Enterprise resource planning (ERP) systems have been around for decades, but only in recent years have cloud ERP systems been in the spotlight. In the past, ERP software was most often deployed on-premise. However, nearly 60% of large enterprises with ERP solutions up for replacement are projected to switch from traditional on-premise to cloud ERP deployments by 2020.
What Is Cloud ERP?
A cloud ERP solution hosts software and data on a remote third-party server. Companies generally pay a subscription fee to access the software through the internet. Vendors are responsible for software maintenance and updates. The data service provider manages the hardware and ensures data security and backup.
Companies are adopting new technologies at a faster pace than ever. The market for cloud ERP solutions is rapidly growing and promises flexibility, scalability, and agility. But how do they deliver on these promises?
Whether you’re considering a cloud ERP solution or actively in the market for one, you’ll want to do your homework and research the different deployment options.
To help you with this process, we’ve put together this in-depth guide on the types of ERP deployment, the issues you should consider when deciding between cloud or on-premise ERP solutions, and profiles of the top cloud ERP vendors. We’ve also included insights from industry experts, as well as definitions for the many technical terms people use when talking about cloud ERP software.
Types of Deployment
The three main types of ERP deployment are cloud, on-premise, and hybrid.
1. Cloud ERP
Cloud ERP solutions are typically hosted in a multi-tenant public cloud. Let’s define each of these terms:
- Public cloud: Data is stored in a remote third-party data center that’s responsible for the maintenance, backup, and security of the hardware and data.
- Multi-tenant: The vendor offers a single version of the software to multiple companies simultaneously and is responsible for maintenance and updates.
In addition, cloud ERP software may be specifically designed for the cloud or migrated to it.
- Cloud-native: Software is built and optimized for the cloud.
- Cloud-based: Software is migrated from legacy on-premise software to the cloud. If you’re selecting an ERP system that’s cloud-based, make sure the software’s underlying architecture has been optimized for the cloud; otherwise, it may be slower and less responsive.
Lastly, a less common type of deployment is hosted ERP, which is similar to cloud ERP in that the vendor maintains and updates the software. The difference is that cloud ERP software is web-enabled and accessed via the internet, but a hosted ERP solution is accessed through a virtual private network (VPN) or a physical client workstation/terminal.
2. On-premise ERP
On-premise ERP software is installed and customized on the company’s own hardware and servers. The company typically pays a one-time license fee and is responsible for maintenance, security, and backup of the software and data.
An on-premise ERP solution may also be hosted on a single-tenant private cloud.
- Private cloud: Data is stored on the company’s intranet or hosted behind a firewall by a data center. The company is responsible for the maintenance, backup, and security of the hardware and data. If the hardware fails, the company needs to pay for replacements.
- Single-tenant: Companies have dedicated access to their data and software, which can be integrated with other applications or services on the same cloud provider.
3. Hybrid ERP
Hybrid ERP solutions combine cloud and on-premise solutions, often from multiple vendors. This is becoming more common as many companies integrate newer cloud ERP software into their legacy on-premise system.
77% of enterprises have at least one application or a portion of their enterprise computing infrastructure in the cloud.
On-Premise vs Cloud ERP
When it comes to choosing between on-premise and cloud ERP solutions, there are many issues to consider. In the following sections, we’ll compare:
Here’s a broad overview of the ideal customers and benefits for each type of deployment.
Cloud ERP Implementation
Implementing an on-premise system is an extensive process. It typically consists of seven stages:
Cloud implementation can save time, money, and stress compared to on-premise implementation because it:
- Doesn’t require the purchase and installation of hardware, data servers, and software
- Doesn’t require significant customization
- Needs fewer internal IT, data security and implementation staff
- Integrates more easily with existing ERP systems and other applications
- Still, the most difficult aspect of implementation is managing change for employees within the company, which is an issue no matter which deployment you choose.
Cloud ERP Pricing
On-premise ERP solutions have large up-front costs, including:
- Software license ownership
- Implementation team
- Software customization
- Hardware and software installation
- Data security, backup, and storage
- Support staff
In total, small to medium-sized businesses (SMBs) can expect to pay between $75,000 and $750,000 for an on-premise ERP solution. Costs for large businesses range from $1 million to $10 million.
On the other hand, cloud ERP solutions don’t involve owning and installing hardware and software. Instead, they generally use a software-as-a-service (SaaS) licensing and delivery model, in which:
- The company pays a subscription fee that includes software access and updates, as well as data security, backup, and storage
- The subscription fee is paid monthly or annually based on the number of users and level of features
- The company only pays for what it needs and can scale usage easily if required
- The vendor maintains and updates a standardized version of the ERP software, which usually doesn’t offer much customization
Overall, you’ll pay approximately $4,000 per month for a cloud ERP solution with 20 users.
