3 Reasons Businesses Consider a Two-Tier ERP Strategy
Really big ships don’t turn on a dime. This lack of agility is a key reason large companies running Tier 1 ERP systems may want to consider a secondary ERP for use in regional or functional business units. An established multi-national ERP with many users will be very resistant to the changes needed by a smaller group with special process needs or pressing timelines to hit.
A two-tier ERP strategy means using a secondary ERP to meet the needs of a regional or functional corporate division. The ‘mothership’ ERP handles the global processes such as financials, while the secondary ERP handles subsidiary needs or operational requirements. Generally, the secondary ERP will be smaller, cheaper, or specialized for a highly differentiated business activity. Not to be confused with integrating best-of-breed modules from different vendors, a two-tier ERP strategy combines the use of multiple full-suite ERPs in different layers of the organization.
Many large enterprises feel that implementing a global ERP system is preferable, and some may proceed with a larger centralization plan even while using a two-tiered approach in the interim. But whether it’s a temporary or long-term move, there are several factors prompting companies to take an increasingly hard look at whether to assume a two-tier strategy:
- Customization. Sometimes, a corporate division has differentiating practices from the main corporation. For instance, a service company may purchase or decide to create a complementary product manufacturing division. In this case, the business processes may be so different that the division would benefit from an ERP customized toward their unique processes. An industry criticism of two-tier ERP solutions is that when local business units each use their own instance of an ERP, there is a risk of disconnect with headquarters. But in cases where headquarters has a strong interest in accurate financial reporting from subsidies but little interest in trying to unify operational procedures for diverse business models, the two-tier strategy can be ideal.
- Growth and Agility. A two-tier strategy can give an aggressive company the agility to quickly manage the integration of mergers and acquisitions. Implementing a fresh ERP can happen more quickly than integrating a division into the global ERP, and can therefore be appealing when time is of the essence. A similar situation can occur when a subsidiary faces a regulatory change that must be rolled out in advance of global capabilities, or when the division simply can’t wait for the global IT team to accomplish the assimilation of their small unit.
See related article: Remove Barriers to Business Growth
- Cost. Cost should not be the only consideration for a two-tier approach, just as it should not for any ERP solution. But cost can definitely be an important additional consideration, especially when implementing a cloud or SaaS ERP. In fact, one study shows that lower total cost of ownership is the reason 61% of companies implement SaaS ERP as part of their multi-tiered ERP strategy.1
See related article: How to Lower Your Total Cost of ERP Ownership
There are many options available to companies who have determined that a two-tier strategy makes good sense for them. Cloud, SaaS and open source ERP offerings have come a long way and add an interesting flavor to the mix. Cloud and SaaS ERP designed specifically for your industry may meet your configuration needs, or you may benefit more from a customized open source ERP that is mapped to very unique business requirements.
Trek Global provides highly integratable cloud, SaaS and open source ERP solutions for distribution companies. Contact us if you are considering a two-tier ERP strategy and would like help evaluating your needs and exploring options.
1Aberdeen Group. Cloud Technology and the Multi-Tiered ERP Strategy: Supporting an Expanding Organization.