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What are the benefits and drawbacks of cloud-based vs on-premise ERP systems?

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Enterprise resource planning (ERP) systems are software applications that integrate and automate various business processes, such as accounting, inventory, production, sales, and human resources. ERP systems can help businesses improve efficiency, accuracy, and profitability, but they also require a significant investment in terms of time, money, and resources. One of the key decisions that businesses face when implementing or upgrading an ERP system is whether to choose a cloud-based or an on-premise solution. Both options have their own benefits and drawbacks, depending on the specific needs and goals of each business. In this article, we will compare the main features, advantages, and disadvantages of cloud-based and on-premise ERP systems, and provide some tips on how to choose the best option for your business.

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Dawn Watson Hilberath

Business Solutions SME | Global Connectivity | Cyber Security | Data Center

1 Cloud-based ERP systems

Cloud-based ERP systems are hosted and managed by a third-party provider on the internet, rather than on your own servers or hardware, allowing you to access the system from any device with an internet connection. This eliminates the need to install, update, or maintain the software, as the provider takes care of these tasks. There are several advantages to cloud-based ERP systems, such as lower upfront costs due to a monthly or annual subscription fee based on user numbers or features, scalability for adding or removing users or modules without investing in more infrastructure, and flexibility for customizing and configuring the system. Additionally, cloud-based ERP systems are more secure due to encryption, backups, and recovery plans provided by the provider. However, there are also drawbacks to relying on a cloud-based system such as dependency on the provider's availability and performance, potential compliance issues due to storing and processing data with a third-party provider, integration difficulties with existing or legacy systems, and having less control over data and systems.

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2 On-premise ERP systems

On-premise ERP systems are installed and run on your own servers or hardware, within your own premises or network. This means that you have full ownership and control over your ERP system, and access is limited to devices connected to your network. Installing, updating, and maintaining the software, as well as ensuring the security and reliability of your infrastructure and resources, is also your responsibility. There are several benefits to an on-premise ERP system, such as increased control and visibility over data and systems, the ability to meet legal or regulatory requirements more easily, better integration with existing or legacy systems, and improved security. However, there are also drawbacks such as higher upfront costs, limited scalability and flexibility, and reduced reliability.

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3 How to choose the best option for your business

When making a strategic decision about which ERP system is best for your business, there is no definitive answer or formula. Rather, it depends on various factors such as budget, size, industry, goals, challenges, and preferences. It is beneficial to ask yourself questions such as: what are your current and future business needs and objectives? What legal or regulatory requirements do you need to comply with? What existing or legacy systems do you need to integrate with? How much control or visibility do you want or need over your data and systems? How much are you willing or able to spend on upfront and ongoing costs? How much flexibility or customization do you want or need? Answering these questions can help you evaluate the benefits and drawbacks of cloud-based and on-premise ERP systems for your specific situation.

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Dawn Watson Hilberath

Business Solutions SME | Global Connectivity | Cyber Security | Data Center
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While evaluating which ERP system is best for your business, consider the follow strategic planning assumptions and be sure to start planning early: - "By 2026, 40% of organizations in service-centric industries will consolidate their core financial, HR, order-to-cash, procurement and operational solutions in a single ERP suite." - "Through 2027, 80% will evaluate a multivendor strategy for service-centric ERP, and many will have difficulty choosing a single-vendor versus multivendor approach." Gardner's report for Cloud ERP for Service-Centric Enterprises,12 July 2022

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What are the benefits and drawbacks of cloud-based vs on-premise ERP systems?

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1 Cloud-based ERP systems

2 On-premise ERP systems

3 How to choose the best option for your business

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