Cloud ERP is an enterprise resource planning (ERP) system that runs on a vendor’s cloud platform as opposed to an on-premises network, allowing organizations to access over the internet.

WHAT IS CLOUD ERP SOFTWARE?

HOW DOES CLOUD ERP WORK?

Cloud ERP systems work with a combination of technologies connected by high-speed internet networks. The cloud ERP is always online and security updates are handled by the ERP provider.

All your team has to worry about is logging in and using the ERP and its underlying data. This may lead to a lower cost of ownership than older ERP systems hosted on company-owned servers.

In many cases, cloud ERPs are accessible to users on mobile devices or desktop computers. They include a wide range of business applications to keep your business running efficiently with a focus on a positive customer experience and profitable business outcomes.

Cloud-based ERPs offer near infinite ability to scale and empower your team to access any information they need wherever their work takes them, from customer sales meetings to remote worksites to your home office.

The ability to securely login from anywhere can’t be understated in the post-COVID business environment, where more workers than ever are working from home and other remote locations. Key features include the ability to access customer information, sales histories, financial data, human resources management tools, live operating metrics, supply chain status, and more. A cloud ERP can tie together virtually any computer system your company requires.

COMPONENTS OF CLOUD ERP SOFTWARE?

All cloud-based ERP software provides core financial and accounting functionality.

From there, the types of modules or applications an organization chooses to implement depend on its industry and specific business needs. Available cloud ERP modules include:

Financials
and accounting

Human capital management (HCM) and/or Human resource management software (HRMS)

Customer relationship management (CRM)

Inventory management

Order
management

Procurement

Supply chain management

Project management (CRM)

Material requirements planning (MRP)

Cloud ERP vs. On - Premises ERP

The above breakdown likely begs the question: If cloud-based ERP and on-premises ERP systems provide similar functionality, why choose the cloud?

Cloud-based ERP

Is hosted and managed by the vendor, which provides the software in an “as a service” model through the cloud. The vendor is responsible for the application, data storage, the underlying operating system, servers, the physical data center infrastructure and installing security updates and feature upgrades.

On - premises ERP

Is hosted and managed by the vendor, which provides the software in an “as a service” model through the cloud. The vendor is responsible for the application, data storage, the underlying operating system, servers, the physical data center infrastructure and installing security updates and feature upgrades.

Benefits of Cloud ERP Software

One of the biggest benefits of a cloud-based ERP solution is overall reduced costs, which begins at implementation. With on-premises ERP, a business will incur upfront costs in purchasing servers, database creation, initial implementation, consultants, IT staffing, security and backup.

Companies with an on-premises ERP system will encounter additional costs for maintenance, specialized in-house or on-call resources, upgrades and updates, as well as additional servers as the company grows. Cloud ERP generally costs about 30% less than on-premises ERP. 

Since the cloud ERP vendor hosts and manages the software on its own servers, businesses avoid upfront infrastructure costs as well as additional costs for IT staff, maintenance, security and updates. The vendor provides ongoing IT support.

One of the biggest hurdles of any new ERP solution is the implementation time, which can directly affect business downtime and time to value—in one study, about half of businesses said their implementations finished in the projected time. A business can normally get up and running more quickly on a cloud-based ERP system than on-premises as it does not require selecting and setting up hardware or hiring and training IT staff.

Cloud-based ERP users can access business information in real time, from anywhere and on any device. This ensures employees across the organization are working with the same data, no matter the business unit or location, and can make decisions faster and more confidently.

Without the challenges of adding more servers for more users, locations or subsidiaries, cloud-based ERP solutions make scaling a business easier.

As a business grows, the cloud ERP grows. An organization can start with the basic, core functionality and add more as needed—without adding more hardware. Not to mention, a cloud ERP solution allows users across the globe to access business information by simply connecting to the internet. No local servers are necessary, so as a company grows by merger or acquisition, new units can be brought online quickly. 

Cloud vendors typically own data centers around the world and will keep each customer’s data in multiple locations, providing better and more reliable service than most businesses could manage themselves. Cloud software vendors typically strive for 99.999% availability—which translates into customers seeing less than eight minutes of unplanned downtime each year.

Just as cloud-based ERP can scale with an organization, it can also be more easily customized to fit business needs—from the start or over time, as a business grows and evolves.

While on-premises ERP software can be customized, those customizations are tied to the current software and maybe difficult to reimplement with future versions, particularly if integrations were developed in-house. This is one of the main reasons some businesses avoid upgrading their on-premises ERP systems and continue running out-of-date technology.

Furthermore, cloud ERP systems tend to integrate well with other cloud-based products, and new modules can be added to a cloud ERP system without downtime or additional hardware. This kind of agility enables a business to remain proactive instead of reactive, adjusting more quickly to industry changes, consumer trends, unforeseen circumstances and more.

Cloud ERP vendors typically manage all system upgrades and updates on an ongoing basis, keeping up with evolving business needs and ensuring customers are using the most up-to-date technology. Updating or upgrading on-premises ERP software requires more time and may even involve hiring contractors to manage the process. With cloud ERP, updates can take as little as 30 minutes and usually occur during off hours to prevent business disruptions.

Relying on an external vendor to safely house a company’s business data is an understandable concern for many organizations. However, cloud-based ERP providers may offer better security and compliance than companies could otherwise afford.

Furthermore, a business can remain confident that its data is always backed up, and the vendor is armed with planned and practiced disaster recovery procedures.
Unless organizations have a disaster recovery and business continuity plan, on-premises ERP solutions come with the risk of catastrophic data loss in the case of hardware or software failure or a natural disaster, fire or break-in.

Cloud providers typically offer enterprise-grade security and end-to-end encryption of data between the vendor and the organization. Note that companies are responsible for identity and access management of cloud ERP users and securing devices, like PCs or smartphones.

If on-premises hardware fails, a company could spend a considerable amount of time and money transferring data to a new storage system. With cloud-based ERP, data is housed in the provider’s data centers, usually redundantly and geographically dispersed. This is also beneficial in terms of providing access to business information and data over the internet, an important consideration as more jobs and operations move online and companies seek to automate and streamline business processes.

Cloud ERP Challenges

While the trend is clearly toward more use of cloud, there are potential challenges organizations may face:

Legacy
systems

If a larger business that’s been using an on-premises ERP system for many years seeks to shift to cloud-based ERP, the migration may be challenging and require significant time and expertise.

Resistance to change

Bigger businesses with large IT and administrative teams may experience push back from key stakeholders. Moving the ERP software offsite results in administrators losing some control over processes that become automated, and with the vendor managing all maintenance and infrastructure, IT teams lose control over certain operational processes.

Regulatory compliance

Companies with especially strict cyber security policies, restrictions around hosting customer information in the cloud and regulatory compliance issues may not experience the full benefits of a cloud-based ERP solution. Still, major software-as-a-service providers have made strides in complying with regs such as HIPAA and GDPR and can usually accommodate mandates around data sovereignty and locality, so don’t assume you’re restricted to on-premises ERP.