Enterprise resource planning (ERP) systems are a type of software that helps you manage manufacturing, supply chain, human resources, accounting, logistics, and other business processes. Businesses use ERP to quickly interpret thousands of data points to coordinate their teams, automate processes, and make smarter decisions. By leveraging effective data management and organization capabilities, ERP has become a game-changing tool for companies in Illinois, Florida, and the wider United States.
The challenge for businesses, however, isn’t whether they should implement ERP but what type of ERP deployment to consider: on-premises or cloud-based? In this article, we break down the pros and cons of each ERP deployment.
What is on-premises ERP?
On-premises ERP is a software solution that’s installed on a company’s physical servers/hardware. On-premise ERP assets are generally acquired through a one-time, upfront fee, but companies will have to purchase multiple software licenses depending on the number of concurrent users. Since on-premises ERP is installed locally, companies are wholly responsible for managing it.
Pros
Independent system management
A benefit of on-premises ERP is that you gain total control over how the infrastructure, applications, and data are managed. If you have a well-trained and responsive IT department, they’ll be able to closely look after your ERP software and rectify operational issues as soon as these occur to ensure everything runs optimally at all times. On-premises ERP also gives you the flexibility to customize the software according to your company’s needs. For example, you can integrate proprietary document management systems with your ERP system and tailor new workflows.
Security on your terms
For companies with strict and specific security policies, implementing on-premises ERP software may make more sense. This is because you’ll be able to decide where your servers are housed and how they’re protected. Your business can protect ERP software using your threat protection tools, anti-malware software, access controls, and more. You can even install physical security measures like locks and keypads to prevent unauthorized personnel from getting into your server rooms and accessing sensitive proprietary information.
Cost-effective for long-term use
While there are significant upfront costs associated with on-premises software, the total cost of ownership tends to level out over time. After the first year of implementing on-premises ERP, your capital expenditures will gradually decrease the longer you use it. The ongoing costs you’ll incur include energy usage and maintenance, which is actually beneficial if you run a large organization already equipped with an established IT department.
Cons
Expensive investment for most companies
Many companies on a tight budget may find that the cost of implementing on-premises ERP is prohibitively expensive. For starters, perpetual ERP licenses can easily cost businesses $1,500, with some being priced at a higher premium for extra features and modules. Of course, your company will have to pay for individual licenses based on the number of employees expected to use ERP software.
Plus, setting up and maintaining infrastructure for on-premises ERP can quickly drive up costs. You need to purchase business servers, which can cost up to $3,000 depending on your computing and storage needs. Hiring a specialist to implement and maintain ERP software can cost businesses in Chicago $83,300 per year on average. Then, there are recurring operational costs such as energy, rent, training, and IT support expenses.
Slow deployment speed
On-premises ERP requires a lot of time to set up. You need to procure perpetual licenses, install IT infrastructure, customize the software, and train users. These steps can typically take your business up to 12 months to complete, which is not ideal if you want to reap the benefits of ERP software right away.
Security challenges
Total control over ERP means your company is solely responsible for installing security measures and updates, which can be an overwhelming process. Your IT staff will need to constantly check for available software updates and manually install these on every device. They must also be adept in network protection, endpoint security, and data encryption to create a secure environment for ERP software. Unless you already have in-house cybersecurity experts, your company will likely make mistakes that can leave you open to an attack.
Complicated system upgrades
Another drawback of on-premises ERP is that it’s not easy to perform customizations and upgrades. When new versions of your on-premises ERP systems are released, you’ll have to migrate your data from the old system to the new one. Eventually, you’ll also need to phase out your older ERP software and customize the new system from scratch. All this can be a painstaking process, which is why so many companies tend to settle with outdated ERP software for a long time.
What is cloud ERP?
Cloud ERP is a service in which the software is hosted in the cloud provider’s servers and accessed via the internet. It follows a pay-as-you-go subscription model that allows you to enjoy powerful software features and proactive support services for a flat-rate fee.
Pros
Comprehensive service and massive savings
Cloud ERP eliminates massive upfront capital investment since it doesn’t require you to set up physical assets and install software locally. Instead, the provider watches over the infrastructure required for cloud ERP software and delivers the service over the internet. With this type of deployment, ERP providers manage system maintenance, data security, and regular software updates all for an affordable monthly or yearly subscription. You only pay for the ERP features and accounts you use, allowing you to save thousands of dollars from all the expensive hardware, installation, and internal staff costs associated with on-premises systems.
Anytime, anywhere access
As long as there’s an internet connection, authorized users can access cloud ERP software at home, in the office, or abroad. ERP data is processed and stored in the cloud, allowing everyone to collaborate on the same documents no matter where they are. Being able to access ERP from internet-enabled devices also allows you to better coordinate with partners outside your local area.
Competitive features
Cloud ERP offers many robust features. The best solutions provide user-friendly interfaces that make it easy for employees to adapt to the system. Additionally, cloud ERP software comes with centralized dashboards that reflect data changes in real time, giving you company-wide visibility into your operations. You can gain valuable insights into areas like resource management, accounting, and supply chain performance to help you make smarter strategic decisions. Automated workflow features are another core component of ERP software, enabling you to streamline repetitive tasks like approving purchase orders and sending reminders to store owners.
What’s more, well-established cloud ERP software can seamlessly integrate with other enterprise software like customer relationship management and business intelligence tools to expand your company’s capabilities.
Scalability
Cloud ERP gives your company the flexibility to scale your operations up and down on demand. Since ERP software and the infrastructure it runs on are managed by the provider, there’s no need to upgrade your hardware to accommodate your new ERP needs. If your business grows, you can simply request your provider for new user accounts, more storage space, and additional features at a moment’s notice.
Cons
Potential connectivity issues
Without a reliable internet connection, users won’t be able to access cloud ERP software, hindering company productivity. This can be an issue for some remote workers who may be working in areas with weak coverage. Fortunately, high-speed and stable internet is widely available across the country, reducing the chances that your operations will be disrupted.
Increased dependency on provider services
Opting for a cloud-based ERP solution means the security of your data falls partly on the hands of the cloud provider. If your provider’s security measures aren’t up to par and their data centers fall victim to a breach, your data could be at risk. They may also not be backing up your data regularly or are unable to ensure uninterrupted service, which puts your business at a difficult position.
It’s therefore important that your company thoroughly vets each provider’s service level agreement contract before finalizing a partnership. Make sure that the prospective cloud provider is offering round-the-clock support, multilayered security protections, routine updates, and 99.9% system uptime. It’s also a good idea to partner with a reputable cloud ERP provider that has years of experience working with similar companies in your industry.
Which type of ERP is right for you?
The type of ERP you choose will heavily depend on the nature of your business. Generally, large enterprises with big budgets and in-house expertise may prefer on-premises ERP for its level of customization and control. Meanwhile, cloud ERP may be best suited for growing businesses that want to leverage enterprise-grade technology at an affordable price.
When it comes to choosing the ERP system for you, there are many elements to consider. If you’re still unsure about which type of deployment is best for your company, contact Dynamic Solutions Group today. Our consultants can help you find the right solution for your company’s unique goals.
