Lisa Schwarz | July 27, 2023
Cloud-based enterprise resource planning (ERP) systems have revolutionized how companies think, operate and innovate. By centralizing finance, inventory management, human resources, manufacturing and customer relationship management functions into a single integrated application that is owned and maintained by a third-party provider, cloud-based ERP solutions offer many benefits. Among them are lower costs, access to new functionality, mobility, simpler deployment, elasticity, less need for internal IT resources and the ability to accommodate business change and growth.
But even as the popularity of cloud-based ERP systems has skyrocketed, there’s still ample opportunity for innovation and growth. This article will examine how new technologies, such as artificial intelligence (AI), machine learning (ML) and the Internet of Things (IoT), are expected to dramatically transform cloud-based ERP systems and lead to a new era of growth.
What Is the Future of Cloud ERP?
Cloud-based ERP systems have come a long way in the past 20 years, but the future holds improvements from AI and ML, IoT integration, and systems that decouple front-end development from back-end system development. According to Panorama Consulting Group, 35% of cloud implementations are still on-premises, suggesting an untapped customer base for cloud-based ERP systems. Meanwhile, the public-cloud ERP market, which includes finance, planning, procurement and asset management applications, could grow more than 100%, from $36 billion in revenue in 2021 to $73 billion by 2026, IDC predicts.
This growth is expected to be fueled by several innovations, some of which specifically address concerns that may have held some companies back from investing in cloud-based ERP until now. Some companies, for example, have been hesitant to pursue cloud-based ERP systems because of a perception that the technology is too complex for users. In addition, some IT teams have voiced concerns about cloud security in an era of increased cyberthreats. Among the ERP technology trends poised to define a new era of cloud-based ERP systems are:
· AI and ML technologies that improve ERP systems on the fly by automating routine tasks and reducing costly errors.
· Advanced analytics that better predict trends and identify problems before they occur.
· IoT technologies that gather and analyze data from IoT-enabled devices, such as manufacturing equipment and products, to predict everything from customer behavior to potential mechanical failures.
· Mobility features, particularly regarding mobile collaboration and automation, that make it possible to streamline efficiencies.
· Headless ERP systems that decouple front-end interface development from back-end system development, unlocking greater customization, scalability, agility and innovation.
· New security features based on AI and blockchain technologies that can quickly detect anomalies and prevent unauthorized access.
· Businesses continue to migrate to cloud computing at a rapid pace, with experts predicting 15% compound annual growth in the market through 2027.
· The growth of cloud computing has been driven by improved scalability, flexibility, maintenance and mobility, as well as cost reductions and greater security.
· Game-changing innovations are fueling more growth for cloud-based ERP systems, with AI, ML and IoT technologies making ERP systems more powerful and easier to use.
Cloud ERP Explained
Cloud-based ERP systems integrate core business functions, including human resources, finance and inventory management, into a single application, making it easy for all users to access a single source of clean, consistent data using an Internet-enabled device. As a result, users can access real-time, actionable data anytime, anywhere. Because cloud-based ERP systems are hosted by providers that maintain and upgrade all the necessary hardware and software, small to medium-sized businesses that historically couldn’t afford to purchase and support a comprehensive on-premises ERP system can access the same powerful capabilities as their larger competitors, including automated processes, improved data accuracy and greater efficiency — all for a manageable monthly subscription fee.
Cloud-based ERP systems feature tools to automate workflows among users, resulting in greater efficiency for processes, such as financial closing, order processing, inventory management and production scheduling. These systems also include audit and control capabilities that monitor user activity on the system and restrict access to users based on their roles and responsibilities, providing a level of security most businesses demand.
Business Is Shifting to the Cloud
The rapidly developing cloud ERP trends show no signs of slowing down. According to a report from Flexera, 63% of respondents say they’re heavy cloud users (running more than 25% of workloads in the cloud), up from 59% in 2021 and 53% in 2020. The global cloud-based ERP market is forecast to grow from $64.7 billion in 2022 to $130 billion by 2027, at a compound annual growth rate of 15%. The COVID-19 pandemic, which drove unprecedented global growth in remote work, only added to the popularity of the cloud and its ability to allow employees to access data and applications from anywhere using the Internet.
There are three basic models for cloud computing deployment:
· Public cloud: In a public cloud model, hardware, software and infrastructure — such as servers and networking equipment — are owned and maintained by a cloud provider, which houses the equipment in a data center. Customers access the data center using Internet-enabled devices and often pay a monthly per-user subscription fee. Multiple customers share cloud resources for computing, networking and storage, which is known as a multitenant environment.
