ERP is no longer the preserve of large companies and the large Tier 1 vendors. As Tier 2 solutions are beefed-up to Tier 1 standard, comprehensive ERP functionality is becoming much more viable for the SME market – without the hefty price tag.

There’s still a place for Tier 1 ERP (Enterprise Resource Planning) solutions, but the scene – and the market – is changing. And, it’s not just because the recession is exerting downward pressure on prices, although this is a factor.

The large international ERP brands have prestige and value as business solutions, says Mike Carroll, managing director of Strategis Solutions, which resells the Tier 2 OneOffice ERP solution in New Zealand and Australia.

“They’re highly configurable, have massive investment behind them and are used by thousands of companies around the world, but their complexity and size makes them difficult to implement and maintain.”

Another problem, he says, it that Tier 1 systems tend to be of the “one size fits all” variety. This is partly because, as they usually hail from the United States or Europe, individual country staff are divorced from system development.

“But the main difference is that Tier 2 solutions tend to be more specialised to specific industries, where they excel. Their staff are also usually very knowledgable about the industries they support,” says Carroll.

EMDA’s managing director, Keith Jessop, has a more nuanced view of the debate. His Christchurch-based company sells both Tier 1 and Tier 2 solutions, and Tier 3 as well.

The company specialises in the manufacturing and distribution intensive industries. Jessop says the difference between the three tiers is to do with complexity. “There are varying degrees of complexity in manufacturing and the ‘tier’ is related to the level of complexity, not merely the size of the company.”

“Tier 2 solutions can do the job of Tier 1. It’s just a matter of scale... [and] this is related to complexity. Tier 1 would tend to deal with multiple production or distribution units around the world. However, we have clients who would be considered Tier 2 that fit that description – they’re just smaller.”

Jessop adds that the price difference between Tier 1 and 2 is closing, and has more to do with the number of modules needed. If you have a complex business with a lot of different operations and requirements, and need a range of modules, the price goes up as you add extra modules, says Jessop. “The base price is now similar. Tier 1s can’t command such high prices now.”

EMDA supplies three main solutions: SyteLine, a Tier 2 solution; and Baan and BPCS, which are both Tier 1 systems.

Jessop also sees the big picture changing, and this impacting on the convergence of Tier 1 and Tier 2 solutions.

The big picture
“One of the big changes in business is globalisation - smaller businesses now have great opportunities and can trade all over the world, and set up distribution points in Europe, the US, the UK. Traditionally, only Tier 1 companies could do this. So, the solutions they use have to have the functionality to service that kind of network,” says Jessop.

Tier 2 also now features more complex financial capabilities, such as multiple currency and advanced budgeting, adds Jessop.

Local Tier 2 specialist Velocity Global echoes this observation. Chief executive Chris Morris says his company’s ERP product, Pronto, has always had this capability. As it is an Australian product, it has had to be multi-currency and multicountry from the first, he says.

“I believe that they (Tier 1 and Tier 2) are definitely converging in terms of functionality. Even if you’re a Tier 1 player, like SAP, there’s not an awful lot more you can do except buy [new modules like] Business Objects.”

Morris describes Tier 2 solutions as offering “reasonable functionality for a reasonable price”. But, unlike EMDA’s Jessop, his company’s experience has been in providing a more general Tier 2 solution.

Our market is so small that we have to be more general than, say, the US, he says. We can’t specialise to the extent that companies there can. Morris says he was surprised to learn, for example, of US vendors specialising in ERP systems for bakers. Because US niches are so big, they can do this, he says.

He believes Tier 2 solutions are ideally suited to many New Zealand operations because of the size of the business and the economy.

Velocity caters to a number of industry sectors, including wholesale/distribution, manufacturing, construction, gold mining and service management. But, interestingly, it doesn’t cover a lot of other areas, such as local government, insurance, banking or health, so there is still an element of specialisation in where the company chooses to concentrate its sales efforts.

Morris says there are advantages to Pronto being a local (Melbourne) product. It makes it easier to keep up-to-date with new developments and we can influence that development, he says. “The product is also scaled right for the size of NZ and Australia, and we have a good cultural fit with Australia.”

Last but not least, Morris says he’s getting approaches from companies running Tier 1 solutions looking to switch Tier 2 to reduce their costs, because they are concerned about the high ongoing support costs of Tier 1.

The Australian experience
Australia has a slightly different experience with Tier 1 and Tier 2. But, what both countries have in common, despite the Australian economy currently holding up better than New Zealand’s, is a more acute focus on the bottom line.

Melbourne-based Star Business Solutions, which sells the Greentree Tier 2 solution, is finding Australians are pretty hot on this.

Star chief executive Trish Hall says, “In this recessionary environment, people are very, very cost-conscious.

They’re asking for discounts, and Tier 1 vendors are being forced to be more amiable. On software, prices are becoming more competitive, but on the consulting side, Tier 1 costs are premium-rate. Because you’re dealing with SAP etc, where salaries are higher, this affects their charge-out rates and your cost of ownership.”

She echoes the New Zealanders in saying that Tier 2 solutions have a lot of functionality these days. “Tier 2 has a big range of modules now, for example, workflow, and some more unusual ones like HR and health & safety… [these] are becoming more common in Tier 2. Also, multicurrency and cross-border company consolidation are increasingly becoming requirements.” The latter used to only be available in Tier 1 solutions, says Hall.

She says Tier 2 applications are also more flexible than Tier 1, because they’ve had to work with a variety of businesses to get market share. As a result, they’re now actually more configurable, so businesses don’t have to change their processes because of the software, which they often do with Tier 1 solutions.

She adds that Tier 2 solutions are also less costly in terms of time and money to implement. “With business being what it is, people are wanting things to happen quickly. A 12-month time-frame is not something that they want to get involved in; some ask for two months – it’s a big ask, but it can be done; usually you’re looking at six months or less.”

How to choose
So, how do you chart your way through this expanded choice?

Strategis’ Carroll suggests you first identify what items are critical for your business and then bundle them together into a functionality-needs package, prioritising core functionality. You should also be able to see the system’s potential from the first demonstration, he says.

“Make sure you see all your primary business processes replicated on the prospective system, preferably using a sample of your products, customers and suppliers,” he says.

Carroll also suggests meeting the person who would actually be doing the implementation, rather than just the ‘feelgood’ sales staff.

“Talk to that person about the complex business issues you face. Does he or she seem to understand the issues or are you just getting techno-babble?”

You also need to breakdown the costs of implementation – don’t be afraid to ask detailed questions, says Carroll. And, last but not least, “Negotiate the price of future consultancy at this stage – not after the implementation,” says Carroll.

For more information

Check out the ERP Research Pavilion for exhibits, case studies, white papers and downloads from a range of New Zealand’s leading ERP vendors.

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By Johanna Bennett