Companies trying to decide what vendor to select for the subsidiary-level ERP in a two-tier manufacturing ERP deployment should first see if their current providers have software that might meet their needs, analyst Joshua Greenbaum said.
Having two ERP solutions that are made by the same maker can stave off a lot of problems in the long run, according to Greenbaum, principal at Enterprise Applications Consulting, based in Berkeley, Calif. “The ability to maintain that first tier relatively as is and make modifications to the second tier is going to be a lot cheaper and easier,” he said. “That’s definitely the first place I would look.”
In a typical two-tier ERP deployment, a parent company keeps its existing ERP system, while subsidiaries or other business units deploy a second one, whether on-premises or on-demand, for their specific needs.
Companies that don’t plan to use their headquarters-level ERP vendor for the second tier should make sure the new vendor has experience integrating with the corporate ERP, according to Greenbaum.
“[Companies] want a tier-two vendor with existing experience and a track record of working with the tier-one vendor,” he said. “I think that’s essential.”
In either case, the company should also make sure that the second-tier ERP has previously been implemented in the same geographic region and industry. Making sure the software, or the vendor itself, isn’t breaking new ground with the deployment can mean the difference between a smooth implementation and one that repeatedly hits snags, he said.
“You really want that tier-two vendor or one of their implementation partners to throw a switch and turn it on and have it work, without essentially having to build the integration from scratch.”
Two-tier ERP options
Companies have three vendor choices when it comes to two-tier ERP software selection, according to a report published by Stamford, Conn.-based Gartner Inc. titled Two-Tier ERP Strategy: Considering Your Options.
The first is using the same vendor but different products at both the headquarters and subsidiary levels.
In the second scenario, software from a different vendor is deployed in the second tier when the provider of the enterprise-level ERP doesn’t have a product that fits both tiers.
One example is the Wurth Group, a European manufacturer of fasteners, screws, dowels, tools and furniture and construction fittings. According to Gartner, Wurth uses a major vendor’s ERP suite at the corporate level but has deployed another prominent vendor’s smaller-scale ERP offering at the subsidiary and is adding functions to boost inventory control and business intelligence.
When it is difficult to impose one system on all of a company’s subsidiaries, the third option is for headquarters to have a short list of two or three vendors that subsidiaries can choose from, all of which are able to meet cost and corporate governance requirements, according to Gartner.
One manufacturer’s two-tier experience
Indian automobile company Tata Motors is in the process of deploying a two-tier ERP structure for its Jaguar Land Rover division, which it bought from Ford Motor Co. in 2008. Under the plan, Jaguar Land Rover will move off of its Ford legacy systems and onto a major vendor’s ERP suite, which will integrate with subsidiaries running a smaller-scale ERP offering from the same vendor, including its branch in Brazil.
In the arrangement, the cars and spare parts are made in the U.K. but shipped to Brazil, where they’re sold. To make that happen, the two sides share financial, production and distribution data, according to Luis Moreno, chief financial officer of Jaguar Land Rover Brazil.
“The flow of information [for] each car flows from manufacturing in the U.K.,” Moreno said.
While Jaguar Land Rover felt that the lower-tier ERP product met Brazil-specific requirements in most areas, it opted for a custom add-on from a Brazil-based company that addresses specific tax and regulatory challenges of doing business in that country.
SaaS vs. on-premises ERP
Other experts, like Paul Hamerman, an analyst with Forrester Research Inc., based in Cambridge, Mass., recommend going with a Software as a Service model when possible because of the advantages on-demand ERP systems offer, including routine upgrades and less overhead.
“I think there’s a real business opportunity for their smaller business units,” Hamerman said. “That strikes me as a real benefit, being able to centrally control and have a system that’s automatically updating as opposed to a locally installed system that has its own hardware that has to be upgraded.”