As a leader managing people and the one responsible for day-to-day business operations, you need to know about ERP vs MRP systems.
The daily running of your organization can feel heavy and overwhelming—but an MRP or ERP system can help.
Here we’ll discuss the uses of ERP vs MRP systems and look at three key differences so you leave feeling more confident about which system is best for you and your business.
What is ERP?—Understanding Enterprise Resource Planning
ERP is an acronym for Enterprise Resource Planning. It involves the integrated management of various business processes, often in real-time, supported by specialist technology.
These business processes normally include:
- Human Resources
- Project production and management
- Warehouse management
- Supply networks
- Risk management.
What is an ERP solution?
An ERP solution is fundamentally the vehicle for integrating people, processes, and technologies across a modern enterprise.
The software uses a common database instead of a separate standalone system to bring organization to multiple workflow areas so all users—from clerks to the CEO — can create, store, and use the same data derived through common processes.
As a manager, you know the importance of being able to view software systems and your organization as a whole to determine:
- Areas of need
- Potential shortages
- Automation possibilities.
Having all departments on the same page allows for improved customer relationship management because all departments can relay the same, transparent information to consumers.
Enterprise Resource Planning systems also reduce the duplication that occurs between separate software, and help plan for the future needs of the business.
What is MRP?—Exploring Material Requirements Planning
MRP is an acronym for Material Requirements Planning (MRP) and the software is used to help with manufacturing processes and production planning.
However, companies outside of manufacturing businesses can use an MRP system to increase their profitability by using the software to forecast and plan for every necessary raw material.
Netsuite.com defines MRP as "a standard supply planning system to help businesses, primarily product-based manufacturers, understand inventory requirements while balancing supply and demand."
What is an MRP system?
Businesses use MRP systems to efficiently manage inventory levels, schedule production and ensure delivery of the right product—on time and at optimal cost.
MRP gives businesses of all sizes the ability to see inventory requirements needed to meet demand ahead of time, helping your company utilize inventory levels and accurate scheduling.
Without this upfront information, businesses have less visibility over their entire business process and aren’t able to respond to supply chain management needs.
This leads to problems like:
- Ordering too much inventory which increases holding costs and uses money that could be allocated elsewhere.
- Not meeting demands because of unmet material requirements resulting in lost sales, canceled agreements, and unavailable items.
- Interrupting the manufacturing operation and delaying product assembly that results in increased costs and less yield.
Manufacturing companies depend on MRP software to accurately forecast inventory levels and assembly needs. But MRP is also applicable in many other industries to balance supply and demand needs—businesses like retail and restaurants.
A Quick History Of MRP And ERP
Origins and growth of MRP
MRP systems were first created in the 1960s when computer usage became prominent in the manufacturing industry.
There was an increased need for companies to find a way to manage materials and costs during manufacturing to factor into their production schedule, and MRPs were the answer.
MRP systems evolved into MRP II software during the 1980s to meet additional needs like master scheduling, rough-cut capacity planning, capacity requirements planning, sales and operations planning (S&OP), and other concepts. The software allowed for accurate forecasting and resulted in cost savings.
The emergence and expansion of ERP
Enterprise Resource Planning (ERP) software emerged during the 1990s to answer the call for a system that went beyond materials and manufacturing needs.
ERP systems didn’t replace MRP systems – they expanded the scope and offered business management solutions to other types of companies requiring a broader range of possibilities.
Finally came "Postmodern ERP" systems. These systems allow companies to choose multiple standalone products for integration to meet their specific needs without having to pay for a larger ERP system they may not need.
3 Key Differences Between ERP vs MRP Systems
1. Integration Levels
This refers to the flow of information between the ERP/MRP and other systems.
ERP solutions are integrated and able to provide real-time information with a professional appearance across all modules in a shared database. This means employees working across various departments of your organization all have access to the same information.
MRP software is generally stand-alone. It can be integrated into systems used by your business through imports and exports but requires inputting information manually.
This is probably the main difference between ERP and MRP systems and a key factor to help guide your decision-making when it comes to deciding which is right for your organization.
2. Extent of Use
This refers to how many people from across the organization will use the software.
Because ERP solutions are scalable across a broad range of organizational departments, the types of users vary widely.
