On-premise Vs. Cloud ERP: The Key Differences to Consider Before Choosing the Right One

If your organization is considering an ERP system to increase competitive potential, transform business processes, or scale up the business, but still cannot decide whether to implement the on-premise or cloud methods, this article gathers the key differences to help you consider the right choice.

What is ERP & Why Is It Important for Business?

Enterprise Resource Planning (ERP) is software that helps businesses manage their resources and monitor to operate all of their business activities. It helps create a seamless work process and centralized data flow across departments and the entire organization, from financial and accounting, purchasing, to HR department, etc.

ERP also includes enterprise performance management (EPM), financial planning, business forecasting, and efficient financial analysis reporting. The ERP system has two main implementation methods: On-Premise and on Cloud. On-premise ERP: The on-premise ERP system installs locally, running on the on-site server. It is suitable for organizations that want to secure their own data and have an internal IT team for system and server maintenance. It allows users to gain entire ownership to customize and deploy modules. Cloud-based ERP: The cloud ERP system allows users to work through the Internet connection and the provider’s server. The implementation cost will be in the form of an annual fee according to the usage plan and modules. The advantage is that users can access through a web browser or platform anywhere, anytime, and on any device.

The Key Differences Between On-Premise ERP Vs. Cloud ERP

Cost of Investment in ERP System Implementation

On-Premise ERP: The upfront cost for on-site ERP implementation is higher, including other ongoing costs, such as building and training an internal IT team, server and hardware maintenance, system upgrade, or customization. However, in the long run, it is a worthwhile investment since on-premise ERP is one-time paid and given fully outright for sustainable use. Cloud ERP: As an initial implementation, the Cloud ERP system has a lower cost from its subscription and cloud-based usage. Cloud ERP allows users to access data and systems through the Internet without the need to install a server at their own cost. While being able to pay upon the certain used functions, cloud ERP software cost, therefore, can be predictable upfront and convenient for budgetary control.

Time in Implementation

On-Premise ERP: On-site ERP system takes longer to implement because it needs to start from scratch: deploy system to fit the needs of business, customize suitable functions, prepare a secure server location and installation, to the time used in training the internal IT support team.

Cloud ERP: It takes less time to implement a cloud ERP system, from 4-6 months. As it can be mainly accessed through the Internet and cloud database, there is no need to prepare system hardware or secure locations to install on-site servers.

Storage & Information Security

While both options have high standards of security management, there are differences with regard to data storage and backup as follows:

On-Premise ERP: To have a server installed locally makes many companies feel more secure than putting them in other places. However, there are additional limitations, for example, they need to level up the security management, standardize their manual data backup, have a team of IT professionals to always standby to make sure that the system and servers are always in uptime and accessible at all times.

Cloud ERP: There are no IT resources and no additional costs for more system security required from the data already being encrypted, stored, and backed up securely on Cloud. For example, Oracle NetSuite’s Cloud ERP system where data is stored and backed up on multiple servers worldwide to reduce and diversify risks. If a certain local server is down, the system can still continue to run from Oracle NetSuite’s network servers and cloud backup, making its guaranteed uptime efficiency up to 99.7% and more prone to hacking. This way also allows efficient data backup even if the device used internally has an issue, the data can easily be recovered.

Customization

On-Premise ERP: Since an on-premise ERP system is delivered to the company to take full ownership, it can be customized to suit most of the business processes as needed. It can be customized from functions, modules, personalized dashboard, or business document format, according to the usage and business reports needed. Cloud ERP: Customization of cloud ERP systems may be more limited because it is subscription-based, making the customization of functions, or new modules will mainly depend on the service provider’s upgraded version and development. However, today Cloud ERP has been developed to allow users to partially customize their dashboard as well.

Software Upgrade & System Maintenance

On-Premise ERP: The system upgrade for on-premise ERP software requires additional costs and longer time because it usually goes hand in hand with system maintenance or hardware replacement which requires more deployment time and the IT team effort.

Cloud ERP: Cloud-based ERP software updates automatically, allowing organizations to instantly use the latest modules and technology from the provider without the need to pay more for additional upgrade or maintenance costs. It also does not require an IT resource to be involved in the process.

“Hybrid Cloud”, a Combination of On-Premise and Cloud ERP

The outstanding differences in the on-premise and cloud ERP implementation, now are merged to create a great value which is called “Hybrid Cloud”. Currently, the hybrid cloud model has been introduced to bring on-premise ERP software connected with cloud databases, storing and backing up business data in a more secure way. This is also to align with the needs of new ways of work such as remote working, making the teams able to access data anywhere and anytime.

Hybrid Cloud, for example, the SAP HANA Cloud system that stores and records all business data through In-Memory Computing technology, can support scaling up and can be perfectly used in an integration with the already existing on-premise ERP software.

If you want more information on whether an on-premise or cloud ERP system would be the most suitable for your business, contact us to have our team of experts who have over 30 years of ERP implementation experience, help consult.

For more information about SAP Business One and Oracle NetSuite, please click here.

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