Tips for selecting two-tier ERP vs. single instance

More manufacturers are consolidating their ERP systems to save money and space. For some companies, however, running two-tier ERP may be a better option than single-instance ERP.

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At Areva, a French conglomerate that manufactures high-voltage equipment for power companies, introducing ERP into smaller business units meant either expanding its current SAP ERP system or searching for a more cost-effective option. But a main concern beyond cost was the learning curve -- the company wanted a tool that was easier to learn than SAP.

As a result, Areva has been using SAP for financials and Infor SyteLine for site operations. It integrated SyteLine with SAP in 2007.

"That's the main reason we wanted the two-tier application: to simplify daily transactions for smaller business units," said Steven Montagnon, IT Director at Areva. "We developed in those two areas because we are targeting the application for smaller business units that have fewer people than at the larger organization."

Drawbacks of single instance ERP

Achieving a single instance of ERP isn't the goal it once was. More companies are driving toward a two-tier ERP strategy. In addition to better ease of use, organizations are increasingly turning to a two-tier ERP strategy for benefits such as a lower cost of ownership and greater flexibility and to combat fatigue with trying to achieve single-instance ERP.

One of the key factors driving the shift from a single instance of ERP to a two-tier strategy is cost of ownership.

"What we're seeing is that companies that tried to do a full rollout of all Oracle or all SAP are realizing that it's cost prohibitive. That's what's been driving two-tier," said Ray Wang, partner, enterprise strategy, Altimeter Group LLC.

In addition, as organizations look to expand to smaller offices around the globe, most need the flexibility to install an easy-to-learn ERP system that can get users up and running quickly.

Another factor driving this trend is that organizations have been trying to forcefit a single instance of ERP across the entire business. "In some cases a business might have one division that builds things and another that services things. Those are fundamentally two different types of work processes, which require two different types of philosophies for designing an ERP system," Wang said.

In turn, two-tier systems are specialized and have better micro verticals. "If your cost for the license and implementation is two times the cost of something else, and it's more rigid and what you can get is much more flexible, it's a no-brainer," he said. "A two-tier system can be purpose-built for a specific market and geographic location."

For Areva, increased data integrity has been a side benefit of the two-tier strategy. "It has helped to increase the accuracy of stock and keep better track of stock," Montagnon said. "It's garbage in/garbage out. If you put garbage in SyteLine, it will go through to SAP. Data integrity has improved 10 times since implementing this two-tier solution."

Two-tier ERP and Globalization

Organizations aren't just looking to a Tier 2 or SaaS ERP provider's products to complement Tier 1 software from SAP, Oracle or Microsoft. Some are deploying different Tier 2 software at different locations, leveraging the strengths of each to solve unique challenges in each region.

Heidenhain -- an Illinois-based global developer and manufacturer of linear encoders and digital readouts -- wanted to address the software needs of its smaller subsidiaries, where it had several different standalone, locally sourced systems installed. It needed to support 800 concurrent users at 52 sites globally. "We needed one package to standardize our business environment, combining our vendor solutions into a single integrated system. The best way to achieve this was to adopt a strategic solution based on a two-tier ERP strategy," said Jϋrgen Kaesberg, chief information officer for Heidenhain.

While Heidenhain had just implemented Infor at its headquarters, it also needed specific localization and standardization support in Japan.

"Epicor's global delivery capabilities really stood out, particularly the global financial management capabilities, localizations, and handling financials and invoicing at our subsidiaries," Kaesberg said. "We found that the depth of functionality needed at our headquarters wasn't necessarily needed at our outside subsidiaries."

Rather than replace everything, the company decided instead to implement Epicor as part of its two-tier ERP strategy to standardize and support global subsidiaries.

The result has meant greater flexibility for growth within the organization. "Our data is now structured so that we can provide parts, services and information in the right formats for each location," Kaesberg said. "Plus, we can analyze the business from a central point and understand what is going on across it."

Standardizing also means integrating with legacy systems. According to Wang, that's getting easier to do because most systems today are built on open standards. "The level and the types of integration are better than before," he said. "There's an understanding that there are industry-specific requirements that are hard to replicate in some cases."

Two-tier systems are becoming more common because of the cost of ownership, but it's important to consider that the business will need to work with and manage integration among multiple vendors. Also, there's the risk of getting out-of-sync data if the company hasn't standardized on a plant-level ERP. "You need visibility at a corporate level to your aggregate buy," said Bob Parker, research director at IDC Industry Insights. . "You risk losing some visibility to aggregate performance because you end up optimizing locally instead of globally."

So, although an organization running two-tier ERP won't have a pure, single-instance system, it will have a lot more flexibility, Wang said. "You have an opportunity to reduce costs and meet your business requirements."

About the author: Catherine LaCroix is a freelance writer based in Portland, Ore. She covers technology used in business, education and healthcare.

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