Why Saudi Factories Need Material and Resource Planning
Picture a plastic water tank manufacturer in Dammam's Second Industrial City. Sales has promised a customer 400 tanks in three weeks. Production knows the machines are tied up with another order. Purchasing discovers there is not enough polyethylene on hand and the supplier needs three weeks to deliver. Everyone is working hard, but nobody has a single picture linking demand, stock, capacity and purchasing.
That is exactly the problem material requirements planning (MRP) was created to solve, and it later grew into manufacturing resource planning (MRP II), which adds capacity, labor and cost. Under the National Industrial Strategy, launched by the Crown Prince in October 2022 with the aim of tripling industrial output and reaching 36,000 factories by 2035, systematic planning becomes a condition for growth rather than a nice-to-have.
This guide explains the difference between MRP and MRP II, applies the calculation logic to a full worked example, covers capacity and cost planning, discusses issues specific to factories in the Kingdom, and closes with a practical rollout plan.
From MRP to MRP II in Brief
Joseph Orlicky laid down the first principles of material requirements planning in 1964 while working as an engineer at IBM, and in 1975 published the first book on the subject. The core idea is simple: demand for raw materials and components is not independent. It is derived from the production plan for finished goods. If you know how many tanks you will build and when, you can calculate exactly how many kilograms of raw material you need and when to order them.
It soon became clear that materials alone were not enough. A plan calling for 500 tanks in week five is worthless if the machines can only make 350. The concept therefore expanded into MRP II, covering capacity and labor, then cost and accounting.
| Aspect | MRP | MRP II |
|---|---|---|
| Core question | What components do we buy or make, and when? | Can we execute the plan with the capacity, labor and money available? |
| Inputs | Master production schedule, BOM, stock records, lead times | All of those plus work centers, routings, calendar and costs |
| Outputs | Suggested purchase and production orders | An executable plan, capacity loads, planned and actual cost |
| Financial link | Limited | Product cost, work in progress, variances |
The Four Inputs
1. Master production schedule
States how many units of each finished product will be made in each period, usually weekly. It is built from firm orders and forecasts and must be realistic. If the MPS is a wish list, everything calculated from it will be wrong.
2. Bill of materials
Defines the components and quantities at every level: finished product, sub-assemblies, components, raw materials, including expected scrap at each stage. See our bill of materials guide and Tranquil's multi-level BOM page.
3. Inventory records
Current balance of every material, quantities reserved for open orders, open supplier orders with expected arrival dates, and required safety stock.
4. Lead times
How long a supplier takes from order to receipt in the warehouse, including customs clearance for imports, and how long each in-house component takes to make.
A Full Worked Requirements Calculation
Back to the tank factory, with hypothetical figures. A 1,000-liter tank needs 25 kg of polyethylene powder, a lid and a valve kit. The MPS calls for 400 tanks in week 3 and 500 tanks in week 5.
Polyethylene data:
- On hand: 6,000 kg.
- Open supplier order arriving in week 2: 8,000 kg.
- Safety stock: 2,000 kg.
- Lead time: 3 weeks.
- Ordered in multiples of 1,000 kg (one pallet).
| Week | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Gross requirement (kg) | 0 | 0 | 10,000 | 0 | 12,500 |
| Scheduled receipts | 0 | 8,000 | 0 | 0 | 0 |
| Projected balance before planned orders | 6,000 | 14,000 | 4,000 | 4,000 | 8,500 short |
| Net requirement (with safety stock) | 0 | 0 | 0 | 0 | 10,500 |
| Planned receipt (multiples of 1,000) | 0 | 0 | 0 | 0 | 11,000 |
| Planned order release | 0 | 11,000 | 0 | 0 | 0 |
| Balance after receipt | 6,000 | 14,000 | 4,000 | 4,000 | 2,500 |
Week 3 is covered by stock plus the open order. Week 5 needs 12,500 kg against 4,000 available, a shortfall of 8,500; adding safety stock gives a net requirement of 10,500 kg, rounded up to 11,000. With a three-week lead time, the purchase order must be released in week 2. If purchasing waited until it noticed low stock in week 4, production would slip by at least two weeks.
Exploding the BOM across levels
Real BOMs have more than one level. Suppose the lid is injection-molded in house from 1.2 kg of the same polyethylene, and the valve kit is assembled from an imported valve and two local fittings. Exploding the week-5 requirement for 500 tanks produces the following:
- 500 lids must be ready before assembly. They take a day to make, so a lid production order is released in week 4, adding 600 kg to polyethylene demand that week. That demand was left out of the table above for simplicity, but in reality it increases the planned purchase, which shows why levels cannot be calculated in isolation.
- 500 valve kits are assembled in week 4, requiring 500 valves and 1,000 fittings beforehand.
- The imported valve has an eight-week lead time, so its order should already have been released before the visible horizon. The system raises an exception: the order is late, so expedite shipping, find an approved substitute or warn sales.
These exception messages are what MRP produces that matters most in practice. Planners do not review thousands of lines; they focus on cases needing action: late orders, orders to pull in or push out, and orders to cancel because demand has fallen.
Lot-Sizing Policies
Once net requirements are known, the system decides how much to order, according to a policy set per material:
| Policy | Idea | Suits |
|---|---|---|
| Lot-for-lot | Order exactly the net requirement each period | Expensive or customer-specific items |
| Fixed quantity or multiples | Order by pallet, container or supplier minimum | Bulk raw materials, as in the example |
| Economic order quantity | Balance ordering and holding cost | Items with stable demand |
| Period order quantity | Order enough to cover a set number of weeks | Cheap, high-usage components |
Choosing a policy is not purely technical. Imports shipped by the full container may be ordered to cover two months to save freight, while local components available within days are ordered lot-for-lot to keep stock low.
