The two-tier ERP strategy trend, in which companies run a primary ERP system on-premise with one or more additional ERP systems in the cloud, has been steadily gaining ground. Because the model is decidedly different than a traditional ERP implementation, there are some special considerations for those evaluating two-tier ERP.
For two-tier ERP to be successful, experts say organizations should look for these eight factors:
- Open architectures that facilitate integration
- Robust cloud capabilities that can extend throughout the enterprise
- Ability to support multiple languages and currencies
- Workflow capabilities that boost process efficiency
- Industry-specific ERP capabilities
- Ability to handle multiple ERP rollouts
- Ability to work well with a primary ERP vendor
- Support for common ERP processes and data structures
Is Two-Tier ERP Necessary?
Adding a second cloud ERP may seem like an easy option for those struggling with an older on-premise system. But look before you leap, said Eric Kimberling, founder and managing partner, Panorama Consulting Solutions. He advises companies to first determine whether or not a single ERP system can potentially address all of their needs.
"In a perfect world, a single system provides the cleanest, most standardized and most integrated approach to ERP," he said.
Review possible future roadmaps, he advised. If the current ERP vendor offers an upgrade path to revamp a system with desired features at a reasonable cost, it may not be necessary to adopt a second system.
However, also take into account the timeline. Drill down beneath the assurances to determine how long it might realistically take the vendor to get you where you need to go. If time is an issue, a two-tier ERP system may make more sense.
Here are some of the most important considerations for organizations evaluating software for two-tier ERP deployments.
Open Architectures and ERP Integration
Integration is an obvious concern for any organization adopting multiple ERP tiers. If some ERP data is in an on-premise database and the rest is in cloud ERP, how well will these systems communicate and synchronize - and at what cost?
"You have to consider how well two systems may integrate and where the data 'source of truth' would reside," said Kimberling. "Make integration tools and overall solution architecture primary evaluation criteria. More open architectures, such as .NET-based systems, are easier to integrate than more proprietary architectures and tool sets."
A second cloud ERP system should be able to tie in easily with other corporate software such as human capital management and CRM, said Terrance Wampler, vice president, Financials Product Strategy at Oracle.
"This requires a strong integration platform that can support Web services as well as file-based integration and one that provides the ability to orchestrate the integration flow to ensure it is touchless," he said.
Future Cloud ERP Plans
Early adopters of two-tier ERP tended to arrive there due to their primary on-premise ERP lacking certain functions that are readily available from a cloud ERP vendor. But that may be a short-sighted way of looking at the problem and could lead to headaches up the line.
Wampler advised users to devise a long-term enterprise-wide strategy for cloud ERP. Why tack on a little cloud now if you may end up going all cloud in five years?
"Choosing an ERP cloud vendor that allows you to transition the entire enterprise to the cloud has become a key consideration," he said. "Customers can move to a two-tier strategy as a transition to all cloud."
Global enterprises are now commonplace, and mergers and acquisitions often mean that several ERP systems must be tied together. Additionally, rapid expansion can lead some organizations to adopt a two-tier ERP system to take care of parts of the world beyond the corporate home turf. But this has to be carried out sensibly.
Foreign subsidiaries must be able to provide their corporate parent with requested information in a timely manner and in the required format. This includes the ability to do translations in terms of both language and currency. Can the two-tier ERP structure accommodate that, and can the proposed cloud ERP provider deal with this challenge?
"Subsidiaries must also abide by corporate policies and best practices for all business flows, while simultaneously meeting local requirements for payments, reporting, accounting and tax," Wampler said. "Additional features to research include the ability to meet local management reporting needs and usability features to ensure productivity."
Two-tier ERP and Process Efficiency
It can become one’s life's work to completely integrate everything within the enterprise. With ERP, prioritization is likely to be necessary.
Rainer Zinow, senior vice president, SAP Business ByDesign Solution Strategy, SAP SE, considers the must-have features for two-tier ERP in terms of integration to involve areas such as subsidiary-created sales orders being converted into purchase orders (PO) and sent swiftly to headquarters. The central ERP system can then receive the PO and hand it over to production.
Another example is advanced shipment notification sent to the customer at the subsidiary level. Both ERP systems must be able to communicate well enough so that the customer knows what is happening and that delivery actually occurs without anything falling "between chairs."
"Equally important is integration for financial consolidation, intra-group revenue elimination and the central analytical system," Zinow said.
Industry-specific ERP Capabilities
A good reason to augment a central ERP system with two-tier ERP is vertical strength. Some ERP packages are specific to certain industries. In those cases, review cloud ERP offerings to see which ones best fit the bill.
"A second tier of ERP should provide rich industry capabilities to cover diverse business processes within a large organization with the support of a single team," said Pepijn Richter, director of Marketing, Microsoft Dynamics AX.
Repeatable ERP Rollouts
As companies expand, they don't want to reinvent the wheel every time they acquire more assets around the planet. Therefore, review any proposed two-tier ERP addition in light of how well it can handle several deployments in different areas in quick succession.
"Cloud ERP should come with a set of services to support a repeatable rollout across the global organization," Richter said.
Two-tier ERP Vendors that Play Nice
It’s too easy to fall into the trap of favoring the latest and greatest cloud ERP vendors, picking the one that seems the most up to date. But what if that vendor has little or no experience in dealing with your primary on-premise ERP provider?
"You have to deal with vendors who have experience working with one another, and understand the criticality of your two-tier system," said Craig Downing, senior director of Product Marketing at Epicor. "Make sure they aren't going to simply say 'it's the other guy's problem to ensure this works.'"
Common ERP Data Structures
Support for common processes and data structures is another vital aspect of two-tier ERP. If you are forced to accommodate limitations in part numbers, GL accounts or customer details in mapping data between the two systems, you're already being asked to make too many compromises and are likely to find "hidden" sacrifices to be even more limiting, Downing said.
Bonus Must Have: Realistic Two-tier ERP Expectations
Unrealistic expectations and requirements for two-tier ERP can cause costs to spiral or lead to too many vendors being eliminated. Answer this honestly: Is real-time synchronization of all data between both ERP systems really necessary?
"Companies need to decide where they sit on the timeliness needed from an integration process," Downing said. "Are they wanting to synch these two systems in real-time or via a batch process? A real-time interface is more expensive to build and maintain than a daily interface."