The 4 main types of ERP systems: The pros and cons of each

Imagine your accounting software doesn’t sync with inventory management, and your CRM operates in isolation. Enterprise resource planning (ERP) systems exist to prevent this logistical nightmare.

ERP systems serve as a business’s central hub, integrating business processes like supply chain management, financial reporting, and human resources. Whether you’re scaling a small business or managing complex procurement, the right ERP software helps streamline operations and improve decision-making with real-time data.

Let’s look at the different enterprise resource planning systems, their deployment options, benefits, and ideal use cases.

At-a-glance: Comparing each type of ERP system

Enterprise resource planning (ERP) systems come in different forms, each catering to specific requirements and operational models. The four primary types of ERP systems are:

1. On-premises ERP: Installed and maintained on a company’s own servers.
2. Cloud-based ERP: Hosted on external cloud servers and accessed via the internet.
3. Hybrid ERP: A mix of on-premises and cloud-based ERP, offering flexibility.
4. Multicloud ERP: A cloud-based ERP system that integrates multiple cloud providers for enhanced scalability and redundancy.

ERP system comparison table

The table below highlights the key features of each ERP system:

What are on-premises ERP systems?

On-premises ERP systems are installed directly on a company’s hardware and servers, requiring in-house IT teams to manage and maintain them. Traditionally, these were the standard for large enterprises looking for full control over their data, compliance, and system customization.

On-premises ERP software gives businesses full ownership of their business processes and real-time data within their own infrastructure.

Pros:

• Full data control ensures sensitive business information stays in-house
• Deep customization capabilities tailored to a company’s specific requirements
• No reliance on internet connectivity, providing continuous system access
• Better integration with legacy systems, accounting software, and specialized industry-specific ERP solutions

Cons:

• High upfront investment in hardware, software, and IT infrastructure
• Ongoing maintenance costs for system updates, upgrades, and security patches
• Requires dedicated IT resources for system monitoring, troubleshooting, and user support
• Scalability can be more limited compared to cloud-based ERP solutions

Unlike cloud-based and multicloud ERPs, which rely on external servers, on-premises ERP offers complete control and security. While hybrid ERP combines both models, on-premises ERP is fully self-contained, making it ideal for businesses needing high levels of regulatory compliance and customization.

What are cloud-based ERP systems?

Cloud-based ERP systems operate via the internet and are hosted by external providers, allowing businesses to access them from anywhere. They’re particularly useful for distributed teams, remote workers, and companies looking for flexible, cost-effective solutions.

These systems are especially beneficial for small businesses and fast-growing companies that need an ERP implementation with minimal upfront costs.

Many cloud-based ERP vendors offer industry-specific ERP solutions tailored to various sectors, including e-commerce, supply chain management, and finance. Plus, they easily integrate with modern SaaS apps like CRM (customer relationship management), accounting software, and procurement tools.

Examples of cloud-based ERP systems

• Oracle
• NetSuite
• SAP S/4 HANA
• Adobe

Pros:

• Lower initial costs compared to on-premises ERP
• Automatic updates managed by the ERP provider
• Accessible from anywhere, making it ideal for remote teams
• Easy scalability to support business growth
• Real-time data access for improved forecasting and profitability
• Integrates well with SaaS solutions like CRM, financial reporting, and procurement tools

Cons:

• Requires a stable internet connection to function efficiently
• Potential data security concerns, as data is stored on third-party servers
• Less customization compared to on-premises ERP, which may limit flexibility for businesses with highly specific requirements

Cloud-based ERP is more affordable and scalable than on-premises ERP but offers less customization. Hybrid ERP blends cloud and on-premises features, balancing control and flexibility. Multicloud ERP extends cloud benefits by using multiple providers for redundancy and risk management.

What are hybrid ERP systems?

Hybrid ERP systems combine on-premises and cloud-based ERP solutions, giving businesses the flexibility to store sensitive data in-house while leveraging cloud scalability.

They are ideal for companies transitioning to the cloud or those with regulatory compliance requirements and industry-specific ERP needs that demand both local and remote access. Examples of hybrid ERP systems include AWS.

Pros

• Flexible deployment options, allowing businesses to transition gradually
• Enables cloud adoption while maintaining on-premises control over sensitive data
• Supports diverse business functions, including forecasting and supply chain management
• Balances scalability and customization based on business requirements

Cons

• Can be complex to manage, requiring integration between on-premises and cloud components
• Deployment challenges, as businesses must optimize workflows across different environments
• Higher costs than fully cloud-based solutions due to dual infrastructure requirements

Unlike pure cloud-based ERP, hybrid ERP offers a mix of local control and cloud scalability, making it a middle ground between the two. While multicloud ERP distributes resources across multiple cloud providers, hybrid ERP retains on-premises infrastructure for businesses needing regulatory compliance and data control.

What are multicloud ERP systems?

Multicloud ERP spreads different parts of an ERP system across multiple cloud providers. Taking this approach prevents vendor lock-in by balancing workloads across different platforms. Businesses can mix and match cloud services to fit their business processes, improving scalability, supply chain management, and financial reporting.

This setup works well for companies needing real-time data access, strong uptime, and regulatory compliance. By using multiple providers, businesses lower the risk of downtime and ensure smooth integration with SaaS solutions like CRM, procurement tools, and accounting software.

Examples of multicloud ERP systems

• Salesforce on AWS with Microsoft Dynamics 365 integration
• Oracle Cloud with Google Cloud Platform

Pros

• Avoids reliance on one provider, reducing vendor risk
• Boosts redundancy and uptime, keeping operations running smoothly
• Offers flexible infrastructure, letting businesses fine-tune resources
• Scales easily, handling complex deployment options
• Reduces risk, spreading workloads across platforms

Cons

• This ERP integration can be tricky, requiring technical IT skills
• Higher costs, as managing multiple services adds up
• Security concerns, since data is stored in different locations

Unlike hybrid ERP, which combines on-premise and cloud solutions, multicloud ERP focuses entirely on multiple cloud providers. It also differs from traditional cloud-based ERP by distributing workloads across different cloud environments instead of relying on a single vendor.

Key takeaways: The pros and cons of each ERP system type

We reviewed the pros and cons of each ERP system already, but here’s a side-by-side comparison to help you choose the best one for your business at a glance:

Choosing the right ERP system for your business

Selecting the right ERP system depends on multiple factors, including company size, industry, budget, and IT capabilities. Here’s what each business type commonly chooses:

• Small to medium businesses: These benefit from cloud-based ERP software due to its lower upfront costs, scalability, and ease of use.
• Large enterprises: For companies in highly regulated industries (e.g., healthcare, finance) may prefer on-premises ERP for greater data control and customization.
• Businesses in transition: Those with specific regulatory constraints may opt for hybrid ERP, allowing them to maintain critical data on-prem while leveraging cloud advantages.
• High availability and flexibility needs: These businesses often choose multicloud ERP to diversify risk and avoid vendor lock-in.

Beyond choosing the right type, ease of integration is critical. Businesses should assess how well an ERP system integrates with other essential tools like accounts payable, expense management, and financial automation platforms.

Ramp stands out for its robust ERP integrations. These integrations make financial workflows smoother by automating tasks, centralizing data, and providing real-time insights—without adding extra complexity.

See how Ramp’s ERP integrations help your finance team work more efficiently, cut costs, and make smarter business decisions.