A cloud-based ERP system is one that is provisioned on cloud infrastructure, meaning that the customer does not need to manage the servers that underpin the ERP software. Key drivers of cloud ERP adoption often relate to the outsourcing of infrastructure management, system maintenance, disaster recovery, and many (though not all) security requirements. Other oft-reported benefits relate to an ability – often a need – to keep the software up-to-date with the latest features and functions.
There are various flavors of cloud ERP software systems, spanning cloud-hosted solutions and multi-tenant SaaS ERP applications. Vendors brandish about terminology such as single-tenant SaaS, multi-tenant, platform-as-a-service, public cloud, and private cloud. The nature and architecture of the specific cloud application will partially inform the extent of benefits and extensibility associated with the software. Notably, cloud architecture can have a major impact on the extent of vendor support, cost, your ability to change the software, and your internal IT support and staffing requirements.
This post contains a high-level primer on cloud ERP, including a definitional breakdown of key concepts relating to deployment methods, cloud models, and tenancy. After reading this post, you should be better positioned to navigate the cloud ERP world and ensure that you ask prospective ERP vendors the right questions about their cloud ERP software offering.
Cloud ERP Systems Concepts
The deployment model of the ERP system refers to the nature of the infrastructure that hosts the solution. Is the ERP system deployed on-premises or in the cloud? If in the cloud, is it in a private cloud or public cloud?
On-Premise ERP System
An on-premise ERP system is one that a company hosts (or deploys) on its own servers and in its own datacenter (or host). Typically, these on-premise ERP systems are supported by a company’s internal IT department or an outsourced managed service provider (MSP). Internal IT often supports infrastructure and network administration, database administration, and systems administration. Most typically (though not always), on-premise ERP systems are perpetually licensed, meaning that the ERP buyer acquires a limited license in the software asset itself. From a purchasing perspective, an ERP buyer typically pays an upfront license fee for the software and an annually recurring maintenance fee for software updates and support.
Cloud ERP System
A cloud-based ERP system is one that is hosted on private or public cloud infrastructure. According to the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST), something is cloud if it:
- Is rapidly elastic to scale to meet demand
- Supports on-demand self-service
- Leverages pooled resources to serve multiple consumers
- Is accessible using broad network access (think internet)
- Is automatically measured to control and optimize computing resources
There are three common cloud deployment models: private cloud, public cloud, and hybrid.
Private cloud refers to cloud infrastructure that is deployed by a single organization for use by multiple internal customers (divisions or business units, for example). The organization and/or its MSP vendors typically manage the private cloud datacenter.
Public cloud refers to cloud infrastructure that is deployed for use by the general public. Different companies or organizations share the cloud services, with virtual boundaries separating them.
Hybrid cloud refers to the combination of different cloud environments using technical measures that automate orchestration of data and systems among those cloud environments. For example, companies may create a hybrid to “burst” from a private cloud onto a public cloud to support heavy peak demands that constrain the capacity of the private cloud.
Breaking Down the As-A-Service Model – IaaS, PaaS, SaaS
Vendors of cloud solutions offer different service models: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). Buyers of cloud-based ERP software should understand the specific cloud model that is being offered.
IaaS cloud offerings represent the lowest level of cloud services. These cloud services include cloud storage, processing, internal datacenter networks, and other fundamental computing resources. ERP vendors that offer their software on IaaS are taking advantage of cloud computing infrastructure to deploy and deliver their software on a cloud-based host such as Microsoft Azure, Google Cloud, Amazon Web Services, and Rackspace.
PaaS cloud offerings include vendor delivered and maintained programming tools, middleware, workflow, file storage, libraries, and other intermediate tools. ERP vendors that deploy their ERP software using PaaS gain certain efficiencies in the provisioning, maintenance, and support of software.
True SaaS ERP cloud offerings bring certain definitional cloud requirements to the application level. The ERP software is accessible from the web and is theoretically scalable on-demand. Meanwhile, the ERP vendor is responsible for managing the application, the platform, and the underlying infrastructure. From a customer’s perspective, this is the most hands-off systems administration model, though not entirely hands-off. The customer will still need to manage networks to the cloud as well as systems administration requirements from the system’s user interface.
Tenancy Explained: Single-Tenant SaaS vs Multi-Tenant SaaS
With an understanding of cloud models, it is important to next understand the concept of “tenancy”. SaaS tenancy models refer to whether the software is shared among cloud customers.
Single-Tenant SaaS ERP
Single-tenant SaaS ERP is a deployment model where a customer gets its own specific deployment of the software. The benefits of single-tenant SaaS ERP often include more flexibility to upgrade and extend the software. The downside is that the vendor is required to support multiple deployments, often creating inefficiencies because of a need to separately deliver patches and updates to multiple customers.
Multi-tenant SaaS ERP refers to a deployment model where multiple customers share a single ERP deployment (or code base). The benefits should include ease of support and, theoretically, lower costs because the vendor can achieve economies of scale and support.
Conclusion – Which Flavor of Cloud ERP is Right for Your Business?
As you progress through your selection of ERP software, you’ll almost invariably encounter different flavors of cloud ERP – from IaaS hosted to multi-tenant SaaS ERP. Which ERP is right for your business? To learn about the different cloud ERP solutions on the market – and the practical implications of the different models – schedule an initial consultation with our ERP selection consulting team.