In today’s fast-paced business world, having the right operating models, tools, and technologies is essential for business transformation. Enterprise resource planning (ERP) systems provide a centralized platform to manage all aspects of a business, including supply chain, inventory, and financial management. ERP systems offer benefits like built-in business intelligence, real-time data access, and integrated machine learning capabilities, surpassing legacy systems. These solutions cater to various industries such as retail, consumer products, industrial, energy and utilities, and government, including defense. When choosing an ERP deployment type, factors like organization size, functionality, procurement needs, and industry-specific requirements should be considered. Some providers offer industry-specific modules, such as material requirements planning for manufacturing, project management, customer relationship management (CRM), and human resources software. According to IBM, ERP deployment options include on-premises and cloud models.
ON-PREMISES ERP SYSTEMS
On-premise enterprise resource planning system is exactly how it sounds. The software is installed on an organization’s own servers and computer equipment. It is a licensed system that can be customized and upgraded and is typically maintained by the organization’s IT team onsite to streamline the business workflow. The on-premises ERP system is for an organization that wants full autonomy of its system. With this business management solution, the organization handles its data management and security on-site.
BENEFITS:
Since the software is done on-premises there isn’t an occurring subscription cost for the software. This could lower the cost of the ERP system over both short and long term, resulting in better profitability. Organization can customize software as they see fit. On-premises customization can be done during the implementation process and thereafter. The decision-making is much more in the hands of the organization itself. The on-premises software means all company information and data remains on-site making it a very secure software system for your business. By having all data storage and hardware on-site the organization isn’t dependent on the software vendor for system needs. It can be all handled by the on-site IT team.
DISADVANTAGES:
Software and computer equipment will require a larger investment up front. The software may also need to be replaced down the line. Organizations should factor in these expenses before choosing on-premises ERP. The ERP system will need to be upgraded periodically to mitigate cybersecurity risks and ensure your organization has the most efficient software. These upgrades may also require working in the office and perhaps through a slower connection at times. Doing in-house data backups or upgrades could lead to corrupted files, potentially putting an organizations data at a higher risk.
CLOUD-BASED ERP SYSTEMS
The cloud-based ERP system has become more popular, especially among small businesses and medium-sized businesses. Since cloud-based solutions are managed remotely by a third-party vendor, it reduces the need for an extensive IT team on-site and is often referred to as SaaS, Software as a Service, due to its ongoing billing model. It also removes the need of having dedicated servers specially for this business management solution. If your organization operates on the go or needs remote access often, then the cloud is the best choice. It is also less expensive upfront and can be implement quicker than an on-premises system.
BENEFITS:
Cloud-based ERP systems eliminate the need for significant upfront investment in hardware and software. Instead, businesses typically pay a subscription fee, which can be more predictable and manageable in terms of budgeting. These systems offer high scalability, making it easy for organizations to adjust their usage as their needs change. Additionally, cloud-based ERPs are accessible from any location with internet access, facilitating remote work and collaboration across different sites. The service provider handles all updates and maintenance, ensuring the software remains current and secure without the need for in-house IT intervention.
DISADVANTAGES:
Relying on a cloud-based ERP system means organizations are dependent on the internet and the vendor’s infrastructure. Any disruptions in internet service or issues with the vendor’s platform can impact access to the ERP system. Subscription fees, although predictable, can add up over time and may result in higher long-term costs compared to an on-premises solution. Additionally, while vendors typically offer strong security measures, organizations must trust a third party with their sensitive data, which can be a concern for some businesses. Customization options may also be more limited compared to on-premises ERP systems, potentially restricting the ability to tailor the software to specific business needs.
RECOMMENDATION
The choice between on-premises and cloud-based ERP systems should be guided by an organization’s specific needs and resources. For businesses that require extensive customization, have robust IT capabilities, and prefer to keep data management in-house, an on-premises ERP system may be the best fit. Conversely, organizations seeking flexibility, lower initial costs, and minimal IT maintenance responsibilities might benefit more from a cloud-based ERP system. Carefully evaluating the organization’s long-term goals, budget, and IT infrastructure will help in making the most informed decision.
Article by: Asst. Prof. Suwan Juntiwasarakij, Ph.D., Senior Editor & MEGA Tech