Enterprise resource planning (ERP) software is extremely important for businesses’ success, so choosing the right ERP for your company is critical. While deciding on the ERP system for your organization, you’ll encounter multiple types. It’s crucial to read about and understand all of the options, as the type of ERP system you choose will greatly influence what benefits your business will reap from your ERP in the future.
In this article, we dive deep and explain the difference between cloud-based and on-premise enterprise resource planning systems, compare top ERP systems, and give you tips based on Steelkiwi’s experience.
What is an ERP system and why would a company want one?
Enterprise resource planning systems are valued across many companies and industries. These systems link together business processes and aid the flow of information between them. Enterprise resource planning software functions as a single source of truth by gathering a company’s shared data from multiple sources, significantly increasing the efficiency and clarity of internal communication.
A 2021 report by Panorama Consulting Group reveals that 91.7% of companies that have implemented enterprise resource planning software consider their ERP project to be successful, as they have already noticed the benefits.
Companies implement ERP systems for different reasons. According to the 2020 ERP report by Software Path:
There are multiple ERP benefits that help companies achieve these goals. One of the most important advantages of an ERP system is optimized productivity. An ERP automates many operations, significantly decreasing the need for manually inputting data while eradicating duplicate information. In addition, modern enterprise resource planning systems allow staff to access and input information remotely from mobile devices.
Access to real-time data is another crucial benefit. Data is the most important resource a company can have. It’s vital to collect and process it regularly as well as to be able to access it in real time from anywhere to ensure business growth. Also, instead of having numerous spreadsheets and databases, it’s much more efficient to place data in a single location where you can easily view it all in one session.
Modern ERP systems offer an extensive range of helpful tools and functionalities, from the most basic (like financial planning and talent management) to specific functionalities like lot traceability and engineering change control (ECC) that are offered by manufacturing ERP software for makers of automotive parts and accessories. A wide variety of industry-specific features make businesses eager to switch from their legacy software to enterprise resource planning software. Moreover, because such functionalities and tools are explicitly designed to address a particular industry’s concerns, they’re capable of boosting a company’s efficiency and saving time.
You can get numerous other benefits depending on the type of enterprise resource planning system you implement. Both cloud and on-premise ERP have solid advantages that can promote your company’s success. Let’s dive in!
What is a cloud-based ERP system?
A cloud-based ERP is a technological infrastructure characterized by the business accessing the ERP through the internet, and the servers being in an offsite data center.
Frequently, when someone refers to a cloud ERP, they mean software as a service (SaaS) type. The SaaS model is the most common for a cloud-based ERP, but many people mistakenly consider these terms to be interchangeable.
In a SaaS deployment, you don’t own the software. It is offered to you by a vendor through a monthly subscription. The software is then made available via the internet, and your data is stored in the cloud.
In recent years, the popularity of cloud-based ERP systems has grown rapidly. In 2017, only 6% of ERP software was deployed in the cloud, as evidenced by the 2017 Report on ERP Systems and Enterprise Software from Panorama Consulting Solutions.
That percentage has grown tremendously in four years. In its 2021 ERP Report, Panorama Consulting Solutions noted that 53.1% of organizations use a cloud deployment while less than half have an on-premises ERP system.
Why did the percentage of organizations that prefer cloud hosting vs on-premise ERP systems skyrocket in only a few years? This is due to the strong benefits that cloud-based ERP solutions can provide for businesses.
Advantages and disadvantages of cloud ERP
The first major benefit of a cloud-based ERP system is that it’s easier to maintain. Since cloud ERP software is usually subscription-based, the vendor fully takes care of the ERP, its updates, backups, and hardware, so you won’t need to hire an internal IT crew, saving you time, money, and trouble.
Secondly, cloud-based ERP systems provide you with access to your data from anywhere, at any time, and via any device. This is a huge advantage for large enterprises, companies with multiple offices, and situations when you need to work remotely. A cloud ERP facilitates efficiency since you can save a lot of time by not being tied to one computer.
Additionally, a cloud-based ERP system can smoothly grow with your business due to high scalability. Everything you need or might need in the future can be delivered to you on-demand, like adding new users, modules, or tools.
However, there are some disadvantages to implementing this type of ERP system. First of all, there’s a heavy reliance on a stable internet connection. If your connection has frequent glitches, they might slow down and interrupt your work. Hence, you need to choose an internet provider carefully to avoid these issues.
Additionally, cloud ERP solutions often have fewer customization options and aren’t as easily tailored to a business’s needs. However, depending on the ERP provider, the software can be quite customizable.
Data security is companies’ most significant concern when considering the SaaS cloud ERP model. Organizations have loads of sensitive data they wouldn’t want vendors or anyone else to access. A data breach can do considerable damage to a company, such as by fully stopping production. For this reason, companies in the defence, aerospace, and similar industries choose private cloud or on-premises solutions to avoid even the minimal risk of a data breach.
