You may have heard many times that companies must be agile enough to quickly adapt to changing market conditions and therefore move to the cloud, but what you have not heard is that we should look for this investment, which until now has been repeated every 10 or 15 years, to be repeated seeking economies of scale.
An SAP consultant who is looking out for the well-being of his client, who should also be the preferred one for your organization, would surely have to propose to them the strategy that many organizations are adopting to achieve this agility, dramatically reducing their investment in licenses or subscriptions: The “Two-tier ERP” strategy. In general, this approach allows companies to share their most complex core operations effectively, while offering flexibility and autonomy to their subsidiaries, divisions or regional business units with simpler operations and cheaper licensing costs.
What is Two-tier ERP strategy?
In terms of maturity, it is the improved response of the strategy for companies with regional deployment or growth, where previously an impossible challenge of standardization was promoted, at the cost of the loss of autonomy in subsidiaries, which many CEOs were unable to materialize in their businesses.
In terms of organizational management, it is a harmonization strategy that allows businesses with multiple subsidiaries or companies engaged in mergers and acquisitions to have a harmonized business under a corporate standard without sacrificing independence or autonomy in their affiliated companies or subsidiaries.
And in terms of technology, SAP Two-tier ERP is an implementation strategy in which a company uses two different ERP systems, one for the headquarters (Tier 1) and another for the subsidiaries or business units (Tier 2). This architecture allows the central company to maintain a robust and global ERP system to manage the most complex core corporate functions, such as finance, supply chain, business planning, shared developments, human resources, among others, while the subsidiaries operate with a more flexible and lightweight ERP, adapted to their specific needs.
Why choose a Two-tier ERP?
1. Flexibility for Subsidiaries:
Smaller subsidiaries or divisions often have operational needs that are distinct from those of headquarters. A leaner, more flexible ERP system enables these units to respond quickly to local market conditions and operate with greater autonomy.
2. Cost Reduction:
Implementing a tier 1 ERP system across all subsidiaries can be costly and complex. The two-tier approach allows companies to save costs by using a cheaper, easier-to-implement ERP in their smaller business units. This second ERP typically has much cheaper subscription costs, which will allow for significant savings if you have large regional or subsidiary deployments.
3. Agility in Implementation:
ERP systems in Tier 2 are generally faster and less complicated to implement, allowing subsidiaries to get up and running quickly without waiting for headquarters to finish implementing their main system.
4. Extreme Integration and Centralized Control:
Although the subsidiaries use a different system, both ERP levels are naturally integrated to ensure that headquarters has visibility and control over global operations. This allows for data consolidation and unified reporting.
Two-tier ERP Implementation Examples
1. Multinational companies:
A company with global operations can use SAP S/4HANA or SAP ECC 6 EHP8 as its Tier 1 ERP at headquarters, and SAP S/4HANA Cloud Public as its Tier 2 ERP at its subsidiaries. This allows headquarters to maintain robust, standardized control, while subsidiaries have the flexibility to adapt to their local markets.
2. Rapid Expansion:
Growing companies acquiring new companies may choose to integrate these new acquisitions using a Tier 2 ERP with S/4HANA Public Cloud to avoid disruption of operations while the full integration is planned and executed.
3. Regional Differentiation:
Companies operating in markets with different local regulations can use a Tier 2 ERP with S/4HANA Public Cloud specific to those regions, ensuring they comply with local regulations while maintaining consistency with global corporate policies.
