Two-Tier ERP – finally the best of both worlds?
Many companies still have a patchwork of ERP solutions across their business. Rationalizing these applications can deliver economies of scale via global standardization, while leveraging the cloud for faster adoption. In this first article in a new series, I will discuss the two-tier ERP approach and how a modern Enterprise management solution can support and improve this often complex model.
Global organizations are increasingly adopting a two-tier enterprise resource planning (ERP) strategy. Two-tier ERP is the practice of running a deployment model to serve the requirements of both the headquarters and the subsidiary – in other words, one at the corporate level (to handle more complex business requirements), and one at the plant, division, or subsidiary level (usually a lighter solution focused specifically on the requirements of small subsidiaries). The corporate level uses a traditional broader solution that acts at a system of record and standardizes processes for Finance, HR, and Logistics etc. The subsidiary deploys a ‘lighter’ ERP solution to address their specific requirements with greater flexibility and agility often from a different vendor than the headquarters.
The Plus side of a Two-tier ERP Model
Organizations that adopt a two-tier approach stand to gain a number of benefits. Let’s run through the most significant of these:
Implementing a lighter ERP solution in the subsidiaries reduces the associated implementation and upgrade costs for IT. This cost reduction increased with a cloud deployment in the subsidiary via the associated shift of costs from capital expense to operational expense.
In many cases, the ability for a subsidiary to be able to react quickly to the market is a make or break requirement. Tier 2 ERP solutions deployed in the subsidiary are easier and quicker to configure and change as subsidiaries change. With a two-tier deployment, the ERP system is controlled and run by the subsidiary as opposed to a top-down IT governance from the headquarters. While this approach provides transparency to the headquarters, it can significantly slow down a subsidiaries ability to react.