing times;

• well-equipped workplaces;

• clear responsibilities;

• timely registration of receipts and consumption.

If a supplier consistently needs four weeks, but the system shows one week, the planning looks better than reality. If a bill of materials is missing parts, MRP calculates a need that is not complete. If stock appears to be present administratively but is physically missing, a production halt still occurs.

Therefore, a good MRP setup does not start with as many settings as possible. It starts with the question of whether the basic data is correct and whether employees consistently execute the processes.

Standard Odoo is a logical starting point. Additional customization or integrations can be valuable if they solve a demonstrable problem. But customization that mainly needs to hide unclear processes or poor data usually complicates the situation.

What should you expect from MRP?

A good MRP system should help you make better decisions about inventory, capacity, and lead time.

You should be able to see:

• which materials are needed;

• which materials are already available;

• which materials are on the way;

• which suppliers pose a risk;

• which production orders depend on a part;

• where the critical path in the planning lies;

• which capacity is available;

• what safety time is wise;

• which customer orders may be delayed.

That insight is more important than a nice plan on the screen. The planning must be usable for sales, purchasing, production, and management.

The seller wants to know what he can promise to the customer. The buyer wants to know what needs to be ordered when. The planner wants to know where the capacity is constrained. The management wants to know how much inventory is needed and how much money is tied up in it.

If everyone works with the same current information, the supply chain becomes more manageable.

Conclusion

MRP1 plans the material requirements. MRP2 expands this with the resources needed to actually carry out production. ERP then connects this with sales, purchasing, inventory, warehouse, and finance.

The key lesson is that a lead time is not an isolated number. It is the result of a chain of suppliers, materials, production steps, and available capacity. The critical path determines how quickly you can actually deliver.

Safety times and inventory buffers can help make that chain more stable, especially with long or unreliable lead times. But extra inventory because you don't know what you actually have in stock is not a solution. That is primarily expensive capital on the shelf.

A good MRP or ERP system provides insight into all dependencies. This allows you to plan more realistically, make better customer promises, and deploy inventory where it truly adds value.