ERP is not a “nice to have” tool for a small to medium-sized business anymore; it’s justifiably necessary to support everything from competitive viability to compliance and effective business process management. ERP is critical because it can save you money and help quicken business growth. Still, it can also help increase lead generation and maintain your operation running smoothly, making your customers happy.
All ERP solutions are not created alike. Some might be too big and others too small. ERP systems are commonly categorized into tier 1, tier 2, and tier 3. Each of these three tiers has tremendous value depending on your growth stage and future business goals. The ERP tiers are divided into the size of the client, client financials, their complexity and scalability, and the amount of global support they can deliver. ERP infrastructure can vary from tier to tier and system to system. Selecting the right one will affect how fast and effectively your business evolves.
Awareness of how each of the three ERP tiers will help you start to qualify your business into one of the tiers and narrow down the types of solutions you should focus on assessing in the beginning.
ERP Tier 1 Solutions
Tier 1 ERP systems are intended for global enterprise corporations. They are designed to handle large, multinational corporations with many complexities, allowing numerous people to deal with the same tasks. As a result, these systems are intricate, feature-rich, challenging to implement, and expensive (typically costing millions of dollars).
There are just a few tier 1 ERP system manufacturers, including Microsoft, Oracle, and SAP, as the leading members of this group. Unfortunately, these systems are very tricky to configure, take ages to implement and contain an abundance of features that are initially very expensive and have a high total cost of ownership.
(TCO).
Pros:
- Used by large corporations (revenue in billions of dollars)
- Feature-rich – can manage unique and complex requirements
- Flexible and easily customizable
- Can scale with the organization
- Supports a range of functional capabilities, including CRM, HCM, distribution, retail, manufacturing, etc.
- Can support thousands of users
Cons:
- Complex
- Requires long implementation time
- It can be challenging to learn and master
- Higher price tag
ERP Tier 2 Solutions
Tier two focuses on getting the most out of an ERP system. 20–40% of companies use this tier in the small to medium business sector. Typically, businesses in this tier have $25 million and $500 million in revenue. Companies that utilize tier two ERPs have medium to complex needs and fewer users than tier one.
Tier two ERP systems can scale to deliver anything from financials, purchasing, and inventory, to complete ERP functionality for manufacturing and supply chain management. Still, they typically do not cover multi-plant scheduling and manufacturing. Therefore, if you are a business owner using a tier two ERP, you’ll need an experienced bookkeeper with accountant access to guarantee everything is on track.
The cost of tier two implementations can run from $25,000 to $400,000 and generally take three to eight months to implement. Executing changes to the ERP is normally less costly, both budget and timewise. They are also more flexible than tier one systems but remain more complex than tier-three solutions.
Tier two systems are manufactured by Microsoft, Acumatica, Infor, and NetSuite, to name a few.
Pros:
- Can manage medium to complex requirements
Numerous systems are capable of full ERP functionality
A fair implementation time of three to eight months
Good track record of successful implementations
More manageable and more cost-effective to customize than tier one systems
Cons:
- Needs an experienced bookkeeper, accountant, or controller
Are more complicated than tier three systems
ERP Tier 3 Solutions
Tier three is the most economical, interchangeable, and prone to significant audit and fraud risks. Because some of these ERP systems can be too adaptable and permit ledger posts to be changed, these systems are the most uncomplicated version of ERP. They only need a junior bookkeeper or you, the business owner, to run it. These systems are primarily for financials and keeping track of expenses and orders.
A tier three system costs between $250 and $5,000 and represents 60–60% of a given market sector. QuickBooks is a tier 3 ERP. They have different shortcuts and automation that you will not find in tiers one and two.
If you’re looking into a tier-three system, you should know that you will not find a fully functional ERP and may need multiple inventories or rental management systems.
Pros:
- Two to six-week implementation
- Somewhat budget-friendly
- Limited technical expertise required
- Low risk and modest payback
- Easier to learn than tier one and two
Cons:
- Major audit and fraud risks
- Different systems required for business needs
Which ERP Tier Is Best for Your Business?
There are several things to take into consideration when selecting an ERP system. First, it is a big step to growing your business, and you must make sure you’ve made the right choice. It all starts with deep diving into your business, outlining what your company and users need, clarifying expectations, and defining business goals and functional requirements.
Finding the right ERP partner who can help you see things you don’t will be valuable as you navigate scaling your business with ERP. Our world-class ERP evaluation methodology has been refined over the years. With our industry, system, and market experience, we independently guide organizations through ERP evaluation, from scoping and planning through requirements definition, vendor shortlisting, and evaluation to contract negotiations. Contact us today to learn more.
