Cloud ERP System: Advantages and Disadvantages

This report discusses the different types of ERP systems, including cloud ERP systems, on premise ERP systems, and hosted ERP systems. It assesses the advantages and disadvantages of each system and includes case studies of companies that have implemented ERP systems. The report also provides a comparison of the costs of each system and their impact on business processes.

Running head: CLOUD ERP SYSTEM
CLOUD ERP SYSTEM
Name of the University
Name of the student
Author Note

1CLOUD ERP SYSTEM
Table of Contents
Introduction................................................................................................................................2
Purpose of the report..............................................................................................................2
Report structure......................................................................................................................2
Discussion..................................................................................................................................3
On premise ERP system.........................................................................................................3
Hosted ERP system................................................................................................................3
Cloud ERP system..................................................................................................................4
Experience of Companies in reinforcing the advantages.......................................................5
Experience of Companies in Reinforcing the Disadvantages................................................9
Conclusion................................................................................................................................12
References................................................................................................................................13

2CLOUD ERP SYSTEM
Introduction
ERP or Enterprise Resource planning system comprises id several management tools
based on strategic business processing and has the capability to manage information
efficiently. Most of the companies nowadays face the impending threat of competition and
how they can access and store their information in a dependable way (Developing 2013).
Thus technology changes the way that enterprises work by bringing together l aspects of the
business environment under a comprehensive system which can be accessed by the entire
organization.
In the following report, a number of ERP systems have been mentioned that are used
in industries currently. Their advantages and disadvantages have been assessed so that
companies can assess which one will be best to implement in their business processes. A
number of case studies have been proposed which reinforces the pros and cons of the ERP
systems.
Purpose of the report
The purpose of the report is to comprehend the different types of ERP systems by
different enterprises who are planning on implementing the mentioned technology.
Report structure
The report has been divided into three sections. The introduction carries a brief
definition of the ERP system. The discussion section takes into account the different types of
ERP systems and their advantages and disadvantages. In the next section, four case studies
have been proposed which has either failed to take advantage of the ERP systems or has
failed the system indirectly.

3CLOUD ERP SYSTEM
Discussion
In the next section, three types of ERP system have been investigated with respect to
their benefits and risks that they can have on prospective companies:-
On premise ERP system
These systems are normally present under the authority of the company under their
control and runs from backend office within the office. It provides the company to use its
own IT infrastructure for provide control and security to systems, processes and people. The
on premise system provides the service physically form the server rather than the opting for a
vendor supplied option. The system allows the company to secure and supervise the ERP
stem under their control. The system is suitable for those companies which plan on
integrating the daily business functions in a specialized way. Moreover, if the company has a
dedicated IT service management crew on site, then it is suitable for that company to adopt
the on premise ERP systems.
There are several benefits of using an on premise ERP system. The confidential data
remains safe. The control over the data processes are retained. It has a strong integration with
other applications.
The only weakness of the on premise ERO system is the long process in
implementing the system and the additional hardware costs. Moreover, certain companies
may not be afford the high cost of implementing the system despite its advantages
Moreover, it provides other advantages like control over accounting expenses,
distribution chain management, security numbers and business intelligence. The company do
not have to depend on the vendors much for running processes properly (Peng and Gala
2014). Also, it give the company with the advantage to change particular elements of the ERP
system which give sits advanced customizability. Although the on premise ERPN system is

4CLOUD ERP SYSTEM
financially heavy during the implementation phases, but uncertain cases, the cost gets
justified after a few years.
Hosted ERP system
The Hosted ERP systems came to the business scenario in the 1990s and has to
normally purchase from a vendor. It features softwares which are web enabled that are
managed by the service provider on a remote server. The ERP solution can be accessed by
anybody who are using the ERP system. The company’s physical servers are then installed
with the data hosting centre. The vendor then charges the company an upfront payment and
rental fees for hosting services. .
There are several benefits of adopting this ERP technology. Instead of maintain
physical servers, the company has to only rent servers. It can be customized as well but not
like on premise ERPS. The control of the data lies with the administrator. Limited number of
IT systems need it be present on site. The security issues such as threats from anti viruses are
managed by the ERP vendor. Even the data backups are maintained by the vendor. Other
advantages include data redundancy and scalability. Only a certain amount fees need to be
paid for the maintenance costs (17%).Moreover, software can be used by the company due to
the licensing agreements
But the hosted ERP system has some drawbacks due to the uncertain variables that
may cross the monthly budget. The system entirely shuts down when it is cut from the
internet connection. Moreover, sometimes the systems are difficult to integrate with the
existing applications. It needs to be hosted for a remote centre which needs to have a high
bandwidth,

