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The advantages and disadvantages of a 2-tier ERP strategy

In my last blog I looked at the reasons why a 2-tier ERP strategy may be the best solution for a business—in fact in a recent IDC survey the 2-tier approach was the considered the most business effective. In this second blog I will discuss the advantages and disadvantages of a 2-tier strategy and propose the best way to make it work.

Using a single ERP product across the whole organization without compromising the individual business unit’s efficiency and flexibility is obviously the ultimate solution. This is often difficult to achieve in many manufacturing companies for all the reasons described in my previous blog, so having the option of a 2-tier approach maybe the most appropriate strategy. This is especially true for large organizations with diverse product ranges and markets where the ‘one size fits all’ just delivers compromise and cost!

So, what are the advantages and disadvantages of a 2-tier ERP solution:

Advantages

  • Significant cost savings—whilst having multiple solutions sounds like a cost increase, the whole solution needs to be considered. Implementation speed and cost, maintenance fees, upgrades, and reduction in modification costs can offer large financial savings.
  • Minimal customization—in most cases a 2-tier ERP solution will be purchased for a specific business type (discrete, mixed mode or process) so minimal customization will be needed.
  • Compliance—compliance to industry standards or country specific requirements can be better addressed with a system that is put into place to meet that need.
  • Increased flexibility—with a focused and more agile solution, the business with the 2-tier system has more flexibility to run the business better.
  • Cost of ownership—in many cases a 2-tier system has a lower total cost of ownership because the time to implement is reduced. Gartner Research has found that companies are seeing a 33% reduction in implementation costs and a 50% decrease in total time to full implementation when a 2-tier system is executed*1.
  • Independence—each subsidiary business can work with their own models, workflows, and business processes whilst adhering to global reporting and financial controls.
  • Ownership—imposing an incomplete or overly complex solution on an operating business will result in a lack of ‘buy in’, and invariably will lead to inefficiencies and a lack of ownership. A 2-tier approach can avoid this!

Disadvantages

Adopting a 2-tier ERP strategy will have some trade-offs. It may involve dealing with two software vendors and if poorly thought through will create complex business process linkages between the two systems. Weighing up the advantages against the disadvantages is critical to making the strategy work. Some of the perceived disadvantages are:

  • Different data structures will mean potentially complex integration and orchestration.
  • Developing global standards and processes may be difficult.
  • Moving personnel around the organization can impede growth and reduce efficiency.
  • Cloud migration can be more complex and costly especially if the environments are very different.
  • Most multi-solution integration is done in batch, hampering the need for real-time data and decision making.

2-tier ERP strategy – keeping the blocks big

The key to avoiding all the disadvantages is to keep the blocks big—this ensures that integration is kept as simple as possible. Selecting a dividing line between the ERP solutions that maximizes the functional capability of both but at the same time minimizes data replication and integration to reduce complexity is paramount. All 2-tier solutions will differ slightly as to where the line (the interface) between the ERP solutions is placed, but providing the model is kept simple and the blocks big, an extremely effective solution can be formed.

The most common 2-tier topologies are: global finance or global finance and commercial operations supported by a more agile, configurable ERP for manufacturing and operational activities.

In both topologies above, the integration is kept simple by keeping the operational activities separated from the finance/commercial activities. This results in very little duplication of data and interface complexity.

Considering the model carefully and getting the topology right is the key to success and there are many elements to consider.

What are the main considerations?

As can be seen above, a 2-tier strategy can provide significant benefits, but the model needs to be planned and mapped carefully, some of the main points to consider are:

  • Think big blocks—the smaller the blocks the higher the frequency and more complex the integrations and processes need to be. Establishing the simplest integration line is the single most crucial decision.
  • Think about timing, does the data need to be in real-time or can it be in batch? How often do new products get added?
  • Think standardization. Even though there may be two different ERP solutions, a common approach to numbering, ways of working and technologies is key.
  • Keep dynamic data sharing to an absolute minimum.
  • Think about the best place to execute a function and then ensure connected functions are in the same ERP tier. An example of connected functions would be purchase invoice matching. Keeping all the purchasing, goods receiving, and supplier invoice functions and data in the same ERP eliminates the need for data duplication. Getting this right will safeguard against an unsupportable level of integration complexity.
  • Think about departmental functions and try and keep the ERP boundaries the same so that users only have to transact in one system.

Moving forward with  2-tier approach

Adopting a 2-tier ERP approach can provide a very effective business solution. The benefits outweigh the disadvantages, but pre-planning and design are critical to ensure an optimum and timely topology without unnecessary integrations.

*1 Gartner RAS core research note G00205287

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