It is a major decision whether the main components of a new ERP (Enterprise Resource Planning) system should be provided on dedicated servers within the company (on-premise) or in the cloud. Different options and costs depend upon this decision. Some vendors offer a mix of models where the cloud software is hosted on a company’s private servers. However, to consider the advantages and disadvantages, one should make a clear separation.
To be clear, the main difference is the investment costs at the beginning of a project. The low entry costs of cloud software have contributed to its popularity, especially in comparison to the high license fees of the purchase options. According to a Gartner study, 93 percent of companies currently use cloud-based software or system architecture, and the use of hybrid cloud systems has risen from 19 percent to 57 percent within a year.
Over time, costs will converge. The following table shows the total cost of ownership (TCO) for cloud-based and on-premise software over a 15-year period. There are enough ERP system users who have been using their current software with maintenance contracts and training for more than 15 years. As it stands, the cloud solution is cheaper to calculate over 14 years. This of course is just business theory without knowing where we stand technologically in 2035.
Advantages and Disadvantages of Cloud ERPs
Safety is an important concern for those responsible. This is no surprise, given the critical information stored in an ERP system. Data such as prices and processes, company finances, trade secrets, employee information, customer lists and much more.
Serious cloud providers have strict standards to ensure data security. Users can take advantage of a third-party security audit of a supplier they are considering and thus eliminate their concerns.
Most cloud systems allow easy mobile access and many offer native mobile apps. The proponents of the cloud say that there is more accessibility, less customization effort, and assume with On-Premise, sometimes rightly so, that mobile restrictions apply. The limited customization options, in turn, are used by supporters of On-Premise solutions as an argument against the cloud.
It is dependent on how far the standard functions of a system meet the existing requirements. In extreme terms, there is total individuality, but only with an in-house development. However, then you must reckon with considerably more than 15 labor years for the rollout of the ERP software and quite a different TCO. The purpose of the company must be considered, does a printing company want to become a software developer, or rather, can it?
“Cloud ERPs are suitable for companies that want lower upfront costs, system stability and easy access.” – Bernd Zipper
Advantages and Disadvantages of On-Premise ERPs
At first glance, industry-specific ERP systems, whether cloud or On-Premise, have many similar functions. However, there are some differences based on their deployment strategy.
In general, On-Premise systems are much easier to modify. The ability to customize the software to meet specific needs and requirements is very important for many companies, especially in the printing industry with its sometimes-unique processes.
On-premise ERPs give the organization more control, right up to the security of its data. A company must then be able to protect the information. A look at the crime statistics shows that this is not always possible. Medium-sized businesses are always a frequent target of cyber criminals.
Mobile availability can be a problem for local services. It often requires a third-party client to communicate between a mobile device and the On-Premise software. This can be quite annoying, although it is definitely not an unmanageable problem.
“On-premise systems are suitable for companies with higher budgets and the desire to customize, host, maintain and have absolute control over the data. The latter, however, is not 100% possible even for cybercrime specialists.” – Bernd Zipper
When choosing a new ERP system, companies of all sizes have more ERP options available than ever before. Developers of cloud-based solutions offer well-engineered software. These systems have limited customization options and address potential security risks. If you are moving towards automation, networking and analysis of data-driven processes, you will not be able to ignore the cloud.
Conversely, local ERP systems today offer advantages in terms of customization and control but are significantly more expensive up front. In addition, the systems are only mobile to a limited extent. Anyone who focuses on the individual job and has mapped or wants to map processes that have grown considerably over the years in the software will not be able to escape the established ERP On-premise systems of the printing industry in 2020.