Cloud ERP, ERP vs MRP, ERP, MRP, Enterprise Resource Planning, Material Requirements Planning

Managing the shop floor, inventory, operations and scheduling are some of the keys to ensuring a manufacturing business runs smoothly. As manufacturing and supply chains scale to meet larger global needs, real-time data and software systems allow manufacturers to automate processes and make smart data-driven decisions. Two commonly implemented software systems are ERP (enterprise resource planning) and MRP (material requirements planning). Learn the differences and benefits of each software system, when your business may need an ERP or MRP system, and see how they can work seamlessly with one another to help streamline your business.

What is an MRP System?

First, what does MRP stand for? In the manufacturing world, the acronym refers to Material Requirements Planning software systems. These solutions are especially helpful within the manufacturing industry because their primary purpose is to identify and measure what production materials are needed and when. This enables manufacturers to avoid loss of productivity due to downtime. Even companies whose primary functions lie outside of manufacturing still find MRP systems valuable for their production planning. This software helps production planners forecast and order the appropriate materials and keep appropriate levels of inventory. 

Why is MRP Important?

The basic objectives of an MRP system include:

  • Making sure the right materials are available for production
  • Ensuring products are available for delivery to customers
  • Maintaining inventory levels of materials and finished products
  • Planning manufacturing activities, sales orders and purchases

The History of MRP Systems

MRP has evolved with market and consumer trends. It used to be that manufacturers either locally sourced their parts or made them in-house. Customization wasn’t the priority — mass production was the norm. However, when global competition between companies began to grow, manufacturers needed to provide more customized products to win customers, rather than relying on price wars. These new products included more features and required new services, warranting a new way of managing production to meet increasing product complexity and the demand for a shorter time to market. Because of that, MRP II was implemented, which provided additional functionalities MRP I didn’t have, such as finances and general accounting, machine and labor capacity planning, and quality assurance. This system allows products to be better managed throughout their lifecycle, not just month to month, which helps meet production targets and keep manufacturers competitive. 

With customization introducing so many new moving parts, keeping manufacturing operations running smoothly became critical. From planning to forecasting to spending, every aspect of manufacturing needs to perform in alignment to create the desired results without waste. Enterprise Resource Planning (ERP) systems were designed for this need.

How MRP Works

The basic functions of an MRP system typically include:

  • Stock Control
  • Production Scheduling
  • Inventory Management
  • Supply Chain Management

If utilized properly, these features of an MRP system can lead to cost reduction and increased productivity. However, data must be entered into an MRP system accurately for it to successfully optimize manufacturing operations. Entering inaccurate numbers will skew planning and ordering.

What is an ERP System?

ERP stands for Enterprise Resource Planning. Built upon the existing functionalities of MRP II software, these systems are used to help plan, manage, and automate operations such as supply chain management, finances, project management, staffing and manufacturing to better serve an entire organization. ERP systems include a suite of ERP applications that communicate across one another to help businesses manage both the parts and the whole of their enterprise more effectively. Businesses can choose to enlist individual ERP SaaS (Software as a Service) applications to address particular processes. Businesses also have the choice between Big-Business ERP and Small-Business ERP, each of which is tailored to address the business needs of different sizes of organizations. 

Typically, an ERP system covers all operational needs, commonly providing:

  • An integrated system
  • A common database
  • Real-time operation
  • Support for applications and components
  • A common user interface across all applications
  • On-premise, cloud-hosted or SaaS deployment

Businesses should select the ERP system that will remove the need for expensive customizations, adapt to the rapid pace of business change, address future technologies and meet other identified requirements.

Some of the industries that can benefit from manufacturing ERP software include:

Common functional areas for organizations are grouped into ERP modules. Standard modules include:

ERP Key Features

A manufacturing ERP software system allows for better performance and project management and helps plan, budget, predict and accurately report on an organization’s financial health and processes. ERP systems provide businesses with a comprehensive view of all the moving parts of their operations.

