What is cloud ERP? 2021 guide to benefits and examples

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Originally Posted On: https://quickbooks.intuit.com/r/growing-complex-businesses/what-is-cloud-erp-benefits-examples/

Enterprise resource planning (ERP) solutions are designed to seamlessly connect and automate essential financial and operational business functions—providing a single source of data and a wealth of real-time operational insight. ERPs have the power to integrate functions across a company; for example, inventory, order and supply chain management, procurement, production, distribution and fulfillment, sales, marketing, human resources, and at the center of all operations, accounting and finance.

Cloud-based ERP platforms offer all the features and benefits of traditional, on-premise ERPs but are deployed in the cloud and often sold on a subscription basis (software as a service—SaaS). Cloud ERP solutions offer organizations access via the internet so that employees only need an internet connection and a browser to access the software.

Growing and/or industry-specific businesses are prime candidates for ERP technologies because they provide a centralized suite of applications designed to streamline processes company-wide and provide real-time data insights across departments and roles. They also come equipped with industry-specific features. For example, an automated inventory management module for including wholesalers, construction, subcontractors, food services, retail, and e-commerce businesses.

If you are in a position to consider moving toward ERP implementation, be sure to review all of the information provided here on the benefits of cloud ERP platforms, use case examples, and answers to frequently asked questions.

The benefits that come with adopting an ERP platform can accumulate quickly if you implement the right solution for your business. Top value points often include cost savings, efficiency gains, and heightened security.

Consider several potential benefits as you consider implementing a cloud-based ERP solution:

• Significantly reduce costs by eliminating the expense of hardware and data servers compared to on-premise ERP solutions.
• Eliminate upfront software license costs when you replace them with a lower monthly subscription fee.
• Reduce expenses associated with IT services because updates are automatically executed in the cloud versus executing downloads for on-premises ERP operating systems.
• Eliminate paying for extra features and functions you don’t need. Pay only for the business functions and resources required.
• Budget for the year knowing what your fixed monthly fee is upfront.

• Enjoy faster installation timeline as hardware and server-based software is not required.
• Leverage sophisticated workflow features to connect department processes and automate workflows that lead to immense efficiency gains company-wide.
• Leverage ease of system scalability to adjust system functionality as your business grows and changes.
• Elevate productivity and support a remote workforce with real-time, on-demand access to a cloud-based ERP solution.
• Tailor accounting customization with an ERP cloud platform to optimize for unique industry needs with purpose-built business applications.

• Rest assured that data is secure with regular backups and state-of-the-art security, including complex file encryption and multi-factor authentication.
• Enjoy peace of mind knowing that your cloud vendor has an established disaster recovery plan in place.

ERP users have access to several powerful features that support company-wide process automation and syncing of business functions. An organization has the ability to select built-in ERP modules to support its respective industry and business-specific needs. Common cloud ERP modules include:

• Finance and accounting—Provide complete transparency into financial data to support informed, smart business decisions across business operations. Leverage key accounting functions, including quarterly and annual financial statements, custom reporting, budgeting, and cash flow analysis.
• Human capital management—Manage human capital functions such as health benefits, retirement plans, employee wellness programs, recruiting, and more with ease.
• Customer relationship management (CRM)—Ensure sales, marketing, and general client communications are managed for the best customer experience with a clear, real-time view into client records. Maintain strong client relationships and consistently attract new leads to the business with the right messaging—formulated from data insights.
• Inventory management—Provide full transparency into inventory and supply chain channels to stay ahead of potential disruptions and subsequent issues.
• Order management—Draft sales quotes, sales orders, and purchase orders without the need for added inventory or warehouse management tools. Support a streamlined bidding process with batch communications to multiple vendors.
• Procurement—Maintain full control of the procurement process and provide financial leaders with transparency into bids and acquisition of goods.
• Supply chain management—Get a clear view into supply chains to ensure production consistency and the ability to plan early for possible disruptions.
• Project management—Ensure your organization has the capacity to plan, organize, and manage resource tools and develop resource estimates efficiently with cloud-based management software.
• Material requirements planning (MRP)—Fortify supply chain management with advanced planning functions that help companies clearly understand inventory requirements and balance supply and demand.
• Mobile access—Many cloud applications are SaaS ERP systems that provide access via mobile devices to important accounting data remotely and securely for maximum efficiency and ease-of-user experience.

