MRP vs ERP: What a Small Manufacturer Actually Needs

MRP vs ERP looks like a choice between two products, but one sits inside the other. MRP software plans materials: it tells you what to buy, how much and when. ERP software runs the business: it plans materials too, then raises the purchase order, receives the goods, books the bill, issues the GST invoice and works out what the job cost. This post is for the owner of a 10-100 person Indian plant deciding whether a planning tool is enough or whether the plant needs the whole system.

TL;DR

• MRP (material requirements planning) explodes the bill of materials, subtracts stock and open orders from demand, and offsets each order by its lead time. It does not raise the purchase order, book the bill or issue the invoice.
• MRP II added master scheduling and capacity planning. ERP added everything else: accounting, GST invoicing, purchase-to-pay, sales and costing, on one database.
• A standalone MRP tool plus Tally can work for a plant with simple products and one person keeping the two systems in step.
• An ERP pays off once purchase and stock figures are being typed twice, job costing matters, or the stock in the planning tool stops matching the books.
• ERPNext's Production Plan does the MRP netting inside the ERP. It nets one total requirement, not weekly buckets, so the planner still owns the dates.

First, which MRP?

In India, "MRP" also means the price printed on a pack: the maximum retail price, the highest price a packaged commodity may be sold to the consumer for, inclusive of all taxes, as defined in the Legal Metrology (Packaged Commodities) Rules, 2011. It is a labelling rule, not software.

This post is about the other MRP: material requirements planning, the method a plant uses to work out its material needs.

MRP vs ERP: the difference in plain terms

MRP: material requirements planning

MRP turns a demand for finished goods into a list of material orders. It is described as a production planning, scheduling and inventory control system with three aims: have materials ready for production, keep stock low, and plan manufacturing and purchase. Joseph Orlicky set out the method in his 1975 book Material Requirements Planning.

An MRP run does three things:

1. Explodes the bill of materials (BOM). One finished good becomes its components, level by level, multiplied by the quantity to make.
2. Nets the requirement. From the gross requirement it subtracts stock on hand and orders already open. An operations management text from the University of Houston writes it as gross requirements plus safety stock minus inventory on hand, reset to zero if the answer is negative.
3. Offsets by lead time. The same text shifts each planned order back by its lead time: an order that must arrive in week 3 with a one-week lead time is released in week 2. Lot sizes round the quantity up to what a supplier will sell.

MRP II: manufacturing resource planning

In 1983, Oliver Wight extended MRP into manufacturing resource planning, MRP II, adding master scheduling and capacity planning among other things. MRP asks "do we have the material?" MRP II also asks "do we have the machines and the hours?"

ERP: enterprise resource planning

ERP is the suite of integrated applications that runs a company's core processes on shared data. The term, credited to Gartner in the 1990s, extended MRP and MRP II beyond the factory: financial and management accounting, order processing, purchasing, inventory, HR and payroll. In an ERP, MRP is one function among many, and it plans against the same stock and order records the accountant uses.

A worked MRP run for one product

Picture a hypothetical moulding plant that makes a 20-litre HDPE bucket with a lid, a wire handle and an in-mould label. All the figures below are invented for the example; the arithmetic is real.

The BOM, per bucket: 0.85 kg of HDPE granules (body and lid), 0.017 kg of colour masterbatch (2 percent of the granules), one wire handle and one label.

Demand: sales orders for 4,000 buckets, to ship at the end of week 4. Moulding and assembly run in week 3, so all material must be in the store by the start of week 3.

Step 1, net the finished good. The store holds 600 finished buckets and a work order for 400 more is already open.

4,000 - 600 - 400 = 3,000 buckets to make.

Step 2, explode the BOM for 3,000 buckets.

• HDPE granules: 3,000 x 0.85 kg = 2,550 kg
• Masterbatch: 3,000 x 0.017 kg = 51 kg
• Wire handles: 3,000
• Labels: 3,000

Step 3, net each component against stock on hand and open purchase orders, then round up to the supplier's lot size.

Step 4, offset by lead time. Everything is due at the start of week 3. The granules and masterbatch have a one-week lead time, so their orders go out in week 2. The handles take two weeks, so that order goes out this week. Labels need no order: 500 will be left over.

