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On-premise enterprise resource planning (on-premise ERP) refers to a company’s decision to source ERP software in-house and maintain it at a physical office, rather than ordering it for delivery over the Web or using vendor-supplied, hosted ERP systems.
As the ability to offer cloud-hosted or Web-delivered systems has grown, many vendors have started to promote affordable Software as a Service (SaaS) ERP options. Still, some companies prefer on-premise ERP solutions for a number of reasons.
ERP software can involve a lot of different products, from items that handle payroll and accounting, to systems that analyze or simulate business processes or that control inventory or supply chain issues. One of the biggest arguments for on-premise ERP relates to the kind of detailed use that a business might want from a software set. The basic idea is that hosted or cloud systems do not often allow the client users to modify or supplement the software in key ways, whereas on-premise ERP systems might allow in-house IT staff to tweak and improve the software or customize it for particular business uses.
In general, experts make the analogy between SaaS or on-premise ERP and leasing versus owning an important physical asset, such as a vehicle or piece of equipment. The benefits and disadvantages of each are similar: With on-premise ERP, companies have more control and ownership, but they must pay substantial costs upfront, rather than paying basic monthly fees that they will continue to pay as long as they use the software set. This is another controversial element of sourcing ERP software. Many companies like the idea of paying a set monthly fee rather than investing a large amount of money in ERP systems upfront, whereas others recognize that SaaS options could be more costly in the long run.