Because each business will have its own unique operational needs and may also require industry-specific functionality, it’s important to avoid a one-size-fits-all approach when moving to a cloud ERP system. Outlining a use case for your business first can help you pinpoint required criteria for your cloud ERP.

Before diving into common use cases, it’s good to have a basic understanding of standard ERP application categories, which include:

• Multi-tenant: This offers a single ERP software version that serves multiple organizations. While each organization uses the same software hosted on the same servers, each company’s data remains inaccessible to the others. A true cloud ERP system is typically multi-tenant.
• Single-tenant: This offers a single ERP software version that serves a single organization. The company’s data is hosted on private servers running a unique software instance.
• Public cloud: This means that the software is owned by the service provider with multiple organizations sharing cloud computing services. However, each organization’s data and applications are inaccessible to the others within the environment. Examples of public cloud include Amazon Web Services, Google Cloud, Microsoft Azure, and Oracle Cloud.
• Private cloud: This is a service that is not shared with any other organization.
• Hybrid ERP: This approach combines on-premises software with a private or public cloud for computing, storage, and services.

Once you’ve developed a use case, understanding the categories of ERP applications can assist you in selecting the solution that is the best fit for your business.

Creating a use case will help you better define your business needs and provide a system blueprint of sorts. The following offer a few common ERP use cases for specific ERP modules—including finance management and inventory management.

Despite business size and industry, financial management is central to a profitable, sustainable operation. As a business grows, an accounting-first approach is often applied to ERP adoption because the need for real-time access to accurate financial data permeates every department. Consider the following use case for a wholesaler.

Despite recent growth and the addition of a second warehouse, the business still relies on online banking tools and spreadsheets to manage its finances. This requires manual tracking of purchase orders (accounts payable) and customer orders (accounts receivable). This is excessively time-consuming and provides little to no insight into financial data to support accurate cash flow forecasting. This leaves the organization vulnerable to cash shortages and even bankruptcy.

With the implementation of an ERP financial management module, the wholesaler is able to automate AP and AR transactions. This enables far easier management of the general ledger and better control over cash flow. Finance and accounting staff can create custom reports by pulling in data from balance sheets, cash flow statements, and payment receipts with pinpoint accuracy. They can then share financial reports with all department heads in a seamless manner. This creates complete transparency into financials for those who need access to the data from across the company.

Inventory management is a common ERP module required across numerous industries, such as retail, manufacturing, wholesaler, construction, subcontractors, and others. Consider the following use case for a retail business.

The retailer’s operations team relies on physical counts to maintain current inventory levels. Currently, the team is using a spreadsheet and manually entering data. The higher risk of error that comes with manual data input leaves warehouse workers with little confidence in the data. Also, items are often out of stock because orders are only placed when inventory is nearly depleted. Fulfillment times are slow and processes are inefficient because warehouse staff often have trouble locating items.

A cloud-based ERP solution replaces manual spreadsheets with an automated inventory management module that provides data in real-time. This includes data on inventory levels and updates on stock that is en route to the warehouse. On a daily basis, the operations manager can compare available inventory to sales data to determine if the company should place an order to replenish stock. The warehouse team can then fill more orders per day because the system offers the exact location of merchandise and inventory levels are higher.

Cloud ERP systems are designed to support multiple business functions within a central database, integrating operations and offering transparency company-wide. While ERPs are a logical step for new and established growing businesses, implementation can be complex and costly. Be sure to consider several items as you evaluate cloud ERP vendors.

