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When it comes to enterprise resource planning (ERP) solutions, there are significant differences between on-premise (on-prem) and cloud-based systems. So, what are the advantages and disadvantages of each solution?
Cloud ERP marks an exciting shift in how businesses use ERP to improve business processes, but it can sometimes be difficult to find information on what these solutions actually mean for business.
Dive into our Ground-to-Cloud guide to get a better understanding of the unique features that define on-prem ERP and Cloud ERP, and how to choose the right solution to take your business into the future.
What does on-premise and Cloud ERP really mean?
On-prem ERP is a solution for which you purchase software licenses per the number of users who will be using the system, and the software is installed on your company’s servers. Software licenses are usually a one-time, upfront purchase, but if you need additional modules, you could incur additional costs.
On-prem ERP systems often include heavy software maintenance (and, sometimes, support) costs, which must be paid annually to receive vendor support, upgrades and so on.
Cloud ERP is a subscription service to an ERP system — you pay on a subscription basis to use the system, and you access it anywhere through any device connected to the internet. Data is stored in the cloud and hosted on another party’s servers, not your company’s servers. Subscription terms can vary.
What are the benefits of on-premises ERP and Cloud ERP?
- 24/7 Visibility: An on-prem ERP provides peace of mind because it keeps all of your data on your company’s hardware. Storing data in-house enables your IT team to monitor it more closely, which, in turn, means you will be notified of operational changes as they occur.
- Total Control Over Data: ERP systems store a great deal of sensitive data, including employee and consumer information. With an on-prem ERP system, you have complete control over where that data is stored, who has access to it and what they do with it. You also have the ability to deploy updates and upgrades at your discretion, which reduces the risk of unanticipated downtime.
- Increased Security: End-to-end security should be a priority for every organization, regardless of which industry you are in. Similar to data, when you host your ERP on-premises, you have greater control over physical access and can prevent outside parties from accessing sensitive information.
- Customization: Since it is integrated into and hosted by your business’ IT infrastructure, an on-prem ERP provides more options for customization, including the ability to incorporate tailored applications into your business’ workflow.
- Consistent Connectivity: On-prem ERP systems are built on physical IT infrastructure and are not dependent on internet to function, which ensures sustained connectivity and data access during system downtime or in the event of an internet outage.
- Cost Efficiency: The upfront cost of an on-prem ERP can be steep, but if you run a large-scale, enterprise-level organization it could be more cost-effective to invest in an in-house solution than to pay for Cloud ERP’s per-user subscription pricing. However, it is important to note that it typically takes three to five years to achieve true cost efficiency with an on-prem ERP from a licensing and maintenance perspective.
- Less Vendor Dependency: Rather than rely on a vendor to deliver ERP services, an on-prem ERP system puts you directly in charge of business decisions, including implementation, which means you have the control and flexibility to implement new technology on your own terms.
- Reduced IT Costs: Cloud ERP provides all of the functionality of an on-prem ERP but at a lower cost for most organizations because it eliminates the need to maintain and periodically update expensive hardware. However, if your ERP service provider does not upgrade their ERP more than once every ten years, it could be more affordable to invest in an on-prem ERP.
- Enhanced Security: It is a common misconception that Cloud ERP systems are less secure than their on-premise counterparts. However, Cloud ERP service providers have gone to great lengths to ensure enterprise-level security, privacy, and compliance with their systems. In fact, the security investments service providers make far exceed what an organization can do on its own. Mobility makes it possible to set security measures on one device and apply them to all connected devices, ensuring consistency.
- Scalability: Cloud ERP is designed to evolve with your business, so you can gradually add business processes and expand your organization’s footprint with all of the flexibility necessary to move in new directions.
- Performance: Cloud ERP is easy and intuitive to use, streamlines operational processes, and emphasizes collaboration between users, all of which improve business performance.
- Mobility: Cloud ERP’s mobile-friendly interface provides a seamless user experience regardless of which device you use to access it so that you can stay connected on the go.
- Universal Access: For many businesses, the key to maintaining strong customer relationships and developing potential leads is face-to-face interaction with customers. With Cloud ERP, your employees can log into your company’s ERP system and access data regardless of where they are.
- Predictability: Since Cloud ERP enables users to access business applications from anywhere and any device, it drastically reduces redundancy and increases operational predictability.
- Innovation: Cloud ERP enables the service provider to manage system updates so that you can take advantage of the latest updates and without the need for a “forklift” upgrade involving services implementation, licensing, and support costs. Cloud ERP also enables your organizations to capitalize on the latest ERP innovations to support digital transformation over time.
