A new trend is emerging in the enterprise resource planning (ERP) space – the two-tier ERP model.
There is an increasing interest in two-tier ERP among corporate, finance, and information technology (IT) departments.
When implemented effectively, two-tier ERP systems promise to:
- Improve global visibility
- Ensure compliance
- Enhance the overall operational efficiency, which was supposed to be achieved using former large-scale ERP systems.
However, traditional ERP systems proved too expensive, complex, and laborious to implement and maintain.
Several other factors have contributed to the growing popularity of two-tier ERP systems:
- Legacy ERP systems with high maintenance costs
- Legacy ERP systems that lack industry-specific ERP functionality
- Need for an efficient and inexpensive upgrade to a single-instance ERP system
To put it simply, the need to adapt rapidly to the changing market demand while keeping costs in check led to the development and demand for two-tier ERP systems.
And while a two-tier ERP is taking over the market, the ERP powerhouse, NetSuite, is leading the charge.
In this blog post, we will discuss the nitty-gritty of two-tier ERP systems and what NetSuite offers to empower businesses to improve efficiency and productivity.
What is Two-Tier ERP?
The two-tier ERP approach is a technology that uses two systems to help large businesses with multiple locations and/or subsidiaries address their specific business needs. This strategy involves using a Tier 1 ERP at headquarters, which is highly customizable and provides functionality for running a global organization, while smaller business units use Tier 2 software, which is less resource-intensive.
When a business uses two-tier ERP, the information automatically flows from Tier 2 to Tier 1 as a result of integration between the two ERP systems. The result is master data management or an enterprise-wide data source that is accurate and centralized.
Generally, Tier 1 software handles business functions such as finance, human resources, and procurement, although their responsibilities can vary. Tier 2 systems manage activities specific to each subsidiary or location, such as sales, marketing, and manufacturing.
The two-tier approach was found to be far more economical and less time-consuming than Tier 1 ERP or moving a newly acquired or subsidiary company onto an enterprise system.
So, how exactly does a Tier 1 ERP differ from a Tier 2 ERP?
Tier 1 vs Tier 2 ERP
Depending on the size of the business, ERP systems come in two categories with different capabilities:
Tier 1 ERP
Tier 1 ERP is built for enterprises that have operations around the globe.
The cost of installing, maintaining, and upgrading these systems is extremely high.
Developing them to meet the businesses’ wide range of requirements takes a lot of time, leading to increased implementation times. IT teams are usually responsible for managing this software in the companies.
Tier 2 ERP
Midsize and small businesses can benefit from Tier 2 ERP. In comparison to Tier 1 software, this type of ERP is usually less expensive and easier to implement.
The solutions in this category typically target specific industries, such as manufacturing or retail, and have more features for accounting, sales, human resources, and supply chain. It is possible for one software vendor to provide both Tier 1 and Tier 2 ERP solutions, like in the case of NetSuite.
What Makes a Two-Tier ERP System the Best Solution for Your Business?
Here are some notable benefits of a two-tier ERP solution:
A two-tier ERP system offers many benefits, one of which is a reduction in overall costs.
In the long run, buying additional software systems tends to be more expensive. You also need to consider the total cost of the software solution, both the current and the long-term costs.
In the case of Tier 2 ERP, the system is purchased to meet a specific goal. Therefore, there is minimal need for modification.
Moreover, businesses are aware that modifications made to main legacy (tier 1) software can be expensive and it takes a lot of time.
In a two-tier ERP system, the situation is different. There is generally a lower total cost of ownership with a two-tier ERP because the implementation time is shorter.
Addresses Local Requirements
It may be necessary for a subsidiary in another country to use a different currency or language and comply with local laws. The way this subsidiary operates may be affected by subtle cultural or regional differences.
However, with Tier 2 ERPs, such situations can be avoided and special considerations can be accommodated.
Offers Better UX
There is a steep learning curve associated with Tier 1 ERP systems, which makes them difficult to use. In general, Tier 2 ERPs have a better user interface and overall experience. Moreover, it could reduce the costs of training, since this system is easy to use and understand.
Now that we understand the benefits of Tier 2 ERP, let’s examine a few of its use cases.
A Few Use Cases of a Two-Tier ERP Strategy:
- Branches that have a distinct business model from the parent company. For instance, the main office sells computer hardware and software, while the subsidiary offers IT services.
- Units or offices located in a country other than headquarters. Besides using the local language and currency, Tier 2 ERPs can be configured to follow that country’s tax laws.
- An organization that merges or acquires another corporation. In many cases, a dedicated platform is often better than integrating another business’ processes and operations into an existing ERP system.
- Acquisitions without a formal business management system. or introductory software.
- Companies that are looking to utilize their legacy ERP for certain business functions or processes while taking advantage of the features and user-friendliness of a newer solution. Instead of replacing the main ERP, which would be a massive undertaking, this is a faster and simpler solution.
How Is NetSuite Leading the Two-Tier ERP Revolution?
Enterprises can drive global expansion with NetSuite’s Two-Tier ERP, NetSuite OneWorld to manage subsidiaries and divisions while preserving Oracle investments at headquarters.
In terms of how NetSuite has adapted to this latest development in the ERP space, we have just scratched the surface.
Discover the latest developments in the ERP space and get an in-depth insight into how NetSuite is leading the way with our exclusive eBook – “ERP Trends for 2023”.
Ready to Start Your Two-Tier ERP Journey With NetSuite? Talk to Us!
Whether you are just getting started with NetSuite ERP or planning to optimize its capabilities to crack new growth potentials, just drop us a line at [email protected] and our NetSuite experts will take it from there.
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