Cloud ERP vs On-Premise ERP

If you’re looking for an ERP system for your business, you might find two types of ERP system, which are the traditional On-premise ERP system and Cloud ERP system. Until recently, On-Premise ERPs are the main choice for businesses, with only few companies running a Cloud ERP system. 

However, Cloud-based ERP systems are now more common than ever. Almost every ERP vendor now offers a Cloud ERP solution, to the point that some vendor has discontinued their on-premise ERP solutions.

According to Michael Nadaeu of CIO, modern Cloud ERP systems not only benefit from faster deployment time, but also from additional features that could only be provided with cloud-based system. For example, machine learning capabilities, and Internet-of-Things could only be integrated with an ERP software using a cloud-based system.

Don’t believe me? Then keep reading below to know more about the advantages of Cloud ERP.

Cost

The first advantage of a Cloud ERP system is cost. On-premise ERP system typically requires a large amount of upfront investment. On-premise ERP system needs to have a dedicated hardware, and servers to run it. You’ll also need to have dedicated IT staff to operate the system. It also requires your IT staff to continuously allocate budget and time to maintain the ERP system. 

On the other hand, a Cloud ERP system typically only requires much lower initial investment. 

Why? 

Unlike traditional On-premise ERP system, Cloud ERP system only requires a computer and an internet connection to run (unless you need additional features such as barcode scanning). You’ll usually need to pay for specific customization/integration fee when setting-up a new Cloud ERP system on top of the base initial setup fee. You could also reduce the need of IT staff, since the Cloud ERP provider will be the one who maintains the system. 

Therefore, your IT team could work on other projects rather than continuously maintaining and managing the ERP system. Another benefit of having your provider managing your ERP system is problem or issue could be resolved much faster since they’re the one who made the system and the expert on the matter. 

An industry analyst compared the total cost of ownership of Cloud ERP system and On-premise ERP system. His findings were quite surprising since the total lifetime cost of a Cloud ERP system is around 50% lower than traditional On-premise ERP system. Also, Cloud ERPs are usually offered with a pay-as-you-use subscription model, which could eliminate budget planning uncertainty, since there is no “surprising” additional cost. 

Ease of upgrade and integration

As mentioned before, On-premise ERP system can be customized. However, customized On-premise ERP system is tied with your current software version. Therefore, software updates, customization, and also integration with other system need to be reimplemented every time you decide to upgrade your ERP system. 

So, your IT teams will have to reimplement and reintegrate all of your existing customization from scratch when upgrading to a new version of the ERP system.

This is the primary reason why many as many as 2 out of 3 small-to-medium enterprises run their businesses with an outdated ERP system. The cost of upgrading and reimplementing the system outweigh the benefits provided by newer version of the ERP system.

On the other hand, Cloud ERP systems are much easier to maintain compared to traditional On-premise system.

Interested to know why?

This is because Cloud ERP solutions are managed by your provider and specific customization and integration are not tied into a specific version of the ERP system. So, if your provider rolls out a new version of the system, all of your previous integration and customization will be carried/inherited to the new version as well. Therefore, businesses using Cloud ERP system didn’t need to pay any other additional fees beside the initial setup fee and the subscription fee.

Deployment Speed & Flexibility

Cloud is sometimes associated with speed. When it comes to Cloud ERP, that association continues. 

Do you think, how long does it take for an ERP system to be deployed? 

When it comes to traditional On-Premise system, it could take up to 12 months for the system to be fully operational. Cloud-based system, on the other side, could be deployed in 3 to 6 months’ time. 

So, by choosing Cloud ERP, you could save up to 6-9 months of time usually allocated to deploy traditional ERP system. Cloud-based system is much faster to deploy since you don’t need to install hardware (unless you needed it for additional features). 

Cloud-based ERP systems are scalable. You could add more users to the system easily as your business grows. In contrast, traditional ERP solution doesn’t provide you with the same flexibility. On-premise ERP usually needs additional hardware on top of deploying the system to that particular user.

Improved System Performance and Accessibility

Cloud ERP will offer better performance when compared to traditional On-Premise solutions, since the infrastructure that’s behind it is designed from the ground up for maximum performance. 

Take our own solution for example, SmartB’s ERP solution is hosted with Amazon Web Service. While you might think that hosting our services with third party service is a drawback, it is actually the total opposite. By leveraging Amazon’s massive cloud infrastructure, our system is fast, accessible from anywhere, secure, and reliable.

Cloud-based solutions are also more accessible compared to traditional On-premise ERP platform. Traditional ERP system typically only works on desktop platform and couldn’t be accessed from smartphones and tablets. Again, taking our own solutions as an example, we provide mobile application on top of desktop platform. So, you can easily manage your business anytime, anywhere.

Another benefit provided by Cloud-based system is security. On-Premise ERPs are self-hosted, which means that there is a high possibility of the system being insecure, unless you perform your own security risk assessment, or conduct a penetration testing of your own system. 

Again, this will require a significant amount of investment to hire an ERP Security specialist or outsource it to a cybersecurity firm. Meanwhile, since we host our service on Amazon Web Service, our infrastructure is secure and complies with standards such as PCI DSS Level 1, ISO 9001, and ISO 27001.

Conclusion

Cloud-based ERP then offers significant advantage in three aspects which are speed, cost, and flexibility. It matches your business’ needs and could be expanded as your business grows and evolves. Therefore, what are you waiting for? 

Still not sure? Then contact us and we can discuss how our ERP Solution could help your business.