Editing Material requirements planning (section)

===Dependent demand vs independent demand===
Independent demand is demand originating outside the plant or production system, while dependent demand is demand for components. The [[bill of materials]] (BOM) specifies the relationship between the [[Product (business)|end product]] (independent demand) and the components (dependent demand). MRP takes as input the information contained in the BOM.<ref>J.Orlicky, Net Change Material Requirement Planning, IBM Systems J. 1973 in Jos Peeters, Early MRP Systems at Royal Phillips Electronics in the 1960s and 1970s, IEEE Annals of the History of Computing 2009</ref>
<ref name="Ptak, Carol 2011" />

The basic functions of an MRP system include: [[inventory control]], [[bill of material]] processing, and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities.

"Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required."

Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:
* If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.
* If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock that might never be used at all.
* Beginning production of an order at the wrong time can cause customer deadlines to be missed.

MRP is a tool to deal with these problems. It provides answers for several questions:
* ''What'' items are required?
* ''How many'' are required?
* ''When'' are they required?...

MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items. An important point is that MRP is not cost driven: it does not seek to minimise cost. Instead, it is stockout driven: it will order just enough to avoid stockouts (using the lot size rule for each item) and order as late as possible.