Two-tier ERP deployments can help manufacturers cut costs and gain more control over their operations, according to experts. But they also caution companies to be aware of the two-tier ERP challenges inherent in integrating the two systems.
Companies will need to tackle sticky issues around data management, including where data is going to reside, according to Liz Herbert, principal analyst with Cambridge, Mass.-based Forrester Research Inc.
Although the account data will no doubt stay with the central ERP at headquarters, Herbert said, companies must still figure out how often the data will be updated and take on issues around data governance.
“Those kinds of challenges are some of the ones we see companies struggling with,” she said. The approach they take partly depends on how centralized or decentralized they want their operations to be.
Master data management is more a political process than a technical one, but companies still have to sit down with all the stakeholders and determine things like what the ideal customer field for a customer record is, according to Josh Greenbaum, principal of Enterprise Applications Consulting in Berkeley, Calif. That’s especially true for companies with operations in different countries, where business practices can vary by location.
“The Europeans may have one answer to [the customer field question], and the Southeast Asians will have another,” Greenbaum said.
Two-tier in India
Mark Ginestro, a consultant and partner with Clarkston Consulting, based in Durham, N.C., said he recently worked on a two-tier ERP project involving a large U.S. chemical manufacturer and its operations in India.
While the main Indian office was rolled up into the same SAP instance that the U.S. headquarters runs, there were questions over what to do with the network of small sales and distribution centers spread throughout India. Clarkston helped the company create a small custom ERP system for those locations, which then fed data into the main system.
Echoing Herbert’s comments about frequency of data updates, Ginestro said the manufacturer determined that nightly updates were sufficient for the volume of sales the small locations were doing. “They weren’t changing master data that often,” he said.
Ginestro also spoke about the importance of data consistency between tiers. If sales data isn’t kept current or consistent, sales reps will resort to Microsoft Excel spreadsheets and other tools to get what they need, and that can lead to multiple versions of data, he said.
Do they all integrate?
While SAP claims the number of integration options baked into its Business ByDesign platform makes it a superior on-demand ERP for hooking into on-premises SAP ERP, independent analyst Cindy Jutras said most smaller-sized vendors sell similar tools for integrating their second-tier ERP offerings with on-premises ERP from SAP and Oracle.
“A lot of the companies that sell to the second tier understand that SAP is going to be at the top level and they probably have done this before,” Jutras said.
However, that’s less likely to happen if the ERP being used at headquarters is from a smaller vendor, she said. Similarly, second-tier applications, even if they’re made by a large vendor like Microsoft, are not going to provide as many integration choices.
Multiple layers of integration
Once you get beyond the fact that two-tier deployments require some kind of financial integration and consolidation -- which even at a basic level can be tricky -- Jutras says that most companies also look for higher-level integration in areas such as purchasing. Companies will need to consider to what extent such business processes must be integrated and how.
Integrating purchasing operations can raise logistical issues around how inventory and supplies are handled, Jutras said. If a purchase order is generated at the corporate level but needs to be shipped to subsidiaries, do the subsidiaries get the same purchase order? And do the products go directly to the subsidiaries or are they sent to headquarters, which then sends them to the subsidiaries?
“All of those factors have to come in to play,” Jutras said. “You may have to [integrate] between lower and higher tiers at different points.”
“Other,” the biggest category of ERP
Greenbaum said that while most analysts, including him, spend a lot of their time following large vendors like SAP and Oracle, the biggest category of ERP in any country is “other” -- small, local ERP systems that represent some of the more difficult aspects of ERP integration.
Those systems may have been installed 15 years ago, do really well in the local environment and have their own data management systems and object models, Greenbaum said.
“More often than not, integration has to do with dealing with all the ‘others’ that are out there that have to be rolled up into the mother ship. That’s time-consuming and onerous,” Greenbaum said. “And therefore, you’re looking at this ‘small data’ problem of lots of little types of data that need to be converted. In any kind of any upgrade or system migration, you’re changing the underlying IT infrastructure.”
In many ways, though, data management and integration are issues that all companies struggle with, regardless of whether they have a two-tier deployment.
But going with a two-tier system requires paying closer attention to the potential for potholes, Greenbaum said.
“If you don’t get this right, you know, you’re just going to waste whatever time and effort into doing it,” he said.