Advantages and Disadvantages of a Hybrid ERP System for Manufacturers

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In the past decade, cloud-based enterprise software systems have seen a massive jump in popularity. The shift has been so significant that businesses using on-premises ERP systems might wonder: Is there no way to keep on-premises systems relevant in the 21st century business environment while capturing some of the important benefits of cloud ERP?

That’s exactly why some businesses now choose hybrid ERP systems. These systems combine elements of both traditional on-premises ERP and state-of-the-art cloud-based solutions. How does a hybrid ERP system work, and what are their potential advantages and drawbacks? Here’s a high-level overview of hybrid ERP systems and their applications in today’s business environment.

How Do Hybrid ERP Systems Work?

Hybrid ERP is a type of ERP software deployment that sits somewhere between fully cloud-based and fully on-premises ERP. The purpose of a hybrid ERP system is to provide the maturity and stability of classic on-premises ERP while providing a path to integrate cloud-based structures where they’ll have the greatest positive impact. 

A hybrid ERP deployment can take many forms, but most are based around a two-tier structure. In this model, some core functions of the ERP software remain based in the on-premises architecture, while other tools are migrated and built out into the cloud. Determining exactly which functions live where is up to the business and its ERP vendor, and some capabilities may be shared between on-premises and cloud systems.

Many ERP vendors today recognize the importance of hybrid ERP offerings. Increasingly, top ERP vendors like Oracle NetSuite, SAP and Microsoft are creating flexible platforms that can accommodate hybrid deployments. However, that doesn’t mean that hybrid ERP is automatically the right choice for all businesses. Making big changes in software architecture requires a careful analysis of tradeoffs, so businesses should be careful to examine the pros and cons of hybrid ERP, such as the factors that follow. 

Three Advantages of Hybrid ERP Systems

  • Hybrid ERP systems can provide a smoother transition to the cloud than simply switching straight from on-premises.

An on-premises ERP system requires substantial capital investment in server equipment and other essential assets. Businesses that have already made these investments are often understandably reluctant to switch to cloud ERP since that often raises the possibility that the company’s considerable investments in on-premises equipment will be prematurely devalued. By contrast, a hybrid ERP system keeps the most important on-premises assets in place while integrating new systems that can serve as a stepping stone to full cloud deployment. 

  • A well-designed hybrid system can combine the biggest benefits of on-premises and cloud ERP systems.

Some businesses, especially in “hard asset” industries such as manufacturing, enjoy many benefits from on-premises ERP that aren’t yet as developed in cloud solutions. In such applications, a well-implemented hybrid ERP system can provide the critical benefits of cloud infrastructure without sacrificing the conveniences of on-premises ERP. For example, a business that wants to implement mobile capabilities in its ERP software may be able to add a cloud ERP layer that provides remote access to on-premises data without completely overhauling its system.

  • Hybrid ERP systems can be more easily scaled than purely on-premises systems.

Scalability is a common challenge for businesses with solely on-premises ERP deployments due to these systems’ reliance on local computing power. Hybrid ERP can present a strong option for scaling up a business’s ERP solutions to multiple nodes and business locations. Although it may not scale quite as easily as a pure cloud deployment, a properly designed hybrid ERP solution will usually include options, such as easily adding seats to the software license, that simplify the common conundrum of quickly adding data storage and management capacity to an existing ERP system.

Three Potential Drawbacks of Hybrid ERP Systems

  • Not all on-premises systems will be good candidates for hybrid ERP.

Since hybrid ERP systems are most often deployed as an additional stack layer on top of existing on-premises assets, the characteristics of those assets will majorly affect how well the system works. A hybrid system is unlikely to succeed when built on top of an on-premises system that’s already nearing the end of its useful life or one that doesn’t have the reliable internet access required for cloud integration. Businesses need to work closely with ERP vendors to evaluate the suitability of their existing systems before proceeding with a hybrid project.

  • A hybrid ERP system will typically cost more than a cloud ERP solution.

The integration of cloud and on-premises systems that hybrid ERP requires will often raise the cost of purchase and implementation. In addition to the existing costs of maintaining on-premises ERP, a business will usually have to purchase a subscription license to a SaaS cloud ERP as well. On top of that, hybrid ERP systems often require some degree of customization to create smooth and efficient functionality across on-premises and cloud systems. Ultimately, this means businesses must conduct careful ERP comparisons to find the system that’s right for them, as well as budget additional resources to cover the costs of customization.

  • Hybrid ERP systems can pose more security challenges than fully on-premises systems.

A hybrid ERP system poses unique security challenges, and any business considering implementing one needs to be aware of and address these issues. Cloud data breaches are all too common, and connecting on-premises data storage systems to the cloud can create serious security issues for businesses that haven’t taken the proper precautions. That means a multi-layer strategy is required: thoroughly vetting a cloud services provider’s security practices, implementing cloud security best practices for employees and fortifying on-premises security solutions.

As both on-premises ERP and cloud ERP continue to evolve, the business world is likely to see an increasing number of companies opt for hybrid solutions. While hybrid ERP isn’t a magic solution to the challenges of either ERP type, it does provide a unique opportunity to take advantage of the best characteristics of both.