How 2-Tier ERP can benefit your business

However, the conventional, single-tier ERP approach can have its limitations. Particularly in global organisations with a multi-jurisdictional presence, it is impossible to assume that one size fits all. Each branch of your company may be subject to different external conditions - in terms of regulation, tax or currency for example- which affect the way it operates on a day-to-day basis. The cultural differences between different nations may create a need for different approaches to resource planning, which account for regional variations.

The same applies to different divisions within companies, even those with a solely domestic presence. In many instances, the respective business models of sister companies are quite different, meaning a different ERP system is required for each.A Tier 1 ERP approach may be needed at the company’s headquarters, focusing on information used across the organisation - such as financial and administrative data. But underneath this, it may be beneficial to have a second layer of ERP, which is more focused on the specific needs of each subsidiary or division.

Business decision makers can benefit greatly from the integration of external and internal management data, ensuring key information is available where and when they need it. In this respect, enterprise resource planning (ERP) offers significant benefits to companies - it draws on the knowledge obtained by individual arms of a business in a bid to deliver universal truths.Access to relevant, timely information is vital in terms of making insightful, rational decisions at corporate level. It helps ensure the broader business strategy is grounded in evidence, while minimising the risk of strategic errors. Information regarding key variables - such as budgets, sales volumes and external market activity - helps put your decisions into an appropriate context.

Problems with traditional ERP approaches

According to a study conducted by Constellation Research, 48 per cent of organisations were considering adopting a 2-tier approach to ERP in 2011, in a bid to ensure the flow of accurate and relevant information across their operations. This figure was up from 32 per cent in 2010 and 21 per cent in 2009 - demonstrating a clear shift in opinion since the start of the downturn. With companies under pressure to maximise efficiencies in a difficult economic climate, a stronger economic case for this dual planning approach has emerged.

Constellation Research noted that in many cases, organisations are being faced with business requirements that their existing ERP systems “can no longer address”.

“Stuck in the past century, these single-tier systems are expensive to run, difficult to upgrade and impossible to modify for today’s fast-changing requirements,” said Ray Wang, principal analyst and chief executive at the firm.

He noted that 2-tier ERP has emerged as a strategy “to enable legacy optimisation while invigorating the organisation’s existing ERP systems”. Mr Wang claimed that 2-tier ERP strategies “will reduce costs, meet new business requirements and provide better business value”.

More firms are embracing 2-tier ERP

The need for a tailored approach

Decision makers need real-time access to information and common workflows - as facilitated by Tier 1 ERP - but they must also be able to account for individual quirks. A tailored approach to ERP allows firms to work with greater flexibility and agility, responding to location, jurisdiction, time zone or sector-specific demands as and when they arise.

A 2-tier ERP approach allows divisions to focus specifically on their core area of expertise - whether a region or industry segment - while still benefitting from membership of a larger organisation. Essentially, the data and qualitative information used to frame decision making is more relevant to the daily operations of firms in practice.

Tier 1 ERP accounts for the processes which need to be standardised to allow multinational corporations to function as a cohesive unit. These include human resources, financials and HR - areas in which shared knowledge adds value to each function. Tier-2 ERP focuses on specific needs - for instance how sales and marketing should operate in a particular region to deliver maximum return on investment. As an example, insight drawn from the ERP system could indicate that employees are more productive via online channels than in-store, or on the phone. This reality could differ from division to division, region to region - making a tailored approach all the more important.

In terms of the technology solutions used to implement ERP, a 2-tier approach should allow firms to achieve efficiencies without impacting on service levels. By committing to a 2-tier approach to ERP, you are able to maintain systems more effectively and also carry out upgrades as and when appropriate. For example, should a new software update be released, you do not need to wait for head office to act - the deployment process can begin straight away within your own division.

Rolling out single-tier ERP to a subsidiary may require significant capital expenditure, as well as a lengthy implementation process. Neither is desirable in a constrained economic environment. With single-tier ERP, this process also needs to be managed centrally, limiting the influence of the divisional leaders - despite their branch-specific knowledge and expertise.

Where 2-tier ERP is concerned, you have greater scope to guide and oversee the implementation - ensuring technology decisions deliver tangible benefits for your own staff.

In many cases, a divisional organisation may opt for a simpler, more flexible ERP system which focuses solely on its core functions. For instance, the retail arm of a business could use 2-tier ERP to deliver reporting solutions which manage inventory and predict customer demand. It could also invest in integrated solutions designed to ensure consistency in customer support and the consumer experience. Alternatively, the manufacturing division could introduce inventory solutions which reflect resource levels and output, or perhaps logistics solutions which enable it to deal with distributors, suppliers and consumers more effectively.

Reducing IT costs using 2-tier ERP

Stuck in the past century, these single-tier systems are expensive to run, difficult to upgrade and impossible to modify for today’s fast-changing requirements.

Ray Wang, Principal analyst and chief executive at the firm

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Nick Castellina, an analyst at the Aberdeen Group, expects the number of businesses embracing 2-tier ERP to increase as they look to expand into new territories. He noted that many firms adopting this approach have entered a growth phase, and are actively looking at ways of optimising business processes while expanding.

Mr Castellina said that in many cases, businesses are turning to multi-tiered ERP

strategies in order to get new sites up and running as quickly as possible.

“They are deploying an ERP that includes only the functionality that site needs to speed up the implementation process,” he noted.

“This is why the corporate standard is often called the administrative ERP, with the lower-tiered model being called operational.”

Financial savings A localised ERP approach can help you reduce implementation costs, cut maintenance spending, and make upgrades and modifications more affordable.

Increased simplicityAdding a second tier is likely to be easier/less time consuming for your organisation than customising corporate-level ERP.

Improved complianceYou can design ERP systems to account for the legal/regulatory requirements of particular jurisdictions, or cultural differences.

Strategic gainsThe information provided by ERP systems is more likely to be relevant, enabling you and your employees to make more insightful decisions.

Greater flexibilityYou have greater scope for customisation, both pre- and post-deployment, meaning your organisation is more agile and better prepared to capitalise on growth opportunities as they arise.

Legacy optimisationYou can continue to use useful elements of the corporate- wide ERP system, reducing the scale/cost of your Tier-2 development project.

2-tier ERP can help businesses expand

Advantages of the 2-tier approach

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