As businesses further diversify their operations across the globe, the demand for flexibility and rapid response from their IT infrastructure grows. For companies needing to manage compliance across multiple regions, this demand is especially pressing. Two-Tier ERP offers a way to manage this complex digital environment by coordinating a master system at headquarters and other, region-specific systems at secondary locations.
In this article, we’ll dive into the basics of what Two-Tier ERP is, why it’s growing in popularity, its pros and cons, and what kinds of companies it’s most suitable for.
Table of Contents
1. What is Two-Tier ERP?
Very simply, when a company integrates one primary ERP system at its headquarters with separate, secondary systems at its subsidiaries or overseas branches, it has Two-Tier ERP. The system at headquarters, often a large-scale ERP like SAP, is called the “core ERP.” Subsidiaries and branches adopt ERP solutions tailored to their specific needs, allowing each location to meet local demands while integrating with the core ERP.
Two-Tier ERP is often run on cloud systems, allowing for rapid deployment with relatively low cost and risk, and data can still be integrated and managed from a central location, increasing efficiency across the organization.
2. Two-Tier ERP’s Rising Popularity
Corporate globalization and the growth of ERP on cloud can be credited for the rising popularity of Two-Tier ERP. Traditional ERP systems have struggled to adapt, making Two-Tier ERP not only a viable global ERP solution, but often a necessary one.
2-1. ERP Challenges Posed by Corporate Globalization
ERP systems built for one market struggle to adapt when implemented as a global ERP due to differences in local business practices and regulations. An ERP system designed for Japanese business compliance may not meet requirements in the US. What’s more, customizing large-scale ERPs to work across regions can be costly.
Two-Tier ERP allows for region-specific sub-ERPs while coordinating with the main office, ensuring integration and compliance.
2-2. Development of Cloud-Based ERP Solutions
As cloud ERP implementation has advanced, it’s become much easier to implement Two-Tier ERP. Where traditional on-prem ERP models required companies to provide their own servers and network equipment, cloud ERP is run via the internet, reducing startup costs and operational burden. Additionally, cloud ERP implementation allows for resource adjustments as needed, making them more accessible and easier to deploy.
3. Benefits of Two-Tier ERP
Two-Tier ERPs are popular for four key reasons. They centralize information management in one place, even when using different systems across regions. They offer flexibility for each office to choose the system that works best for their region while still integrating with the primary ERP at HQ. Additionally, they’re usually far more cost-effective than using multiple large-scale ERPs. And finally, they simplify the mergers and acquisitions process (M&A).
3-1. Centralized Information Management across ERP Systems
With proper integration features, one core system at headquarters and regionally-appropriate systems at subsidiaries and branches can easily be centrally managed.
Companies can quickly and responsibly collect management data across the entire corporate group, enabling real-time awareness and insight into location status, earlier risk detection and mitigation, and appropriate decision-making and management actions.
3-2. Region-Specific ERP Optimization
Two-Tier ERP is an ideal solution for companies spread across markets. Each office can adopt the ERP system best optimized for their unique business practices and workflows for their location while still integrating with headquarters.
This flexibility also helps with small- and medium-sized enterprises (SMEs) engaged in joint ventures, allowing them to implement the best cloud ERP for small business or each division, without overhauling the entire company.
3-3. Cost-Effectiveness
Two-Tier ERP is also often more cost-effective than large-scale ERP systems across multiple locations. A large-scale ERP can be expensive to implement and operate, while Two-Tier ERP allows organizations to deploy smaller, cloud-based systems locally at a far lower cost. Subscription-based cloud ERP implementation also makes it easier to scale resources and make adjustments as needed, helping to manage costs.
3-4. Flexibility to Handle Mergers and Acquisitions
Mergers and acquisitions, or M&A, are well-served by the flexibility offered by Two-Tier ERP. Integrating an acquired company into an existing ERP system can be complex and time-consuming, but Two-Tier ERP allows different systems to communicate and work together seamlessly. Integrating management data with existing systems reduces the cost and time needed, minimizing disruptions and risks.
Additionally, Two-Tier ERP can accommodate different languages and currencies, further simplifying global M&A scenarios.
4. Disadvantages of Implementing Two-Tier ERP
There are some potential drawbacks to Two-Tier ERP that should be accounted for, primarily cost and complexity.
・Cost for Each ERP
Two-Tier ERP, by definition, requires more than one ERP system to be implemented. This requires separate licensing and operational costs for each system, and while cloud-based solutions can reduce initial costs, maintaining multiple systems over time can increase costs.
・Increased Operational Complexity
Managing multiple ERP systems can make your operations more complex, with each location potentially requiring its own system interface, functionalities, troubleshooting, and system updates. If workflows are not streamlined, management and administration can become burdensome.
5. Companies Primed for Two-Tier ERP
There are three kinds of companies best suited for Two-Tier ERP.
・Companies with Global Operations
Companies with international operations need to be able to adapt to local and regional business practices and regulations in different markets and countries. Two-Tier global ERP allows them to choose the most suitable ERP for each location so they can integrate data with headquarters while staying compliant.
・Companies with Multiple Domestic Locations
Processes and regulations can vary greatly even within a single country, and Two-Tier ERP’s flexibility allows companies to adapt accordingly while keeping headquarters in charge of overall operations.
・Companies with Diverse Business Activities
With Two-Tier ERP, SMEs with diverse business portfolios, like manufacturing, sales, and services, can choose the right ERP system for each sector, or add and adjust ERP systems when starting a new business.
Conclusion
Two-Tier ERP is a flexible IT solution for supporting companies’ operations across the globe and in multiple locations. It seamlessly integrates data across different ERP systems while ensuring efficient business operation, and with the development of cloud ERP, implementation costs are reduced and deployment is quicker. With foresight and careful planning, the potential for increased costs and operational complexity inherent to utilizing multiple ERP systems can be managed.
Microsoft Dynamics 365 is an excellent example of a leading Two-Tier ERP. It meets individual requirements in specific locations while coordinating with headquarters, including localization for regional languages and business practices when operating internationally.
For more information about Microsoft Dynamics 365, please refer to the links below:
Learn More About Microsoft Dynamics 365 ERP & CRM Implementation Services