Cloud ERP systems can cost 50% less than on-premise ERP systems for a 100-employee company over a four-year period.
Critics often note that while cloud deployments are cheaper at first, the monthly payments add up to a higher total cost of ownership in the long run. This is only true, however, if companies don’t need to upgrade their software.
We’ll discuss upgrades later in more detail, but be aware that as new technologies are incorporated into ERP systems, companies will need to upgrade more often to remain competitive.
Cloud software can be updated and integrated more easily than on-premise software, which may require expensive reimplementation or customization.
Another cost-friendly alternative is open-source ERP software, which is publicly available and free to install and customize. It’s commonly implemented on-premise, however, and many vendors only provide cloud deployments with a SaaS subscription.
Cloud ERP Usability
Most cloud solutions are designed with the user in mind, so they typically have intuitive interfaces and are accessible from mobile devices.
” A great capability of the cloud is its ability to deliver real-time data to users across multiple locations. Now people in disparate locations will communicate and collaborate using real-time data, and remote workers or employees in the field can stay connected to the most up-to-date insights.
Companies using mobile cloud ERP software also report improvements in data accuracy, and modern technology can minimize or eliminate mistakes by reducing the need for redundant data entry.”
Ray Rebello, Director of Product Marketing, Acumatica.
Many on-premise solutions were designed years ago, so interfaces may not feel as user-friendly. One benefit, however, is that on-premise deployments can be accessed even without an internet connection.
Cloud ERP Security
Some companies worry about security with a public cloud, but most cloud ERP vendors rely on reputable data service providers, such as Amazon, Microsoft, and IBM.
These providers offer 24/7 monitoring, and security breaches are rare. For companies with little to no IT or data security staff, using a public cloud may be safer and less stressful.
In addition, companies with their own data servers are increasingly concerned about ransomware attacks, which use malicious software to block companies from accessing their data. The attackers demand a ransom to restore access, and even if the company pays, the data may still remain blocked.
Public clouds offer data backup, so ransomware attacks become less catastrophic.
49% of organizations are planning to migrate disaster recovery to the cloud in the next one to three years.
A private, single-tenant cloud offers even more privacy, control, and customization than a public cloud. Although it’s not offered by many vendors, for companies that face strict data security regulations — in the health care and financial industries, for example — it may be the only option.
Cloud ERP Upgrades
One of the biggest mistakes companies make during implementation is not planning for future growth and scale.
On-premise ERP solutions typically have numerous customizations that make upgrading not only time-consuming and costly but also may require the company to shut down its ERP system and reimplement the entire solution. It’s unsurprising that many companies with on-premise ERP systems never upgrade.
On the other hand, because cloud ERP solutions are typically standardized, upgrades can be delivered seamlessly, automatically, and routinely.
” The last few years have seen more advances in technology than the previous two decades combined.
Incumbents must evolve. New entrants must rapidly scale. And all need to become intelligent enterprises that connect business processes with advanced technologies and software solutions for incredible customer outcomes.”
Richard Strattner Jr., Global Head of Product Marketing, S/4HANA, SAP
Cloud ERP solutions are also well-positioned to take advantage of and integrate new technology and services. In particular, vendors are turning toward artificial intelligence (AI) and the Internet of Things (IoT) to deliver next-generation insights.
AI can be used to analyze shop floor data and guide warehouse selection, as well as configure-to-order and engineer-to-order processes. Wearables and data collection devices that communicate using IoT can transmit data that are used to improve overall equipment effectiveness, reduce equipment breakdown, and increase asset utilization.
How to Choose an ERP Deployment
Now that we’ve covered the implementation, costs, usability, security, and upgrades of cloud and on-premise ERP solutions, we’d like to highlight specific situations in which you might choose one over the other. There are benefits to both deployments, and your final decision will depend on the unique needs of your company.
Choose a cloud ERP system if you…
- Can’t afford a huge initial investment
- Need to deploy quickly
- Don’t require much customization
- Have little to no IT staff
- Want to integrate the ERP solution with other services or software now or in the future
- Have multiple locations that need to use the system simultaneously
- Are comfortable outsourcing data security, backup, and storage
- Prefer a web-based interface and better mobile access
” You often hear about the financial and IT advantages of cloud versus on-premise based ERP, but the real, big advantages of cloud ERP are business benefits.
Companies with true cloud ERP are able to innovate more rapidly, out-service the competition, and connect easily with customers, suppliers, and employees. The business and strategic benefits dwarf the others.”
