Big ERP vs. Tier 2 ERP - Is the Gap in Functionality as Big as it Appears?

Recently, we have witnessed Infor’s aggressive advertising campaign against its bigger rivals that are conjointly called “Big ERP,” where it is blaming them for inflexibility, neglecting customers’ interests, and charging enormous amounts of money for their software and service. As an alternative, Infor and its competitors offer a variety of tier 2 systems that can supposedly satisfy rigorous business’ requirements and, at the same time, are more agile, and less costly. This also applies to the small and medium size ERP market, where Big ERP vendors have been trying to aggressively invade in the last few years. I was interested to see what the difference was, by having the opportunity to compare features and functions of not only software products but groups of them.

The Experiment

I created a new project in TEC Advisor, TEC’s online evaluation system, using as an example the discrete manufacturing ERP model, and selected some ERP applications to represent my virtual Big ERP and Tier 2 ERP competitors.

The first group contained the following ERP applications: SAP ERP, Oracle E-Business Suite, and Oracle JD Edwards Software. For the second group, I selected a few typical tier 2 applications, such as Epicor ERP, IFS Applications, Infor SyteLine, Lawson M3, Microsoft Dynamics NAV, Microsoft Dynamics GP, Pronto ERP, QAD, IQMS, Syspro, and Jeeves. To have a more accurate result, I excluded our section of Product Technology criteria from the comparison and assigned equal priorities to all remaining functionality criteria.

So, what has this exercise concluded? (Please note that this comparison is features/functions-based and does not cover the technology area.)

1. The overall rating (fig.1) of tier 1 ERP for discrete manufacturing is expectedly higher that the overall rating of tier 2 products. However, the difference is not as dramatic as one would expect and is only 4.96 points lower than the tier 1 average.

This can be explained by the fact that more and more ERP vendors are capable of delivering strong basic functionality for manufacturing, such as master production scheduling (MPS), material requirements planning (MRP), and related activities: purchasing, inventory management, sales, etc. The main functional differentiator between tier 1 and tier 2 vendors can be found when analyzing advanced manufacturing such as engineer to order (ETO) and process management, but also industry verticals with very complex activities (oil and gas, mining, electronics, etc.).


Figure 1. Tier 1 vs. tier 2 overall rating comparison

2. The biggest differentiator between the two groups of products is in the human resource management area. So, for example, if a company’s functional priorities include a fully integrated HR module, the better option would be to have a look at Big ERP systems as the ones that are rich in this type of functionality.

Reason: HR, as well as enterprise asset management (EAM) or product lifecycle management (PLM), is one of the areas where Big ERP vendors either acquired and incorporated software solutions, or developed their own add-ons, in order to address the complex needs of large multi-national corporations. Though tier 2 ERP vendors are also working on developing the above mentioned functionalities, they usually decide to work with third-party tools or use application programming interfaces (APIs) to integrate with existing HR, EAM or PLM systems that their customers already use.

 Figure 2. Tier 1 vs. Tier 2 ERP comparison by modules

3. The differences in Manufacturing Management, Inventory Management, Sales Management, and Procurement Management areas are minimal and are within two percent of one another.

Reason: These are basic functionality groups that any manufacturing company needs, and tier 1 ERP vendors are not the only ones providing strong support for all of them. Tier 2 ERP and even smaller vendors are getting closer to tier 1 because they concentrate on the basics, whereas tier 1 ERP are more interested in expanding to other areas such as supply chain management, product design and collaboration, business intelligence and business performance, etc.

We can go deeper into the research and drill down into each and every module, sub-module, and leaf level unit of functionality, but the idea is already clear: Tier 2 systems are getting stronger and are nipping at the heels of the Big ERP players in terms of their features and functions for ERP discrete. Furthermore, in one-to-one comparisons between standalone systems, you can see that in some areas, the rating of Tier 2 software can be even higher than its Tier 1 competitor, especially when it comes to budgets comparison. At the same time, it’s still fair to say that SAP and Oracle products—in general—surpass lower ranking systems.

In the 20 years since ERP was introduced, many things happened and the new technologies and the experience vendors gathered while dealing with manufacturing companies allowed them to have very similar offerings for discrete manufacturing. For light manufacturing companies looking for discrete ERP, the functionality will not be the main differentiator between tier 1 and tier 2 vendors. Since many vendors offer similar functionality, factors like delivery model, cost, professional services, integration with other systems are the new must haves for companies looking for discrete ERP.

A decision between Big ERP and the smaller rivals really depends on the particular company’s situation, needs, and priorities. Businesses, that have a user base of over 100,000 may be better served by going with a tier 1 vendor because these companies need more than ERP functionality. Though tier 2 ERP vendors are developing their products to address the challenges of large corporations (e.g., multinational accounting, forecasting and performance management, project management), they usually concentrate on one or a few of these challenges, as opposed to tier 1 vendors who can do pretty much everything.  However, in some cases it might turn out that a tier 2 vendor could be also a very viable option, at least from a functional point of view, but also because they can prove to be more flexible and cost-effective.

I can confirm that in some situations the tier 2 systems can be a strong alternative to Big ERP products, but this will only show up during the selection process— depending on the specific needs and requirements of the company. And in addition, I would encourage readers to try TEC’s online comparison system (TEC Advisor) to create their own projects and make their own conclusions.

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