• Cognizant 20-20 Insights
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.
Executive Summary
The ‘Rest of the World’
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.
When entering new markets, gaining market
share and delivering products often has to happen 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, ranging 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.
For dynamic sites – such as geographically
distributed locations, smaller offices for sales
and service and temporary offices or joint ventures – 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
Two-Tier ERP Strategy
Between rolling out the corporate ERP template to all locations and taking a ‘laissez-faire’
approach for remote sites, there is a third way of
providing your organization with everything
it needs. Instead of providing small subsidiaries 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.
Support for efficient finance consolidation.
•
Efficient reporting capabilities.
•
Web-based applicability with mobility.
To leverage the full advantages of this technology, 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
• Standard
and simple processes, easy to use
and learn.
•
•
Progressive adaptability to business needs.
We can support the task of transitioning to
two-tier ERP with a unique framework of consulting 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
Two-Tier ERP Strategy
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 & integration 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 architecture (RFP content
document).
• Vendor selection
criteria.
• High-level business
case.
• Develop deployment
methodology &
support model.
• Detailed project plan.
• High-level requirements 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.
Deliverables
Activities
Kickoff
ILLUSTRATIVE
Figure 1
cognizant 20-20 insights
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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
C1 – Two-Tier
Options
B2 – High-Level
Two-Tier
Process Model
C5 – High-Level
Benefits
D1 – HL Target
Model incl
App & Int Arch
C4 – Target
Model
D3 – Business
Case
C6 – Vendor
Short List
D4 – Deployment
&
Support Model
D2 – Vendor
Evaluation Criteria
D5 – RFP Content
C3 - ERP
Scenarios
B3 – Current
Application and
Integration Arch
C2 –Evaluation
Matrix
B4 – Vendor
Long List
B1 – High-Level
Requirements
Figure 2
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 identified and the vendor short list created. Finally, the
business case can be calculated and presented.
Some Examples of Two-Tier ERP Deliverables
5 Year TCO for Low Complexity Deployments
Overall
Additional users per year
50
Low complexity sites deployments per year
3
• In this scenario, TCO per site per year
averages to € 50K per year
Medium complexity sites deployments per year
0
High complexity sites deployments per year
0
• Higher number of deployments lower
the TCO per site per year
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
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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
€2.814.229
€2.090.800
€62.538
€46.462
Total 5 Year TCO
Average TCO per site, per year
• In this scenario, savings can add up to 40%
• If medium complexity sites are included, savings can be as high as 60%
Deployed User Base
Deployment Roadmap (D4) — Start with Low Complexity Business Scenarios
Low Complexity Business Scenarios:
• Sales Office
• Maintenance Contract
• Engineering Contract
Nth New Site
Low Complexity
3rd New Site
Low Complexity
Timeline indication: 6-8 weeks
2nd New Site
Low Complexity
1st Low Complexity Site
Sales, Financials, Inventory,
Procurement and Maximo,
Global Fore Integration
Deployment timeline
indication 1-3 weeks
Time
Figure 3
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?
• How long would it take to set up a subsidiary
with a two-tier ERP solution?
•
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 manufacturing clients, helping CIOs to better serve their
companies’ global business models.
•What
would a feasible technical solution
encompass?
cognizant 20-20 insights
What does the business case look like?
4
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 [email protected].
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 [email protected].
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 www.cognizant.com or follow us on Twitter: Cognizant.
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