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Cloud ERP – What is it and How Does it Work

Cloud ERP – What is it and How Does it Work

Amidst the rapidly changing business environment of today, where adaptability and effectiveness are crucial for sustained success, enterprises are turning to innovative solutions to streamline their operations. Among these solutions, Cloud Enterprise Resource Planning (ERP) stands out as a transformative solution.  

Cloud ERP, a modern marvel in business technology, enables organizations to streamline and optimize their operations with unparalleled flexibility and scalability. With the ability to enhance collaboration, optimize processes, and provide real-time insights, Cloud ERP has redefined the way businesses manage their resources and data.  

As companies expand their horizons and embrace digital transformation, traditional on-premises ERP systems often struggle to keep up. Cloud ERP, on the other hand, takes advantage of the power of the cloud, offering a host of benefits that can revolutionize the way businesses manage their resources, processes, and data. 

In this blog, we will explore the concept of Cloud ERP. We will explore its fundamental principles, understand how it works, and highlight the benefits it offers to organizations of all sizes and industries. 

What is Cloud ERP? 

Cloud ERP is a modern and versatile software solution designed to assist organizations in managing and integrating various business processes and functions through a centralized and accessible online platform. Unlike traditional ERP systems that are installed and maintained on-premises, Cloud ERP operates in the cloud, which means the software and data are hosted on remote servers and accessed via the Internet. 

Cloud ERP offers a comprehensive suite of tools that enable businesses to manage their resources, such as finances, human resources, supply chain, manufacturing, customer relationship management, and more. 

This software is hosted by ERP vendors and offered as a service to enterprises. Cloud ERP software delivers superior functionality compared to on-premises systems, all the while minimizing drawbacks like initial licensing expenses. 

The increasing adoption of cloud-based ERP systems is driven by their capacity to swiftly access and analyze extensive data sets, nearly in real-time. This translates into immediate inventory intelligence for sales teams. It also grants flexibility to the financial teams to closely monitor cash flow status, promptly address audit requests, and meet demands for performance data without delay. 

Now let’s move on to understand how this software works! 

How Does Cloud ERP Work? 

Cloud ERP operates through a web-based model, where the software and data are hosted on remote servers maintained by the ERP provider. This streamlined approach offers businesses a simplified way to access, manage, and optimize their operations. 

Cloud ERP systems utilize a blend of technologies connected by fast internet networks. These systems remain online all the time, and security updates are managed by the ERP provider. The business team’s main concern is to log in and use the ERP and its data, which might result in lower ownership costs compared to older ERP systems hosted on in-house servers. 

Breakdown of How Cloud ERP Works 

Here is a comprehensive breakdown of how Cloud ERP systems work: 

  1. Cloud Infrastructure: Cloud ERP relies on the infrastructure of cloud computing, utilizing servers, storage, and networking resources hosted in data centers. These data centers are managed and maintained by the ERP vendors, relieving businesses of the burden of hardware setup and maintenance. 
  1. Remote Access: Users can access the Cloud ERP system securely via the internet from various devices, such as computers, laptops, tablets, and smartphones. This remote access enables real-time collaboration and data sharing among teams working from different locations. 
  1. Centralized Database: Cloud ERP provides a centralized database that houses all business-related data and information. This database is accessible to authorized users across the organization, ensuring consistent and accurate data across departments. 
  1. Integration: Cloud ERP integrates various business functions and processes. This integration allows different departments to share information seamlessly, reducing data duplication and enhancing efficiency.  
  1. Subscription Model: Cloud ERP is typically offered under a subscription-based pricing model. Instead of large upfront costs associated with on-premises systems, businesses pay a regular subscription fee, which covers software usage, maintenance, and support. 

Cloud ERP offers features like accessing customer details, sales history, financials, HR management tools, real-time performance data, supply chain updates, and more. A cloud ERP can link to almost any computer system your company uses. 

You can choose from different deployment models with modules and settings that suit your company’s needs. This keeps your team focused on the right tasks and processes to achieve your company’s objectives. 

