In an MRP system, component demand is calculated by the MRP system from the master production schedule.

MRP stands for Material Requirements Planning, which is a computer-based inventory management system that helps organizations determine the quantity and timing of materials needed in production. The MRP system uses information from the master production schedule (MPS) to calculate the demand for components or raw materials.

Master Production Schedule (MPS)
The master production schedule is a plan that specifies the quantity and timing of finished products to be produced. It is typically based on customer orders, sales forecasts, and other factors such as production capacity and inventory levels. The MPS provides information about what products need to be produced and when.

Component Demand Calculation
The MRP system uses the information from the MPS to calculate the demand for components or raw materials needed to produce the finished products. This calculation is done by analyzing the bill of materials (BOM), which is a list of all the components and their quantities required for each finished product.

The MRP system takes into account the lead time for each component, which is the time it takes to procure or produce the component. It then calculates the net requirements for each component by subtracting the on-hand inventory and any scheduled receipts from the gross requirements (demand). The net requirements represent the additional quantity of components that need to be procured or produced to meet the demand.

The MRP system also considers other factors such as safety stock, order quantities, and lot-sizing rules to optimize the inventory levels and minimize costs. It generates a planned order release schedule, which specifies when and how much of each component should be ordered or produced.

Benefits of MRP System
- Improved inventory management: The MRP system helps organizations maintain optimal inventory levels by ensuring that components are available when needed, minimizing stockouts and excess inventory.
- Efficient production planning: By accurately calculating component demand, the MRP system helps organizations plan their production activities more efficiently, avoiding production delays and bottlenecks.
- Cost savings: The MRP system helps organizations minimize costs associated with inventory carrying, stockouts, and rush orders. It enables better procurement and production planning, leading to cost savings.

In conclusion, in an MRP system, component demand is calculated by the MRP system from the master production schedule. This calculation takes into account various factors such as lead time, inventory levels, and production requirements to ensure that the right quantity of components is available at the right time for production.