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IT for





How organizations can add value to their business using ERP on a
Cloud? ................................4
works? ......................................................................................................
a) Public
b) Private
c) Hybrid

Issues/Challenges ........................................................................................
References ..................................................................................................

What is ERP (enterprise resource planning)?

Enterprise resource planning (ERP) is an industry term for the broad set of
activities that helps an organization to manage its business.
One important goal of ERP is to facilitate the flow of information so that business
decisions can be made data-driven. ERP software suites are built to collect and
organize the data from various levels of an organization to provide managers
with insight into key performance indicators (KPIs) in real time.
ERP software modules can help an organization's administrators monitor and
manage inventory, supply chain, procurement, finance, product lifecycle,
projects, human resources and other mission-critical components of a business
through a series of interconnected executive dashboards. In order for an ERP
software deployment to be useful, however, it needs to be integrated with other
software systems the organization uses. For this reason, deployment of a new
ERP system in-house can involve considerable business process reengineering,
employee retraining and back-end information technology (IT) support for
database integration, data analytics and ad hoc reporting.
ERP software is considered an enterprise application as it is designed to be used
by larger businesses and often requires dedicated teams to customize and
analyse the data and to handle upgrades and deployment. In contrast, small
business ERP applications are lightweight business management software
solutions, customized for the business industry you work in.

ERP Software Modules

ERP software typically consists of multiple enterprise software modules that are
individually purchased, based on what best meets the specific needs and
technical capabilities of the organization. Each ERP module is focused on one
area of business processes, such as product development or marketing.
A business can use ERP software to manage back-office activities and tasks
including the following:
Distribution process management, supply chain management, services
knowledge base, configure, prices, improve accuracy of financial data, facilitate
better project planning, automate employee life-cycle, standardize critical
business procedures, reduce redundant tasks, assess business needs, accounting
and financial applications, lower purchasing costs, manage human resources and
Some of the most common ERP modules include those for product planning,
material purchasing, inventory control, distribution, accounting, marketing,
finance and HR.
As the ERP methodology has become more popular, software applications have
emerged to help business managers implement ERP in to other business
activities and may incorporate modules for CRM and business intelligence,
presenting it as a single unified package.

Figure 1: ERP System

An ERP system can either reside on a centralized server or be distributed across

modular hardware and software units that provide "services" and communicate

on a local area network. The distributed design allows a business to assemble

modules from different vendors without the need for the placement of multiple
copies of complex and expensive computer systems in areas which will not use
their full capacity. ERP is a massive software architecture that supports the
streaming and distribution of geographically scattered enterprise wide
information across all the functional units of a business house. It provides the
executives with a comprehensive overview of the complete business execution
which in turn influences their decisions in a productive way.
ERP referred to the way a large organization planned to use its organizational
wide resources. Formerly, ERP systems were used in larger and more industrial
types of companies. However, the use of ERP has changed radically over a period
of few years. Today ERP can be applied to any type of company, operating in any
kind of field.

What is Cloud?
Cloud computing is the delivery of computing services over the Internet. Cloud
services allow individuals and businesses to use software and hardware that are
managed by third parties at remote locations. Examples of cloud services include
online file storage, social networking sites, webmail, and online business
applications. The cloud computing model allows access to information and
computer resources from anywhere that a network connection is available.

Figure 2: Cloud Computing

Cloud computing provides a shared pool of resources, including data storage

space, networks, computer processing power, and specialized corporate and user

How organizations can add value to their

business using ERP on a Cloud?
By moving ERP systems to the cloud, companies can gain an assortment of
technological and business benefits. Enterprise IT is embracing cloud-based ERP
for many reasons, including:

Lower upfront costs :

Cloud computing substantially reduces the capital expenses incurred by an
enterprise in order to implement an ERP system or to switch to a new
cloud-based one. The part of the upfront costs that is mainly reduced
includes expenses for hardware, user licenses and implementation,
excluding user training and customization. This benefit is generally
considered to be more important for SMEs than for large enterprises.
Lower operating costs :
Cloud-based ERP lowers operating costs for energy, maintenance,
configuring, upgrades, and other IT-staff costs and efforts. This benefit is
generally considered as having increased relevance for SMEs.
Rapid implementation:
Rapid implementation is generally agreed to be among the top benefits of
cloud-based ERP. It could also contribute to easier change of cloud service
providers and reduced time of providing new products in certain types of
Resource pooling and rapid resource elasticity of cloud-based ERP make
the infrastructure capacity highly elastic. That in turn enables faster time
to market, high level of strategic flexibility and improved competitiveness.
This feature is reported as a possible advantage that is particularly
relevant for SMEs in competing with large rivals.
Focus on core competencies:
Cloud-based ERP and other enterprise applications allow focusing the
resources that would be used to maintain an IT department on other
essential areas of business. In some cases it mainly results in reduced
pressure on internal IT department which can focus on servicing core
Access to advanced technology:
Cloud-based applications often enable access to specialized technology
and advanced computing re-sources that otherwise would have not been
accessible to SMEs.
Rapid updates & upgrades:
Cloud-based ERP systems usually get faster updates and new functionality
than traditional ERP systems.
Improved accessibility, mobility, and usability:
Besides their inherited features of mobility and accessibility cloud-based
ERP and other enterprise applications can usually boast higher levels of
user friendliness and usability than other types of ERP.
Easier integration with cloud services:

