ERP software has been around for ages. Usually shipped as bulky, feature-rich software, the traditional ERP systems helped businesses carry out a variety of operations under a single unified platform. But such comprehensive solutions were justifiably priced higher and often carried features that may or may not have been used by small businesses. Hence in most cases, small businesses resorted to using specific solutions that catered to their specific needs to save costs and still get the work done.
The notion of an ERP being a costly affair got carried well into the cloud space when ERP solutions moved to the cloud. But unsurprisingly, a cloud ERP is quite affordable compared to their traditional counterparts.
The growing popularity of a cloud ERP is supported through a Gartner report which states that more than 60% of large companies worldwide are considering moving to a cloud ERP over traditional on-premises ERP solutions. And it's not just large companies, as small to medium-sized companies are also finding that a cloud ERP is a more viable option given the cost and convenience factor.
Read on: Should you choose a cloud-based ERP?
What does a cloud ERP offer?
Recognizing the various benefits of a cloud ERP over the traditional solutions can give you a better idea of what makes it the stand-out option.
A cloud ERP is both a product and a service. Unlike traditional ERP solutions, it’s not just a product tied to your on-premises systems. A cloud ERP allows you to access your ERP solution using any device from anywhere across the globe, given you have the authorized access to do so.
A cloud ERP also comes under a subscription pricing model. In most cases, traditional ERP systems are bought with a one-time license fee that can be too expensive for a small business. A cloud ERP does not demand such expensive upfront charges. Instead, you can subscribe to the service in a pay-per-use cloud subscription model and can thus easily upgrade, scale up, scale down, or switch your cloud ERP solution as per your needs. It’s clear to see that there is less risk with a cloud ERP.
Speaking of upgrades, it can be challenging to upgrade traditional ERP systems. With a cloud ERP, upgrades are done efficiently, smoothly, and in the quickest possible time.
Strong adherents to a traditional ERP often cite data security as the reason. As the data resides in the cloud for a cloud ERP, it may raise data control and data privacy concerns. But with strong encryption and security solutions, cloud ERP vendors can ensure the required data protection and ensure you have your data backed up automatically so that you never lose your data in case of any unfortunate incident.
Cloud vs. on-premises ERP: Weighing up the pros and cons
Here's a comparison of cloud and on-premises ERP systems across different dimensions:
1. Deployment
- Cloud ERP: Hosted on the vendor's servers and accessed via the internet.
- On-premises ERP: Installed locally on a company's hardware and servers.
2. Cost
- Cloud ERP: Typically follows a subscription-based model, where companies pay a periodic fee. Initial costs are lower because there's no need for infrastructure investments.
- On-premises ERP: Requires a higher initial investment for purchasing and maintaining hardware, software licenses, and other related infrastructure. However, over a long duration, the total cost of ownership might become competitive with cloud options.
3. Scalability
- Cloud ERP: Offers easier scalability since you can often increase resources or features by changing your subscription plan.
- On-premises ERP: Scaling might require purchasing and installing additional hardware or software.
4. Maintenance
- Cloud ERP: Maintenance, updates, and upgrades are managed by the service provider, ensuring the system remains up-to-date.
- On-premises ERP: Organizations are responsible for maintenance, which may require scheduled downtime and internal IT efforts.
5. Customization and Integration
- Cloud ERP: Depending on the solution, there might be some limitations to customization. However, many modern cloud ERPs offer robust APIs and integration capabilities.
- On-premises ERP: Typically offers deeper customization since businesses have direct access to the server and database.
6. Security
- Cloud ERP: Data is stored off-site, typically with high-security standards. Relying on a third party means trusting their security protocols, but many top cloud providers offer strong security measures.
- On-premises ERP: Companies have direct control over security measures. While this might seem like an advantage, it also means the organization must have the expertise to safeguard against threats.
7. Accessibility
- Cloud ERP: Accessible from anywhere with an internet connection, which can be beneficial for businesses with multiple locations or remote teams.
- On-premises ERP: Usually accessible only within the company's network unless additional setups like VPNs are configured.
8. Control
- Cloud ERP: Less control over physical servers and infrastructure, as they are managed by the service provider.
- On-premises ERP: Full control over the ERP environment, including physical servers, data storage, and backups.
9. Disaster recovery and backups
- Cloud ERP: Providers typically have strong backup and disaster recovery protocols, with data stored in geographically dispersed locations.
- On-premises ERP: Companies need to set up and maintain their backup and disaster recovery systems.
