The use of computers in business began as early as the 1960s. The first IT systems were primarily used in manufacturing companies, where the most pressing need was to streamline the processes of planning and balancing material resources. By the mid-1980s, with a fairly flexible approach to architecture, transactional record-keeping systems were built. Their evolution, mainly in industry and logistics, created a class of systems known as MRP – Material Requirements Planning. A breakthrough occurred in 1989, when APICS (American Production and Inventory Control Society) published a set of formal requirements for IT solutions supporting business operations[i]. Systems built in accordance with these requirements were designated as Manufacturing Resource Planning, known by the acronym MRP II. In the following decade, another standard appeared
Enterprise Resource Planning (ERP), which was the result of the evolution and functional completion of MRP II systems. In ERP, the main emphasis was placed on fully balancing all enterprise resources, including financial assets and human capital management.
What are the main differences between ERP and MRP?
Comparing ERP vs. MRP/MRP II, the fundamental differences are visible at first glance, as highlighted by the names of these system classes. MRP, or Material Requirements Planning, supported companies in a fairly narrow scope by creating production plans, managing production, and maintaining optimal inventory management. To simplify slightly, the goal of MRP systems was to ensure adequate stock levels so that production could proceed without disruption, in the required quantity, and on time. The decade-younger MRP II class solutions had more ambitious goals and a more sophisticated approach to business processes. Their functionality focused on production planning in relation to sales plans, demand management, and production scheduling. Consequently, it became necessary to effectively plan material requirements, manage product material structures and recipes, and maintain efficient and economical inventory management. Production departments received modern tools for that time to control production orders, manage production, and plan and balance production capacity. Functionality in the area of purchasing control and record-keeping also developed, the ability to perform simulations was added, and thanks to integration with accounting records, economic performance could be measured. In MRP II systems, a very valuable and desirable balancing of production capacity and material flow management occurred to achieve the required labor productivity. Growing planning capabilities increased the flexibility of production and supply, allowing companies to make radical savings while simultaneously increasing the efficiency of the entire organization. Gradually added modules and functions caused a qualitative change. After another decade, almost all functional areas of a company could count on the support of an ERP IT system, which balanced all of the company’s resources. Software vendors spent a lot of time and effort to ensure their systems handled the organization’s processes in an efficient, scalable, and secure manner. This was not without a revolution in relational databases, system architecture, network solutions, and complex project management methodologies. To realize the scale of the differences between any MRP/MRP II system and an ERP, it is enough to analyze the capabilities of
a modern solution of this class, e.g., the Kinetic system produced by Epicor Software. It can be used to manage, control, and steer functional areas such as human resources, finance, supply chains, customer relations, production planning and scheduling, products, projects and contracts, fixed assets, production and quality assurance, as well as sales and delivery planning and execution. Additionally, Business Intelligence, risk management, and compliance modules are available. The entire solution can run in the cloud or locally on the company’s IT infrastructure. The adaptive capabilities of such a system are enormous – it can operate in practically any industry, and its proper implementation ensures a qualitative change in business operations, providing opportunities for growth for many years. The laws governing the development of ERP systems are somewhat reminiscent of Hubble’s Law – the more extensive the functionality, the faster it develops.
When is it worth choosing ERP and MRP systems?
Material Requirements Planning is an important but narrow slice of enterprise resource planning. The relationship of inclusivity that connects the sequence MRP – MRP II – ERP defines the capabilities of these solutions, but also shows their position on the timeline from the oldest MRP solutions to completely modern Cloud ERP. If we assume that the average lifespan of an ERP system is seven to ten years
[ii], it is difficult to find companies that operate solely on an MRP/MRP II system when there are dozens of much more advanced and developed
applications supporting practically every aspect of a company’s operations. However, this does not mean that such situations do not occur. MRP II systems perform perfectly in specialized companies focused on the serial production of a small assortment for a few customers. Functionality perfected over the years and strict alignment with company needs is not easily replaced by an extensive and universal system that brings little new to the company.