Using benefits of SaaS shared infrastructure, companies that adopted

cloud-based ERP may get relatively inexpensive integration with other
cloud services once respective cloud providers have integrated their
Improved system availability and disaster recovery:
In many cases SaaS providers ensure measures such as backup routines,
fall back and recovery procedures, conditioned power etc. of higher quality
than most SMEs do in-house.
Availability of more robust, feature-rich ERP cloud applications from
established and trusted enterprise software vendors.
Ease of deployment.
Pay for only what you use.
Need to shift IT investments from the capital budget to the operating
budget to closer align business benefits with cash outflow.
Free valuable resources from maintaining legacy software and
infrastructure to focus on higher-value and innovation-driven activities.
Quicker deployments leading to faster time to value and freeing up
resources for more strategic initiatives.
More flexible and scalable solutions to provide long-term support for
growth and expansion.
As more enterprise applications reside in the cloud, having a cloud-based
ERP system can simplify integration and eliminate data silos.

Businesses are realizing that the cloud is the future of enterprise software and
offers many attractive business benefits. Among the most compelling are:

More modern user experiences (UXs) that increase productivity and

employee satisfaction.
Embedded analytics to support more effective real-time business
Embedded social collaboration tools to increase collaboration and
Pervasive mobile access to application services.
Ease of finding and sharing information to support collaborative decision
making and increase productivity.
User self-service to simplify provisioning and system administration.
Ability to more effectively tie back-office systems into the front office to
support the company's customer experience strategy.
Eliminating data and people silos to make more effective business
decisions more quickly.
Improve and shorten the financial close process through better access to
data and embedded collaboration.
Balance the company's financial needs between capital and operating

For midsize companies on a fast growth path, there can be additional benefits
from making an informed and strategic decision when it comes to ERP systems.
Often these companies choose something that is scaled down too much instead
of choosing a fully mature, enterprise-class ERP system. While such a system

might fit today, it won't keep up with the rapid change that occurs in growing
businesses. In effect, businesses are required to go through two implementation
processes, which they could have avoided by selecting a system with the
flexibility, scalability and headroom to accommodate their growth.

How the Technology works?

Cloud ERP Systems
Cloud computing, as an innovative distributed computing, can provide dynamic
resource buffer, virtualization and highly usable next generation of enterprise
data centre. With cloud computing, the resources are shared and so are the
costs. Users can pay as they go and only use what they need at any given time,
keeping cost to the user down. Cloud computing is very much a business model
as well. Providers of cloud computing solutions, whether they are software,
hardware, platform, or storage providers, deliver their offerings over the Internet.
There are no shrink wrapped boxes containing discs or hardware for you to buy
and set up yourself. Cloud providers typically charge monthly recurring fees
based on your usage.
The cloud computing can be categorized as Public Cloud, Private Cloud and
Hybrid Cloud as defined below:
a) Public Cloud Computing: The cloud infrastructure is made available to the
general public or a large industry group and is owned by an organization selling
cloud services.
b) Private Cloud Computing: The cloud infrastructure is operated solely for an
organization. It may be managed by the organization or a third party and may
exist on premise or off premise.
c) Hybrid Cloud Computing: The cloud infrastructure is a composition of two
or more clouds (private, community, or public) that remain unique entities but
are bound together by standardized or proprietary technology that enables data
and application portability (e.g. cloud bursting for load-balancing between

Figure 3: Types of Cloud Computing

The services provided by the cloud service providers can be collected into three
a) SAAS: Cloud application services or "Software as a Service (SaaS)" deliver
software as a service over the Internet, eliminating the need to install and run
the application on the customer's own computers and simplifying maintenance
and support.
b) PAAS: The Platform as a service covering a layer of software and presents it
as a service that can be used to construct higher-level services. In other words,
the capability provided to the consumer is to deploy onto the cloud infrastructure
consumer-related or acquired applications created using programming languages
and tools supported by the provider. The consumer does not manage or control
the underlying cloud infrastructure including network, servers, operating
systems, or storage but has control over the deployed applications and possibly
application hosting environment configurations.
c) IAAS: Cloud infrastructure services or "Infrastructure as a Service (IAAS)"
delivers computer infrastructure, typically a platform virtualization environment
as a service. Rather than purchasing servers, software, data center space or
network equipment, clients instead buy those resources as a fully outsourced
service. The service is typically billed on a utility computing basis and amount of
resources consumed (and therefore the cost) will typically reflect the level of
activity. It is an evolution of virtual private server offerings.