5CLOUD ERP SYSTEM
Cloud ERP system
Instead of hosting the system from a data centre, their cloud ERP system hosts its
system within cloud environment. The cloud ecosystem helps to aggregate all the information
from different departments of the same company in real to enhance their accessibility. The
system consists of separate modules that have various business functions like HRM and
finance management system.
The advantages of a cloud ERP system are that the infrastructural costs are
significantly lower. It comes as subscription based and has the capability to accept advanced
technologies in the future. Moreover, it is easily scalable and the hardware as well as the
software is managed by the vendor (Zhong and Rohde 2014). It prevents the dilution of
enterprise objectives. It also provides extra mobility for the business to run globally. The
company also gains form the moving from capital expenses to operational costs. It helps the
business to expand dynamically due to the low initial resource planning (Saini, Khanna and
Peddoju 2014). The investment cost on technical staff is significantly reduced. The IT
service provider is also easier to handle as the central server manages all the services.
There are some drawbacks to the cloud based ERP systems as well. The company
loses the governance of its business function and the vendor dependability also increases. The
cloud bases system also strips the company from its core business applications. Moreover, the
implementation cost can also include some hidden charges (Johansson et al. 2014). The
legacy systems sometimes do not integrate well with the cloud based ERP system, other
drawbacks include the scalability, lack of customised function development and cyber-
attacks.
Experience of Companies in reinforcing the advantages
CASE STUDY 1

6CLOUD ERP SYSTEM
The Shaw Industries was privately founded by Bershire Hathaway in 1945. The
company dealt with the manufacturing of building materials, carpeting and flooring. More
than 2000 employees is currently working in the organization. The total revenue of the
company is over 6 billion dollars. It has its headquarters in Georgia (Flooring from Carpet to
Hardwood Floors 2018).
The company decided to adopt an ERP system known as NetSuite. The system also
supported the two tier system (Gupta and Misra 2016).
Rather than on premise ERP system, the mentioned company will benefit from the
Cloud ERP system. The initial investment of the ERP technology will be cheaper for Shaw
Industries and will provide the company will more flexibility. The company will benefit from
the subscription services provided the ERP system (NetSuite) instead of the yearly payments.
This will allow Shaw Industries to spread the annual payment like an amount which is tax
deductible.
Shaw industries can use the new ERP system to increase its business flexibility. The
new system allows Shaw industries to access all the information from a single platform. The
collaboration of the business functions were increased due t the implementation and the
mismanagement of data was considerably reduced. The cloud ERP system also allows Shaw
industries to use business intelligence (Johansson et al. 2015). The flexibility of the cloud ERP
system allows the company to choose its own dashboards which was suitable for the business
environment.
The analysis proves that Shaw industries successfully managed to reinforce the
benefits of the cloud ERP system to provide its business processes with extra agility for
expanding its business globally (Sharma and Keswani 2013). Shaw industries managed to

7CLOUD ERP SYSTEM
save millions of dollars as it avoided investing on a central server that is used in on premise
solutions.
The cloud ERP system has a lot of benefits that was utilized proactively by Shaw
Industries. The deployment quality decreased due to the fast ERP implementation.
Moreover, the company benefitted from the yearly updates that came as a service during the
deployment. Some agile providers even provide the updates monthly. The system also
decreases the upgrading problems. Also, the rich flexibility and user experience allowed
Shaw Industries to adopt NetSuite.
The company managed to reinforce the advantages of the cloud based ERP system
and managed to save millions during the deployment phase of the system. It helped to
enhance the agility of the system processes (Flooring from Carpet to Hardwood Floors 2018).
The new system finally allowed Shaw Industries to reach the international marks. It also
helped the company to reduce the operational costs of its personnel working in the workforce.
The cost of marinating a huge technical team was also reduced due to the maintenance
services provided by NetSuite.
CASE STUDY 2
The next case study is based on a company which provides civil as well as
engineering services. The company is named VINSUN Infra engineering and was founded in
2000. Sunil Satav was the managing director of the company at that time and he managed to
find a serious problem in the business (Vinsun Infra Engineering Pvt. Ltd 2018). He
understood that the company lacked a proper storage and data compilation system. The result
was that the company faced a lot of data misplacement which resulted n a lot of system
inefficiencies. Ruchira Kulkarni was the CIO of the company and she suggested to implement
an ERP system (Vinsun Infra Engineering Pvt. Ltd 2018). She gave a choice of either