Understand the Modules of Cloud ERP Software 

Every cloud-based ERP software includes essential financial and accounting features. The selection of additional modules or applications that an organization opts for is determined by its industry and specific operational requirements. The range of accessible cloud ERP modules comprises: 

  • Financials and accounting 
  • Human Resource Management Software (HRMS) 
  • Inventory management  
  • Project management 
  • Customer Relationship Management (CRM) 
  • Order management  
  • Procurement 
  • Material Requirements Planning (MRP) 
  • Supply chain management 

Basic Concepts Associated with Cloud ERP  

As we are delving deeper into this topic, it is necessary to grasp some fundamental concepts of cloud ERP: 

  • Deployment Strategy: ERP software can be implemented either on-premises or via the “as a service” model. Cloud ERP typically offers quicker functionality delivery. In both cases, planning, data migration, customization, configuration, and staff training are essential steps. 
  • Cloud-based ERP: This refers to enterprise resource planning software hosted offsite on the vendor’s servers and accessed through a web browser. 
  • On-premises ERP: This involves installing ERP software on a company’s local computers and servers, managed by in-house or contracted IT staff. The software and supporting infrastructure are maintained internally. 
  • Hosted ERP: ERP software and associated infrastructure are deployed and managed by either the company or a hosting provider. This is chosen when outsourcing IT operations, offering some cloud benefits but not a true “as a service” model. 
  • End-to-end Security: This signifies a secure, encrypted connection between a cloud-based ERP vendor and its customers. 
  • Subscription Licensing: Under this model, a fixed subscription fee is paid at specific intervals (monthly or annually) for software usage. This fee generally covers maintenance, and upgrades, and might be charged per user or organization. 

Types of Cloud ERP Software 

To begin, it is important to note that not all cloud ERP software is created equal. Certain traditional ERP vendors have adapted their software to function from their proprietary internet-connected data centers. By opting for these ERP systems, businesses might not fully capitalize on the advantages of true cloud-based ERP solutions. These advantages encompass streamlined upgrades and the potency of the cloud data center approach, where an extensive pool of resources bolsters applications rather than allocating infrastructure for each software component individually. 

Furthermore, there exist various categories of cloud ERP software, which include the following: 

Multi-Tenant Saas 

Multi-tenant SaaS (Software as a Service) refers to a cloud computing model where a single instance of a software application serves multiple customers, known as tenants. In this approach, all users share the same application infrastructure and codebase, while their data is kept separate and secure. This shared environment enables efficient resource utilization and cost-effectiveness for both the software provider and the customers. 

Single Tenant SaaS 

Single Tenant SaaS is a cloud computing model where each customer, or tenant, has their own dedicated instance of a software application. In contrast to multi-tenant SaaS, where multiple customers share a single instance, single tenant SaaS provides individual environments for each customer, keeping their data and settings isolated from one another. 

Public Hosted Cloud ERP 

Public Hosted Cloud ERP refers to an ERP software system that is hosted by a third-party provider in a public cloud environment. In this setup, the ERP software and associated infrastructure are managed and maintained by the cloud service provider. This offers businesses a convenient and cost-effective solution to access and utilize ERP capabilities. 

Hybrid ERP 

Hybrid ERP refers to an approach in which an organization combines both on-premises and cloud-based ERP solutions to create an integrated system. In a hybrid ERP setup, certain parts of the ERP system are hosted on the organization’s own servers (on-premises), while other components are deployed in the cloud. This strategy allows businesses to leverage the benefits of both deployment models and tailor their ERP implementation to their specific needs. 

Private Hosted Cloud ERP 

Private Hosted Cloud ERP refers to an ERP software system that is hosted in a dedicated environment by a third-party provider. Unlike public cloud solutions where resources are shared among multiple customers, privately hosted cloud ERP offers a more isolated and customized environment. 

What are the Benefits of Moving to Cloud ERP Software? 

Cloud ERP software offers a wide array of benefits that can transform how businesses operate and grow. Here are some key advantages: 

Upfront Infrastructure and Operating Cost 

Initial infrastructure and operational expenses present a significant consideration. A prominent advantage of adopting a cloud-based ERP solution is the notable reduction in costs, commencing from the implementation phase. In the context of on-premises ERP, businesses inevitably incur upfront expenditures encompassing server procurement, database setup, initial deployment, consulting services, IT personnel recruitment, and security measures including backups. 

Implementation Speed 

The speed of implementation stands as a significant challenge when adopting a new ERP solution, directly impacting business downtime and the time required to realize value. According to a study, approximately half of businesses reported that their implementations aligned with the anticipated timeline. Comparatively, transitioning to a cloud-based ERP system often facilitates a quicker startup in contrast to on-premises alternatives. This is primarily because cloud-based ERP bypasses the need for hardware selection and setup, along with the recruitment and training of IT personnel. 


