What is Two-tier ERP?
Two-tier enterprise resource planning (ERP) is an increasingly common term used to describe how a multi-entity company maintains a legacy ERP system to manage the business operations and financials of the corporation at its headquarters (1st tier) but uses different ERP system(s) (2nd tier) at satellite divisions, subsidiaries, geographies or factories. The 2nd tier systems may be used to run all (or most) of the satellite and roll up consolidated financial and operational data to the corporate ERP backbone. In this scenario, the corporate ERP system is the system of record for the consolidated master data. While the top-tier ERP systems are typically installed at the corporate IT facility (known as on-premises), cloud-based software as a service (SaaS) solutions are being considered for the 2nd tier ERP.
Two-tier to Address Specific Factory Needs
Legacy ERP solutions may be the right tool for coordinating large corporation activities or consolidating corporate-level information (HR, finance, etc.), but may not be agile or effective enough at addressing rapidly changing operations-level needs or meeting plant-level requirements. For example, legacy ERP systems often do a good job consolidating financials, but do a poor job (and often lack any capability at) managing any plant-floor production activities, such as tracking inventory realtime, supporting in-line quality, or taking into account machine-level measurement and information.
Two-tier ERP Scenarios
A more manufacturing-focused ERP solution that includes both the top-floor HR and finance capabilities needed to manage a plant but that additionally adds production-level management via manufacturing execution system - or MES - functionality may better suit factory-level management. In other words, corporate ERP solutions (many of which are general purpose, not manufacturing-centric) weren’t typically made to manage the depth required at the factory level, while manufacturing-focused ERPs can be the perfect compliment to their corporate brethren.
There are any number of scenarios where two-tier ERP is the right fit, such as when the legacy top-tier system is operating fine but satellites need attention. The corporation may already have significant investment in ERP and would prefer to continue to optimize it with minimal disruption to the core business. However, at the satellite organizations, the maintenance contracts may be expiring or the versions are so outdated that they must be upgraded to stay operational. Another common scenario is a heavily customized system that requires too much manual maintenance and may have outgrown its useful life. Addressing the cost and effort to upgrade an individual plant to solve its unique needs may make the most sense versus installing an instance of the big top-tier system.
A common scenario is when corporate headquarters are located in one country, while a second country has eight plants. Headquarters, which may not directly manage any plants at all, has the need to consolidate, analyze, and report on enterprise wide data, which the corporate ERP does well. The corporate ERP system, however, has limited or no capability to gather machine data, measure and manage real-time production data, or incorporate sensor-level data via industrial IoT (IIoT), a growing manufacturing capability. That corporate ERP was not made for the factory, and adapting it involves a lot of customization to add bolt-ons to accommodate plant-floor needs, and will still likely be a poorly connected system. Not to mention it was designed for top-floor ERP needs, not for plant-floor personnel, who often find these systems not user-friendly for their jobs at the plant level.
As mentioned earlier, the individual demands at multiple locations may be driving different requirements at the satellite organizations. For example, when acquiring a new subsidiary, it may be easier to satisfy regulatory requirements in its local country. A common scenario is that the acquired satellite has grown through acquisition itself and is already dealing with multiple ERP systems.
Rather than deal with the upgrades, integrations and business disruption of consolidating its own systems – or integrating into the parent’s – it may be a lower risk proposition to move to a cloud-based ERP solution that delivers a higher ROI and quicker time to value. This helps companies with standardization across the enterprise and enables more strategic decision making across production facilities.
Similarly, when spinning up a new satellite operation to meet a growing business need, implementing a cloud ERP system can reduce the financial risk to the new entity and perhaps even make them more attractive as a spin-off or for sale. “Next-shoring”, a new trend that actually plans for a finite life for a plant (depending on continued market conditions), benefits from this lower risk scenario and can be shut down if required without having to write down the capital expenses of computer hardware and software licenses (that may not be portable). Rather than implementing an unwieldy instance of the parent’s legacy ERP system, they can gain business advantage with a tool better suited for their specific needs and budget sensitivities.
There are many examples where “one size does not fit all” such as the specific needs required for compliance in different industries or geographies. Each country, industry and business-type combination may create a scenario that no one system could possibly satisfy and requires a custom configuration.
As has already been noted, the top-tier systems are too rigid and do not have the flexibility required for agile companies. Cloud ERP solutions, on the other hand, can be highly flexible and configurable in terms of capabilities, industry support and especially implementation. With a smart SaaS integration strategy, each satellite can have its own configuration “in the cloud” up and running in months and can roll up the necessary data to corporate without a hitch.
Finally, although few companies are looking to replace their large, expensive and potentially customized corporate ERP implementations, the rapid innovation being delivered by 2nd tier ERP solutions is influencing companies to consider piloting them at a divisional level, then replicating to other divisions. With the flexibility of cloud ERP with integral MES capabilities, this can help to bring up the efficiency and productivity of the whole company without upsetting the corporate ERP “applecart”.
“While today’s two-tier strategies mostly involve on-premises solutions, cloud-based solutions will gain favor over the next 18 to 24 months because of their rapid deployment capabilities, constant innovation qualities and subscription pricing. Whether SaaS, on-premises or hybrid, a two-tier ERP strategy will reduce costs, meet new business requirements and provide better business value.”
—Ray Wang, Constellation Research, “The Case for Two-Tier ERP Deployments”
Increase Plant-level and Corporate Operational Efficiencies
Second-tier solutions can be a significant advantage, increasing operational efficiency at the satellite location while providing improved visibility to corporate. Cloud ERP solutions, specifically, are typically more flexible to the needs of smaller organizations or satellite locations and can be deployed much quicker with little or no disruption to the operating business. Significantly lower capital outlays and reduced IT burden make cloud an ideal choice for the 2nd tier ERP.
