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Cloud ERP vs On Premises ERP: Which is Right Option for you? (Updated 2024)

Karan Tulsani - December 16, 2021

Reading Time: 5 minutes

The way businesses manage their operations is undergoing a digital revolution. At the forefront of this transformation is Enterprise Resource Planning (ERP) software. But with two main deployment options of on premise ERP vs cloud ERP, choosing the right ERP system can feel daunting.

A 2023 study found that cloud ERP adoption is surging, with over 60% of businesses now opting for cloud-based solutions.

According to industry experts and leading researchers, the ERP market is slated to surpass USD 85 billion by the end of the year due to the growing demand for ERP in the business landscape.

Let’s discuss this in detail. 

What is an ERP System? 

An ERP (Enterprise Resource Planning) system is a software used by organizations to manage and integrate the important parts of their businesses. An ERP software system can integrate planning, purchasing inventory, sales, marketing, finance, human resources, and more. Essentially, ERP systems serve as a centralized hub for all the critical business processes and information, improving the flow of data across the organization and aiding in decision-making.

ERP tools are popular amongst businesses across different industry verticals due to the inherent advantages offered by the platform and the ability to seamlessly connect multiple business processes. More often than not, ERP tools act as a connecting bridge between different business processes, collect vital business critical data from multiple sources and enhance communication.

There are valuable benefits of Oracle ERP implementation that enables businesses to fulfill their objectives revolving around increasing business productivity, reducing manual data entry processes and chances of human error. Moreover, all employees can access and edit this data while working remotely from their handheld devices.

Second most important advantage is the direct access to real-time data and it is one of the most essential resource for any business. If the data is collected, stored and managed on a single tool, it can be used efficiently to make better business decisions.

What is a cloud based ERP system?

A cloud-based ERP (Enterprise Resource Planning) system is an ERP system that is hosted on a cloud computing platform rather than being installed on local servers or computers. This type of system leverages the power of the internet and cloud technology to provide businesses with a comprehensive suite of integrated applications to manage their core business processes in real-time.

Let us discuss the pros and cons of the Cloud-ERP system.

Pros of Cloud-ERP System

Some of the benefits of a Cloud-ERP system include:

  • It is easier to maintain and the “pay-as-you-go” model helps businesses to reduce their overhead costs and pay only for the services that are used.
  • Teams have quick access to edit all integral data from remote locations from any handheld device.
  • Cloud ERPs are perfect for growth and scalability.

Also Read: Oracle ERP vs NetSuite Comparison

Cons of Cloud ERP System

It is hard to find any major disadvantages with the Cloud-ERP system but the cons are:

  • Total dependency and need for internet connection which can be an issue for businesses.
  • Cloud ERP systems do not provide a lot of tailor made options and hence it can be inconvenient for businesses and can pose certain challenges.

A Quick comparison of Cloud Based ERP vs On premises ERP System

Feature Cloud ERP On-Premises ERP
Deployment Hosted on cloud servers Installed on local servers/computers
Cost Structure Subscription-based (monthly/annually) High upfront capital investment
Initial Setup Cost Lower initial costs Higher initial costs
Maintenance Managed by the provider Managed by in-house IT staff
Updates and Upgrades Automatic and regular Manual, often requires downtime
Accessibility Accessible from anywhere with internet Limited to the internal network
Scalability Easily scalable to meet business needs Requires significant effort and cost
Customization Often less customizable Highly customizable
Security Provider-managed, often very robust Managed by in-house, dependent on resources
Performance Dependent on internet connection Typically more stable within local network
Disaster Recovery Included as part of the service Requires additional setup and cost
Integration Easier with other cloud services Can be complex and costly
Implementation Time Generally faster Typically longer
Compliance Provider may offer compliance options Must be managed in-house
Flexibility High, can adapt to changing needs Lower, changes can be costly and slow
Vendor Dependency High, reliant on vendor for service Lower, more control over the system

What is on-premise ERP?

The on-premise ERP system is deployed on computers on a business’s premises and is handled by their internal IT team. An on-premise ERP might require high-powered servers, operating systems, or database software which you need to purchase. On top of that, you will have to hire a dedicated IT team to manage the software and hardware, but in return, you will have full control on the system along with the updates and security.

Pros of On-Premise ERP

  • One of the major advantages of on-premise ERP is that your business has full control on the system and is not vendor dependent. It is possible to arrange updates, backups, or security checks when required and important for your business. There will be enough time to organize maintenance processes, resulting in almost nil workflow disruptions and saving your business time and money. Moreover, you do not need to seek permission from a vendor before making updates to the system. On-premise ERP can accommodate custom features and meet your business requirements.

  • Data security is the sole reason why organizations prefer an on-premise ERP. By installing your ERP on-premises, it is easy to protect your crucial data which can be stored on premise for internal access. There will be complete control on the backup system and you would not need high-speed internet connectivity to access your data. Businesses from specific industries would prefer on-premise ERP due to security concerns. These businesses would typically not prefer the cloud. It is extremely important for them to have control on their data and hence an on-premise ERP or hybrid deployment works well for them.

Cons of On-Premise ERP

It is evident that there are more cons than pros for On-premise ERPs like:

  • On-premise ERP systems might lose business critical data during failures or glitches as they are located in-house. So, if on-premise ERPs do not take period backups, a business is at risk of losing data completely or to put other crucial business processes on hold while they manage to recover the data. 
  • Hardware maintenance is a complicated and overwhelming task. It is important to make sure server rooms are prepared for any incident which may occur. You will need to ensure that your hardware is always updated and purchase new hardware when required. A full server and required rack-mount hardware is expensive to purchase and maintain. 
  • It is also important that you have a proper cooling system so the hardware doesn’t get damaged due to heat. Additionally, you will need to make sure you possess backups for unforeseen situations when you lose power and will have to invest heavily in generators which can provide uninterruptible power supply. 
  • It is crucial to follow strict guidelines and follow fire protection activities for your server rooms and hardware. Enterprises deploy special systems to stop fires. These steps are crucial to make sure the correct working of your hardware and software which makes on-premise ERP extremely expensive.

Key Considerations

  • Cloud ERP: Best for companies looking for lower initial costs, ease of access, automatic updates, and scalability. Ideal for businesses that want to avoid the complexities of IT maintenance and prefer a subscription-based model.
  • On-Premises ERP: Suitable for organizations that require extensive customization, have strict data security requirements, or need to control all aspects of their ERP system. Typically chosen by companies with significant IT resources and the capability to manage their own infrastructure.

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Karan Tulsani has an extensive experience with various Banking and financial services, FMCG, Supply chain management & public sector clients. He has also led/been part of teams in multitude of consulting engagements. He was part of Evosys and Oracle’s consulting team previously and worked for clients in NA, EMEA & APAC region.

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Karan Tulsani

Karan Tulsani has an extensive experience with various Banking and financial services, FMCG, Supply chain management & public sector clients. He has also led/been part of teams in multitude of consulting engagements. He was part of Evosys and Oracle's consulting team previously and worked for clients in NA, EMEA & APAC region.

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