Cloud ERP: Should You Opt for it?

An ERP (Enterprise Resource Planning) suite is a software application that integrates multiple department functions into a single platform. With everything else available on the cloud, why should the ERP software be on-premises only? There are vendors who specialize in Cloud ERP solutions now, and employees access the ERP software over the Internet through an application on their computer, tablet, mobile phone, or simply through a web-browser. If you are an SMB (Small & Medium Businesses), especially, it makes a lot of sense to consider Cloud-based ERP implementation, seriously.

Generally, and especially in large companies, ERP systems are installed and maintained in-house. These are called On-premise ERP systems. Then came Hosted ERP: the servers and infrastructure are leased from a third-party data center, but the software installation & maintenance is still done by the enterprise company. Now we have the Cloud ERP system where the servers, infrastructure, software & maintenance is handled by the Cloud ERP vendor and the customer pays customization and licensing costs (per-user-per-month) to access the software. Licensing is also provided on a perpetual/long-term basis, by some providers.

The Cloud ERP is delivered as a SaaS model – Software as a Service. With some vendors, both ERP and CRM functionality are sold as an integrated application suite. Some vendors offer flexible deployment options that may include – on premises, cloud, or a combination of both. Let us look at some advantages and disadvantages of Cloud ERP systems.

Advantages of Cloud ERP (Over On-premise ERP): 

  1. Lower upfront costs. TCO (Total Cost of Operation) may be lower for SMBs.
  2. Rapid implementation (relatively).
  3. Easier scalability (both up and down, if the vendor allows it). Cloud ERP can be designed to handle sudden spikes in traffic (during month-ends), etc.
  4. Better accessibility: Access from computer, tablet, mobile. Only a web-browser and Internet connection is required in most cases.
  5. Mobility: Access from anywhere, any device, any time.
  6. Better integration with other cloud services like backup/DR, if the cloud provider enables it.
  7. Quicker updates, bug fixes, new feature implementations (as it is mostly done for many customers together, at their data center).
  8. Some Cloud ERP vendors have integrated CRM, intelligence, collaboration & communication features within their Cloud ERP suite.
  9. Some vendors say that they can provide better uptime than in-house IT departments, and guarantee it with SLAs. Although, I feel, in-house IT can do as good – if not better.
  10. Easier to test-run, prior to acquisition.
  11. Some Cloud ERP vendors provide a detailed audit trail on data access, and most restrict access only to authorized users.
  12. The User Interface (UI) is relatively easy to understand and use.

Limitations:

  1. Even though the initial capital expenditure is less, the running costs/recurring expenditure maybe higher for Cloud-based ERP, especially over the long-term.
  2. Since data and applications are hosted in cloud-provider’s data center, it is considered a security threat. Further, unclear SLA terms for damage liability (if any) may result in mutual pinpointing. Confidentiality, especially when employees of the data center are not under the purview of the company, is an issue.
  3. Performance of ERP system depends on the speed/reliability of Internet/network connection in the company and branches.
  4. There maybe limitations on which (existing) applications can be integrated with the ERP system, and how much/what kind of data can be transferred.
  5. Customization, although provided by partners, is limited (relatively). Much of customization is achieved via configuration, than source code level changes. If deeper customization is required, on-premise solutions maybe better.
  6. Dependency on a single service provider.
  7. Can data be exported in an open format and be used with another vendor’s cloud ERP? Doubtful.
  8. Price (per user) generally depends on no. of users and contract period. If a long-term contract is terminated, penalties may apply.

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