Capacity Planning: What MRP II Adds
Suppose each tank needs half an hour on a rotomolding machine. The factory has two machines running two eight-hour shifts, six days a week, at 85% expected efficiency.
- Weekly available capacity: 2 x 2 x 8 x 6 x 0.85 ≈ 163 hours.
- Week 3 load: 400 x 0.5 = 200 hours.
- Week 5 load: 500 x 0.5 = 250 hours.
The plan cannot be executed as it stands. Options include pulling part of the week-3 build into weeks 1 and 2, which are unloaded in this example, adding a temporary third shift, or agreeing split delivery with the customer. Weeks 1 and 2 offer about 326 hours, so some of both orders can be built early if raw material arrives in time. That is where capacity and material planning interact: building earlier means material must arrive earlier and there must be space to store finished tanks.
Balancing materials, capacity and inventory is the heart of MRP II, and it can only be done with confidence when all the data sits in one system. More in our article on ERP production planning.
From Plan to Cost
The financial side of MRP II ties each production order to its cost:
- Direct materials: what was actually issued against the order versus the BOM standard.
- Direct labor: hours booked to the order.
- Production overhead: absorbed at a machine-hour or labor-hour rate.
When the order closes, variances appear: material usage variance if more was consumed than standard, price variance if material cost differed, and efficiency variance if the run took longer. If a tank used 26.5 kg instead of 25, that is 6% over on the key material, worth investigating in machine settings or material quality.
IAS 2 requires fixed production overhead to be absorbed on normal capacity, with unabsorbed overhead from low output expensed in the period rather than added to inventory. Normal capacity must therefore be set correctly in the system for inventory cost in the financial statements to be right.
Considerations for Factories in the Kingdom
Lead times on imported materials
Many plants depend on imported materials or components. Since late 2023, attacks on shipping in the Red Sea have led major carriers to reroute around the Cape of Good Hope, lengthening voyages and raising costs. The practical lesson: lead times in the system should be reviewed periodically against actuals, not left at whatever was entered when the item was created. Add clearance time, and if an imported product falls under a technical regulation requiring certificates through the SABER platform, allow for obtaining the shipment certificate.
The production calendar
During Ramadan, working hours for Muslim employees are six a day or 36 a week, and public holidays and annual shutdowns reduce capacity in particular weeks. A system that knows the calendar calculates available capacity accurately for each week. See Tranquil's material planning page.
Local content and Made in Saudi
The "Made in Saudi" program was launched in March 2021 to build confidence in national products and support local content and exports. Factories competing for government contracts need documented data on where their materials come from. A BOM that records each material's origin (local or imported) and cost turns local content calculation into work based on real data. Note also that the new Government Tenders and Procurement Law takes effect on 2 January 2027, with preference regulations on local content to be issued under it.
Quality and traceability
Linking production orders to raw material batch numbers, with quality checkpoints at each stage, makes it quick to answer "which raw material batch did this defective product come from?", which is what a factory needs when a customer complains or conformity certificates are required.
A Practical Rollout Plan
- Clean the BOMs: the most important step. A wrong BOM means wrong purchase orders. Check quantities, scrap factors and units of measure for every product.
- Fix inventory accuracy: start cycle counting and post every issue and receipt as it happens. MRP running on wrong balances gives wrong answers confidently.
- Use real lead times: derive them from the last ten purchase orders per supplier, not from supplier promises.
- Define work centers and routings: machines, capacity, setup and run times per product.
- Agree a realistic MPS: with sales, fix a frozen window, such as two weeks, changeable only with approval.
- Run in parallel: run system planning alongside the current method for a month or two and compare suggestions with actual decisions.
- Connect to cost: once planning is stable, switch on actual costing on production orders and variance reports.
KPIs for Planning Success
| KPI | Calculation | What it tells you |
|---|---|---|
| BOM accuracy | BOMs matching reality / BOMs audited | Quality of the most important input |
| Inventory accuracy | Items matching on count / items counted | Whether balances can be trusted |
| MPS adherence | Production orders completed on time / planned | Realism of the plan |
| Material shortage downtime | Line hours lost to missing material | Direct effectiveness of material planning |
| Days of inventory | Inventory value / average daily consumption | Planning with sensible stock or hoarding to compensate |
| Rush orders | Expedited POs / total POs | How often requirements caught you by surprise |
Common Mistakes
- Buying software before cleaning data: the problem is the inputs, not the algorithm.
- Ignoring capacity: a perfect material plan for a schedule the machines cannot run.
- Changing the MPS daily: confuses purchasing and suppliers and generates costly rush orders.
- High safety stock to compensate for distrust of the system: ties up cash and hides real problems.
- Posting production and consumption at month-end: leaves balances wrong all month.
Frequently Asked Questions
Is MRP suitable for small factories?
Yes, if the plant has multi-component products and materials with long lead times. A factory with twenty products and a hundred materials benefits significantly, because calculating a hundred materials across several weeks by hand is slow and error-prone.
How does MRP differ from demand planning?
Demand planning forecasts what customers will order. MRP takes that forecast and firm orders, once converted into a master production schedule, and calculates the materials and components needed to deliver it.
How often should requirements be recalculated?
Most plants run it daily or weekly. What matters is running it after orders and balances are updated, and having a planner review suggestions before they become purchase and production orders.
Does MRP eliminate material shortages?
Not on its own. It reveals shortages early and suggests action, but success depends on data accuracy, supplier reliability and a realistic MPS.
How does MRP II relate to ERP?
ERP grew out of MRP II by adding sales, HR and full accounting. In a modern ERP system, material and production planning is a module directly linked to inventory, purchasing and finance.
To discuss material and production planning for your plant, contact the Tranquil team.