What is MRP vs. MRP II vs. ERP?

Manufacturers deal with the complexities of inventory, shop floor operations, planning and scheduling, and more. Many adopt software systems to manage these complexities, automate processes, increase manufacturing productivity, and make smart data-driven decisions.

MRP (Material Requirements Planning) and ERP (Enterprise Resource Planning) are the most commonly used software systems. In this post, you will learn each platform’s key features and benefits to help you choose the best solution for your manufacturing business.

MRP Was Developed in the 1970s

The material requirements planning system was developed to help users create production plans and manage material stock to improve the efficiency and accuracy of production processes. It includes the core manufacturing components that help manufacturers forecast and order needed materials, optimize inventory levels, and avoid productivity loss due to downtime. MRP is no longer sold as MRP II has replaced it.

MRP II Came into Prominence in the 1980s

MRP II helps manufacturers with core manufacturing functionality and other important business tasks like payroll, planning, scheduling, and invoicing. MRP II also provides the ability to compare forecasts with actual data, analyze real-time performance, and improve manufacturing processes to achieve greater efficiency.

ERP Evolved in the 1990s

An ERP system is based on MRP II functionality and helps to plan, manage, and automate businesses. This system combines all the benefits of MRP II and additional applications, including financial management, customer relationship management, project management, human resources, payroll, and more.  An ERP solution integrates operations across the business like sales, manufacturing, finance, customer service, human resources, etc., to improve the flow of information across the organization. ERP has not replaced MRP software but offers more breadth in functionality and integration of manufacturing activities.

What is MRP?

The first generation of MRP helped manage the production process and control inventory. It was used to ensure the availability of materials in the right quantity at the right time. An MRP system uses demand data to create a Bill of Materials (BOM), a purchasing plan, and a production schedule. Below are the core functionalities of MRP:

• Maintain the minimum required inventory
• Ensure the availability of raw materials for production
• Determine when materials need to be purchased
• Plan and schedule manufacturing for on-time deliveries
• Reduce customer lead times

What is MRP II?

With increasing competition and demand for customized products, manufacturers have become more strategic about acquiring raw materials. It has led to more complexities in the supply chain and manufacturing operations. MRP II includes all the functionality of MRP as well as capacity planning, forecasting, and demand management. MRP II enables manufacturing businesses to explore contingency planning when issues arise and plan purchases according to production needs. Below are the core functionalities of MRP II:

• Material requirements planning
• Bill of Materials (BOM)
• Inventory management
• Capacity planning
• Master Production Schedule (MPS)
• Purchasing management
• Customer order management
• Forecasting and demand management
• Cost accounting
• General accounting

What is ERP?

ERP solutions are more complete, streamlined, and integrated as compared to MRP systems. Enterprise resource planning includes all the features in MRP II and much more. ERP is a fully integrated suite of business management tools that use a central database, streamline business processes and tasks, share accurate information, increase manufacturing efficiencies, and reduce costs across your organization. Learn how ERP helps manufacturing businesses grow. Below are the core functionalities of ERP:

• Financial Accounting
• Warehouse Management
• Inventory Management
• Supply Chain Management
• Customer Relationship Management
• Human Capital Management
• Order Management
• Quality Management
• E-Commerce

Relationship Between ERP and MRP

MRP can be considered a subsystem of an ERP solution as it delivers material and resource information to an ERP system. This information can be combined with key business departments to enhance business processes, increase productivity, and improve the business’s bottom line. For example, the finance department can leverage the data of MRP to calculate the cost of manufacturing and accounts receivables to set product prices. Both technologies significantly impact the manufacturing industry by improving efficiency, boosting productivity, and shortening the production cycle. The core difference is that MRP primarily focuses on materials management, and ERP assists with processes across the company.

Leveraging the Power of Modern ERP Systems

ERP systems are considered the real workhorse of the manufacturing industry and help grow the bottom line of your business. Below are some key benefits of a modern ERP solution:

• Improved Productivity

ERP streamlines business processes across the manufacturing organization. It automates workflow, improves data access, and increases employee collaboration for greater productivity.

• Increased Efficiency

Working faster and better with a standard approach is a game changer for manufacturing companies. ERP helps increase the efficiency of shop floor operations by automating tasks. For example, inventory can be managed more accurately, and tasks can be scheduled to increase productivity.

• Accurate Forecasting and Reporting

An accurate forecast is essential to plan and manage production and manufacturing. An ERP solution has business intelligence and reporting capabilities to help you create better business forecasts and make smarter decisions.

• Reduced Operational Costs

An ERP solution can help reduce administrative and operational costs as it allows running the entire operation from a centralized system. There is no need to pay for and manage multiple software and systems. ERP also allows manufacturers to manage the shop floor efficiently and avoid shipping delays that can cost your business.

• Improved Collaboration

Using connected data, ERP eliminates data silos. Everyone can see the same information within the centralized database in real-time. When departments are integrated, it enables improved communication and collaboration across the organization.

• Increased Mobility

ERP allows users to access business data from mobile devices. It allows sales and service teams to access important business data while on the move. An ERP system also improves efficiency, with mobile notifications, and quick approval of requests.

• Enhanced Data Security and Compliance

ERP systems provide excellent data security by enhancing data restrictions and user permission settings. The data entered in the ERP system is secure and coded. It also enforces industry-specific requirements and verifies and audits transactions. By tracking materials, ERP allows manufacturers to notify suppliers about potential quality issues. These safety measures ensure that industry regulations are not violated, and financial penalties are not incurred due to compliance issues.

Selecting Between MRP and ERP

If you are looking for assistance to control stock and optimize manufacturing operations, an MRP system will meet your needs. But a modern manufacturing ERP solution will be required if your business requires next-level integration to manage manufacturing and business processes. The following considerations will help you determine if an ERP or an MRP system is right for your business.

• Optimization

When your purpose is to optimize manufacturing processes, MRP is likely the right fit. But an ERP solution is required if you need to optimize, connect, and automate business processes beyond manufacturing to human resources, accounting, and more.

• Budget

MRP is less expensive because it is a simpler solution. ERP is more costly, as it optimizes processes across business operations for increased production and efficiency and an improved bottom line. Explore what returns to expect from a manufacturing ERP investment.

• Business Growth

If your business is growing rapidly, you need automated and streamlined processes to keep up with growth. An ERP system will be appropriate since an MRP can only help with manufacturing, not the entire organization.

The Final Verdict

MRP and ERP are both beneficial, it just depends on your business needs. Manufacturing ERP includes MRP and helps the entire business from end to end.

Investing in a cloud manufacturing ERP solution allows for remote capabilities. It provides the tools to manage production, the supply chain, quality, planning and scheduling, and other key business functions in a unified platform. Learn how a cloud manufacturing ERP solution can help you achieve increased productivity, collaboration, efficiency, and profitability.

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