When choosing a new ERP system, one of the fundamental decisions is whether to go with an on-premise system or cloud deployment. Cloud-based ERP systems are becoming increasingly common, and nearly every ERP vendor offers cloud deployment in some form. But there are still benefits to choosing an on-premise ERP system, particularly for small and midsize businesses.
In this guide, we will look at the advantages of each option to help you make the most suitable decision.
What is ERP software?
ERP stands for Enterprise Resource Planning. It is a piece of software that brings all the key processes of a business together in a single platform. Things like:
- Order management
- Order processing
- Inventory management
- Supply chain
All of these processes and more can be brought together to enable management from a single place. It is like the brain of the business, loaded with data and connections to enable everything to run seamlessly. Having this centralised platform improves accuracy and allows data-informed decision-making.
What is the difference between cloud ERP and on-premise ERP?
The primary distinction is the way these two systems are deployed:
- On-premise software is installed on a company’s own servers and computers.
- Cloud-based software, sometimes referred to as Software-as-a-Service, is hosted remotely on the vendor’s servers and accessed via a web browser.
A third and increasingly popular option is to implement a ‘hybrid’ deployment, wherein traditional on-premise ERP is hosted on third-party cloud platforms. Businesses can also choose to host their ERP on on servers managed and maintained on their premises. Users then access the software through a remote desktop.
Pricing is another key difference between on-premise and cloud solutions. Generally speaking, you will pay a monthly or annual subscription for a cloud solution, while on-premise deployments involve a one-time perpetual licence fee. In both cases, things like support, training and updates are paid for separately.
As such, on-premise systems are considered a capital expenditure due to larger upfront costs, while a cloud ERP solution is an operating expenditure.
Advantages/Disadvantages of On-Premise ERP
Generally speaking, on-premise ERP systems are offer greater choice when it comes to customisation. You can modify the solution to meet your specific needs, and this is very important for many organisations. Niche industries with specialised processes often can’t do without this feature.
Furthermore, on-premise ERPs give organisations greater control over their solution. This includes things like the security of their data, in particular to those companies who deal with sensitive data. If you choose the on-premise route, you must take careful steps to implement effective cybersecurity measures to protect the ERPs most sensitive data against cybercriminals.
A substantial limitation of on-premise deployments is that mobile accessibility can be an issue. It often takes third-party clients to make it possible for a mobile device to communicate with on-premise software, and this can be a pain point for some.
Advantages/Disadvantages of Cloud-Based ERP
Cloud-based ERP solutions don’t have the high upfront costs that are required for on-premise deployments. This makes them attractive for many smaller companies that simply don’t have the budget to implement ERP on-site.
Cloud-based ERP offers the significant benefit of strict, robust security measures to keep your data safe. Buyers can seek a third-party security audit of the vendor they are considering before subscribing to a cloud ERP in order to establish the quality of their security.
Mobile accessibility is very easy with cloud systems, with native mobile apps often offered as standard. However, this does have the inherent risk of security breaches as your employees’ personal mobile devices may be compromised. Again it’s important to have cybersecurity measures in place to negate these risks.
One disadvantage of cloud ERPs is that customisation opportunities are more restricted. You won’t be able to tailor the system down to the finest detail, but if your needs are less specialised then the out-of-the-box capabilities should be just fine. With many cloud-based ERPs, these specific business industries needs have already been considered, and additional modules are usually available for the software.
Considerations when choosing an ERP
Regardless of the ERP deployment you choose, there will be substantial impacts across the business. You should consider the following:
1. Overall Cost of Ownership
On-premise solutions generally have a big initial outlay, and the cost of maintaining the software and hardware are ongoing. This could be beyond the budget of many small and medium organisations.
The implementation costs are lower with cloud-based ERP and all the IT infrastructure is managed by the vendor. It really depends on your budget and your requirements, so it is important to calculate long-term costs for both options alongside evaluating the benefits they offer.
2. System Upgrades
On-premise ERP deployments offer fantastic control over the customisation and modification of the solution. But new product enhancements and upgrades are more difficult to carry out, so you will need an internal or managed IT team that can keep on top of everything.
