Forget what you know or what you think you know about enterprise resource planning(ERP) tiers. Like anything related to ERP, there are no clear-cut answers, and all lines are blurred. The answer for any question related to ERP is, “It depends.” Tiers are completely irrelevant, and it doesn’t matter in the least when selecting an ERP solution. What’s important is that you understand your business and your company’s needs. It depends on you, your business—not the vendor, nor the tier. Instead, focus on:
- What does my business do?
- With whom does it do business?
- Where does it do business?
- When does it do business?
- Why do we do business that way?
- How can we do it better and smarter?
With that said, some distinctions can be drawn.
Tier 1
Tier 1 ERP solutions are typically used by large, multinational enterprises. They are highly complex systems designed to meet all possible functional and scalability needs of big business and are usually deployed on premises. On-premises systems have traditionally been used by larger operations because of the substantial initial capital investment, such as extensive IT infrastructure and the required IT maintenance professionals. Larger companies prefer on-premises ERP because the economies of scale tend to reduce their total cost of ownership over the long term compared with a fee-based service such as Software as a Service (SaaS) ERP solutions. Nonetheless, your Tier 1 ERP solutions are either SAP or Oracle.
Tier II
Tier II ERP solutions are geared more toward mid-sized companies. Tier II vendors focus on mid-sized companies that have a regional or national presence and distributed suppliers, personnel, and facilities. Vendors in this category tend to become niche and focus completely on one specialized industry.
The Tier II ERP market is the largest and most competitive ERP market. Because of the highly verticalized nature of the vendors, there is potential for industry consolidations among vendors. Also, Tier 1 vendors like SAP and Oracle have been partnering with vendors and offering scaled-down versions of their products to meet customer demand in this tranche. For this reason, it’s advisable that mid-size companies use more horizontal systems that can offer third-party add-ons and enhancements. For example, Microsoft and NetSuite offer integration with SAP that enables consolidation of financial data, integration of intercompany supply chain and plant automation. According to Microsoft, “The Microsoft Dynamics ERP two-tier connector enables common business process integration scenarios for headquarters and subsidiary locations, including the following:
- Financial Consolidation. The sharing and consolidation of detailed financial information from subsidiaries using Microsoft Dynamics AX can be automated and exposed through a central SAP installation, increasing visibility of financial performance across the organization.
- Intercompany Supply Chain Integration. The integration of intercompany procurement and supply chain processes between local and regional distribution with centralized fulfillment organizations helps facilitate automated order processing.
- Plant Automation. Integration of decentralized manufacturing operation processes into centrally orchestrated planning processes enables more accurate and responsive manufacturing planning across the organization (Microsoft, 2010)”
According to NetSuite, “The two-tier model lets you preserve your on-premises ERP investments in SAP or other systems while equipping global subsidiaries with a more agile, flexible cloud-based ERP/financials system and giving headquarters the real-time visibility it needs” (NetSuite, 2014).
Tier III
Tier III ERP solutions tend to be used by small businesses and are usually SaaS solutions. Some would are argue that these solutions do not qualify as ERP because of their limited functionality and scalability. Tier III ERP solutions or the perceived need for such solutions can usually be met by Microsoft Office, competent personnel, and process controls.
The differentiation of ERP tiers and their distinctions, such as number of employees and revenue, vary, but the point is it’s less about the vendor and more about the user. Tiers are not important, but what is important is that you understand your business and that the focus is on providing a better product or service for your customer. Then and only then can a proper ERP selection be made that adds value for your business and its clients.
No comments:
Post a Comment