ERP for Beginners: How ERP Evolved: MRP, MRP II, ERP, and the Cloud Era

Every time I open a modern ERP screen and see a field called "BOM" or hear someone say "MRP run", I'm hearing an echo from 1975.

The language of ERP — bill of materials, routing, work centre, production order, goods receipt — was coined in the 1970s and 1980s, long before the software we call ERP today existed. Every modern vendor's screens still use that vocabulary because the ideas beneath it haven't changed, only their implementation has.

So to really understand why SAP and Oracle and NetSuite look and feel the way they do, it helps to walk backward through the five decades that got us here. Five eras, each adding one layer of capability to the one before it.

The 1960s: inventory control

In the 1960s, manufacturers had something new — mainframe computers. Big IBM System/360 machines running COBOL programs, programmed with punch cards, with output on continuous green-lined paper.

The first business software wasn't planning anything. It was recording things. The main application was inventory control — tracking what was in the warehouse, when it arrived, when it left. Clerks loaded decks of punch cards overnight, the mainframe processed them in batch, and the next morning someone read a report.

It was, in effect, a very expensive ledger. The software recorded what had happened. Humans decided what to do about it.

That's not a small achievement. A company of a few hundred employees suddenly had accurate, centrally-held inventory data instead of paper cards in a filing cabinet. But the software itself had no opinions. It didn't know what you should buy, or when, or how much. That was still the production manager's job.

The 1970s: MRP arrives

The 1970s gave us the first big leap. A new concept called Material Requirements Planning — MRP — appeared, mostly driven by IBM and early pioneers like Joseph Orlicky.

Give an MRP system three things: a bill of materials (the recipe — what components make up one finished product), a demand number (how much finished product we need), and lead times (how long it takes to get each component). MRP would then explode the bill of materials, calculate exactly how much of each component was needed, figure out when each needed to arrive to meet the demand, and drop purchase orders.

This was the first software that planned. Not recorded, not summarised — actually computed what the business should do.

Say you need to produce 100 chairs next month. Your BOM says one chair needs one seat, four legs, sixteen screws, and one cushion. MRP does the multiplication for you — 100 seats, 400 legs, 1600 screws, 100 cushions — and time-phases each purchase so that everything arrives before the production run starts. The terminology is still in use today, on every modern ERP screen.

The 1970s MRP era is also when the idea of "running a batch job overnight" became institutional. You kicked off the MRP run at 6pm Friday and came back Monday morning to find the planned orders ready. That cadence — the weekend batch window — lasted in many companies well into the 2010s.

The 1980s: MRP II wraps the factory

In the 1980s, the same engine got bigger. Manufacturing Resource Planning — MRP II — took the MRP algorithm and wrapped the whole factory around it.

The first addition was capacity planning. MRP would happily tell you to produce 10,000 chairs next week; MRP II checked whether the plant could actually do it. If the assembly line ran sixteen hours a day at best and you needed eighteen, the system said so before you committed.

The second addition was shop-floor control. Work orders, routings (the sequence of operations to make something), operation-level tracking, machine capacity modelling. The factory became visible in software.

And the third — the most consequential — was finance integration. The general ledger began posting from the same data that drove production. Instead of the factory running on one system and finance posting from summary reports a week later, the two sides shared a single transactional spine. Costs stopped being a separate narrative.

MRP II still looked like manufacturing software. It wasn't yet broad enough to be called ERP. But the modular shape we know today — production, planning, materials, finance all in one system — was beginning to show.

The 1990s: ERP gets its name

The term Enterprise Resource Planning was coined by Gartner in 1990 to describe what MRP II was becoming. The shift was scope.

In the 1990s, the software stopped being just about manufacturing and started being about the whole enterprise. HR modules joined. Procurement got its own module beyond simple purchasing. Sales and distribution, project accounting, plant maintenance, CRM — every back-office function found its way onto the same platform.

Technologically, the 1990s also gave us the three-tier architecture — database, application server, presentation layer — which let big customers scale these systems beyond what mainframes could comfortably host. And graphical user interfaces replaced green terminal screens. The SAP GUI, Oracle Forms, PeopleSoft pages. Colour, mouse, keyboard shortcuts that consultants still argue about.

This is also the decade when ERP became famous. SAP R/3 launched in 1992 and became the dominant global product almost immediately. Oracle Applications, PeopleSoft, J.D. Edwards, Baan — the original heavyweight names. The era of the big-bang ERP project, where a company spent two years and tens of millions of dollars to install a system that would run for two decades, dates from here.

By the end of the 1990s, a global company was expected to have an ERP. Not having one was the anomaly.

The 2000s and onward: the cloud era

We're still in this era now, so the story isn't finished. But the shape of it is clear.

NetSuite launched in 1998 as the first cloud-native ERP — built from the beginning for the browser, multi-tenant, subscription-based. Workday followed in 2005 in the HR space. Both were originally dismissed by the Tier-1 incumbents as toys for small business.

Over the next fifteen years the incumbents slowly rebuilt their stacks for the cloud. SAP launched S/4HANA in 2015. Oracle rebuilt its ERP line as Fusion Cloud. Microsoft unified its various Dynamics acquisitions into Dynamics 365. Today every major vendor has a cloud edition, and the industry is mid-migration from on-premise installs to multi-tenant SaaS.

Four things flipped in this era. Delivery moved from on-premise installs to multi-tenant SaaS — you log in, you don't install. Cost shifted from capex (big upfront licence) to opex (per-user subscription). Upgrade cycles went from three-year big-bang projects to continuous releases pushed automatically. And access went from desktop-and-VPN to browser-and-mobile; users now expect their ERP to work on a phone.

Why the history still matters

If you skim that story, what jumps out is that the language hasn't changed. Today's S/4HANA still uses "BOM" and "work centre" and "production order" and "movement type 101". Those are 1970s and 1980s inventions, preserved through two generations of technology shifts.

That's why this history is worth knowing even if you'll never touch a mainframe. The vocabulary of every modern ERP screen is a set of decisions made decades ago by a small group of industrial engineers in upstate New York and Walldorf, Germany. When that vocabulary feels arbitrary or dense, it's because you're reading the vocabulary of a different era. Once you know that, the screens make much more sense.

Five decades. Five eras. Each one built on the one before. That's the lineage every ERP inherits.

Episode three takes us module by module — what every ERP contains, no matter the vendor, and why the same seven categories keep showing up.