- Adoption: The real return on investment of using any ERP system is in users adopting the system. Cloud ERP enables you to focus on user adoption rather than setting up and maintaining the system.
What are the challenges of on-premises ERP and Cloud ERP?
- Higher Overall Costs: From the initial upfront financial investment of purchasing an on-prem ERP system to the cost of implementation and routine hardware maintenance, on-prem ERP can cost more in the long run.
- Accountability for Security and Updates: One of the downsides to having total control over an on-prem ERP system is that you are solely responsible for security, which leaves you prone to human error and increases your risk of costly security breaches. Additionally, on-prem ERP systems do not automate system updates and upgrades, so you will also need to regularly check for updates and instruct your IT team to make those updates as they become available.
- Paying More for Innovation: Unlike a Cloud ERP, which is designed to evolve over time to accommodate new industry trends, on-prem ERP tends to be more stagnant. The upfront cost of an on-prem ERP only includes a set number of features; any additional modules or feature installations come at an extra cost. On-prem ERP systems also typically include a large services implementation cost, which can easily drive their price tag even higher.
- Rigidity: Although customization enables you to tailor your ERP system to your organization’s specific needs, the complexity that such customization introduces into your system can make it difficult to implement changes and upgrades.
- Less Flexibility: It is much easier to implement a Cloud ERP than an on-prem ERP because the system comes preconfigured — however, that also means that there could be fewer customization opportunities during the deployment process, so you might have to learn to work with the system as is.
- Less Overall Visibility: A Cloud ERP is hosted by another company, which means you might not have the same transparency into where your data is stored or how it is secured as you would if you hosted it yourself. Although reputable Cloud ERP providers are reliable, you may be understandably apprehensive to place your trust — and your data — in the hands of a third party. This is a very important factor to consider when choosing a Cloud ERP service provider.
- Connectivity Issues: Thanks to mobility, your employees can access your organization’s Cloud ERP from any device, anywhere in the world — that is, if they have consistent internet connection. Since Cloud ERP depends on internet to function, poor connectivity can prevent ERP users from logging on and getting their work done, which can slow down overall productivity.
Questions to Ask When Selecting a Solution
When thinking of which solution is best for your business, here are a few questions you can ask to help guide the search, as well as examples of how you might tailor your questions.
- Why are we looking for an ERP system? What challenges do we want to solve?
- Replacing an outdated existing system?
- Inability to connect to mobile devices?
- Lack of visibility into customer data and activities?
- Solving common industry pain points?
- A less expensive, more-predictable, cost-effective enterprise resource planning system?
- Tighter data security?
- Inability to tailor our system the way we want it?
- Be able to take advantage of the most Modern ERP technology in our industry?
- Who will be the users in our ERP system?
- How many employees do we have?
- How many of them will use the system?
- How do we intend to train those employees?
- How will we support the system?
- What are the most important factors to us when deciding on an ERP system?
- Do we have a small budget?
- What IT development and support requirements exist as a result of the ERP system?
- Do we want to be on the cutting edge of technology?
- Are there data security regulations with which we must comply?
- Does our business have highly specialized processes to which we must tailor the system?
- Does our workforce need to be able to access ERP from any location, and any device?
- What would make an ERP system successful for our company?
- Reduced IT costs?
- More organized resource management?
- More tightly integrated business processes?
- Fewer IT members to monitor systems?
- Always knowing where sensitive data is stored?
- The ability to more easily collaborate with our team?
- Improved Financial cost and expense management over time?
How Do Industry Changes and Workload Challenges Affect the ERP Decision?
All businesses, regardless what industry they operate in, know how important it is to make smarter business decisions that improve operational efficiency and enable business agility, while minimizing costs.
However, despite this common objective, each industry has its own unique business processes and workflows in need of optimization — and certain workloads come with their own unique challenges, as well. These processes are shaped by industry trends, the demands of a global, interconnected marketplace, and increasing technological innovation, all of which create different ERP industry and workload requirements.
Reduce Interruptions: Unexpected interruptions in production schedule — often as a result of equipment malfunction — can take a serious toll on a manufacturer’s bottom line, as well as overall customer satisfaction. The Internet of Things (IoT), which connects unique devices within an existing internet infrastructure, enables manufacturers to monitor equipment in near-real-time and perform predictive maintenance so that production never slows down.
