{"id":4120,"date":"2019-11-05T10:31:10","date_gmt":"2019-11-05T10:31:10","guid":{"rendered":"https:\/\/www.mrpeasy.com\/blog\/?p=4120"},"modified":"2022-12-21T10:24:56","modified_gmt":"2022-12-21T10:24:56","slug":"cloud-based-erp-vs-on-premise-erp-for-small-manufacturing-business","status":"publish","type":"post","link":"https:\/\/www.mrpeasy.com\/blog\/cloud-based-erp-vs-on-premise-erp-for-small-manufacturing-business\/","title":{"rendered":"Cloud-based ERP vs. On-Premise ERP for Small Manufacturing Business"},"content":{"rendered":"\n<p>When a small manufacturer faces the decision to purchase an ERP, the decision inevitably comes down to one of two options: on-premise vs cloud-based ERP. <\/p>\n\n\n\n<!--more-->\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"334\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2019\/11\/Cloud-based-ERP-vs-On-Premise-ERP-for-Small-Manufacturing-Business.jpg\" alt=\"Cloud-based-ERP-vs-On-Premise-ERP-for-Small-Manufacturing-Business\" class=\"wp-image-4121\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2019\/11\/Cloud-based-ERP-vs-On-Premise-ERP-for-Small-Manufacturing-Business.jpg 500w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2019\/11\/Cloud-based-ERP-vs-On-Premise-ERP-for-Small-Manufacturing-Business-300x200.jpg 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure><\/div>\n\n\n\n<p><em>You can also listen to this article:<\/em><\/p>\n\n\n\n<iframe loading=\"lazy\" title=\"Cloud-based ERP vs. On-Premise ERP for Small Manufacturing Business\" height=\"122\" width=\"100%\" style=\"border: none;\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/media\/player\/nqc9c-caf4cf?from=pb6admin&amp;download=1&amp;version=1&amp;auto=0&amp;share=1&amp;download=1&amp;rtl=0&amp;fonts=Helvetica&amp;skin=1&amp;pfauth=&amp;btn-skin=103\"><\/iframe>\n\n\n\n<p>While the type of production undertaken by a\nmanufacturing company is important in deciding the kind of software needed, the\nsize and scale of the operation is also a major factor as well.&nbsp; While larger manufacturers often have the benefits\nof scale including a stable cash-flow and access to short-term and long-term\ncapital, small manufacturing are often bootstrapped, funded by VC seed funding\nor at best limited in terms of access to traditional streams of capital for\ninvestment and expansion. <\/p>\n\n\n\n<p>This is true for equipment, infrastructure and other physical assets, but it is also true when a small manufacturer faces the decision to purchase an <a href=\"https:\/\/www.mrpeasy.com\/enterprise-resource-planning\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Enterprise Resource Planning (opens in a new tab)\">Enterprise Resource Planning<\/a> or ERP software.&nbsp; When this happens, the decision inevitably comes down to one of two options:&nbsp; on-premise vs cloud-based ERP implementation.&nbsp; The decision is never easy, and each company must weigh the advantages and disadvantages of each to find the best path forward.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #343333;color:#343333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #343333;color:#343333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.mrpeasy.com\/blog\/cloud-based-erp-vs-on-premise-erp-for-small-manufacturing-business\/#Advantages_and_Disadvantages_of_On-Premise_ERP\" >Advantages and Disadvantages of On-Premise ERP<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.mrpeasy.com\/blog\/cloud-based-erp-vs-on-premise-erp-for-small-manufacturing-business\/#Advantages_and_Disadvantages_of_Cloud-Based_ERP\" >Advantages and Disadvantages of Cloud-Based ERP<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.mrpeasy.com\/blog\/cloud-based-erp-vs-on-premise-erp-for-small-manufacturing-business\/#Making_the_Right_Choice\" >Making the Right Choice<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_and_Disadvantages_of_On-Premise_ERP\"><\/span>Advantages and Disadvantages of On-Premise ERP<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>On-premise servers for ERP are physical systems that are <a rel=\"noreferrer noopener\" href=\"https:\/\/www.forbes.com\/sites\/forbestechcouncil\/2019\/03\/22\/cloud-based-vs-on-premise-servers\/#4a981f2e79e2\" target=\"_blank\">maintained within the company\u2019s location<\/a>.&nbsp; They must be maintained internally to optimize performance and operation.