Comparison of top cloud-based ERP systems
Due to the popularity of cloud enterprise resource planning systems, most if not all ERP vendors offer cloud solutions. To consider each one would take a very long time, which is why we’ve prepared a table of the top three cloud-based ERP systems on the market and a shortlist of their characteristics.
Acumatica Cloud ERP
Overall user rating
4.2 / 5.0
4.4 / 5.0
4.4 / 5.0
Small, midsize, and large businesses
Small and midsize businesses
Small and midsize businesses
Scalable and flexible
Multi-dimension actionable reporting
Solid customer relationship management module
Robust costing methods
Non-user-based pricing accommodates growing companies
A browser-based app makes it easy to use mobile devices
Can perform a wide variety of tasks
Easy to view customers’ AR ledgers and past invoices as well as to manage customers’ invoicing schedules
Organized and clean interface
Many customization capabilities
Poor general ledger capabilities
Extensive support documentation
Steep learning curve
Estimating licensing costs can be difficult
Standard report filters may need to be customized
Reliance on third-party add-ons needed if implementing ERP for companies outside the manufacturing/distribution vertical
Reports can be difficult to set up
Needs more support resources
Can freeze (or take a while) when processing large attachments, which might lead to losing work
What is an on-premise ERP?
An on-premise ERP system is installed on computers on an organization’s premises and is maintained by an organization’s internal IT team.
An ERP might need extra powerful servers, operating systems (OSs), or database software, which you’re responsible for acquiring. You’ll need to maintain an IT team to handle the software and hardware, but in exchange you’ll have complete control over the system, its updates, and its security.
Despite the rising popularity of cloud ERP systems in the past few years, on-premises solutions are not easily giving in. According to 2021 statistics, on-premises ERP systems still hold 46.9% of the market, and compared to 2017 statistics, this deployment type has dropped just 20.1% in popularity, as evidenced by the Panorama Consulting Solutions’ ERP reports.
Advantages and disadvantages of an on-premise ERP
One of the biggest benefits of on-premise ERP is that you have complete control over the system and are not dependent on a vendor. You can arrange updates, backups, or security checks when they’re needed and convenient for your organization. You’ll also have time to prepare for maintenance processes, resulting in fewer to no workflow disruptions and thereby saving you time and effort. Also, you won’t have to ask permission from a vendor before implementing modifications to the system. In addition, an on-premises ERP system greater customizability, so you can easily meet your organization’s needs.
Data security is often why enterprises go for an on-premise ERP. By deploying your ERP on-premises, you can ensure that your sensitive data is stored in-house and can only be accessed internally. You also get full control over your backup system and don’t require an internet connection to access your data. Companies from industries with significant privacy concerns are usually reluctant to switch to the cloud. That’s because it’s crucial for them to have complete control of their data, which is why they usually choose an on-premises or hybrid deployment.
On-premises ERP systems are more likely to lose data during mishaps because they’re located in-house. Hence, if on-premises systems are not backed up regularly, a company risks either losing data entirely or having to put on hold many business processes to try and recover the data.
Hardware maintenance is quite a complex task. To make sure your systems run smoothly, you have to ensure that server rooms are equipped for everything that can happen.
First, you need to monitor that your hardware is up-to-date, and buy new hardware when needed. A full server and necessary additional rack-mount hardware cost a lot of money and are expensive to maintain.
It’s also crucial that you have an appropriate cooling system so your hardware doesn’t overheat.
Plus, you’ll need to ensure you have backups for situations when you lose electricity and will need to invest in a powerful uninterruptible power supply (UPS).
In addition, it’s vital to follow strict fire safety regulations and implement multiple fire protection methods for your server rooms and hardware. Large corporations install special systems to stop fires. One method involves sucking the oxygen out of the room.
These steps are necessary to ensure the correct working of your hardware and software, but they make on-premises systems expensive.
Comparison of top on-premises ERP systems
Here’s a handy table comparing some of the top on-premises ERP systems.
Microsoft Dynamics 365
SAP Business One
Overall user rating
4.0 / 5.0
4.2 / 5.0
3.8 / 5.0
Small, midsize, and large businesses
Small, midsize, and large businesses
Extensive CRM functionality and integration with Microsoft products and LinkedIn
Predictive sales guidance
Automated fraud protection
Mixed reality remote assistance
Underlying SAP HANA database allows for complex business analytics
Users can connect to and run queries from multiple data sources at the same time, allowing them to multitask and simplify workloads
Comprehensive ERP functionality
Extensive documentation and training
Great industry-specific options
Powerful analysis tool and financial accounting
Solid CRM module
Difficult to navigate for beginners
Limited mobile app features
Steep learning curve and not user-friendly
Initial configuration and installation usually requires a partner or expensive Value Added Reseller (VAR)
Can get highly complicated and expensive, especially for smaller businesses
Requires in-depth training
Each customization needs to be paid for
Hybrid ERP solution
A hybrid solution allows you to keep control of your organization. You can choose which data to retain on-premises and which can be sent to the cloud. This offers strong data security and allows your employees to access files, emails, and applications via the cloud.
