Classification of ERP systems
ERP systems are classified into three primary categories: deployment, functionality, and business size. Deployment-based systems include cloud, on-premise, and hybrid models. Functionality-based systems range from core and extended ERPs to industry-specific vertical solutions. Size-based systems are categorized into Tiers I, II, and III to match organizational complexity and scale.
Deployment-based classification
ERP deployment is a complex process that ensures your chosen ERP system works as intended according to specification, in line with other business technologies, and is available for its intended users.
It can be installed locally on your on-premises servers, deployed as an online or cloud service, or a combination of both. In a hybrid environment, some aspects are deployed locally, while others are delivered via cloud on a Software-as-a-Service (SaaS) model.
- Cloud-based ERP systems are accessible through an internet connection and do not require local installation. This offers increased flexibility across various parameters like scalability, accessibility, and maintenance. It also allows for seamless updates and easier integration with other emerging technologies.
- On-premise ERP solutions are installed on a company's local servers, which requires an internal IT department to maintain them. These solutions offer enhanced data control and privacy.
- A hybrid ERP allows businesses to keep certain functionalities on-premise while accessing the rest over the cloud. However, this, too, requires an in-house IT team to manage the locally deployed modules.
Functionality-based classification
An ERP can also be classified based on its functionalities. Most ERP systems have specific functionalities that can be easy to pinpoint. However, an ERP is a complex software with multiple features, uses, and functionalities.
For business owners, the sheer range of features and functionalities can feel overwhelming unless they know what their objectives are. A patient and knowledgeable vendor can also help make the right decision.
- A Core ERP includes fundamental functions such as CRM, HR, finance, sales, marketing, and inventory management.
- Many businesses require more advanced modules to eliminate the need to integrate with third-party software tools. These tools can be described as “Extended ERP solutions.” They often include supply chain management, business intelligence, manufacturing, and more.
- Certain businesses require a completely customized approach toward their ERP architecture. These are often referred to as “Vertical ERP solutions” as they cater to industry-specific niches such as retail, healthcare, or manufacturing.
Size-based classification
Every business has unique needs and goals, which may differ based on size. For instance, the technology requirements of a Tier 1 corporation are vastly different from those of a small retail chain operating within a single city.
- Multinational companies and large corporations with multiple geographical locations usually require Tier I ERP solutions. These solutions often feature extensive functionalities and support multiple business processes.
- Tier II ERP solutions usually target small and midsize businesses. These ERP systems are easier to manage and offer the flexibility to add more modules as and when the company needs to grow.
- Tier III ERP solutions are usually basic and simple to implement. Small businesses often use these to manage their everyday operations without an in-house IT team.
3 Types of ERP systems deployment
1. On-premises ERP systems
An on-premise ERP system is installed locally on an organization's physical servers. The company's in-house IT staff usually upgrades, manages, and maintains it.
Unlike cloud ERP solutions, maintaining, upgrading, and ensuring bug fixes falls on the in-house team, making on-premise system maintenance a complex, expensive, and often lengthy endeavor. However, certain benefits make them popular among some organizations.
- Benefits: The organization has more control over the data and its processing, which results in better security and privacy. Many companies with stringent security and compliance requirements may prefer on-premise solutions.
- Concerns: On-premise solutions are expensive and require extensive hardware upgrades, necessitating high up-front costs. In addition, they need a dedicated IT team to maintain and manage it, which can be a financial burden.
- Best fit for: On-premise solutions are best suited for companies bound by strict laws and regulations. Examples include governmental and military organizations, finance and healthcare entities, and highly regulated industries.
2. Cloud-based ERP systems
Cloud ERP is software delivered over the Internet. It allows organizations to access their critical data remotely and often offers advanced scalability and licensing flexibility.
They can access every module of an ERP product on any device, in any location, as long as there is internet connectivity. Most cloud ERP software solutions are delivered via a SaaS billing model, which allows businesses to upgrade or downgrade depending on their evolving needs.
- Benefits: Cloud-based ERP systems have low initial costs as they do not require upfront hardware installation fees. In addition, businesses can pick and choose the modules they need and add features when required, helping them scale at a lower cost. Most importantly, cloud-based ERP products feature automatic, vendor-delivered updates that are quick and efficient.
- Concerns: Long-term costs may be high due to the accumulation of periodic payments, which requires businesses to evaluate their growth trajectory and weigh short-term convenience against long-term expenses.
