Enterprise Resource Planning (ERP) in Cloud
Few years back, cloud did not have many takers. It was considered as marketing propaganda. Top management had big doubts about it- particularly performing key business applications like Enterprise Resource Planning (ERP). Now, despite the fact that cloud has made significant presence into IT industry, many organizations do not prefer it mainly for complicated ERP tasks. Data security, business continuity & control, and privacy are few major concerns for enterprises. Low cost, scalability and flexibility are important advantages of cloud-based ERP.
Introduction Gartner created the abbreviation ERP in 1990, which conventionally has been a complicated software containing several incorporated applications to run multifaceted business procedures. ERPs requisite thorough preparation and substantial means to execute, therefore accompanying expenditure and efforts are extraordinary. ERPs plays important role in organization’s key business processes such as:
Sales
Dispatch
Production planning
Payroll processing
Invoicing
ERP also stores vital and confidential information such as finance, revenue etc. Therefore enterprises have been managing them with extreme planning, care, rheostat and safety. ERPs are normally recognized for substantial license price, maintenance fee and hard work require for upgrade. The ERP industry being huge comprises substantial work and expense to keep moving. Cloud based ERP suppliers are putting effort to hit into this zone to offer low cost solution. A cloud based ERP supplier provides ERP as a service. It is given through internet, maintained by service provider and fee paid on the basis of subscription. Other cloud based services are accomplishing extraordinary growth. ERP services have still not got acceptance as it has concerns for information security and privacy. But, to decrease the always increasing ERP operation expense, organizations have initiated thinking about cloud based ERP. Though the cloud based offerings are achieving a high growth, ERP offerings are yet to gain that much acceptance due to issues related to data security, privacy and control in cloud. However, in order to reduce the ever increasing cost of ERP operations, companies have started considering cloud as an option to run their ERPs.
Benefits of Cloud ERP Cloud based solutions possibly carry “fear of unknown". Companies themselves would like to control physical servers. They still want to have look and feel of physical devices. They do not want to hand over to someone else who will store their important and confidential information somewhere in cloud. Though, cloud based solutions provides several advantages in the form of expense, control on cash outflow, rapid implementation, enhanced internal IT processes etc.
1
Be Updated
ERPs might have touched prime of life in the form of qualities, features and functionalities. Therefore organizations might not be thinking to get new features immediately. This thought process might be restricting cash outflow for them, but later on expense of any functional advancement will be considerably greater. All application has several supports in the form of:
Hardware
Operating system
Middleware
Database
Front end applications
All of above mentioned supports has their own life span for scalability and usability. Therefore advancement of applications is essential to be sustained and viable in business. Postponing the advancement in fact increases the expenditure. Cloud based services are able to keep up-gradation cost at lower side. Shifting to cloud based ERP allows organizations to be updated with cutting edge technologies. It also takes away burden of up-gradation and other day to day IT concerns such as bugs, patches etc. 2
Rationalized Cash Flow
Enterprises do not have to make investment for licences, technical support and feature advancement with payment on the basis of number of users. Subscription based model offers higher suppleness of fine-tuning the expense as per usage. A subscription based method can be chosen which would be invoiced on monthly basis depending on usage.
3
Low Capital Expenditure
With cloud based services, organizations are choosing pay-per-use business model. With this model enterprise does not have to buy licenses in wholesale. They can shift to subscription based business model. Companies do not have to make any capital expenditure to buy server, space, rack, licences, data storage etc. to run their business. Therefore, implementing a cloud based service is much quicker and economical than an on-premise infrastructure set-up. Additionally, with latest technical revolutions, the means, particularly hardware, become outdated sooner and requisite to be substituted or improved with new technologies to accomplish necessary proficiency. This needs regular funding. Cloud removes the requisite for such investment. In most of the cases, on-premise set-up is never utilize to its full capacity as companies keeps additional capability to take care of future requirement. Low utilization increases the operational expenditure. A cloud service provider uses one common resource to serve various clients that creates win-win situation for both service provider and client. It also reduces load on internal IT operation which leads to cost saving and keeping IT budget intact.
4
Flexibility
Cloud provides flexibility, options and control while picking the services on need basis. Enterprises can choose the best available application that is not dependent of platform and does not have any concern about compatibility. It also gives flexibility to keep using the software or change on the basis of change in business requirement. During peak time such as year-end, when additional resources are require to finish the job like balance sheet, inventory appeasement, organizations can avail more resources and means allocated to get additional computing for quicker processing. 5
Quick Implementation
ERP systems are recognized for complication and time taken for execution. This needs a correct planning and excellent project management. Usually, companies keep good amount of lead time to buy hardware and network set-up. This concern multiplies if implementation needs to be done in more than one country or region. A cloud based service execution happens quickly and fastens implementation that leads to quicker roll-out. Also in multi country implementation cloud based service gets rolled out faster as it saves time on license and hardware procurement. 6
Enhance Business Performance
A cloud service normally offers everything which internal IT department provides to company to manage business continuity. They can be such as:
Test/development instances
Applying hotfix and patches
Disaster recovery plan
VPN access
Access to latest features
System admin activities
Single sign-on
Maintenance
Measured SLAs
Emails
24X7 support
Security compliance
Regular backup With cloud, IT can now devote additional time, energy and concentration on more tactical jobs driving business welfares like inventions, observing KPIs, BI reporting etc. It becomes simpler to prepare for next implementation, adding new features as execution turn-around time is reduced to a greater extent. It accelerates testing, authentication and training activities.
