4/2/2015 A Two­Tier ERP Strategy – The Right Solution For The Right Customer

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A Two­Tier ERP Strategy – The Right Solution ForThe Right Customer

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Mon, 03/16/2015 ‐ 11:47am

by Jack Payne

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Companies often struggle with communication between disparateenterprise software systems. This is particularly true in large, oftenmultinational companies or those which have undergone mergers andacquisitions, where territorial challenges ensue.

In the case of ERP, if your plant‐level ERP is perfectly tailored toyour business, but corporate has standardized on a common platformat the corporate level, can the two coexist? Which system should youprefer to use if given the choice?

The Tiers

ERP systems can be grouped into “tiers” that generally identify thesize of the developer/seller of the software.

Tier 1 includes the “big” ERP and financial systems from the largest suppliers, Tier 1 ERP systems’ strength

4/2/2015 A Two­Tier ERP Strategy – The Right Solution For The Right Customer

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is in corporate financial and governance applications. While the dominant tier 1 solutions havemanufacturing and distribution management capabilities, these by nature are used to meet the needs of aswide a range of manufacturing types as possible.Tier 2 is made up of systems designed for the mid‐range manufacturer, loosely defined as companies withrevenues between several hundred million dollars per year and a few billion. Tier 2 solutions are strongestin planning and operations functions with capabilities supporting growth, and include finance andaccounting appropriate for mid‐sized business.

Getting along

Many large corporations that have chosen a tier 1 solution — either ERP or financial management — for corporateheadquarters believe that the simplest route to information exchange with subsidiaries and remote facilities is torequire those entities to adopt the corporate solution for their use as well. While this may sound like the logicalidea, the reality is that this approach has proven remarkably unsuccessful.

More importantly, force fitting a tier 1 solution on a plant or location is a lot more costly, more difficult, andless beneficial than if the location is allowed to implement a more appropriate solution for their size, resourcesand functional needs.

You can have it both ways

Recognizing this reality, many corporations are moving away from the “one system for everybody” model to atwo‐tier strategy where corporate maintains their tier 1 solution and the plants or geographies are given someleeway to find and implement a more appropriate tier 2 solution.

Finding an ERP solution that has the capability to communicate financial information seamlessly with other ERPsystems, enabling plant‐level or geographic autonomy in using a process manufacturing specific ERP whilemaintaining a generic ERP (or financials system) at the corporate level. This configuration is commonly referredto as a “two‐tier” ERP.

Benefits of a two‐tier ERP include:

Manufacturing ERP where you need it — at the factory or plantAutomated financial data sharing with parent ERPSeamless transition with mergers and acquisitions

Focus on your needs

The most important characteristic of your ERP system is how well it supports your company’s needs. You’ll want asystem that works in your industry and has the specific features and functions that you need to run your businesseffectively. Don’t settle for the “one size fits all” because you know that’s never true.

If there is pressure from a corporate parent or related entity for information exchange, you’ll want to make sureyour chosen solution:

Can communicate with other systems sold by other vendorsHas a connectivity platform to simplify and control information exchange

4/2/2015 A Two­Tier ERP Strategy – The Right Solution For The Right Customer

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Is scalable, from a developer with a history of supporting and improving products over time

Multi‐tier ERP is the right strategy for success at the plant and as part of a corporate team. Both corporateheadquarters and individual plants have the solutions they need to effectively run their business, and corporatecontrol and integrity are preserved through inter‐system communications.

Jack Payne is the Vice President of Solution Consulting for Process Manufacturing at Aptean. 

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