Tom Brennan, Chief Marketing Officer, Rootstock
Choose an on-premise ERP system if you…
- Maintain a large data center and IT staff
- Require extensive customization
- Have business processes, such as incumbent manufacturing execution systems and advanced planning and scheduling, that require a lot of bandwidth
- Need access even during internet downtime
- Want to retain control over the software and data
- Are prohibited from storing data in a public cloud by industry regulations
Choose a hybrid ERP system if you…
- Have an on-premise solution but want best-of-breed cloud solutions
- Need to access data from your on-premise solution through a mobile or web-based cloud platform
- Want to transition from an on-premise solution to a cloud solution more easily at a later date
Top Cloud ERP Vendors
The following vendors offer popular cloud ERP solutions.
Acumatica serves customers in the manufacturing, accounting, distribution, retail, and commerce industries.
Its Distribution Management module helps companies track inventory, improve customer service, manage quotes and orders, and more. Its Project Accounting module offers built-in accounting tools that manage timesheets, budgets, and project inventory. Both functions integrate with various modules, including customer relationship management (CRM), manufacturing, and financials, for visibility across an organization.
Acumatica has multiple deployment methods, including public cloud SaaS, private cloud hosting, and on-premise.
Epicor is built for organizations of all sizes – although it mainly targets mid-sized companies – involved in manufacturing.
The software offers features and functionality to handle accounting and finance, project management, CRM, inventory, pre-production materials planning, manufacturing execution, human capital, supply chain management, global business management, and more.
Customers can purchase modules individually or the entire suite. The software can be installed on-premise or in the cloud.
Infor is designed to help distribution and manufacturing companies run core business operations. Its solution is primarily intended for SMBs but can scale to cater to the needs of larger organizations.
Modules include accounting, human resources, sourcing, project management, CRM, and supply chain. The Workforce Planning feature helps manufacturers and distributors optimize their headcount to meet scheduling criteria. The Advanced Planning & Scheduling features allow users to immediately determine if they have the workforce, machines, tools, and materials needed to manufacture a product.
The solution supports on-premise, cloud, and hybrid deployments.
IQMS helps large discrete and batch-process manufacturers monitor and track manufacturing and business data and activities throughout the supply chain.
Modules include business intelligence (BI), product planning and scheduling, supply chain management, warehouse and shipping management, and CRM. Its Inventory module allows users to facilitate lean manufacturing processes by creating individual inventory master records for different locations.
IQMS offers flexible licensing models and can be deployed in private or public clouds, as well as on-premise.
Microsoft Dynamics AX
Microsoft Dynamics AX helps SMBs and large enterprises streamline the administrative and manufacturing processes of their business.
It supports build-to-forecast, made-to-order, and engineer-to-order supply chain models across both batch and discrete-process manufacturing processes. Its capabilities also include warehouse management, production management, product lifecycle management, materials requirement planning, business intelligence, and asset management.
The software can be installed on-premise or hosted in the cloud.
Oracle NetSuite is a cloud-based, integrated suite of applications from which a company manages financials, orders, production, warehouse, fulfillment, procurement, and human capital. The seven integrated modules aim to streamline business processes while contributing scalable functionality as a company grows.
Drawing from a common database, the ERP modules integrate with NetSuite’s other applications, like CRM, inventory, order management, and e-commerce to accelerate closings, ensure compliance, and provide real-time analysis.
Oracle NetSuite can be deployed in the cloud and integrated with legacy systems using a two-tier ERP system.
QAD Enterprise Applications supports global manufacturers in the automotive, consumer products, food and beverage, high-technology, industrial and life-sciences sectors.
Its modules include manufacturing, financials, customer management, demand and supply chain management, and analytics. The solution is FDA “qualified” and auditable for life-sciences customers and offers a suite of process maps that helps automotive customers meet critical industry standards, such as the Materials Management Operational Guideline/Logistics Evaluation.
The software can be deployed on-premise, through the cloud, or with a hybrid implementation.
Ramco targets over 40 industry verticals such as manufacturing, energy, government, and real estate. Its solution may be too robust for small businesses.
It has modules in finance and accounting, supply chain management, production, quality assurance, project management, and human resources. The supply chain management module includes a supplier portal so a company’s vendors can access and act on up-to-date information. The production module is tailored to both discrete and process manufacturing.
Ramco can be deployed in public and private clouds, as well as on-premise.
Business One is SAP’s ERP software for SMBs in the consumer products, industrial machinery and components, professional services, retail information, and wholesale distribution sectors.
Its modules include financials, purchasing, inventory, sales, project management, operations, and CRM. The purchasing and inventory control module manages the complete order-to-pay cycle, including receipts, invoices, returns, and payments to optimize purchasing practices and control costs.
The solution can be deployed on-premise or in the cloud. Pricing is based on the number of users.