Before knowing the advantages of a Two-tier ERP strategy let us first dig into its meaning. Two-tier ERP strategies limit software deployment to the headquarters by using tier-1 ERP software that is customized to manage critical business functions of a large business. In contrast, smaller branches or subsidiaries use lesser resource-intensive tier-2 ERP software.
An ERP setup with two tiers manages master data by transferring information from tier-2 to tier-1. Each business stakeholder has access to vital business data through this one source of truth. Each level has its own responsibilities, but generally speaking, tier 1 handles core business functions including Supply chain, finance and accounting, and human resources. Additionally, tier 2 is in charge of tasks that pertain to a specific branch, including marketing, sales, manufacturing, and internal communications.
As businesses implemented customized ERP solutions, two-tier ERP became popular due to the following reasons:
- Traditional ERP systems tend to be more expensive than customized solutions
- Implementation of custom ERP software is quicker.
- The purpose of a customized ERP system is to solve a specific business problem.
However, traditional ERP systems are laden with complexities, have high configuration requirements, require intensive technical training, take years to implement, and are very expensive. This is why many businesses believe taking a two-tier approach is more cost-effective than replacing the tier 1 ERP or integrating a subsidiary or acquired organization into the existing system.
Now let’s talk about the benefits of implementing Two-tier ERP strategies.
Based on your business needs, provide customized solutions.
Small businesses often build products and serve audiences that are vastly different from those of their parent companies. Microsoft, for instance, makes operating systems, whereas Bethesda, a subsidiary of Microsoft, excels at developing shooter video games. Both have very different requirements for software and target markets. To drive greater efficiency, speed, and profitability for Bethesda, it would be ideal if they used a tier-2 ERP system.
Operating expenses should be reduced
An ERP system with two tiers is a cost-saving measure for large companies with many subsidiaries. The parent company can cut costs on implementation, maintenance, and upgrades by consolidating multiple subsidiaries on one tier-2 system. Due to the shared processing power between the tier two ERP system and the corporate office, a subsidiary can reduce the number of IT staff and refocus its efforts on higher-value activities.
Provide localized solutions.
It is particularly imperative for subsidiaries located abroad to have a system that works in a range of currencies and languages and complies with local laws. Additionally, there are subtle cultural, regional, and ethnic differences that influence the functioning of subsidiaries. While tier-1 ERP systems may not meet local needs, tier-2 systems may.
The learning curve for Tier-1 ERP systems is steep, so employee participation is crucial. Most employees don’t want to spend the time and effort needed to learn how to make use of ERP systems. Compared to tier-1 ERP software, tier-2 ERP software requires very little training. As a result, companies can reduce training costs as well