Superior Supply Chain Management: As supply chains become increasingly more complex, manufacturers must find ways to simplify supply chain management in order to streamline workflows and reduce operational costs. Automating the entire supply chain from end to end frees up valuable resources, reduces the amount of money spent on production, and enables manufacturers to focus on more pressing issues.
Big Data Visibility: Manufacturers have figured out how to capture massive amounts of data but still struggle to interpret it, especially with disparate and legacy systems. Modern cloud-based solutions utilize a number of cutting-edge and emerging technologies, such as data analytics, to help manufacturers derive actionable insights from data, which they can then apply to improve production and build more intelligent operations and supply networks.
In the age of digital transformation, manufacturers must sustain a profitable business model to maintain a competitive edge. Manufacturers shopping for an ERP system should look for a cloud-based integrated platform with the features and capabilities to reduce operational costs, increase production efficiency, simplify supply chain management, enable predictive maintenance, and optimize business workflows.
Increase Productivity: Retail associates often feel unengaged, which contributes to the issues of low productivity and high turnover in the retail sector. To attract — and keep — talent, retail organizations should invest in tools that empower associates to provide better customer service and make more informed decisions, as well as clearly outline business goals and metrics to give employees something specific to work toward.
Omnichannel Everywhere: In the digital age, most retail organizations operate across multiple channels, including brick-and-mortar storefronts, online ecommerce sites, mobile devices, and social channels. Retailers require visibility and control across all channels to better manage inventory, prepare for cross-channel scenarios, and deliver a totally seamless customer experience.
The Age of Analytics: Data analytics has completely transformed the retail sector, enabling retailers to effectively leverage the mountains of customer data on which they sit. One key retail use case for data analytics is to improve store performance; modern solutions can deconstruct a store’s sales breakdown and track customer buying patterns to provide in-depth insight and enable data-driven decision-making.
Retailers should choose an ERP system that prioritizes operational efficiency from end-to-end via centralized data and functionality. The ideal ERP should enable retailers to access real-time information, integrate with their existing point of sale system, effectively utilize data and reporting, and handle employee, customer, and inventory management from a single interface.
More First-Time Fixes: A successful field service organization is one that rapidly responds to service requests and delivers a high rate of first-time fixes. IoT-connected mobile devices enable field technicians to quickly access essential customer and case information from anywhere in the world to more accurately diagnose and repair equipment malfunctions.
Remote Service: When combined with emerging tech, such as artificial intelligence and augmented reality, mobility gives field service teams the ability to administer repairs remotely. Technicians can use mobile devices to communicate and share screens with customers and guide them through repairs step-by-step, thus enabling organizations to increase their scope all while saving time and money.
Think Ahead: Any field service team that still relies on preventative maintenance is officially outdated. To truly be competitive, a field service team must engage in predictive maintenance by using IoT-enabled tools to proactively monitor equipment health, set up alerts for behavioral changes, and execute predetermined actions to mitigate potential damage. Technicians can further increase the value of this information by using machine learning to simulate device behavior in a controlled environment and create predictive models.
Field service technicians are more productive when equipped with the right tools. Organizations should invest in an ERP system with a highly mature toolset that enables their field service technicians to access and send data quickly, convert it into actionable intelligence, and use that intelligence to reduce callback (or eliminate it entirely). Organizations with field service requirements can benefit significantly from using cloud-based ERP, especially when it is integrated with an organization’s preexisting cloud-based field services solution.
Oil and Gas
Protect Your Assets: Asset failures pose a serious risk to oil and gas companies; a single failure can result in a net loss of millions of dollars. Preventative maintenance is no longer sufficient to head off potential failures, so companies are instead turning to predictive analytics technology to identify and resolve issues before they occur.
Worker Safety: Oil and gas companies need to be hyper vigilant when it comes to ensuring the safety of their workers. IoT-connected devices enable workers to repair and service systems remotely, sometimes even autonomously, which keeps them out of potentially dangerous situations. Many oil and gas companies are also applying this IoT-connected remote repair practice to pipeline monitoring, as it enables workers to safely monitor and inspect pipelines without risk to themselves or to the environment.
Regulatory Compliance: The oil and gas industry is subject to a constantly changing regulatory landscape, which means organizations must possess a thorough understanding of regional regulations and tax. Modern solutions make it easier for oil and gas companies to ensure regulatory compliance by giving them total visibility into business processes, enabling them to track regulatory change, and improving data security.
