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A two-tier ERP model: the best of both worlds

  • Bart Verhoeven
    Bart Verhoeven

Choosing the ideal ERP platform is no easy feat for big companies. How can they meet the needs of every local subsidiary while maintaining a clear overview of the entire business? SAP provides the answer: two-tier ERP. 

Flexibility vs. complexity

Local business units or subsidiaries often work differently than their parent companies. They’re active in a broad range of countries and industries, each with their own business models and financial and accounting rules. When choosing an ERP platform, companies traditionally had two choices: either implement one central ERP system and customize it to meet local needs or opt for different local platforms. Yet, both options have disadvantages.

With the one-size-fits-all approach, i.e. a single-instance ERP, it is difficult to meet the requirements of all the local business units in an international firm. A single ERP is also less flexible, which might hamper innovation and growth. Total freedom, on the other hand, can lead to fragmentation and makes the IT infrastructure difficult to oversee. 

Combining on-premise and cloud ERP

SAP’s two-tier model combines S/4HANA on-premise – for the parent company – with S/4HANA Cloud for the local departments. Both systems have many things in common: they share the same user interface and technology and the code is largely similar, too. That makes things easy for users as well as for the IT team, as they only have to comprehend one system. Moreover, this common foundation for parent company and subsidiaries guarantees smooth integration, adoption and implementation.

In this way, a two-tier ERP approach ensures flexibility as well as stability: every business unit has the freedom to do things their way, and the simple implementation and integration enables the company to quickly provide ERP capabilities to newly acquired subsidiaries. 

The benefits of SAP’s two-tier ERP model

  • Standardized processes based on SAP best practices can be seamlessly integrated between the parent company and different local business units. They ensure overview and control while, at the same time, encouraging the optimal deployment of know-how and resources.
  • Processes come standard with S/4HANA on-premise. A central dashboard and built-in analytics capabilities provide an overview of all processes, at every level.
  • Local business units can fully experiment with new technologies and applications without having to roll out their development projects immediately throughout the entire organization. This boosts innovation and new projects can be launched at different speeds. A subsidiary can experiment with AI or blockchain, for example, and then introduce the solution to the parent company, thanks to intuitive integration tools.
  • S/4HANA Cloud is automatically updated each time SAP releases a new version. In this way, local business units can get familiar with new functionalities before these are introduced to the on-premise infrastructure. That means the overall system is immediately well-managed and renewed, thus reducing the time and cost. Even if the parent company does not yet use S/4HANA Cloud, this experience with the system at a local level can simplify its introduction to the parent company later.

One model, three scenarios

SAP’s two-tier-model is not only useful for parent companies and their subsidiaries. It also encourages innovation throughout the entire supply chain. In addition, the model offers possibilities to integrate departments with very specific processes in a simple way and, as such, get new subsidiaries up and running in a wink.

Explore the possibilities of the model in the whitepaper ‘Two-tier ERP with SAP S/4HANA Cloud and deployment possibilities'. 

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