ERP software that is deployed into a cloud environment becomes "Cloud ERP
Software". Most (if not all) cloud environments are built using virtualization and
load balancing technology that allows applications to be deployed across
multiple servers and database resources. Cloud ERP is positioned as a
revolutionary approach to deploy an ERP solution. It provides a solution that is
flexible, adaptable, scalable, efficient and affordable.
ERP as a business management software has provided big success to deliver
business critical data. ERP software as a service (SaaS) is provided for customers
who want to acquire ERP without managing hardware, software, and upgrades
while reducing up-front expenses. Customers can build an internal cloud to
reduce ongoing hardware costs while maintaining greater control over
integration and require local access to their data server.
Software-as-a-Service (SaaS) is often referred to as on-demand or hosted
applications which can be used in the enterprise resource planning systems.
SaaS vendor advertently takes responsibility for deploying and managing the IT
infrastructure (servers, operating system software, databases, data center space,
network access, power and cooling, etc.) and processes (infrastructure
patches/upgrades, application patches/upgrades, backups, etc.) required to run
and manage the full solution. Software as a service features a complete
application offered as a service on demand. A single instance of the software
runs on the cloud and services multiple end users or client organizations.
Software-as-a-Service (SaaS) may also be described as a process by which
Application Service Provider (ASP) provide different software applications over
the Internet leveraging cloud infrastructure on pay-as-you-go pricing structure.
This makes the customer to get rid of installing and operating the application on
own computer. It also eliminates the tremendous load of software maintenance;
continuing operation, safeguarding and support. The great benefit of SaaS is the
ability to run the most recent version of the application.
The SaaS software model has fixed financial and operative advantages over the
others in on-campus software models. The operation cost is very less and the
subscription cost is also low, normally far cheaper than a licensed application fee
which is possible due to its monthly fees based revenue model. With SaaS
Architecture, a provider licenses an application to customers on subscription
based service delivery. It allows customer to require a computer or a server with
internet access to download the application and utilize the software, which make
customer to get rid of purchasing expensive hardware / software to run an
application. It also allows the software to be licensed for either a single user or
for a whole group of users.

The Managerial Issues/Challenges

Subscription expenses

An explicit part of cloud-based ERP additional costs is widely used periodic

subscription fees that do not depreciate over time, in contrast to capital
investments in traditional ERP software.
Security risks
Security and confidentiality risks are reported to be among the top
concerns about cloud-based ERP. Security risks of cloud ERP adoption are
usually more important for large enterprises than for SMEs.
Performance risks
Leaving out pure integration issues, performance risks of cloud-based ERP
are essentially related to threatened speed and reliability of network,
outage risks and limitations on data.
Customization and integration limitations
Many cloud-based ERP systems have noticeable constraints on
interoperability with home-grown applications and integration into existing
application portfolios and IT infrastructures. Unlike on premise and hosted
ERP, cloud-based ERP may not allow extensive customization and complex
integration with some third-party services and systems. At the same time
this issue is referred to as of less importance for SMEs.
Strategic risks
Outsource such a business critical system as ERP, companies usually bear
increased strategic risk of high dependency on the service provider.
Compliance risks
Cloud-based applications often face additional difficulties in complying
with data, energy and environmental standards as these regulations are
generally designed without regard to peculiarities of cloud computing.
Loss of IT competencies
As a result of outsourcing the major part of IT support, organizations may
lose some valuable IT competencies as well as face their IT departments
resistance towards organizational changes. These effects of cloud
adoption are generally considered as more important for large enterprises
than for SMEs.
Functionality limitations
Cloud ERP is based on not that mature systems as traditional ERP and may
not be functionally rich enough to satisfy the back office needs of
organizations in every type of industry.
Limitation on hybrid deployment strategy
Cloud-based ERP usually has substantial limitations on hybrid deployment
strategy that may be required to (I) retain legacy systems if needed, (II)
integrate ERP with on premise systems that require low latency and (III)
overcome deficiency of public network infrastructure.
SLA issues
In many cases it is rather hard to accurately define Service Level
Agreements (SLAs) negotiated between cloud service provider and their
corporate clients. These SLAs usually do not really cover such aspects as
confidentiality and integrity leaving space for unclear damage liability.