If you’re running a small- to midsize business (SMB) in today’s marketplace, you probably know what ERP solutions are, but you may think they’re too big, expensive, or inflexible for your needs. They’re not.
ERP is short for “enterprise resource planning,” but ERP solutions aren’t just for enterprise-sized businesses. Businesses of any size, in any industry, can implement ERP solutions to increase efficiency and profitability.
However, different ERP systems offer different types of deployment, and you must carefully choose which suits your company’s needs. When the ERP solution is delivered through lengthy on-site software and hardware installations, it’s considered a traditional ERP implementation. When it’s delivered via a Software as a Service (SaaS) model, it’s called SaaS ERP. Today’s article will examine traditional ERP vs SaaS ERP, identifying the pros and cons of each.
What is SaaS ERP?
There are plenty of SaaS ERP definitions out there, but the one provided by TechTarget is both simple and comprehensive:
SaaS ERP is a type of cloud-based enterprise resource planning software that runs on the vendor or cloud provider’s servers, is sold through subscription and delivered as a service over the internet. Software as a service (SaaS) ERP usually employs a multi-tenant SaaS architecture, in which multiple purchasers share the same instance, or copy, of the software, underlying infrastructure and database, but with each tenant’s data securely separated. The vendor controls when the software is updated, usually quarterly, and all users get updates at the same time. Features of the software are standardized for everyone and cannot typically be customized easily.
Should a SaaS ERP solution be in single-tenant mode, the business will have more control over update schedules, personalization needs, and privacy or regulatory requirements, but, whether single- or multi-tenant, SaaS ERP systems provide a host of benefits for modern organizations.
What are the Benefits of SaaS ERP?
The benefits of a traditional ERP and SaaS ERP are similar—up to a point.
For example, both traditional and SaaS ERP solutions connect and integrate separate business systems, synchronizing data and offering users across the organization a real-time, single version of the truth. As a business leader, you would no longer need to double (or triple) check data before making important decisions. Instead, accurate, updated information would be readily available in a centralized solution. You’d also have the power to standardize operations, increase organization-wide collaboration, and seamlessly integrate the ERP system with third-party applications for additional functionality.
However, the similarity ends with the following SaaS ERP benefits that traditional ERP just can’t cover.
- With SaaS ERP, there is no need to invest in hardware and software; the ERP vendor is responsible for hosting the software through a hosting partner, such as Amazon Web Services (AWS).
- It’s easier, faster, and less expensive to implement a SaaS ERP solution than a traditional ERP solution.
- The SaaS ERP vendor maintains and updates the solution, eliminating hours of labor and effort from your IT team.
- Major and minor updates, based on ongoing innovations from the ERP vendor, happen regularly and automatically (based on your agreement with the vendor).
- Cloud-based computing provides easy access to emerging technologies (e.g., artificial intelligence, machine learning, IoT, etc.).
- Security, virus protection, and back-up/restore capabilities rest with the hosting provider.
By hosting your ERP instance online, you can access real-time, critical business data 24/7—whenever, from wherever, through any internet-enabled device. This remote access is an absolute must in today’s pandemic-influenced marketplace, as is the flexibility to scale your use of the ERP system up or down. A SaaS ERP solution allows you to make changes to your instance without interrupting business as usual.
In the traditional ERP vs SaaS ERP battle, SaaS ERP has a leg up in the benefits column, but there are still some challenges to keep in mind.
What are the Challenges of SaaS ERP?
The primary cost-related challenges of a SaaS ERP model are pricing and long-term subscription costs. The initial costs of implementing a SaaS ERP system are often a fraction of the costs for implementing a traditional ERP system because a SaaS ERP doesn’t require major infrastructure changes. But the costs of a SaaS ERP system can increase exponentially after several years, as some vendors charge companies for adding more functions and more users to the system. However, not all SaaS ERP providers use this pricing model. So, as you research possible ERP solutions, consider vendors that charge for the resources you actually use, not for the number of users you add to the system.
Before committing to a SaaS or traditional ERP solution, it’s also important to calculate the system’s total cost of ownership over multiple years or over the life of the contract. Some ERP implementations that seem inexpensive at first can grow into cost-prohibitive and unwieldy models—particularly if they involve per-user fees and/or require developer expertise to extend or manage them.
SaaS ERP systems based on proprietary or legacy platforms can also hamper organizations that require customizable ERP workflows or need to connect a system to third-party applications. Because a SaaS ERP relies on standard software, customization may be difficult to manage. However, some modern SaaS ERP systems compensate for this challenge with open architecture and tools that let users configure and enhance the solutions themselves with low-code or no-code programming.
Finding the Right Fit for Your Business
An ERP system—whether traditional or SaaS—is an expensive investment, and it’s up to you to do your ERP research. You’ll have to determine which features and functionalities you need in a new ERP solution, including whether customization will be necessary. If you feel that your business does not require features custom-designed for your unique workflows, then a SaaS ERP system that supports standard financial management practices could be the right choice.
However, if you feel uncomfortable with the idea of using ERP software that cannot be easily customized, it might be helpful to look towards SaaS options with open application programming interfaces (APIs) that allow you to tailor the solution to your current and future business requirements.
Turning to Cloud-based ERP
Cloud-based ERP includes SaaS systems and those hosted on private clouds. While private-cloud ERP may have some similarities to SaaS ERP, there are also many key differences. Private-cloud ERP deployments are single-tenant systems. The user does not share the hosting infrastructure with anyone else, and the ERP solution is delivered through a highly secured, unique platform. So, private-cloud ERP gives users higher levels of customization and control. For instance, in a private-cloud model, users can take responsibility for software upgrades and updates.
Private-cloud ERP may provide an effective compromise between the easy accessibility of SaaS ERP and the customization available through traditional models. However, before choosing a private-cloud ERP system, make sure you fully understand what is included in the price, as many cloud hosting platforms charge extra fees for database licenses, users, backups, and other system administration activities across the system’s lifecycle.
How Acumatica Can Help
As a true cloud ERP solution, Acumatica rests on an open platform, allowing you to connect your business end-to-end with a single system. You’ll enjoy:
- Unlimited users.
- Pricing based on resources used, not the number of users.
- Flexible deployment options that can be changed if needed.
- 24/7 access to accurate, real-time data.
- Critical functions to support a remote workforce.
- Safety and security ensured by the hosting platform (e.g., AWS, Microsoft Azure).
As you research your SaaS ERP options, consider Acumatica. To learn more about our flexible and affordable cloud ERP solution, contact our team of experts. They’ll be happy to answer questions and set up a demonstration to show how Acumatica can work for you.