Tier 1 ERP and tier 2 ERP: Creating peaceful coexistence

Tier 1 ERP and tier 2 ERP systems are not mutually exclusive. In this expert tip, discover how the two-tier approach can be beneficial.

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Many large, multi-site manufacturers have standardized on one of the tier 1 ERP systems -- SAP and Oracle -- for their entire organization, installing the tier 1 software at headquarters and at each of their locations around the globe. The rationale is often that data transfer and consolidation would be simpler if all sites were using the same formats and protocols, and the implementation effort would be reduced since a corporate team...

could learn one product and fan out to assist all of the plants as the systems were rolled out.

Many of these organizations have faced significant difficulties in carrying out this strategy and are now considering a two-tier ERP approach. Here the tier 1 ERP continues to serve as the corporate system at headquarters and larger facilities, while a second midrange, or tier 2, system is deployed at smaller plants and locations.

Most importantly, the tier 1 ERP has not proven to be a great fit for the individual plants and warehouses. These systems tend to be complex. Manufacturers might need that complexity at worldwide headquarters, but the extra functionality just gets in the way of efficient operation and use at the plant. In addition, tier 1 systems are expensive to buy, implement and maintain. The implementation itself can take a long time and consume a lot of local resources before generating any benefits, even with the help of the corporate implementation team of advisers. User acceptance and ongoing support at the plant level are also sometimes difficult issues.

Tier 1 ERP vs. tier 2 ERP

Systems designed for a tier 2 market -- midsize to large, single site -- can have more than enough functionality focused on the needs of the individual plants. They are also usually less expensive, easier to use and can be implemented much faster for shorter time-to-benefit.

Data transfer and consolidation between tier 2 systems at the plants and corporate headquarters running SAP or Oracle is not as big a problem as one might guess. First of all, not that much data is routinely transferred; in many cases the majority is financial data for general ledger consolidation, which is easy to translate and format. For those enterprises doing centralized planning, purchasing or customer service, the data transfer is more intensive. Even then, however, it is not an insurmountable problem with today's middleware tools, robust networking and communications links, and supply chain systems that manage inter-plant coordination and logistics.

Global enterprises pursuing a two-tier strategy will often select one tier 2 system for the plants and stage a planned rollout similar to what was done for the original tier 1 software. In some cases, several tier 2 systems are approved to accommodate different kinds of plants within the enterprise -- one system that works best for high volume consumer products at some plants and another that is tailored for engineered-to-order work at other plants, for example.

Cloud-based plant and warehouse software are particularly attractive for a two-tier strategy. Implementation can be simpler cloud systems, and capital expense is practically eliminated with software as a service (SaaS) licensing. The cloud approach also greatly reduces the need for IT support at the remote location and offers better security, reliability and disaster preparedness than the individual sites could provide themselves. Having all of the plant data in the cloud also adds convenience for corporate access, data sharing and consolidation.

Large enterprises have determined that using the most appropriate system for the site is much more important than any benefits there might be in force-fitting a single corporate standard system across the enterprise. Users are getting the right tools, and corporate is still able to manage the data interchange and inter-site coordination it needs -- all while saving time and money.

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Next Steps

Understand the four keys to ERP consolidation

Recognize when multiple ERP systems are out of control

Read expert advice on implementing two-tier ERP

This was first published in July 2014

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