&nbsp; <\/p>\n\n\n\n<p><strong>Advantages of an on-premise ERP deployment include:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong><em>Security<\/em><\/strong> \u2013 If a company owns extensive intellectual property, proprietary information or high liability concerns over the production of its products, an on-premise ERP can offer strong security.&nbsp; This keeps third parties from having any access to such data and can protect it from potential loss.&nbsp; The security in place must be robust, however, it always remains in control of the company.<\/li><li><strong>Reliability <\/strong>\u2013 On-premise ERP systems do not rely on internet connections.&nbsp; As a result, the loss of an internet connection either short or long-term means the company can remain in business and continue to produce.&nbsp; This may be an important consideration for process manufacturers such as those producing perishable goods such as food or medicines.<\/li><li><strong>Naturally Aligned Skillsets<\/strong> \u2013 If the manufacturer produces highly technical products that require a high level of skillsets in-house then an on-premise ERP may make sense as those skillsets may already exist among staff already on board.&nbsp; This alignment will depend on the type of product manufactured but having specific engineering skills in-house at the outset reduces the required investment and training compared to a \u201ccold start\u201d.<\/li><\/ul>\n\n\n\n<p><strong>Disadvantages of an on-premise ERP deployment\ninclude:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong><em>Cost <\/em><\/strong>\u2013 On-premise servers are a costly\nundertaking.&nbsp; To put this cost in focus,\non-premise ERP systems are usually classified as a capital expense while\ncloud-based are classified as an operating expense.&nbsp; The up-front costs include the purchase of\nthe system itself, the physical assets including server, racks and interfaces,\nas well as the training and support costs.<\/li><li><strong><em>Skillsets <\/em><\/strong>\u2013 For small\nmanufacturers who do not produce highly technical products or who have limited\nresources for hiring, the skills required to set up an on-premise system may be\nlimited or non-existent.&nbsp; It may also be\noutside the manufacturer\u2019s salary budget to hire those with the skills to set\nit up.<\/li><li><strong><em>Scalability<\/em><\/strong> \u2013 As a small\nmanufacturer scales, an on-premise ERP must scale with it.&nbsp; This means additional server space for\nadditional data storage, racks, upgraded and updated versions, training and a\nhost of other costs related to scalability.&nbsp;\n<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_and_Disadvantages_of_Cloud-Based_ERP\"><\/span>Advantages and Disadvantages of Cloud-Based ERP<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Cloud-based ERP systems consist of a <a rel=\"noreferrer noopener\" href=\"https:\/\/www.forbes.com\/sites\/forbestechcouncil\/2019\/03\/22\/cloud-based-vs-on-premise-servers\/#4a981f2e79e2\" target=\"_blank\">virtual server hosted by a third-party<\/a> cloud computing service provider.&nbsp; They are developed and maintained by the provider and updates and system changes are continuously deployed as they are rolled out making the latest version always accessible to manufacturers who use them.&nbsp; <\/p>\n\n\n\n<p><strong>Advantages of cloud-based ERP deployment include:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong><em>Lower Start-up Costs<\/em><\/strong> \u2013 Cloud-based ERP systems usually consist of a contracted or monthly fee or subscription service. Because the system runs web-based, there is no investment in physical assets required by the manufacturer.\u00a0 Maintenance costs and other system costs are provided by the third-party software provider under the covers and included as part of the subscription or monthly cost.\u00a0 <a aria-label=\"Cloud-based ERP providers (opens in a new tab)\" href=\"https:\/\/www.mrpeasy.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Cloud-based ERP providers<\/a> also deploy improvements, patches and service enhancements seamlessly and on an ongoing basis, reducing the time and cost required for a small manufacturer to take advantage of these improvements.