A SaaS ERP system provides businesses with valuable cross-application communication. Since applications can connect and communicate via shared on-premise databases or the cloud, data can be exchanged to give businesses a more well-rounded view of how their operations are performing. ERP software then provides users with detailed performance reports on how resources are being spent, allowing for more informed decision-making. 

Further business values of ERP systems include:

  • Cost savings due to automation and integration that leads to increased efficiency and productivity
  • Better management and monitoring of compliance with regulatory standards
  • A reduction in human errors and improperly spent time and resources
  • Enhanced communication and collaboration between roles and departments
  • Scalable business growth
  • Improved partner and supplier management

What is the Relationship Between ERP and MRP?

ERP and MRP go hand in hand to optimize business operations. MRP software acts as a subsystem of an ERP solution, supplying information about materials and resources to the ERP solution, which integrates and uses that data to inform other business departments. For instance, a finance department will use the information the MRP solution provides to the ERP to calculate accounts receivable and the cost of production to determine product prices. 

Both technologies have greatly shaped the manufacturing industry, helping to increase efficiency and productivity while reducing production time.

What is the Difference Between ERP and MRP?

The primary difference between ERP and MRP is that ERP systems help to plan and automate a variety of back-office business functions, whereas MRP systems focus on materials management. ERP directly touches accounting, manufacturing, supply chain, customer management, quality, processes and planning. MRP, however, has a more narrow scope of ordering and planning for manufacturing materials. For that reason, users of each system will be different. People from a variety of departments may use ERP software, but those with a tie to manufacturing operations may use MRP tools. 

Another difference between ERP and MRP is that MRP is more of a standalone system. Some systems can be combined with others, but this can be a challenge. ERP systems, however, are relatively easy to integrate with other solutions.

Does My Company Need an ERP or MRP, or Both?

Selecting an ERP vs MRP system depends on a few factors. If your company only needs assistance with manufacturing operations and stock control, an MRP system may be all you need. If your business requires more integration to manage further processes, an ERP tool could be warranted. Your business processes, budget, and more will determine which technology will be right for your operations, but there are a few considerations that can help point you in the right direction.

  • Which business operations do you want to optimize?

If you only need to improve manufacturing processes, that’s what an MRP system is specially designed for. If you want to optimize, automate, and connect processes extending beyond just manufacturing to accounting, human resources, and more, you’ll need ERP software.

  • What is your software budget?

Being a simpler solution, MRP systems are less costly. To justify allocating budget toward an ERP system, you’ll need to consider what a system like this can do for your business and how this will affect your bottom line and growth. Many companies that invest in an ERP system find that its optimization of business operations leads to such increased efficiency and productivity rates that it eventually pays for itself.

  • Is your company growing rapidly?

A company moving toward considerable business growth will need to rely more on automation and standardized, streamlined processes to be successful and keep up with growth. This calls for an ERP system. If your company is projected to remain consistent, you may only need an MRP tool.

Is Your Company an Adaptive Manufacturing Enterprise?

Manufacturers must be able to innovate and change business models at unprecedented rates of speed and QAD calls companies that can do this Adaptive Manufacturing Enterprises (AMEs). 

Whether you decide to go with ERP or MRP, QAD has the right solutions to support best-in-class, industry-specific business processes and flexible deployment options to enable Adaptive Manufacturing Enterprises. QAD offers a comprehensive portfolio of cloud-based manufacturing software solutions known as QAD Adaptive Applications that all fully integrated with QAD Adaptive ERP. QAD DynaSys offers an end-to-end DSCP solution that can integrate with Demand Driven Material Requirements Planning (DDMRP), which helps businesses plan and manage inventories and materials in more complex supply scenarios. 

To find out where your business falls on the adaptability scale and diagnose your ability to cope with change based on the Adaptive Manufacturing Enterprise Maturity Model, take this quick, 12-question diagnostic assessment.

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