It’s important to note that before starting the vendor evaluation process, it’s strongly recommended that you define system requirements and map out your business processes. The more specific you can be the better. Effective, informed planning requires you to reach out to production workers, purchasing and supply chain managers, executive management, sales staff, and others critical to your operation for feedback. Input from across the company better ensures that you go into the evaluation process knowing exactly what you need. Doing your homework upfront will also help you stay within a set timeline and budget.

To get you started, use the following key considerations as you think through your criteria list:

All too often business leaders select an ERP based only on price or current buzz around a new solution. Be sure to assess ERP platforms that support your specific industry. The right ERP solution will offer tools and features designed to solve your unique operational requirements. For example, if you’re in the professional services industry, your business needs and operational processes will differ from those in other verticals such as non-profit, subcontractor, and food and beverage.

Availability represents system uptime. Because an ERP solution connects all business functions, if it goes down, it can bring your entire operation to a grinding halt. And any disruption in service directly impacts your bottom line. When evaluating cloud ERP software, be sure to ask for uptime metrics. Providers should have this data readily available and be willing to commit to a service level agreement of at least 99.9% availability (which equates to less than eight minutes of downtime annually).

The draw of cloud-based ERP systems is that users have real-time access to key business information from anywhere, at any time, and from any device. On-demand access to information enables employees to make decisions faster and more confidently. Unless, of course, the system is down.

It’s critical to consider not only how an ERP system fits your business today, but also how well it can adjust as your business evolves. As you grow, a software solution’s ability (or inability) to scale with your enterprise is key. Top ERP solutions enable companies to start with core functionally and add more as needed.

Another big scalability draw is the ability to integrate easily with other cloud-based products—without a lot of downtime or additional hardware requirements. This level of agility allows businesses to make adjustments quickly to align with industry changes, emerging trends, and unforeseen disruptions.

If you are planning to leverage the cloud for its inherent flexibility, it’s important to understand multi-tenant vs. single-tenant models (discussed earlier in this article).

While most cloud-based ERP platforms rate high on security standards, it’s still important to evaluate solutions based on this checklist item. Highly secure systems employ advanced encryption that applies complex algorithms to conceal and protect data. The system will manage the identity of your data and limit access from unrecognized applications designed to decipher encrypted files. Multi-factor authentication is also a common security feature.

Doubling down on security also ensures that your ERP solution of choice offers internal security features such as advanced permissions within the user interface. The ability to set permissions ensures that only those who need access to sensitive information, like financial data, can see it.

ERP products are only as good as their support. As with any solution, users will run into issues that require expert system assistance. Leading cloud ERP software vendors offer dedicated support services with regular availability. Support should also include initial implementation setup help from a dedicated service team. Ensure that the vendor also offers quality support documentation and makes it readily available for users.

The following offers a list of the most common questions about cloud ERP. The answers will help you better understand the technology as you move forward with software evaluation.

Most cloud-based ERPs follow a subscription model, meaning you will pay a fixed monthly fee. Pricing will depend on the level of functionality your business requires and needed add-on modules (for example, to support your industry-specific needs). It’s best to contact vendors directly for accurate pricing.

Original intent is the key differentiator between cloud and cloud-native technologies.

Cloud-native represents an approach to developing and operating applications that exploits the advantages of cloud-computing delivery model. Applications are built on microservices architecture and are designed as independent modules to serve a particular purpose. Cloud-native new technologies are designed and built to work in a connected, online retail world.

Cloud (cloud-based) is a relatively older term and refers to cloud-enabled applications that are developed in a static, on-premise environment. The cloud-enabled approach is commonly used to build enterprise applications enabled for cloud-functioning.

Hosted ERP software is purchased and installed on a remote server. Hosted software is accessed via a virtual private network (VPN) and is an owned business asset.

Cloud computing is a term used to describe the delivery of computing services via the internet. This includes servers, data storage, analytics, intelligence, networking, and databases. Cloud computing supports faster innovation, flexible resources, and heightened scalability.

Need more information?

Learn how QuickBooks Online Advanced can give your business the power of an ERP with the intuitive interface of QuickBooks—without the high price tag or complex implementation needed for other ERP providers. Learn more here.