Manufacturing processes can be significantly streamlined with the help of enterprise resource planning (ERP) software. Manufacturing businesses are increasingly turning to cloud solutions for their enterprise resource planning (ERP) software. While cloud manufacturing ERP may be a convenient option, there are several reasons why businesses would not want to use cloud based ERP software.
This article is on the top reasons why a company might choose to AVOID a cloud ERP system.
It may seem counterintuitive for Sabre Limited, a company which sells Microsoft Dynamics 365 Business Central (a cloud based ERP software), to explain you why not to use it. The truth is we often have clients who ask about the advantages and disadvantages of cloud ERP.
This is our attempt to answer that question as truthfully as we can. Look for a separate article talking about the reasons you should avoid on premises ERP systems in the future.
We are experts in Microsoft Dynamics Business Central for Manufacturing at Sabre Limited. We are happy to share our expertise to help people understand whether investing in a cloud ERP system is the right fit for their manufacturing business.
By answering this question, Sabre can help people decide whether they are going with a cloud ERP system or should look elsewhere.
If you enjoy this article and would like to talk to Sabre Limited’s president Rob Jolliffe to chat about these concepts, you can book a one-on-one 30-minute call with him at https://calendly.com/robert-jolliffe
1. Poor Internet Connection
While cloud-based systems have a number of advantages, they can be less reliable than on-premise systems if you have poor internet connectivity. This is because cloud-based systems rely on a constant connection to the internet in order to function.
If your internet connection is slow or unreliable, it can cause major disruptions to your cloud manufacturing ERP system. This is a big problem because every business relies on their ERP system for critical operations.
Many industrial businesses have this problem. They are located on the edge of the city or town away from high-speed connections. This is especially true in more rural or ex-urban areas. That could be a valid reason why you are not going to be able to use a cloud manufacturing ERP system.
Your internet connection doesn’t need to be super-fast to use cloud ERP, that's a common misconception. In reality, cloud ERP systems only require a steady connection with low latency. Latency, also known as ping, is the time it takes for a piece of data to travel from its source to its destination.
So long as your internet connection has good ping and enough bandwidth, you can run cloud ERP without issue. On the other hand, if you have poor latency or have intermittent Internet connections that go up and down regularly, then this would be a big problem.
2. High Data Collection Requirement
Another reason you might consider avoiding a cloud ERP system is if you have a high data collection requirement for your business.
At Sabre we have run into a few businesses that are collecting real-time data from their production equipment and feeding it into their cloud ERP software. This can generate gigabytes of data every year which must be stored in the cloud. This can be a problem if you have a cloud manufacturing ERP system, as you may have to pay cloud storage fees.
You're not paying a premium exactly, but you're paying quite a bit for storage. And if you're storing an unusual amount of data, that can really drive up the cost.
Unusual data entry requirements can be another issue with cloud manufacturing ERP systems. Sabre has seen this situation a few times. It's rare, but clients that come to us and the manually key in mass amounts of data.
The modern approach is to import data through Excel sheets or from PDF files directly into the ERP system. But for some businesses, for whatever reason, that's not possible and they key in their orders.
A cloud manufacturing ERP will be even slower for than a Windows-based ERP because you still get a lot of keyboard shortcuts with Windows. Once you move into the cloud, you start getting into more of a browser-based GUI experience that is “mouse clicky”.
A browser is not really meant for high-volume data entry like old DOS based ERP systems were. The intent today is to importing data from different sources rather than type it in.
If you need a system designed to allow a room of clerks to key in thousands of orders a day, you are probably going to want to investigate the on premises “client-server” ERP systems that are still around.
3. Recently Made a Big Investment in Hardware
A company might avoid a cloud based ERP system because of the sunk cost from recently upgraded hardware. This is a disadvantage “turned on its side.”
Everyone knows that sunk costs should not be evaluated when considering investments, but people do it anyway. If you've just invested $100,000 into a data center for your old ERP system, it can seem like you're paying twice for the hosting.
However, it should be mentioned that cloud manufacturing ERP systems, like Microsoft Dynamics, include the hosting as part of the price. Running those types of cloud systems in your own hardware end up not saving anything since you’re paying for the hosting anyway.
4. Custom Programming Requirements
Some kinds of custom programming are designed to connect directly to the ERP database. If you need to do this for your ERP system, then a cloud based ERP system won’t work as you don’t have access to the database.
You've probably heard of SQL or Structured Query Language. SQL is a type of database server that almost every ERP system uses, but when you're in the cloud you won't have one (that you can access yourself). If you absolutely need to have direct access to the SQL database, then you might not be able to move to the cloud.
This is a reason why some people avoid cloud systems.