Employees ranging from the Office Services Assistant to the CEO can use the same system functionality to view real-time data and present the same information to customers.
MRP systems are limited in their scope based on their focus on manufacturing processes, and are utilized mainly by those employed in departments like manufacturing operations — employees on the shop floor and managers — to analyze inventory management. Viewers are more limited because of the focus on manufacturing resource planning.
MRP software allows for up-to-date inventory control information, accurate production scheduling, and makes working with distributors a lot easier.
While ERP systems use a centralized system, role-based permissions can be created – allowing only designated employees to access sensitive data.
3. Operation Costs
Pricing is a concern among business owners, and it’s important to know what kind of expense you’re looking at when purchasing a new software system.
ERP systems are more expensive than MRP systems due to their wide-ranging scope of business possibilities.
If you don’t have the budget for a full or limited ERP system but control of manufacturing processes is a critical need for your business then an MRP system might be right for you.
Postmodern ERP software may also be an option with a more limited budget, due to its ability to “mix and match” different standalone systems and only requiring users to pay for what they need.
Can ERP and MRP Systems Be Used in Tandem?
Integrating ERP and MRP systems allows for information sharing and collaboration within all other departments of the organization. This allows viewers to easily access streamlined information faster — resulting in time saved, increased cost-savings, and overall customer satisfaction.
What Is The MRP Process In ERP?
Material Requirements Planning (MRP) in Enterprise Resource Planning (ERP) systems is a vital process for managing manufacturing operations.
Here's what you need to understand:
- Bill of materials (BOM): A detailed list of raw materials, components, and assemblies needed to produce each product.
- Inventory control: Tracks current inventory levels and identifies what needs to be ordered and when.
- Production scheduling: Aligns manufacturing schedules with the availability of materials to ensure efficient production.
- Forecast demand: Predicts the quantity of product needed to meet customer demand.
- Order materials: Determines what materials are needed and in what quantities.
- Schedule production: Plans when production should start to meet demand schedules.
- Efficiency: Reduces waste by ordering only necessary materials.
- Cost savings: Minimizes holding costs by maintaining optimal inventory levels.
- Time management: Enhances production planning and scheduling.
Best practices for MRP in ERP
- Understand MRP basics: Familiarize yourself with MRP and its role in the organization to better align HR strategies with production needs.
- Training and development: Ensure that the workforce, especially those in production and inventory management, are adequately trained in MRP-related tasks and software.
- Recruitment focus: When hiring for production and inventory management roles, prioritize candidates with MRP system experience.
- Cross-department collaboration: Facilitate communication between HR, production, and inventory management departments to ensure a cohesive approach to resource planning.
- Performance metrics: Incorporate understanding and effective use of MRP systems into performance evaluation metrics for relevant roles.
- Change management: If implementing a new ERP system with MRP, prepare the workforce for the change through effective communication and training programs.
- Continual learning: Stay updated on advancements in ERP and MRP technologies to keep the organization's practices current and efficient.
ERP vs MRP—Deciding What’s Right For You
When debating whether an ERP vs. MRP software solution is best for your organization, take time to consider these questions:
- What business software do you utilize now? Are you satisfied with the results? This is so you can start to determine which new functionality you might be looking for.
- Do you have business processes in your organization you’d like to have automated to save time and effort? Starts you thinking about processes outside of manufacturing
- Would your business benefit from streamlining workflow among multiple departments? Again, starts you thinking about potential integrations.
- What are your fully functional areas and what areas need attention? So you can better determine which functions an ERP or MRP could support
- What is your current budget?
ERP software will equip your diverse business to gain full control across the whole process.
Many ERP systems available now are modular—you can choose the specific areas of your business to integrate and therefore which modules are required.
This allows for a customizable system fit to meet your own business needs.
A small business focused specifically on manufacturing needs may derive more benefit from an MRP system.
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- MRP is mainly used in manufacturing whereas ERP is a broader system that integrates all the processes needed to run a company.
- MRPs are generally significantly cheaper than ERPs so this is a major consideration vs what functionality you actually need.
- A Post-Modern ERP could be a potential solution as it offers more customization in terms of functionality
If it fits your business needs, an ERP or MRP system can shift some of the time-consuming processes taking your attention and allow you to focus as a leader on what matters most to you and your organization.
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