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Both enterprise resource planning (ERP) and material requirements planning (MRP) are commonly-used tools by manufacturers. The question of which is right for your particular needs will depend on whether you are looking for a system that will streamline the day-to-day business activities, from project management to accounting or whether you are seeking a way to better manage the manufacturing process, including the materials and components involved.
Here’s a quick look at ERP vs MRP:
- Enterprise Resource Planning (ERP): A type of software that large companies use to manage the various day-to-day business activities within one central system, from accounting and compliance to risk management and supply chain operations.
- Material Requirements Planning (MRP): A system used in manufacturing for determining the materials and components necessary when manufacturing a product.
What Is ERP?
Whether it’s keeping track of sales leads or logging employee hours, most businesses require processes to run their company efficiently. ERP is an integrated system that helps companies manage different business processes and increase productivity by automating business processes. ERP systems are used across business industries for a wide range of purposes including managing finance, customer relationship management (CRM), manufacturing and supply chain systems.
An ERP system seamlessly connects each of these functions to allow for real-time data and analytics on business processes and inventory.
Because there are so many ERP applications and each business will work differently, every ERP system—or the integrated components—will look different. An ERP system consists of ERP modules or individual ERP components and will work together to meet a business’s needs. A small business may only need a few modules when they are in its early phases but can always grow its ERP system by adapting new modules if needed.
The most common ERP modules include:
- Finance: This module helps businesses keep track of accounting, generate financial reports and income and expenses in an automated way
- Human resources (HR) management: This system allows businesses to keep track of attendance and payroll.
- Sales: Sales businesses need a way to track their leads, client conversations, targets and performance. An ERP sales module automates this process and generates analytics and data-driven insights on sales targets and goals. Management of sale transactions, from start to finish, including billing and contracts are also part of this module.
- Supply chain and logistics management: Manufacturing businesses need a way to balance all the various materials and inventory they require on specific timelines. This module provides management of goods and inventory.
- Manufacturing: This module helps companies simplify multistep manufacturing processes, including production scheduling and quality management.
Other common modules include research and development (R&D) and engineering, asset management and sourcing and procurement.
ERP is available as software, hardware or hybrid solutions. Software can be purchased as a service—where you pay a monthly subscription fee—or a licensing model, where you pay a one-time fee to download and own the software. Software is typically the more popular option and the demand for cloud-based ERPs is only going up. According to G2, “The global ERP software market is projected to reach US$78.40 billion by 2026.”
What Is MRP?
Manufacturing companies need a way to keep track of their inventory and materials. MRP is an inventory management system that automates these necessary tasks and keeps track of which materials and inventory are needed and how much of it is required.
Manufacturing companies will typically have set schedules for a required finished product. An MRP will allow business owners to plan in advance. An MRP helps business owners plan for changes in supply and demand. MRPs keep track of information like the shelf life of certain materials, delivery dates and which materials are available or out of stock from suppliers or are currently in transit.
Here are some of the main tasks of MRP:
- Forecasting: MRP systems analyze projected production and sales to determine raw materials, components and supplies needed for production.
- Inventory management: MRP systems manage inventory to ensure there are sufficient raw materials, components and supplies.
- Production scheduling: MRP systems analyze and create efficient production schedules, producing an optimized order of production based on factors like the current available materials, required materials, supply schedules and any expiration dates. This allows companies to reduce waste as much as possible since each material will be used to its fullest extent.
- Order and stock tracking: MRP systems keep track of the status of orders for raw materials and supplies while keeping an updated schedule. The system will also keep track of when items need to be resupplied and can order them directly to ensure required materials remain in stock.
What Is the Difference Between an ERP and MRP?
An ERP refers to multiple different business software that automates several processes such as sales, finance and HR management. An MRP is one specific module of an ERP.
A business’s ERP can include an MRP, but it does not have to if manufacturing resource planning is not relevant to the company. Conversely, a business may choose to solely use an MRP and no other ERP modules in their business if it is the only function they need.
ERPs are useful for businesses in every industry while MRPs are used by manufacturing companies that require resource management.
ERP vs MRP [Side-by-Side Comparison]
| ERP | MRP | |
|---|---|---|
Use Cases | Integrates many functions of a business, including finance, accounting, HR and procurement | Material and resource planning for manufacturing operations |
Analysis and Data Reports | Produce analysis and data reports on a wide range of processes, including finance, accounting, HR and procurement | Produces analysis and reports on production-related data and processes |
Cost | Varies depends on the required functions, but because they are comprehensive, they typically cost more than MRP | MRP systems typically cost less than ERPs as they are designed to meet specific needs |
How To Decide Which System Is Right for You
Depending on your business needs, an ERP or MRP will be a better fit. Since these two systems have distinct purposes it will likely be an obvious choice. For a manufacturing company looking to streamline operations, production schedules and inventory, an MRP will suit these needs. Meanwhile, ERP is customizable to a business’s specific needs and there is a range of software functions available, including ones to track finance, accounting, HR, sales and logistics.
For more information on ERP systems and what they have to offer, check out our guide on the best ERP systems.
Bottom Line
ERP systems are used by a wide range of companies of all sizes and in various industries to handle different business processes. Healthcare organizations can use ERP systems to manage patient information, schedule appointments and handle billing. Nonprofit organizations can use ERP systems to manage grants, finances and administrative functions. ERP systems are scalable and flexible, making them suitable for businesses in many different industries.
MRPs are used by manufacturing companies to manage production processes, such as the procurement of raw materials and components and the scheduling of production up to the completion of products. MRP systems help increase efficiency, cut costs and reduce the risk of overstocking or running out of supply.
Frequently Asked Questions (FAQs)
How much does ERP cost?
Enterprise Resource Planning varies greatly in price, depending on your business, which systems you require, the size of the company and the level of customization required. One distinction is whether the ERP is hardware, cloud-based or hybrid. Cloud-based ERP typically costs a monthly subscription while hardware typically comes with a one-time expense. Costs can range from a few thousand to a few hundred thousand dollars, depending on all of these factors.
What are the benefits of MRP?
There are many benefits of MRP systems for manufacturing companies. MRP systems improve production and scheduling, allow companies to reduce inventory costs, provide clear and up-to-date information about the entire supply chain and increased responsiveness to changes in product demand.
How does MRP work?
MRPs analyze the materials, supplies and inventory a manufacturing company requires for production. The system optimizes production scheduling so that manufacturing can operate efficiently and with as little waste and delay as possible.
Who is ERP for?
When a company grows, typically it will need more efficient systems to handle data and information. A company might have more sales leads to keep track of or more accounting information to process. Either way, at some point an Excel spreadsheet won’t do and an ERP system will allow a business owner to operate the company more efficiently.
What's the difference between ERP and MRP?
MRP is one module of ERP, which is a more comprehensive business management system. All types of businesses use ERP but only manufacturing companies use MRP. For example, service professionals, such as legal teams and accountants, can use ERPs to keep track of productivity, progress and financial goals but MRP is a system that tracks manufacturing operations.
