Material Requirement Planning, popularly known as MRP, was developed during 1960s. This was a proactive manner of inventory management. This technique fundamentally explodes the end product demand obtained from the 'Master Production Schedule' (MPS) for a specified product structure (which is taken from Bill of Material) into a detailed schedule of purchase order or production orders, taking into account the inventory on hand.
MRP is a simple logic but the magnitude of data involved in a realistic situation makes it computationally cumbersome. If undertaken manually, the entire process is highly time consuming. It therefore becomes essential to use a computer to carry out the exercise.
MRP successfully demonstrated its effectiveness in reduction of inventory; production and delivery lead times by improving coordination and avoiding delays, thus making commitment more realistic. MRP proved to be a very good technique for managing inventory, but it did not take into account of other resources of an organization. Due to this shortcoming a modified MRP logic, popularly known as 'closed loop MRP' has been developed. A new module called Capacity Requirement Planning (CRP) has been incorporated in this. This module manages the capacity of the organization to produce a particular product. A feedback loop is provided from the CRP module to MPS if there is not enough capacity available to produce.
Later the need was felt to integrate the financial resource with the manufacturing activities. From this evolved an integrated manufacturing management system called Manufacturing Resources Planning (MRP II).
Transition from MRP II to ERP happened some time later because the basic MRP II system design was suffering from a few inherent drawbacks such as limited focus to manufacturing activities, assumption of the mass or repetitive production set ups, and poor budgetary and costing controls.
The shortcomings o MRP-II and the need to integrate these new techniques, led to the development of a total integrated solution called Enterprise Resource Planning (ERP), which attempts to integrate the transactions of suppliers and customers with the manufacturing and service environment of the organization to produce the best possible plan. Today there are further development in the ERP concept and evolution of Web-enabled ERP.