Does Cloud ERP Eliminate Capacity Planning?

May 10, 2011
By djohnson

ERP Capacity PlanningMany say that by deploying ERP software on an external cloud, businesses gain on-demand scalability and eliminate server capacity planning. In this post we investigate whether it”s possible to eliminate all capacity planning issues when deploying on an external cloud.

Yes, no planning needed

With the Cloud, you simply turn on more service as you need it. Retailers can add capacity during the holiday shopping period, accountants can add capacity at tax time, distributors can add capacity to keep up with transactions, and businesses can add remove capacity during slack periods.

When your applications run on external hardware (Cloud and some hosting plans), you don”t have to worry when your hardware will become obsolete because the service provider delivers updates as needed. The virtualization technology employed makes the transition to new servers nearly 100% seamless.

On-demand capacity is also very useful in situations where traffic spikes occur frequently. In this case you don”t have to worry about having servers running at 5% capacity during 90% of the time. This is one of the reasons that Cloud service providers can offer prices that are less expensive than the cost of building and maintaining your own datacenter.

No, planning is still required

Cloud ERP Cost DiagramTo get capacity on demand, you have to pay for what you use. Therefore, when doing your business plan, setting a budget, or calculating the cost of providing service, you need to have a good idea of how much capacity that you are going to need.

Cloud pricing can be confusing

Cloud services have several different pricing terms including computing hours, storage capacity, database capacity, inbound and outbound bandwidth, memory, CPU size, and other items. Understanding the different terms can be confusing and predicting your level of consumption can be nearly impossible.

Assume an ERP scenario where a wholesale distribution company has 10,000 SKUs, 100 purchasing transactions per month, 500 sales per month – 20% through an ecommerce portal, 250 invoices per month, 10 salespeople using CRM, 2 accountants, 5 customer service personnel, a customer portal for accessing order status, 50 credit card transactions per month, 100 document updates and new SKUs per month, etc.

The first step is to translate all of these business cost drivers into the cloud pricing parameters. For example, 500 sales per blackjack online month may generate 100kb of database storage as well as 250 shipments and 25 customer service inquiries. Each shipment creates 4 additional transactions and each customer service inquiry generates 5 transactions on average. So, in addition to the 100kb of storage, there might be an additional 100kb of shipping, shipping inquiries, and customer service transactions. Keep in mind that your new web-based ERP software is likely to utilize less capacity per transaction than your legacy client-server solution that was designed for on-premise operation over thick pipes. Therefore, your past capacity planning efforts will have to be modified.

Cloud ERP Vendors to the Rescue

The nearly impossible planning task described above has been eliminated by most cloud ERP vendors who price their service by user, server, module, and other things that you can predict more easily. In this case, the Cloud ERP vendors take the risk that you are not going to be distributing feature-length motion pictures through your ERP system and run up massive infrastructure charges.

Bandwidth Concerns

The one thing that cloud ERP customers still need to be concerned with is the amount of bandwidth available to connect their offices to the cloud computing service. In most cases, the amount of traffic is minimal because cloud ERP software is optimized for performance over slow and latent Internet connections. Employees working from home or while traveling will connect directly to the cloud service, so you won”t have to worry about VPN connections into your office.

Computing the amount of extra capacity to connect to the cloud will vary by business. If you already connect remote offices to a centralized system, your bandwidth requirements are most likely going to decrease. If you utilize new functionality such as the ability to attach documents, pictures, invoices, and other data to transactions or a product catalog, then you may have to do a more rigorous planning exercise.


If you are building an internal cloud, you still need to do capacity planning as you have done in the past. If you are utilizing a Cloud ERP solution that is hosted or delivered as SaaS, most of your capacity planning issues have been handled for you. You will still need to estimate bandwidth requirements from your office. These capacity requirements will be small because modern cloud ERP systems are built to minimize network traffic – partly to increase performance and partly to reduce costs (ERP vendors that offer SaaS pay for bandwidth).

Tags: , , , , ,

One Response to “ Does Cloud ERP Eliminate Capacity Planning? ”

  1. Brett Beaubouef on May 23, 2011 at 8:01 pm

    Excellent article! Just as ERP was deemed the panacea for all business automation pains, Cloud ERP is positioned as a revolutionary approach to deploying an ERP solution. Cloud ERP provides a solution that is flexible, adaptable, scalable, efficient, and affordable. Customers can enjoy painless upgrades, rapid deployment, and easy customization along with availability “anywhere at anytime”! Practically speaking, Cloud ERP is just another deployment option available to customers. The activities required for an “on premise” ERP implementation are also required for Cloud ERP. The scope and responsibility for the implementation activities may be different but most assuredly they are still required. Let’s further discuss the key impacts that a Cloud ERP deployment will have on the implementation.

Leave a Reply