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Why some manufacturers stick with on-premises vs. cloud ERP

Cloud ERP is key in digital manufacturing, but it's not a fit for all companies, especially those with heavy customization needs or the need to maintain control over upgrades.

Cloud software is all the rage, and even ERP has been steadily shifting from a traditional on-premises model to deployment in the cloud. But for most manufacturers, the on-premises vs. cloud ERP debate is far from settled.

Despite the hoopla over the cloud's perceived benefits -- faster delivery, easier maintenance and regulated monthly costs -- cloud ERP is simply not a perfect fit for every manufacturer, particularly those in highly regulated industries or where control and the ability to customize are still top dogs. Cloud ERP is certainly gaining traction, especially in larger organizations and companies making a significant push into digital manufacturing. At least 35% of new ERP deployments in large enterprises will support a SaaS model and be loosely coupled with on-premises manufacturing execution systems, according to Gartner.

But when weighing on-premises vs. cloud ERP, many companies are opting to stay entirely with their on-premises model for now and possibly the foreseeable future -- mainly because of complexity, the manufacturers' needs for very specific customizations and the realization that cloud deployments aren't always as turnkey as promised.

The popularity of on-premises vs. cloud ERP

A survey by Mint Jutras, a market research firm specializing in enterprise software, found that 31% of respondents plan to retain some traditional on-premises deployments of ERP and other business software beyond 10 years. In particular, the cloud might not make as much sense for organizations that span multiple industries or companies that have invested significantly in in-depth customizations, according to Thierry Bonfante, former vice president of global product management at Epicor Software Corp. and now head of product at uPort.

"Some companies are still very much attached to the extreme customization that traditional ERP afforded them for years; that's the main case I can think of," Bonfante said. "They are the same customers that struggled to upgrade systems and have very specific processes they spent a lot of time and money on."

Companies with multiple sites -- including those in geographic areas that have inconsistent bandwidth -- can also run into problems with cloud ERP. That was the case for a home improvement store and client of consultancy Panorama Consulting Solutions LLC. The store was limited in its deployment options because its operations were widely spread across eight different Caribbean islands.

"Because of the pure lack of connectivity, they simply could not use cloud apps," explained Chris Devault, manager of software selection at Panorama. "In some geographic locations, we are still seeing companies without consistent access to the internet. In addition, North American customers in many rural areas may not have the fiber optics connections to get the bandwidth they need, or maybe it's a remote plant that simply doesn't have access to cellular connectivity all the time."

Sheet metal maker undoes its move to SaaS

Security and regulatory restrictions, which have historically been big inhibitors to cloud deployments, tend to be less of a reason to steer clear of cloud-based ERP. Many organizations have grown to trust that cloud security is typically stronger than what is possible in private data centers, and cloud ERP vendors have come up with options beyond multi-tenant SaaS applications -- private cloud or hosting options, for example -- to ensure that companies can stay in compliance with regulatory directives.

[Y]ou have to adapt to changes when the [software provider] thinks it's best, not when you think it's best.
Jeff DalsinIT business analyst, Dalsin Industries

Doing the work of mapping on-premises vs. cloud ERP benefits and shortcomings to specific business requirements is the only way companies can orchestrate the shift to the cloud without incurring additional risk. It's far too easy to get caught up in the cloud hype and get swept into a technology transition that isn't a match for business needs.

Dalsin Industries Inc., a contract sheet metal manufacturer, learned this lesson the hard way when it opted to migrate to cloud ERP several years ago, according to Jeff Dalsin, IT business analyst. The company had outgrown an outdated Epicor ERP system and moved to a SaaS-based Plex system, primarily because cloud was seen as the next "shiny object," and the company was quick to embrace what it believed was the future of modern computing, Dalsin said.

"People latched on and we were off and running," he noted, adding that the cloud seemed to make sense, given that the firm's relatively small IT group was eager to offload responsibility for regular maintenance and upgrade tasks. Yet the reality of losing control over upgrade schedules, coupled with the software's limited functionality in critical areas like quoting multiple jobs, convinced Dalsin and his team that they had jumped the gun with cloud ERP.

"We'd get an email that an update was done, and the next day, inevitably something didn't work and we'd have to contact them to get it fixed," he said. "We thought it would be a plus not to have to do upgrades ourselves, but the thing we didn't think about was, once the upgrade is done, you have to adapt to changes when the [software provider] thinks it's best, not when you think it's best."

He admitted that conducting a more formal business case instead of letting technology drive the deployment cycle may have prevented Dalsin's premature embrace of cloud ERP. After a couple years into the rollout, the firm decided to go back to an on-premises deployment of Epicor. "Hosted cloud could work for us in the future," Dalsin said. "But for now, we're not talking about it."

In the on-premises vs. cloud ERP debate, for now there's no clear winner or loser.

This was last published in October 2018

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Where do you come down in the cloud vs. on-premises ERP debate?
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It may be a more prudent option to go for a Hybrid model, where some of the Business functions like HR, Payroll could be on a SAAS model while the Customizations Heavy processes like Manufacturing, Financials could be on a  PAAS model , where you can still have control over the Upgrades and Customizations..

Moving on to the cloud does give the advantage over the Infra Cost savings in long term, Scalability ( up/down).

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