Enterprise Resource Planning (ERP) solutions are widely utilized by businesses to centralize data throughout their enterprise. In the past, ERP software was often installed on local servers or equipment belonging to them directly; this practice is now known as "on-premises."
On-premises ERP solutions also fall short in other aspects, notably regarding cost, agility, and maintenance, even when they contribute significantly towards increasing efficiency within companies and producing tangible benefits. Cloud-based ERP systems offer several advantages over their on-premises counterparts and address many common shortcomings.
What Is Cloud ERP?
Enterprise Resource Planning (ERP) solutions help 95% of organizations that use them enhance company processes by unifying finance, inventory and order management, supply chain management, human resources, and more into one integrated operation.
Cloud-based ERP operates differently. Instead of operating on-premise systems, cloud ERP runs on servers provided by third-party vendors that can be accessed online. Different varieties are available; some providers simply host (administrate) on-premise software before offering it online to clients.
SaaS (Software as a Service) is another highly favored paradigm. Because SaaS uses multi-tenant architecture, each client utilizes their instance of the program divided by database level - this provides economies of scale to both vendors and clients since customizations and integrations automatically carry over with each upgrade; additionally, upgrades occur more regularly, requiring less work from clients.
Switching From Legacy ERP To Cloud ERP
There are numerous advantages that your company could enjoy by upgrading from outdated ERP to contemporary cloud ERP. Modern ERP can transform an organization from allowing employees to work remotely to overseeing departmental operations and resources more closely. Let's examine the positive aspects of cloud ERP vs legacy ERP:
Implementation
Implementing cloud ERP does not require hardware installation; hence, implementation typically only takes several weeks or months, depending on the complexity of your business. By contrast, legacy ERPs typically require teams of IT specialists to install hardware, launch programs live, monitor performance accurately, and ensure everything functions according to plan - making implementation significantly harder.
Lower costs
Cloud ERP can significantly lower initial costs for organizations by offering single monthly membership payments rather than purchasing individual software packages to manage accounts, finances, warehouses, and material needs.
Businesses can minimize inventory expenses with modern ERP systems that track inventory to prevent overages, waste, and stock-outs that disrupt operations. Demand forecasting also can help lower purchasing costs by enabling companies to negotiate discounts ahead of time and determine which discounts provide the most significant returns.
Real-Time Data Access
Today's workforce hails from every continent to collaborate in technologically advanced companies with multiple shop floors, warehouses, and offices across various locations. Cloud-based ERP allows users to monitor, organize, control, and report on tasks and resources seamlessly from any device.
Maintenance
It is evident that cloud ERP providers do not rely on legacy system suppliers to maintain their software solutions; instead, they manage all IT issues, upgrades, and support remotely around the clock - not to mention providing modern users with the intuitive user experience they crave.
Digital Transformation Solutions
Innovative technologies such as IoT, AI, data analytics, and machine learning can be combined with cloud ERP to assist manufacturers in automating daily processes and gaining an edge against competitors. Cloud technology enables businesses to adjust to changing demands more easily while meeting regulatory compliance.
Why Move From On-Premise To The Cloud?
Customers utilizing on-premises systems are responsible for maintaining all hardware in their data centers, including servers. Installation and ongoing management require significant investments in hardware, software, space, staffing resources, and upgrades that meet individual organizations' demands.
Customizations, integrations, and user retraining may be required when upgrading from an old software version. As these steps may cause significant business disruptions--sometimes more so than with a brand new implementation--many companies choose not to upgrade and end up stuck using outdated versions instead, creating what is known as "version lock."
Cloud ERP solutions generally provide more effective methods, allowing businesses to use massive processing capacity. Migrating from on-premises ERP to the cloud usually results in lower upfront expenses, quicker implementation times, and decreased use of personnel and physical resources. Cloud-based technologies may also increase flexibility by offering high adaptability and scalability - freeing leaders from worrying about fixing bugs or making upgrades. At the same time, they focus on leading their companies or exploring expansion opportunities.