· Private cloud: A private cloud solution can be hosted by a third-party provider or in a company’s on-premises data center. Private clouds are single-tenant environments, meaning customers don’t share hardware, software and infrastructure resources with other companies. This gives customers a more controlled and secure environment but still leaves hosting and maintenance responsibilities in the hands of a cloud provider. Costs for private cloud solutions are typically higher than for public cloud and this approach often has less flexibility because of customizations required by the customer.
· Hybrid cloud: For some companies, cloud computing isn’t an option, at least for some aspects of the business. For example, data privacy or industry-specific regulations may require that certain data and processes remain on-premises. Hybrid cloud environments mix private and public cloud computing to give customers the cost and flexibility benefits of public cloud computing, as well as the customization and security of a private cloud.
Benefits of Moving to the Cloud
Several key factors are expected to continue to drive the growth of cloud computing. The degree to which companies experience the advantages depends on each unique circumstance, but the benefits of cloud computing generally fall into five categories.
· Scalability: Adding storage, networking or processing capacity to on-premises computing environments often involves considerable time, cost and resources. With cloud computing, however, it’s often as simple as a few clicks and additional subscription fees. The flexibility of cloud computing lets companies quickly scale up or down in response to demand.
· Cost: Cloud computing isn’t always less expensive than on-premises computing in the long run, but it undoubtedly reduces implementation costs by removing the significant upfront hardware and infrastructure costs of on-premises environments. Smaller businesses often can’t afford to build and maintain on-premises data centers because of considerable investments in equipment and full-time IT staff. Cloud computing, on the other hand, puts the responsibility for hardware and software maintenance on third-party providers.
· Mobility: Because cloud computing is Internet-based, companies and their employees can access cloud-based systems, such as ERP, anytime, anywhere using an Internet-enabled device. On-premises systems often require users to be in an office to access them.
· Maintenance and upgrades: Cloud computing providers maintain and upgrade all necessary hardware and software for their data centers and include the cost in their monthly subscription fees. This removes a costly and time-consuming activity for customers, while providing instant access to the latest technology innovations.
· Security: Every technology involves security risks to one degree or another, and cloud computing is no exception. Because cloud providers take responsibility for securing their technology, however, customers get the benefit of their providers’ deep security expertise, which often exceeds what companies can provide on their own.
9 Predictions for the Future of Cloud ERP
Several technologies, including AI, ML, more advanced analytics and more flexible application development options, are expected to dramatically improve cloud-based ERP systems, leading to greater adoption among companies of all sizes. The following trends are expected to have the most impact on cloud-based ERP innovation.
1. ERP AI and ML in the Cloud
AI and ML innovations are transforming everything, from driving cars to searching the Internet, and both technologies are expected to have a profound impact on cloud-based ERP systems. By embedding AI and ML technology in their products, cloud-based ERP providers will improve automation, personalization and predictive analytics. New large language models (LLMs) in AI, such as ChatGPT, will make interacting with ERP systems more conversational and immersive, and ERP systems will be able to interpret data and proactively alert users to trends and patterns.
AI and ML can also automate routine tasks and workflows to create greater efficiency and reduce risk. For example, these technologies can automatically monitor stock levels and create purchase orders when inventory falls below a certain level, reducing the risk of shortages.
2. Intuitive and User-Friendly ERP UI
AI in the form of natural language processing (NLP) can reimagine the user interface (UI) for cloud-based ERP systems, personalizing the user experience by making navigation more like a conversation than a series of clicks. Non-technical ERP users will no longer need specific expertise to interact with the system, instead using natural language tools like chatbots that interpret language into a query.
Natural language mechanisms can also transform how developers build customizations into ERP systems. AI-driven low-code technologies make it possible for non-IT staff to use conversational language and drag-and-drop capabilities to perform complex coding tasks without requiring coding skills.
3. Data and Analytics of the Future
AI and ML will also lead to significant improvements in advanced analytics. In addition to detecting patterns in historical data, AI can predict the probability of future events — from sales trends to potential risks, such as fraud or equipment failure. For example, a software company can use AI and predictive analytics in its cloud-based ERP system to find patterns that indicate a customer is likely to leave. ML can use historical data to predict when customers are likely to churn. The company can then send targeted emails with discounts to entice customers to stay.
In the future, cloud-based ERP systems may also play a key role in analyzing data and predicting events not only within the ERP system itself, but also within other data warehouses an organization deploys. Taking that concept a step further, cloud-based ERP systems could ultimately connect to form a “meta-ERP” network that allows multiple companies, such as manufacturers, suppliers and retailers, to mine patterns in data together to improve insights and efficiencies.
