Exploring Different Types of ERP Systems

An enterprise resource planning (ERP) system is business process management software that allows an organization to use integrated applications to manage and automate many back-office functions related to technology, services, and human resources. ERP software typically integrates all facets of an operation, including product planning, development, manufacturing, sales, and marketing.

There are a few major types of ERP systems, each suited to different business needs based on factors like cost, customization, and industry. In the following sections, we will provide an overview of on-premise, cloud-based, open-source, and industry-specific ERP systems and discuss key considerations for selecting the right system. We’ll also cover implementation strategies and outline the pros and cons of each type.

Click here for A Guide to Enterprise Resource Planning (ERP).

Types of ERP Systems

There are four major classifications of ERP systems, each with its advantages and disadvantages for companies to consider. The key types include on-premise, cloud-based, open-source, and industry-specific solutions.

On-Premise ERP

On-premise ERP involves installing software locally on a company’s computers and servers. This model provides enhanced control, customization, and security since all data and processes reside within their systems.

However, on-premise ERP also comes with higher upfront investments in hardware and software licensing and installations. Ongoing maintenance is also required.

• Customization and security
• Control over software and servers
• Substantial upfront costs
• Ongoing maintenance required

Cloud-Based ERP

In contrast to on-premises, cloud-based ERP systems are hosted remotely by the software vendor. Companies access the ERP solution via the Internet.

Cloud ERP provides benefits such as automatic software updates, expanding storage/users easily, and accessibility from any location/device. Upfront costs are lower since no servers are required. However, companies cede control and customization options to the vendor.

• Lower upfront investment
• Automatic updates
• Accessibility and flexibility
• Less control than on-premise

Open-Source ERP

Some ERP solutions are offered via open-source software licenses, which provide free access to the underlying programming code. This allows extensive customization tailored to the company’s wishes. There are also fewer licensing fees involved with open-source ERP.

However, substantial IT resources and expertise are required to install, program, and maintain open-source ERP software customized to the organization.

• Highly customizable
• Lower licensing costs
• IT resources required for implementation

Industry-Specific ERP

Some ERP vendors provide solutions built specifically to meet the workflow needs of certain industries like manufacturing, healthcare, retail, and more. This allows matching software capabilities closely to industry best practices. Extensive customization is not required given the predefined templates.

However, companies have less flexibility to deviate from embedded industry processes if those don’t fully meet their needs.

• Tailored workflows for the industry
• Embedded best practices
• Less customization flexibility

There are clear tradeoffs companies must weigh between these ERP system types when selecting the right platform. Consider how these four ERP classifications align with your budget, IT capabilities, growth, and process requirements.

Read our guide on Comparing Modern and Traditional ERP Systems for more information.

Benefits and Drawbacks

ERP software integrates key functions like supply chain management and customer relationship management onto centralized data platforms, standardizing processes and unifying visibility. This consolidation streamlines supply chain execution for efficiency gains while connecting CRM with back-office inventory and order details to strengthen customer service and retention. Ultimately, ERP solutions synergizing supply chain and customer relationship management capabilities enable organizations to drive higher revenues through optimized operations and better customer experiences.

There is no one-size-fits-all ERP system that can meet every company’s needs. Each of the major ERP types—on-premise, cloud, open source, and industry-specific—comes with its distinct pros and cons that must be weighed.

Key advantages and disadvantages include:

• On-Premise ERP:
• Customizable to needs
• Enhanced data security
• Higher upfront and maintenance costs
• Dependence on internal IT resources
• Cloud-Based ERP:
• Lower upfront costs
• Automatic updates
• Access limitations
• Potential security vulnerabilities
• Open-Source ERP:
• Freely customizable
• Lower licensing costs
• Internal development required
• Ongoing internal support needed
• Industry-Specific ERP:
• Well-aligned to industry needs
• Accelerated rollout
• Limited flexibility
• Changes may be harder to incorporate

Making the optimal ERP software decision requires analyzing how important factors like security, control, flexibility, and ease of use rank for your organization. Connecting the strengths and weaknesses of the major ERP types to top business objectives and user needs is key to maximizing value.

There are merits to all classifications of ERP systems depending on the context. Defining priorities around customization, costs, support, and integration with existing infrastructure should guide companies toward the ideal ERP match. Rather than generically labeling one ERP type as best, focus on the pros and cons most impactful for your business.

ERP Implementation Strategy

Successfully deploying an ERP system is a major undertaking that requires careful planning and execution tailored to the type of system selected. Companies must follow precise roadmaps to successfully deploy whichever ERP platform they choose to meet their business needs. There are several distinct implementation approaches and key steps needed for on-premise, cloud-based, open-source, and industry-specific ERP solutions.

On-Premise ERP Implementation

Deploying an on-premise ERP solution has several sequential stages:

• Design infrastructure and acquire hardware
• Install the software and customize the features
• Migrate and integrate legacy data
• Test extensively before rollout
• Train staff on new processes and system
• Transition department by department

Given the complexity, on-premise ERP implementation can take significant time and coordination across teams.

Cloud-Based ERP Transition

For cloud-based ERP, companies need to account for:

• Migrating all necessary data to the cloud
• Configuring software parameters and settings
• Integrating other systems like payroll or CRM
• Testing connectivity and data flows
• Training employees on accessing the web-based ERP system

The process involves less technical tasks than on-premise but still requires planning.