More modern ERP systems, whether they are on premise or in the cloud, are moving to a technology called Web Services or OData. With Web Services, you don't need to know what the back-end SQL server is. You can connect to the Web Service and it will talk to the ERP system for you. That is available in the cloud. Even on premise servers are starting to move in this direction, because on-premise companies realize that they will need to move their operations to the cloud eventually.
5. Concerns about Data Security in Cloud Manufacturing ERP
Many companies simply feel more comfortable having the data on-premise.
This might be a sense of “if I can see it, I know it’s safe” amongst older team members. It might be a sense that your business will be more motivated and put more effort into keeping data safe. There are arguments for and against cloud on both sides of the cyber security debate.
Owning your own server means that you are not sharing it with other potential customers of the cloud ERP vendor. The server that is running your ERP system on-premise is only connected your desktop computers. Of course, we now have to worry about securing those desktops because employees are using them for email, checking websites or even looking up pricing from vendors.
Unfortunately, cyber-attacks rarely target the servers. It's more often that they hack into the end-users' computers and from there they attack the servers,
You could try to disconnect your internet from all your general users, and only allow certain users access, but that’s incredibly hard to do today. It would only be used in situations where very high security is needed, but it is possible even if not practical.
In a cloud system it is basically impossible to completely protect it because it is inherently connected to the internet.
That said, the resources and effort invested by Microsoft, Oracle, SAP or any other cloud based ERP system vendor is significantly more than the average company can afford. It is likely that a small business ERP would be far safer in the cloud than on premise.
6. Paying a monthly subscription fee indefinitely
Another issue that businesses are worried about is that they don’t like paying subscription fees. They have what I call “subscription sensitivity”.
Often business owners think they are better off buying the ERP system outright and only paying for it once. For example, if the one-time cost to buy the ERP and own it is equivalent to four years of subscription fees. If they use the ERP for 10 or 15 years, then it is worth it to simply buy it outright. That is a totally valid concern.
Businesses that do buy the ERP often put it in place (install it) and sit on it. This means the version stays the same for the ten years that they own it.
Even all ERP systems that are sold as on premise, have an annual renewal for that ERP to maintain it. And typically, most ERP systems today, if you don't maintain that annual renewal, you can't add users or add modules to it.
So, just do keep that in mind when deciding to cancel your annual payments.
7. Forced Upgrades
One of the last reasons to avoid a cloud manufacturing ERP system is the forced software upgrades that are common with these systems.
Cloud manufacturing ERP systems want all their users to be on the same version of the ERP software or cloud manufacturing software. This is so that everyone can use the same features and makes it easier to provide technical support to their customers. Microsoft Business Central allows you to delay an upgrade for a year, but you cannot delay it for longer than that.
Forced upgrades to cloud manufacturing ERP systems may be a problem for businesses that have customized or integrated their systems. It can also require some employee retraining and causes disruption in many cases.
That said keep in mind that more frequent, small upgrades are easier to deal with. On-premises systems require an upgrade to be scheduled and then executed. It has a cost that needs to be paid by the customer. This results in upgrades being delayed sometimes for 5-10 years. An upgrade that jumps over 5 or 10 years of versions is going to be much harder for a team to absorb than an annual incremental upgrade.
It is our recommendation that you need to consider this carefully. It is certainly best to do an upgrade every year or two (at the most).
It is important to keep in mind that cloud manufacturing ERP systems do small incremental upgrades frequently, while on premise ERP systems have big upgrades that jump several versions.
I hope you enjoyed this article and its companion video.
When it comes to streamlining things like supply chain management, there's no better solution than ERP system. With ERP software, you can easily track and manage your purchase orders in one place. By implementing an ERP system, businesses can improve their efficiency and manufacturing process.
The cloud has revolutionized the way complex business processes, including the use of ERP software.
There are a number of reasons why cloud manufacturing ERP systems would not be an ideal fit for a company. These include having poor Internet connections, as cloud based ERPs require a constant connection in order to function well, having unusually large data collection needs, and concerns about data security. Additionally, many companies have made a big investment in hardware and want to use the hardware to avoid a sunk cost. All these are legitimate reasons to think twice about getting cloud manufacturing ERP
Custom coding for software programming requirements can also be an issue, as cloud based ERPs often do not allow for access to the SQL databases. Finally, concerns about data security, the need to pay a monthly subscription fee indefinitely and forced software upgrades are other common reasons why companies should avoid cloud based ERPs.
Despite these concerns, the cloud-based ERP option is becoming increasingly popular. If your company is on the fence about whether to make the switch, we recommend booking a consultation with our team of experts. As cloud-based applications become more common, artificial intelligence is being used to improve the user experience and customize software solutions. Running ERP systems in the cloud can provide significant cost savings and operational benefits.
We can help you weigh the pros and cons of each system and decide which option is best for your unique needs. Let us help you take your business to new heights – contact us today!