The answer is only as good as two inputs. The BOM must carry the real usage, including process loss: if a bucket really uses 0.90 kg once runners and rejects are counted, the granule order is 150 kg short. And "900 kg on hand" must be true. A planning tool that reads stock from a spreadsheet updated on Fridays plans against last Friday.

What a standalone MRP tool leaves out

The MRP run ends with a list: buy 46 bags of granules in week 2. What happens after the list depends on other software. When a plant buys a tool sold as MRP software, check which of these it handles and which go back to Tally or a spreadsheet:

The e-invoicing threshold comes from Notification 10/2023-Central Tax, effective 1 August 2023. A plant above it needs an invoicing system that generates the invoice reference number, whichever planning tool it uses.

When MRP alone is enough

A standalone MRP tool beside Tally is a sound choice when all of these are true:

Here MRP software fixes planning and the accounts team keeps working the way it does now.

When an ERP is worth it

The case for an ERP rests on double entry. Each of these signs means two systems are holding the same facts and disagreeing:

At that point the plant is paying for MRP software and for the people who keep it in step with the books. One database removes the second entry. Our guide to ERP for manufacturing in India covers what else to weigh: cost, choosing a system and moving data out of Tally. For what ERPNext itself costs to run each year, see ERPNext pricing in India.

How ERPNext handles MRP inside the ERP

In ERPNext, the MRP run is a document called a Production Plan. You pull in open Sales Orders or Material Requests, fetch the finished goods that have a BOM, and fetch sub-assemblies from their BOMs. Each sub-assembly can be marked to make in-house, subcontract or buy. The plan then builds a raw-material list and creates Work Orders and Material Requests from it.

The netting step uses ERPNext's Projected Qty, which the documentation defines as actual stock plus planned, requested and ordered quantities, minus quantities reserved for sales orders, production, subcontracting and production plans. That one figure covers both the "on hand" and "open orders" columns of the worked example. The Production Plan documentation gives the formula as Required Qty = BOM Required Qty - Projected Qty; in version 16 the checkbox that switches it on is labelled Consider Projected Qty in Calculation (RM).

The version 16 Production Plan doctype has two more options that matter here: Include Safety Stock in Required Qty Calculation, and Consider Minimum Order Qty, which raises a small order to the item's minimum. If the purchase unit is a bag marked as a whole-number unit, the v16 code rounds the quantity up to whole bags, as in the granule and masterbatch rows of the worked example. In the same code, a Material Request raised from the plan takes its Required By date from the plan row, or otherwise today plus the item's lead time in days.

It does not plan in weekly buckets. The plan nets one total requirement for the orders you selected, so the "release in week 2" column is the planner's call, not the system's. For the click-by-click detail (exploded items, consolidation, purchase and transfer, work orders and job cards), see our walkthrough of ERPNext production planning, BOM and MRP.

After the plan, a standalone tool hands over and ERPNext carries on. The Material Request becomes a Purchase Order, the receipt updates the same stock the next plan reads, the supplier bill posts to the same ledger, and the cost of the work order is built from those actual rates.

How to decide for your plant

Take one real product and one real month of orders, and run the worked example above by hand. Count how many times each purchase and receipt would be entered across your systems today. If the answer is once, a planning tool may be all you need. If it is twice or more, price the second entry in staff hours and compare it with an ERP.

If you want that comparison done on your own data, ERPNext implementation for manufacturers explains how Metageeks, an ERPNext implementation company, scopes a plant and writes down what the system will plan before any setup starts.

Frequently asked questions

Related reading

• ERPNext production planning, BOM and MRP: the step-by-step setup inside ERPNext.
• ERP for manufacturing in India: cost, choice and migration for 20-100 person plants.
• ERPNext pricing in India: what it costs to run each year.
• Where Tally inventory breaks for a plant: WIP, job cards, QC holds and traceability.

About the author

Pankaj Kumar

Founder · Metageeks Technologies

Metageeks builds software and AI products for growing businesses. Every build is scoped in writing before it starts, and you see progress every week. We write about what holds up once it reaches production.

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