What is Cloud ERP And How Does It Work?
What is Cloud ERP Software?
Cloud ERP software is a complete, integrated system that is hosted and managed by the ERP vendor, runs on the vendor’s servers, and facilitates integration between different business functions using a unified system of data management.
ERP software is accessible to users irrespective of operating system, device, and location. It comes with a wide range of modules that serve specific business functions such as managing customers, fixed assets, human resources, inventory, leads, orders, production, sales, and warehouse.
How Does Cloud ERP Work?
Cloud ERP is delivered as “Software-As-A-Service” (SaaS). The vendor is responsible for deploying, maintaining, upgrading, and securing the system. Thus, there are no upfront hardware costs. Since the vendor takes care of the system integrity, maintenance, and upgrade, there is no need to deploy a special IT infrastructure. Ultimately, businesses benefit from reduced costs.
An increasing number of businesses are adopting the cloud ERP to scale and empower their businesses. In the post-COVID era, employees are able to work from home by simply signing in to their ERP account using just an Internet connection.
Components of Cloud ERP Software
Cloud ERP comes with a comprehensive set of modules. However, a business can choose to include a specific set of modules depending on their strategic business requirements and industry type.
Business Intelligence Tools that empower businesses to gather, analyze, and share insights to make strongly data-backed decisions
Procurement Management System that actively tracks the threshold of the stock of raw materials to prevent hindrances during order fulfillment, logistics, and distribution
Purchase Management System that streamlines procurement of raw materials and packaging materials
Sales Management System that streamlines order scheduling, invoice generation, shipping, order tracking, and order fulfillment
Inventory Management System that helps maintain optimum inventory levels and prevent Out-of-Stock and Excess Stock situations
Supply Chain Management Tools that optimize the supply chain operations and help companies become demand-driven
Fixed Assets module that keeps a database of all fixed assets to enable asset tracking, registration, and classification
Lead Management System that helps manage sales pipeline, monitor lead efficiency, and increase the market share.
Cloud ERP Concepts
▸Deployment Method
ERP Deployment is the process of installing the ERP on the computer, migrating the data from traditional legacy tools, and customizing the system to meet your unique organizational requirements.
There are multiple ways to deploy ERP Cloud. The exact method of deployment may depend on the requirements of the company, the nature of the industry, and the budget. For example, On-premise, Cloud, and Hybrid ERP. It is up to the company to choose a specific deployment method.
▸On-premise ERP
On-premise ERP is deployed on the company’s IT infrastructure and the company retains complete control over the data. This type of ERP requires a higher upfront cost and the company incurs ongoing expenses for maintenance and upgrade. Furthermore, it needs to set an additional budget for training its IT team and consulting an external consultancy firm.
▸Cloud ERP
Cloud ERP is a modern, cost-effective, and comprehensive solution for most small and mid-sized businesses. Since the vendor is responsible for deploying, maintaining, and securing the system, it lowers the ERP cost and saves businesses from the hassle of deploying a separate IT team. Employees can access the system remotely without needing to be physically present in the company.
▸Hybrid ERP
Hybrid ERP is a combination of both On-premise ERP and Cloud ERP. It offers the “best of both worlds” with a solid base of both On-premise and ERP Cloud infrastructure to meet the needs of rapidly evolving businesses. It is easy to integrate, flexible and offers a cost-effective approach.
▸End-to-end Encryption
End-to-end Encryption is a process of building a secure connection between two parties for confidential data transfer. The use of encryption algorithms allows businesses to store and transfer data with high security standards, and prevent snooping by third parties. Private and Public Keys play a vital role during the entire process. The Advanced Encryption Standard, and RSA algorithm, are some of the popular and reliable algorithms.
▸Internet of Things (IoT)
IoT is a modern technology that enables businesses to connect multiple devices through an online network for inter-communication. ERP offers integration with IoT devices to track machine performance in real time, get timely & accurate data insights, streamline organizational activities, improve productivity, and predict machine downtime.
▸Infrastructure Cost
The deployment of On-premise ERP incurs several costs that relate to the on-premise technology such as the cost of underlying hardware and software. The company needs to plan and allocate a sufficient budget for the servers, storage space, network bandwidth, development software, and operating system.