These benefits do not end at the second tier; the advantages at the corporate parent can be significant as well. Rather than investing in upgrades or customizations to their corporate system that are often required to support the specific needs of the satellites, they can focus their IT budget and resources at optimizing the “right tool for the right job” at corporate, supporting the satellites’ desire to do the same thing with tools better suited to their specific needs.
Agility with Reduced Investment Risk
Manufacturers need greater agility with lower risk to expand their business. Expectations from business leaders often include acquisitions (or divestitures) that take on new geographies and/or different lines of business. For example, developing countries create tremendous opportunities for low-cost resources and labor; however, this expansion can stress the typical IT infrastructure and small IT teams at satellite organizations. Upgrading the ERP systems - typically smaller, purpose-built or even homegrown systems – of the acquired company is just too expensive and disruptive to the incoming organization. One way to reduce the investment risk during such acquisitions is to implement a 2nd tier solution that is a more appropriate fit for the operational requirements of the satellite.
In addition, implementing large, legacy ERP systems at the divisional level is often cost prohibitive when compared to smaller, more nimble 2nd tier solutions, especially cloud-based solutions. In the case of on-premises implementations, license costs and ongoing annual maintenance (typically > 20 percent of the license fees), high-end servers and the skilled IT staff to manage it all creates a wall that many divisional leaders do not want to climb. Finally, expensive and lengthy implementation cycles that may take 6-12 months do not fit the needs of organizations that are facing challenging market conditions and higher expectations from their customers.
Plex Delivers Corporate and Two-Tier ERP
The Plex Smart Manufacturing Platform is a cloud-only ERP and MES solution designed specifically for manufacturers with customers and facilities all over the world. Plex has demonstrated success at delivering end-to-end ERP needs at the manufacturing plant level, and many Plex customers have replicated their success to multiple plants.
Cloud-based and SaaS solutions provide the best ROI for two-tier deployments, and modern web services make implementation much quicker and easier. In the Edge example above, the New York office, along with its Michigan and California facilities run Plex wall-to-wall. The subsidiary offices will consolidate under the New York entity. Then this division, along with its peer Mexico plant – as well as the Canada and China plants - will consolidate up into the Global Head Office. Once configured for the US operation, Plex can easily be replicated for the Mexico plant with a Spanish language overlay. The roll-up of financial data such as the general ledger and sales forecasts can be easily reconciled into the desired currency of the head office and be uploaded.
Plex is especially well suited to the above scenarios where the satellites are manufacturing facilities. Originally designed to suit the needs of discrete and process manufacturers, Plex has grown in functionality with features tailored to the needs of a specific facility through codeless configuration – not customization. Plex is focused specifically on the unique requirements of manufacturing operations and pioneered pureplay MES and fully integrated MES and ERP in the cloud. Through this SaaS model, it delivers value quickly with lower implementation and IT support costs.
Moreover, Plex grows using a “continuous innovation” model where enhancements and upgrades are delivered continuously and does not suffer the obsolescence, or need for upgrade implementations typical of on-premise solutions. In this way, Plex is uniquely able to stay up to date with the changing needs of manufacturing businesses. This approach allows Plex to satisfy the unique requirements of manufacturing operations, such as:
- Real-time production ecosystem
Plex MES delivers a real-time interoperable production system that guides, initiates and reports shop floor activities as they occur for optimized and responsive plant operations and processes.
- End-to-end traceability
For every action in production, there is a transaction in Plex so every piece of inventory is tracked for precise genealogy and traceability such as to isolate and contain potential quality issues.
- Closed-loop quality
Compliance with regulatory and quality standards is delivered through an integral quality control and checkpoint system in Plex MES, minimizing waste and ensuring standards compliance, documentation and traceability needs.
Plex customers are often large multinational corporations and require systems targeted to streamline and grow their operations. As such, Plex is deployed at manufacturing facilities to control operations for the whole subsidiary entity while communicating up to the parent enterprise, as a classic two-tier implementation. Plex has many customers operating in a two-tier mode.
Why Plex Now?
Built from the ground up for the cloud by manufacturing experts, Plex delivers the broad and deep ERP functionality that puts you ahead of the competition. The Plex Smart Manufacturing Platform is 100 percent focused on discrete and process manufacturing with industry-leading plant floor to top floor functionality. ERP and MES from Plex deliver unprecedented customer success through a relentless pursuit of continuous innovation for the manufacturing industry. The reason to choose Plex can be summed up by:
- Built for manufacturers.
With growth, manufacturers are faced with challenges to keep up with growing capacity. Because it was designed specifically for manufacturers, Plex more directly addresses the problems that modern manufacturers face. Plex allows you to drive operational efficiency by improving inventory accuracy, product quality and real-time reporting/analytics.
- Visibility of Operations.
As a complete, end-to-end solution for manufacturing businesses, Plex delivers a single, centrally managed source of manufacturing and business data. Connected from the top floor (business) all the way to work centers on the plant floor and all the way to the shop floor equipment itself, Plex ensures that data is collected at the “manufacturing moment.” This visibility makes traceability to specific data quick and easy and makes it simple to report and share across the enterprise.
- Cloud Adoption.
The rapid increase in cloud adoption – especially in controlled ways such as functional or division level – makes deploying Plex at a plant level ideal. The lower IT overhead costs make spinning up a new plant easier and more cost effective with lower risk. Moreover, replicating a successful deployment to additional plants can be accomplished in weeks versus months.