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Two-Tier ERP Strategy: First Steps


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A two-tier approach to ERP comprises a large standard implementation such as SAP coupled with smaller, cloud-based, software-as-a-service (SaaS) ERP solutions. We outline a roadmap, describe the activities and offer sample deliverables to help your enterpise make this tricky but profitable transition.

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Two-Tier ERP Strategy: First Steps

  1. 1. Two-Tier ERP Strategy: First Steps Monolithic ERP solutions are often too complex, slow and expensive to manage in perpetuity; hybrid solutions that combine on-premises/ cloud-hosted capabilities can offer improved operational flexibility and functional consistency across distributed enterprises. The ‘Rest of the World’ When entering new markets, gaining market share and delivering products often has to hap- pen within a few weeks. Support through an ERP system in this phase is the basis for sustainable success. The same is true for existing smaller sales and service offices in remote geographies. Companies facing new-market issues often need a lightweight, fast and reliable ERP support for small subsidiaries. Setting up the defined standard solution is often too complex, slow and expensive. Too complex, because the standard solution is built for established organizations, not for start-up crews; too slow, because it often lacks features allowing additional SMEs to enter all parameters needed in this new market. From our experience, many established companies are using some form of ‘homegrown’ ERP tools, rang- ing from spreadsheets to entire applications, with questionable reliability of the figures calculated. The consequence is typically a loss of control – and loss of credibility in more severe cases. Two-Tier ERP Strategy Between rolling out the corporate ERP tem- plate to all locations and taking a ‘laissez-faire’ approach for remote sites, there is a third way of Executive Summary Most multinational manufacturing companies use monolithic ERP systems such as SAP as their standard ERP solution. For many sites, these systems typically cover most business processes and fulfill the requirements to a high degree. For dynamic sites – such as geographically distributed locations, smaller offices for sales and service and temporary offices or joint ven- tures – the defined standard solution is often too complex, slow and expensive. Multinational manufacturing companies are beginning to evaluate the possibility of using a two-tier ERP approach to enable significant reductions in cost and time-to-implement. These two-tier ERP systems are often more lightweight and hosted in a private or public cloud, with sufficient functionality to cover remote offices. We support our clients in evaluating whether a two-tier ERP strategy is beneficial and feasible and how a future ERP strategy would look, from process coverage and business case to architecture design and vendor selection or implementation support. cognizant 20-20 insights | march 2014 • Cognizant 20-20 Insights
  2. 2. cognizant 20-20 insights 2 providing your organization with everything it needs. Instead of providing small subsidiar- ies with the standard ERP, one could start with a lightweight ERP, probably located in the cloud as a software as a service (SaaS) solution. Such solutions are especially successful when they are used without major customizations for each country. Companies' key expectations towards a two-tier solution can include the following: • Low cost and agility. • Enabling of quick integration and rollout for existing subsidiaries. • Rapid deployment for ‘start-up’ subsidiaries. • Standard and simple processes, easy to use and learn. • Progressive adaptability to business needs. • Support for efficient finance consolidation. • Efficient reporting capabilities. • Web-based applicability with mobility. To leverage the full advantages of this technol- ogy, companies need a strategy to define when and how to use the two-tier ERP application. This strategy needs to reflect the companies’ approach to managing their subsidiaries and to integration from a process and technology perspective. Solution We can support the task of transitioning to two-tier ERP with a unique framework of con- sulting services starting with the assessment of business requirements, towards the description of ERP scenarios and business cases to the RFP content and the proof of concept. The framework includes a set of deliverables that support the necessary decision on a two-tier ERP strategy by providing all required documents (see Figure 1). Roadmap, Activities and Deliverables for Two-Tier ERP Adoption Figure 1 Two-Tier ERP Strategy Kickoff Process and ERP Systems Assessment Analysis & Two-Tier ERP Scenarios Two-Tier ERP Strategy Definition • Reconfirmation on scope and objectives. • Workshop and interview planning. • Introduction to our approach and project planning. • Executive sponsor support. • Project organization. • Define high-level requirements. • Confirm two-tier process model. • Assess the current application & integra- tion architecture. • Develop vendor long list. • Identify and analyze two-tier options. • Develop two-tier ERP scenarios. • Define evaluation criteria for scenarios and models. • Determine high-level target model. • Analyze benefits. • Vendor short-listing (top four). • Finalization of the two-tier ERP model incl. application and integration architec- ture (RFP content document). • Vendor selection criteria. • High-level business case. • Develop deployment methodology & support model. • Detailed project plan. • High-level require- ments documentation. • High-level two-tier process model. • Current application and integration architecture. • Vendor long list. • Two-tier options. • Evaluation matrix for two-tier ERP deployment. • Two-tier ERP scenarios. • High-level target model. • High-level benefits. • Vendor short list (top four). • Two-tier ERP model incl. application and integration architecture. • Vendor selection criteria. • High-level business case. • Deployment methodology & support model. • RFP content documentation. ActivitiesDeliverables ILLUSTRATIVE
