ERP vs. MRP: The Benefits & Differences That Affect Manufacturers

Businesses have moved on from a material world to one of data insights and analytics. That’s where ERP improves on the traditional use of manufacturing resource planning, otherwise known as MRP.

However, MRP’s dominance in the world’s factories and production facilities challenges the need for ERPs and potentially greater IT complexity.

From simple benefits like a 50% reduction in paper usage to reductions in lead times from many weeks to a few days, an MRP has several advantages over ERPs. Especially when substantial numbers of ERP implementations fail (50%) or go over budget (52%).

However, as McKinsey points out, “their (MRPs) mechanistic, inflexible approach often struggled to cope with the uncertainties and volatilities of the real world.”

So, which would be a better bet for your manufacturing organisation? ERP or MRP?

The Difference Between ERP and MRP Systems

You are likely reading this page because your business needs to upgrade or deploy an ERP to replace or work alongside an MRP. The trouble is that vendors add new features to their MRPs and ERPs all the time, clouding the landscape and decision-making process.

There are several shared and unique functionalities between ERP and MRP systems, as depicted in the diagram below.

Focusing on end-user needs, as companies scale, spreadsheets and bespoke or legacy applications become a drag on productivity and a threat to growth, so where should they turn next?

This is why many firms look to upgrade, perhaps as part of a digital transformation, or a pressing need to better monitor manufacturing processes and the elements that pass between them.

The simplest approach is to consider an MRP, either standalone or as a subset module of a manufacturing ERP. As ERPs evolve into the all-in-one business tool of choice, they adopt features or acquire and integrate entire applications. These deliver what manufacturers, producers, and business markets need.

Considerations When Choosing Between ERP and MRP

Many businesses have trouble using multiple pieces of software that struggle to integrate departments, buyers and production. But the next step is a nuanced one. MRP software is designed to monitor the manufacturing floor, while ERP Software for manufacturers can reach across the whole business.

Even with modern IT and technology support, MRP has its roots firmly in 20th-century manufacturing, focused on that sole segment of a business. While today’s MRPs use ERP cloud systems to provide business flexibility and AI in ERP to deliver modern insights; they remain focused on the ingredients or material planning that go into discrete or process manufacturing.

While an MRP can link to a CRM or accounts system through APIs or plug-ins, a good ERP provides a well-balanced, all-in-one business solution that can expand across and grow with an organisation to meet current and future needs.

A well-managed ERP adoption provides everything business leaders and department managers need to know through live dashboards. From across the supply chain to the delivery dock to stock control, production planning and admin functions out to sales and beyond.

In typical cases, ERP works in the cloud, supporting fast-moving and high-performing companies to track their data with a single live view across the business. Advanced ERPs for manufacturers stretch their functionality across other tools like product lifecycle management (PLM) and manufacturing execution systems (MES).

If your business does not need or is not ready for an ERP, then an MRP is a powerful stepping stone. And in a world where even then giants can have issues (read about when Toyota suffered server issues) – running out of disk space during an update – an ERP or MRP can minimise supply impacts.

Comparing ERP and MRP Functionalities and Benefits

MRP is important to manufacturers as it provides visibility into inventory needs and future demand. Compared to firms still using spreadsheets or other methods, MRPs are more accurate and timely and improve communication between teams while delivering insights for managers.

These benefits reduce lead times, the risk of overordering, and under-estimating demand and help manage production problems. The manufacturing focus of an MRP typically supports businesses in:

• Production and capacity reporting and planning
• Inventory and materials dashboards in real-time
• Track on-time completion of manufacturing and deliveries
• Reduce waste and identify quality control issues
• Cost reporting across these areas
• Increased manufacturing efficiency and labour productivity
• Deliver quality assurance compliance, such as ISO9001, AS9100 etc

With the broader feature set of a manufacturing-focused ERP, there is greater insight into market trends, customer demand, and other factors that can affect production cycles. Additional benefits include:

• Back-office accounting integrated with production and material costs
• Supply chain and distribution management beyond the factory gate
• Customer relationship management to better understand production needs
• Human resources and worker management to drive production efficiency
• Sales linked to procurement for more accurate ordering

Depending on the fidelity of the ERP or MRP in use, the granularity of data might differ, but modern manufacturing-focused ERPs aim to replace MRPs wholesale, even though they remain a valued tool for producers large and small.

