Switch, cloud, or both?

Read time 4min 40sec

Some regional and global companies are ditching tier-one ERP systems and implementing cheaper tier-two solutions, even though the switch will usually be an intense exercise requiring reworked business processes and workflow.

In the past three years, Strategix has seen European companies with tier-one ERP systems replacing their South African subsidiaries' ERP systems with cheaper tier-two solutions, and getting similar results from a production point of view, says Jaco Stoltz, MD of Microsoft Dynamics products implementer, Strategix.

This approach is very attractive when the subsidiaries have lower productivity and turnover than the parent company, which may then spend its ERP savings on the subsidiary's business operations instead.

Recently, though, says Stoltz, there has been a major change: European companies have started switching their head office ERP from tier-one to tier-two as well, running one application worldwide.

“Tier-two solutions offer all the capabilities that an organisation would expect from a tier-one system,” says Kevin Pentecost, Africa territory manager from Epicor. “End-to-end ERP capabilities, embedded workflows and integration engines, as well as robust reporting and performance management capabilities are included.

“Tier-two solutions still offer a lower total cost of ownership, greater flexibility, and the ability to be implemented more rapidly than their tier-one counterparts. Then there is strong functionality and a rich, repeatable footprint based on established business processes.”

Plug, if not play

Plugging different ERP systems together using third-party pre-packaged connectivity is starting to take off strongly in tier-one systems like SAP and Oracle. SAP is also introducing connectivity between SAP and SAP Business One. But tier-two solutions focus more on building functionality into the ERP solution than connecting to other vendors' systems.

Such connectivity is limited, agrees Swati Desai, country manager of tier-two solution provider Hansaworld SA. “Most interaction between ERP systems focuses on one of two technologies: old-fashioned EDI, only used when insisted on by one or other party, and more modern XML-based file-sharing. None of the so-called standards in this area have really caught on.”

The business case for ERP on a cost basis is becoming simpler, says Len de Goede, head of systems integrations at T-Systems SA, since cloud computing with the hosting of consolidated infrastructure, on either a public or private cloud, is possible.

De Goede describes a T-Systems client with its head office in Japan and a regional office in Johannesburg opening a new subsidiary in Botswana last year. The cheapest option to roll out certain SAP functionality to the subsidiary was to operate Botswana on the South African office T-Systems hosted SAP instance.

“They didn't have to buy any new servers,” says De Goede. “We just increased the memory and did a new company-code roll-out.”

Hosted ERP in SA needs a careful telecommunications approach, though.

“The primary benefit of cloud computing is to reduce the requirement for an in-house IT department, as most IT support follows the server,” says Desai. “But off-site servers need to be accessed over the Internet, and many parts of SA offer slow or unreliable connections.

“The IT headache could increase if the back-end ERP is slow over the Web. So focus on software performance over such networks, what happens when the network goes down, and what kind of complexity is required to achieve multi-site and mobile use.”

Catching next tech

Tier-two solution providers are building ERP solutions for the cloud, greatly reducing start-up ERP infrastructure costs and increasing business model flexibility.

An ERP solution built on Web technology from the ground up is free of many technology restrictions imposed by older technology that has cloud ability added later, says Ronald Laxton, Computer Initiatives MD.

Tier-two solutions offer all the capabilities that an organisation would expect from a tier-one system.

Kevin Pentecost, Africa territory manager, Epicor

Migrating existing clients to a new-generation ERP solution, such as Acumatica, which is not based on client-server, has a number of benefits, says Laxton.

Acumatica requires no software other than a Web browser on the user device, but needs a sustained Internet connection. The solution works out-of-the-box on a wide variety of Web browsers and mobile devices. The database uses industry standards that enable easier reporting with a wider choice of third-party tools, than in solutions using proprietary databases.

No client-server means significantly reducing ERP deployment costs, says Laxton. No software is installed on computers and no local network, servers or virtualisation applications are required. A national business would not need Diginet lines or virtual private networks for provincial offices. Instead, a new provincial office could be opened with a notebook computer and a 3G card, accessing the ERP solution immediately.

Laxton plans to start migrating clients from Microsoft Dynamics GP to Acumatica in a year or two.

“The solution gives you a huge amount of flexibility in how you operate the company,” says Laxton. “Your business model can be completely different from a traditional corporate structure, in terms of the investment you need to make in infrastructure.”

The business case for implementing or extending ERP is changing in both tier-one and tier-two solutions, along with increasingly solution-agnostic and mobile access to business back-end information. In tier-two, recently developed, Web-native solutions add a significant new factor in selecting an ERP system for the medium term.

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