Additionally, businesses may find it challenging to operate a cloud-delivered model if internet connectivity is unstable. - Best fit for: Cloud-based ERP solutions are perfect for businesses that are not subject to rigorous compliance practices. A cloud-based solution is a good choice unless an organization has a specific requirement for storing all ERP files locally. It also offers organizations the flexibility to integrate with multiple third-party apps without the need for extra customizations.
3. Hybrid ERP systems
Some organizations must adhere to specific security standards for regulatory compliance. That necessitates storing certain files and modules locally. Such organizations can take advantage of the benefits of both cloud and on-premise ERP deployment methods and choose a hybrid deployment-based solution. A hybrid ERP solution ensures that only the most critical modules are deployed locally while the rest remain in the cloud.
- Benefits: Hybrid ERP Systems presents a win-win solution by balancing on-premise and cloud features while ensuring a certain level of architecture customization.
- Concerns: Hybrid ERP deployments can sometimes be as complex as on-premise deployments and require an in-house IT team. In addition, it may require additional customization and intervention of specialized professionals to integrate it with third-party applications.
- Best fit for: Large companies can run on-premises systems at headquarters while deploying cloud ERP for subsidiaries, extending functions with fewer resources. Government agencies may prefer a Hybrid ERP solution to support regulatory needs by separating proprietary data while testing new cloud technologies without disrupting ongoing business operations.
Types of functionality-based ERP
Core ERP systems
A core ERP system is a basic enterprise software solution that helps businesses manage their rudimentary business processes. This often includes modules such as customer relationship management (CRM), finance and accounting, Human Resources, inventory management, and sales and marketing.
However, some vendors may offer a more stripped-down version of core ERP products. They are suitable for small to medium-sized businesses with limited IT resources yet need a tool to automate, manage, and streamline selected processes.
- Key features: Core ERP systems consist of key modules, such as finance, HR, and supply chain management. The specific composition of modules varies depending on the ERP vendor and the customized options they offer their clients. Core ERP tools intended for niche markets can offer a wide range of functionalities and features tailored to meet those industries' specific needs and demands.
- Disadvantages: Despite offering essential “across-the-board” functionalities, Core ERP solutions may not suffice for businesses with advanced, complex operations that require scalable capabilities.
- Best fit for: Not all businesses need an array of advanced ERP solutions. They may only need three or four simple modules. Examples include mom-and-pop stores, small retail chains, coffee shops, and even solopreneurs.
Extended ERP systems
As the name suggests, an extended ERP solution builds on a core solution by adding more features or modules. It can be described as an advanced ERP solution that streamlines multiple business processes to enhance efficiency and productivity. Extended ERP systems may include advanced modules such as advanced production, warehouse management, business intelligence, etc.
- Key features: Extended ERP solutions consist of additional modules for advanced functionalities. As technology evolves rapidly, some may offer predictive analytics, artificial intelligence (AI), and machine learning (ML) to help businesses access rich insights. They also offer customizable functionalities so companies can tweak as necessary instead of integrating multiple third-party tools.
- Disadvantages: Extended ERP systems can be more expensive than core products. They may also be difficult to scale down if deployed locally. Advanced capabilities may require in-house IT teams, which can prove expensive in the long term.
- Best fit for: Extended ERP systems are great for businesses of all sizes. However, they are particularly suited for those with advanced requirements such as access to deep insights, predictive and prescriptive analytics, and niche business processes.
Vertical ERP systems
Vertical ERP systems are called so because they are tailored to address the unique requirements and intricacies of specific niche industries. They effectively meet the specific needs of businesses operating within those niche environments, providing a more tailored and efficient solution compared to generic ERP systems.
- Key features: Vertical ERP systems are designed for niche industries. For example, an ERP designed for manufacturers may include features not found in other standard ERP products, like Bill of Materials (BOM) Management, Material Requirements Planning (MRP), and Production Scheduling and Planning. Similarly, an ERP that caters to the healthcare industry may offer patient management, medical device maintenance, and others.
- Disadvantages: Vertical ERP solutions benefit specific needs but may lack exhaustive streamlining capabilities, leading businesses to seek additional integrations and customizations.
- Best fit for: Vertical ERP solutions are excellent for industry-specific needs and requirements. Restaurants, hospitals, fashion houses, manufacturers, etc., can use specialized ERP tools built for their industry verticals.