A hybrid ERP solution uses a combination of on-premises and cloud solutions and can be arranged in the following ways:
- The company continues using its existing on-premises enterprise resource planning system for corporate functions like human resources, finances, facility management, and IT procurement but adds a cloud ERP to provide remote work opportunities or support some business units or regions. This approach helps to bring down costs and facilitate more efficient work.
- The company starts using a cloud ERP for specific business functions that are better supported by the cloud ERP vendor, like mobile accessibility or a customer relationship management (CRM) system.
- The company continues to use an on-premises ERP but stores certain data in the cloud.
What is the difference between a cloud ERP and an on-premise ERP?
Choosing the right type of ERP deployment can be tricky. To aid you in this decision, we’ve created a comprehensive cloud vs on-premise comparison chart to show you the central differences between these types of systems.
Cloud ERP models like SaaS follow a transparent subscription model with a monthly or annual subscription fee.
Although the initial costs are quite low, when you add new features or modules, purchase extra storage, or otherwise scale the system, the expenses can rapidly increase.
An on-premises ERP requires a substantial upfront investment for purchasing and setting up the software. You also might have to purchase related hardware and servers. Additionally, if your company doesn’t have an experienced IT team that can maintain an ERP system, you’ll need to invest time and money in setting one up.
A cloud ERP can usually be implemented fast, since the system is hosted in a cloud. Some customizations can take extra time though.
The customer is fully responsible for controlling the implementation of the ERP. Because you need to handle the hardware as well as the software, the implementation period might be quite a bit longer than for a cloud-based system.
Customizations and upgrades
Cloud-based solutions are sometimes limited in their set of features.
Cloud ERPs are regularly updated by vendors, often for free, and all integrations are carried forward as well.
On-premise ERP software is open to various customizations and integrations. Any tool, third-party service, or feature a business might require can be implemented in an on-premises ERP.
When the ERP vendor releases a product update, it’s your IT staff’s responsibility to implement it and make sure that any previous customizations are transferred to the updated system.
A cloud ERP vendor deals with the security framework, upgrades, automatic backups, servers, and hardware. You’re only responsible for supervising the implementation and integration.
The maintenance of an on-premises ERP is your company’s responsibility. This includes handling updates, backups, security checks, software and hardware support, customizations, and server room maintenance.
A cloud-based ERP is easily scalable since all the new tools and storage you might need are delivered to you on-demand.
If you want to scale an on-premise ERP, you need to buy new hardware and handle additional maintenance.
Some cloud ERP models are more prone to data breaches because information is accessible via the web.
However, cloud ERP providers implement security features such as data monitoring, a high level of encryption, and logging to battle data breaches.
They also have many different disaster protocols to ensure data security.
By deploying your ERP on-premises, you can ensure that your sensitive data is stored in-house and can only be accessed internally. You also have full control over your backup system.
Companies that have strict security policies — such as data centers, military organizations, and aircraft companies — usually go for an on-premises ERP.
Which ERP system is right for your business?
The right ERP system can get you very far in terms of work efficiency, profits, and success. Therefore, it’s important to choose correctly on your first try.
If after reading all of the pros, cons, and comparisons you’re still hesitant as to the type of ERP software you need, we can offer you some experience-based advice.
An on-premise ERP solution works best for midsize and large companies that have demanding data security policies, need exclusive customizations, have or can hire an internal IT team, and can afford to maintain the system themselves.
However, if you also require well-supported mobile accessibility and/or CRM software, it’s best to go hybrid or invest in a private cloud. This way, you can get the most payback for your business.
Otherwise, it’s far more beneficial to go for a cloud solution. With a cloud-based ERP system, servers, hardware, updates, and security checks are handled for you, so you’re able to concentrate on promoting your products or services and can also save a significant number of resources in the process. And in the event of a disaster, if some of the provider’s servers glitch or fail, it shouldn’t ruin the performance of your system, as cloud ERP vendors have thousands of them.
In our experience, our clients reap many more benefits by implementing cloud ERP than they have from on-premises solutions.
Looking for an ERP partner? At Steelkiwi, we focus on becoming not just your development company but also an advisor and a trustworthy business ally. We’ll work with you to pick the ERP solution that’s best suited for your company.
Message us to discuss your ideal ERP solution and tomorrow we can already be on a call!