Before implementing ERP software in the company, it would be nice to know the differences and advantages of these two types of ERP first.
If you are looking to automate your company’s workflow, then you will probably come across the term enterprise resource planning (ERP) system. ERP is an automated solution that connects all departments within an organization. It helps in improving operational efficiency and controlling costs which in turn is expected to increase profits.
When choosing a new ERP system or software, you will usually be faced with On Premise ERP or cloud-based ERP. Of course, each has advantages and disadvantages. By knowing those two things about each type of ERP system, business owners will be able to determine which one suits them best. This will allow for a more appropriate resource allocation and a more efficient ERP solution.
For more details, here is a description of the differences and respective advantages of Cloud and On Premise ERP Software.
Difference between Cloud and On Premise ERP Software
The fundamental difference between cloud and On Premise ERP software lies in how the software is utilized and accessed. However, there are five main differences, namely:
1. Total Cost of Ownership
Cloud ERP software has a ready-made setup hosted on your vendor’s servers. You only need to pay a subscription fee to get the cloud ERP deployed on your company’s existing IT infrastructure. Also, along with managing the hosting server, your vendor takes care of its maintenance and update issues.
Whereas On Premise requires additional investment in servers and hardware to install it locally. Furthermore, unlike cloud-based systems, you need an in-house IT team to manage the software, which adds to the total cost of ownership for running the system.
So, an On Premise system is usually considered a capital cost due to it being a large investment upfront, whereas the cost of cloud ERP software is usually considered an operating cost, as it emphasizes the subscription fee for the duration of time you own the software.
2. Software Maintenance and Upgrade
For cloud ERP software, regular software updates are managed by the vendor. As such, you don’t need an in-house developer or IT administrator to facilitate these changes.
On the other hand, Premise ERP systems require a full-time IT administrator who is capable of maintaining the application and handling all versions of its software updates.
3. Implementation Time
Since the configuration, hosting, setup, and implementation are all managed by the cloud ERP vendor, this method does not require any additional resources or hardware so the implementation process is completed within days or weeks. Not months or even years compared to traditional on-premises solutions.
On the contrary, Premise implementation uses a long-drawn method. Since this ERP system is installed locally on your company’s servers, it takes additional time to set up the infrastructure and prepare your internal IT team to handle the installation process, which extends the deployment period.
4. Mobility and Accessibility
Mobility and flexibility are some of the strongest features of cloud ERP software. Access the data stored in this system anytime and from anywhere through any device with an internet connection. This empowers you with greater visibility and control over your business operations.
Premise ERP software does not have this flexibility. It has restricted remote access and often you cannot manage your business operations while away from your office location. This is because it is installed locally, the features and functionality you will access will only be through that software, with little way to integrate it to other systems that may provide the additional functionality needed.
5. Data Security
With On Premise ERP, the company has full control over the data. Therefore, the company needs to be careful about its data security policies and efficiency, to avoid possible breaches and malicious attacks from within.
In the case of cloud ERP software, the company’s data is on the vendor’s cloud platform and can be accessed through a browser application. This approach means there are various encryption and access management protocols at play. In addition, the ERP vendor will provide frequent security updates.
Advantages of Cloud and On Premise ERP Software
1. Software ERP cloud
Relatively fast implementation: Cloud ERP software requires no new hardware and is deployed on your existing IT infrastructure. It is deployed using the web with minimal preparation time and human interaction.
Vendor-Managed Servers: For cloud-based systems, your ERP vendor manages the servers. This frees you from the hassles of hardware maintenance and allows you to focus on areas to improve operational facilities.
Cloud ERP is perfect for small and medium-sized businesses looking for lower upfront costs, system stability, and ease of access.
2. ERP On Premise
Companies have control of data: On Premise ERP systems store large amounts of information about your company, operations, clients, employees, and vendors. Local hosting gives you control over the data going in to maintain and update the information as needed.
Lower vendor dependency: Since it is your hardware, data, and software platform, you have full ownership and control. Any changes, configurations and upgrades are done at your discretion.
On premise ERP is therefore best suited for larger enterprises with higher budgets, a desire to customize system operations, and existing infrastructure to house, maintain, and protect ERP data.