Which Is Better: Cloud ERP vs On-premise ERP

On October 11, 2012, wrote:

The Enterprise Resource Planning (ERP) system of any business lies at the core of its business operations. It tracks financial accounting, business workflows, sales and customer relationships among many other things. As ERP systems are built to perform a number of tasks that run the core functionality of any business, these systems are typically very large and complex. In fact, ERP installations are some of the most expensive and time consuming software installations performed by business Information Technology (IT) services.

In response to the complexity and costs of ERP software installations, many ERP vendors have begun to offer their services in the cloud. These vendors offer traditional packaged ERP solutions that are completely hosted and accessed through the Internet through the business user’s browser. These solutions have been successful, but many customers still stick with the traditional locally installed, hosted and configured ERP software package.

Total Cost of Ownership

ERP solutions run at the heart of your business. From official financial reporting to sales and customer information, this software is integrated into every part of your business operation. Complex ERP solutions are run on data – a lot of data. Most ERP providers suggest large database investments on the back end such as Oracle or SQL Server. These data solutions can often be very costly in terms of storage and processing hardware. Because ERP is an important part of your daily operations, requirements for uptime and performance are often greater than many other apps in an IT portfolio. If you are running a business that operates around the world, your uptime requirements are going to have to include access on an around the clock basis. In addition to this, if your central data center sustains damage due to an natural disaster, there needs to be a backup disaster recovery site for your critical financial information. All of these requirements- reliability, performance, and disaster recovery – must be factored into your total cost of ownership. These requirements typically mean very large up front hardware investments.

Cloud based ERP solutions offer a serious advantage over on premise ERP in the case of hardware acquisition. Cloud ERP is based on service level agreements concerning reliability, availability, performance and other factors. This can be a great benefit to business customers who do not wish to put out a large outlay of cash in order to set up their own internal ERP solution. On premise ERP solutions also require a highly trained IT staff to deal with all of the serious hardware performance requirements needed. Small to medium businesses who do not already have a significant IT investment should absolutely consider cloud ERP as a viable alternative to hosting your own ERP software on premise.

While cloud ERP solutions have many cost saving advantages, especially to smaller businesses, these costs may not apply as much to more established firms. Because ERP solutions are integrated into every aspect of your business, it is important to consider the integration costs associated with connecting all of your existing IT applications into your new ERP solution. It could turn out that an on premise solution that integrates easier and more cheaply with your current IT environment could be a viable option for more established businesses.

Finally, customization has always been a hallmark of ERP implementations. While customization is inevitable since ERP is the software that is tied most closely with your business model, it can also cause problems for you when you need to upgrade to the next version of the software. In this case, software customization for on premise ERP is highly flexible, but you may limit your ability to upgrade in the future. With cloud ERP, however, they ensure that you are on the latest technology version, though in order to do this some of your customization options may be limited.

About the Author

Jason Phillips has authorized this post. He is a small business writer who focuses on topics such as erp hosting and technology trends. He loves playing with gadgets.


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