Accessibility plays a pivotal role in the efficiency and effectiveness of an ERP system. It refers to the ease with which authorized users can access and interact with the system’s functionalities, data, and features.  

In the context of cloud-based ERP, accessibility is significantly enhanced. Users can connect to the system from virtually anywhere with an internet connection, utilizing various devices 


Cloud ERP offers scalability to accommodate business growth. Organizations can easily scale their usage up or down based on changing requirements without the need for significant hardware upgrades. 

Security and Updates 

Cloud ERP vendors are responsible for maintaining the security of the system and ensuring regular software updates. This alleviates security concerns and ensures that the system is equipped with the latest features and functionalities. 

Real-Time Insights 

Cloud ERP provides real-time analytics and reporting capabilities. This empowers businesses to make informed decisions based on up-to-date information, enabling them to respond quickly to market changes and opportunities. 

Customization and Agility 

Customization refers to the ability to tailor the ERP system to align with specific business processes, requirements, and unique workflows. A cloud-based ERP solution often offers a balance between out-of-the-box functionality and the ability to customize certain aspects. 

Agility, on the other hand, relates to the ERP system’s capacity to respond swiftly to changing business conditions and requirements. Cloud ERP solutions excel in this area due to their inherent flexibility.  


Cloud ERP upgrades eliminate the need for businesses to manage the technical intricacies associated with updates. Vendors can deploy upgrades without interrupting operations, minimizing downtime and allowing companies to benefit from improved functionality promptly. 

Disaster Recovery and Backups 

Cloud ERP systems include built-in disaster recovery and backup mechanisms. Data is stored redundantly across multiple servers, minimizing the risk of data loss due to hardware failures or other unforeseen events. 

Challenges Faced by Cloud ERP 

Cloud ERP solutions offer numerous benefits but have a set of challenges as well that businesses need to consider and address. Some of the challenges faced by Cloud ERP include: 

  • Data security and privacy 
  • Legacy systems 
  • Resistance to change 
  • Internet connectivity reliance 
  • Integration complexities 
  • Vendor lock-In 
  • Data migration  
  • Downtime and  
  • Customization limitations 
  • Downtime and outages 
  • Cost management  
  • Lack of control  

What is the Difference Between Cloud ERP and On-Premises ERP? 

Cloud ERP and On-Premises ERP are two distinct deployment models for ERP software, each with its own characteristics and considerations. Here’s a comparison of the two: 

Cloud ERP: 

Deployment: Cloud ERP is hosted and managed by a third-party provider on their servers, accessible via the Internet. 

Infrastructure: Hardware, servers, and IT infrastructure are managed by the ERP vendor. 

Cost Structure: Generally, involves subscription-based pricing, with predictable ongoing costs and reduced upfront expenses. 

Scalability: Offers easy scalability, allowing businesses to adjust resources as needed. 

Accessibility: Provides remote access from various devices, enabling flexibility in work arrangements. 

Maintenance: Vendors handle maintenance, updates, and security patches. 

Customization: Offers a balance between customization and standard features, with less extensive customization compared to on-premises. 

Implementation Speed: Typically, quicker to implement due to the absence of infrastructure setup. 

Security: Vendors implement security measures, but data resides offsite. 

IT Staff: Requires fewer in-house IT resources for maintenance. 

On-Premises ERP 

Deployment: On-premises ERP is installed and maintained on the organization’s own servers, often within their premises. 

Infrastructure: Businesses manage and maintain their hardware and servers. 

Cost Structure: Involves higher upfront costs for hardware, software licenses, and IT infrastructure. 

Scalability: Scaling requires purchasing and configuring additional hardware, potentially leading to longer scaling times

Accessibility: Access is often limited to within the organization’s physical network. 

Maintenance: Organizations are responsible for system maintenance, updates, and security. 

Customization: Offers extensive customization to match specific business processes. 

Implementation Speed: Typically takes longer due to hardware setup, customization, and testing. 

Security: Organizations have direct control over security measures but need to implement them. 

IT Staff: Requires more in-house IT staff for ongoing maintenance and support. 

In essence, Cloud ERP offers flexibility, accessibility, and reduced upfront costs, while On-Premises ERP provides greater control over customization and data security. The choice between the two depends on factors like business needs, resources, security requirements, and the desired level of control. 

To conclude, cloud ERP has revolutionized the way businesses manage their operations by leveraging the power of the cloud. Its web-based model offers unmatched flexibility, scalability, and real-time insights, transforming the efficiency and decision-making processes of organizations.

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