In your software search, you’ve likely come across both ERP and MRP. Many definitions of these software categories don’t include much differentiation between the two, which can make the process of choosing a system pretty confusing. Not to mention the fact that they are only one letter off from each other and that they both heavily deal with the manufacturing industry. Well, we’re here to alleviate some of that confusion by comparing MRP vs ERP. So, what exactly is the difference between an MRP system and ERP software? Let’s start with some definitions.
What Is MRP?
MRP stands for material requirements planning. Its basic purpose is to measure what material you need, how much of it you need and when you need it by, allowing you to ensure the highest rate of production in your manufacturing center. MRP contains tools exclusively used to assist in manufacturing processes, though companies that do more than just manufacturing are encouraged to use an MRP system to boost inventory profitability. Businesses typically manage their production planning with these systems, using them to forecast and order materials. This ensures that when those materials are needed for production, the right amount is available on the correct date.
When using an MRP system, you need to be especially diligent about entering data accurately and punctually. If the data is old or incorrect, material forecasts can become skewed, which could lead to having too many or too few raw materials available for efficient business practice.
What Is ERP?
ERP stands for enterprise resource planning and is one of the more common categories of business software, especially among large businesses. ERP systems, like MRP software, help you manage manufacturing processes like production planning, scheduling and inventory management. However, the full range of ERP capabilities is much more extensive than just manufacturing.
ERP at its core is an effective way of centralizing information and workflow processes through data management. Because ERP keeps all of your workflow data in one place, all of your business processes draw data from that location to inform insights. This helps ensure data quality, as it never gets duplicated between systems. It also reduces the likelihood that numbers will get messed up or become difficult to access across internal departments.
ERP software also comes equipped with modules for a range of business processes, including general modules and industry-specific ones. For example, common ERP modules may include HR, customer relationship management, supply chain management, financial management, inventory management, warehouse management and manufacturing management. These functions include back-office workflows that can be effectively connected to other systems. For example, a purchase order might come in, and the ERP system could automatically pull that information to inform accounting practices.
Ultimately, ERP is a solution for a variety of tasks. By integrating these different components, ERP can streamline and automate workflows and data collection to reduce human error and increase revenue.
MRP vs ERP: What are the Biggest Differences?
It can be hard to differentiate between ERP and MRP, largely because of their similar acronyms and their mutual presence in the manufacturing industry. However, they have many distinctions that affect how exactly they are used in a business. Let’s take a look at some of the most significant discrepancies between MRP vs ERP:
Standalone vs Integrated
The biggest difference between MRP and ERP lies in the fact that MRP is more of a solo software, while ERP is integrated. This means that ERP can easily connect to other software systems and modules. Some MRP systems can be combined with other software, but it is a more difficult process than with an ERP. Postmodern ERP is highly modular, so companies can pick and choose which aspects of the software are the best fit and only reserve money and space for those features. They can support several modules for total business control. On the other hand, MRP systems are standalone and function by themselves with only manufacturing-related tools.
Due to the potentially overwhelming nature of so many departments and workflows coming together in an ERP program, enterprise resource planning is often a good solution for large businesses. However, ERP software for small businesses is becoming more and more prominent. MRP systems are suitable for any size of company, as long as the company requires a tool to assist with manufacturing needs and isn’t looking for intense integration with other processes. It should also be noted that a company doesn’t have to be in the manufacturing industry specifically to benefit from an MRP solution.
The type of people who use each system often varies drastically as well. Because an ERP is standard among many industries and is handled by many departments, there isn’t a limit on who ERP software users are. Users could include someone in HR who’s checking on payroll, a sales rep checking the status of a lead or a data analyst creating a business intelligence report.
Because MRP systems are exclusive to manufacturing operations, people that use it are generally in that department of a business. This could include a warehouse manager checking on the inventory of necessary raw materials, a warehouse worker checking on lead times or a production planning specialist overseeing the entire operation.
The point is that the types of people who use MRP are much more limited because the included services are only related to manufacturing. A more diverse group of users might benefit from ERP because of its range of provided workflows.
One significant and essential difference between ERP and MRP systems is that ERP is a more expensive option. When you consider the fact that ERP can perform functions for multiple facets of a business rather than just manufacturing, it makes sense that it’s more costly of a solution. This is not said with the intention of discounting the fact that effective MRP systems come with a cost as well, but it should be noted that ERP is typically pricier.
Depending on your company’s needs, the initial cost of investment in ERP may be worth it due to the wide range of functions available. However, if the expense of ERP makes it an unsustainable option for your company, MRP systems are available as a less comprehensive but more cost-effective option.
