MRP vs. ERP: What’s The Difference and Which Solution is Right for Your Company?

At some point in time, most manufacturing companies realize the need for a software solution that allows different operational departments – procurement, production, warehousing and others – to share information. And it wouldn’t hurt if the same software could also loop in sales and finance. Any search for solutions raises a question almost immediately for most executives: What do the acronyms MRP and ERP stand for, and what’s the different between the two?

Management team using resource planning tools

The terms are sometimes used interchangeably, and there is no standard definition for either. As manufacturing firms look to invest in and implement a software platform, it’s important to realize that each software solution is distinctive, and it does matter which one is chosen.

Here are some considerations:

What does MRP stand for?

Initially, MRP meant material requirements planning. And as the name indicates, it was designed to help businesses plan for the types and quantities of materials they would need for a project. They were useful as forecasting and ordering tools because they ensured that the right materials in the right quantities were available for production on the right date.

In addition to providing a bill of materials and tracking inventory, the original MRP software could produce a master production schedule for manufacturing a part or component. This MRP software was available during the 1970s and did not incorporate any other processes.

Role of MRP expands in 1980s

By the 1980s, MRP had evolved into manufacturing resources planning and was now combining production planning and reporting, human resources and, of course, inventory into a comprehensive planning process. This new and improved version of manufacturing software was referred to as MRP II in the beginning, but it wasn’t long until everyone understood that MRP stood for the integration of all these processes combined with the help of computer technology.

MRP systems in 2019 include capacity planning, scheduling, control on the shop floor, and a variety of calculations, including financial. It allows for input from several departments and access to real-time information throughout the shop and offices. The advantages to manufacturers can be significant, giving them the means to compare their forecasts to actual data, analyze performance, and improve their processes for increased efficiency.

How does MRP work in practice?

MRP begins with a schedule for a customer order. The system converts the information into schedules of requirements for the parts, subassemblies, and materials needed to produce the final product within the established schedule. It also takes into consideration the shop’s workstation schedule and allocation of labor throughout the plant.

What is ERP and how does it differ from MRP?

Enterprise resource planning (ERP) came on the scene in the 1970s and was marketed as a suite of software that would capture all the processes of MRP—production planning, scheduling, inventory management–while also incorporating applications such as human resources, payroll, customer relationship management (CRM), and financial management.

ERP evolved as a financial software, so usually it didn’t replace MRP. While ERP can support most types of business processes, the software is much better suited for large businesses. With the integration that is needed from various departments in big companies for those processes, an ERP system might be their best choice, based on its capacity for managing considerable amounts of data. For the small to medium-sized company (and even some large corporations), a stand-alone MRP solution works well.

Is it overkill to purchase ERP for your business?

Of course, the answer to that is subjective. Your business is unique, and only you understand your processes completely. There is also the matter of your budget to consider. ERP systems take on more processes but at a price that is typically prohibitive to smaller companies. Implementing ERP software is complex and time-consuming, while putting an MRP system into operation is much less involved.

Take a look at the features of a quality MRP software solution:

  • Production planning and reporting: Accurate lead times and equipment utilization
  • Automated inventory transactions: Levels reduced and stock-outs eliminated
  • Manufacturing accounting: Real-time information on your inventory and the cost of goods sold.
  • Purchasing: Forecast and track your purchases
  • Shop floor reporting: Efficient use of workers and equipment
  • Sales management (CRM): Track the sales process from quotation to delivery

Here is what you can expect from the typical ERP system:

  • Production planning
  • Inventory
  • Financial management
  • Purchasing
  • Customer relationship management (CRM)
  • Human Resource Management
  • Supply chain management (SCM)

For large businesses, enterprise resource planning software (ERP) might make sense. It will consolidate your data and integrate your business processes. Your data will be safe and accurate, and the collaboration between departments will be improved.

But if you’re a smaller manufacturer, a stand-alone manufacturing resources planning system (MRP) will benefit your manufacturing organization without the added modules and extra expenses that come with an ERP system.

As you can see from the comparisons above, the distinctions between MRP and ERP might not be a significant for the small manufacturer, who primarily wants greater control of the shop floor, inventory, and scheduling.

Manufacturing management team

Keep your business’s needs at the forefront

It’s vital for manufacturing executives to understand the particular information that needs to be accessed quickly and in real time to enhance a company’s success. For most firms, this information includes:

  • Workstation capacity
  • Workforce planning
  • Inventory management
  • Shop floor data collection
  • Material traceability
  • Procurement processes

Well-managed companies need to have a complete and up-to-the-minute picture of where they stand in all these manufacturing processes. These areas depend on one another and need to be working together.

What is the “bottom line” on MRP for small and mid-sized manufactures?

Small manufacturers can experience the benefits of an MRP solution without the added costs of an ERP system, which might require a full-time IT department to support it. Supervisors can issue accurate work orders through the MRP that will take into account equipment capacity, workforce availability, and material requirements.

Others in an organization who will reap the system’s advantages are the salespeople who are responsible for supplying accurate quotes and delivery dates to their customers, inventory managers, your purchasing department, production planners and managers, and your workers on the shop floor.

ERP is a powerful tool for corporations that need and can afford its many features, but MRP systems target the needs of the small manufacturing company that is looking to become more efficient and profitable.

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