Types of enterprise resource planning (ERP) systems

The fast-paced business world we live in today requires smart tools to manage a business’s operations and everyday needs. Enterprise resource planning (ERP) is a business management software built to do just that. This relatively new system offers a centralized platform with applications to manage all aspects of your business from supply chain management to inventory management to financial management. The benefits of ERP include built-in business intelligence and access to real-time data, along with integrated machine learning capabilities unlike a legacy system. While there are different types of enterprise resource planning systems, all solutions are built to help improve business functions and business operations.

ERP solutions are built to meet the needs of organizations across multiple industries including retail, consumer products, industrial, energy and utilities and government (including defense). When an organization is deciding which type of enterprise resource planning deployment type to use, there are multiple factors to consider including size, functionality, procurement and industry-specific requirements. If these factors are taken into consideration, it will be much easier to narrow down which types of ERP solutions might meet the organization’s needs.

ERP systems by deployment options

Some of the more well-known ERP software offerings are SAP S/4HANA, Oracle Netsuite, Microsoft Azure, Infor CloudSuite and Acumatica Cloud ERP. The different types of ERP deployment will be discussed below and will hopefully assist organizations in deciding which software solution type is best fit for its needs. It’s important to note each ERP solution offers modules such as e-commerce, human capital management, order management and inventory management, but will differ from one type to the next.

Some ERP software providers may also provide industry-specific ERP solutions or modules. An example is manufacturing industry software which includes MRP, or material requirements planning. Industry-specific software will vary from one organization to the next and can include modules, such as project management and project accounting. Other ERP software offerings can include customer relationship management (CRM) and human resources software.

Enterprise resource planning systems aim to address all aspects of a business and improve business processes, such as accounting, real-time financial reporting, forecasting and other processes. It typically come in three different deployment options:

  • On-premises
  • Cloud
  • Hybrid

On-premises ERP systems

The on-premises enterprise resource planning system is exactly how it sounds. The software is installed on an organization’s own servers and computer equipment. It is a licensed system that can be customized and upgraded and is typically maintained by the organization’s IT team onsite to streamline the business workflow.

Benefits of on-premises

  • Cost: Since the software is done on-premises there isn’t a monthly or annual subscription cost for the software. This could lower the cost of the ERP system over time both short and long term, resulting in better profitability.
  • Customization: Organizations can customize the software as they see fit. On-premises customization can be done during the implementation process and thereafter. The decision-making is much more in the hands of the organization itself.
  • Data security: The on-premises software means all company information and data remains on-site making it a very secure software system for your business.
  • In-house advantage: By having all data storage and hardware on-site the organization isn’t dependent on the software vendor for system needs. It can all be handled by the on-site IT team once they have been trained properly.

Disadvantages of on-premises

  • Initial investment: Software and computer equipment will require a larger investment up front. The software may also need to be replaced down the line. Organizations should factor in these expenses before choosing on-premises ERP.
  • Upgrades needed: The ERP software will need to be upgraded periodically to mitigate cybersecurity risks and ensure your organization has the most efficient software. These upgrades may also require working in the office and perhaps through a slower connection at times.
  • Data risks: Doing in-house data backups or upgrades could lead to corrupted files, potentially putting an organizations data at a higher risk.

Who does on-premises ERP best serve?

The on-premises ERP system is for an organization that wants full autonomy of its system. With this business management solution, the organization handles its data management and security on-site. The use of an ERP team or partner is recommended to help lead and handle any implementation questions.

Cloud-based ERP systems

The cloud-based ERP system has become more popular, especially among small businesses and medium-sized businesses. Since cloud-based solutions are managed remotely by a third-party vendor it reduces the need for an extensive IT team on-site and is often referred to as SaaS (software as a service) due to its ongoing billing model. It also removes the need of having dedicated servers specifically for this business management solution.

