As enterprises scale, many of them become curious about streamlining and automating certain parts of their business. However, as you explore these opportunities, you quickly find yourself confronted with lots of technical terms, like enterprise resource planning (ERP) and material requirements planning (MRP) in the business software market. And even if you know what it’s all about, it can often still be difficult to identify the right solution for your own company in a vast sea of providers.
Navigating ERP and MRP software is comparable to choosing between two types of vehicles. MRP is your slick, efficient motorbike designed for crossroads and crossroads only. In the other corner, you’ve got ERP, a robust, overlanding SUV, made to tackle a wide range of terrains and give you a place to live on the road.
So let’s discuss what factors to consider when deciding between those systems. Here, we cover the key technical differences and explore real-world examples to help you identify the best suited software for your business.
MRP, ERP or Both? Which One Is Right for You? We’ll Help You Decide.
Even though they sound similar, ERP and MRP software serve very different purposes and feature scopes. At the same time, ERP solutions often include MRP functionality, and some software vendors often use the term interchangeably, which can blur the line between the two terms during your research. Also, some MRP solutions will include basic accounting functionality while some integrate into ERP systems for accounting. This makes differentiating between MRP and ERP systems very confusing.
Put simply, an ERP system is like the control room of your entire enterprise. It gradually tries to map your business process and optimize all its resources. To achieve that, it usually includes accounting, sales and purchase order processing, inventory, manufacturing, service, CRM and project accounting as well as many third-party solutions to extend its primary capabilities. For instance, Microsoft Dynamics 365 Business Central comes with a full suite of ERP functionality, which can be expanded with their CRM solutions and third-party, integrated solution vendors from Microsoft AppSource.
An MRP system, on the other hand, serves a more narrow niche. Through its targeted feature set, it aims to document and streamline your manufacturing, purchasing and inventory operations. So, it will certainly have features comparable to the supply chain management in Microsoft Dynamics 365, but also include more detailed functions specific to manufacturing businesses.
Not to confuse matters, but sometimes companies utilizing an ERP system will also implement a third-party MRP, Demand Planning or Advanced Planning & Scheduling (APS) solution if the base functionality in the ERP system doesn’t fulfill their business requirements.
Here are some of the key differences between the MRP and ERP systems:
|Used for material and resource planning in manufacturing
|Used to manage an entire business across finance, supply chain, service, job costing, etc.
|Self-contained system specialized in production planning and inventory management
|Extensible system allowing API integration of solutions tailored toward specific needs
|Focuses only on narrow features for production schedule and inventory level monitoring
|Provides one central database to manage information across the organization
|Relatively easier to implement than ERP, as it only focuses on one business area
|Time-consuming implementation due to the need for change management and training
|Typically more affordable, especially when tailored to specific material management needs
|Typically more expensive due to broad feature set, implementation cost and extensibility
|Examples: Katana, MRP easy, Epicor, Infor
|Examples: SAP, Oracle, NetSuite, Microsoft Dynamics
In addition, you may also encounter the differentiation of MRP I and MRP II, which refers to manufacturing resource planning. You can think of these two as different levels of the same video game. MRP I is the first level, where you focus solely on material inventory and orders. Once you’ve mastered that, you can progress to MRP II, where you’ll have to deal with a broader scope of tasks, including production capacity and scheduling. While this adds layers of complexity to reaching the finish line, it also provides deeper insights into your operation.
MRP II slightly extends your horizon by not only observing material inventory and orders but also production capacity and resource scheduling. So it takes on some of the features that ERP software could deliver while still focusing on manufacturing needs.
It’s important to understand that MRP and ERP software serve a different scope of business needs. An ERP solution isn’t simply better because it spans a wider range of tasks. You’ll have access to feature sets within those categories that might make you lean toward one solution over the other. So, even if you plan to extend your ERP system with an MRP add-on, you may still find that having a fully featured ERP solution makes information management and decision making easier.
The take-away here is that you should be aware of shelfware and the differences in scale and extensibility. Don’t fall into the temptation of choosing a richer system just because it can do more. Remember that your final choice should always reflect your budget and your team’s needs.
Learn How Both Systems Interplay To Decide Which One Your Business Needs
When it comes to MRP’s place in the grand scheme of business intelligence, it’s comparable to the relationship between ERP and CRM in that one module informs the big picture. Your MRP solution offers a subset of features dedicated to the manufacturing industry and may integrate into your ERP system.
Depending on which ERP option you choose, your MRP system may provide more granular data that allows you to streamline production operations. Some MRP features included within your ERP solution might also not be detailed enough to cater to your production process. Think, for example, of more advanced analytics and optimization tools that focus on inventory turnover or output effectiveness.
