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Looking for the Achilles Heel: How to Select a Tier 2 Package
On October 1, 2014 / By Peter Purcell

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High-growth companies that outgrow their small company accounting systems (QuickBooks, Peachtree, Solomon, etc.) are challenged with finding a cost effective and robust ERP. The Tier 1 ERP solutions, Oracle eBusiness and SAP ECC, provide fully functional ERP and reporting solutions across all industries. However, the associated costs may drive a high-growth company to look at Tier 2 options. The Tier 2 list is longer and includes SAP B1, Microsoft Dynamics, Infor, NetSuite and Epicor, to name a few. Investments by Tier 2 vendors over the past five years allow these applications to offer a tantalizing alternative by providing integrated solutions at a much lower total cost of ownership.

Selecting the right Tier 2 package is daunting given the number of alternatives available. How can a company be confident when determining which Tier 2 package will support a growing company? It’s all about finding and addressing the Achilles heel of Tier 2 alternatives:

Chart of Accounts Structure

Companies implement new ERP systems to improve the quality and timeliness of information required to support the business. Capturing profitability across a variety of dimensions including geography, division, product or service line, and customer is critical. Most Tier 2 packages incorporate profitability dimensions as part of the chart of accounts. In this case, all valid combinations will need to be entered into the system. This makes the chart of accounts difficult to use and maintain for larger companies with complex organizational structures. However, there are a few Tier 2 packages that support dimensionality. These solutions should be short listed when considering a new ERP.

Intercompany Processing

Accounting for the transfer or sale of products and services in a complex legal entity structure can be difficult with many Tier 2 packages. There are few Tier 2 packages that offer intercompany transaction processing as core package functionality. In this case, intercompany transactions would need to be processed and consolidated manually, resulting in data entry errors and delayed month-end closes. Many fast growing companies have legal entity structures that result in intercompany transactions and should only consider Tier 2 solutions that have automated intercompany processing capability.

Foreign Exchange Support

Many high-growth companies differentiate services by operating globally. Sales transactions can result in product being sourced in USD but sold in local currency. Bills are generated and collected in local currency while profits are transferred to headquarters in USD. It sounds simple, but many Tier 2 packages do not support this functionality without modification or a third-party solution. Both add cost and complexity to the implementation.

Configuration for Ease of Use

Tier 2 ERP solutions provide a variety of experiences for end users. Some provide a green screen-like environment that is comforting for users who do not want to click through the transaction entry process. Other Tier 2 ERP solutions have completely rewritten the user interface to take advantage of modern technology and provide a Windows-type interface. A few Tier 2 ERP solutions have taken the middle ground by taking advantage of the best of both options while providing powerful tools to simplify transaction entry processing. The packages that have taken the middle ground can be easily configured to support company-specific processes.

Implementation Approach

The majority of Tier 2 implementation consultants take the homework or workbook model approach to installing and configuring software. The implementers bring in set up checklists and questions to decide how the system should be configured. Critical report design, workflow settings, and data integration work is assigned to customers and must be completed before the implementation consultant can configure the system for testing. Tier 2 ERP consultants leave and do not come back until the homework assignments are completed by the customer. This works well for very small, simple companies. However, rapidly growing companies require more assistance to navigate the organization and leverage best practices from across the industry to determine the appropriate future state. As a result, fast growing companies require more systems integrator attention to ensure these tasks are completed correctly. Many Tier 2 ERP consultants are not comfortable working in this environment and should be vetted carefully.

Post-Implementation Support

Tier 2 ERP solution providers vary in size and ability to provide post-implementation support. Customers of smaller Tier 2 ERP solutions may have difficulty in obtaining support during critical outages because their one support consultant is on vacation hiking Mt. Kilimanjaro.

Selecting a Tier 2 service provider that has a sound financial position, invests in new functionality and offers the right level of post-implementation support is critical for a successful implementation.