What is two-tier ERP?
Two-tier ERP is a setup in which a group keeps its main ERP at headquarters, or tier one, while subsidiaries, regional offices or acquired businesses run a smaller, usually cloud-based ERP, tier two. Financial and operational data from the subsidiaries flows up to the main system for consolidation and group reporting, without forcing every unit onto the large ERP.
Also called2-tier ERPhub and spoke ERPsubsidiary ERP
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- Tier one
- Headquarters ERP
- Tier two
- Lighter subsidiary ERP
- Connected for
- Consolidation and intercompany
How two-tier ERP works
Large ERPs suit complex headquarters processes but are expensive and slow to roll out to small subsidiaries. In a two-tier model, each subsidiary runs a lighter ERP suited to its size and local requirements, such as local tax, statutory reporting and language, and the two tiers are integrated. Common integrations are mapping the subsidiary chart of accounts to the group's, sending trial balances or journals upwards, and handling intercompany transactions such as transfer pricing and recharges. Groups often use the approach after acquisitions, to integrate a new business quickly. The risks are inconsistent master data and manual reconciliations between tiers, which is why a common chart of accounts and automated integration matter. NetSuite, Microsoft Dynamics 365 Business Central and Sage Intacct are frequently used as the second tier.
Common questions
Why do companies choose two-tier ERP?+
To give subsidiaries a system that fits their size and local rules at lower cost and faster rollout than the headquarters ERP, while keeping group reporting consistent.
What are the risks of two-tier ERP?+
Inconsistent charts of accounts and master data between tiers, manual intercompany reconciliations, and integrations that break when either system changes.
How does consolidation work in a two-tier ERP model?+
Subsidiary results are mapped to the group chart of accounts and sent to the headquarters ERP or a consolidation tool, where intercompany balances are eliminated.
ERPs used as the second tier
Part of Accountio’s accounting technology coverage · Glossary
