This article was originally published on 30/03/2022.
Most business organisations have workflow solutions in place, and many may be considering a dedicated ERP (Enterprise Resource Planning) system to integrate all of their departments and functions into a single system. However, should your business opt for the tried and tested on-premise ERP software or should you migrate to a cloud-based ERP solution?
In this article
ERP software can impact the operational efficiency of your business, but choosing the right ERP solution needs careful evaluation. With that in mind, let’s look at the ERP concept in more detail, considering the pros and cons of on-premise and cloud-based ERP software to maximise the potential business benefits on offer.
What is ERP software?
ERP refers to the ability to deliver an integrated software suite of business applications. This means ERP software tools share a common process and data model, covering broad and deep operational end-to-end processes. With the right ERP system in place, an organisation can reap the benefits of flexible, streamlined operations. For example, ERP system functions deployed in the construction sector can help operations across departments and help construction companies streamline their operations. Additionally, choosing a local tool for your business, such as a construction company, could help navigate current challenges in Australia.
ERP applications automate and support a range of administrative and operational business processes across multiple industries. This includes fundamentals like the line of business, customer-facing, administrative and asset-management features of an enterprise.
Cloud ERP vs on-premise ERP
Organisations may find themselves typically asking whether their ERP system should be on-cloud or on-premise. It’s important to know how these systems contrast each other before making an ERP selection. Additionally, businesses should evaluate the benefits and drawbacks of cloud-based versus traditional ERP systems to suit their business needs.
A cloud-based ERP system —also known as a SaaS (Software as a Service) facility— is deployed and centrally managed via the Internet. The servers running the system are either owned or leased by the service provider, who also supplies the software and associated infrastructure. The business client uses a web browser to directly access the system.
By contrast, the implementation process of on-premise ERP systems is deployed locally. They’ll install the ERP software on company-owned (or company-leased) computers and servers. So ongoing management tasks become the responsibility of your in-house IT staff.
Whichever ERP solution you choose, the software delivers major business benefits and facilitates business needs and requirements. For instance, ERP implementation can:
- Drive business innovation
- Ensure business process efficiency
- Create process standardisation
- Produce IT cost savings
5 factors to consider when choosing an ERP system
An ERP platform can provide a comprehensive solution to business operations and businesses should make an informed decision in their ERP selection process. When choosing which ERP system is best for your business, the following five factors evaluate cloud-based ERP systems and on-premise ERP systems to provide you with a comprehensive overview of how to choose the right ERP system for your business.
1. Cost and time investment
A cloud ERP system is pre-configured and ready to use. There is no operational time lag involved, which means a system can be rapidly deployed. The subscription fee covers all hardware and software costs and is generally lower than the cost of a comparable local system.
Conversely, there will be up-front capital expenditure on software and equipment for an on-premise ERP. Additionally, the system will require expert configuration and a period of commissioning prior to deployment.
2. Deployment and implementation
With cloud ERP software remotely hosted on Internet servers, some systems can launch and become active within 24 hours. Employees can access the system via mobile apps and Internet browsers, and a well-designed facility should integrate seamlessly with staff working practices.
An on-premise system, which is locally installed and managed, can be readily customised to create an extremely sophisticated facility. However, this may delay its launch and implementation. In addition, system maintenance and occasional failures may mean an on-premise ERP facility is not always continuously available.
3. System updates
A cloud-based ERP client can expect the vendor to provide regular system updates as part of a rolling programme of improvement. This ongoing optimisation means the latest software enhancements will always be available to your business without the need for extensive downtime.
A local system will require ongoing maintenance and monitoring by IT staff with high-level expertise. System updates will need careful planning and thus tend to happen periodically. As a result, an on-premise system may not benefit from frequent interim updates.
A major advantage of a cloud-based ERP facility is that it can be readily scaled to meet fluctuating business needs. Such agility is highly cost-effective because a business will only pay for additional system resources during the period they are actually required.
Scaling up an on-premise ERP facility often requires the purchase of additional elements. So this kind of system may be slower to adapt to changing market conditions.
With a cloud ERP facility, the remote supplier is responsible for data security. They’ll use encryption to protect your data and shield against known vulnerabilities through regular security updates. Scheduled data backups will also allow data recovery if a problem should occur.
A local ERP facility should be a relatively secure option because it doesn’t involve third-party data handling. However, if a business chooses not to implement regular and timely security updates, or follow other security protocols, they could expose themselves to threats.