Reasons To Move To Cloud ERP
Firms often transition from on-premises ERP systems to cloud ERP for various reasons, with cost being one of them:
Lower Costs
Cloud ERP implementation costs tend to be far cheaper upfront and ongoing when compared with on-premise solutions, especially maintenance and support expenses, which usually account for 20% of initial license prices as well as hardware upgrade and maintenance expenses plus IT workers cost; subscription costs after implementation could still be less. Even though such technology would benefit your organization's operations, these savings may be crucial for smaller organizations that cannot justify large upfront expenditures for on-premise ERP implementation.
Upgrades And Maintenance
Businesses don't need to upgrade and maintain ERP software since vendors host and maintain all system infrastructure. To ensure the software remains compliant with all applicable laws and regulations, its provider maintains its database, servers, and infrastructure, automatically sending updates or patches to each customer. Increased accountability results from having one vendor manage all potential issues. Furthermore, as cloud ERP providers charge monthly subscription fees, they often offer round-the-clock assistance to resolve any issues quickly; cloud ERP companies typically offer higher uptime and security than organizations without in-house IT professionals because their business relies on maintaining service availability.
Access To Emerging Technology
Technology is progressing astonishingly, necessitating businesses to outdo their rivals rather than simply competing on equal terms. Advancements such as machine learning, artificial intelligence, and advanced analytics make it possible to use massive volumes of data to optimize operations, uncover previously hidden insights, forecast more accurately, and even develop innovative new products.
Implementing cutting-edge technologies requires significant investments in data processing and infrastructure as well as hiring staff with technical knowledge - which have made this technology unaffordable for most businesses.
Cloud ERP makes AI, ML, advanced analytics, and other business intelligence tools accessible at an economical price. Businesses can take advantage of them quickly without incurring extra resources or costs in terms of hardware purchases or physical infrastructure requirements compared with on-premise solutions.
Security
Security concerns still prevent some organizations from trusting cloud-based ERP systems to store their financial information safely. Still, cloud software often offers more excellent protection than its on-premise counterparts. Modern cloud technologies are highly secure due to multi-factor authentication, cutting-edge encryption technologies, and other vital security features integrated into every component of the system. Physical theft risk can also be minimized with cloud ERP systems housed in secure, centralized locations, and given economies of scale, cloud providers usually allocate more resources than individual businesses for application, database, and physical security measures.
Implementation
Most cloud solutions can be designed and implemented within 100 days, an impressive speed advantage over on-premise systems. This is possible because their vendor must activate all hardware and software, minimizing downtime during switchover and giving companies time to meet growing demand quickly or adjust quickly to an emerging market.
Real-Time Data
Since ERP software is now used in cloud ERP environments, real-time data is more effectively provided. Information remains up-to-date since apps and data reside centrally. Furthermore, eliminating bottlenecks at different software interaction points reduces any chance of incorrect reports or projections being produced.
Easier Customization
Configuring on-premises systems to meet business objectives can be more expensive and time-consuming than cloud-based ERP, necessitating upgrades of any necessary gear or software and selecting an ideal combination of third-party apps and ERP features. Furthermore, without experienced IT personnel creating enterprise resource solutions, it may become impractical to customize them, which would defeat their purpose altogether.
Customizing cloud ERP solutions, however, is much more straightforward and cost-effective due to vendor management of customizations. No extra hardware or software costs need to be considered, and no prior ERP knowledge is required - businesses can quickly develop a system tailored precisely to their requirements quickly and affordably.
Simplified Compliance
Finance, healthcare, and defense firms often must manually update their on-premise ERP systems to comply with regulatory requirements. Businesses must stay abreast of all federal, state, and international regulations to remain compliant and avoid expensive fines or any negative legal ramifications; then integrate any changes into their current setup, upgrading hardware and software as necessary.
