Everything You Need to Know About Cloud-Based Vs. On-Premises ERP Software
How to Get the Most Out of Your ERP System From Implementation to Updating and Everything In-Between
The use of Enterprise Resource Planning (ERP) systems across businesses of any size and industry is widespread today. Accelerated production timelines, automated processes, more remote operations, and the imperative for an exceptional customer experience – among other conditions – are driving a push toward ERP software adoption.
And if your business has adopted ERP software, you know why. These systems are designed to enable businesses to focus on the future and to prioritize planning across the enterprise. ERP software centralizes operations to a single point of truth, creating critical visibility into every aspect of your business.
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However, whether you have an ERP system already, or are considering implementation, we’re pretty sure you have questions. ERP systems are excellent solutions for streamlining business operations and connecting the back office, front office, floor, and field, but they require a high level of customization and continuous management to ensure information is up-to-date in the system. If it isn’t, not only will you be losing the benefit of the software, but the customer experience will certainly suffer as a result.
It is important to demystify some of the complexities of ERP software implementation – especially when it comes to the major differences between a cloud-hosted ERP system and one that is housed on your company’s servers (on-premises).
The First Step: Choosing Your ERP Software Solution
There are a dizzying number of ERP software options on the market, a selection pool that can get overwhelming fast. Couple that with the seriousness of the selection – your ERP system is not only a significant investment, but it’s going to play a pivotal role in your company’s strategy and planning for upwards of a decade.
So, how do you choose? Here are a few key details you should know to help narrow the options.
- Cloud-Hosted or On-Premises? We’ll talk more about this later in this article, but it’s an important place to start. Cloud ERP systems are better aligned with today’s pace of business, and are worth considering, especially if you’re looking to upgrade your existing on-premises ERP system.
- What type of ERP system do you need? ERP systems are designed to fit different industries, such as manufacturing.
- What is the scope of your ERP system? If you’re a financial firm, your ERP scope needs to include all of your business processes like accounting, asset management, budget control, and cost analysis (among others). Be sure your ERP has the necessary scope for your operations.
- How large is your enterprise? Choose an ERP system designed to handle the large (or small) size of your organization.
- What are your company’s operational goals? Defining the challenges you’re trying to solve with an ERP system will help you choose one with the right functionality and features.
- What is your budget? ERP system costs vary (we talk more about this below), and to ensure you don’t exceed your budget with features or functionality you don’t need, be sure to know how much you want to spend before getting too far into the selection process.
These initial determinations will help you narrow down the ERP system you need based on your business; however, there are other considerations that are just as important.
Implementation: Cloud ERP Vs. Traditional ERP
Here’s one of the big considerations when looking into ERP software: cloud ERP vs. on-premises, or traditional, ERP. At FinancialForce, we support – hands down – a cloud-based ERP solution because it is far easier to implement and maintain. The accessibility and mobility of cloud systems are also especially valuable features in today’s more remote business environments.
When housed in the cloud, your ERP system is hosted on a single platform, enabling all of your company’s operations to be accessible in one place, rather than on separate systems (which we would argue can actually defeat the effectiveness of the ERP solution). Front- and back-office applications are able to talk to each other and generate real-time reporting on a shared central database with a single user interface.
Some primary benefits of cloud ERP include:
- Real-Time Access & Visibility: Easily view business operations and instantly access domestic or global supply chains all in one place.
- Integration: Operational, business, and financial data are integrated into a single point of truth for management and greater visibility.
- Automation: Formerly redundant or manual tasks like invoicing or reporting are produced automatically and streamlined based on parameters you set up in the system.
- Finance & Accounting: Financial data is tracked, stored, and managed all in one place.
- Analytics & Reporting: Reporting capabilities provide data-driven, actionable insights.
- Security: Data is held securely and in keeping with your industry’s compliance requirements.
We won’t sugar-coat it: with the pace of business today and the unprecedented challenges that have surfaced from the pandemic and supply chain disruptions, there is not a lot to be gained from implementing an on-premises ERP solution. Often, legacy servers and hardware need to be replaced and the internal network reconfigured or modernized to support the ERP system, which can slow business down for weeks.
How Often Are Major Software Changes Typically Made to ERP?
This all-too-common (and very astute) question is a primary reason why we think cloud-hosted ERP software is superior.
Major software changes can be expected about every three to five years, and for on-premises ERP systems, they can cause some disruption to business. These updates also require preparation and involvement by your team to ensure the new customizations and configurations are working as they should.
Major software changes to your on-premises ERP typically involve the structure of the ERP database itself, the network on which it is running, and the computer hardware technologies.
