The two-tier enterprise resource planning (ERP) model, also referred to as hub and spoke, is gaining global market acceptance. Louis Laurie, Marketing Director at Dac Systems, takes a closer look at this approach and the benefits it provides local organisations.

“As the name suggests, the two-tier model sees different ERP systems used on two different layers of the business. On the one, the hub, you have a system that serves as a global backbone while the other, the spoke, supports smaller operational requirements,” says Laurie.

According to Gartner, the global backbone is often used for administrative ERP processes such as financials, human resources, and procurement. These are centralised across all divisions as shared services. The secondary system is typically used for services such as sales, marketing, field services, and local manufacturing.

And while this might seem like a simplistic way of looking at it, there are hidden complexities. For one, says Laurie, integration between the two systems will require specialist design and implementation expertise. “This is especially true if the organisation uses solutions from different vendors that are not interoperable with one another. But even systems from the same vendor might have its share of challenges getting them to work together.”

In addition, as Gartner mentions, some companies might require an additional tier below the spoke. These are especially important in distribution and retail industries where a smaller system is required to support different franchisees. Irrespective of the number of smaller tiers, this still falls into the hub and spoke model.

“In terms of business continuity, a hub and spoke model presents decision-makers with a robust solution that is both less demanding on and tolerant to failures of its supporting infrastructure. Furthermore, the hub and spoke approach supports a multi-vendor contracting model that has clear accountability defined so risks are managed,” adds Laurie.

Spoke solutions can also be customised for a specific task which is not the case if the organisation only uses one ERP system. The client can also readily explore reference sites using different spoke solutions before committing on a specific one.

High-end ERP systems such as Microsoft Dynamics AX or SAP are often used for the hub but can also integrate easily as spoke solutions. However, companies might find value in adopting function-oriented ERP solutions as their spoke architecture.

“In fact, several global organisations are using SAP for their back-end systems and Dynamics AX as a more customer-facing solution. For example, Nissan runs SAP in its global headquarters but has opted for Dynamics AX to form the basis of its dealer management solution,” says Laurie.

Local companies should therefore consider adopting this approach as a means to run business more effectively and give themselves more flexibility to grow.