ERP System Types and How They Work
ERP systems have exploded in both popularity and functionality over the last few years. In a time where businesses need to do more, for less, organisations of all sizes are becoming aware of the need for a solution that manages and automates key business operations, letting their teams focus on growth, strategy and customers.
ERP does just that – it works behind the scenes, pulling together all your business data, workflows, customer information and employee information in one system, so that everyone is working from the same information ….
Naturally, an ERP system is an investment for a business – the functionality, implementation, integrations and training needed do not come cheap – but once this up-front investment is made, your business will reap the rewards long term, with reduced errors, duplication, manual reconciliations and increased time spent on what actually helps to grow your business.
ERP types are broken down by implementation method. There are three main types of ERP systems:
Naturally, each of these comes with its own benefits and disadvantages, so it’s up to you to decide which will work best for your business.
This will depend on a number of factors, such as budget, legacy systems, growth plans, number of employees, functionality needed and so on.
On-premise ERP systems are just that – they are installed locally on your own company hardware and servers. Because of this, they require an IT team to maintain and update, which can be a significant cost in terms of time and money, outside of the system itself.
Upgrades for on-premise systems often require a massive effort to deploy as they must be rolled out across all users’ computers and, in many cases, customisations and integrations will need to be re-implemented or reconfigured.
Despite this, however, many companies choose this method for security and total “ownership” of the system.
| Benefits | Disadvantages |
|---|---|
| Costsince you “own” the software on-premises, there’s no monthly subscription to pay | Initial investmentbecause it sits on your own servers, you’ll need the infrastructure in place to support your ERP, plus the cost of setting up the initial system. You may also need to replace it down the line |
| Flexibilityas it’s on your servers, you can customise the system however you wish, making it a highly flexible solution, particularly for larger or complex organisations | Updatesyou’re responsible for any updates the system needs, and for rolling them out across users. You’re also responsible for ensuring these updates work with any customisations and integrations. There may also be a need for downtime as these are rolled out |
| Ownershipyou make all the decisions regarding the software and you’re not dependent on the vendor | Responsibilityyou are totally responsible for any issues that might arise |
| Securityall your data remains on-premise with your software | Data risksbecause you have to handle upgrades manually, this can lead to corrupted or overwritten data |
| Accessyou can’t access the software externally |
Cloud ERP systems are ERP solutions that run on a vendor’s cloud platform, rather than your own servers. This means that you can access your ERP from any web browser, any time, anywhere. Any updates are handled by the vendor, and rolled out to users seamlessly, so everyone is working from the same software and information, and everything is done in real-time.
Cloud ERP systems have different subtypes:
Multi-tenant, also called SaaS, or Software-as-a-Service – a single version of the ERP software and infrastructure serving multiple organisations
Single-tenant SaaS – ERP software that serves only one organisation
Public cloud – multiple organisations share cloud computing services. Examples include AWS, Google Cloud, Microsoft Azure or Oracle Cloud
Private cloud – the service is cloud-based, but not shared with any other organisation. A company’s s ERP software and data are managed centrally by the ERP vendor and are accessed using a web browser.
| Benefits | Disadvantages |
|---|---|
| TCOoverall cost is lower as you don’t have to maintain the hardware and software yourself, and you don’t require a dedicated IT team, plus the cost is more predictable as it’s simply a subscription or licence fee | Price changesas you’re paying a monthly subscription fee, you are subject to any price changes the vendor introduces |
| Automatic updatesany updates are handled by the vendor and rolled out across the board, so users always run on the latest version, and there’s no downtime. Updates will also support customisations and integrations, so no additional work is needed | Less direct controlyou’re reliant on the vendor not just to update your software, but for server uptime. If the vendor’s server goes down, so does your ERP |
| Accessibilityusers can access the system from any device with a web browser, including mobile devices, and can log in anytime, from anywhere, making remote work and quick checks easier | Internet accessif your internet goes down, or if you’re somewhere you don’t have access, you won’t be able to use your ERP |
| Securitythe top cloud systems meet the highest security standards and have comprehensive systems and processes in place to avoid data breaches and losses | Security risksdespite high levels of security, there is always a small risk of data breaches as the data is in the cloud |
| Scalabilitywith no need for dedicated hardware, it’s easy for cloud ERP to grow with your business. You can simply add more users, modules or functionality as needed | Limited customisationwith some cloud ERPs, customisation of workflows and similar can be limited |
Meanwhile Hybrid ERPs are a combination of private or public cloud and on-premises ERP solutions. Hybrid is often a good fit for organisations with an existing on-premises ERP looking to integrate their systems into web-based services or vice versa.
