According to Gartner, companies need to move beyond simple two-tier hybrid ERP systems by adopting a postmodern ERP strategy. Postmodern ERP deconstructs the old suite-centric ERP into loosely connected applications that are increasingly cloud-based and integrated as needed, but driven solely by functional need and agility instead of the IT needs of a monolithic, legacy ERP suite. In a recent study by Gartner, cloud-based manufacturing and distribution software will increase from 22 percent in 2013 to 45 percent by 2023. Gartner predicts that most of this growth will be driven by the adoption of hybrid ERP systems.
How does such a system come about? Consider the needs of a Rootstock customer, a large international provider of industrial, medical and special gases. One of its divisions provides supply chain planning and logistics management services for chemicals and gases to large technology OEMs.
For its system, the division had a homegrown supplier community with SAP as the backend corporate ERP. They needed to upgrade. In addition to Rootstock, competitors included SAP, Oracle, JDA (i2 and Manu solutions) and the homegrown custom system re-write among others.
Rootstock was selected for this project. Today, two years later, this Supply Chain-as-a-Service (SCaaS) provider has 100+ users on Rootstock working with Planning, Inventory, Requisitions, Supply Chain and Customer, Supplier and Logistics Community Portals. Since the signing, they have expanded to add more suppliers to the community and more features in follow-on phases after Go-Live.
Also, today, the system leverages Salesforce’ social supply chain by incorporating Rootstock’s material planning process and technology with Salesforce1’s Partner Portal for global access to the client’s supply chain partners. Equally significant are customer plans to use this model and toolset for other similar supply chain opportunities, both internal to the division and Corporate as well as other external supply chain service business units. Thus, this is an example of how a best of breed solution triggered the use of a potential new corporate platform.
Simplifying the Migration to Postmodern ERP
Let's review how this situation is classic to how Gartner says a postmodern, 2-tier ERP comes about. Companies with these systems have invested heavily in these systems and have been reluctant to simply give up on years of investment. Many of these companies are intrigued by cloud-based ERP and have begun to move some of their functions to cloud ERP software, effectively creating two-tier hybrid ERP systems. These firms perceive hybrid systems as a way to modernize their systems without completely abandoning their on-premise ERP system. Such systems provide them with
- Business agility and flexibility - With specialist applications from the cloud, firms can leverage upgrades applied by the software vendor, let users make configuration changes and replace applications within a two- to five-year time frame.
- Reduced complexity of the core ERP - Implementing a hybrid set of solutions frees companies from having to customize a monolithic ERP suite to meet a differentiating business need or drive user adoption.
- Improved usability and user adoption - Users' needs for a Web-based app-like interface can be satisfied by providing specialist cloud applications.
- Business-appropriate integration - Integration of functions such as order management and materials planning can be tight where needed yet loose for other functions.
- Increased business outcomes - Postmodern ERP can deliver measurable improvements in business outcomes. ERP modules intended for integrated suites often lack the depth of domain-specific functionality delivered by specialist cloud applications. A postmodern ERP strategy can deliver greater business process improvements faster than the ERP suite alone.
- Better use of IT resources - Postmodern ERP allows IT resources to focus on enabling innovation and differentiation instead of spending most of their time maintaining a bloated legacy system.
This case exemplifies a successful two-tier ERP implementation because the division is complementing the parent company’s corporate SAP solution with Rootstock ERP for Supply Chain Planning. With the supply chain logistics functionality that Rootstock is providing, the customer has seen a reduction in inventory, reduced logistics and expediting costs, increased communications efficiency and reduced labor. The project was business critical: a failing legacy Supplier/Customer portal that no longer supported the division's continued growth and use as a SCaaS offering simply had to be replaced.
Today, in the same way they save money on their other apps, manufacturers do not need to go to the expense of adding infrastructure costs in computer systems or people to implement an ERP that helps them run their businesses in the way that old traditional, on premise systems operate. As with this customer, the catalyst for growth is hybrid, two-tier systems. While 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.
That's because 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. They typically prefer a cloud ERP best-of-breed approach because the Tier-2 plants are not necessarily in the same industries or businesses as the core business.
