- 22 May 2013
Many organizations are becoming increasingly global. To support these efforts, they have established multiple sites or locations—manufacturing plants, branch and regional sales offices, distribution warehouses and national, regional, and even global headquarters—that may be distributed within a country, a region, or around the world.
As organizations expand into new territories, they face a number of operational challenges. They need to adapt to the business rules of foreign countries, including government regulations, reporting requirements and variations in tax and labor laws. They must accommodate multiple languages, multiple currencies and varying local best practices. And because companies operating in multiple countries are required by law to create separate legal entities, inventory transactions become more complex with intercompany movements being treated as purchases and sales between legal entities.
Cre8tive Technology & Design (www.ctnd.com) will be posting a three-part series on “Choosing the Right ERP Solution to Support a Global Business”
Part One Each Business Unit Chooses its Own Solution
Part Two Consolidating the Entire Business on a Single ERP Solution
Part Three Using a Combined Solution
Part Three – Using a Combined Solution
In response to the cost and complexity of a single Tier-1 strategy, many organizations are now moving to a dual vendor approach that uses a centralized Tier-1 ERP for the major parts of the business and a standardized Tier-2 ERP in the business units. Ray Wang of Constellation Research found that a two-tier ERP strategy was growing in popularity with more than half of companies surveyed saying they were considering a two-tier ERP approach.
As the consolidated parent system, the Tier-1 ERP can handle high data volumes and has the features necessary to manage transactions and reporting for the large numbers of employees and users that typically work in headquarters. In addition, the Tier-1 ERP allows organizations to centralize functions that require consistency across the entire company, including procurement, operations, architecture, standards, processes and ERP application development. These functions can then be supplemented by a single approved application that is implemented in business units where it is cost prohibitive to deploy the larger package. For such distributed units, a solid Tier-2 player is a sound alternative.
With this dual vendor strategy, organizations retain the benefits of consolidated information, providing greater visibility, as well as drill down to individual transactions, linking together sites, divisions, and subsidiaries around the world. Using the Tier-2 package, organizations can achieve significant savings in the initial purchase price, during the rollout process to multiple subsidiaries (due to the ability to use the same skill sets, processes, methodologies and deployment strategies) as well as in lower maintenance and support costs. Research firm Gartner stated that companies adopting a two-tier approach to ERP may experience a 33%-plus reduction in implementation and support costs, and a 50%-plus increase in implementation time is achievable. By reducing the number of ERP instances, organizations can enable more consistent business processes across the entire organization. Tier-2 solutions are also easier for the local business units and offices to use.
The disadvantage of this strategy is that organizations continue to use two systems: one at headquarters and another at divisions and subsidiaries. The need to integrate the Tier-1 solution with the Tier-2 environment adds a layer of complexity and associated cost. Despite the standardization on the lower cost Tier-2 solution for local or distributed operations, two ERP systems remain in use within the business, which increases the related IT administration, user education, and support/maintenance overhead.
From an Epicor White Paper
Epicor Software Corporation is a global leader delivering business software solutions to the manufacturing, distribution, retail, and service industries. With more than 40 years of experience, Epicor has more than 20,000 customers in over 150 countries. Epicor solutions enable companies to drive increased efficiency and improve profitability. With a history of innovation, industry expertise, and passion for excellence, Epicor inspires customers to build lasting competitive advantage. Epicor provides the single point of accountability that local, regional, and global businesses demand. For more information, visit www.epicor.com.