▸Shared Infrastructure
Shared infrastructure refers to a shared network environment with role-based access to multiple users. The use of shared infrastructure enables businesses to lower their deployment costs and leverage high-quality services.
▸Role-based Access Controls
The Role-based Access Control is a security feature in Business Management Software that allows businesses to determine who can access the system, and who cannot. It allows businesses to prevent unauthorized people from accessing their system and any confidential business data stored on it.
Cloud ERP Vs On-premise ERP
Cloud ERP
Cloud ERP software is hosted offsite in the cloud storage managed and maintained by the vendor. It relieves businesses of maintaining their own IT team and saves both time and money. In return, the vendor charges a fixed annual or monthly subscription fee to the company.
On-premise ERP
On-premise ERP is a type of ERP that is locally hosted and maintained, upgraded by the IT team of the company. Deployment of the On-premise ERP incurs significant upfront costs for hardware upgrades. Besides, there are other ongoing costs such as customization, add-on integration, troubleshooting, and consultation with external agencies.
What Are Different Types of Cloud ERP Software?
1. Multi-tenant SaaS
Multi-tenant SaaS is commonly used across many organizations. In this type of Cloud ERP, a single infrastructure serves multiple companies and is hosted on a single server. However, each company’s data stored on the server remains inaccessible to one another. Because the resources are shared among different companies, this type of ERP is comparatively cost-efficient.
2. Single-tenant SaaS
In this type of Cloud ERP, each server is used to store a single ERP infrastructure that hosts data from only one company. As private servers are dedicated to separate ERP instances that host data from a single company, this type of ERP is comparatively expensive.
3. Public Cloud
Public Cloud ERP software refers to the type of Cloud ERP where multiple companies store their data on a single service provider’s servers. Much like the Multi-tenant SaaS, each company’s data is inaccessible to one another. Google Cloud, Microsoft Azure, and Oracle Cloud are some of the popular examples of Public Cloud.
4. Private Cloud
Private Cloud based ERP software refers to the use of a computing environment dedicated to only a single company, and no other companies. A single company is in complete control of the server infrastructure and any data stored on it. Due to the nature of the server infrastructure, Private Cloud is highly flexible and customizable.
5. Hybrid ERP
As the name suggests, a Hybrid ERP application is a combination of both On-premise and Cloud ERPs. It is gaining momentum due to the various advantages that it offers. For example, the cost of setting up a Hybrid ERP is much lower compared to an On-premise ERP, and it is less complex in nature.
Top 10 Benefits of Cloud ERP Software?
▸No Upfront Costs
Cloud ERP is hosted on the vendor’s server and accessible using just an Internet connection and a web browser. Thus, there are no significant upfront costs for hardware upgrades and maintenance, deployment, IT staff procurement, server backup, and security.
▸Lower Deployment Time
Cloud ERPs can be deployed more quickly compared to their traditional counterparts. This allows businesses to get up and running more quickly without spending initial time on deployment, setup, and customization.
▸Less Complex
With ERP software, businesses do not need to invest significantly in employing a dedicated IT staff with the required expertise. Furthermore, the ERP vendor provides ongoing support to help with any issues they may have.
▸Remote Accessibility
Data stored on the Cloud ERP is accessible anywhere, anytime, regardless of the device and operating system. Employees, regardless of their departments and subsidiaries, benefit from ongoing access to information no matter where they are.
▸Scalability
Indian ERP software is extremely scalable. As your business grows, your ERP will continue to handle the increased workloads, data, and users without compromising system reliability, and performance. Such spikes in demand should neither affect the system’s performance and reliability nor require additional investment in the hardware infrastructure.
▸Ongoing Upgrades
Cloud ERP vendors are responsible for system upgrades. System upgrades are typically carried out during off hours to avoid business disruptions and enable businesses to focus on their daily activities.
▸Robust Security Measures
Cloud ERP vendors implement robust security measures such as data encryption, role-based access controls, and Two-factor Authentication (2-FA), among others, to protect confidential business data during transmission and while it is being stored on the cloud servers.