Through capacity and material requirement planning as well as forecasting features, an MRP system often allows you to predict more accurately how your production planning meets the demand based on predictive analysis and historical data. A master production schedule keeps all the relevant data about raw material, product items and quantities front and center. Some ERP systems might only offer basic capabilities for these scenarios. They might also fall short on material tracking or shop floor control. That’s why sometimes both an ERP and an advanced MRP solution might both be needed.
If your production has reached a certain size and you want to coordinate inventories along with sales and marketing, it may be worth considering both an ERP and an advanced MRP, Demand Planning or Advanced Planning & Scheduling (APS) system. However, before any implementation project, you should be aware of the effort and how the systems will all work together.
For any business software system to have its full effect and deliver cost savings, you need to accurately assess your requirements, choose the right software and implementation partner, transition data and processes to the new solution and train your personnel.
Best Practices for Choosing the Right Planning System
No software comes with a magic switch. So, before you decide on any system, you should always run through a thorough needs assessment and review business processes across your entire organization. Make sure you consider the level of complexity of your business and the extent to which you require customization options. Even your need for continued support plays into the decision making process, especially if you solely rely on external IT staff.
Let’s discuss a few scenarios to illustrate the choice between MRP and ERP solutions.
A Small Manufacturing Business
As long as their supply chain and production processes remain relatively simple, a small manufacturing company will probably find an MRP system that includes basic accounting functionality sufficient to manage its business. A fully comprehensive ERP system would likely exceed the budget of a small business.
In addition, the software would overwhelm the staff with unnecessary features and not all companies have accountants on staff that are familiar with the debit and credit systems typical of an ERP solution. However, the shift to a specialized manufacturing ERP solution could be worthwhile once the business grows and wants to organize additional company divisions outside the manufacturing process.
A Mid-Size Manufacturing or Assembly Organization
For most mid-sized organizations, an ERP solution covers 85% to 100% of their business requirements and there are third-party applications which can be used to fill in the gaps. A mid-market ERP solution with Microsoft Dynamics 365 Business Central is the perfect fit for this type of organization.
Whether they are a distributor, assembly organization or a mid-sized manufacturing outfit, Business Central fulfills most of their business requirements. They can implement whichever functional areas they need while having the ability to expand into other areas as they grow. The Microsoft Dynamics 365 Sales, Service and Marketing CRM solutions are also available for those organizations needing more robust functionality in those areas.
A Mid-Size Service Organization
To some service providing organization, material and production planning are simply irrelevant. In these cases, you should focus on accounting, project management, field service or customer service — all of which can be handled more efficiently by a comprehensive ERP and CRM system.
You may even find an ERP software solution tailored to the unique needs of the professional services, job costing or field service industries, which offers dedicated features for client management or project timelines.
A Large, Multi-Location Supply Chain Enterprise
A large manufacturing company with international subsidiaries will already benefit from an advanced MRP solution, Demand Planning or Advanced Planning & Scheduling (APS) solution that works in conjunction with their ERP solution to track its supply chain and production across multiple locations. However, that becomes even more important in heavily regulated industries like pharmaceuticals. In those scenarios, specialized features for material tracking and the documentation of samples become critical.
At the same time, an ERP system with an integrated MRP II system would allow such an enterprise to share and consolidate data across multiple locations and departments, although even that integration can be challenging. This can inform future business strategies or sustainability analytics efforts.
Ultimately, your need for an ERP, an MRP system or a combination of both comes down to your business goals, size and model as well as industry requirements. In some cases, you might get along well enough with a basic MRP system with basic bookkeeping functionality, whereas more complex organizations usually require comprehensive ERP solutions. Whichever you choose, don’t forget to compare your options and design your final choice to reflect your operations.
Find the Best Software Solution Tailored to Your Business Goals With The TM Group
The business software solutions market can be overwhelmingly complex, especially if you’re new to transferring your processes from a bookkeeping to a fully functioning ERP system.
As we’ve discussed, ERP and MRP are two vastly different types of software that help streamline and optimize your business operations. While ERP provides a comprehensive solution for managing all business processes, from sales to CRM, MRP focuses specifically on production and inventory control in manufacturing. Both can be hugely beneficial to your enterprise, so when choosing between the two, you always need to consider its size, type and needs, as well as regulatory requirements.
As a Microsoft Dynamics partner and trusted adviser to hundreds of corporate clients in the United States and abroad, we know exactly how to help you transition your business model and your personnel and business requirements into the right combination of solutions. We’ve completed thousands of implementations of Microsoft Dynamics ERP and CRM software applications, and we’d love to bring that experience to your enterprise.
If you’re curious about the best choices for your ERP or MRP needs, get in touch with our expert team today! We’ll gladly help you navigate through all the options and find the optimal solution for your business. If a platform seems almost right, we’ll collaborate with you to find the right extensions to fine-tune your setup until it completely matches your day-to-day operations.