Oil and gas companies need to contend with a host of challenges, including sudden market changes, which means they require an ERP system that enables them to restructure organizational processes and better address pricing volatility, regulatory compliance, worker safety, sustainability, limited resources, and more. Such an ERP system should easily integrate with third party applications, enable automated lifecycle management, provide total transparency into production, and include extensive reporting and forecasting capabilities.
Are You Ready to Move Forward with a Cloud ERP?
Questions to Ask a Cloud Service Provider
After seeing what features and functionality a Cloud ERP has to offer compared to on-prem, as well as the different trends that affect how your industry does business, you might think that a Cloud ERP is the right choice for your company.
But with so many Cloud ERP providers out there, how do you find the one that’s best for your business?
Here are 17 questions to ask a Cloud ERP service provider to better determine if they would be a true partner in your Cloud ERP deployment.
Q: How long has your company been providing a Cloud ERP for my industry?
A: It probably goes without saying that a partner’s business should be stable and strong. It is also important that the partner be focused on your particular industry. A partner with extensive experience in your sector will have the knowledge and expertise necessary to support your business and help you plan for future growth. A service provider with industry experience can act as more than simply a solution provider, but as a trusted partner that understands the intricacies of your business, the processes needed to make it run successfully, and how its Cloud ERP system can best integrate into your organization.
Q: Can you name 3 Cloud ERP clients of yours that are in my industry or with a similar business model and processes? Can you walk me through what they were looking for, and how their deployments went?
A: A healthy portfolio of customer success stories is a good indicator that the vendor has experience in your industry, has completed similar implementations in the past, and is ready to handle anything that may come up during implementation, go-live or post-launch. Understanding the number of (happy) customers in your industry that a provider has worked with (and still supports) is important because it validates the provider’s capacity and resources, as well as its commitments to customer service.
Q: Do you have a standard implementation roadmap for your Cloud ERP solution?
A: Software implementation is typically a complex process with many moving parts, so it is important that your provider presents you with a clear outline of what will happen at every stage and takes care to walk you through it, step-by-step. This roadmap should indicate the work involved at each stage, who is responsible (either within their organization or yours) for each individual task, how the provider intends to address any issues should something go wrong, and what the projected completion date will be. A detailed implementation roadmap not only gives you a greater understanding of the implementation process and a strategic timetable, but also the assurance that your provider has the experience and expertise necessary to successfully execute an implementation.
Q: What happens if there are issues during implementation or it runs longer than anticipated?
A: An ideal implementation would go smoothly at every step, with deliverables completed perfectly and ahead of schedule, with the entire project coming in significantly under budget. But that is not always the way it goes. Even if all the right pieces are assembled at the right time, there is always the possibility that a Cloud ERP implementation can be disrupted by factors outside a team’s control.
A Cloud ERP provider should offer a backup plan for addressing any contingencies and should communicate with you about what you can expect in those situations. And if an issue occurs that is the fault of the provider — such as missing or lost data, or if their deliverables are not completed on time — they should let you know how they plan to compensate you in those instances.
Q: How will this system meet my business requirements?
A: A provider with true expertise will listen closely to what your company needs and expects from a Cloud ERP, and will want to understand the post-deployment metrics you will use to determine if it is a success. A reputable provider will also demonstrate that they are knowledgeable on the industry pressures your business faces. After meeting with you and understanding your requirements, a provider should offer a detailed map of how the solution will work for you, and how it will improve business processes. If the vendor is unable to provide these things, they most likely do not have the professionalism and experience you need for your deployment.
Q: How will this system fit the evolving needs of my business?
A: A Cloud ERP service provider should offer an ERP system that will scale with a growing business. Ask the provider whether it is possible to increase cloud storage in the future, and what the cost would be to do so. Also, if you were to expand your team, you would want to validate with the provider that it would be easy to add more ERP users at a reasonable cost.
Q: Does your Cloud ERP system integrate with third-party solutions?
A: The entire purpose implementing a Cloud ERP is to improve business processes and increase operational efficiency — however, if a service provider’s ERP system does not integrate with your existing software and services, it could interrupt important workflows and ultimately do more harm than good.
Q: What additional support, services or capabilities do you offer that will help my business make the most of the data we have collected?
A: Your software provider should offer more than just implementation support — it should also help you develop a strategy that moves your organization into a scalable, agile, modern, and adaptable environment, all while evaluating your current business needs and using data-driven insights to create a roadmap for the future.
Q: How will pricing work?