Open-Source ERP Setup

Adoption of open-source ERP solutions entails:

• Downloading the free ERP platform
• Custom programming requires capabilities
• Building desired interfaces and workflows
• Testing customized functionality
• Incrementally launching modules

Open-source ERP implementation is led by internal IT teams and requires more technical skills.

Industry ERP Rollout

For specialized industry ERP products:

• Map current business processes to embedded best practices
• Configure predefined industry templates
• User testing of aligned workflows
• Training around standardized processes

Industry ERP speed rollout by leveraging built-in domain workflows.

In summary, necessary implementation steps differ greatly across on-premise, cloud, open-source, and industry ERP systems. Companies must invest sufficient resources and project management to roll out their chosen ERP system based on the recommended approaches for that platform type. Mistakes during implementation can derail projects so following structured roadmaps aligned to the specific solution is crucial for ERP success.

For specialized tips, read our guide on Determining ERP Implementation Success Factors.

Considerations When Choosing an ERP

Selecting the right ERP system is one of the most impactful technology decisions an organization can make. Implementing ERP software touches every business process and function, so choosing a platform aligned to current and future state needs is critical to maximizing value.

Beyond just software capabilities, companies must evaluate wider considerations around costs, infrastructure, customization, scalability, and industry applicability when assessing ERP options.

Costs

ERP costs go far beyond just software licenses to encompass implementation, process mapping, customization, training, maintenance, and hidden fees. Companies must model the total cost of ownership over 3-5 years for on-premise vs cloud vs hybrid options. While cloud ERP often has lower upfront expenses, long-term TCO may be higher. Understanding ongoing operating costs is vital for budgeting fully loaded ERP expenses.

IT Infrastructure

Existing technology infrastructure introduces constraints and opportunities for ERP systems. Legacy applications may require integration APIs. Buy-in from IT teams depends on skills match. On-premise ERP adds more infrastructure burden than the cloud which leverages external hosting. Open source relies more on internal IT resources for custom programming. Assess infrastructure readiness thoroughly.

Customization

The level of customized workflows, reporting, integrations, and user interfaces required drives ERP options. Highly specific needs favor on-premise or open-source ERP for tailoring by IT teams. Verticalized ERP embedded with industry best practices requires fewer changes but restricts deviations. Cloud and software-as-a-service options offer moderate customization via configuration without coding.

Scalability

As organizations evolve, ERP systems must scale up smoothly to handle more locations, transactions, and users. On-premise ERP scales in a stepwise fashion requiring expensive upgrades as limits hit. Leading cloud ERP platforms readily scale compute power, storage, and user capacity to match growth trajectories. Evaluating long-term expansion needs is recommended.

Industry Fit

For manufacturing, healthcare, and retail, ERP solutions tailored specifically to vertical intricacies accelerate launches with proven practice templates. Embedding workflows for production floors, patient billing or supply chain nuances saves configuration. However, confirmed specialized ERP systems still address all emerging business model innovations to prevent gaps. Industry fit speeds implementation but may sacrifice some competitive capabilities.

Analyzing these key factors in the context of long-term business goals and user community provides the framework for making the smartest ERP investment. ERP decisions shape broader technology strategy so all stakeholders should provide input on requirements.

By weighing total costs, infrastructure, customization, scaling, and industry themes; companies can determine the ideal ERP platform for enabling organizational objectives over a 5-10-year horizon.

Streamline Business Operations with Facilisgroup

As leaders in promotional products software, Facilisgroup created Syncore, a Promotional Products Technology Solution, to solve industry challenges around fragmented systems. Syncore combines order processing, billing, shipping, CRM, and marketing tools into a unified platform purpose-built for distributors.

The cloud-based ERP solution boosts productivity by centralizing:

• Sales Management: Prospecting, pipeline visibility, account management, and reporting.
• Order Lifecycle: Entry to fulfillment, invoicing, and tracking.
• Managed Catalog: Curated products and preferred pricing.
• Marketing Campaigns: Promotions and integrated contacts.
• Distribution Analytics: Custom real-time reporting.

Industry-tailored ERP capabilities consolidate complex workflows into efficiency gains so distributors can focus resources on business strategy rather than disjointed systems. Facilisgroup pairs transformative ERP software with promotional product expertise for accelerated success.

Evolve your distribution now with Syncore, an ERP designed exclusively for promotional workflow challenges. Contact Facilisgroup to boost productivity with consolidated data and processes.

Grow together.

Frequently Asked Questions

What modules do ERP software systems typically include?

Most ERP solutions contain finance/accounting, supply chain, manufacturing, inventory, HR, CRM, compliance, and analytics modules. However, combinations and complexity vary by provider specialties and local regulations. Preconfigured modules speed implementation.

How can companies determine if they are ready for an ERP system?

ERP readiness depends on clear business objectives, executive sponsorship, established data infrastructure, and dedicated change management resources. ERP impacts multiple departments so cross-functional preparation is key.

What impact does ERP software have on an organization?

Well-deployed ERP centralizes key business processes like finance, HR, and operations under unified data models to drive efficiency, standardization, real-time reporting, and continuous improvement through embedded practices. Significant retraining and change management are required to achieve transformation.