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Cloud-based ERP becoming preferred choice for midsize companies

According to this expert, the cloud could be the right approach for companies needing midmarket ERP.

The cloud is the "in" platform for ERP software, and it is rapidly taking market share from traditional on-premises applications. Despite the growing acceptance of cloud-based ERP as a successful strategy, confusion and doubt remain as to what it is and where it fits within the vast array of available ERP options.

To begin removing that doubt and confusion, let's start with some definitions:

  • Cloud computing refers to the hosting of software, data and IT resources by an outside supplier (as opposed to providing in-house or on-premises resources).
  • Software as a service (SaaS) is a licensing strategy, often associated with cloud-based products and services, wherein the user pays for services that include software license, hosting, maintenance and support all in one monthly fee.
  • Midsize manufacturer is a categorization established by the ERP software community and usually defined as companies with annual sales in the range of $100 million to $1 billion. Those limits are somewhat arbitrary and can vary between suppliers, analysts and pundits.

Cloud-based ERP is perceived to be less costly (no up-front software licensing fees, no need to buy, install and support hardware), quicker to implement, and simpler to operate because IT support is outsourced. These points are all arguably true, making cloud-based ERP attractive for smaller companies with limited cash and technology resources. But there is still concern, largely unfounded, about access, security and control (trusting a vendor with full custody and responsibility for all of a company's applications and data).

What's the difference?

Above all other considerations, understand that cloud, or SaaS, is just a deployment and pricing strategy. ERP software does what it does, regardless of the platform, location and who signs the paychecks of the IT staff. ERP software should be selected based on functionality, fit and how well it supports a company's needs. Once the software is selected, the deployment decision -- cloud or on-premises -- is primarily a financial decision in conjunction with the company's technology strategy (outsourced or internal).

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But it's not quite that simple. There are traditional ERP applications hosted on the cloud and there are ERP systems designed and built specifically for cloud deployment. In the case of the former, cloud deployment is, indeed, a financial and IT strategy decision. For the cloud-native applications, deployment choice is not available -- it's cloud only. These cloud-specific application sets, however, may exhibit unique characteristics that stem from the cloud technology and are not available in traditional applications.

The best strategy, therefore, is to look at the fit and functionality of ERP applications and make your selection. If the software you select is available in either cloud or on-premises deployment, involve your finance and technology leaders in making the deployment decision.

Is the cloud the right solution for midsize manufacturers?

Midsize manufacturers considering a new ERP application should include cloud-only systems among their search candidates. If traditional ERP software is selected, consider the cloud deployment option. These alternatives provide additional options that may be beneficial to your company's finance and operations.

Don't be overly concerned about security and access. These are essential core capabilities for cloud providers who must provide bulletproof performance to stay in business. Reputable suppliers often handle these matters far better and more reliably than individual companies can hope to do on their own, particularly smaller companies with more limited resources and technology.

Also, don't worry about software modification and the perceived difficulty in integrating internal systems with cloud-based ERP. You shouldn't be modifying your ERP system, regardless of whether it is on-premises or on the cloud. Perhaps the ERP software is not as good a fit as it should be. Today's ERP products are more comprehensive and more flexible, featuring the ability to be tailored and adapted to local needs without modification or addition. Revisit your system's inherent capabilities before deciding to modify or extend with custom code.

Integrating with cloud-based ERP not difficult

Integrating cloud-based ERP with third-party or home-grown local systems is arguably no more difficult than it is with on-premises ERP deployment. In fact, cloud-native ERP may actually be easier to integrate because these systems are designed from the start for communications and interaction with both remote and local connections.

Increasingly, cloud-based ERP is becoming the choice for midsize manufacturers because of the financial advantages (swapping capital expense for operating expense), faster time-to-benefit, and the outsourced IT aspect that coordinates well with the limited IT resources and capabilities found in smaller companies.

Additional options -- cloud-native ERP deployments -- add more choices and unique capabilities for the smaller company, allowing a better fit, more functionality, reduced support requirements and cost savings. The cloud advantage fits very well with smaller companies, high-growth start-ups, and remote divisions of global corporations in a so-called two-tier ERP architecture. Midsize companies should not shy away from the cloud. It could be the right approach for your company's ERP future.

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