In the previous blog, we discussed the fundamentals of cloud ERP. We now talk about benefits and drawbacks of adopting a cloud-based ERP system, and which types of organisations should do that.

What are the key benefits of cloud ERP?

Low upfront costs

Vendors of on-premises systems usually charge their clients a hefty upfront licence fee, plus annual fees for ongoing maintenance and periodic updates. On top of that, you have to invest in the necessary hardware and facilities to run the systems.     

Conversely, cloud-based ERP solutions require less investment because you do not need to build and maintain the infrastructure services, which are provided by the ERP vendors.

More predictable TCO (total cost of ownership)

Compared with the intricate model of on-premises licences, cloud ERP offers a much clearer and more predictable subscription-based, monthly or annual fee. This subscription-based model, which is easier to understand and break down, ensures a smoother cash flow and facilitates planning and budgeting.

Faster implementation

Instead of having to spend time and money to procure and install the necessary infrastructure, you simply configure the software to meet your requirements and access it through web browsers.

Mobility and accessibility

Users can access cloud ERP software through web browsers anytime, anywhere. Many cloud-based systems even come with native mobile apps.

Access to latest technologies

The internet-based cloud ERP systems are constantly upgraded by vendors. Product upgrades or enhancements are deployed effortlessly to your systems. Therefore, you can always benefit from the latest technologies.

Scalability

No cumbersome hardware investment is needed if you want to allow more employees to access the system. And because the system is run through an internet connection, it can be expanded to multiple locations much more easily than on-premises systems.

What are the main drawbacks of cloud ERP?

Cloud ERP is not without drawbacks. These are the main disadvantages of cloud ERP software.

Long-term costs

Even though cloud ERP has lower entry costs and more predictable projected TCO, you will be incurring costs on a monthly (or annual) basis. Thus, over the system’s lifetime, you could end up paying more.

Increased dependency

Switching over to the cloud means you have less control over maintenance and contingency activities. The off-site maintenance offers little insight into what the vendor is doing.

More important, your system is fully tied to the vendor’s financial viability, so migration to another vendor is not easy. That’s why it is always better to go with a market-leading vendor if you opt for cloud ERP.

Less flexibility

With the SaaS model, you do not get to choose which upgrades you receive and when they are performed. Additionally, you are reliant on your vendor to ensure the system is running properly.

You also have less flexibility when it comes to customisation. While on-premises ERP clients can work with vendors to customise the software to their niche requirements, SaaS ERP is typically managed as a multi-tenant application, which means you may not be able to achieve the same advanced customisations as with on-premises ERP.

Harder integration

More likely than not your business will deploy other line-of-business systems besides ERP. In today’s business environment, companies are no longer satisfied with the ability to share data among systems. They require real-time data syncing and processing, and a mix of cloud-based and legacy on-premises systems will further complicate your data integration. Although this complication is far from unsolvable, it presents another challenge.

Read more: Single ERP suite vs. multiple best-of-breed systems

Who should consider cloud ERP?

Cloud ERP is a great fit for your business if you need:

• Lower upfront investment
• Faster and cheaper implementation
• Greater mobility and accessibility
• Lower IT resources dedicated to maintaining the system
• Moderately specialised customisations

See more: [Video] Cloud ERP for F&B: A success story of JR Watkins

Cloud ERP is also very popular for the two-tier ERP model, in which the primary system, often from a leading marketing vendor like SAP, Oracle or Infor, is deployed at headquarters, while an additional cloud ERP system is deployed at a subsidiary.