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
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. 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.

The Rest of the World

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.

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

cognizant 20-20 insights | march 2014

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:

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.

Low cost and agility.

Solution
Enabling of quick integration and rollout for existing subsidiaries. Rapid deployment for start-up subsidiaries. and simple processes, easy to use 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).

Standard

and learn. Progressive adaptability to business needs.

Roadmap, Activities and Deliverables for Two-Tier ERP Adoption

Two-Tier ERP Strategy Kickoff Reconfirmation on scope and objectives. Workshop and interview planning. Introduction to our approach and project planning. Executive sponsor support. Project organization. Process and ERP Systems Assessment Define high-level requirements. Confirm two-tier process model. Assess the current application & integration architecture. Develop vendor long list. Analysis & Two-Tier ERP Scenarios 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). 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 Strategy Definition 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. Two-tier ERP model incl. application and integration architecture. Vendor selection criteria. High-level business case. Deployment methodology & support model. RFP content documentation.

Activities

Detailed project plan.

Deliverables

High-level requirements documentation. High-level two-tier process model. Current application and integration architecture. Vendor long list.

ILLUSTRATIVE

Figure 1

cognizant 20-20 insights

At the beginning of the process, we will assess a companys 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

B2 High-Level Two-Tier Process Model C1 Two-Tier Options C3 - ERP Scenarios C5 High-Level Benefits D1 HL Target Model incl App & Int Arch

B3 Current Application and Integration Arch

C2 Evaluation Matrix

C4 Target Model

D3 Business Case

B4 Vendor Long List

C6 Vendor Short List

D4 Deployment & Support Model

B1 High-Level Requirements

D2 Vendor Evaluation Criteria

D5 RFP Content

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 Low complexity sites deployments per year Medium complexity sites deployments per year High complexity sites deployments per year 50 3 0 0 In this scenario, TCO per site per year averages to 50K per year Higher number of deployments lower the TCO per site per year A Initial setup costs User independent license costs User dependent license costs Low complexity site deployment costs Medium complexity deployment costs High complexity deployment costs B 50.000 0 240.000 570.000 0 0

One-off Recurring Recurring One-off One-off One-off

50.000 530.172 410.400 525.000 0 0

cognizant 20-20 insights

A Infra maintenance costs IS internal support costs Vendor support costs Upgrade costs 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% Deployment Roadmap (D4) Start with Low Complexity Business Scenarios Low Complexity Business Scenarios: Sales Office Maintenance Contract Engineering Contract Timeline indication: 6-8 weeks 2nd New Site Low Complexity 1st Low Complexity Site Sales, Financials, Inventory, Procurement and Maximo, Global Fore Integration Time Figure 3 Deployment timeline indication 1-3 weeks Nth New Site Low Complexity 3rd New Site Low Complexity

B 50.000 1.040.000 40.800 100.000 2.090.800 46.462

Recurring Recurring Recurring One-off

0 1.040.000 258.657 0 2.814.229 62.538

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:

Deployed User Base

How long would it take to set up a subsidiary

with a two-tier ERP solution?

What does the business case look like?

Would a two-tier ERP strategy solve the ERP

issues in small subsidiaries?

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

kind of business scenarios can be supported by a two-tier ERP solution?

How would a solution integrate the manage What

ment of existing subsidiaries, from a process and technology perspective? would a feasible technical solution encompass?

cognizant 20-20 insights

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 Peter.Tresselt@cognizant.com. 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 Benjamin.Hippler@cognizant.com.

About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the worlds 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.

World Headquarters
500 Frank W. Burr Blvd. Teaneck, NJ 07666 USA Phone: +1 201 801 0233 Fax: +1 201 801 0243 Toll Free: +1 888 937 3277 Email: inquiry@cognizant.com

European Headquarters
1 Kingdom Street Paddington Central London W2 6BD Phone: +44 (0) 207 297 7600 Fax: +44 (0) 207 121 0102 Email: infouk@cognizant.com

India Operations Headquarters

#5/535, Old Mahabalipuram Road Okkiyam Pettai, Thoraipakkam Chennai, 600 096 India Phone: +91 (0) 44 4209 6000 Fax: +91 (0) 44 4209 6060 Email: inquiryindia@cognizant.com

Copyright 2014, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.