Cloud Technologies And ERP Systems: Benefits And Risks

ERP Systems in the Cloud

Enterprise Resource Planning (ERP) is a business process management system that provides an organization with the ability to integrate its business functions and automate the business operations. The key operations that are carried out in a business enterprise, such as manufacturing, production, financial, human resources, customer relations, supplier relations, etc. are managed with the aid of ERP systems. The implementation of an ERP system in an organization provides it with several benefits, such as increased collaboration, enhanced accuracy of operations, better scalability, better security of the data sets, and a lot more.

The implementation of ERP systems can be done using a variety of different methods. The use of cloud is one of the mechanisms that can be used for the implementation of ERP systems. There are various cloud platforms and models that can be used for this purpose. For instance, on premise cloud can be used for implementing ERP systems. Hosted ERP systems and cloud ERP systems can also be used for the implementation.

The purpose of the report is to bring out the involvement of cloud in the implementation of the ERP systems by discussing various cloud platforms that may be used for implementation purpose.

The structure of the report includes three major sections as introduction, ERP Systems in the Cloud and Conclusion. The various cloud platforms that can be used with the ERP systems have been explained in the second section along with the benefits, drawbacks, features, and case studies of each. A brief conclusion of the report is presented at the end.

On-Premise System 

Features & Benefits 

On-Premise ERP refers to the approach in which a company purchases the license of specific ERP software and then installs it in their organization. The sourcing of the system is done in-house and its maintenance is also done at the physical location of the organization. There are various benefits that are offered by on premise ERP.

• Data control: The confidential and private data sets of the enterprise are handled by the ERP systems. An organization may include the information sets, such as demographic details of the employees and the customers, details of the suppliers, social security numbers, financial information, and a lot more. With the implementation of on premise ERP, there is complete control provided to the organization. The security controls and physical access controls are also applied by the organization that reduces the probability of security risks and attacks. The other mechanisms, such as use of hosted or cloud ERP leads to the emergence of increased number of security risks on the data sets (Mezghani, 2017).
• Less vendor dependency:In the case of cloud-based ERP systems, a majority of the decisions regarding the technical infrastructure and architecture of the system is taken by the vendor. In case the vendor moves out of the business, the ERP users are left confused and the maintenance of these systems cannot be effectively carries out. However, in the case of on premise ERP systems, the dependency on the vendors is removed. The system aspects can be changed or modified as a result.
• Limit on-going costs: The initial cost that is associated with the on premise ERP is higher; however, the overall cost of ownership comes down with the installation of on premise ERP systems. The only costs that are associated with on premise cloud energy costs and maintenance costs.
• Foundation for future hybrid cloud expansion: It is possible to integrate the public cloud applications and services with the on premise cloud. The compromise on the critical issues, such as data control and security are also not compromised during the expansion process (Boillat and Legner, 2013).
• Easier customization: There are various applications and services that are pre-installed in the enterprises. The installation and implementation of on premise cloud eliminates the need to remove such applications and an opportunity is provided to use the customization options integrated with the ERP workflow.

Drawbacks

There are certain drawbacks that are associated with the traditional ERP systems. Some of these disadvantages are as listed below.

• There is an upfront cost that is associated with the on premise ERP systems. This cost is very high and is paid in the initial phase. The small and medium-sized firms may not be able to bear this cost due to budget constraints.
• Apart from the initial costs, there are also a lot many indirect costs that are associated with the ERP systems. These include the cost of resources, cost of maintenance, and likewise.
• There is complete control of the traditional ERP systems on the internal employees of the organization. In case of the unskilled employees, the ERP system may fail to provide the organization with the due benefits.

Case Studies

There have been several successful case studies that have been recorded with the implementation of the traditional ERP systems.

One such case study is of The Oman Telecommunication Company (Omantel). The organization made use of the on premise ERP system to achieve the benefits as higher accuracy of the operations, faster processing, and enhanced security. The confidential and private data sets of the enterprise were handled by the ERP systems (Maguire, Ojiako and Said, 2010). These included the contact information of the clients, employee data, networking information, vendor details, etc. With the implementation of on premise ERP, there was complete control provided to Omantel. The security controls and physical access controls were also applied by the organization that reduced the probability of security risks and attacks. The other mechanisms, such as use of hosted or cloud ERP could have led to the emergence of increased number of security risks on the data sets. However, Omantel could protect its data sets with the implementation of traditional ERP.

