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Cloud vs On-Premises ERP: Pros and Cons Compared

One of the fundamental decisions to make before investing in enterprise resource planning (ERP) software is whether to implement it in the cloud or on-premises. Each offers different benefits and pitfalls, so it comes down to what you need and how much you want to spend.

To help you reach a decision on the system that’s right for you, our guide will cover the pros and cons of cloud and on-premises ERP software.

What is Cloud ERP?

Cloud ERP provides enterprise resource planning as a Software-as-a-Service (SaaS) model, whereby a third-party vendor manages the server-side maintenance and upkeep of the platform. You then access the functions and interfaces of your ERP via an internet-enabled device.

The Advantages of Cloud ERP

Cloud ERP offers a wealth of benefits to enterprises both big and small. Let’s take a look at some of the attributes of investing in a SaaS ERP model.

Cost

Cloud-based ERP software is regarded as the most cost-effective means of accessing enterprise resource planning services. Based on a monthly or annual subscription model, cloud ERP has a low cost of entry and predictable pricing, with no hidden fees or extra charges.

One of the very best things about cloud ERP from a cost perspective is that all maintenance and server-side fees are included. That means you don’t have to worry about the cost of hardware maintenance and updates, freeing up resource which can be reinvested in other areas of your business.

woman working on her tablet

Implementation

If you want ERP software that’s quick to implement and easy to maintain, a cloud-based service could be the option to go for. Implementation times are a fraction of those required by on-premises solutions, and updates and maintenance typically happen behind the scenes – requiring no additional resource at your end.

The speed at which ERP software is integrated into your operations matters, both from a cost and resource perspective. It also reduces potential downtime, mitigating the risk of lost capital as the new system beds in.

Security

Data security is a priority for most businesses, which is why it ought to be your first consideration when looking at cloud or on-premises ERP software. Generally, the security provision offered by ERP vendors is of an impressively high standard – offering peace of mind that your data and information is secure.

While some would argue that placing data into the hands of a third-party software vendor isn’t the most sensible way of safeguarding company assets, such enterprises are bound by stringent data security standards and legislation. So, it’s in their best interest to keep your data safe.

These are just a handful of the benefits you stand to reap by investing in cloud ERP, and, depending on your business and industry, there will undoubtedly be more besides.

The Disadvantages of Cloud ERP

Cloud ERP isn’t a silver bullet. There are a few potential disadvantages to the SaaS model, as we look at below.

Customisation

It has to be said that, while cloud ERP does offer some flexibility and customisation, it may be difficult to tailor a SaaS solution to your exact requirements. This is particularly true of lower-cost options, which are designed to provide an out-the-box offering for businesses who want a simple and no-nonsense ERP system.

Having the ability to customise your ERP platform is a major consideration. You may require functionality or access to applications which some cloud ERP services can’t provide, so be sure to do your research before committing.

computer programmer working at his desk

Security

While we listed security as a benefit, there are, of course, some downsides to placing your data in the hands of a vendor. Depending on your industry, you may be reluctant to place trust in third parties, particularly if your data is of a sensitive nature.

When exploring different cloud ERP options, be sure to quiz vendors on the security provision they offer. What do they pledge, and which security standards do they abide by? Check their accreditation and seek case studies or reviews to understand more about how they will protect your data.

Cost

Again, we appreciate cost was listed as a plus point, but it’s important to understand how SaaS works and how it compares to on-premises solutions.

Should you invest in a SaaS ERP solution, there may come a point when the monthly subscription surpasses the one-time cost of on-premises ERP. While there are other costs to think about, it’s worth considering how long you plan to use a specific cloud ERP for, so you can budget accordingly.

What is On-Premises ERP?

On-premises ERP is when enterprise resource planning software is installed locally on your servers and devices. Unlike cloud ERP, you pay a one-time license fee to access the platform but do need to take care of server-side maintenance and updates.

The Advantages of On-Premises ERP

While on-premises ERP is no longer the most prevalent form of enterprise resource planning software, it does have its advantages over cloud solutions. Let’s take a look at some of the benefits you might expect.

Customisation

The primary benefit of on-premises ERP is the level of customisation it affords. With your IT team responsible for managing and updating the system, there are many opportunities to tailor the platform to the unique requirements of your business.

Unlike cloud ERP software, on-premises gives you the option to expand functionality and ensure that everyone has access to the applications and interfaces they need. Of course, tailoring an ERP does require the right resource and expertise, but it can be of huge benefit in the long term.

engineer in server room

Security

If security is of paramount importance to your organisation, on-premises ERP could be the best option for you. With data stored on your servers within your building, this type of ERP platform gives you the ongoing assurance that you are in control of your data’s security and management.

Cost

While on-premises ERP does require a significant upfront investment, the one-time nature of the purchase does allow for simple budgeting. Provided you have the IT resource in place to maintain the system, the on-premises route could be the most cost-effective if you have the capital to invest.

As we touched on above, the long-term fees associated with cloud ERP may end up outstripping the one-off cost you paid for on-premises licensing. Think of it like taking out a mobile phone contract vs buying a device upfront; if you’re tied to a contract for a long time, the price you pay may end up being higher than the actual purchase price.

The Disadvantages of On-Premises ERP

While we’re sure you’ve got to grips with the potential disadvantages of on-premises ERP by now, here’s a quick list to recap what you should be aware of before you invest:

  • High upfront cost and hardware/IT related fees to consider
  • Slow implementation times
  • In-house maintenance, training and update requirements have the potential to use up a lot of internal resources
  • Lack of support from an expert third-party vendor

Next Steps and Key Takeaways

Are you any closer to deciding on the type of ERP system that’s right for you? If not, here’s a basic look at the pros and cons of both in-cloud and on-premises solutions, for you to take away and mull over:

So, what’s next? If you need help deciding on the best ERP solution for your business, JS3 Global can help. Our ERP specialists have years of combined experience in helping businesses invest in the right software for their operations – providing the expertise you need to make the right choice.

For more information about our ERP services and how we can help your business, visit the JS3 Global homepage today or call us on 0161 503 0866.