MRP vs. ERP: Understanding the difference

MRP vs. ERP: Key differences

As its name suggests, MRP is focused on planning, scheduling, ordering and tracking the raw materials and components needed for the manufacturing process. In contrast, ERP encompasses a much wider range of business functions, such as accounting, financial management, human resources, customer relationship management and inventory management.

ERP is an integrated software suite that manages the majority of company information, while MRP is one application, or module, in that suite. Nearly every ERP system includes a basic MRP module.

Of the two, ERP is the more dominant system on the software market today.

What is MRP?

The key to understanding the difference between ERP and MRP is to trace the evolution of the software category to which both belong from its inception more than half a century ago.

Early mainframe computers were used only for straightforward calculations and simple storage, retrieval and sorting of data. The breakthrough for the manufacturing industry came with the development of a way to recognize relationships between raw materials, parts, assemblies and products -- the bill of materials that is the basis of material requirements planning.

MRP is a calculation of what parts and materials are needed to make a subassembly or product, as well as when those components are needed based on the due date for the final product. MRP considers inventory balances and availability, production and purchasing lead times and current order status, as well as forecasts and customer orders that drive the master production schedule.

Building on this framework, software developers created inventory management, production control, customer order management and purchasing applications integrated into a comprehensive software suite that also included accounting applications, resource and production planning and scheduling. While the first generation of these systems were known simply as MRP, eventually the name was changed to manufacturing resource planning or MRP II.

Although MRP II and ERP were originally designed for manufacturing companies, these systems contain significant functionality that supports many different kinds of businesses, from distribution and retail to services, hospitals, insurance companies and more (see the chart). Software developers added functions such as point-of-sale, service billing, document management, business intelligence and workflow, to appeal to these broader markets. ERP is now available for every kind of business, not just manufacturing.

What is ERP?

MRP II continued to grow year after year as the integrated applications matured and expanded and others were added. These improvements -- along with adaptations to take advantage of computing advances like relational databases, natural language query and optimization technologies -- were not reflected in the market's perception of MRP II, which was seen as old and outdated.

Thus, a new acronym was invented: ERP, for enterprise resource planning. Today, the term MRP II has virtually disappeared and all such systems are called ERP. However, the term MRP is sometimes used incorrectly to refer to inexpensive, less capable manufacturing software suites marketed to small companies.

Many modern ERP systems today are developed as cloud-based applications and nearly all offer cloud deployment as an option. Cloud ERP is considered to be the most flexible, easiest to implement and most scalable type of ERP.

Features of ERP systems

ERP systems generally consist of modular applications that each address a specific business process. For example, in addition to the core modules that support basic records, such as product items, bills of materials and resources, a manufacturer's ERP will have modules for the following:

• finance
• inventory management
• manufacturing operations
• purchasing
• order management

Most systems have additional modules that make the system more complete. These include human capital management (HCM) and support for business functions that not every company needs, such as field service management, deep quality management capabilities, as well as advanced and finite scheduling. The ability to mix and match these optional modules provides a way to tailor the system to fit specific industries like food and beverage, industrial equipment, electronics, consumer goods or process manufacturing.

The modular design also makes a "standard" ERP system more adaptable to the needs of nonmanufacturing companies. An accounting or consulting firm, for example, would not need material planning, production scheduling or inventory management but would need schedule (calendar) management, document management, service billing, HCM and general accounting.

Types of ERP software

Although MRP II and ERP were developed to support the information management needs of manufacturers and distributors, more recently, ERP has become the general name for any integrated business management application suite. You can now find ERP systems for retail, service businesses, wholesale distribution, utilities, hospitals and just about any other kind of business you can think of.

These ERPs usually contain the same or similar functionality for the basic processes that all businesses share, such as customer order management, billing and collection, financial management and accounting, payroll and HR. In addition, they support specific needs of the business, like shop floor control, dispatching personnel and vehicles, scheduling appointments or tracking service use.

Benefits of MRP

Keeping in mind that MRP is a specific function or module within an ERP suite, MRP is the backbone of the system and the thing that brings the entire manufacturing business together in a coordinated effort toward the overall goal of delivering quality products to customers on time. MRP, in conjunction with master scheduling, turns the demand plan (forecast and orders) into specific tasks for production, procurement, resource management and the rest of the enterprise. The rest of the system then tracks and manages the execution of those tasks.

As such, MRP directly contributes to:

• more efficient production and supply chain management;
• better customer service;
• more effective use of available resources; and
• cost savings.

Benefits of ERP

The main purpose of ERP is to:

• collect and manage information;
• make it available where needed across the enterprise; and
• perform various calculations and analyses that support decision-making.

Because the software basically models the operation of the enterprise, it can offer additional insight into the cause and effect of relationships between activities and decisions across functional areas of the business, enabling more effective and efficient operations.

It has been said that information is power, and in today's business world, managing and exploiting information is critical. ERP encompasses the entire enterprise, bringing the various functions together to coordinate their activities and decisions and keep them focused on achieving the ultimate purpose of the enterprise, which is to generate a profit by delivering the goods and services customers expect in the most economical way.

The real question is not, what are the benefits of ERP? Rather, it's how can a modern company ever expect to operate effectively without control over its information and the decision-support functions provided by ERP?