MRP vs. ERP: Understanding the Differences

Operating costs are a leading concern for many businesses. That’s why many companies implement material requirements planning (MRP) or enterprise resource planning (ERP) to increase efficiency and reduce waste.

We’ll compare MRP versus ERP to determine which one is right for your business.

What is an MRP system?

Many manufacturers use material requirements planning to reduce waste and increase efficiency. It's a system designed to meet three objectives:

1. Maintain appropriate inventory levels
2. Ensure employees have access to the right materials in the right quantities
3. Plan manufacturing and purchasing activities

In other words, an MRP system helps manufacturers with material planning, inventory optimization, and production scheduling. The primary purpose of MRP is to identify what production materials are required and when. MRP systems have many features, but these are some of the most helpful:

• Inventory management
• Stock control
• Supply chain management
• Production scheduling

Benefits of MRP

Implementing an MRP system has several benefits:

• Lower costs: With an MRP system, you can more easily determine the best time to order raw materials and components, allowing you to take advantage of quantity discounts, seasonal price adjustments, and other savings opportunities. As a result, MRP helps your manufacturing firm save money.
• Time savings: An MRP system automates many production planning and inventory management tasks, leaving employees more time for other duties.
• Improved reporting: An MRP system grants you immediate access to every receipt, invoice, and other document related to production and inventory control. A good MRP system can also produce canned and custom reports, enhancing visibility into every aspect of your operations.
• Reduced waste: An MRP system helps you determine exactly how much to order and when to order it, preventing pileups of excess inventory in your warehouse or on your production floor.

What is an ERP system?

An enterprise resource planning system is a type of management information system used to manage a company's day-to-day activities. Instead of using separate systems to manage core business functions, ERP provides a centralized platform designed to increase operational efficiency, improve decision-making, enhance data visibility and analysis, and support overall business growth.

A robust ERP manages the following functions:

1. Finances
2. Inventory management
3. Human resources
4. Supply chain management
5. Sales
6. Marketing
7. Customer relationship management
8. Manufacturing

Most ERP systems have dozens of features, but these are some of the most important:

• Centralized data management
• Integration and automation
• Reporting and analytics
• Tracking and visibility

Benefits of ERP

Implementing ERP has the following benefits for businesses of all sizes:

• Increased transparency: In many companies, employees rarely collaborate across departments, so staff may not know what's happening across the organization. ERP eliminates departmental silos by promoting cooperation and giving employees access to more data.
• Time savings: An ERP acts as a centralized database for business functions. Instead of using an HRIS for human resources activities, bookkeeping software to record financial transactions, and a separate MRP for material requirements planning, you can use one system for everything and save precious time.
• Improved legal compliance: An ERP system helps you more easily comply with state and federal requirements. For example, you don't have to sift through a pile of paperwork to find the product's safety data sheet if there’s an accident.

Comparing MRP to ERP

Before you choose a system, you should directly compare MRP versus ERP. The two systems share some features, but MRP is specifically designed for manufacturing, whereas ERP works for all types of businesses.

Similarities

ERP and MRP both work to optimize business operations, as MRP is a subsystem of ERP. Whether you use an MRP or ERP system, you have immediate access to materials and resource data. This integrated approach informs and supports various departments, facilitating efficient decision-making.

Differences

Although you can get MRP data from an ERP system, enterprise resource planning offers a more comprehensive approach to optimizing your operations. The systems have vital distinctions:

• Scope of functionality: ERP systems have a much broader scope of functionality than MRP systems. MRP focuses on production planning and inventory control, whereas ERP focuses on multiple back-office functions, including sales, marketing, finance, resource management, and customer relationship management.
• Integration with business processes: ERP integrates with many business processes, such as customer service and e-commerce. In contrast, MRP only integrates with the processes used in material planning, production scheduling, and inventory optimization.
• Organizational focus: MRP focuses on optimizing manufacturing operations. ERP applies to many types of organizations.
• System access: Employees who aren't involved in production and inventory management have no reason to access an MRP system. ERP streamlines many business functions, so customer service representatives, accountants, human resources generalists, and other office staff must access the system to perform their duties.

Determining the right fit: MRP, ERP, or both?

Deciding which technology is right for your business depends on several factors, including your budget and the processes you use. These considerations can guide you toward the most suitable choice for your operations:

• Which specific business functions do you want to enhance and streamline?
• What's your budget?
• Is your business growing considerably?

Frequently asked questions

Before you take the plunge into an MRP or ERP system, learn from these common questions:

What is the primary difference between MRP and ERP?

The critical distinction between MRP and ERP is that ERP is more robust. While MRP focuses on inventory management and production planning, ERP focuses on all operational activities, increasing transparency.

What is CRM versus MRP versus ERP?

CRM, MRP, and ERP have different purposes. CRM stands for customer relationship management — the tracking and oversight of customer interactions. A CRM tool helps you carry out sales, marketing, and customer service activities, improving the customer experience. MRP is used for production planning and inventory management, so it doesn't have a CRM component. Because ERP streamlines many business processes, an ERP system usually has CRM, sales, and marketing modules.

What is the difference between ERP, MRP, and DRP?

DRP stands for distribution requirements planning. It helps users determine how many finished items to send to a warehouse or distribution center. The main difference between DRP and MRP is that MRP focuses on the activities involved in production, whereas DRP focuses on finished goods. ERP streamlines many business functions, so a comprehensive ERP system may have a DRP module to aid distribution planning.

What are the three common types of ERP?

ERP systems come in three varieties: on-premises, cloud-based, and hybrid. As its name implies, an on-premises ERP is installed on-site at your company's location. Cloud-based ERP systems are hosted in the cloud, eliminating the need for additional IT equipment. A hybrid solution has some on-premise and some cloud features, giving you the best of both worlds.

What are some MRP and ERP system examples?

Fishbowl, NetSuite, and Fulcrum are just a few of the MRP systems used today. NetSuite also has an ERP solution, as do SAP, Microsoft, and Oracle.

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Speak with an expert to learn more about how our comprehensive EDI solution can help you optimize your processes, boost productivity, and drive growth.