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Understanding Cloud ERP System and On-premise ERP ‎System

More people with mobile devices nowadays are aware of and talking about cloud technology. But what is cloud technology? Cloud technology doesn’t have anything to do with cloud seeding technology and is not related to the condensed in the sky. In fact, Cloud technology is a virtual platform of remote servers somewhere in the internet network that provides “on-demand” data computing and storage.

At present, instead of investing on computer infrastructures, many small and medium-sized businesses are now opting for cloud-based enterprise resource planning in order to cope with the ever-expanding storage and functional demands of their business operations.

What is Enterprise Resource Planning?

Enterprise resource planning is an integrated business management system or software that allows businesses and organizations to use a system of applications for product planning, manufacturing, development, marketing, sales, and financing. The ERP likewise enables an organization to collect, manage, store, and consequently interpret data pertinent to the aforementioned business functions. The ERP system also helps businesses and organizations to track their resources (production capacity, raw materials, cash, etc.) and commitments (payroll, orders, etc.). With ERP at hand, all the data gathered in the course of the business operations can be shared and accessed by all departments (production, sales, accounting, etc.) of the business organization.

The data collected by the ERP can be shared and integrated with other management software like the manufacturing execution system (MES), customer relations management (CRM), and human resource management (HRM) software. However, most ERP modules at present only include product planning, materials’ procurement, inventory, marketing, distribution, human resource, accounting, and finance. Additionally, the ERP system can either be based on cloud or on-premise. On-premise ERP software are locally installed into the company’s computers and servers while cloud-based are situated in the cloud.

Comparative Analysis of the Cloud and On-Premise ERPs

Cloud-based ERP or cloud ERP is considered by many as a more convenient and flexible option due to its accessibility anytime and anywhere. Any mobile device like smartphone, tablet, or laptop can be readily used to access and update the data stored in the cloud. The on-premise ERP system, on the other hand, prevents immediate mobile accessibility. Nevertheless, there are some ERP vendors that offer a hybrid system that lets mobile users access on-premise systems via third-party connections.

The cloud ERP systems are cheaper than those of the on-premise due to the lesser initial costs of installation. Cloud ERP users only have to subscribe and pay a flat-rate monthly or yearly charge. On the other hand, the users of on-premise ERP have to buy the software together with its license, resulting in a higher initial cost for its users. Furthermore, the users need to set up a computer infrastructure that include a server and all the cable connections that usually add up to its cost.

The cloud ERP solution is usually regarded as an operational expenditure; while the on-premise system is considered an integral part of the capital investment of the business organization. However, while the cloud ERP may initially cost lower, the cumulative subscription payments of cloud ERP may add up and be more expensive over time. Lastly, a company has great control with the use of on-premise ERP regarding the implementation, customization, and data security of its software; with cloud ERP solution, however, the data security rests in the vendor’s hands.

Written By

Marcom Director at Priority software

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