Bill of Materials (BOM): 

A BOM is a list that specifies the components or raw materials required to manufacture a product. It outlines the hierarchical structure of the product, detailing the quantity and relationships between the materials.

Master Production Schedule (MPS): 

The MPS is a plan that specifies the production quantity and timing for finished products. It serves as a starting point for the MRP process.

Gross Requirements: 

The MRP system determines the gross requirements by analyzing the MPS and BOM. It calculates the total quantity of materials needed based on the production schedule.

Net Requirements: 

Net requirements are derived by subtracting the available inventory from the gross requirements. If the inventory is insufficient to meet the demand, a shortage is identified.

Planned Orders: 

To fulfill the net requirements, planned orders are generated for each component or raw material. These planned orders indicate when and how many units of each material should be ordered or produced.

Purchase Orders and Production Orders: 

Based on the planned orders, purchase orders are generated for external suppliers to procure the required materials. For internal production, production orders are created to initiate the manufacturing process.

Lead Times and Scheduling: 

MRP considers the lead times associated with procurement and production activities. Lead times represent the time required to acquire materials or complete manufacturing tasks. By incorporating lead times, MRP helps determine the appropriate timing for placing orders or initiating production.

Tracking and Updating: 

As materials are received or produced, the MRP system updates the inventory levels and adjusts the net requirements accordingly. This ongoing tracking ensures that the system maintains an accurate picture of material availability and demand.