  3. 3. cognizant 20-20 insights 3 At the beginning of the process, we will assess a company’s ERP requirements as well as its minimum high-level business requirements. Based on this two-pronged assessment, we will develop several two-tier ERP options, a target scenario and an evaluation matrix for further appraisal of all feasible options. Dependencies Between Deliverables for Two-Tier ERP Deployment Figure 2 C1 – Two-Tier OptionsB2 – High-Level Two-Tier Process Model B3 – Current Application and Integration Arch B4 – Vendor Long List B1 – High-Level Requirements D2 – Vendor Evaluation Criteria C2 –Evaluation Matrix C4 – Target Model C6 – Vendor Short List D3 – Business Case D4 – Deployment & Support Model D5 – RFP Content C5 – High-Level Benefits D1 – HL Target Model incl App & Int ArchC3 - ERP Scenarios A vendor long list will be set up in parallel, to serve as the basis for the vendor short list, the vendor evaluation criteria and the RFP content – together with the two-tier process model and the high-level business requirements. Based on the evaluation matrix, the target model will be developed, the high-level benefits identi- fied and the vendor short list created. Finally, the business case can be calculated and presented. A B Initial setup costs One-off €50.000 €50.000 User independent license costs Recurring €530.172 €0 User dependent license costs Recurring €410.400 €240.000 Low complexity site deployment costs One-off €525.000 €570.000 Medium complexity deployment costs One-off €0 €0 High complexity deployment costs One-off €0 €0 5 Year TCO for Low Complexity Deployments • In this scenario, TCO per site per year averages to € 50K per year • Higher number of deployments lower the TCO per site per year Overall Additional users per year 50 Low complexity sites deployments per year 3 Medium complexity sites deployments per year 0 High complexity sites deployments per year 0 Some Examples of Two-Tier ERP Deliverables
  4. 4. cognizant 20-20 insights 4 Solution Benefits With a typical project duration of six weeks and the work of two or three experienced consultants, we can answer the following questions: • Would a two-tier ERP strategy solve the ERP issues in small subsidiaries? • What kind of business scenarios can be supported by a two-tier ERP solution? • How would a solution integrate the manage- ment of existing subsidiaries, from a process and technology perspective? • What would a feasible technical solution encompass? • How long would it take to set up a subsidiary with a two-tier ERP solution? • What does the business case look like? Summary Every company is different, and we have seen vast differences in business cases for two-tier ERPs. A solid strategy and plan is the foundation for a successful project. We have successfully delivered two-tier ERP strategies for European manufac- turing clients, helping CIOs to better serve their companies’ global business models. Figure 3 A B Infra maintenance costs Recurring €0 €50.000 IS internal support costs Recurring €1.040.000 €1.040.000 Vendor support costs Recurring €258.657 €40.800 Upgrade costs One-off €0 €100.000 Total 5 Year TCO €2.814.229 €2.090.800 Average TCO per site, per year €62.538 €46.462 • In this scenario, savings can add up to 40% • If medium complexity sites are included, savings can be as high as 60% Deployment Roadmap (D4) — Start with Low Complexity Business Scenarios Timeline indication: 6-8 weeks Low Complexity Business Scenarios: • Sales Office • Maintenance Contract • Engineering Contract Deployment timeline indication 1-3 weeks DeployedUserBase Time 1st Low Complexity Site Sales, Financials, Inventory, Procurement and Maximo, Global Fore Integration 3rd New Site Low Complexity 2nd New Site Low Complexity Nth New Site Low Complexity
  5. 5. World Headquarters 500 Frank W. Burr Blvd. Teaneck, NJ 07666 USA Phone: +1 201 801 0233 Fax: +1 201 801 0243 Toll Free: +1 888 937 3277 Email: European Headquarters 1 Kingdom Street Paddington Central London W2 6BD Phone: +44 (0) 207 297 7600 Fax: +44 (0) 207 121 0102 Email: India Operations Headquarters #5/535, Old Mahabalipuram Road Okkiyam Pettai, Thoraipakkam Chennai, 600 096 India Phone: +91 (0) 44 4209 6000 Fax: +91 (0) 44 4209 6060 Email: ­­© Copyright 2014, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners. About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 171,400 employees as of December 31, 2013, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. About the Authors Peter Tresselt is a Senior Manager within Cognizant Business Consulting. He has more than 15 years of experience in business consulting for CXO clients in various industries. Peter has an M.C.Sc. from TU Berlin. He can be reached at Benjamin Hippler is a Consulting Manager within Cognizant Business Consulting. He has seven years of experience in consulting CIOs on IT strategy, operating models, sourcing and cost optimization. Before moving into consulting, Benjamin was leading IT operations in the Middle East for an international industrial conglomerate. He can be reached at