Many people use the terms MRP and ERP interchangeably, but the reality is that MRP is a subset of functionality within an ERP system.
To understand how the confusion came to pass, let’s look at the history of the terminology, how the software evolved over time, and answer the main question in everyone's mind: What's the difference between MRP and ERP?
Why was MRP invented?
In the mid-1960s, Joseph Orlicky, a researcher at IBM, invented and published research on the concept he dubbed Material Requirements Planning, or MRP. His concept provided a method for planning the quantities of materials and components necessary to complete a production plan and time phasing them so that the materials arrived very close to the time when they would be required to keep production running. MRP was a vast improvement over the statistical inventory methods such as min/max or two-bin systems, in use at the time. However, the calculations were tedious, and it wasn’t long before companies created software to perform the calculations automatically.
MRP II Arrives
Shortly after material requirements planning began to take off, people realized that just having the components available didn’t necessarily reduce inventory if the plant didn’t have the capacity to build everything on the plan. At this point, material requirements planning morphed into manufacturing resource planning, dubbed MRP II.
MRP II took capacity planning into account, providing techniques for smoothing the production plan to eliminate peaks and valleys and level loading work centers and equipment as much as possible. Once the plan had been leveled, material requirements planning would calculate the net requirements and due dates for components to meet the level plan.
Most people today are unaware of the evolutionary differences and simply use the term MRP. Due to its focus on managing inventories and plant resources, manufacturing companies adopted MRP rapidly, especially as more functional software applications and affordable minicomputers came on the market.
The next evolutionary step was the realization that level loading the production schedule did not necessarily meet the company’s revenue or sales objectives. At this point, Master Production Scheduling and forecasting entered the equation. Companies massaged forecasts to ensure they met revenue plans, then sent the Master schedule for leveling and then the material requirements planning explosion and netting processes.
MRP Morphs into ERP
Manufacturing companies rapidly adopted MRP and MRP II systems because of the cost efficiencies, inventory management and production scheduling benefits. Software companies began adding financial, order management and human resource applications around the core MRP functions so that a manufacturing company could have a single software solution that would run the entire organization. The term Enterprise Resource Planning or ERP, became the name of this more all-inclusive software.
ERP Moves Beyond Manufacturing
As the capabilities of ERP systems expanded, companies outside of manufacturing adopted the systems to run their businesses, even though they had little use for the original core MRP capabilities.
Some software companies turned away from manufacturing as the focus of their business and added non-manufacturing functionality for government and public sector, financial services institutions, educational systems, research and a host of other industries. The result is that some ERP systems are complex and bloated with functionality that small and mid-sized manufacturing companys don't necessarily need.
Sometimes these systems have moved so far away from their manufacturing roots that they have actually superseded manufacturing terminology with the vocabulary of the other industries they service. They often require complex configuration and implementation processes to turn functions on and off when it’s not required by the company using the software. This makes the software expensive to purchase and maintain, hard to use and learn and vastly more complicated than Joseph Orlicky’s original, elegant concept, especially for small and mid-sized manufacturing companies who may not have the resources to cope with the complex processes introduced to support non-manufacturing industries.
So what's the difference betwen MRP and ERP?
Other software companies have stayed close to the manufacturing roots of ERP. While they offer the full suite of functional capabilities that earn the name ERP – functionality such as financials, order and quote management and after sales service and support, among others – the true heart of the system remains MRP, designed to help manufacturing companies keep inventory and costs low, while productivity and efficiency stay high.
