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Two-Tier ERP Guide
A Two Tier ERP strategy is used by many organizations as a way to create efficiencies quickly, save money and enable ...
A Two Tier ERP strategy is used by many organizations as a way to create efficiencies quickly, save money and enable specialization across their businesses. It is a great alternative to implementing large, monolithic, expensive ERP systems across your organization and can enable flexibility.
But what is Two-Tier ERP? What are the advantages and disadvantages of Two-Tier ERP systems? What are some examples of Two-Tier ERP setups?
What is Two-Tier ERP?
Two-tier ERP is the practice of having two or more ERP systems within an organization, in which one ERP typically operates Head Office or Group-wide consolidations, whereas one or more other ERP systems cover the day-to-day business process of one or more subsidiaries. For example, a company may have SAP as its Group or Corporate level ERP system and QAD or Infor Syteline operating one of its manufacturing subsidiaries. Usually, data will be passed to and from each ERP system including budgets, approval workflows, and financial data. The amount of integration between both ERP systems will depend on your company and business requirements.
An example of a Two Tier ERP strategy
In our own experience at ERP Research, we have seen several scenarios where companies have chosen to implement a Two-Tier ERP approach.
In one case, our client was rolling out a large Tier 1 ERP solution at the corporate level, however, one of its subsidiaries was crying out for its own ERP system. The group ERP rollout plan didn't have enough resources or capacity to roll out the ERP system to its subsidiary for several years to come. The subsidiary was hemorrhaging cash as a result of running several siloed applications and the associated inefficiencies this caused. Rather than wait for Group IT to implement the large Tier 1 ERP system, the subsidiary chose to deploy a Tier 2 Cloud ERP solution to quickly solve their problems.
Why use Two-Tier ERP?
Sometimes Two Tier ERP systems can come about as a result of acquisitions. For example, a company may acquire another and fail to justify the benefit of bringing the new acquisition into its Group ERP system. So instead of removing a perfectly good, working ERP system they decide to adopt a Two-Tier ERP approach and integrate both ERP systems to enable the new acquisition to carry on as they were, but also feed them critical financial data and so on.
In other cases, Two Tier ERP strategies can come about due to business process diversity within a group of companies. For example, some organizations within a Group of companies may specialize in very different industries from others. Perhaps the core business is focused on manufacturing, whereas one subsidiary may specialize purely in recycling. It’s likely that 90% of the business will be running an ERP system/s well suited to manufacturing companies, whereas the business processes needed for a recycling business will be fundamentally different. In this example, adopting a Two Tier ERP strategy could be useful as the recycling business can choose an ERP solution with good functional coverage for recycling.
Advantages & Disadvantages of Two Tier ERP
Advantages of Two-Tier ERP
- Two Tier ERP software strategies can enable faster time to value compared with adopting one Group-wide ERP system.
- Two Tier ERP landscapes can be cheaper to implement and license than Enterprise or Tier 1 ERP systems.
- Two Tier ERP strategies can allow subsidiaries to choose ERP software that is more suited to their specific needs and business processes.
- Two Tier ERP systems can allow subsidiaries to tailor ERP systems more closely to their specific business needs.
- Mergers & Acquisition (M&A) can be performed more easily. For example, acquisitions can often be more easily and quickly integrated using a Two Tier ERP strategy. Divestments can more easily be removed and sold off.
Disadvantages of Two-Tier ERP
- Two Tier ERP can make Group-wide business intelligence more challenging.
- Industries of scale may be hard to realize without standardized processes across sales, operations, manufacturing and purchasing.
- Business process standardization and consistency are challenging to maintain across multiple different systems.
- Integrations between two or more ERP systems need to be maintained, as well as multiple other applications such as HRIS, CRM, and more. This can easily double or triple integration work and costs across your organization.
- Tracking operations, products, supply chains, and customers across your organization becomes more challenging.
Examples of Two-Tier ERP Systems
Effectively any ERP solution can be used at either level or a two tier ERP strategy. In some instances, more complex ERP software can be used at the 'lower' tier or this can be reversed depending on the business need.
Regardless, here are some of the ERP solutions we often see used at the 'lower' tier of a Two Tier ERP setup:
Oracle Netsuite is a Cloud ERP solution that is often used within small subsidiaries of larger corporations. The solution is well suited to professional services, people focused businesses but can also cater to retail, wholesale, and many others.
SAP Business ByDesign is SAP's mid-market Cloud ERP built for small businesses with anywhere from 20 to 5000 employees. ByDesign is a great Two-Tier ERP system, particularly if you’re already running an SAP ERP solution at the Group level. SAP ByDesign is well used by companies in the high-tech, manufacturing, engineering, and professional services space.
Infor Syteline, also known as Infor Cloudsuite Industrial is well suited to smaller subsidiaries of larger organizations that specialize in product-centric business processes such as manufacturing, retail and wholesale.
Sage Intacct is a Cloud ERP or Cloud Financial Management Suite which can serve as a great solution for businesses in the professional services industry particularly. The solution offers great tools for accounting, project management, revenue recognition, billing and more.
If SAP Business ByDesign doesn’t cut it, then SAP S/4 HANA Cloud Essentials is a great ERP system for Two-Tier ERP strategies. S/4 HANA Cloud Essentials is the SaaS, configurable answer to its On-Premise alternative.