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Manufacturing is definitely considered important to the economy. A recent report from the Australian Government found it contributes around $100 billion to GDP annually and in New Zealand the Ministry of Business says over 60 per cent of exports are accounted to manufacturing.
As with many industries though, manufacturing has faced challenges from the pandemic.
Here we explore two systems that can make a critical difference to operational effectiveness, enterprise resource planning (ERP) and material resource planning (MRP) software.
What is MRP?
MRP is a software solution that helps you calculate what materials are required, at what time and in what quantities.
Manufacturing companies typically manage their production planning with these systems, using them to forecast and order materials. This provides reassurance that the right number of materials will be available on the correct date.
It supports capacity planning, scheduling and gives you the ability to compare data, analyze performance and improve processes for better efficiency.
What is ERP?
ERP at its core is an effective way of centralizing information and workflow processes for an entire business through data management.
It provides a system that keeps all of your workflow data in one place, allowing your business processes across departments to be smarter and informing decisions with insights.
When used correctly it helps to ensure data quality and integrity, which invariably improves business performance as a whole and in each service department too.
Why buy an MRP system?
Improving stock and inventory management are often big incentives for manufacturers. MRP provides those incentives as a software-based system, it helps manufacturers plan, schedule and manage their inventory during the manufacturing process.
By optimizing inventory levels, it lets manufacturers know which raw material is required for production, how much is needed and where it can be purchased.
Accuracy levels are then increased, and with an MRP system successfully implemented, manufacturers can manage resources better, improve stock levels and save a lot of time, while also mitigating human error mistakes.
Benefits of an ERP system
One main advantage of ERP is that it can simplify and organize existing processes. For a manufacturing business that may be unable to identify its most or least profitable workstreams, or keep up with demand, an ERP system can regain control of your data and enhance the overall effectiveness of your business.
ERP platforms enable the majority of users within the production chain to track costs, material usage, bringing quicker decisions that boost productivity as well as increase ROI.
An integrated centralized database leads to effortless integration of departments and processes within the entire organization. Many benefits come from coherent decision making, including improvement in customer experiences and reductions in costs.
Three key differences between MRP and ERP
Standalone vs Integrated.
This may be the biggest difference between ERP and MRP systems and will help you decide which is right for your business.
ERP solutions are integrated and provide real-time information in a shared database, meaning employees working across departments will all have access to the same information.
MRP software tends to be a singular application that solely addresses manufacturing needs to manage production schedules and materials. This system is suitable as long as the company isn’t looking for complex integration with other processes.
Extent of use
Both of these systems enable multiple users, but they differ when it comes to the types of users that will benefit.
MRP systems are useful for anyone working in the warehouse or operational side of a manufacturing business, a warehouse manager checking on the inventory of raw materials or a warehouse worker overseeing the entire operation for example. It allows up-to-date inventory control information, accurate production and makes working with distributors a lot easier.
The difference with ERP is many others in your organization have access across different departments and it includes entirely different functionality - accounting and CRM for example. There’s an added benefit here that all your teams have easy access to information from other parts of the organization, allowing data to be shared across purposes, to purchasing, accounts, sales and even marketing, allowing them to do their jobs more effectively.
Pricing is a concern among business owners, and it’s important to know what kind of expense you’re looking at when purchasing a new software system.
ERP systems are more expensive than MRP systems as they have a wide range of functionalities to offer.
For smaller to medium based manufacturer companies, an MRP system is usually more than enough as it meets the requirements, whereas larger businesses may need more integration and the greater functionality that comes with implementing an ERP.
Elsum Engineering is one business that opted to go for ERP, and they found first-hand how investing in technology can alter your business. With an increase in customer orders, they realized a system was needed that could meet these new challenges.
Brett Mackieson, General Manager of Elsum Engineering, said:
“Before we installed ERP software, I saw a bunch of sub systems that did not talk to each other. I set out to satisfy our needs, including short lead times, quick turnaround, high quality. We went to the market looking for a solution in a complex manufacturing environment where there might be 400 customer orders at any time and 10-15,000 components as well as disparate materials to deal with and where there is some very expensive, high-end technology at play.
With an easy and swift installation, they were able to be more efficient with their processes as well as effortlessly track numerous materials.
How to decide if an ERP or MRP solution is right for your business
If your company is specifically looking to assist manufacturing efforts, then an MRP solution might be right for you. However, if you prefer software that can automate other parts of the business then perhaps ERP is the right solution.
Budget is a crucial factor to consider when making a software selection. To decide between the two, it’s important to analyze the pros and cons of both in terms of cost and effectiveness.
Along with costs and technical features, another major factor is the size of your business and whether the company is growing rapidly. If you know you will eventually need to implement more automation, an ERP will likely be more suitable.
If the business operates on a smaller scale and stays more or less consistent in terms of the number of employees or output, it might not be necessary for a bigger solution and an MRP system may be the best fit.
Whether this is your first investment in enterprise-grade software, or you are looking to upgrade, choosing either an ERP or MRP system is a big commitment. There's no denying that both systems provide high-quality functions that have the potential to increase profit and productivity.
Taking the time to find the right solution for your organization is critical.
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