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. ERP software integrates and automates essential financial and operational business functions and provide a single source of data, including inventory, order and supply chain management and help with procurement, production, distribution and fulfillment.
Given this scope, any ERP system must be highly available to all business units, wherever employees may be working, and deliver a unified, up-to-date view of data. Cloud-based ERP as a service meets these requirements. Because organizations access the software over the internet, all that’s needed is connection and a browser.
What Is Cloud ERP Software?
Because it’s hosted by the ERP vendor and provided as a service to businesses, cloud ERP software supports the same, or better, functionality as on-premises systems without most of downsides, like upfront licensing fees.
In its report, IDC said “demand for cloud-based ERP systems continues to grow because of their ability to access and analyze massive amounts of data in near real time.”
That means real-time inventory insights to sales teams and freeing finance teams to keep a close eye on cash runway and quickly respond to audits or other calls for performance data.
Video: What is Cloud ERP?
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
- Supply chain management
- Project management
- Material requirements planning (MRP)
Cloud ERP Concepts
It’s important to understand some basic concepts associated with cloud ERP as we dive deeper into the subject:
- Deployment strategy: ERP software can be deployed on-premises/on private hosted servers or purchased in an “as a service” model. Cloud ERP functionality can usually be delivered more quickly, though in both cases, companies need to set aside time for planning, data migration, customization and configuration and staff training.
- Cloud-based ERP: Enterprise resource planning software that’s hosted offsite, on the ERP vendor’s servers and provided as a service, accessed through a web browser.
- On-premises ERP: Enterprise resource planning software that’s installed locally, on a company’s computers and servers and managed by internal or contracted IT staff. The software and its supporting infrastructure are managed, stored and maintained in-house.
- Hosted ERP: A company or a hosting provider manages the deployment of ERP software as well as associated infrastructure. Hosted deployment models are often utilized when businesses seek to outsource IT operations. While this setup provides some cloud benefits, it’s not a true “as a service” model.
- End-to-end security: A secure and encrypted connection between a cloud-based ERP vendor and its customers.
- Subscription licensing: The company pays a fixed subscription fee at specific time intervals (annually or monthly) to use the software. That fee normally includes all software maintenance and upgrades and may be charged per user or per organization.
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?
On-premises ERP software is installed and managed by a company’s IT staff or a managed service provider. The business licenses the core software platform upfront and then buys or leases enterprise-grade servers, networking and storage to physically run and house the software and associated data. Businesses using on-premises ERP incur additional costs for maintenance, troubleshooting, supplementary software, updates and customizations. Antivirus and security software as well as storage and server backup systems are also necessary additional costs.
Cloud-based ERP, in contrast, 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.
While the most obvious difference between on-premises and cloud ERP is where the software runs and who manages it, there are other important distinctions.
Types of Cloud ERP Software
For starters, not all clouds are equal. Some legacy ERP vendors have retrofitted their software to run from their own internet-connected data centers. Businesses that implement these ERP systems may miss out on the full benefits of cloud-based ERP, such as simplified upgrades and the strength of the cloud data center model, where a massive pool of resources support applications versus dedicating infrastructure to individual software components.
There are also multiple types of cloud ERP software:
- Multi-tenant SaaS: A single version of the ERP software and its associated infrastructure serves multiple organizations. However, while each organization uses the same software and is hosted on the same servers, one company’s data remains inaccessible to others. A true cloud ERP system is typically a multi-tenant SaaS.
- Single-tenant SaaS: A single version of the ERP software and its associated infrastructure serves just one organization. In other words, an organization’s data is hosted on private servers runninga unique software instance. Some cloud ERP vendors will give customers the choice of running a private instance or a shared instance.
- Public cloud: Owned by the service provider, multiple organizations share cloud computing services. However, each organization’s data and applications are inaccessible to others. Examples of public cloud include Amazon Web Services, Google Cloud, Microsoft Azure and Oracle Cloud.
- Private cloud: A service that is not shared with any other organization.
- Hybrid ERP: Just as it sounds, a hybrid ERP approach combines on-premises software with a private cloud or public cloud for computing, storage and services.
8 Benefits of Cloud ERP Software
Upfront infrastructure and operating costs. 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.
Implementation speed. 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.
Accessibility. 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.
Scalability. 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.
Customizations and agility. 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.
Upgrades. 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 contractorsto manage the process. With cloud ERP, updates can take as little as 30 minutes and usually occur during off hours to prevent business disruptions.
Security, compliance and disaster recovery. 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.
Storage resilience and access. 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.
NetSuite was built for the cloud and serves small to midsized businesses across all industries, offering real-time insights, better customer service and reduced supply chain costs by integrating and automating essential financial and operational functions. Learn how NetSuite ERP can take your organization to the next level.