4. The Internet of Things and ERP
IoT technology uses the Internet to connect machines and devices that use sensors and software, allowing them to collect and exchange data with each other and with business systems. Cloud-based ERP systems use advanced analytics tools to process and analyze this data so businesses can gain insights into their operations, predict trends and make data-driven decisions. For instance, sensors can track inventory and monitor equipment and production processes to provide real-time insights into inventory levels, supply chain disruptions and equipment failures.
5. ERP and Digital Transformation
Digital transformation is a broad term that refers to a wide range of systems, devices and technologies that dramatically reshape how businesses manage operations and innovate. At the heart of many digital transformations is the use of technologies, often Internet-based, that automate processes, store and analyze data and generate insights into business processes and trends. Digital transformation can simultaneously help companies reduce costs and become more efficient and competitive. Cloud-based ERP systems are an essential part of digital transformation because they allow businesses to streamline their operations and improve their
agility, scalability and flexibility by using technologies such as AI, ML, IoT and advanced analytics to make data-driven decisions.
6. Mobile ERP
Mobile technology has always been an integral component of cloud-based ERP systems by facilitating user access to systems from anywhere at any time using the Internet. Mobile technologies are also expected to further extend the functionality of ERP systems. Cloud-based ERP providers continue to build more functionality into mobile ERP applications, allowing users to complete tasks remotely. For example, salespeople can use mobile technology to check inventory levels in a warehouse, and voice-activated commands on mobile devices give warehouse workers hands-free access to inventory data. Mobile devices equipped with augmented reality (AR) technology could also provide visual guidance to help troubleshoot issues.
7. Headless ERP
Headless ERP is a model for cloud-based ERP systems that separates the front-end interface from back-end processing and storage, allowing businesses to use a variety of front-end applications to interact with their ERP data. This offers customers more flexibility, scalability and customization, while also improving integration. Customers can use third-party UIs or build their own to customize how users interact with the ERP system. They can also add new applications or integrate with existing ones more quickly and easily, without disrupting the underlying data architecture of the system.
8. Increased ERP Security
AI and ML will play an important role in improving security for cloud-based ERP systems. These technologies can analyze large amounts of data and identify patterns that may indicate fraud, such as financial transfers to large overseas accounts or payments from an employee to a vendor with which the company has never done business. ML technology can also identify activities and patterns in behaviors that happen outside usual locations or time frames. In each case, the ERP system can then automatically send alerts to financial analysts, who can investigate the issues.
9. ERP Success in the Cloud
Cloud-based ERP implementations can transform businesses quickly, opening doors for companies of all sizes to embark on game-changing digital transformations. Take the case of Fulton & Roark, a North Carolina-based retailer of men’s grooming products that used spreadsheets to track its inventory and financial data prior to upgrading to NetSuite. Rapid growth, however, exposed problems. Sales doubled, but spreadsheets couldn’t account for changing inventory costs, and the company’s accounting software couldn’t record the cost of goods sold. As a result, data needed to be manually entered twice. Fulton & Roark implemented NetSuite ERP in three weeks and experienced immediate improvements, such as the ability to identify and correct inventory errors, as well as eliminate the need for external accountants. Sales also grew roughly 50% year-over-year without requiring additional headcount.
Rapid growth also created challenges for N&N Moving Supplies, a distributor of moving equipment and supplies, when it grew from one location to three and quadrupled its workforce. N&N implemented NetSuite ERP to replace QuickBooks and a third-party payroll provider, which could no longer keep accurate time records and reconcile payroll with general ledger accounts. The results: an 84% reduction in payroll processing time, improved accuracy for hours and vacation time, visibility into labor cost trends across all locations and personalized ERP dashboards on employee iPads.
The Future of Cloud ERP Is NetSuite
NetSuite launched the first cloud-based ERP system in 1998 and hasn’t looked back since. NetSuite pioneered the integration of a wide range of critical organizational functions into one centralized powerful suite to create visibility into large sets of rich operational data. Among NetSuite ERP’s recent innovations are AI and IoT features that further streamline operations and improve decision-making.
Despite tremendous growth during the past 20 years, the market for cloud-based ERP systems seems poised for even more growth. As AI, ML and IoT technologies become even further integrated into ERP systems, businesses will continue to unlock new opportunities to improve automation, efficiency and innovation. These innovations also make cloud-based ERP systems easier to use. Together, these factors will continue to fuel market growth, particularly as the technology becomes even more affordable for small to medium-sized compan