The negatives of an MRP compared to an ERP include:

• Huge reliance on accurate data that is kept up to date
• Typically tied to the planned production schedule, reducing flexibility
• Producers tend to overorder supplies, whatever the MRP says
• MRPs are less functional than an ERP system (and another element to integrate when the business does adopt an ERP)

Use Our ERP Software Finder to Identify the Best Tool For Your Business Processes

What Data Do ERPs and MRPs Rely On?

An MRP can be fed information from your manufacturing bill of materials, alongside a master production schedule, inventory status file and the current production status for an existing facility, or the planned startup inventory and production schedules for a new build.

ERPs can absorb all of the data from across the business, including customer CRM records, finance details, sales and supply chain information, process data and smart manufacturing insights.

Collating this data and cleansing it for compatibility with the ERP is an extensive task. This makes an ERP implementation more complex as it integrates many elements of the manufacturer, often across multiple offices.

Which Industries/Organisations Should Use MRP over ERP

Producers and manufacturers with minimal back office requirements will find greater value from an MRP compared to an ERP, specific MRP benefits include:

• Supporting well-established data sources that all manufacturers use
• SMBs can adopt cloud MRPs as a service for a lower cost entry point
• Enable any manufacturer to boost productivity and drive cost savings
• Highlights manufacturing effectiveness, with dashboards for planned vs actual data of manufacturing

In the marketplace, MRPs continue to deliver huge value globally across:

• Discrete manufacturers
• Precision engineering firms
• Process producers
• Aerospace
• Chemicals
• Electronics producers
• Energy sector operations

However, many MRPs are based on legacy applications, using older hardware, creating delays in reporting, and risking security against the latest threats. Many supply chain leaders are looking to upgrade their MRP and can consider a modern MRP as a lift-and-shift replacement, or an ERP to support the broader business.

Upgrading or adopting an ERP is a more complex process impacting the entire enterprise or business, but can deliver outsize value compared to a new MRP.

Meeting the Needs of Just-In-Time Manufacturing

Whatever software you choose, many manufacturers are driven by competition and modern management to adopt lean or just-in-time (JIT) manufacturing principles. Both ERPs and MRPs can support this effort.

Just in Time focuses on zero or minimal stock that is taking up space and resources to manage. Lean manufacturing goes deeper, considering the value of production, each value stream, their flow and pull across manufacturing and simplifying processes down to deliver scalability.

Having better data from an ERP or MRP can help deliver on your JIT or lean goals, but these changes also require an overhaul of processes, workers’ approach to their tasks and management skills and understanding to deliver these methods in a highly data-focused environment.

MRP and ERP in the Smart Manufacturing Age

Today’s factories, under the banner of the fourth industrial revolution, are smarter, aka lighthouse factories. They use connected production lines, automated delivery systems, on-the-fly process changes, and artificial intelligence at every stage of production.

An ERP is better designed to accept data from Edge 5G and networks and to deliver updated instructions to improve economic and production performance. Or to work around production problems faster than people can.

While most production facilities are not this advanced or enormous, the technology they highlight will filter into broader factory use in the coming years, requiring joined–up digital services to deliver the most value.

FAQs

What does MRP stand for?

MRP started out meaning Material Requirements Planning as a way for manufacturers to control their production line inputs. Over the decades, that technology evolved into Manufacturing Resource Planning (officially MRP II) adding more data sources to make its insights more relevant to the business.

What is an MRP system?

An MRP is a manufacturing specification application to support inventory and production planning requirements, helping to balance inventory supply and demand as part of the supply chain system. Implemented well, they reduce costs and improve efficiency.