8CLOUD ERP SYSTEM
implementing a cloud based ERP system or an on premise ERP system. This decision was not
taken lightly by the other managers in the Board and they argued that the staff will not accept
the new system so easily. Moreover, the implementation can change a lot of business
processes.
The mentioned organisation had to face a lot of initial challenges before the
implementation. The old methods of collecting data was not working for the company. Data
mismanagement occurred daily due to information overloading. To transfer the data manually
from the Ms Excel file was a difficult time consuming work. Data security was non-existent
due to no backup systems (Alajbegovic, Alexopoulos and Desalermos 2013). Moreover, even
data analysis was not possible as there as a limited number of historical data.
Also, as VINUN infra organization was a small scale company, it was logical to
implement cloud based ERP system due to the low cost of implementation.
The company was particularly interested in on premise ERP systems as it had some
benefits that VINSUN organization can use. First of all, the data security was a major
concern for the industry. On premise ERP system provides complex data security as the
firewall is run by the company itself. The system even works properly even when the internet
connection is not there which was a bug plus point for VINSUN (Parthasarathy 2013). As
the system works on intranet connection, ti does not get affected by the speed as well as
connectivity issues. VINSUN will also have capability to change some aspects of the ERP
system as per its business requirements as the access controls are passed on to the buyer from
the vendor.
The disadvantages of the on premise ERP systems were also considered such as high
initial and maintenance costs. Moreover, the testing and training process can easily disrupt
the business functions (Mezghani, K., 2014).

9CLOUD ERP SYSTEM
VINSUN infra engineering organization even considered several advantages and
disadvantages of the cloud based ERP technology. The tried and tested features, more
accessibility, low initial cost, less disruption of business processes and no maintenance crew
were better prospective for VINSUN to consider. To test both the system effectively, the
company decided to make a cost benefit analysis over the next 20 years.
VINSUN organization decided on choosing the following ERP solutions from
different vendors:-
 Cloud based ERP system from Codeautomations
 On premise ERP system from Bluechip
 Cloud based ERP system from Codeautomations
After the cost benefit analysis was done, the company conducted an initial and recurring cost
comparison. The implementation of the on premise system by Codeautomations proved to be
more cost effective in the long run than the other two systems. VINSUN also decided that the
customization provided by the on premise systems will be beneficial for their company. It did
not opt for the cloud based ERP system as it found out that the maintenance cost of the cloud
ERP system increased considerably in the long run.
Experience of Companies in Reinforcing the Disadvantages
In spite of several advantages of the ERP systems, several companies have faced
some negative experience due to the weaknesses of the mentioned technology.
CASE STUDY 3
The next study reinforces a disadvantage of an ERP system that costed a company
millions of dollars. Nike sells sports apparels and shoes and was founded in 1957 (Nike. Just

