Enterprise resource planning, better known as ERP, is an integrated suite of business applications. These robust software suites contain comprehensive tools useful for streamlining back-office tasks from basic accounting to inventory control.
ERP software is used by businesses of every size and across every industry. In recent years, cloud-based ERP systems have become increasingly popular, particularly amongst businesses which allow for remote work.
Wondering what makes them different? First, let's cover the basics of what makes on-premises deployment different from cloud-hosted solutions:
On-premises software, sometimes shortened to "on-prem software", generally means any software solution installed onto local hardware systems or a dedicated data center. In essence, any computer program which you can only access from on-site or in-office computers is "on premises".
On-premises ERP also means back-office services are limited only to those workstations where the software is installed. One computer might have software installed in order to provide employees a shared area for those specific-ERP tasks.
Cloud-based software is hosted remotely in a third-party data center not controlled by the client. Some browsers may be better suited for the software than others and apps allow access on mobile devices. Cloud ERP software is often used by companies with multiple locations which want to maintain real-time communication. In recent years, they have gained additional popularity for allowing remote users full access from anywhere.
Since software as a service (SaaS) is continual, companies pay for service on a monthly, quarterly, or annual basis. In some circumstances, multi-year contracts are available.
Cloud-based software has exploded in popularity over the last few years. Yet there are still benefits to using an on-prem ERP solution. Here are some of the key differences in each deployment method:
Considerations | On-Premises | Cloud |
---|---|---|
Accessibility | Only accessible on-site or on a specific device | Accessible anywhere with internet access |
Cost | Usually a one-time perpetual license fee | Monthly or annual subscription payments |
Customization | Solutions may be fully customizable depending on vendor | Add-on modules may be available for an additional fee |
Deployment Speed | Can take a few weeks to months to implement | May take months to years to fully install |
Ease of Use | May include user training (in-person) | May include user training (remote) |
Security | Data protection is the responsibility of the business | Data is hosted and protected by the developer |
Support | Support may be limited to a warranty period | Support is usually included with the subscription |
Let's delve a little deeper into the pros and cons of each:
Final verdict:
Notice how there's a lot of overlap between the pros and cons of each? As it's clear by now, one deployment method isn't necessarily better than another. It all comes down to factors like your business needs, industry standards, and budget.
For those unsure of which to pick, there is a third option: going hybrid. A hybrid ERP software mixes the best of on-premises and cloud-hosted applications. Increase security with on-site servers while maintaining remote accessibility through apps or web browsers.
However, hybrid solutions can be more expensive since they are extensively customized to your business. They are also harder to maintain since an issue can occur on either end.
Beyond the deployment methods themselves, there are several other factors which will determine which style of ERP is ideal for your setup:
Of course, you need to know your budget before seeking software. For some companies, the capital expenditure of a perpetual license is nothing compared to the long-term operating budget of SaaS.
You may want to make one big-time payment upfront or continue to make small payments over the years. You'll need to decide if you'd rather pay high upfront costs or risk a higher total cost of ownership in the future from a subscription plan.
Are you operating a small business or new startup? Or are you running an international enterprise? If you work in a small mom-and-pop shop, an easy to implement shrinkwrap cloud solution with basic business operations is likely all you need. Small to midsize businesses looking for long-term scalability tend to prefer cloud ERP systems which can grow with them.
How many users, workstations, or facilities will be using this ERP? Cloud-based subscription models are best for nationwide or global companies with locations spread across time zones looking for ways to coordinate communication.
Everyone has experienced technical difficulties, even the best ERP software on the market. While most software companies offer some level of IT support during implementation, additional help may not be available for free if you don't opt for a warranty on an on-premise ERP.
If you're particularly skilled at coding your own IT infrastructure, then open source software may be best for adding your own personalization to your ERP package. However, vendor support may be difficult if you change the software yourself.
If your company needs to select an ERP platform, knowing the difference between cloud and on-premises deployment can help you make the right choice.
Reviewing the differences mentioned above, you might decide on an on-premises ERP software in order to protect your data. Or you may prefer an entirely cloud-based ERP solution to facilitate remote access to various applications. And, depending on your business, you might decide a custom hybrid ERP system will offer the most benefits to your company.
Selecting a new ERP software and deployment model can take time. Request a free ERP software recommendation from Software Connect.