On-Premise ERP

Mesfine Industrial Engineering (MIE) Pvt. Ltd. is a company that is based out of Ethiopia and works in the areas of metal construction and electromechanical engineering. The company implemented ERP systems in its enterprises and could gain several benefits out of the same. The legacy systems that were earlier being used in the company were not sufficient and had issues with the communication between the customers and the suppliers. Also, these systems were not agile enough to meet the changing needs of the organization. The company therefore decided to implement ERP systems in its architecture and decided to follow a phased approach for the purpose of implementation. There were seven phases that were involved and the project kick started on 17^th March 2008 and ended on 20^th October 2008 (Boltena and Gomez, 2012). There were various applications and services that were pre-installed in the enterprises. The installation and implementation of on premise cloud eliminated the need to remove the necessary applications and an opportunity was provided to use the customization options integrated with the ERP workflow.

Features & Benefits 

The second category of the ERP systems that is commonly seen is the hosted ERP system. In this case, an organization purchases the license for the ERP system and then deploys the system on a third-party infrastructure in the cloud. This mechanism is also referred as Infrastructure as a Service (IaaS) cloud model.  

There are various benefits that are provided to the organization with the use of hosted ERP systems.

• The primary benefit that is offered with the use of hosted ERP systems to the organization is the lower infrastructure costs. The infrastructure is setup and maintained by the cloud vendor and the organization is exempted from making any alterations to the infrastructure. The enterprises are required to pay only for the capacities and functionalities that they will be utilizing and overall costs come down as an outcome.
• The requirements of an organization are dynamic in nature. There may be changes in the enterprises requirements that may be observed due to change in technology, modifications in the market trends, customer preferences, and likewise. Hosted ERP systems are scalable and flexible in nature. They can be easily scaled up or down to meet the needs of the enterprises and the changes can also be made without much effort.
• Disaster recovery infrastructure is provided by the hosted ERP systems and in the case of a security risk or an attack, the accountability of the attack is taken up by the vendor. The organizations are not required to bother about the downtime and the damage that may result in the occurrence of a security attack.
• Organizations can keep their focus on the business growth and are not required to be bothered about the technology decisions. These decisions are taken by the vendor. The installation of the updates is also done by the vendors along with management of the patches.

Drawbacks

There are also a few drawbacks that are associated with the use of Hosted ERP systems.

• There is involvement of cloud in the hosted ERP systems. The cloud platforms are exposed to various forms of security risks and attacks. The ERP data may also be exposed to the security risks and attacks. Some of the risks that may occur include malware attacks, data breaches, data loss, data leakage, and denial of service attacks, man in the middle attacks, eavesdropping attacks, and many more. The occurrence of these security risks and attacks on the ERP systems may lead to other negative implications.
  1. The clients and the end-users may file legal suite against the organization and the organization may be required to deal with the legal obligations and punishments.
  2. The satisfaction and engagement levels of the customers will come down.
  3. The reputation of the organization and the vendor will be deteriorated in the market which may have a negative impact on the sales and profits.
• In these ERP systems, the responsibility of managing the backups of the data sets will be on the organization itself. The vendor will not carry out any of the data backup activities. The organization may not be able to successfully carry out the backup activities which may result in data loss.
• There will be use of virtual machines in the hosted ERP systems. Customer will be responsible for the management of these virtual machines.

Case Studies

Ray Allen Manufacturing is an organization that was set up in the year 1948. The company is one of the leading manufacturers of canine equipment for military and police departments. The legacy systems of the company are AS400 and there were issues that were being experienced by the business executives in the legacy systems. The business executives and management committee decided to implement hosted ERP solutions in the organization for enhanced flexibility and integration of the operations (Cdn, 2017). The company made use of hosted ERP systems and could gain benefits, such as increased collaboration, enhanced accuracy of operations, better scalability, better security of the data sets, and a lot more. The requirements of the organization are dynamic in nature. There were changes in the enterprises requirements that were observed due to change in technology, modifications in the market trends, customer preferences, and likewise. Hosted ERP systems are scalable and flexible in nature. They can be easily scaled up or down to meet the needs of the enterprises and the changes can also be made without much effort. The use of hosted ERP systems allowed the organization to make changes in its requirements and business operations.

