When implementing a new Enterprise Resource Planning (ERP) system, it is critical to decide on how it will be hosted. The hosting setup shapes how your organization interacts with its software, its capabilities, and how much time IT will spend monitoring the system. Deciding between an on-premises (on-prem), cloud, or hybrid ERP model is one of the first steps to beginning an ERP implementation. Here’s what you need to know to decide if on-premises, cloud, or a hybrid ERP model is right for your organization.
On-Premises (On-Prem) ERP
What it is: An on-premises solution is when a company hosts its data using its own hardware and applications. This is normally at the organization itself within a data center, although it can also occur at an outside location.
Advantages:
- Offers complete control one’s own data
- Brings a lot of flexibility for customization
- Capable of a strong security setup that is very secure from hackers
Disadvantages:
- Generally priced under a one-time perpetual license fee (usually based on the size of the organization or the number of concurrent users) that has a larger upfront cost than cloud ERP, with additional recurring fees for support, training and updates
- Deployment can be slower to execute, particularly if you want a lot of customizations
- Data management and security are your responsibility, so you need your IT team or ERP partner to actively monitor the system
- Executing updates from the ERP provider can be difficult and force your team to reimplement your customizations each time
- Scalability can become a challenge over time
The bottom line: On-premises ERP solutions are best for companies that want total control over their system. If you want to own your data management, your security, and to create a unique ERP with a lot of customizations, then on-premises may be for you. Be aware of the larger upfront cost and potential for a slower deployment schedule. An ERP partner can help minimize costs and speed up the implementation timeline. At Datix, we use a business-first approach with our clients, so we take the time to understand what they need, recommend a tailored plan with the right customizations, and execute the vision as quickly as possible.
Cloud ERP
What it is: A cloud-based ERP has its server hosted by a third party. There is no on-site hardware and all data is stored in either a public or private cloud. A public cloud is shared by multiple organizations, although all the data remains separate from one another. A private cloud is only used by one organization in a company intranet or hosted data center behind a firewall.
Advantages:
- Generally priced under a monthly or annual subscription that has a smaller upfront cost than an on-prem ERP, with additional recurring fees for support, training and updates
- Contains the latest new functionalities and modules
- Access to software updates offered by the ERP vendor
- Incorporates greater remote and mobile ERP accessibility, including for staff working from the field
- Usually is faster to implement than on-prem ERP
- Scalability is usually easier as your company grows than with on-prem ERP because a best-of-breed cloud ERP provider will design their software to be capable of expansion
- An ERP integration with other software is simple using Unity: Integration by Datix
- Consistently on the latest and greatest software to stay ahead of the competition
Disadvantages:
- Requires facilities with reliable internet connection (may be relevant to rural locations)
- Traditionally seen as less secure than on-prem ERP, but best-of-breed cloud ERP vendors are continuously working to improve their security
- Although to a lesser extent than with on-prem ERP, updates can also cause issues related to software customizations with cloud ERP
- Requires ongoing testing plans to ensure upgrades do not impact the business
- May be less flexible for customizations than on-prem ERP, but an experienced ERP consultant and one-stop shop like Datix can support you. With 25 years of experience, we know how to deliver tailored, comprehensive ERP solutions no matter what setup you choose
The bottom line: A cloud ERP is great for companies that want stay current with the latest technology, while letting their ERP provider or partner take care of the logistics of data management, security, and software updates. For companies that need mobile or remote ERP access, the cloud is undeniably the better choice over an on-premises system. Cloud ERPs are less expensive upfront and can be implemented faster, but it is still a good idea to work with an ERP consultant during the transition who can guide you on best practices with your new system. As a one-stop shop, the team at Datix are experts at ERP implementations and can support specific hosting, security, integration, and disaster recovery solutions. Learn more about gaining a cloud ERP.
Hybrid ERP
What it is: A hybrid ERP solution combines on-premises resources with some cloud services. Companies can have control of on-premises hardware for some or all of their data, while gaining advantages like the scalability of the cloud. A hybrid solution can also use a mix of public and private cloud services based on the company’s needs. Additionally, businesses can elect to keep their corporate functions (tier 1) on an existing on-premises system and elect to utilize cloud ERP only in the specific business units or regions that need it (tier 2).
Advantages:
- Sensitive data that requires extra security can be protected through an on-prem setup
- Facilities, local regions, or specific areas of your business can gain the advantages of mobile and remote ERP accessibility through cloud ERP
- ERP setup and functionality is highly flexible and can be tailored to your unique business needs
- Scalability is simpler than with an on-prem model
- It is simpler to update and gain the latest ERP functionalities for the cloud component of the system
- An ERP integration with other software is possible with an application like Unity: Integration by Datix
Disadvantages:
- Costs will typically be more expensive than a cloud-only ERP solution, but it is probably less expensive upfront than using a fully on-premises system
- Deployment can be slow and challenging because of the unique hybrid setup, so you will want to work with a trustworthy ERP partner to streamline the process
- Requires more oversight than a standard cloud ERP system by your internal IT department or your ERP partner
- Updating the on-premises aspect of the system is still difficult
The bottom line: Hybrid ERP solutions are arguably the “best of both worlds” for companies that need aspects of both on-prem and cloud ERP. A hybrid model is more expensive and slower to deploy than a cloud ERP, but it offers the control, flexibility, and security of an on-prem system. Only specific organizations actually need both aspects of on-prem and cloud ERP, but if you truly need both, this is the best solution to choose.
Wrap Up
Deciding between an on-premises, cloud, or hybrid ERP system is one of the biggest decisions your business can make to determine its software future. As we covered, each system has its own advantages and disadvantages, so the right ERP solution will always be dependent on how your firm operates. If you are still unsure about what type of ERP hosting to choose, or need help executing your ERP implementation, talk to the team at Datix. Our experts have supported thousands of ERP implementations and will create a tailored plan to address each of your business requirements. We can even help manage your ERP system if you would rather let your IT department commit their time elsewhere.
About Datix
With over two decades in the industry, Datix is the ERP consultant of choice for manufacturers and distributors. We believe in “being the best with the best” and look for partners who match our commitment to solving real issues and doing what it takes. Our in-depth analysis of our clients and their business needs allows us to maximize their software investments to the fullest.
