5 Key Considerations When Choosing Your ERP
5 KEY CONSIDERATIONS WHEN CHOOSING YOUR ERP
If you have been tasked with researching an enterprise resource planning (ERP) system for your organization, we know that you’ll have many questions:
- Should I choose a cloud or on-premise ERP?
- What are the benefits of a cloud vs. on-premise ERP?
- What factors do I need to consider to ensure I’m choosing the best ERP solution for my business?
We’re here to answer all of these questions and more, starting by defining the fundamental difference between on-premise and cloud ERP systems.
On-premise ERP: An on-premise ERP system is installed, housed, hosted and maintained on servers and equipment in your physical business location(s.) Your data resides on your own servers and is accessed via a set number of user licenses. On-premise solutions typically require fairly sophisticated IT systems and an analyst in-house to manage the hardware and software while also being responsible for upgrades, updates, programming changes, and backups. These staff members must remain continually educated on the standards and protocols that need to be adhered to in order to successfully maintain an ERP system over several years.
Cloud ERP: Your data and system are housed and operate off of the most advanced, cutting-edge equipment in existence, with uptime averaging at 99.9%. Any maintenance, upgrades, or updates to the equipment and software are managed by your ERP vendor.
Here are some of the critical factors to consider when researching the right ERP solution for your organization:
#1 – Flexibility: Customization and Configuration
There is no such thing as an ideal ERP solution “off the shelf.” In fact, if a vendor tells you they have the perfect solution for you that will meet all your needs without needing any modifications, that’s a red flag. Both on-premise and cloud ERP systems are typically customized or configured to meet the needs of your business, and those needs are best revealed by an in-depth review of your operations.
Customization: A customization involves developing a feature, extension, or modification that does not already exist in the on-premise ERP software. It must be custom coded and/or may require a special implementation.
Configuration: A configuration involves using the tools that already exist within a cloud ERP system and arranging or modifying them to accomplish particular tasks and fill specific needs.
Most on-premise ERP systems are customized with developed modifications during the implementation. Cloud ERP systems can be highly configurable and also be customized with an approved development partner to bridge any functionality gaps that may exist. Usually the developer can create a browser plug-in or extension that has custom code to add functionality that doesn’t exist in out-of-the-box settings.
Successful customizations and configurations each require extensive knowledge both of the ERP system as well as the business needs in order to understand how to best customize a solution or configure a system’s many available features to develop optimal solutions for the unique needs of the business. If you are concerned about the limitations of an ERP system that you are considering, make sure the implementation team you are considering has a team of developers and integration expertswho have a proven track record of working around limitations of a variety of ERP systems.
#2 – Costs: Up-Front and Ongoing
In any ERP implementation, there will be some up front hardware costs such as scanners, label printers, shop floor terminals, cabling, and wireless network hubs. That’s where pricing similarities end for on-premise and cloud ERPs.
On-premise ERP: Up-front costs are greater with an on-premise ERP system because they include network hardware, servers, data storage and backup, software, user licenses, security compliance, as well as the cost of any customization, the installation, and implementation.
Ongoing costs can be significant as well and may include an in-house IT team dedicated to maintaining the infrastructure of the ERP, as well as the cost of physically housing the hardware. You also run the risk of incurring business costs associated with downtime, should you experience a power failure or other infrastructure problem on your premises. Ongoing ERP system support will be a factor too, for at least the first 12-24 months after launch.
Cloud ERP: With a cloud solution, the up front hardware costs are lower because all data is housed in off-site, state-of-the-art datacenters. Pricing is generally subscription-based; in addition to a monthly fee, you will also have the flexibility to pay for additional users and features as you need them, allowing for easier expense management. With a cloud ERP, you should be guaranteed uptime as part of your service agreement, so you don’t have the same worry about system downtime. However, your organization will need rock-solid internet connectivity. As with an on-premise solution, ongoing support for the first year or two after launch should be factored into your ERP budget.
No matter which type of solution you choose, your ERP budget should include time and funds for comprehensive business mapping consulting. This should include one or more on-site discovery visits by your ERP vendor to evaluate and understand your organization in its current state as well as create process maps of the future state. The knowledge coming out of the analysis is applied to the ERP selection and implementation process. This analysis phase is key to a successful implementation and should not be overlooked or undercut. Its long term value will far exceed the money and time spent.
#3 – Security
Both on-premise and cloud ERP systems are very secure. For some industries, storing data on their own servers is important. However, if a company does not have the capital to invest in Fortune 500-grade networks and security compliance then a cloud solution is a more secure option, because cloud ERPs are run in state-of-the-art datacenters that most companies could not afford on their own. In fact, our experience has revealed that data is often more secure when hosted by a cloud vendor rather than on-site. Cloud ERP security updates happen regularly and those updates are built into the subscription pricing, whereas with an on-premise ERP, those updates may need to be scheduled and implemented by IT staff, so more of the security compliance burden lies with the company using the system.
#4 – Time
A question we hear often is, “How long does an ERP implementation take?” The answer varies based on many factors within your business. Generally speaking, a typical implementation takes between 6 and 12 months, with cloud solutions tending toward the lower end of that spectrum. Deployment for an on-premise system will take longer because it involves hardware setup on-site, whereas a cloud solution can be accessed with an internet connection.
In our experience, smooth implementation processes share these traits:
- A dedicated implementation project team with a strong champion in-house. It’s important that the project team is cross-functional and prepared to dedicate approximately 50% of their time to the ERP project work for the entire length of the project. A cross-functional team is critical so that all areas of the business have a voice in the project plan.
- A comprehensive discovery and analysis phase. Time spent creating detailed process maps in the beginning will be repaid with dividends as the project progresses into the piloting or testing phase.
- A detailed project plan with milestones and gate review, which creates transparency regarding project health and keeps the plan on track.
- Transparent and frequent communication
- Clear, mutual understanding and expectations for time and costs required
#5 – Scalability
On-premise: While on-premise ERP systems are quite scalable, it typically comes at a significant cost to the organization to upgrade memory and storage requirements in order to accommodate business growth.
Cloud: Cloud solutions are very scalable, so as your business grows, your ERP will be able to accommodate growth from a data and functionality standpoint.
By this point you may be thinking, “Can I combine an on-premise and cloud ERP solution?” Our answer is yes, sometimes a combination of the two can be the right solution for a business. For example, Cumulus will often implement a cloud ERP in a manufacturing plant and then integrate it with an on-premise system such as SAP, NetSuite, or other ERPs that are frequently used in corporate headquarters. We have easy to deploy solutions for integrating these various systems, so don’t let this concern you in your decision making.
Choosing an ERP solution is a major business decision and managing all of the factors at play can become overwhelming very quickly. Choose an implementation partner who will take the time to learn about your business and work with you to develop the most efficient, usable, and profitable ERP solution for your organization.