Hosted ERP

Seaport Capital is another organization that implemented hosted ERP systems in its organization. The main benefit that was offered with the use of hosted ERP systems to the organization was the lower infrastructure costs. The infrastructure was setup and maintained by the cloud vendor and the organization was exempted from making any alterations to the infrastructure (Cdn, 2016). The enterprise was required to pay only for the capacities and functionalities that they will be utilizing and overall costs came down as an outcome.

Features & Benefits 

It is the ERP system which completely functions in a cloud environment. The company pays for the subscription of the ERP cloud to the vendor and shares the same with other firms. It is also referred as Software-as-a-Service.

There are various benefits that are provided by the cloud ERP systems to the organizations and the end-users.

• The cloud ERP system eliminates the requirement to pay extra for the software licenses. There is a subscription fee that is attached with the desired period of usage which may be paid monthly, quarterly, half-yearly, or annually as per the wish of the organization. The fee that is associated with these systems is usually affordable which can be handled by the small and medium scale organizations as well. The additional infrastructural costs, such as that of data servers and hardware are brought down (Elragal and El Kommos, 2013).  
• It is required to upgrade the cloud ERP systems at regular intervals. The cloud vendors in the market release the updates and installs & manages these updates for the clients. The upgrade process is done at the time of minimal traffic on the system which does not bother the usual functioning for the organization. The system is kept up to date at all time and there is no cost that is associated with these updates.
• The downtime associated with the cloud ERP systems is very low. Thus, the organizations get the ability to make the complete usage of the application as per their requirement.
• The requirements of an organization are dynamic in nature. There may be changes in the enterprises requirements that may be observed due to change in technology, modifications in the market trends, customer preferences, and likewise. Cloud ERP systems are scalable and flexible in nature. They can be easily scaled up or down to meet the needs of the enterprises and the changes can also be made without much effort.
• There are several damage and disaster recovery plans and processes integrated with cloud ERP systems. Backing up of the data sets is done by the cloud vendor to make sure that the systems run at all times and the data sets are also kept protected.
• There is an option of customization that is offered along with the cloud-based ERP systems. This allows the organizations to target and meet their current as well as the future needs.
• There are several cloud vendors to choose from. This allows the organization to carry out the market study and select the cloud vendor that may fit the best as per their needs and requirements.

Drawbacks

There are also a few drawbacks that are associated with the use of cloud ERP systems.

• There is involvement of cloud in these ERP systems. The cloud platforms are exposed to various forms of security risks and attacks. The ERP data may also be exposed to the security risks and attacks. Some of the risks that may occur include malware attacks, data breaches, data loss, data leakage, and denial of service attacks, man in the middle attacks, eavesdropping attacks, and many more. The occurrence of these security risks and attacks on the ERP systems may lead to other negative implications. The clients and the end-users may file legal suite against the organization and the organization may be required to deal with the legal obligations and punishments. The satisfaction and engagement levels of the customers will come down. The reputation of the organization and the vendor will be deteriorated in the market which may have a negative impact on the sales and profits (Abd Elmonem, Nasr and Geith, 2016).
• The overall costs associated with cloud ERP systems are low. However, there are other costs that are related with Cloud ERP. One such cost is the cost of ownership.
• There may be heavy customizations that may be needed by the organizations without disturbing their legacy systems. Such a requirement may not be met by the cloud ERP systems.

Case Studies

SARMED is one of the Greek companies that were founded in the year 1955. The company deals in the area of logistics and supply chain services. The company implemented Nubis Cloud ERP system in its organization. The company achieved various benefits with the implementation of the ERP system. The cloud vendor, Nubis Cloud ERP releases the updates and installs & manages these updates for SARMED. The upgrade process is done at the time of minimal traffic on the system which does not bother the usual functioning for the organization. The system is kept up to date at all time and there is no cost that is associated with these updates (Nubis, 2018). There are several damage and disaster recovery plans and processes integrated with cloud ERP systems. Backing up of the data sets is done by the cloud vendor to make sure that the systems run at all times and the data sets are also kept protected.