▸Automated Backups
Backups are one of the most important means to protect business data against hardware failure, malware infection, and accidental overwriting of files. Implementation of ERP using the cloud technology leverages vendor’s servers for storage and data backup purposes. Your company can effectively comply with various data privacy, safety, security, and compliance purposes.
▸Real-time Insights
Businesses can leverage the powerful Business Intelligence tools in the Cloud ERP to identify new market trends, find patterns by analyzing historical data, and get a competitive advantage in today’s highly dynamic business landscape.
▸Improved Operational Availability
Cloud ERP benefits also include the ability to work together on key business projects across different locations, and time zones. As a result, your business benefits from increased operational availability without procuring additional workforce.
What Are the Different Cloud ERP Challenges?
▸Long-term Cost
Even though Cloud ERPs are less expensive, the long-term costs associated with them are significant. With periodic subscription payments, the business ends up spending a larger amount in the next 10-15 years compared to the initial licensing costs associated with On-premise ERPs.
▸Limited Customization
Cloud based ERP is relatively less customizable compared to traditional On-premise ERPs. Typically, they have a rigid template in place which can be a hindrance for large companies that require additional customization to meet their specific requirements. In the absence of customization abilities, businesses may not be able to use the ERP to its fullest.
▸Lack of Control
A crucial drawback of Cloud Enterprise Resource Planning software is the lack of control over the server infrastructure. As the data is stored on the vendor’s IT infrastructure, the company has little to no control over it. Some companies may perceive it as a threat to their trade secrets and confidential business information. Leakage of sensitive business information can lead to lost revenue, reduced market share, customer dissatisfaction, negative brand image, court proceedings, and so on.
▸Network Connectivity Issues
While Cloud ERP offers plenty of benefits, it requires ongoing Internet access. Network interruptions can cause it to stop working, or lead to unsaved data loss. Frequent network connectivity issues can lead to business disruptions, lost revenues, and negative brand image.
▸Forced Upgrades
With Cloud ERP, businesses have limited control over the software. For example, software updates are fully controlled by the ERP vendor, which makes businesses susceptible to unfavorable updates that may come with major user interface changes.
▸Employee Training
Many companies often underinvest in employee training, which can have negative consequences for the company’s productivity and efficiency. Training is an essential part of the ERP deployment to ensure employees remain up-to-date with the latest technology happenings and use the software for the betterment of the organization.
Frequently Asked Questions (FAQs)
What Is The Difference Between ERP And Cloud Computing?
ERP is a type of software that helps businesses manage their resources and processes. Cloud computing is a type of computing that allows businesses to access software and data over the internet.
Why Are Modern Manufacturing Companies Moving to Cloud ERP?
Manufacturing firms adopt cloud ERP for various reasons, including lower costs, scalability, flexibility, and efficiency.
How Many Companies Use Cloud ERP?
The exact number of companies using cloud ERP is unknown, but it’s growing rapidly. Market and Markets estimates that the market for cloud ERP will grow from USD 45.3 billion in 2020 to USD 101.1 billion by 2025
Why is Cloud ERP Better?
Cloud ERP has become a new normal, especially in the post-pandemic era. It is a better choice compared to traditional On-premise ERP particularly because it is cheaper, and offers remote accessibility and superior performance. It offers robust security features, automated backups, and data recovery to deal with data disasters and protect confidential business data against online theft and cybercriminals.
What is the Difference Between ERP and Cloud Computing?
ERP stands for Enterprise Resource Planning software. It is a comprehensive business software that offers numerous ERP modules that consolidate data from various business operations, and provide automation, business intelligence, data analytics, and reporting to manage critical business operations.
In contrast, Cloud Computing is a modern technology that facilitates on-demand delivery of computer services and resources over the Internet. It facilitates the use of applications without downloading or installing them on the user’s computer.
How Many Companies Use Cloud ERP?
According to the Panorama ERP Report published in 2021, out of all companies using ERPs, about 53% use the Cloud ERP. The recent COVID-19 pandemic has accelerated the shift from On-premise ERP to Cloud ERP, with many employees working from home rather than office.
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