What Does MRP Stand for? What Are the Differences versus ERP?
Want to know what MRP stands for? This article discusses the differences between MRP and ERP systems, and why they are both important to small manufacturing businesses.
Materials Resource Planning (MRP) and Enterprise Resource Planning (ERP) are both terms often used in manufacturing businesses. As someone new to the manufacturing and operations side, these terms can be confusing.
Both MRP and ERP systems help businesses manage their resources, but there are some key differences between the two. In this article, we’ll dive into the differences between MRP and ERP systems so you can better understand what these terms mean and see which one is best for your business.
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What does MRP stand for?
MRP stands for “Materials Resource Planning”. It’s any system that helps businesses plan and manage their raw materials, manufacturing, and finished products. MRP systems help manufacturing businesses by offering different features designed to keep track of inventory levels, planned production, and purchasing. For makers and small manufacturers, MRP systems are valuable because they automate the complex task of making sure you have the right materials on hand at the right time — without overstocking and tying up capital in excess supplies.
The term MRP is also sometimes used for “Manufacturing Resource Planning”, which is an almost identical concept. Manufacturing resource planning encompasses all of the resources needed to manufacture a product, not just materials. It does this by looking at and tracking your entire manufacturing business — i.e. capacity planning, tooling, and workforce planning.
MRP is also used as an acronym for “Material Requirements Planning” which again has a fair amount of overlap with the MRP definitions above — it’s mainly focused on the actual procurement of materials based on predicted manufacturing activity (which is usually managed using a master production schedule).
What does ERP stand for?
ERP stands for “Enterprise Resource Planning”. ERP systems are used to manage all of the resources of a business, not just materials. This includes things like financials, HR, and supply chain management. ERP systems usually have modules that can be customized to the needs of the specific business. Think of an ERP as an all-in-one business operating system that connects every department — from finance and accounting to manufacturing and customer relationships — into a single integrated platform where data flows between teams in real time.
ERP systems give businesses a complete view of their operations. This can help businesses identify inefficiencies and areas for improvement across the complete supply chain.
So, what are the key differences between MRP and ERP?
To recap, MRP systems are focused on materials and inventory, while ERP includes all aspects of business operations, from finance to manufacturing to human resources.
Both MRP and ERP can help businesses optimize their production processes, reduce costs, and improve customer satisfaction. However, MRP is better suited for businesses with specific needs around managing materials and inventory, while ERP is a more comprehensive solution that addresses a wider range of business needs — and can therefore be much more expensive to implement (enterprise ERP projects often run $50,000–$150,000 for a small manufacturer, not including ongoing subscription fees).
What features are usually found in ERP software?
ERP software typically includes wide-ranging features for managing different aspects of business operations, such as finance, manufacturing, human resources, and supply chain management. Because ERP is designed to serve large, complex organizations with many departments and locations, it often includes far more functionality than smaller businesses actually need. However, if you’re planning to grow or operate across multiple teams and locations, this breadth can be invaluable for keeping everyone aligned and working with current data.
These features (or “modules”) usually fall into the following categories:
Financial management: Accounting, financial planning, and reporting.
Human resources management: Payroll, employee tracking, and performance management (i.e. KPIs).
Customer relationship management: Sales and marketing automation, customer service, and support.
Manufacturing: Production planning, quality control, and inventory management — this is where ERP overlaps with MRP.
Warehouse and location management: Procurement, warehousing, and transportation across multiple stocking locations.
Project management: Task tracking, project planning, and resource allocation.
ERP software options: There are a number of software options available for small manufacturers looking for an ERP system. Some popular options include SAP Business One, Microsoft Dynamics 365 Business Central, Acumatica Cloud ERP, Sage Intacct, and NetSuite ERP.
ERP systems can be very expensive to implement, especially for small manufacturing businesses. The cost will depend on a number of factors, such as the size of the business, the complexity of its operations, and the specific modules that are included in the system. Cloud-based ERP subscriptions for small businesses typically start at $500–$3,000 per month, before any implementation or training costs.
One way to reduce the cost of an ERP implementation is to choose a cloud-based solution, which can be more affordable than on-premise software. Some manufacturers find that a focused MRP system paired with specialized tools provides better value than a complex ERP — dedicated MRP software can deliver the manufacturing features most small businesses actually need at a fraction of enterprise ERP cost.
What features are usually found in MRP software?
MRP software is used by businesses to manage their materials and inventory. The features found in MRP software can vary depending on the product and price range, but common features include: inventory tracking for raw materials and finished goods, production planning and scheduling, cost analysis and pricing guidance, and supplier management. For makers, the most valuable MRP features are those that connect your recipe or bill of materials to your inventory levels — so you can see whether you have enough materials on hand to fulfill an order, and automatically deduct stock when you manufacture.
Raw materials management: Features to help businesses keep track of their raw materials, finished goods, and inventory levels. This can include sub-assembly tracking (components that make up parts of the finished product).
Inventory control: Track real-time levels for raw material, sub-assemblies and finished product inventory levels, and also stock movements between locations.
Production planning: A suite of features to allow manufacturing businesses plan and schedule their production processes using both historical and future data, to create a master production schedule.
Capacity planning: This module helps businesses plan and manage their capacity needs, based on past data and future activity.
Quality control: This area helps businesses make sure their products meet quality and regulatory standards. Features like batch and lot tracking and expiry dates are usually core parts of the QC featureset.
Cost management and analysis: This set of MRP features helps businesses track and analyze their costs. This can include pricing guidance, profit and margin calculations, COGM calculations and overall inventory and overhead expenditure tracking.
Materials sourcing and procurement: Allows small manufacturers to track where they source their raw materials from so that they can optimize the purchasing part of the supply chain.
Reporting and analytics: Features that provide businesses with the ability to generate reports and perform in-depth analyses on their inventory, stock movement and costing data.
MRP software options: There are a number of software options available for small manufacturers:
Craftybase MRP: This cost-effective MRP system is designed for small manufacturing businesses and shines for workflows where products are made in-house. It features raw material tracking, COGS calculation, multilevel bill of materials, complex sub-assembly production and location management — plans start at $19/month, making it an accessible MRP option for growing makers.
Katana: This MRP system is designed for “ambitious manufacturers looking to scale” and offers a number of plans suitable for small manufacturing businesses at different stages.
MRPeasy: Another solid MRP system for manufacturing businesses of all sizes, with pricing options designed to meet the needs of growing businesses.
When comparing MRP systems, the key factors for small makers are cost, ease of setup, and how well the tool handles recipe/BOM costing — since that’s usually the core need.
ERP vs. MRP: Which is right for your small manufacturing business?
The best way to determine whether ERP or MRP is right for your business is to assess your specific needs and requirements: both now and with your future business goals in mind.
As a rule of thumb, ERP systems are usually more expensive and require more training to use, while MRP systems are less expensive and easier to implement. Most small makers get started with MRP and only consider ERP once they’re managing 10+ staff or operating across multiple business units.
If you have a small manufacturing business that makes products in-house, then MRP is likely the better option due to its more approachable price points and primary focus on inventory management features. You can then add systems to handle the different functions of your business as it grows.
However, if you are looking to grow your business and can afford the overhead of an ERP system, you may like to go with a more all-in-one solution that includes out-of-the-box ways to manage your staffing and HR needs.
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