You make candles, soap, furniture or tableware. There are orders for the next two weeks, some materials on the shelf, and the wax supplier ships in fourteen days. The question that keeps you awake is what exactly to order today so that there is something to work with next Wednesday. Programs called MRP and ERP exist to answer that question.
What MRP does
MRP needs three things. The first is the recipe, which in manufacturing is called a bill of materials, or BOM: what goes into one product and how much. The second is the plan: what you intend to make and when. The third is the state of stock: what is on the shelf and what is already ordered but still on the way. From these MRP produces a plain answer: what will run short, and by which day you must order, allowing for the supplier’s delivery time.
The calculation is simple in idea and exhausting by hand. For one product with five materials you can still do it in your head. For thirty products that share materials, you cannot.
What an ERP adds
An ERP takes MRP as one of its parts and adds what ties production to the rest of the business. Customer orders, which create the need to produce. Purchasing from suppliers and receiving goods. Stock in several places. Cost: what a batch really cost, with labor and delivery. Documents and what customers owe. Staff and their time. Reports on profit.
So MRP and ERP are not rivals. An ERP usually contains MRP. The difference is scope: MRP looks after materials, while an ERP looks after what happens to money and orders around them.
An example: a candle maker in Portland
One batch is 40 candles. A batch takes 8 kg of wax, 40 jars, 40 wicks and 40 labels. Some wax is lost in pouring, so you allow 5% extra: 8.4 kg. Wax costs $4.50 a kilogram, a jar $1.20, a wick $0.15, a label $0.10. Materials for a batch: $37.80 + $48.00 + $6.00 + $4.00 = $95.80. Three hours of work at $22 adds $66. In all, $161.80, or about $4.05 a candle.
Now the orders: three batches in two weeks. That needs 3 × 8.4 = 25.2 kg of wax and the shelf holds 12 kg. You are 13.2 kg short. The supplier delivers in fourteen days, so you must order today, not when the wax runs out. That is the work of MRP: not “what do I have” but “where will the shortage be and when must I act”.
Everything beyond that calculation is ERP territory: whether the buyer has paid; what the wax delivery cost and how that changed the price of a candle; what the profit was for the month.
How they differ, in short
- The question. MRP: what to buy and when? ERP: how is the whole business doing?
- The data. MRP needs recipes, a plan and stock. An ERP also needs orders, prices, documents and people.
- Who uses it. MRP: whoever plans production and purchasing. An ERP: the owner, the sales manager, the storekeeper, the bookkeeper.
- Work before you start. MRP: write the recipes and enter the stock. An ERP: the same, plus customers, prices, suppliers and documents.
- The cost of a mistake. In MRP a wrong recipe gives a wrong need. In an ERP the same mistake carries through to a wrong cost and wrong prices.
What a small maker needs
A practical rule: take what you are doing by hand today and getting wrong. If your only pain is running short of materials at the worst moment, MRP will do. If that comes with a mismatch between stock and the shop, a cost that is a guess and invoices that somebody still writes in a word processor, you need an ERP.
In a small workshop it is better to have the two in one program. A separate MRP, a separate stock list and a separate order record are three places where a SKU can be written differently, and you are back to reconciling spreadsheets.
There is one more simple measure: how many people touch the data. When one person runs production, stock and sales, it is easy to hold it all in your head and in a spreadsheet. When there are three or four, each needs a part of their own: the storekeeper sees stock, the technician sees recipes, the manager sees orders. That is when a shared program pays back, because it stops depending on one person’s memory.
When you need neither
A spreadsheet is often enough. If you make up to ten different products, they share almost no materials, you have a few orders a week and you can see stock with your own eyes, a program will add more work than it saves. The same is true if you buy almost nothing from suppliers and a product is made of one material.
It is time to change when you have stopped work twice in a quarter for lack of a material, when you cannot say what a unit really costs, or when orders begin to arrive from several channels.
How to choose
- Write down what you do by hand today: working out needs, checking stock, writing invoices, calculating cost.
- Mark which of those hurts most. That is your first job.
- Check that the program allows for waste and delivery time, not only quantity.
- Check that it works in your units: kilograms, litres, pieces, metres.
- If you have batches, best-before dates or a risk of recall, ask whether you can trace a batch from raw material to buyer.
- Ask how many people can work at once and whether each sees only their own part.
- Ask how to leave: whether you can take all the data out as spreadsheets.
A checklist before you start
- For each product I know what is in it, how much, and whether there is waste.
- I know how many days each delivery takes.
- I have counted what is on the shelves and know what it cost.
- I know who will enter data every day.
- I have picked the one job I am starting with.
How to start without a big project
- Step 1. Pick one bestseller and write its recipe: materials, quantities, waste, time of work.
- Step 2. Enter today’s stock of materials with what it cost. That is the starting point from which everything is counted.
- Step 3. Look at the cost the program shows for the product and compare it with what you thought. The gap is the most valuable thing you will learn.
- Step 4. Add the other products one at a time. After each, compare with reality.
- Step 5. Only then connect orders, purchasing and documents.
The most common mistake is to begin with everything at once. A month later the data is stale and the program is abandoned. It is better to run one small circle without errors than a large one with gaps.
Where Keelvy fits
Keelvy puts both parts together for small makers. A recipe allows for waste and for work at an hourly rate; the replenishment plan walks forward day by day, counting what is already on order and what production will use, and shows the last day to order; confirming an order reserves stock and passes any shortfall to production. Delivery and customs costs are spread onto the cost of what arrived. Keelvy hands invoices to your accounting program: it does not keep your books or file your taxes. More in Keelvy as ERP and production planning.
Keelvy as ERP
See how it works in Keelvy.