In today’s variety of business models and global corporate expansion, companies are increasingly choosing to shift away from monolithic, one-size-fits-all ERPs to more flexible architectures that can align with their unique needs and workflows. Against this backdrop, the two-tier ERP model, which means having two integrated ERP platforms to work across a large enterprise, is gaining traction in the business world.
The appeal of two-tier ERPs in 2022
The two-tier ERP concept originated many years ago in response to difficulties that manufacturers experienced when deploying single ERP systems for their regional offices and subsidiaries. Instead of investing money and effort into retrofitting a legacy ERP to support the entire business, the model allows companies to leverage two distinct platforms: typically an on-premises tier 1 system for the main office and a cloud-based tier 2 for remote or functionally different divisions. Operational data flows from tier 2 to tier 1, making the latter a single source of truth for the entire corporation.
This approach offers many advantages relevant to the modern business landscape. For one thing, it allows organizations to keep their resource planning systems simple, structured, and uncluttered. The two-tier architecture is also more flexible than a monolithic one since updating or modernizing one small ERP platform is easier and less disruptive to corporate operations.
The model can also drive down ERP ownership costs, which is a struggle for 56% of CXOs. A company can implement smaller, less feature-rich tier 2 systems that adequately support subsidiaries’ operations instead of paying through the nose for an advanced ERP platform deployed across all divisions.
Use cases for two-tier ERPs
While the two-tier ERP model is no longer the reserve of large manufacturing enterprises, it isn’t universally applicable either. Here are the types of companies that would benefit from this architecture the most.
Several business models
First and foremost, a two-tier ERP can make a difference for companies engaged in several distinct business activities. This can be, for example, an enterprise that produces agricultural equipment and has recently merged with a subsidiary providing agricultural consulting and modernization services. In this case, the parent and subsidiary companies need ERPs of a different scope as well as diverse features to support their operations, and a two-tiered system can prove a perfect way out.
Multinational operations
Another reason for a company to consider the two-tier ERP model is working across the globe. In this scenario, geographically distributed units may be engaged in different business activities and have different workflows and have to comply with national tax regulations and other laws. Setting up separate niche tier 2 ERPs for each division and configuring them in line with local requirements will help avoid the confusion due to regional disparities while keeping multinational operations accounted for.
Aimed for active growth
Finally, the two-tier model is a good fit for mid-size or large companies that aim for explosive growth and expansion of the operational scope. In this case, the implementation of a two-tier ERP would lay the groundwork for these plans, let the company be more nimble, and accommodate its fast-paced advancement.
How to choose ERP software for a two-tier architecture
When choosing a two-tier ERP model, companies tend to preserve their legacy ERP for the head office and implement new solutions for subsidiaries and units. Unless the existing platform functions poorly, this is a sound approach since the task of migrating swaths of historical operational data and setting up a new platform threatens to prove overly taxing and disruptive.
Nevertheless, stakeholders need to choose one or several tier 2 platforms to kick off the two-tier transformation, and to make a wise choice. They should consider the following aspects.
Integration
The major requirement for a complementary ERP’s functionality is seamlessly integrating it with the core tier 1 platform for uniform data availability and real-time document exchange between the head office and the business units.
Integration through API is the easiest route, but there is a small chance one ERP can be the interface for the other. This is why companies would probably need to rely on connectors, either ready-made or built on purpose. Most leading ERP vendors, like Acumatica or Pega, have connector documentation freely available to help IT teams create seamless integrations, while some, like Odoo, offer a dedicated framework that facilitates bi-directional communication with any kind of software.
Relevant features
Companies can also opt for more narrow-focus platforms when choosing ERP systems for subsidiaries. The two-tier model allows organizations to concentrate sophisticated operations like risk management or productivity analysis in the more advanced head office ERP and adopt more basic tier 2 platforms adequate for meeting business units’ day-to-day needs. This way, you can curb ERP ownership costs without giving up useful advanced features entirely.
When you are reluctant to rely on unknown industry-specific solutions, then modular ERPs are your best choice. Odoo is a prime example of such solutions, as it has over thirty workflow-specific modules that are charged for separately and can be implemented by Odoo consultants without laborious hand-coding.
Standardization
At the same time, subsidiary ERP platforms should support the same approaches to information formatting, processing, and reporting accepted company-wide. This would greatly simplify high-volume data exchange and save you time and effort for its further handling. For this reason, think twice before adopting hyper-niche or regional ERP platforms, as they may turn out impossible to align with your legacy software.
Scalability
Finally, take into account the platform’s ability to sustain growth or a change in the business trajectory. Even if you do not have any immediate grand plans for the business unit, they are likely to appear in the long term. So when the time comes, new plug-and-play features like the ones offered by Odoo or low-code customization capabilities like the ones found in Pega, will not go amiss.
Summing up
With its flexibility, load-balancing, and cost-saving opportunities, the two-tier ERP model has earned recognition in the business world for the right reasons. What’s even more important, it is no longer a corporation-exclusive technology and is being successfully implemented by organizations of varying scopes across verticals. Thus, as long as the two-tier model proves relevant to your case and you manage to pick suitable ERP solutions, you have a high chance of making it work for you.