What’s the Total Cost of Ownership for a Cloud-based Job Shop ERP?
Sep 23, 2016
By: Mark Stevens
Manufacturing
We’ve published a number of articles about ERP systems and their value to job shops, including one post specifically about an ERP system’s cost. One big piece of the total cost – immediate and ongoing – is related to where that system “lives.” One of the decisions you’ll need to make about your system is whether it’s going to be based “on premise” or “in the cloud.” These two options don’t necessarily differ when it comes to the capabilities each offers, but there are several factors related to infrastructure and pricing that make cloud-based systems the better choice for most job shops.
Infrastructure
With an on-premise system, you are responsible for purchasing the infrastructure to run it – servers, operating system software and databases – and for the resources necessary to manage and maintain the system. This is usually an already-overburdened IT person or people. Many job shops have either very limited IT resources or, in some cases, no full-time staff to do what’s required with this type of system. Combined, these infrastructure costs are the biggest single factor driving higher total cost of ownership (TCO) of an on-premise system compared to a cloud-based system.
Cloud-based systems require no investment in infrastructure; only a platform fee, a per-user fee and the cost of implementation. With a cloud-based system, the vendor is responsible for everything: servers, storage, operating system software, security, databases, business software, updates, migration, backups, power and cooling, data center space, and support services.
What About The Long-Term Costs?
The cost difference between these two options is significant. A report by SMB Group, “How TCO Benefits Make Cloud Computing a No-Brainer for Many SMBs and Mid-Market Enterprises,” showed that the cost of on-premise solutions range from 51 percent (for a 50-user scenario) to 45 percent (for a 200-user scenario) of the total solution cost over four years. The overall TCO for NetSuite’s ERP and CRM cloud solution is as much as 46 percent less over four years for a 100-user implementation than comparable on-premise mid-market ERP and CRM solutions. That’s due primarily to the infrastructure and related management/maintenance costs of each.
Additional Benefits
The costs associated with infrastructure are just one factor making cloud-based systems the better choice for job shops. Here are a few more:
- Faster deployment. With a cloud-based system, you’re up and running faster than with an on-premise solution because that infrastructure has already been created by the vendor. You can also “try before you buy” and request a demo that will show how an ERP designed for job shops will help you grow.
- Greater productivity. The applications within a cloud-based ERP system are available anywhere, anytime, via a web browser, and anyone in the company to whom you give permission has access to information in real-time.
- Flexibility/scalability. You can expand or contract the services you pay for as your needs change.
- Improved reliability, performance and efficiency. The uptime of a cloud-based system is typically much higher than what an internal IT person can guarantee for on-premise systems, and the system provides automatic upgrades so you’re never “behind” a version.
- Support. Cloud-based systems pricing includes support, so you’re never on your own when it comes to issues that might arise.
A job shop has significant demands on its resources, and every investment should be one that adds value to its business. Once you determine that an ERP will optimize your organization and help you make the decisions that allow for sustainable growth, it’s time to evaluate your choice of on-premise or cloud-based systems. Clearly, its costs and other important benefits make cloud systems the right choice for job shops.
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