<\/li><li><strong><em>Scalability<\/em><\/strong> \u2013 Small manufacturers may not always need a full-service ERP system.\u00a0 There may be specific features required as well as many that are not depending on the final product, mode of production, company size and other factors.\u00a0 Cloud-based ERP systems are flexible in terms of scalability as it is often possible to purchase a la\u2019 carte to tailor the system to the needs of the manufacturer.\u00a0 This saves cost and reduces training as well as shortening the adoption time and learning curve.\u00a0 It also means that as a company grows, increases in access to the system can be purchased as needed in the form of additional \u201cseats\u201d while new features that may be required that were not in the past can be added incrementally.<\/li><li><strong><em>Flexibility<\/em><\/strong> \u2013 Cloud-based ERP systems are flexible in that backup is automated.\u00a0 It provides an inherent \u201cdisaster\u201d plan for restart in the case of natural disasters because production data and the production system is still accessible.\u00a0 By comparison, on-premise systems must still send their data to a reserve site or manually back it up to realize the same benefit.<\/li><\/ul>\n\n\n\n<p><strong>Disadvantages of a cloud-based ERP deployment\ninclude:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong><em>Security<\/em><\/strong> \u2013 With a cloud-based ERP, a small manufacturer\u2019s data is always in the hands of a third party.&nbsp; As a result, it must rely on the third party\u2019s security to safeguard its data.&nbsp; This is a concern for many manufacturers depending on the type of product manufactured or the level of IP and proprietary data involved.&nbsp; <strong>However, most third-party providers have demonstrated security on par with that of the small manufacturer\u2019s security measures themselves and in some case may exceed that of the company.<\/strong><\/li><li><strong><em>Reliability<\/em><\/strong> \u2013 Cloud-based ERP systems require an internet connection.&nbsp; In locations where services is not reliable, or in the case of certain disruptions of service due to natural disasters, an interruption in internet service could mean the difference between operating the factory or not during the disruption.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Making_the_Right_Choice\"><\/span>Making the Right Choice <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>You might also like an infographic about <a href=\"https:\/\/www.mrpeasy.com\/blog\/infographic-top-mistakes-when-searching-mrp-erp-software\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Top 7 Mistakes When Searching ERP Software. (opens in a new tab)\">Top 7 Mistakes When Searching ERP Software.<\/a><\/em><\/p>\n\n\n\n<p>While the size of an enterprise will make a difference in the selection of an on-premise vs cloud-based ERP, each company must make the determination based on their unique requirements.&nbsp; Cost of and access to capital, growth curve, access to technical skillsets, security and reliability are all important in the determination of which type of system to use.&nbsp; But for small manufacturers, flexibility, speed of access, reduced training and a nimble and agile \u201cpay as you go\u201d service such as cloud-based ERP may mean more capital is available for operation of the business. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>When a small manufacturer faces the decision to purchase an ERP, the decision inevitably comes down to one of two options: on-premise vs cloud-based ERP.<\/p>\n","protected":false},"author":4,"featured_media":4121,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[90],"tags":[117,119,19,48,4,118],"class_list":["post-4120","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-choosing-a-software","tag-cloud-based-erp","tag-enterprise-resource-planning","tag-erp","tag-erp-software","tag-manufacturing-software","tag-on-premise-erp"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Cloud-based ERP vs. On-Premise ERP for Small Manufacturing Business<\/title>\n<meta name=\"description\" content=\"When a small manufacturer faces the decision to purchase an ERP, the decision inevitably comes down to one of two options: on-premise vs cloud-based ERP.\" \/>\n<meta name=\"robots\" content=\"index, follow, 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