These major upgrades are exhaustive – typical upgrade processes for on-premises ERP systems involve numerous steps that on a high level, may look something like this:
- Merging code from the current version to the new version
- Updating server and network infrastructure to support the new software
- Initial data integration and testing
- Training on the new version of the software, including test workflows for key business operations personnel
- Implementing changes based on testing feedback, or performing a second data integration to fix issues from the first round
- Additional training to include all users
- Additional testing to identify any issues before go-live
- Official go-live/release, followed by post-launch support and trouble-shooting
For these system updates, there are a lot of moving parts. So, what do you need to know?
- Be aware of any conflicts that might arise between customizations made to the ERP system during implementation to tailor it to your business and changes being made by the vendor to the system during this new update.
- Take stock of any tools or customizations that are no longer needed, or new tools and customizations you might want to implement during this period of change.
- Consider any security upgrades needed to ensure your updated ERP system is fully protected.
- Allow time for testing – based on your budget, you may decide to go live before fully completing all testing, but ideally, you perform some testing before launch to identify any obvious issues with the code or data migration.
When it comes to cloud ERP systems, the picture gets much clearer. The software is always online, updates are handled by your ERP provider, only take about 30 minutes, and can be performed during off-hours to prevent business disruptions.
If you choose to use cloud ERP software through FinancialForce, we would be responsible for performing security updates and feature upgrades, as well as managing your ERP application, data storage, underlying operating system, network, and data center infrastructure.
At this point, you’ve probably realized that having your ERP provider manage the system and any updates may have a more minimal impact on the overall cost of your ERP solution as compared to the more complex management of an on-premises system. You would be correct!
How Much Does an ERP System Cost?
There is a strong possibility that when an ERP provider is managing your ERP system and all security and feature upgrades, it will result in a lower cost of ownership for your business.
The icing on the cake? Those reduced costs begin at the time of system implementation. Unlike on-premises ERP systems, there are no upfront costs for servers, security, staffing, backup, or database creation. You’ll know what you're getting and how much you’ll be paying for it.
On-premises ERP systems also incur additional costs for maintenance, those upgrades we talked about earlier, and any additional servers to support company growth. We would argue that if your business is looking to scale, expanding an on-premises ERP system is a bit counterintuitive.
In fact, a recent study found that SMBs using an on-premises ERP solution spent 50% more on average over a four-year period than those using cloud-hosted ERP software. Turning over to a vendor the responsibility of staffing your IT department alone is a significant savings. Couple that with the increasing importance of security and compliance, which requires regular attention, and a cloud-hosted ERP is simply a more cost-effective solution.
Other Benefits of Cloud ERP Software
Hosting your ERP system on the cloud has numerous other benefits in addition to ease of upgrading and overall cost.
Implementation: We’ve reviewed the steps necessary for performing software updates to an on-premises ERP system; the implementation is no faster. One study found that only about half of the businesses surveyed finished implementation of their on-premises ERP systems in the projected time frame. When you don’t have to worry about installing new hardware, or hiring and training IT staff, implementation becomes much more streamlined.
Customization: The whole purpose of an ERP system is to support your business operations and give you visibility into costs, inventory, people, projects, and more. However, the system is only as good as the information you put into it, so if customizations don’t play nice with software upgrades or future versions, it will be much more difficult to use your ERP to its fullest potential.
Scalability: Your business is going to grow (that’s the idea, right?), so it makes sense to adopt an ERP system that can grow with you. On-premises ERP systems have obvious scalability challenges – expanding means adding more servers to ensure new locations have access to the same information. Cloud ERP expands essentially automatically – the team at your new office location will have immediate access to the data they need, anytime.
Security: While security upgrades will always be needed, cloud-hosted ERP is more easily secured than on-premises systems. Your cloud ERP vendor (if properly selected and vetted) will likely provide better security protection than your company would, short of hiring an outside security firm – which adds cost anyway. Plus, on-premises systems are riskier in the event of a major security breach, such as a ransomware attack. Without a proper incident response and disaster recovery plan, you could be facing monumental data losses.
The direction of business is forward, and cloud-hosted ERP systems provide the scalability, security, and seamless connectivity your business needs. Whether you’re adopting an ERP system for the first time or looking to upgrade your existing software, make sure the solution you choose allows you to implement and leverage all of the benefits ERP can provide to your organization.
Contact us today to schedule a demo and learn more about how you can leverage ERP on the Salesforce cloud platform to streamline your operations and put your customers at the center of everything you do.