10CLOUD ERP SYSTEM
Do It. Nike.com 2018). To understand the impending market conditions, the company
decided on implementing an IT technology. Due to the forecasting advantages provided by
SAP ERP, the company decided to implement it in their business functions. But initially due
to incoherent data from the SAP ERP system, the company decided on adopting a second
ERP system named I2.
Nike failed to assess the drawbacks cloud based ERP systems like lack of proper
resources and proper training among the users. Moreover, it failed to check the proper ERP
system for the company as it was in a hurry to adopt a second ERP system (Weng and Hung
2014).
Due to improper statistics provided by SAP ERP, the existing system was integrated
with the new I2 system. Due to the less number of product suites, the implementation proved
to be a huge failure. The company faced other issues such as complex processes, additional
costs and lack of business functionalities. Lack of careful analysis and improper training
deteriorated the situation.
Due to the failure of the marketers in determining the market conditions after six year,
the failure of the ERP system was evident. The lack of customization also deteriorated the
situation. The cloud systems are only configurable after every updates. Nowadays, system
functionality as well as customizability are deemed as organizational benchmarks. Nike is a
company that deals with a huge number of requests for customized products
(Navaneethakrishnan 2013). The company could have considered the implementation of a
cloud based ERP system in this context. Due to the lack of customization, the I2 system
failed to properly map the manufactured products and provided an inconclusive statistics.
Moreover, the I2 software was not integrated with the company’s back end processes. The

11CLOUD ERP SYSTEM
company was planning on decreasing the number of raw materials such as rubber by
decreasing the number of extra products that are generated in the peak demand seasons.
The company has a unique supply chain management system where it took orders in
an advance of six months. During the implementation phase of the ERP, as the employees
were untrained it proved to be a big disadvantages. The wrong statistics costed Nike more
than 100 billion dollars in damage. Even after investing more than 400 million dollars for the
ERP system, the lack of training was finally led to the failure of the ERP system.
Nike had to face a lot of technical issues as well as the SaaS software did not integrate
properly with the existing software. The system was slowed down and it accepted wrong
integration due to a software glitch. The demand planning engine ordered Air Garnetts
instead of Air Jordans. Thousands of shoes were created as excess products which costed the
company a lot of money.
Nowadays Nike has adopted all three SCM, CRM and ERP technologies for its
system processes. I has reverted back to the Sap ERP system due to its advanced analytics.
With advanced personnel training and collaboration with other industries and back end
processes, the I2 software was improved as well.
CASE STUDY 4
Another case study of a company has been mentioned here that reinforces the
weaknesses of the ERP system. Hershey is world famous manufacturer of chocolate and was
founded in 1894 by Miton Hershey (HERSHEY'S Candy & Recipes - Introducing
HERSHEY'S GOLD, 2018). The products were priced marginally ad hence the company
decided to reach the target sale of five billion dollars. It planned on doing this by selling a

12CLOUD ERP SYSTEM
huge amount of products through an advanced supply chain management system which was
only possible with n IT system.
Hershey ran the traditional legacy system and was under direct pressure from the
stakeholders due to the Y2K issue (Carutasu and Carutasu 2016). The company decided to
adopt the SAP ERP system to aid in transportation scheduling and advanced forecasting.
But during the implementation phase, the company failed to take it account one
disadvantages of the cloud based ERP systems. Integration of the existing data collecting
applications are very difficult with the SaaS. This can result in unwanted bugs and data
misinterpretation during the implementation phase (Sahin 2013).
Other non-related factor to the ERP weaknesses were the wrong timing of launching
the new system and the big bang approach of implementing the software. Also, there was
inadequate training among the personnel.
The failure of the ERP implementation resulted in delays in the shipping orders and
the stock prices fell by 30%.
Conclusion
To conclude the report, it can be stated that ERP system has a lot of advantages as
well as its fair share of disadvantages. Three types of ERP system has been discussed in the
above report. The advantages and disadvantages of the ERP systems have been conclusively
discussed. Two different experiences of companies who have successfully reinforced the
benefits of ERP systems have been mentioned in the first half of the report. In the second
half, two negative experiences of companies have been mentioned conclusively that
reinforces the disadvantages of the ERP systems. The implications of the ERP system on the

13CLOUD ERP SYSTEM
proposed companies have been mentioned and the reasons for the failures have been
discussed. Despite the weaknesses that ERP system has, with proper analysis and decision
making processes, organizations can use this technology to enhance the agility of their
business processes.

