The Difference Between Cloud ERP and Traditional ERP

Last Updated: October 17th, 2023
Researched and Written by: Lexi Wood

ERP software has traditionally been installed on-premise, or a company’s own servers and devices. Today, cloud-based ERP has taken over the scene. Learn what makes traditional ERP systems so different from cloud-based counterparts, and when each system should be used.

What is Traditional ERP?

Traditional ERP usually refers to any ERP system which is hosted on-premises, meaning locally installed servers. The software is only accessible on certain devices which are connected to the servers. Any maintenance needs to be done on site, usually through an in-house IT team, though vendor-approved contractors can provide service updates as well.

Benefits of Traditional ERP

  • Security and compliance: Keeping your ERP system on private servers means greater control over data and security. For some industries, this can help meet compliance requirements.
  • Control and customization: A traditional ERP is easier to control and customize. Once you purchase the perpetual license, it is your ERP to do with as you want. And you don’t have to worry about major software changes happening against your will.

Challenges of Traditional ERP

One reason companies are moving away from traditional ERP is because of a few common challenges. The first is the resources required for in-house maintenance. Even if IT services are outsourced to contractors, scheduling maintenance requires more planning than just leaving it up to the developer. Similarly, implementing an on-premise ERP means limited access to updates. New features might require an additional purchase.

One-time perpetual license fees cost more than a subscription, at least upfront. And it usually takes significantly longer to implement an on-premise ERP than a cloud-based system.

What is Cloud ERP?

Contrasting with traditional ERP is cloud-hosted ERP. Also called modern or software as a service (SaaS), this refers to any software which is hosted remotely by a third-party, usually the developer. These systems are accessible through web-based browsers and are not limited to a single device, making them very popular for businesses with multiple locations and global operations.

Benefits of Modern ERP

  • Mobile access: Cloud-based ERP 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.
  • Faster implementation: Since cloud-based ERP is accessible via web browser, implementation can take only a few minutes. Full installation on specific devices might take longer, but the overall process is faster when dealing with the cloud.
  • Collaboration: The increase in access means users can more effectively collaborate with each other no matter where they are.
  • Upgrades and support: Being part of a subscription service means regular support and maintenance from the developer. It also means getting regular updates with everything from improved performance to new features.

Challenges of Cloud ERP

One challenge of cloud-based ERP is the dependence on the Internet. If an outage occurs for any reason, there’s nothing to do but wait for services to come back. And while free updates are a great bonus, the developer can change the software’s appearance or functionality at any time.

Another challenge is seen in the higher long-term costs. With SaaS, companies have to continually pay for service on a monthly, quarterly, or annual basis. This can lead to higher overall costs over the total cost of ownership. And the vendor can raise prices at any time.

Finally, there are the potential security risks raised by using a cloud-based ERP. Although data is heavily protected, there are more opportunities for human error when anyone can access the software.

Which ERP System is Better for Most Businesses?

Both traditional and cloud-based ERP include many of the same features, such as modules for accounting, inventory, and human resources. Figuring out whether a cloud or on-premise ERP is the best fit for your business depends on several factors:

  • Number of locations: The more physical locations you have, whether office buildings or warehouses, the more you’ll want an ERP which can be accessed anywhere.
  • Accessibility needs: Some businesses require work to be done remotely or on-the-go.
  • Security concerns: If dealing with sensitive or highly proprietary data, keeping the system secure is of the utmost importance.

Personal preference also plays a part in which ERP system is right for your business.

As technology continues to evolve, so does ERP. One major trend to consider is postmodern ERP. This describes the move away from traditional ERP systems towards cloud-based software networks.

Another trend is the rise of hybrid ERP systems. These combine the best of traditional and modern ERP to build a customized platform. These are particularly popular with businesses looking to switch over to the cloud while maintaining an on-premise legacy system.

Need help finding the right ERP for your business? Get free ERP software recommendations from our team today!
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