Cloud ERP solutions are less customisable, but when you upscale or upgrade your solution it is less disruptive and requires less work on your part as these are often managed by the software provider. Simple upgrades and scalability are attractive features that should be weighed against the more limited customisation.
3. System Performance
With the right optimisation and maintenance, an on-premise system can perform very well. But this does take a substantial amount of work on an ongoing basis, and whenever problems arise it is entirely down to you or your IT team or partner to solve them.
Cloud software architecture is designed to deliver optimal network performance. In a competitive industry, one of the things vendors clamour to do is offer the best possible performance and uptime, so you can feel confident that cloud ERP solutions offer fantastic system performance when you need it.
On-premise ERP systems can be accessed remotely, as mentioned, but only via third-party support or platforms. You will need to establish methods for mobile access to the systems and ensure your security measures are adequate.
With a cloud solution, there is no denying that mobile accessibility is simpler. There is still the issue of security when people are using their personal devices, but the flexibility and mobility of cloud systems is a key benefit. If this is important to you, it is one of the great strengths of the cloud-based option.
Examples of ERP Software
There are various ERP software solutions to explore. Some popular ones include:
Sage 200 Standard (Cloud-based only)
A cloud-based ERP solution designed for SMEs with powerful features, though it only offers single-currency consolidation. The Standard version cannot be customised, so you must choose the out-of-the-box features that will work for you. It can be implemented with Microsoft 365 if this is something you use.
Although the level of customisation is far less in Sage 200 Standard compared with Sage 200 Standard, if you’re requirements aren’t niche and you simply need a robust cloud-based ERP that handles all of your businesses key functions, Sage 200 Standard could work for you. Implementation can also be much quicker than the Professional version. You can read more about Sage 200 Standard in our article Sage 200 Standard – ERP Out-the-Box.
Sage 200 Professional (On-Premise/Cloud-connected/Cloud-hosted on Microsoft Azure)
This traditional on-premise option of Sage 200 is highly customisable, with a wide range of additional industry specific Sage and third-party modules available, for example manufacturing and construction. Although Sage 200 Professional is an on-premise ERP, it is cloud connected, and can be hosted in the cloud via third-party cloud platforms like Microsoft Azure, offering more of the benefits associated with cloud-based software.
The accounting and financial functions are similar to those in the Standard version, though the multi-currency consolidation of the Professional version makes it more suitable for international businesses. The Professional version also includes a CRM tool and can be integrated with Microsoft 365.
If you want to learn more about the differences between Sage 200 Standard and Professional, feel free to read our useful article Sage 200 – Standard vs Professional Compared.
Any other Sage 200 questions? If so head over to our Sage 200 Frequently Asked Questions article.
NetSuite (Cloud-based only)
Oracle’s fully-customisable modular ERP solution is designed to support growth, with a wide range of resources and functions available. It is recommended for a wide range of business types, accommodating varying needs including financial management, orders, production and also supply chain, warehouse and fulfillment. It uses powerful business intelligence tools and rich automation features and is seen as one of the world’s leading cloud-based ERP solutions.
Along with NetSuite ERP, customers can enjoy NetSuite CRM for customer management and marketing automation, NetSuite OneWorld which makes operations across multiple territories simple, and a host of Personal Services Automation (PSA) tools for businesses offering services.
Want to learn more about NetSuite? Why not take a look at our article NetSuite Frequently Asked Questions.
In the modern world, there are more ERP options available to businesses of all sizes than ever before. With cloud-based deployment, the software has become more accessible for small and medium-sized enterprises, though there are limitations when it comes to using ERP this way.
On-premise ERP systems are more complex for users and require a more significant upfront investment. The costs can be beyond the budget of smaller buyers, but the benefits of greater customisation are very attractive for many organisations.
Ultimately, it depends on the unique needs of your business and the budget you have for ERP deployment. If you are still uncertain about choosing the most suitable model for you, and would like to speak to one of our ERP experts, you can request a free call back here.