14CLOUD ERP SYSTEM
References
Alajbegovic, A., Alexopoulos, V. and Desalermos, A., 2013. Factors influencing cloud ERP
adoption: a comparison between SMEs and large companies.
Carutasu, N. and Carutasu, G., 2016. Cloud ERP implementation. FAIMA Business &
Management Journal, 4(1), p.31.
Developing, H.E.V.A., 2013. What Is the Cloud?.
Duan, J., Faker, P., Fesak, A. and Stuart, T., 2013. Benefits and drawbacks of cloud-based
versus traditional ERP systems. Proceedings of the 2012-13 course on Advanced Resource
Planning.
Flooring from Carpet to Hardwood Floors, 2018. [online] Available at:
https://shawfloors.com/ [Accessed 15 May 2018].
Gupta, S. and Misra, S.C., 2016. Compliance, network, security and the people related factors
in cloud ERP implementation. International Journal of Communication Systems, 29(8),
pp.1395-1419.
HERSHEY'S Candy & Recipes - Introducing HERSHEY'S GOLD, 2018. [online] Available
at: https://www.hersheys.com/en_us/home.html [Accessed 15 May 2018].
Johansson, B., Alajbegovic, A., Alexopoulo, V. and Desalermos, A., 2015, January. Cloud
ERP adoption opportunities and concerns: the role of organizational size. In System Sciences
(HICSS), 2015 48th Hawaii International Conference on (pp. 4211-4219). IEEE.
Johansson, B., Alajbegovic, A., Alexopoulos, V. and Desalermos, A., 2014. Cloud ERP
Adoption Opportunities and Concerns: A Comparison between SMES and Large Companies.
In Pre-ECIS 2014 Workshop" IT Operations Management"(ITOM2014).

15CLOUD ERP SYSTEM
Mezghani, K., 2014. Switching toward Cloud ERP: A research model to explain
intentions. International Journal of Enterprise Information Systems (IJEIS), 10(3), pp.46-61.
Mijac, M., Picek, R. and Stapic, Z., 2013, January. Cloud ERP system customization
challenges. In Central European Conference on Information and Intelligent Systems (p. 132).
Faculty of Organization and Informatics Varazdin.
Navaneethakrishnan, C.M., 2013. A Comparative Study of Cloud based ERP systems with
Traditional ERP and Analysis of Cloud ERP implementation. International Journal of
Engineering and Computer Science, 2(09).
Nike. Just Do It. Nike.com, 2018. [online] Available at: https://www.nike.com/us/en_us/
[Accessed 15 May 2018].
Parthasarathy, S., 2013. Potential concerns and common benefits of cloud-based enterprise
resource planning (ERP). In Cloud Computing (pp. 177-195). Springer, London.
Peng, G.C.A. and Gala, C., 2014. Cloud ERP: a new dilemma to modern
organisations?. Journal of Computer Information Systems, 54(4), pp.22-30.
Sahin, N.Y., 2013. Cloud ERP Security: Guidelines for Evaluation. Department of Computer
and Systems Sciences, Stockholm University, Sweden.
Saini, I., Khanna, A. and Peddoju, S.K., 2014, March. Cloud and traditional ERP systems in
small and medium enterprises. In Information Systems and Computer Networks (ISCON),
2014 International Conference on (pp. 138-141). IEEE.
Salim, S.A., 2013. Cloud ERP Adoption-A Process View Approach. In PACIS (p. 281).

16CLOUD ERP SYSTEM
Sharma, R. and Keswani, B., 2013. Study& analysis of cloud based ERP
services. International Journal of Mechatronics, Electrical and Computer Technology, 3(9),
pp.375-396.
Singh, A. and Nagpal, S., 2014. Implementation of ERP in cloud computing. International
Journal of Scientific & Technology Research, 3(10), pp.100-103.
SMALL, R., 2016. Factors affecting the adoption of enterprise resource planning (ERP) on
cloud among small and medium enterprises (SMES) in Penang, Malaysia. Journal of
Theoretical and Applied Information Technology, 88(3).
Vinsun Infra Engineering Pvt. Ltd, 2018. [online] Available at: http://vinsunengineering.com/
[Accessed 15 May 2018].
Weng, F. and Hung, M.C., 2014. Competition and challenge on adopting cloud
ERP. International Journal of Innovation, Management and Technology, 5(4), p.309.
Zhong, F. and Rohde, M.E., 2014. Cloud Computing and ERP: A Framework of Promises
and Challenges. ACIS.