Enterprise resource planning (ERP) systems can be hosted either on-premise, using local hardware, or in the cloud. The choice between ERP on-premise vs. cloud ERP can have a major impact on your business.
The choice of cloud or on-premise ERP can influence:
- The specific ERP solutions available to your business
- The ability of staff to access ERP outside of your facility
- The relative burden placed on IT staff
- Upfront and ongoing costs
- The ERP implementation process
When it comes to cloud vs. on-premise ERP, making the best choice for your business starts with being informed. Before we go any further, we should note that cloud-based solutions and on-premise ERP share a key similarity. They can both deliver many of the same benefits in terms of features and functionality. The differences come in areas like accessibility, cost, and maintenance.
Let’s review the fundamentals of on-premise and cloud-hosted ERP. Then, we’ll review the pros and cons of each.
What is On-Premise ERP?
Techopedia defines the general concept of on-premise software as using in-house computing infrastructure and hardware.
Companies need to license or purchase the software itself from a provider. Additionally, vendors will often lead efforts related to ERP deployment and certain types of support. However, everything else related to installing and using the software focuses on a company’s technological resources.
With this information in hand, the definition of on-premise ERP solutions is easy to understand. This type of ERP software is implemented and managed entirely within a company’s own servers and hardware. Similarly, on-premise ERP systems are only accessible through those servers. Their ability to manage a wide range of business processes is limited by their location.
On-premise ERP is the traditional option for businesses, as is the case with all other types of software. The initial version of the software that became ERP was developed in the 1960s. Cloud computing didn’t become a realistic option for most businesses until the 2000s.
The long history of ERP software means it was exclusively used as on-premise software until cloud computing emerged.
What are Cloud ERP Systems?
Cloud-based ERP systems utilize servers and other resources owned and operated by organizations outside of your own company. Cloud ERP solutions are delivered online, making them more accessible than the on-premise alternative.
With a cloud option, your ERP vendor will take a much more active role in managing and troubleshooting your software. They will also handle updates and upgrades. You don’t need to have an IT department that can manage servers, other hardware architectures, and the ERP software itself.
The licensing and cost structure of cloud ERP are also worth mentioning. This type of ERP is generally delivered through a software-as-a-service model. Companies must take the continuing cost into account.
However, the upfront cost of ERP can drop dramatically. So can continuing costs related to hardware and IT department competencies and training specific to the ERP.
The cloud has revolutionized the way companies throughout the modern economy use digital tools and solutions. Cloud ERP has seen broad adoption for reasons we’ll review in the next section. In the on-premise ERP vs. cloud ERP debate, cloud ERP is rapidly gaining ground.
Cloud ERP vs. On-Premise ERP: Similarities & Differences
How are on-premise and cloud ERP solutions similar? One of the most important similarities to keep in mind is function.
The foundation of ERP is creating more informed, connected, agile, and responsive businesses. Both cloud and on-premise ERP will deliver similar benefits in this context. This is a very broad and important similarity. The actual function of the ERP software itself will not vary in a substantial way.
The important differences in the cloud vs. on-premise ERP debate relate to other factors, like cost and access. Let’s take a closer look.
Accessibility of ERP Systems
On-premise ERP is generally limited to your own facility. It’s certainly possible to set up remote access, but that can involve more technology, time, and financial investment.
Cloud-based ERP solutions, the framework is already in place for any time, anywhere access. That’s valuable for staff who have a late-night epiphany about a project, for example. It’s equally important if an employee is traveling to meet a client, or otherwise isn’t in the office. Cloud ERP is more accessible immediately, without major upgrades to your technological infrastructure.
Pricing and Cost Management
Traditional ERP involves some significant upfront costs. Paying for software all at once, as is common with on-premise ERP, can be a significant financial burden. For smaller businesses, a budget simply may not have the room to accommodate such a large purchase.
However, purchasing the software or licenses at the beginning of the project is just part of the equation. There are also technology costs for buying, maintaining, and eventually replacing servers and related hardware.
Maintaining your IT team and building relevant, necessary competencies is crucial as well. With an in-house, on-premise ERP system, IT staff will take on the vast majority of troubleshooting, maintenance, and upgrades.
If your organization chooses to use cloud-based ERP, the total cost of ownership is much more manageable. The subscription model represents a steady cost, one much smaller than the upfront price of purchasing the ERP solution outright.
While that cost will add up over time, on-premise ERP also has continuing obligations. Hardware upgrades, IT maintenance, and the eventual purchase of a new ERP solution all contribute. With cloud ERP, it’s far easier for companies — especially smaller ones — to find room in their budgets.
All types of ERP implementation require organizational buy-in, training, effective leadership, and more. However, cloud-based ERP removes the need for significant work related to a physical installation of the program on your servers. While cloud ERP solutions don’t completely transform and streamline implementation, they do make the process noticeably easier.
Cre8tive Technology & Design is dedicated to helping machine shops, A&D manufacturers, and general manufacturers find effective ERP solutions for their needs. Learn more about our ERP consulting services.