What’s the cloud’s role in Tier-2 ERP?

Since the late ‘90s, SAP and Oracle have dominated On-Premise ERP in the large, Tier-1 manufacturing enterprises, but primarily as the ERP system at the corporate level. They have not been that successful in being implemented in the next tier, the Tier-2 small and medium sized plants.

Therefore, most of what is written about Tier-2 ERP understandably discusses different types of solutions being considered for the large enterprises’ next tiers’ plants and divisions—and how they will integrate with these larger, Tier-1, corporate systems. As late as 2009, Gartner reported only On-Premise ERP software vendors in their Tier-2 ERP magic quadrant.

The adoption of Cloud ERP is gaining momentum and that quadrant will change significantly over the next five years. If one still believes in the “old school thinking” that one ERP software vendor will be installed in every plant, one is aligned with SAP’s view of this market:
SAP at the corporate facility with SAP Business by Design or SAP Business One in the Tier 2 plants.

If one believes that Cloud ERP software will dominate, they agree with NetSuite, a Cloud ERP vendor, which has trumpeted much about Tier-2 ERP. They have a different view:
SAP or Oracle at the corporate level with Cloud ERP in the Tier-2 plants.

Indeed, NetSuite is not shy to promote the virtues of such 2-Tiered ERP because they recognize that SAP’s view is no longer the commonly held view and they believe their ERP can support some of those Tier-2 distribution and very light assembly plants.

What is really happening
Of surprise to some, but not to the majority that really understand what is occurring in the ERP and manufacturing world, is that the customers do not want these next tiers to emulate that which they already have at the corporate level. Instead, they hope that the next-generation solutions on the Cloud are different. Indeed, Tier-2 and even Tier-3 Cloud ERP vendors are making inroads in large corporations because those vendors whose names appeared in the 2009 Gartner Magic Quadrant don’t have a multi-tenant Cloud ERP offering. Because of this, the market can expect an entirely new set of software packages to emerge over the next five years.

Packages will be created to fill the demand for customers wanting to implement ERP projects at divisional plants in smaller doses and for varying niches. These packages will adopt a Cloud ERP best-of-breed approach. Customers will prefer them in their overall best-of-breed ecosystems because of their lower costs and smaller risks associated with Cloud ERP implementations.

Why best-of-breed is so important  
In many of these corporations, the Tier-2 plants are not necessarily in the same industries or businesses as the core business. They may be distribution sites, engineer to order divisions, configure to order companies, build to order facilities, job shops, machine shops, re-manufacturing, disassembly and even process manufacturing plants. It’s not been decided—some would say doubtful—that an SAP Business by Design, a NetSuite or any other single ERP software solution, Cloud or On-Premise, could support such a variety of manufacturing and distribution companies.

What we have learned over the past 20 years, since Lee Wylie of Gartner coined the phrase ERP in the early 1990s, is that no one software ERP package can address all manufacturing and distribution operations. Therefore, customers must consider the selection of the top best-of-breed ecosystem that offers more than one type of ERP software package.

An alternative standard
Consider that large corporations will be contemplating Tier-2 Cloud ERP software versus Tier-2 On-Premise software in their small and medium sized plants as we embark on this new Cloud Computing Era. For those large corporations that want Cloud ERP solutions that are a better fit for their various types of plants and that want less dependency on a single vendor, here are two alternate ways to look at Tier-2 ERP:
SAP or Oracle at the corporate center with a Private Cloud ERP solution at the Tier 2 plants; or,
SAP or Oracle at the corporate center with one or more Public Cloud ERP solutions in the Tier-2 plants, especially on a Public Cloud platform that has one or more Cloud ERP solutions that can be installed in different types of manufacturing and distribution plants and still be integrated to the core at Corporate.

Which makes most sense?  As the best-of-breed approach begins demonstrating that it truly is the superior method, the latter option will be the choice for most. The Public Cloud solution at the plant level will become more and more popular for larger corporations. That’s because standardization for the Tier-2 plants won’t necessarily be on a single ERP solution but, rather, on a few ERP solutions, all part of a community of a Public Cloud. But, here’s the big question. Which Public Cloud will have the most serious business applications for these plants?

There are several things to consider. Integration between corporate centers and clouds will be a key consideration, and there are only so many cloud ecosystems that will enjoy corporate sponsorship. As Salesforce is becoming the de facto standard for CRM in the Cloud and Workday strives to become the de facto standard for HR in the Cloud, corporate centers will be integrating with these clouds. Projecting into the future, given that On-Premise SAP or Oracle combined with the Cloud Salesforce CRM and Workday HR are all to be considered corporate systems, how should one evaluate their Cloud ERP Tier-2 package(s) for their small and medium sized plants that will need to communicate to all of these corporate systems?

While there are other public cloud platforms that are emerging such as Amazon and Google, large corporate buyers have already made commitments to the Salesforce CRM and the Salesforce platform. Thus, a natural extension for most large companies will be to consider one or more Cloud ERP solutions on the Salesforce cloud, especially since they know there will be even more software solutions on this platform in the future that are integrated seamlessly to their Salesforce CRM and Salesforce Case Management systems.

How can we be so sure?
Public Cloud ERP solutions are gaining popularity and will continue to gain in credibility and cost-effectiveness as more solutions surface. Once organizations are convinced best-of-breed aspects of the Public Cloud provide superior user experiences versus the old single-sourced ERP system of the past, this will incite more companies to deploy a Public Cloud ERP solution.

Most people will agree that Salesforce is becoming a popular public cloud platform. Salesforce CRM is already in most of the large corporations. The company boasts of having 100,000+ customers. They are only now beginning more significant promotions of Force.com, their Public Cloud platform. As Salesforce becomes better known as the best Public Cloud platform vendor, in the same way they are now recognized for Salesforce CRM, they will increase the awareness of the benefits of the Public Cloud as a platform.

Having a plethora of software applications ideally suited for many businesses combined with their software vendors integrating one package to another will create an abundance of successful case histories.

Today, unlike a few years ago, there are Public Cloud ERP software applications that can support small and medium sized businesses. The number is growing. If all these different cloud vendors, on Salesforce, have the same look and feel, are within the same cloud community, and adhere to the same standards for integration, this will be a very important criterion for the selection of Cloud ERP solutions to support the variety of corporate Tier-2 plants. This is especially true if those Cloud ERP solutions are superior in functionality to their Private Cloud ERP competition.

Pat Garrehy is the founder, president and CEO for Rootstock Software and has an extensive background as a software architect and engineer. With more than 30 years of management, sales and technical experience, Garrehy brings a unique blend of analytical focus and business savvy to the table.