Local or Cloud-based ERP System: Choosing the Best Solution
Choosing an ERP system is not an easy process. It requires the involvement of a group of people within the company, making numerous decisions, and above all, defining the functions the system is to fulfill. Today, we will try to answer the question: local or cloud-based ERP system?
For many years, clients decided on ERP system implementation by choosing from available systems installed on local infrastructure (so-called on-premises systems). In recent years, the decision to choose an ERP system has become even more difficult, as ERP systems offered by manufacturers as cloud solutions have also appeared on the market. The location of system installation (locally or in the cloud) is now one of the basic decisions to be made during the selection of an ERP system for an organization, analyzing the advantages and disadvantages of both solutions.
So, how should one approach the selection process? What should be considered to choose the right system for your organization and ultimately achieve the expected benefits from implementing an ERP system?
Each solution has its characteristics, which in one enterprise may be advantages and in another disadvantages. Above all, it is worth paying attention to issues such as:
Data Storage Security
Availability of Appropriate Infrastructure
Level of Meeting Business Requirements
Possibility of Building Customizations and Integrations with Other Systems
Cost Model (Licenses or Subscriptions)
Software Manufacturer’s Development Plan for the System for at Least the Next 10 Years
What is the main difference between a cloud-based system and an on-premises system?
Let’s start with a general definition of what on-premises and cloud systems are. An on-premises system is a solution installed on a client’s local infrastructure or at a client-specified location outside their premises, such as a dedicated data processing center. Opting for such a system, the client incurs the cost of a one-time license purchase and periodic (usually annual) technical support costs, provided by the software manufacturer.
Cloud ERP systems are installed on the software manufacturer’s infrastructure and are available to clients as a service – SaaS (Services as a Service). To use the system, the client incurs costs related to the periodic payment of subscriptions.
Is a cloud-based ERP system secure?
Many clients fear that a system located outside their premises will be inadequately secured, leading to data leaks. This can be a misconception, as cloud software manufacturers invest heavily in securing unauthorized access to data in the cloud, often exceeding the security measures in many organizations.
Where will the data of the cloud-based ERP system be stored?
For a cloud-based ERP system, data is stored in data processing centers built by software manufacturers. These centers may be located within the European Union or outside it. The location of storage and processing of data collected in the ERP system is significant for organizations in the financial-banking sector. Existing Polish legislation requires cloud-based systems to meet specific conditions regarding the physical location of data storage, data processing security, and many others.
Software manufacturers offering cloud solutions adjust their policies and procedures to ensure the implementation of such solutions in financial institutions is possible and compliant with Polish legislation.
What will be the costs of purchasing and maintaining infrastructure?
Such costs related to providing infrastructure are significant in the case of an on-premises solution. These costs concern not only the purchase of equipment but also the costs of maintaining this infrastructure (updating equipment and technological components, licenses, ongoing administration, data center maintenance, etc.).
In the case of a cloud solution, the above issues of building and maintaining dedicated infrastructure for the ERP system do not arise, as it is the responsibility of the software manufacturer.
Is there a possibility of integration with a cloud-based ERP system?
Many organizations have applications that must continue to be used and integrated with the ERP system after its implementation.
Both on-premises and cloud-based systems have built-in integration capabilities in the form of import and export data tools prepared by the software manufacturer. Various integration possibilities are used, such as invoking services, interface tables, importing flat files, or preparing data extracts.
Can a cloud-based ERP system be customized?
For over 20 years, on-premises ERP system implementations have dominated, with many customizations built according to clients’ needs. This is not difficult, given that an on-premises system is installed in local infrastructure and we have full access to it, including at the database layer.
The approach of flexible customization building in the ERP system has remained in our market, and many clients expect that customizations in the cloud system will also be built without significant restrictions. On the other hand, there are also opinions that the cloud system cannot be customized in any way, so it is immediately rejected in the ERP system selection process.
It is worth emphasizing that building customizations in cloud solutions is possible. It is usually not recommended by software manufacturers. It conflicts with the basic assumption of manufacturers that a cloud-based ERP system is offered as a service and should be used as designed. However, this is not always possible due to Polish, often changing legislation.
It should always be kept in mind that building an excessive number of customizations increases the implementation and maintenance costs of such a system after production launch.
How are on-premises and cloud systems updated?
In the case of an on-premises system, the update process is usually carried out by clients every few years, which means that the scope of technological and functional changes is significant. A new project is initiated, requiring the involvement of organization employees and usually also the participation of an external company.
In the case of cloud solutions, the software manufacturer prepares periodic updates (e.g., quarterly). Due to the frequency of updates, the scope of changes in each update is significantly smaller than in on-premises solution updates. The software manufacturer is also responsible for updating the hardware infrastructure and database layer. As a result, we always use the latest version of the software, having access to all the new functionalities of the system.
Reading the above, we can notice that there are many issues to consider before deciding whether it is better to implement a system in the cloud or traditionally in one’s own server room.
We invite you to contact us; we will conduct an analysis, prepare recommendations, and help make a decision regarding the choice of ERP system.
We have been involved in implementations for over 20 years. We have gained a wide range of knowledge and a lot of experience from successfully completed implementations, which we can confirm with references.