Benefits of cloud

  • Easy maintenance: Using a cloud-based ERP system means there is no need for an on-site IT setup. The third-party vendor shouldn’t need to handle the software and any updates, security and server maintenance.
  • Scalable: Organizations can easily modify their system as they grow over time and can make major or minor adjustments without having to spend a ton of money.
  • Cost: With the ERP system being cloud-based there is no need for on-site computer servers or an IT staff to manage the system, saving the organization money up front and down the road.
  • Accessibility: The cloud-based structure allows for the ERP system to be run anywhere and at any time. The updates are done automatically by the software vendor for all users; therefore, employees are freed up to perform other pertinent tasks.

Disadvantages of cloud

  • Cost over time: Cloud-based ERP allows organizations to spread the cost over time. However, the cost in the long run could become quite expensive. Try to consider thinking about where your business will be in, say, 10 years.
  • Less personalization: While custom applications or ERP modules can be selected with a cloud-based ERP system, it does limit what is available. The cloud-based structure typically has a template in place and while it can be molded it’s not the most customizable option.
  • Connectivity: An ERP cloud customer must rely on their internet connection and hope for little to no connection issues. The ERP system cannot run properly if the connection is dropped, therefore disrupting your organization’s workflow and business needs.

Who does cloud-based ERP best serve?

This ERP option is the most popular and trendy of the solutions right now. If your organization is looking to stay up to date and ahead of the curve in the business world then cloud-based ERP is the way to go. If the organization operates on the go or needs remote access often then the cloud is the best choice. It is also less expensive upfront and can be implemented quicker than an on-premises system. However, working with an ERP consultant or a team is always a good idea to help lead your organization down the path to success.

Cloud-based ERP examples:

Hybrid ERP systems

The hybrid ERP system is a combination of elements from both on-premises and cloud ERP systems and infrastructure. This model is for organizations with specific needs or that have strict regulatory requirements. An organization can have the benefit of on-premises ERP hardware installed for all or some of its data, while being able to scale up in the cloud. The hybrid solution is going to be a mix of public and private cloud services depending on what the organization needs.

Benefits of hybrid

  • Tailored: With access to both cloud and on-premises organizations with multiple locations can have remote ERP accessibility. Through an ERP hybrid system multiple types of infrastructure and public cloud services can be molded to fit the organizations needs in a way having to choose one model over the other can’t achieve.
  • Scalability: A major benefit to on-premises ERP is the ability to control the ERP system as the business changes. With ERP hybrid solutions organizations get to control the ERP system and customize on-site, while not needing any additional business-owned servers or computer equipment.
  • Security: The security risks that come with ERP cloud solutions are no longer a concern when using a hybrid model. The ERP hybrid system allows sensitive data to be protected through the on-premises aspects of the hybrid tool.

Disadvantages of hybrid

  • Cost: The long-term cost might be more than a cloud-only ERP system; however, the upfront costs are likely going to be less aggressive than on-premises systems.
  • Deployment: The hybrid setup brings forth some challenges, one of which is in the deployment. In the case of hybrid ERP systems, the deployment and implementation process may require more time and attention due to its unique nature. It’s important to work with a good ERP implementation team to keep the process running smoothly.
  • Oversight: Since there is an on-premises component to the hybrid solution, an internal IT department is necessary; otherwise, the ERP vendor will need to monitor the software to ensure its functioning properly. There is also less flexibility to changing the system if your organization grows over time.

Who does hybrid ERP best serve?

This is a model for specific organizations that want aspects of both on-premises and cloud. This is a more expensive option, and it will likely take longer to implement due to its hybrid features. An example of a time when an organization may switch to a hybrid model is if your organization has invested in an on-premises ERP tool and is looking to update or optimize with the cloud.

An example of a hybrid ERP solution is AWS.

Types of ERP and IBM

When it comes to deciding which solution is best for you it’s important to consider your organization’s needs and the future of your business. IBM Consulting® experts can help your organization successfully migrate legacy ERP applications to the cloud, redesign processes to leverage data, AI and automation, and transform finance into a competitive advantage within your business.

SAP managed services for applications and ERP integration can help manage an organization’s workloads, giving you more time to focus on innovation and new opportunities. Managed services for SAP applications enable agility and resource optimization by supporting and optimizing underlying operational functions. Areas like security and compliance reporting, application management, and service delivery to lines-of-business become more predictable from a pricing, resource and workload perspective.

Explore SAP consulting services

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