Apprehensions With Cloud Services Although there are several advantages which can be gained from a cloud based services, there are several worries as well - particularly for ERP. ERPs have conventionally been executed on-premise and cloud carries various doubts in the form of data safety, control, privacy and continuity. Although cloud services are getting matured and vendors are putting effort to take care of issues but still issues are there remains and not all advantage looks so profitable.
1
Data security
Service providers are offering multi-level safety such as Operating System level Firewalls Virtualization Instance isolation Multifactor authentication Federate identity management Traffic screening Network access control Although data safety measurement would differ based on vendor, precaution should be taken to make sure that legal necessities for data safety are not dishonoured. Â There are many data security standards that vendor should certify prior to offering the service. In several nations, as an addition to data safety, data confidentiality is administrated by local government policies. Vendor should follow those nation specific guidelines.
2
Business Continuity
As several important business functions uses ERP, business continuity and disaster recovery turns out to be the most vital aspect of business. So, in the first place, many senior IT executives may not approve to outsource the most important aspect of business. But the truth is that dependable and trustworthy vendors have addressed these issues to a greater degree. They are implementing excellent processes like using experts, redundancy and segregation to solve these issues. There are instances where vendors are providing much more reliable service than internal IT department. In addition to this vendor also manages various day-to-day issues such as anti-viruses, software authentication or unauthorized physical access. 3
Amplified Operational Expenditure In Long Run
It seems rewarding in starting; expense can become expensive in long run, due to constant subscription based pricing. Maximum subscriptions are dependent on number of users. Therefore for enterprises with large number of users, on-premise set-up is much more cost effective. Enterprises should find out the business model which offers some freedom for higher number of users. Also, enterprise has to pay continuously in pay-per-use model. Whereas in an on-premise set-up, primary expenditure would be big, but subsequent expense will be lesser than cloud. Typically, on-premise set-up cost is same as subscription based payment for 4 years in case of 100 users. But for cloud based service, organization has to keep paying even after 4 years.
4
Localization Restriction
A cloud based services may not offer extreme customization possibilities and suppleness as delivered by an on-premise deployment. Normally cloud applications would have limitation to provide extreme tailor made service. Big enterprises have substantial customization needs in ERPs. It could be a constraining, where application customization is mostly needed to fulfil business needs. It may not affect small companies because they can modify their process easily as per available ERP functions. 5
Integration With Legacy Systems
Particularly in big enterprises, ERP incorporated with several legacy systems. These technologies and functions are exclusive to companies, and in several situations, these are outdated and don't maintain new standards. Incorporation of ERP with these systems comes with technical difficulties and also information safety concerns, as companies have to expose their firewall and ports so that cloud service vendor can access the system.
On Premise Vs Cloud Cloud industry is growing, with all ERP service providers provisioning cloud based service. Important business function runs on ERP therefore it would be always in business and organization will keep spending money on ERP maintenance and enhancement. Bearing in mind these complications, to make a conclusion to shift to a cloud based ERP is always going to be a tough task. It will need a thorough evaluation and possibility analysis. Influences
On-premise
Cloud
Capex
High
Low
Opex
Medium
High
Long run expenditure
Medium
High
Data safety
High
Medium
Physical and environmental safety
High
High
Continuity
High
High
Control
High
Low
Latest practices execution
Medium
High
Innovation possibilities
Medium
High
Up-to-date
Low
High
Turn-around time
Low
High
Up-gradation
Low
High
Internal reliance
Low
High
External reliance
High
Low
Localization potentials
High
Low
Internal IT staff availability
Medium
High
Conclusion Cloud brings advantages but also comes with concerns. Big enterprises would have more issues in comparison of SME in implementing cloud based ERP service. Shifting from a previously executed on-premise set-up to cloud will be more complex and costly as pre-set expense on hardware and software cannot be recovered and invested again. Therefore, SME and new set-up can consider implementation of cloud-based ERP. It offers low total cost of ownership and flexibility to scale up and down. It would be more beneficial for SME. Organizations should also find out vendors who can provide flexibility to come back to on- premise set-up to reduce the business risk. Another option could be hybrid model to begin with where organization can have combination of cloud and on-premise. It can be divided into two parts, important data and function can run on on-premise set-up while other functions can be operated through cloud. Also they should run a thorough check on vendor’s credential and have a partnership with an organization that can provide all required services.
About Orchestrate Orchestrate is a US based business process management organization with Headquarter in Dallas, USA. Orchestrate satisfies to the diverse outsourcing requirements of clients in an extensive range of businesses, including IT, finance, mortgage, utilities and healthcare. Orchestrate is continuously motivated to add significance to client’s businesses through efficient back office practices and noteworthy cost savings.
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