A new ERP system cannot duplicate existing functions – it must bring new energy to the company. Because it is difficult to imagine manually managing dozens or hundreds of employees, handling tax settlements, or controlling a supply chain today, ERP systems are so common and difficult to replace. They also ensure rapid process automation and improved efficiency for the entire organization.
Can ERP and MRP be used together?
In principle, nothing prevents ERP and MRP/MRP II systems from operating in parallel in one company. Where MRP performs perfectly, i.e., in material requirements planning, an ERP system, thanks to its modular structure, can have reduced or disabled functionality. Integrating ERP and MRP systems, although not simple or easy, allows for the free exchange of information between them, and consequently, the harmonization of work across all departments of the organization. This gives users insight into necessary production data, which translates into time savings and greater work efficiency. However, one must remember the numerous difficulties and possible troubles with such a configuration of business applications. First and foremost, maintaining different databases and ensuring their consistency and currency is problematic. As a rule, data export capabilities from MRP systems are limited, and their integration with solutions from other manufacturers can be troublesome. Often, people are also a problem – a lack of specialists and users capable of fully utilizing the power embedded in an MRP system also often prompts companies to abandon efficient and functional solutions of this class.
Which software should your company choose?
When conducting comparisons and considerations regarding ERP vs. MRP, some time must be devoted to
analyzing the business effects of a potential implementation of each system. If we are dealing with a small company, focused primarily on its production needs, with rarely changed assortments and few customers, it will benefit more from an MRP system or a module for
production management and planning coming from a larger ERP solution than from launching the full functionality of an ERP. It is impossible to ignore the costs, time, and difficulties of such an implementation – an MRP system can be a quite sensible alternative. However, if the achieved business results are not satisfactory and numerous processes require automation to save time and employee effort, an ERP system may turn out to be the right choice. In a company with a diverse profile of activities, employing a large staff, and geographically dispersed, it may be the only sensible solution. The modular structure of this class of systems and their flexibility and configuration capabilities allow for the precise selection of necessary functionality so as not to pay for what is unnecessary. The choice between an ERP and MRP system is often facilitated by the so-called prose of life, i.e., the budget. It is worth knowing that ERP systems are much more expensive, requiring advanced IT infrastructure, servers, storage, networks, and peripheral devices. It is much harder to calculate the return on such an investment. MRP systems, relatively simpler and cheaper, are also less expensive to maintain and update. Also, any modifications do not require as much effort, time, and money. Therefore, where a company cannot afford extravagances, it is better to use proven MRP systems.
Alternatives to ERP and MRP systems
For companies that do not want to use extensive ERP systems or the full production planning loop in MRP, software vendors have prepared an alternative in the form of MES class applications –
Manufacturing Execution System enriched with a module for entering orders and defining production technology. With such a set of functions, one can create a work plan, recipes, determine physical parameters and product composition, and link production tasks to specific machines and technological operations. In such an application, normative times for performed activities and the demand for employees with specific qualifications are also set. In this way, a technological route is created, the execution of which is supervised by the MES system. For the sake of order, it must be added that MES systems, by combining software, electronic devices, and automation elements, can control and supervise the work of machines at production stations in real-time, control any deviations from quality standards, and plan service actions in combination with production and sales plans. An MES application with an additional module becomes a mini-MRP class solution, but it is not able to replace the full functionality of an MRP system. It is not without reason that most companies thinking prospectively about the development of their business try to implement advanced ERP class systems – it is these that provide the greatest return on investment and additional fuel driving the business.
[i] https://repozytorium.uph.edu.pl/bitstream/handle/11331/842/Wyrebek_MRP_II_w_procesie_ zarzadzania.pdf?sequence=1
[ii] https://www.billtrust.com/resources/blog/5-famous-erp-myths-shattered/