Bell and Company is another organization that successfully implemented the Cloud ERP system. The business executives and management committee decided to implement Cloud ERP solutions in the organization for enhanced flexibility and integration of the operations. The company made use of Cloud ERP systems and could gain benefits, such as increased collaboration, enhanced accuracy of operations, better scalability, better security of the data sets, and a lot more (Acumatica, 2017). The requirements of the organization are dynamic in nature. There were changes in the enterprises requirements that were observed due to change in technology, modifications in the market trends, customer preferences, and likewise. Hosted ERP systems are scalable and flexible in nature.

Cloud ERP

Conclusion 

The implementation of an ERP system in an organization provides it with several benefits, such as increased collaboration, enhanced accuracy of operations, better scalability, better security of the data sets, and a lot more. The implementation of ERP systems can be done using a variety of different methods. The use of cloud is one of the mechanisms that can be used for the implementation of ERP systems. There are various cloud platforms and models that can be used for this purpose. On-Premise ERP refers to the approach in which a company purchases the license of specific ERP software and then installs it in their organization. The second category of the ERP systems that is commonly seen is the hosted ERP system. In this case, an organization purchases the license for the ERP system and then deploys the system on a third-party infrastructure in the cloud. This mechanism is also referred as Infrastructure as a Service (IaaS) cloud model. Cloud ERP is the ERP system which completely functions in a cloud environment. The company pays for the subscription of the ERP cloud to the vendor and shares the same with other firms. It is also referred as Software-as-a-Service.

References

Abd Elmonem, M., Nasr, E. and Geith, M. (2016). Benefits and challenges of cloud ERP systems – A systematic literature review. Future Computing and Informatics Journal, 1(1-2), pp.1-9.

Acumatica (2017). Acumatica: Easy to Use, Affordable ERP for Small Businesses. [online] Cdn.acumatica.com. Available at: https://cdn.acumatica.com/media/2017/05/Acumatica-Case-Study-Bell-and-Company.pdf [Accessed 12 Sep. 2018].

Boillat, T. and Legner, C. (2013). From On-Premise Software to Cloud Services: The Impact of Cloud Computing on Enterprise Software Vendors´ Business Models.

Boltena, A. and Gomez, J. (2012). A Successful ERP Implementation in an Ethiopian Company: A case Study of ERP Implementation in Mesfine Industrial Engineering Pvt. Ltd. Procedia Technology, 5, pp.40-49.

Cdn (2016). Private investment firm improves disaster recovery, streamlines accounting with Acumatica. [online] Cdn.acumatica.com. Available at: https://cdn.acumatica.com/media/2016/04/Seaport-Capital-Acumatica-Case-Study.pdf [Accessed 12 Sep. 2018].

Cdn (2017). Acumatica’s flexibility propels K9 manufacturer’s growth and strategy. [online] Cdn.acumatica.com. Available at: https://cdn.acumatica.com/media/2017/04/Acumatica-Case-Study-Ray-Allen-Manufacturing.pdf [Accessed 12 Sep. 2018].

Elragal, A. and El Kommos, M. (2013). In-House versus In-Cloud ERP Systems: A Comparative Study. Journal of Enterprise Resource Planning Studies, pp.1-13.

Maguire, S., Ojiako, U. and Said, A. (2010). ERP implementation in Omantel: a case study. Industrial Management & Data Systems, 110(1), pp.78-92.

Mezghani, K. (2017). From On-Premise ERP to Cloud ERP. Encyclopedia of Information Science and Technology, Fourth Edition, pp.2965-2974.

Nubis (2018). Cloud ERP. [online] Nubis.gr. Available at: https://www.nubis.gr/CmsImages/NubisInhouse/files/Case-Study-nubis.gr-SARMED.pdf [Accessed 12 Sep. 2018].