Choosing the right Enterprise Resource Planning (ERP) system is one of the most important decisions for a manufacturing company. An ERP helps streamline operations, improve efficiency, and provide better visibility into business processes. But when it comes to deployment, businesses often face a critical choice: cloud ERP vs on premise ERP, or a hybrid approach.
Most companies today are either moving to the cloud or adopting a hybrid ERP model—a mix of on-premise and cloud-based systems. This shift is driven by the need for flexibility, cost efficiency, and scalability. While on-premise ERP still has its advantages, the increasing adoption of cloud and hybrid solutions shows that businesses are looking for ways to modernize while maintaining control over critical operations.
Understanding the differences between cloud ERP vs on premise ERP will help you decide which solution best fits your business needs.
Cloud ERP vs On Premise ERP: What’s the Difference?
Cloud ERP is a software solution hosted on remote vendor-managed servers and accessed via the internet, whereas On-Premise ERP is installed and maintained on a company’s local servers. Cloud ERP offers lower upfront costs, scalability, and accessibility, while On-Premise ERP provides full control, security, and customization but requires a higher initial investment and ongoing maintenance.
Cloud ERP vs On Premise ERP: Key Differences
Understanding the differences between cloud ERP vs on premise ERP will help you determine which solution best fits your business needs. Below is a high-level comparison:
| Feature | On Premise ERP | Cloud ERP | Hybrid ERP |
|---|---|---|---|
| Hosting | Company-owned servers | Vendor cloud servers | Mix of both |
| Cost Model | High upfront (CapEx) | Subscription-based (OpEx) | Flexible |
| Maintenance | Managed in-house | Vendor-handled | Shared responsibility |
| Security | Full control | Vendor-managed | Customizable |
| Accessibility | Limited to local network | Access from anywhere | Best of both worlds |
| Scalability | Limited | High | Moderate to High |
In summary:
- Cloud ERP is best for businesses seeking cost efficiency, scalability, and accessibility.
- On-Premise ERP is ideal for companies requiring full control, deep customization, and strict security.
- Hybrid ERP offers a balance between security and flexibility, allowing companies to transition gradually.
On Premise ERP: Definition, Features & Benefits
On-premise ERP refers to software installed locally on a company’s own servers and infrastructure. Unlike cloud ERP solutions that are hosted on external servers, on-premise ERP requires businesses to invest in physical infrastructure and maintain in-house IT staff to manage system updates, security patches, and troubleshooting.
This deployment model offers companies complete control over their data, making it an ideal choice for organizations with strict regulatory compliance requirements.
Key Characteristics of On Premise ERP:
- Hosted on company-owned servers within the facility, ensuring full control over infrastructure and data security.
- Requires in-house IT staff for maintenance, troubleshooting, and ongoing support.
- Upfront capital expenditure (CapEx) for hardware, software licenses, and implementation, making it a significant investment.
- Highly customizable to meet the unique needs of complex manufacturing processes.
Who Uses On Premise ERP?
On-premise ERP is commonly used by:
- Large-scale manufacturers with extensive IT resources and a need for highly tailored ERP solutions.
- Businesses requiring strict data security and compliance with industry regulations, such as pharmaceutical, aerospace, or government sectors.
- Companies needing extensive system customizations that cannot be achieved in standard cloud ERP platforms.
Some popular on-premise ERP solutions include SAP ECC, Microsoft Dynamics GP, Oracle E-Business Suite, and Epicor ERP.
Pros and Cons of On Premise ERP
Pros:
✅ Full control over system infrastructure and security.
✅ Can be highly customized to fit specific manufacturing workflows.
✅ Long-term cost savings after the initial investment.
Cons:
❌ Requires a dedicated IT team for maintenance and support.
❌ High upfront costs for hardware, licensing, and implementation.
❌ Limited accessibility compared to cloud-based solutions.
Cloud ERP: Definition, Features & Benefits
Cloud ERP is a modern ERP solution hosted on remote servers and accessed via the internet. Instead of purchasing software licenses outright and managing infrastructure internally, businesses subscribe to cloud ERP services, paying a monthly or annual fee.
This model reduces the need for large upfront investments and provides businesses with continuous updates and system improvements managed by the ERP provider.
Key Characteristics of Cloud ERP:
- Hosted on vendor-managed cloud servers, eliminating the need for costly on-site infrastructure.
- Regular updates and maintenance handled by the provider, ensuring businesses always have the latest features and security patches.
- Subscription-based pricing (Operational Expenditure – OpEx), allowing for predictable costs and budget flexibility.
- Accessible from anywhere with an internet connection, enabling remote work and multi-location operations.
Who Uses Cloud ERP?
Cloud ERP is ideal for:
- Small to mid-sized manufacturers looking for cost-effective solutions that do not require extensive IT resources.
- Companies with remote or multi-location operations, ensuring seamless access to data from anywhere.
- Businesses seeking scalability and automatic updates, reducing the burden of manual upgrades and security management.
Some leading cloud ERP providers include Microsoft Dynamics 365 Business Central, NetSuite, SAP S/4HANA Cloud, and Infor CloudSuite.
Pros and Cons of Cloud ERP
Pros:
✅ Lower initial investment with predictable subscription costs.
✅ No need for in-house IT maintenance; updates handled by the provider.
✅ Scalable and accessible from anywhere.
Cons:
❌ Ongoing subscription costs can add up over time.
❌ Limited customization options compared to on-premise ERP.
❌ Some businesses may have data security concerns.
Hybrid ERP: How It Combines Cloud & On Premise ERP
Hybrid ERP is a combination of on-premise and cloud ERP systems, allowing businesses to maintain critical applications on-premise while leveraging the cloud for additional functionalities.
This model is particularly beneficial for companies transitioning from legacy systems but requiring cloud accessibility for certain business functions such as customer relationship management (CRM), analytics, or supply chain optimization.
Key Characteristics of Hybrid ERP:
- Combines the security of on-premise ERP with the flexibility of cloud ERP.
- Businesses can choose which modules to keep on-premise and which to move to the cloud.
- Ideal for companies transitioning to the cloud but requiring on-premise control.
Who Uses Hybrid ERP?
Hybrid ERP is suitable for:
- Manufacturers with legacy on-premise ERP systems looking for a gradual cloud transition.
- Businesses that need custom on-premise solutions but want to leverage cloud scalability.
- Companies with complex IT environments that require both local and remote accessibility.
Which ERP Deployment Model is Best for Your Business?
The right choice depends on your business needs, budget, and IT resources:
- Choose On-Premise ERP if you need full control over security, have significant IT resources, and require extensive customizations.
- Choose Cloud ERP if you want a cost-effective, scalable solution with minimal IT overhead.
- Choose Hybrid ERP if you need a balance between security and flexibility, keeping certain operations on-premise while using the cloud for innovation.
FAQ: Cloud ERP vs On Premise ERP
Which is better: Cloud ERP vs On Premise ERP?
It depends on your business needs. Cloud ERP is ideal for companies seeking lower upfront costs, scalability, and remote access. On-Premise ERP is best for businesses requiring full control, strict security, and deep customization.
Is Cloud ERP cheaper than On Premise ERP?
Cloud ERP has lower initial costs but ongoing subscription fees. On-Premise ERP requires a higher upfront investment but may be more cost-effective in the long run.
Can I switch from On Premise ERP to Cloud ERP?
Yes, many businesses migrate from On-Premise to Cloud ERP over time. A hybrid ERP approach can help during the transition.
