Understanding the difference between MRP and ERP systems

Today's ERP systems evolved from yesterday's manufacturing resource planning (MRP) systems. Understanding the difference between ERP and MRP is important to getting the most out of these systems.

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The key to understanding the difference between ERP and manufacturing resource planning (MRP) is tracing the evolution of both functions from material requirements planning. Material requirements planning (also known as MRP) was developed in the 1970s as a mechanism for manufacturing companies to calculate more precisely which materials they required, at what time and in optimum quantities. 

According to Dr. Marc Ferguson, director of the technology and management program at the Georgia Tech College of Management, the original material requirements planning application was just for helping manufacturers track all the parts that went into a product and know when those parts need to be ordered, as well as how much stock they needed to have on hand for production.

Material requirements planning evolved into manufacturing resource planning -- or MRP II -- because manufacturers realized the need for the system to reach broader aspects within the company, such as the needs to pay their suppliers, cover payroll and manage capacity. They also needed to calculate their material requirements precisely with detailed capacity planning, scheduling and shop floor control. "So it was changed to manufacturing resource planning to cover all the resources needed to produce a product, not just tracking parts," Ferguson said.

ERP vs. MRP

From there, MRP II evolved into ERP. The biggest difference between today's MRP and ERP is that MRP systems are often standalone applications, where ERP is a backbone that supports multiple modules, including manufacturing. "It evolved to become the backbone of ERP," said Ferguson. "You can still just buy an MRP system today; it's usually a smaller company that cannot justify a fully integrated ERP system."

MRP II introduced the closed-loop model, which uses a centrally held data file to record, monitor and report on various company activities. By comparing forecasts with actual data, companies can analyze performance and improve processes to become more efficient.

ERP leapfrogged MRP II even further to embrace all business functions, not just those concerned with actual manufacturing. ERP incorporates the principles of global supply chain management, in which the value of every activity in the supply chain is analyzed, along with the growing development of Internet or web-enabled procurement.

What other resources would you like to see on ERP software? Email us at editor@searchmanufacturingerp.com.

About the author: Catherine LaCroix is a freelance writer based in Portland, Ore. She covers technology used in business, education and healthcare.

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