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April 20, 2015

The Benefits of Two–tier ERP

Two-tier ERP is when organization having 2 separate different ERP. One having Tier-1 ERP (Oracle/SAP) and its subsidiary using lower type ERP or Tier-2 such as Microsoft Dynamics.

Company that adopt two-tier ERP as a strategy would gain many benefits and among others are:

Reduce Cost

The cost to acquire Tier-1 ERP is between $13 million to $17 million according to an estimate publish by CIO magazine and with Tier-2 or lower, the cost would reasonably cheap and since adopting two-tier ERP, there is no need for Tier-1 ERP for subsidiary and subsequently can save cost.

Improve Innovation

Subsidiary with their Tier-2 ERP is more easy to configure and enable for improve innovation. They would find that their ERP is easy to customize as compared to their main company Tier-1 ERP system.

Greater Agility

As company expanding rapid, they would want a system that could follow suit. However with Tier-1 that cannot keep up with the the changing environment because it takes long time and cost so much to deploy. Tier-2 on the other hand is easy to configure and easier to control over fast changing environment

For that, Two-tier ERP is more strategic for fast changing company and large organization with multiple unique subsidiary

R “Ray” Wang, “Tuesday’s Tips: When to go with a Two-Tier ERP Strategy,” Enterprise Irregulars, March 2010



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Disadvantages of cloud–based ERP vs. on–premise

Summary of disadvantages of cloud-based vs on-premise ERP systems,

  • Subscription expenses (Periodic vs Capital expenditure)
  • Security risks
  • Performance risks
  • Customization and integration limitations
  • Strategic risks (high dependancy on service provider)
  • Compliance risks
  • Loss of IT competencies
  • Functionality limitations (Relatively new system)
  • Limitation on hybrid deployment strategy (retaining legacy systems and integration with on-premise solutions)
  • Service Level Agreement (SLA) issues

Reference: Duan, Jiaqi, et al. "Benefits and drawbacks of cloud-based versus traditional ERP systems." Advanced Resource Planning(2012).

Potential benefits about the utilization of ERP system

Nowadays, ERP system are being increasingly adopted by organizations of any kind and size, in order to avoid technical obsolesce and create sustainable competitive advantages. Some experts note that most multinational firms are using ERP software packages and even more small and midsize companies are on the route of adopting them.

ERP system acquisition and implementation generally enhance productivity and working quality, since the system offers standardization and simplification in multiple, complicated operational procedures across the company . Moreover, information can easily be transferred, shared and exchanged among users who are working at different business divisions. In general, the literature has identified the following potential benefits of ERP system implementation:

- improved coordination across functional departments;

- increased efficiency in doing business;

- reduced operating costs (lower inventory control cost, lower production costs, lower marketing costs, lower help desk support costs);

- facilitation of day-to-day management;

- rapid access to information for decision making and managerial control; and

- support of strategic planning (through the planning of available resources).

BY: Ziwei Wang 1452383

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