Companies considering which Software-as-a-Service (SaaS) enterprise resource planning (ERP) system to go with as a part of a two-tier infrastructure should take into account a range of factors, including how often the vendor delivers updates, according to Cindy Jutras, an independent analyst and owner of Mint Jutras consulting.
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In a typical two-tier deployment, a parent company keeps an existing ERP system, while subsidiaries or other business units deploy a second ERP system for their specific needs, whether on-premises or on-demand..
A growing number of well-known vendors -- and a long list of niche firms -- now offer SaaS ERP systems or are in the process of creating one. SAP recently announced a SaaS version of Business One, an ERP for small and medium-sized businesses (SMB). SAP already sells Business ByDesign, an on-demand ERP designed for the larger end of the SMB range.
Some SaaS ERP vendors, like the Auburn Hills, Mich.-based Plex, are particularly good at keeping the software current. Plex, Jutras said, uses rapid application development techniques to constantly update the code, which it can deliver quickly because the software is cloud-based.
“That’s a great way of doing it,” Jutras said.
Other vendors offer SaaS-based versions of their on-premise ERPs, which essentially share the same code, Jutras added. Given that on-premise ERPs typically get updated at a much slower pace than SaaS-based ERP, she said, businesses using the cloud version might not enjoy updates any more frequently than those using the on-premise version. However, they also will be encouraged (if not forced) to keep up with those updates.
“Make sure [changes are] opt in, because you may not be ready when the software is.”
While cost is often a driver of SaaS ERP adoption, Jutras said prices between the vendors are relatively consistent and are rarely a factor in companies’ decisions.
“I don’t think you’re going to see vast differences between SaaS Vendor A and SaaS Vendor B,” Jutras said, “because if there are vast differences like that, one of them is not going to survive, because they’ll always lose on price or costs.”
Is it a multi-tenant application?
It’s worth asking whether the application is multi-tenant or not, according to Jon Reed, an independent analyst and head of JonERP.com.
Multi-tenancy is a principle in cloud computing in which a vendor is able to realize economies of scale by running a single instance of the software on a single server, where it’s used by multiple clients, or tenants. That’s different than a multi-instance architecture where separate instances are set up for separate clients.
“If it’s not purely multi-tenant, it’s more expensive for the partner to maintain,” Reed said. “In theory, they can’t offer you as big a value as someone who does.”
Sometimes it depends on what corporate is running
Sometimes, the decision to go with a certain company is an easy one, where the parent company tells the subsidiary what to run because of what they have in place, according to Reed.
“A lot of the time it will come down from on high, which vendors they want you to look at for integration if you’re a subsidiary,” Reed said. “Some SAP customer might say, 'We want you to run ByDesign' -- so you might not have a choice.”
Pre-built integration scenarios
It is often easier to go with the same vendor used at the headquarter level due to pre-built integration scenarios the vendor has installed in their products.
That’s the case for the Landi Renzo US, the American subsidiary of the global company that engineers, installs, and services alternative fuel systems for automobiles so they can run on environmentally friendly fuels like natural gas.
The rest of the company and all the other subsidiaries are either running ECC or R/3 versions of SAP ERP, he said. That meant that there were efficiencies to be had by going with an SAP application.
“That’s why we purchased [SAP Business] ByDesign. The connectors are already there or are nearly completed in development,” said David Kang, CFO of Landi Renzo US. “If and when we do decide to either connect with them or rollover to ECC, for example, then it’ll be relatively easy -- or easier.”
However, because integration technologies in general are much better than they were in the past, fewer companies are driven to using the same vendor in a two-tier landscape because of those embedded integration scenarios, according to Jutras. Jutras added that companies using a major vendor like SAP at the top of a two- tier infrastructure will find that just about any smaller vendor has created integration scenarios that make hooking into those tier-1 vendors much easier. However, that’s less likely to be the case if a company is using something more niche at the corporate level, she said.
For use in manufacturing
The growth in two-tier architectures is especially prominent in manufacturing, where companies tend to have subsidiaries and plants in other countries.
Two-tier ERP systems in manufacturing are on the rise because of a number of factors, including cost savings, increased specialization at the subsidiary level and a growing market trend toward ERP consolidation, according to analysts.
“[Companies are] recognizing that the same ERP isn’t really going to work at the division level that it does at the administrative, corporate level,” according to Jutras. At the same time, many are looking to consolidate systems to save money and become more efficient, she added.