Within hybrid, there are a couple of choices when it comes to implementation:
| Advantages | Disadvantages |
|---|---|
| Reduced costif you’re only adding cloud ERP to support a subset of your business, it’s less expensive than rolling it out across the entire organisation | Dual costswhile it might be cheaper, hybrid ERP introduces complexity as you’re paying for multiple systems and implementations |
| Responsivenessas you’re adding the functionality effectively as the need arises, you can easily choose what you need and get it up and running, rather than waiting for a full-business rollout | Data lagmoving between systems can slow down reporting, plus there may be a lag while data syncs between them |
| Less complexityfor smaller businesses, this model is attractive as they may only need a basic ERP, but then simply add cloud functionality for ecommerce or CRM | Syncing issueswhen more than one system is involved, there’s more of a risk of data not syncing, or code breaking, and then more resource may be needed to fix the issues |
| Testingeventually, your business may want to move fully to a cloud ERP. A hybrid solution allows you to “test” how this could work for your business | Training and user adoptionusers need to get used to more than one system, which increases cognitive load. They may prefer one over the other, which can affect uptake |
So, what do these 3 types look like when compared to each other?
| On-premise | Cloud | Hybrid | |
|---|---|---|---|
| Hosting | Locally, on physical servers owned and managed by your business | Off-site, on third-party cloud vendor servers | Mixed, combining local servers with cloud services |
| Cost | High upfront costs, no subscription costs, but you will need to factor in internal support | High upfront cost, then a predictable monthly subscription payment. No dedicated internal team needed | Mixed, combining initial hardware setup costs and maintenance with ongoing cloud subscriptions |
| Updates and maintenance | Handled entirely by your own internal team for both hardware and software, including maintenance, fixes and patches | Automatic updates handled by the vendor with no downtime | Shared responsibility |
| Customisation | High level of customisation tailored to your exact requirements | Less customisation available but it’s designed to work through updates | Highly flexible, as you can pick and choose the functionality you need to add |
| Scalability | Slow, potentially expensive as additional hardware will likely be needed | Quick and easy. Users and business units can be added in just a few clicks | Flexible, will depend on the solutions you integrate |
| Accessibility | Restricted to local network or VPNs | Anytime, anywhere from a web browser | Core on-premise functions will require local access, anything in the cloud can be accessed remotely |
| Data control | Full physical control | Managed by vendor, but with enterprise-grade security | Sensitive data can stay on-premise as needed, while anything else can use the cloud |
| Disaster recovery | Internal responsibility for backups and recovery | Automatic, continuous backups built in and managed by vendor | Any cloud components will be backed up automatically, anything else will be the responsibility of your team |
As we mentioned in our previous article, one of the key features of the top ERP systems is modularity. This means that they are made up of different modules, each with its own functions, that a business can select in order to obtain a truly custom solution.
Naturally, different industries will require different modules. An ERP system for a warehouse, or manufacturing business would have very different requirements to one for an IT company or restaurant chain. ERP modules allow for that difference, and they also mean that businesses are not paying more for functionality they don’t need.
However, for a smaller business in particular, a generic ERP may be the best option. This means an off-the-shelf ERP solution with limited (or no) customisation. For a small business, this will still cover most, if not all, of the basic functionality you need, such as accounting, inventory and supply chain, lead management, payroll and employee records, although depending on the solution, you may need to pay extra (or integrate an additional system) for functions such as CRM or project management.
You can probably guess the answer here: it depends on your business.
What you do, where you currently are, where you want to be, how much you’re willing to spend, and so on. All these will affect the type of system you need. It’s also worth noting that a lot of businesses are moving away from legacy on-premise implementation and toward a hybrid or full Cloud approach.
Here’s a list of factors to get you started on thinking about what you might need and decide how to choose the best ERP for your business:
Which deployment model fits your business.
Choose on-premise if
Choose cloud if
Choose hybrid if
Ultimately, you know your business best, but a good ERP partner will help you determine the best way to implement your system. If you’re thinking about implementing an ERP, or migrating from your existing system to NetSuite or Microsoft Dynamics, we’re happy to help!