Accessibility
Cloud ERP solutions make data entry, compilation, and collaboration possible from any location with an internet connection and browser-enabled devices such as computers, smartphones, and tablets. Compared with on-premises systems that require a dedicated VPN, this enables departments or business units to collaborate across corporate campuses or international borders while accessing just a single instance of software without purchasing or maintaining additional VPN software emulations software - thus making cloud ERP solutions more cost-effective.
Cloud ERPs also enable critical decision-makers to remain in contact during working hours and outside, expanding talent pools by hiring remote workers more efficiently.
Scalability
With on-premises ERP systems, cloud ERP systems' quick and virtually limitless scalability is simply impractical. To upgrade or redesign various pieces of hardware to scale onsite systems is both expensive and challenging. At the same time, cloud ERP can expand your business as resources can be adjusted as necessary, allowing resource utilization to adapt with growth, such as adding employees or businesses or creating product lines or divisions more quickly than on-premises ERP can.
Cloud ERP can also reduce costs when implemented across multiple sites, as its configuration can be done remotely - meaning no implementation crew needs to travel between each location and reduced hardware investments and minimal setup expenses.
Disaster Recovery
Disaster recovery and prevention should be an integral component of every business's IT infrastructure and systems, yet too often this aspect of operations goes under-planned, increasing risks if data loss affects their onsite ERP systems.
With disaster recovery in mind, cloud ERP systems come equipped with several built-in disaster prevention and recovery features, such as multiple data copies stored across multiple locations to avoid single points of failure and the ability to switch automatically to backup data should any breakdown be identified.
Peace Of Mind
ERP systems installed onsite typically come with an end-of-life support date, after which their suppliers cease providing software patches, upgrades, repairs, and technical support requests for that hardware component.
Cloud ERP providers strive to extend the lifespan of cloud ERP solutions beyond on-premises systems and lower tech turnover by continuing support services for as long as the services are rendered. Furthermore, the cost of implementation across many locations or geographical areas is lower since configuration can take place remotely without an implementation staff visiting each site individually.
Make The Case To Move To The Cloud
Despite these advantages, many decision-makers could remain uncertain whether switching to a cloud ERP platform is essential. As part of creating a business case for cloud ERP systems, the initial step should be identifying their benefits to an organization - such as cost reductions, revenue increases, resource optimization, or problem resolution.
After identifying these items, decision-makers must determine the value that addresses the difficulties facing their organization. This value may come in direct, quantifiable advantages (cost savings or revenue growth) or indirect qualitative advantages such as higher productivity. A proposal must consider several elements, such as:
- What are the upfront licensing costs compared to monthly cloud ERP subscription rates?
- Are estimates accurate that cloud-based ERP will save money regarding staff salaries, data center rent, support costs, and any other IT expenditures?
- What benefits would each business unit realize from this investment?
- In what ways could this solution simplify and ease operations such as revenue recognition, inventory management, analytics, and organization-wide forecasting?
Consider also that many on-premises ERP vendors themselves are moving towards cloud ERP. With manufacturers often placing lower priority on developing and maintaining clients' outdated on-premises systems, upgrading becomes increasingly challenging to keep current with. Instead of staying with an old supplier simply because you know them well, shopping around to ensure costs, functionality, and needs are adequately addressed can save costs and hassle when upgrading to cloud ERP. It is essentially like starting over with this upgrade process.
Alongside the many shared benefits of cloud ERP, decision-makers often place great weight on anticipated returns on investment (ROI). A typical formula for ERP ROI would look something like this:
ROI = ERP financial benefits/Total cost of ownership
To calculate this percentage, divide the estimated contribution of the ERP system to your bottom line by its total cost of ownership, then multiply this result by 100. In this context, financial benefits refer directly (cost savings) and indirectly (increased sales).
Simply stated, creating a business case for switching to cloud ERP involves telling a change story with complex data backing it up.
Conclusion
Modernizing an existing on-premises ERP system is more challenging than switching from legacy ERP to cloud-based ERP. However, replacing traditional ERP is still a serious concern for businesses like yours. Cloud ERP Solutions has successfully helped numerous similar organizations navigate this complex process.
