Using enterprise resource planning (ERP) software as the operational backbone of your organisation promises improved productivity, visibility and decision making. With a plethora of ERP solutions on the market, not only is it a challenge identifying which ERP vendor to purchase from, deciding on the correct tier can often be a minefield for organisations.
This post outlines the three different tiers of ERP software (Tier 1, Tier 2 and Tier 3), the key differences between them and their respective strengths and weaknesses.
How can ERP improve productivity?
First and foremost, a cloud-based ERP system means that all financial data sits within the cloud as a single source of truth. Finance teams can wave goodbye to formatting dozens of spreadsheets as all financial information is directly submitted into the system.
Where ERP distinguishes itself from pure accounting software is it can also hold other business process like people management, customer relationship management and more within the same piece of software. Having all these different functions within the same system combined with the system’s analytics capabilities greatly improves decision making. More benefits of ERP can be found here.
Thinking of ERP solutions in tiers is a helpful shorthand for understanding your business needs, but don’t neglect researching the precise vendor you are using. Many ERP sellers avoid labelling themselves with a particular tier to avoid pigeonholing themselves into a particular function; even if an ERP solution is within the tier you are considering, it may not fit your exact needs.
If you are interested in ERP, please contact us so we can assist your organisation.
Tier One Enterprise Resource Planning Systems
A Tier 1 ERP system is the technological pinnacle of ERP solutions. Typically used by the largest and most complex conglomerates, a tier 1 solution is aimed at organisations with at least 1000 employees and over half a billion dollars in revenue per annum.
A tier 1 ERP system would be customized for the organisation's precise needs and would cover everything from accounting to programme management. Examples of this software include Microsoft Dynamics, JD Edwards, Orion, and Texada.
Advantages
- Highly customisable and robust. It can be adjusted to fit your organisation's precise needs, reducing teething problems.
- Is supported by millions of dollars' worth of R&D, meaning you are using the latest technologies.
Disadvantages
- The most expensive form of ERP software, at minimum costs $1,000,000 to implement.
- Its implementation cycle is slow moving, can expect anywhere upwards of a year for an implementation.
- Tier one ERP has the highest risk of implementation failure because of its complexity and cost. Unlike other ERP solutions, all aspects of the ERP solution must be ready by go live. A step-by-step modular approach is infeasible.
Tier Two Enterprise Resource Planning Systems
For many organisations, especially medium sized and rapidly growing businesses, tier 2 solutions are in the goldilocks zone. They offer some of the features of a tier 1 solution but at a lower price and are quite often premade software solutions, reducing the need for in house IT specialists.
Where Tier 2 ERP solutions are attractive is they are often modular, allowing for an organisation to start off with a more basic solution and to add additional capabilities as needed. You can expect an implementation to cost anywhere upward of $10,000, depending on the functions needed within the ERP system, your organisation’s size and its complexity.
Examples of Tier 2 solutions include Oracle NetSuite, SAP business, SAGE and many others. This market segment has lots of choice on offer.
Advantages
- A full implementation, depending on organisation complexity, can take as little as two months.
- As the software is often premade, it is a low-risk implementation.
- Many tier 2 ERP solutions sit within the cloud, meaning IT support is managed by a third party. An organisation using a tier 2 solution wouldn’t need dedicated IT professionals to manage it.
- Tier 2 ERP software is quite often modular and easily configurable, making it suited for organisations which are rapidly growing or are expanding their capabilities.
Disadvantages
- Doesn’t offer the customization a Tier 1 solution has.
- For multinational manufacturing companies, a tier 2 system might be insufficient for the complexity of the organisation.
- In house accountants or finance teams are needed to fully harness the financial aspects of the system.
Tier Three Enterprise Resource Planning Systems
Tier 3 ERP solutions are often the cheapest and easiest to implement ERP solutions. Quite often they are the simplest to run, meaning a qualified accountant or finance professional isn’t needed so a junior bookkeeper or business owner could manage the entire system.
Tier 3 solutions can also be made for a niche market or subvertical, which can fit your operations nicely. They can cost anywhere upwards of a few hundred dollars, although specialised tier 3 solutions are considerably more. QuickBooks is an example of tier 3 ERP software.
Advantages
- Fast implementation time.
- Quite often the lowest cost ERP solution.
- Doesn’t require as much technical expertise as tier 1 or two.
- As a tier 3 system is often quite narrow, the risk of implementation is low.
- Could specifically cater for the challenges you face.
Disadvantages
- The functions of a targeted tier 3 system might fit a particular niche well, eg telecoms manufacturing, but often struggle outside of it.
- Quite often, these tier 3 systems do not have the security systems of a tier 1 or 2 solution.
- As Tier 3 solutions can be quite specialised, finding the right consultants to adapt a specific system can be difficult.
- They can often struggle with scale.
How to choose the right ERP tier
It can be daunting choosing the right tier, but by considering a few key points this ambiguity can be cleared.
Why do you need an ERP system?
Consider the goals of implementing an ERP system. If you just want an ERP system for bookkeeping and are not interested in wider applications, a tier 3 solutions like QuickBooks could be appropriate. However, if you want to automate workflow processes, integrate wider businesses management and streamline other processes a tier 2 solution makes more sense.
What’s your headcount?
If you have several thousand employees, a Tier 1 solution would be prudent instead of a tier 3 solution.
What is your budget and implementation timeline?
If you have a limited budget and require a solution that can be implemented quickly, a tier 2 solution might be more appropriate than a tier 1. Usually, the cheapest solution is a tier 3 solution, but the trade-off is limited functionality.
Scalability
A tier 2 system particularly suits organisations that are growing or expect growth. A cloud-based tier 2 system allows an organisation to add functions and capabilities to their ERP system when required, without having to adjust the core functions of their finance system. If you don’t expect rapid growht, scalability is a less salient issue.
Conclusion
Despite the different tiers, many ERP solutions can now blur the lines between them. A solution such as NetSuite can initially just offer bookkeeping but can also include broader resource and inventory management when needed. Getting the ERP system right is crucial to optimising business processes. If your system isn’t suited to your operations, the benefits of it just won’t materialise.
Talk to us today to discuss your business challenges and we can see if we can address your needs.