As mentioned before, ERP and MRP are different because of the range of features that they offer. MRP is a simpler solution than the complex ERP. Material requirements planning software only focuses on manufacturing, whereas ERP contains a range of solutions meant to ease diverse business processes such as accounting and HR. MRP is a crucial component of ERP, but depending on a company’s needs, it might not be the most critical process in the suite.
If a company is looking for a solution that encompasses a range of business processes, then ERP is definitely the choice to go with. However, it might be overkill for companies that merely need a manufacturing solution.
MRP vs ERP: Which Should I Use?
The right software choice for you is always subjective. It depends on factors such as your unique business processes, your budget and number of users. Enterprise resource planning integrates multiple modules and applications to generate a diverse range of data points from a centralized source. It provides more control, opportunities for personalization and the ability to make big decisions faster. Around 93% of ERP users are operating custom packages. This has a substantial impact on productivity. It means you have the chance to shape critical functions so that they match the needs of your business.
Material requirements planning software helps businesses with their manufacturing processes specifically, unlike ERP, which includes a suite of office solutions. MRP systems can help your company streamline its manufacturing efforts by reducing spoilage and using demand forecasts to develop estimates of material requirements.
When deciding between these options, you should ask yourself a few crucial questions to determine which solution will give your company more bang for your buck:
1. What business processes am I seeking to automate?
If you are specifically looking for something to assist in your manufacturing efforts, then an MRP solution might be right for you. However, if you’re as much as toying with the idea of using software to automate other facets of your business such as accounting or distribution, you should look into ERP. This is because enterprise resource planning software is a lot easier to integrate and contains more features than a standalone MRP system. Therefore, if you are looking for a solution that has more tools than just manufacturing, you should consider going with an ERP vendor.
2. What software programs am I currently using?
The number and type of software programs that your company is already using will also be a critical factor in the decision of ERP vs MRP. If you are not using a lot of software systems currently, the smooth integration associated with ERP programs might not be very beneficial to you. However, if you are using a lot of disparate systems that need to be connected, ERP would be a good option due to its ease of connectivity.
3. How much is my software budget?
Budget is a crucial factor to consider when making a software selection in general. ERP software is jam-packed with features and is known for being expensive. MRP systems only contain manufacturing functionality and is less costly. With this situation, you need to do a pro/con analysis of how much the upfront cost of an ERP system might benefit your company in the long run versus how much saving money upfront by getting an MRP would affect your company.
4. What type of IT resources are available at my company?
This question is relevant to both MRP and ERP software. Implementing either of these tools will require training and IT resources. However, due to the complexity of ERP, you will likely spend more time and energy on training if you opt to go with an ERP system. Without proper training, your solution will have an upward battle and could even fail, so it’s essential that you have the appropriate resources in place (or plan to put them in place) before you obtain the software.
5. How much company growth is projected?
Your company’s rate of growth could be a critical factor in determining whether you should purchase an ERP or MRP system. If your company is growing rapidly and you feel that you will need to eventually implement more automation across various workflows, you might want to opt for an ERP solution that will support that growth. However, if you have a business that will stay relatively consistent in terms of the number of employees or output, you might not need to plan for a bigger solution and wish to go with a simple MRP.
Current Market Trends
Software is a continually evolving field, so there are always new developments to consider when selecting technology. There are two current trends for ERP and MRP systems that we will examine in this section.
Cloud-based software is a trend that affects not only ERP and MRP, but also the whole software ecosystem. Traditionally, software was obtained through on-premise installation. This was especially true for legacy ERP systems, primarily due to their complexity and their age. However, as the ERP market changes and new types of solutions enter the market, legacy providers have started to offer cloud-based ERP solutions.
The benefit of cloud-based deployment is that the software is less expensive upfront because you don’t have to deal with costly installation fees. Therefore, this type of solution might be more cost-effective for your business initially. However, if you work at an organization that doesn’t always have internet access readily-available, you may prefer on-site installation because internet connectivity is necessary for access to cloud-based programs.
Demand-Driven MRP (DDMRP)
Demand-driven MRP is a new model of MRP that is increasing the software’s viability in our modern technological environment. Traditional MRP thrives best in a steady state environment, but DDMRP seeks to change MRP’s reliance on forecasting tools when determining material requirements. DDMRP reduces the variability in stock due to fluctuations in supply and demand through measurement of actual consumer demand. Ultimately, DDMRP uses actual data instead of forecasting tools to make relevant inventory predictions that can lower a company’s bottom line.
MRP and ERP software are very closely related. However, there are critical differences in the scope of services that they offer — MRP is focused on manufacturing processes specifically, while ERP provides a range of solutions including HR, CRM and accounting. The software that is best for you depends on multiple factors such as your budget and the functionality that you need in a software system. Both systems provide excellent manufacturing functionality, but the real question is whether you need assistance with more than just manufacturing processes.
Do you prefer MRP or ERP? Let us know in the comments below!