In the alphabet soup of business buzzwords, SaaS and ERP are dominating the conversation. Is one better than the other? It’s not an “apples to apples” comparison because so many factors influence your decision.
Old ERP has ruled business operations for decades in the hands of power names, such as IBM, Cisco, Microsoft, and other power players. But, SaaS came along to serve specific needs and has gained momentum among the small and mid-sized businesses where it makes so much sense.
Software as a Service (SaaS)
SaaS is a method of delivering software. It allows users to access data from any device with a browser and internet connection.
It uses third-parties to host and maintain code, databases, and servers. Google Apps, Microsoft Office 365, Dropbox, Slack, and Netflix are popular examples of SaaS at work.
Almost every business, of any size, will pay for this on-demand software to fulfill enterprise functions:
- Customer Relationship Management (CRM)
- Human Resources Management (HRIS, HCM, and HRM)
- Procurement Management
- Purchasing processing
- And much, much more.
With SaaS, then, you have no need to install off-the-shelf software, build corporate-wide infrastructure, or create proprietary software. You pay only for the subscription and using only what you need through the Internet.
Old (traditional) ERP
Traditional Enterprise Resource Planning (ERP) was among the first triumphs of the “Information Age.” The pioneers linked financial accounting with all other aspects of business operations. What had only been available on the accountants’ ledgers was now there for all decision makers.
As businesses grew and spread to more locations, the ERP would link their process and progress to headquarters, so key corporate managers could distribute resources, maintain budgets, and manage supply chains.
Once upon a time, not too long ago, a business would have individual systems serving procurement, purchasing, HR, engineering, operations, accounting, delivery, and so on. They were grateful when ERP integrated all those individual interests.
The ERP software would link everything to the business’s “central nervous system” available to anyone with authorized access.
Is SaaS right for you?
Mark Rhyman, a contributor to Forbes, lists key benefits of using SaaS:
- Cost: Using cloud-based SaaS costs less than on-premises systems. You select what you need and download it or connect to the Internet. The processing time alone saves money.
- SaaS lets buyers expense an annual or monthly subscription fee, spread over time and supporting business budgets. You pay for what you want. You don’t need additional hardware. You don’t need people to install and maintain the service.
You will pay a licensing fee and annual service fees of 15-20%, much cheaper than supporting an ERP system and team.
- Time: SaaS is there for the using. You don’t wait for delivery or implementation. For example, you can connect with Office 365 with minimal effort. Within minutes of subscribing, you can access a huge inventory of resources.
Now, imagine your salespeople having similar access to databases and client mining. They could know what’s in inventory, what shipping can handle, what specs engineering can meet, and so on.
Or, imagine your small retail business has several locations. With a SaaS app, you can check on time and attendance, order goods, and cost a project from wherever you can access the Internet.
- Maintenance: There are no servers to maintain or repair. These cloud-based services regularly backup your content. Even in moments of downtime, end users can move to whatever is available.
The SaaS process takes much less time to implement than an on-premise solution like ERP. You must budget time for training and support, but you will not need time or staff to keep the system working.
- Space: There is no need for space allocated to servers, hardware, or personnel to administer and maintain an on-premise system. You don’t have to worry about wiring, electricity, ventilation, or humidity control.
SaaS requires no physical space, and the vendor maintains stringent server security. The server also upgrades without notice and without downtime to update and customize.
- Network: A cloud-based service can be shared across functions, multiple locations, regions, and subsidiaries. You and your networks can expand with no additional hardware.
No time is wasted in building or installing IT infrastructure and VPN access. SaaS is built to expand, customize, and adapt to scalable needs.
Small Biz Trends predicts that small business will spend $16 billion on SaaS this year looking forward to $55 billion in 2026. Specifically:
- 64% of small and medium-sized businesses rely on cloud-based technology to drive growth and boost workflow efficiency.
- 90% of mobile data traffic will be generated by cloud solutions by 2019.
- 43% of small business owners use mobile as the primary devices for running their operations.
Any business regardless of size must face the burden and cost of equipping the enterprise with the systems and tools that make an organization run. SaaS opportunities relieve that burden and allow owners to better deploy their passion and energy.
SaaS in procurement and purchasing
SaaS solutions are redefining procurement and purchasing processes. They are the technology solutions for delivery within the budget and tough deadlines.
- Risk-free: Building on-premises systems is time- and cost-intensive. Architects must design and create the solution, but it is only usable after it has been tested. The best run systems process only follows repeated failures. And, SaaS solutions have already passed these tests.
- Budgeted: You can spread the cost of the solution across all locations, departments, and end users of organization. Because a procurement solution can integrate end users, vendors, and other elements in the supply chain, the data is complete and processing in real-time.
- Visibility: The best SaaS procurement software and purchasing software solutions have dashboards that visualize your expenses that reduces paperwork, calls, and staff. As a result, it cuts down manual work for employees, purchasing managers, procurement and financial departments.
- Integration: SaaS approach allows to build a flexible system that can be easily connected to the new tools without additional amendments.
So, when you compare SaaS and traditional ERP, you need to keep all these factors in mind. Putting it simply, the old ERP is a package held on premises. SaaS is a flexible, customizable, and scalable alternative.
Weak points of traditional ERP
- Planning, building, testing, reconfiguration, and implementation comes at a significant cost. It may take years to make the system work.
- ERP systems lack flexibility to customize the process and features.
- The ROI is slow coming and difficult to measure.
- ERP tools require extensive and continuing training.
- Transferring existing data from older systems to ERP presents an operational and financial challenge.
- Deploying ERP across locations and functional silos is difficult to complete.
- These challenges lock your business into a single vendor because they are so difficult to overcome and complete.
Disadvantages of SaaS
- The apparent loss of control worries some business owners. With cloud-based solutions, they figure “out of sight out of mind.”
- SaaS depends on Internet connectivity which is fast becoming universal.
- Working at a distance, SaaS may run a bit slower than on-premise ERP although the “lag” will remain unnoticed by most users.
Which is better for you?
SaaS and ERP systems will continue to co-exist. Traditional ERP systems are established steadily at IBM, Oracle, and other major players. And they do well integrating systems and functions in large complex organizations.
However, SaaS solutions are cheaper, more efficient, and targeted. For example, SaaS for procurement and purchasing manages concentric processes providing real-time reports on supply chain activity. SaaS solutions compete on their price, features, service, and scalability in a market with a high demand.