10. Long-term commitment
- Cloud ERP: Flexible subscription models may allow for easier switching or migration if business needs change.
- On-premises ERP: Transitioning away from an on-premises solution can be more challenging due to the significant upfront investment.
Both deployment models have their advantages and challenges. The best choice depends on the specific needs, preferences, capabilities, and strategic goals of an organization.
Cloud ERP cost savings
Besides the obvious advantages of convenience and efficiency, a cloud ERP has a crucial edge over its traditional competitors:
- It’s inexpensive.
- It eliminates the initial expensive cost to acquire the ERP software and instead uses a flexible subscription model of payment.
- It eliminates the need for additional hardware and the associated acquisition and maintenance costs.
- It allows employees to access the ERP system anywhere at any time. Thus, aiding with work-from-home capabilities at no added cost.
Cloud ERP costs
Small businesses may still have several queries regarding the costs of a cloud ERP. Unlike large enterprises, they cannot afford to make the wrong choice with their ERP solution and change it. However, as a cloud ERP offers a flexible subscription model of payment, it effectively allows small businesses to make the correct decision without having to burn their pockets.
Here are some common factors that influence the cost of a cloud ERP:
The base subscription fee
Any added functionality and customization may add to your costs. Whilst in general a cloud ERP offers few customization options, they have flexible deployment models and come in various packaged functionalities that will serve your purpose well. But any added service apart from the general set of features could increase the cost.
Scalability
Cloud ERP prices naturally increase up as you scale up the services and decrease as you scale down the services. While scaling up could cost a lot for an on-premise solution, a cloud ERP does it without any additional delays and at a lowered cost. But it’s important to remember that your subscription fees could increase with the more users you want to support.
Third-party integrations
Depending on the integration required, your cloud ERP vendor could place an additional charge. But in most cases these costs are usually included in the subscription model you choose.
Which businesses benefit the most from a cloud ERP?
The shift towards cloud-based solutions, including ERP systems, is unmistakable in today's digitized era. Not every business model, however, extracts equal benefits from the cloud. Understanding which enterprises stand to gain the most from cloud ERP solutions can help in making informed decisions.
1. Start-ups and Small to Medium-Sized Enterprises (SMEs)
Cloud ERP systems typically have lower upfront costs due to their subscription-based model. This financial structure is highly beneficial for start-ups and SMEs that might not have the capital for hefty initial investments associated with on-premises systems. Additionally, the flexibility to scale resources in tandem with growth is a significant boon for such businesses.
2. Businesses with multiple locations or remote workforces
The global nature of business today often necessitates multiple branches or even international offices. Cloud ERP solutions can be accessed from anywhere with an internet connection, promoting seamless integration and real-time collaboration among disparate locations. Similarly, companies that rely heavily on remote teams or freelancers can benefit from a unified system accessible from any corner of the globe.
3. Seasonal businesses
For companies with fluctuating operational needs – say, a seasonal uptick in sales or a quarterly need for increased inventory management – the scalability of cloud ERP solutions is invaluable. Resources can be scaled up or down based on seasonal demand without incurring unnecessary costs during off-peak times.
4. Enterprises lacking extensive IT infrastructure
Implementing and maintaining an on-premises ERP system demands a robust IT infrastructure and team. Organizations that don't possess these resources can circumvent this challenge with cloud ERP systems where maintenance and updates are managed by the service provider.
5. Rapidly-evolving industries
In industries where technological advancements or market dynamics evolve swiftly, the agility provided by cloud ERP solutions is crucial. These systems can be quickly updated or tweaked to accommodate industry changes without the need for prolonged downtime or cumbersome IT processes.
6. Cost-sensitive operations
For businesses where operational costs need meticulous management, the predictability of expenses with cloud ERP – through consistent subscription fees – can aid budgeting and financial planning.
In essence, while cloud ERP solutions offer a myriad of advantages to various businesses, the entities mentioned above stand to extract exceptionally high value. The scalability, flexibility, cost-efficiency, and real-time collaboration offered by cloud ERP systems can be transformative for these enterprises, driving them towards higher operational efficiency and strategic growth.
Move to a cloud ERP today
A cloud ERP is in many ways a better solution for small companies as it offers a low initial cost, a higher return on investment, and convenient remote access that’s available 24/7. That said, if you plan to move to a cloud ERP, it’s important to note that Vault’s technical team is here to assist you with migration and setup. Contact us today to learn more.
Read on: The ERP selection process
