Today. The on-premise software model is under relentless attack. Companies are gravitating to models that, in one form or another, can be labeled a “hosted environment;” hosted means, in essence, the application is running on someone else’s servers and infrastructure, rather than on premises.

ERP Software

For Start-ups, the question is, “Can we afford to NOT invest in ERP?” (Part 5)

In a hosted environment, applications are licensed but are hosted by the third-party. This may be in a separate instance on a separate piece of hardware (dedicated to your company), or in a separate virtual instance (also dedicated to your company) where the application is housed on hardware shared by multiple companies. In this case little or no IT support is required at your own site.

Another alternative to on-premises software is variously referred to as “cloud” ERP, Software as a service(SaaS) or on-demand ERP. In thos model the software itself is neither licensed nor owned by the end user company. The software is delivered as a service and is paid for through a subscription for the service provided. Generally speaking few or no technical resources are required at your own site. Cloud terminology is often intermingled with SaaS, but reference to the cloud simply refers to the operating environment and not how the software is bought or paid for.

To the non-technical ERP users the most important aspect is that they are able to connect to the application and its data from any computer with a browser. If in fact this is possible, often times the end user does not know, care or need to know which of these deployment models are actually being used to deliver the application.

A web-enabled user interface is now counted among the “basics” of ERP. It is the most versatile, eliminates the need to install and support software on laptops and other personal computers and allows a small company choice in how the software is deployed and paid for.

In cost-justifying the investment in ERP it is important to recognize all the potential business benefits. Some of these benefits can be directly measured in cost and time savings. Some may be directly attributed to the implementation of ERP and some may be indirectly linked. While some of the business benefits , such as increased revenue and increased value delivered to customers, are more indirectly related, inventory costs and production throughput can be directly tied back to business processes that are streamlined and improved by ERP.  Reductions in administration and operating costs can also be the direct result of improved efficiencies and productivity, but are not as universally and specifically measured and therefore easily missed.

Cost savings are often the number one goal of an ERP implementation, particularly for manufacturers, partly because the cost and visibility of inventory reductions can be so visible. But any type of company can reduce indirect and administrative cost for tasks as common as processing customer invoices, matching vendor invoices and making payments on a day-to-day basis, as well as reconciliation, reporting and compliance and month end close. There is a cost associated with each of those manual tasks, whether or not it is adequately measured.

Continued in Part 6