What’s the difference between ERP vs. MRP?

Manufacturers and distributors have different technology needs than many other types of businesses. Managing materials and inventory, planning procurement, and scheduling production activities gets complicated and will either make or break profit margins.

There is no shortage of business management technology available, from enterprise resource planning (ERP) to material requirements planning (MRP). But how do you determine which type of technology will best support your business operations? ERP? MRP? Both? Here’s what you need to know.

What is MRP?

Commercially available since the 1960s and used primarily by manufacturing operations, the main purpose of MRP systems is to measure materials, anticipate needs, and maximize production rates. Manufacturers and distributors rely on MRP systems to gain greater control and insight over inventory and procurement needs.

Standard MRP features include:

• Inventory Management
• Bill of Material (BOM) Management
• Master Production Schedule

Understanding customer needs and inventory movement is critical for strategic planning and forecasting decisions. Inventory management and warehouse management each play a pivotal role for many manufacturers and distributors, and it becomes even more important with business growth.

Having the right inventory in the right quantities at the right time is a challenge to say the least. Overstocking the warehouse ties up cash flow and raises the risk of maintaining inventory that becomes obsolete, expires on the shelf, or becomes damaged or unusable.

Under-stocking introduces other risks, such as interfering with production when inventory is unavailable and frustrating customers with backorders, stock-outs, and related delays.

MRP addresses these needs and is suitable for any manufacturer of any size, as long as there isn’t a requirement for integration with other business processes. Typical users include warehouse managers, warehouse workers, production planners, and production line workers. MRP systems are typically installed on premises as a stand-alone application.

What is ERP?

ERP is a single, comprehensive system used to manage accounting and financial processes, inventory, supply chain, manufacturing and distribution operations, human resources, payroll, and more. In other words, it supports the many moving parts of your business.

Traditionally more extensive and expensive than MRP, it was originally used only by larger businesses. However, ERP has evolved to be more modular and affordable for all company sizes and budgets. It offers many platform choices from on-premises to cloud-based.

You can think of MRP as the first ERP but only for manufacturing. Gartner is credited with coining the term “ERP” in the early 1990s as a way to categorize enterprise software that is designed for multiple industries and offers more extensive capabilities than MRP. ERP functions include integration with other applications and back-office workflows, allowing all kinds of businesses small to large automate and streamline operations.

ERP functionality can include:

• Financial Management
• Customer Relationship Management (CRM)
• Supply Chain Management
• Business Intelligence
• Inventory Management
• Warehouse Management

Which should I use?

The answer depends on factors such as your budget, the number of users, and your unique business workflows and needs. ERP solutions provide more functionality and flexibility across all aspects of your business and a centralized data model to enable better and faster decision-making. Because ERP is a comprehensive, turnkey management solution, it can integrate business processes and applications from end to end.

MRP is more specific and targeted specifically for manufacturing and inventory management activities. Material requirements planning software helps your company streamline its manufacturing efforts by reducing spoilage and using demand forecasts to develop estimates of material requirements. However, MRP stops there. It cannot support financial or accounting needs and other core business operations.

You may need both ERP and MRP, but that doesn’t necessarily mean you need two different business management systems. There are ERP solutions like RealSTEEL that can meet all your needs in a single solution so you don’t have to buy and deploy two different systems.

Next Steps

As you can see, ERP and MRP have much in common for manufacturers but there are also critical differences. Both offer excellent manufacturing support and capabilities, but ERP is worthy of consideration if you are looking for integration with business operations beyond manufacturing processes.

Contact The Wolcott Group for additional guidance and questions. Our industry experts are ready to help you decide how best to move your manufacturing and distribution business forward.

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