Cloud ERP is an integrated management software package ( Enterprise Resource Planning ) that runs on its publisher’s cloud platform or a third-party provider rather than in the client company’s data center.
ERP brings together a single system, a company’s business processes such as accounting, HR, inventory, and purchasing management. Before the generalization of the cloud, client enterprises generally executed ERPs on their premises. The cloud ERP era began slowly in 1998 with the first ERP accessible via the Internet: NetLedger, which became NetSuite (acquired by Oracle).
ERP Components in cloud mode
Cloud or on-site, ERPs centralize all of the company’s transactional and operational information in a single database. This unified data source serves as the basis for all modules, which in turn feeds into it.
For example, a purchase order entered by the purchasing department will be pooled in the ERP and will be used for logistics (to verify receipt) and accounting (for payment).
The goal of an ERP with its modules linked by this base is to prevent information that does not contradict each other between departments and services. ERPs reduce the risk of errors, reduce time and reconciliation (between purchase order, delivery, invoice and payment, for example) and make reports more comfortable to create.
Whatever the deployment mode, the modules common to all ERP systems concern accounting and finance’s critical functions and its associated processes (financial analysis, forecasting and reporting). These constitute what we call financial ERP.
Most ERPs also offer human capital management (HCM) and customer relationship management ( CRM ). The modules dedicated to procurement, inventory management and order processing are also widely used. These functions are common to virtually all industries, whether the product delivered is tangible, intangible or service.
Companies that manufacture or distribute physical goods and commodities often need add-ons for Supply Chain Management ( SCM ). This extended function encompasses complex distribution processes, warehousing, transportation and logistics, and planning functions such as forecasting and sales management.
These industries also often use a Material Requirements Planning module to plan, schedule, and source raw materials and manufacturing components.
Beyond these standard functions, companies generally choose more specialized ERP modules suited to their business.
For example, a company with a lot of equipment will often have an Asset or Fixed Asset Management ( EAM ) module.
A manufacturer will also use a Product Lifecycle Management (PLM ) module to manage all the planning and data processes of a product, from design to disposal to engineering, production and distribution.
Some ERPs combine all these functions in a single integrated suite. Still, companies often add modules from other publishers, specialists in the required role and whose software is integrated into the main ERP. This “best of breed” approach is particularly justified when the native functions are not sufficiently developed for their needs.
In the early years, cloud ERPs offered fewer modules than their on-premise counterparts. But the gap narrowed as publishers shifted their development efforts from ‘on-prem’ versions to ‘SaaS’ versions. So much so that today, many cloud ERPs offer the full range of functional modules available on site.
Another critical element to understand is that the SaaS ERP is shared between the different customers. In this so-called ‘multitenant’ model, several tenants use the same copy, called an ‘instance,’ of the software.
As a result, these instances are standardized – some would say simplified – since the same software must meet very different needs depending on the customers.
Also, the ERP in SaaS mode is not customizable. It is often configurable, but the development of specific in-house functions added to the ERP to match a company’s business needs as closely as possible is not part of the philosophy of cloud ERP. To moderate this assertion, we nevertheless note that more and more publishers are offering a dedicated PaaS to develop code complementary to the ERP – but this remains uncommon to what was done “on-prem.”
This lack of “specific” can be seen as a weakness by companies (especially those that have developed a lot). On the contrary, SaaS proponents see it as a force that helps spread industry best practices, reduce costs, and limit bugs and failures.
On-site ERP generally incurs a high initial cost (purchase of a license for several years, support, hardware, database, OS, etc.). Conversely, SaaS ERP generally takes the form of a monthly subscription per user (even if some publishers combine the two pricing models). The entry ticket for ERP in SaaS mode is much lower, which explains why publishers have often initially targeted SMEs and mid-caps with this type of offer.
Between cloud and on-prem, companies can choose not to choose and opt for a combination of the two, called ‘hybrid ERP.’ A very classic configuration marries an on-site ERP – for example, an ultra-personalized system and tightly integrated with other internal systems dedicated to manufacturing and warehouse management – to SaaS modules to manage human capital or the relationship customer.
Types of cloud ERP
Publishers like to say that their ERP is ‘cloud.’ In some deployment models, the publisher moves the ERP’s underlying infrastructure without modifying the software package code on site. Publishers nonetheless praise such ‘lift and shift’ services because they are well suited to clients who are reluctant to adopt ERP products in SaaS mode but still want to take advantage of the scalability and management peace of mind that a cloud infrastructure brings.
The multitenant on-demand offering is the purest form of cloud (SaaS).
This is followed by the ‘monotenant on-demand’ model, where each customer has their own instance of the ERP software that runs on the vendor’s platform. In this ‘single-tenant SaaS’ model, the customer continues to have the scalable computing power and the flexibility of subscription pricing, but their data and ERP system is kept separate from other customers. Some companies choose this option for their security and confidentiality reasons or to meet the countries’ legal compliance in which they operate.
The two types of SaaS ERP (multitenant and single-tenant) are often hosted in a public cloud. The infrastructure and services depend on a provider other than the ERP publisher.
The third significant type of cloud ERP is the ‘private cloud.’ Monotenant SaaS is often one of them. In private cloud ERP, the software and hardware are those of a single customer. In some cases, the ERP client even exercises some control over the data center and does not delegate all the host’s responsibilities. A private cloud ERP can even run on-site within the walls of the client company. Rather than cloud, we could therefore speak of ERP in ‘hosted and managed mode.’
It is possible to combine private cloud and public cloud for an ERP, depending on the modules and layers. The same is right in the public cloud-only, where multitenant may be relevant for some layers and not for others. A customer can take advantage of the benefits of pooling at the database, operating system and hardware level while running their ERP application monotonously.
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