If you are reading this, it’s probably because ERP and MRP sound a lot alike–it’s time to clear things up! The R and P stand for different words and concepts in each acroynm, and (although related), these are very different terms. Understanding the differences, the common concepts, and the power of well-integrated MRP elements within an ERP is easy!
ERP - and Why?
Enterprise Resource Planning = ERP. Traditionally these have been called Accounting systems (usually in Small-to-Medium-sized business applications). ERPs are systems designed to manage all aspects of a business (any transaction or workflow th0at might feed the accounting/GL system.) An ERP system combines various business processes (including finance, human resources, manufacturing, supply chain management, and customer relationship management). An ERP system integrates these processes into a single, cohesive system (data, reporting, and transactionally linked) which can provide a unified view of the business. (Although a single ERP package might contain only a subset of these functions, an ERP environment often combines several software environments into one combined ERP system.)
For example, an ERP system can help a company track inventory levels, manage employee payroll, handle customer orders, and generate financial reports all from one platform. This integration allows for better data accuracy, streamlined processes, and improved decision-making. The data from each subset of the system (whether one system or an integrated platform) should flow and be available from any useful angle to all other processes and inquiries.
MRP - and When?
Material Requirements Planning = MRP. MRP describes a system specifically focused on optimizing manufacturing and inventory management. When it’s important to have the right materials in the right quantities at the right time (and in the right places) to meet production demands, then MRP tools become crucial.
As a manufacturing and distribution organization grows (this is “when”!), it becomes increasingly more difficult to track all the variables needed to make decisions about scheduling production runs and optimizing the necessary on-hand inventory levels to control costs. An MRP system calculates the materials needed for production, schedules production runs, and manages inventory levels. MRP prevents production delays and reduced excess inventory (or inventory outages) by calculating and proposing specifics (what and when) for materials to be ordered and available when needed.
For example, an MRP system plans how much inventory should be purchased (and when!) in order to meet the requirements of upcoming needs. These needs are filled by the MRP system looking at upcoming orders (and often includes projected future sales demand), calculating manufacturing requirements for required raw materials (after factoring in on-hand quantities, lead times, purchasing quantities, etc.), and proposing vendor purchase orders.
Where Do ERP and MRP Overlap?
When a company has MRP tool needs, hopefully the company’s ERP system has great MRP tools in place. If it does, then MRP becomes an effective subset of the ERP system. The same can be true of external ERP engines that can mine a separate ERP database and make recommendations. A fully-integrated (third-party) MRP engine effectively becomes part of the ERP environment. Many companies perform MRP calculations manually (often using tools like Excel with custom formulas) do purchase order data entry into the ERP system manually. Wherever the functional overlap occurs, the logical overlaps include:
- Inventory Management: Both ERP and MRP systems manage aspects of inventory tracking, but MRP focuses on calculating the necessary materials required for production. ERP provides a much broader view of inventory, including all aspects of the supply chain from finished goods inventory required for sales to raw materials purchasing.
- Production Planning: MRP handles the specifics of what materials are needed and when they should be purchased to be available for production runs. ERP integrates this with other business functions like sales forecasts and financial planning (ERP can function without a formal MRP engine, but then users are required to make purchasing decisions without the additional insight an MRP engine can provide.)
- Order Management: MRP helps calculate needed materials for fulfilling production orders (based on available information from the other ERP processes such as vendor ordering parameters, customer orders, shipping, and billing). ERP executes the transactional instance of the MRP proposals by this by linking production with proposed (or automatically created) vendor purchase orders.
Why ERP and MRP Are More Powerful Together
Individually, ERP and MRP systems can be valuable tools, but when combined they offer a comprehensive solution that enhances business efficiency and effectiveness. Here’s why:
- Integrated Data: Without well-combined ERP and MRP systems, it’s difficult to ensure that data flows seamlessly across the entire business. For example, if we don’t use sales data from the ERP system to directly inform the MRP system’s production planning, ensuring that production aligns with customer demand will be a guessing game. (And the bigger the operation, the less likely the guessing will be accurate.)
- Improved Decision-Making: When ERP and MRP systems are fully integrated, then managers have real-time access to data from all aspects of the business. This complete view helps operations to make informed decisions quickly–and the more the sytem is used, the better tuned it becomes. Many ERP systems have MRP functionality out of the box with formulas and variables that can be tuned for specific use case optimization.
- Streamlined Operations: Well integrated ERP and MRP systems don’t have data silos and enable automated creation of pending transactions (like Purchase Orders or sub-component production orders). Streamlining through full integration (or fully embedded MRP functions) minimizes errors and frees up employees to focus on more strategic tasks because they can trust the recommendations of the system.
- Scalability: As businesses grow and their needs become more complex, a well-integrated ERP and MRP solution can scale with the business. Good ERP/MRP tools means quickly adapting to new challenges and opportunities without requiring a complete overhaul of systems.
Why and When?
ERP and MRP systems work together to provide a broad, integrated view of the entire enterprise, with MRP focusing specifically on manufacturing and inventory management optimization. When combined (because of the powerful data within the ERP system and the MRP engine), these systems offer a powerful solution that enhances efficiency, improves decision-making, and supports business growth.
When it’s time to start thinking about MRP, it means it’s time to care deeply about your ERP system. Understanding MRP details can be technically difficult, but understanding the reasons for a complex MRP engine should be obvious–it makes ERP decisions easier for the users.