A Tale of Two Tiers: How Two-Tier ERP Can Solve Your Complex Financial Headaches


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Thursday, April 20, 2023

What is two-tier ERP and how can it help growing and expanding companies manage complex financial process across units, regions and locations?

Article 6 Minutes
A Tale of Two Tiers: How Two-Tier ERP Can Solve Your Complex Financial Headaches

As companies grow and expand, their financial processes and requirements become more complex. Managing these processes across multiple business units and locations can be a daunting task, especially for larger companies.

This is where two-tier ERP comes in handy. In this article, we will discuss what two-tier ERP is, its benefits and how to implement these systems in your business.

What's two-tier ERP?

Two-tier ERP is a strategy used by multinational companies to manage their financial processes across multiple locations and business units. It involves implementing two different ERP systems – one at the corporate level and one at the business unit level.

The corporate-level ERP system handles the core business functions, while the business unit-level ERP system manages the specific financial processes of each unit. This two-tier approach allows for greater flexibility and customization, as each business unit can have its own ERP system tailored to its specific needs.

This approach also enables companies to manage their financial processes more efficiently and effectively, as the corporate-level ERP system can provide a consolidated view of financial data across the whole organization.

What's the difference between Tier 1 and Tier 2 ERP?

Tier 1 ERP systems are typically used by larger companies, and huge firms like Gartner describe Tier 1 users as having in excess of 1000 employees and revenue of at least $500M USD per annum.

This is because these systems offer a comprehensive suite of features to manage all aspects of the business, including financial processes. They’re also designed to handle complex business processes and are often expensive to implement and maintain.

On the other hand, Tier 2 ERP systems are designed for smaller to mid-sized companies, typically businesses with anywhere from 20 to 1000 employees. These systems offer a more streamlined set of features.

Not only this, but they also tend to be more affordable than Tier 1 systems and can be implemented more quickly. However, they may not offer the same level of customization or scalability as Tier 1 systems do.

Which approach should you choose?

With as many as two-thirds (64%) of companies planning to implement ERP within the next three years, understanding which approach to choose is beneficial.

The decision to implement a two-tier ERP approach depends on your company's size, complexity and financial requirements. For larger companies with multiple business units and complex financial processes, a two-tier approach may be the best option. However, for smaller companies with simpler financial requirements, a single ERP system may suffice.

When choosing between Tier 1 and Tier 2 ERP systems, consider your company’s budget, customization needs and scalability requirements. Though Tier 1 systems may offer more features and customization options, they do come at a higher cost. But while Tier 2 systems are more affordable, these are not ideal if you need to customize your systems or you plan to scale up your business quite dramatically in the near future.

So, it’s important to keep these key points in mind when making your decision, weighing up the pros and cons of both types of ERP systems before committing to either one.

5 benefits of implementing a two-tier ERP approach

Taking into account everything we’ve said so far, you might be leaning towards a two-tier ERP approach for your business. But in case you’re still teetering on the edge, here are five benefits of implementing this type of system.

1. Greater flexibility and customization

A two-tier ERP approach allows each business unit to have its own ERP system tailored to its specific needs. This enables greater flexibility and customization, as each system can be designed to meet the unique requirements of the business unit.

2. Improved efficiency

By consolidating financial data across the organization, a two-tier ERP system can help improve efficiency in financial processes. This enables companies to make faster and more informed decisions based on real-time data.

3. Reduced costs

Implementing a two-tier ERP system can be more cost-effective than implementing a single Tier 1 system. Tier 2 systems are typically more affordable, and implementing them at the business unit level can help reduce costs associated with customization and maintenance.

In many cases, a two-tier system has a lower overall total cost of ownership because the time to implement is reduced. Research has found that companies can see a 33% reduction in implementation costs and a 50% decrease in total time to full implementation when using a two-tier system over a one-tier.

4. Better compliance

With a two-tier ERP system, companies can ensure that each business unit is compliant with local regulations and reporting requirements. This helps reduce the risk of non-compliance and associated penalties.

This is crucial right now, with as many as 70% of organizations saying that they struggle with compliance and regulatory issues in some way.

5. Improved collaboration

A two-tier ERP system enables greater collaboration between business units and departments. It provides a consolidated view of financial data across the organization, enabling better communication and collaboration between teams.

How do you implement two-tier ERP?

Effectively implementing a two-tier ERP system requires careful planning and execution. If you’ve not done this before, it can feel like a daunting task, but don’t worry. Below, we’ve broken down the process step-by-step to help get you started.

Define your requirements

The first thing you need to do is define your company's financial requirements and identify the specific processes that each business unit needs to manage. This will help you to weigh up different features and choose the best ERP systems for your organization when the time comes.

Choose your ERP systems

When you're ready, choose a Tier 1 ERP system for the corporate level and a Tier 2 ERP system for the business unit level. You need to make sure that both systems are able to integrate with each other for this strategy to be successful.

Customize your systems

Once youve got your new ERP systems in place, you can begin to customize these to meet the specific requirements of each business unit. You must ensure that the systems are configured to share data seamlessly.

Train your users

Now its time to train your users on how to use the new ERP systems and ensure that they clearly understand the benefits of a two-tier approach like this. Continue with training and development until everyone is comfortable with the new system.

Monitor and evaluate

The final step is to monitor the performance of the new systems and evaluate their effectiveness in meeting your company's financial requirements. By continually reviewing these, you can make adjustments as necessary.

Final thoughts

Managing financial processes across multiple business units and locations can be a complex and challenging task for any business. Implementing a two-tier ERP system can help alleviate these challenges and provide greater flexibility, efficiency and customization. However, before adopting a two-tier ERP approach, you need to carefully evaluate your company's requirements and choose the ERP systems that best meet your needs.

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