ERP for Distributors: SaaS versus Traditional

April 8, 2010
By djohnson

Your distribution business operates differently than your friendly neighborhood retailer. Your business operates differently from Walmart. Therefore, your ERP solution should offer deployment choices which reflect the nature of your distribution business.

The two extreme examples of Walmart and a neighborhood retail store illustrate that each company has different budgets, software and IT experience, volumes of inventory, sales methods, billing options, and much more. In this article we explore different enterprise resource planning (ERP) deployment models so you can make an informed decision with regard to purchasing and deploying your distribution software.

Some assumptions: Distributors require features such as invoicing, ordering, purchasing, inventory, warehousing, etc. Assume that you find an ERP solution which contains all the features you want, but offers a choice between purchasing SaaS and a traditional license. The remainder of this article will help you decide which solution works best for you.

SaaS (on-demand) versus Traditional (on-premise)

The table below describes three different arrangements that are offered by ERP software vendors. Traditional software licenses can be installed on your premise or hosted at a service provider of your choice. The hosting provider can provide as many or as few additional services such as back-up, monitoring, disaster recovery, and updates. The introduction of on-demand services (SaaS, software as a service) provides a different option to traditional software licensing.

On-demand services can be offered in a shared environment or a dedicated environment. In a shared environment, the software vendor provides its services to multiple customers through a single IT infrastructure that is shared across all of those customers. In a dedicated environment, the service provider deploys specific dedicated resources for each individual customer. There may be combinations of deployment options (shared operating system, dedicated database) which blur the lines between these two broad categories.

Criteria Shared
On-Demand
Dedicated
On-Demand
On-Premise
Low cost of entry yes yes  
Low ongoing cost     yes
Low IT support requirements YES YES  
Access from anywhere YES YES yes
Own and access your data 1 1 YES
Customization capabilities yes YES YES
Integration with legacy systems   yes YES
Works if internet goes down     YES

“1″ – some SaaS offerings allow you to own and easily access your data, others do not.
“YES” – Emphatic yes
“yes” – yes, but benefits could be limited, see explanations below.

Low Cost of Entry – SaaS (on-demand) solutions cost less up-front because there is no hardware expense or software installation. However, the upfront costs for ERP distribution software include configuration and customization fees which can dwarf hardware and software installation costs. Saving a few dollars on installation may not matter if you are spending thousands on configuration and customization.

Low ongoing cost – On-demand solutions tend to have higher recurring costs unless you bundle in the cost of doing upgrades, supporting the server environment, and the cost of software maintenance. Sometimes these costs are not out-of-pocket, but that does not mean that resources are not being expended. In cases where a distributor has multiple warehouses and locations, costs can approach those of an on-demand solution.

On-demand word of caution: in the on-demand world, make sure that the low price that you were quoted in year 1 to win your business applies to subsequent years or your costs can really skyrocket as you add new users.

Low IT support requirements – On-demand solutions which are web-based require few, if any, IT resources. Your service provider may provide 24×7 support — for a fee.

On-demand word of caution: make sure that your on-demand vendor is not your only source for support, or you may find that your IT savings are merely being spent on your support plan.

Access from anywhere – On-demand systems are typically easy to access, but an on-premise system which is web-based can provide access from anywhere as well. An on-premise solution may require configurations to your firewall, and therefore provide additional control.

Own and access your data – On-premise and dedicated on-demand offerings give you control of your data. You can save a version offline if you want to backup your database or access your data records offline.

On-demand word of caution: you need to check that (a) you can get your data and (b) that you are not held hostage to the tools offered by the vendor.

Customization capabilities – See ERP Cloud news post on customizing ERP on SaaS.

Integration with legacy systems – On-premise deployments and dedicated SaaS deployments provide better options for interfacing with legacy systems and data. On-premise deployments will save on bandwidth and improve the response time of these interfaces. Interoperability among SaaS solutions is a hot topic, but is still in its early stages, with companies such as Cast Iron systems trying to build connectors.

Works if internet goes down – A SaaS system is always available … unless you lose your internet connection. If your distribution business requires 100% availability, you need to make sure that your local internet provider can provide a service level agreement or ensure that you have a backup plan for internet access in place.

Conclusion – Deploying ERP Distribution Software

As you can see, there is no one-size-fits-all deployment solution for ERP. When you select a software vendor, make sure your vendor can support the deployment that best meets your needs. Also, keep in mind that your needs can change, so make sure your vendor supports your future needs. If your future is very uncertain, select a vendor which can change as your needs change.

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One Response to “ ERP for Distributors: SaaS versus Traditional ”

  1. Travis on April 8, 2010 at 10:11 am

    I agree, there is a lot to weigh when making an ERP software decision, specifically when deciding on platform. The best thing you can do is to arm yourself with as much information on as many pertinent vendors as possible and have specific questions ready regarding your company’s needs when you talk to them. Comparetechproviders has product/vendor information, white papers and other related content in one place, which help in pulling of that data together.

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