Benefits and Drawbacks of Cloud-Based vs. Traditional ERP
When it comes to determining the best options for ERP systems and how they best facilitate the back-office functions that can certainly help your business function with the greatest amount of efficiency – which greatly enhances profitability.
Inevitably, the discussion of the best systems comes down to whether you want to have cloud-based ERP solutions or traditional ERP solutions. The reality is there are great merits and drawbacks to each system. The only person who knows best what your business best benefits from is you. This article will delineate the differences between these two types of ERP deployments to help you make the decision that moves your business forward.
The basic difference between traditional ERP and cloud-based ERP is the location of the actual services. Traditional ERP is installed and set up at your location. These services are managed and serviced by your in-house IT team. Cloud-based ERP, also known as SaaS (Software-as-a-Service), is managed remotely by a vendor IT team and is accessed through your web browser.
The basic difference – on location vs. on the cloud is the least of considerations when considering the right ERP services. Also, just choosing the cheaper option is also not the best method. Instead, consider the following questions when choosing your ERP services.
What are the Costs of Ownership?
For traditional, on-site ERP systems, the initial upfront cost can be somewhat prohibitive. The reason is the amount of equipment required. Your business would need to purchase software, related hardware, servers and employ a knowledgeable IT staff in order to install, maintain and upgrade the systems. Generally, the front-end investment is greater due to the hardware, software and personnel investments. There is also ongoing costs in updating the system along with retrofitting different hardware and retraining your IT team as well. Unless you have a massive business, the costs of traditional on-site ERP systems can be very prohibitive for any business size.
Cloud-based ERP systems differ from traditional systems in the cost of ownership realm because you do not have to pay for the hardware costs and IT team costs – all you pay for is the software use. Because the vendor is ultimately responsible for the IT and hardware, your cost is significantly lower. Depending on the system, you can opt for a monthly subscription cost. These costs are roughly 50% less for a company with around 100 employees – this means massive savings for business!
How Do System Upgrades and Enhancements Differ?
The major difference between traditional ERP systems and cloud-based systems is the implementation of the updates. When it comes to traditional systems, the updates are rolled out by the vendor and must be implemented by your IT team at a time most convenient for your business. Generally this involves shutting down the equipment for a period of time to update and in some cases, install complex patches. This results in a loss of profits for the time you are shut down and ultimately, it takes much longer to recoup the lost money in profits and other expenditures associated with implementing the updates. For this reason many companies fail to upgrade their ERP to the latest release version available and as a result end up running outdated ERP system which increases the obstacles in running business process efficiently.
Cloud-based ERP differs because the updates and enhancements take place off-site, and are implemented by the vendor. Your business is not affected because with the cloud based system updates can be ongoing and do not require a replacement of equipment.
What is the Difference in Performance and Accessibility?
The difference between traditional ERP systems and cloud-based systems comes from the flexibility built into the cloud-based system. Traditional ERPs are reliant upon the systems you have in place. If you have a spike sometimes this can cripple system response time or even prevent operations from occurring in real time. This is because your traditional system has a certain amount of processing and RAM available.
Cloud-based systems are different because any spikes are handled offsite, and the cloud itself automatically adjusts. As your needs grow, the cloud is intuitive and flexible, so you do not experience the lag and systematic glitches that can plague traditional systems. Furthermore, if there is a problem with the cloud-based system, the vendor’s IT professionals handle it right away, instead of having an on-site team redirect their work to handle a problem occurring with the hardware or software in the traditional system.
How much of a Difference is there in Deployment Speed?
The simple answer lies in the different requirements of cloud-based and traditional ERP. The cloud system requires no hardware so, as a result, the speed is much quicker. Your cloud-based system is up and running within weeks/Months, whereas the traditional system requires installation of equipment, software, and training for your IT team. Again, if you are a massive company with vast resources and have implemented a traditional on premise ERP system then you need to think again as the adoption of Cloud ERP becoming more common, business of any size can now adopt lean process within the organization without breaking their bank.