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Cloud ERP vs. on-premise ERP

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Both cloud and on-premise ERPs have their own sets of pros and cons. Cloud ERPs tend to offer more flexibility, while on-premise ERPs can offer more control.

Enterprise resource planning (ERP) systems can be valuable tools that help businesses pull data together and complete business processes in areas like finance, supply chain management, and more. But when selecting ERP systems, companies not only need to find specific vendors but also choose a deployment method.

Specifically, businesses need to choose between cloud and on-premise ERPs. In this guide, we’ll look at what both types of ERPs offer, including some of the top pros and cons of each.

What is a cloud ERP?

Like other software-as-a-service (SaaS) offerings, cloud ERPs are hosted by the software vendor and delivered to users via the internet, rather than the user needing to download the system onto their own devices.

 

Pros of cloud ERPs

Cloud ERPs can offer several advantages that tie into the general benefits of SaaS. These include:

- Simplicity

For many companies, especially small and mid-size businesses (SMBs), the simplicity of cloud ERPs can’t be beat. The vendor delivers the software via the cloud, so you typically just need an internet connection to get started, rather than having to go through a complicated installation procedure.

From there, cloud ERPs offer simplicity in terms of the vendor managing all the updates. As new software features and security patches get released, those should automatically be integrated into your cloud ERP, so you don’t have to worry much about managing the technical aspects of your ERP system.

- Flexibility

Cloud ERPs also tend to offer superior flexibility. Since the vendor delivers the system remotely, you can generally access cloud ERPs from any computer with an internet connection. Some vendors offer mobile device access, so you can work from anywhere. Some ERP systems also enable offline access for times when you’re on the go but don’t have internet, but features might be limited in these cases.

Cloud ERPs also offer flexibility in terms of price and scale. Instead of locking yourself into one upfront fee to obtain an on-premise solution, and then having to pay for future versions of the system, cloud ERPs tend to offer flexible monthly pricing. If your team grows, you may be able to easily switch to a package with more licenses. The total cost might not always be cheaper over the lifetime of using a cloud ERP vs. an on-premise ERP, but cloud ERPs tend to at least be more flexible.  


Cons of cloud ERPs

Although cloud ERPs offer several benefits, such as being simple and flexible tools, it’s also important to recognise what could be considered drawbacks. Before selecting your ERP, keep in mind that cloud ERPs have cons related to:

- Control

For many companies, especially small and mid-size businesses (SMBs), the simplicity of cloud ERPs can’t be beat. The vendor delivers the software via the cloud, so you typically just need an internet connection to get started, rather than having to go through a complicated installation procedure.

From there, cloud ERPs offer simplicity in terms of the vendor managing all the updates. As new software features and security patches get released, those should automatically be integrated into your cloud ERP, so you don’t have to worry much about managing the technical aspects of your ERP system.

 - Privacy

Related to control, cloud ERPs also potentially pose some privacy drawbacks. If you work in a highly sensitive industry, or if you’re particularly privacy-conscious, you might not want your data to be in the hands of a vendor. That’s not to say that cloud ERP providers will abuse their position — many have their own privacy controls — but you might not be able to have the exact privacy levels you desire as you might if selecting an on-premise ERP, where you could store data on your own servers.

What is an on-premise ERP?

As opposed to cloud ERPs that are delivered via the internet, an on-premise ERP needs to be hosted on your own server. Larger enterprises tend to be the ones selecting on-premise ERP systems, as they may already have the technology needed to host the system, along with the IT staff to manage it. Plus, larger businesses may have specialised data requirements that mean they need to keep everything under their own control. That said, some SMBs do turn to on-premise ERPs, depending on their requirements.

 

Pros of on-premise ERPs

Cloud technology may be popular, but there are still several reasons to choose on-premise ERPs. Some of the top advantages involve:

- Full ownership

Unlike the SaaS subscription model of cloud ERP systems, purchasing an on-premise ERP gives companies full ownership of that version. To some businesses, that may be a positive, as you only have to pay for the software once rather than on an ongoing basis. Plus, you can then use the system however you want. With full ownership, you can host the system and associated data wherever you’d like and manage everything on your own terms.

- Offline access

Since on-premise ERPs are not delivered via the cloud, you don’t necessarily need to be online for access. To be fair, some cloud ERPs do offer a version of offline access, but that may not give you the full offline control that you might get with an on-premise solution.

 

Cons of on-premise ERPs

What look like positives of on-premise ERPs to some businesses can look like negatives to others. Some of the cons relate to:

- Management

Not only do you have to host an on-premise ERP on your own but you also need to manage the system and update it as needed. For SMBs without large IT teams, managing on-premise ERP systems might be more hassle than it’s worth. Plus, it can lead to risks in areas like security, such as if the ERP does not get upgraded in a timely manner to a new version that has patched security flaws.

 

- Rigidness

On-premise ERPs can also be fairly rigid in the sense that once you purchase one, that’s the system that you’ll have until you replace it. In contrast, cloud ERPs can continually update behind the scenes. If your company scales up or down, you may find that the on-premise ERP you purchased no longer fits your needs, so you would then have to implement a new system.

Which type of ERP system is right for you?

Both cloud and on-premise ERP systems offer pros and cons, so it’s hard to say that one is universally better than the other. Instead, the answer depends on your own circumstances and requirements, such as your company’s IT expertise and need for data control.

If you’re ready to explore your options to buy a new or ERP system or upgrade your current solution, Software Advisory Service can help. We're a technology consultancy using procurement best practice and data insights to save companies time and money. Our goal is to make business technology procurement simple, transparent, and cost-effective.  Click the button below to book a consultation at your convenience. We won’t charge you anything, and we won’t share any of your project details without your explicit approval.


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