Cloud? Or on-premise? This is undoubtedly one of the biggest and most frequent questions our clients ask when purchasing a new enterprise resource planning (ERP) system.
Cloud-based ERP systems are becoming more common than ever before. In fact, nearly every ERP vendor now offers some form of cloud deployment option, and some have moved away from their on-premise offerings altogether. Infor’s CloudSuite Industrial (SyteLine) ERP Manufacturing Software is available on-premise, hosted, in the cloud/SaaS, or hybrid.
There are several reasons why a small or midsize business might choose a traditional on-premise system, which, until recently, was considered the norm in the industry. Which one is right for your organization? Only you can make that decision, but this breakdown on the pros and cons of each will hopefully serve to make the decision easier.
By knowing the advantages and disadvantages of each type of ERP system, business owners and decision makers can determine the best fit for their business. This allows for a more informed decision-making process and encourages the proper allocation of resources and an overall more efficient ERP workflow.
Deployment and Pricing of Cloud ERP vs. On-Premise ERP
The biggest difference between the two is how they are deployed.
Cloud-based software is hosted on the vendor’s servers and accessed through a web browser.
On-premise software is installed on-site on the company’s server.
A “hybrid” deployment is another option that is available from some vendors, and Infor’s CloudSuite Industrial (SyteLine) ERP Manufacturing Software is a prime example of a software that offers a hybrid deployment. A hybrid deployment offers a mix of software, with some modules (financials for example) being hosted on an organization’s private servers and other less-sensitive modules that are hosted on the vendor’s servers.
Another difference between cloud and on-premise solutions is pricing:
In general, cloud software is priced under a monthly or annual subscription, with additional recurring fees for support and training.
On-premise software (perpetual licensing) is usually priced under a one-time license fee (usually based on the size of the business or the number of users). There are generally recurring fees for support, training, custom modifications and future updates.
On-premise systems are usually considered a capital expenditure while cloud-based systems, are typically considered an operating expenditure (overhead).
Cloud software has gained popularity and is being implemented with greater frequency because it can be more cost-effective up front. Over time, however, system costs tend to even out and sometimes cross in favor of perpetual licensing being the lower TCO (total cost of ownership).
Advantages and Disadvantages of Cloud ERPs
Cyber-security is usually one of the biggest concerns for companies looking at a cloud-based ERP system. This is no surprise, considering the confidential information stored in an ERP system, and the constant barrage of news regarding security leaks. However, the recent trend in companies converting to cloud-based ERP shows that many are becoming less skeptical of breaches in cyber-security. Verifying that strict standards are in place to keep the company’s data safe is important. This task is much less daunting when using a reputable cloud-based ERP vendor, such as Infor.
Many cloud systems also offer mobile accessibility. With ease of access also comes greater security considerations, especially if employees are accessing company files from personal devices, such as smart-phones or tablets.
More accessibility generally means less customization. In general, cloud ERPs offer less flexibility for organizations that look to customize and tailor the ERP system. For businesses with less specialized needs, an out-of-the-box cloud system is more than sufficient.
Cloud-based ERP systems are generally best for small and midsize organizations looking to lower their upfront costs to manage cash flow, ensure system stability, and guarantee ease of access.
Advantages and Disadvantages of On-Premise ERPs
Many of the same features are typically found in an on-premise ERP system. That being said, there are several differences in the two deployment methods.
Generally speaking, on-premise systems are easier to modify. The ability to customize according to specific needs and requirements is extremely important for many companies, especially in the case of specialized manufacturers with unique products and processes.
On-premise ERPs allows more control for the business, including the increasingly important, data security. If mobile accessibility is important, on-premise deployment can pose some challenges, however, there are new solutions evolving every day.
Therefore, on-premise ERP systems are generally better for midsize to larger businesses with bigger budgets, that are looking for a customizable system, with existing infrastructure for hosting and the capability to secure their ERP data.
A Third Option – Perpetual License Hosted Private Cloud
Alternatively, deploying on-premise or “perpetual license” ERP in a private hosting environment can provide the best of both worlds. One example is Godlan Hosting, who provides Private Cloud Hosting in a state-of-the-art cloud environment. The monthly hosting fee includes 21 managed application services and SQL level access.
In this scenario, businesses can enjoy the flexibility and customization levels that perpetual licensed on-premise ERP provides, while relying on the hosting provider to maintain the servers, manage the application, and provide the server-level security necessary in today’s digital world.
Conclusions and Next Steps
When it comes to choosing a new ERP system, there are numerous ERP options for businesses of every size. Cloud-based deployment models have made this software more accessible for many—however, this deployment model can have a downside, such as limited customization potential.
On the other hand, on-premise ERP systems offer advantages in some areas, such as in customization and control, but are more expensive in initial cost.
Still not sure which deployment model is right for you? Give Godlan a call at (586) 464-4400 and let us help you determine which model is best for your business.