A: The price and terms for ERP subscriptions vary from one Cloud ERP provider to the next. Some subscriptions services are hourly, while others are monthly, annually or semi-annually, so it is important to stay informed about how each provider structures fees. Keep in mind that pricing should, ideally, be pay-as-you-go, with built-in flexibility to pay additional service fees as needed; beware any provider that quotes large upfront service costs.
Q: What is your strategy for cloud security? What security measures do you have in place that guarantee data is safe and protected?
A: Your Cloud ERP service provider will be responsible for storing all of your business data, so it is important that you feel completely comfortable entrusting them with that data. A veteran Cloud ERP provider should use multiple security measures to protect your data and clearly outline their procedure for updating those policies.
Q: How many geographic regions do you have data residency in?
A: Data residency is a major cloud security concern because the more locations in which your data resides, the greater the risk of your data being accessed and compromised by another party. Look for a service provider whose Cloud ERP solution incorporates encryption and tokenization into its security policy to ensure that your data is always safe and sound.
Q: Will you give me the ability to dictate where my data resides, and provide total transparency into how my data is distributed globally?
A: Since ERP systems contain confidential data, it’s crucial that you know where your data resides at all times. Generally speaking, on-prem ERP systems provide greater control over data residency, however, some Cloud ERP systems will provide a measure of control, as well as total transparency into how they distribute that data so that you never have to worry about sensitive data getting into the wrong hands.
Q: What is your disaster recovery plan for my data?
A: Your business data is precious. A Cloud ERP service provider should have redundancies in place that reduce the danger of lost data. But if a service provider still somehow misplaces or loses your data, you need to understand how they will react in that situation and how they will fix it; if the data cannot be recovered, you need to know what compensation the provider would offer for your losses.
Q: How will the system be deployed?
A: You want to be prepared for your Cloud ERP installation so that you can plan accordingly. Cloud ERP providers have different engagement styles during the deployment process. Your provider can either guide you through each step of the installation and configuration process, or they can simply hand over installation documentation and let your IT team take over from there, whichever you prefer. It is important to identify the type of involvement you want from your Cloud ERP provider so that you will not be unhappy if a provider is too hands-on or hands-off.
Q: How do you keep your applications current?
A: Some service providers force upgrades, which can result in unexpected downtime. Be sure to partner with a Cloud ERP vendor that gives clients visibility into the upgrade schedule, as well as multiple upgrade options, so that you can anticipate and plan ahead for upgrades and updates.
Q: How often do solution upgrades occur? How will I be notified of upgrades?
A: Learning the typical Cloud ERP upgrade schedule is important for planning purposes, and for getting a better sense of the system. Do major releases require long periods of system downtime? Are small releases able to be installed without the assistance of the IT Team? A Cloud ERP should keep you in the loop on upgrade timing and inform you of any new features or functionality that are included in each upgrade.
Q: What is your plan for training?
A: An ERP system is only good as the team that is using it — if they do not use it, then the business misses out on crucial insights and worker productivity. Good Cloud ERP training fosters user adoption as users learn how to work with the system and get an understanding of how it will make their jobs easier. A Cloud ERP service provider should have a thorough training plan for getting users up to speed and comfortable with using the system.
Q: How will customer support work? How responsive are you to new support requests?
A: How will your Cloud ERP provider help support and maintain your system post-launch? Different providers have different engagement cycles during the deployment and post-implementation process. Similar to deployment, it is important to indicate to your provider how hands-on or hands-off you would like them to be in terms of support.
If your ERP users need answers to questions, or if a problem with the system surfaces outside of working hours and needs immediate attention, you should know whether the service provider will be available to help. It is also important to ask what the average response and resolution times are for their support team, and whether your company will have access to a dedicated support team or a call center that is shared across customers.
Q: Will I be able to leverage system integrator/managed services offerings that align with my company’s support strategy? How can you ensure that my managed services provider will be able to offer me quality support?
A: It’s important to work with a provider that offers operational support and continuous engineering and is flexible enough to either take on the role of the entire support team or fill in the skills gap to complement your IT team. Look for a provider that affords you rapid escalation for any product issues and whose methodology includes standardized processes and documentation, especially around operational transition, to ensure an effective transition to any support team. Ultimately, it should be your service provider’s primary goal to be your most valuable partner.
Don’t miss out on the crucial collaboration, data organization, and data analysis opportunities that Cloud ERP offers.
If you’re ready to start a conversation about Cloud ERP, reach out to the experts at Hitachi Solutions with any questions. We help businesses like yours improve their enterprise resource planning with technology every day.