When it comes to choosing an ERP system, it’s easy to get overwhelmed. The options seem endless, and everyone has an opinion about which one’s the best. Here’s the thing: There isn’t one perfect ERP system. Instead, the key is to understand the types of ERP on the market today and figure out which one makes the most sense for your specific situation. Let’s break it down.

Types of ERP by deployment

“Is this on the cloud?” is one of the first questions we get when a client is evaluating ERP. And it’s a good question because how the ERP is deployed plays a big role in how you’ll use it and what it’ll cost. Here’s how to slice it:

• On-Premise ERP: The traditional way. You buy the software outright—what’s called a perpetual license—and install it on your own servers. You’ll own that version of the software forever, but you’ll also need to maintain the hardware and pay for annual maintenance fees to get updates and patches.
• Cloud ERP: This is ERP as a subscription. You log in through a web browser, and the vendor handles all the updates and maintenance. There’s no big upfront cost for hardware, but you’ll have a subscription fee for as long as you use it. Cloud ERP systems are always kept up-to-date, so you won’t have to worry about falling behind.
• Private Cloud ERP: Think of this as hosting. You take an on-premise system and move it to a third-party data center like Azure. It’s a middle ground for companies that want the control of an on-premise solution without managing the hardware themselves.
• Hybrid ERP: This option gives you flexibility by combining on-premise and cloud elements. You can keep some systems on-site while moving others to the cloud.

Types of ERP by industry

This is where things get interesting. Once you decide on the deployment type, you want to narrow down your options by vertical. Some ERPs are built specifically for certain industries. For example:

• Manufacturing ERP: Tailored for planning, production, and supply chain management.
• Chemical ERP: Includes functionality for process manufacturing, compliance, and formulas.
• Niche market ERP: Occasionally, you’ll find a system designed for a very narrow market. These can be a perfect fit if you’re in that niche.

Here’s the thing : Sometimes, what’s marketed as “industry-specific” is really just a general ERP with a few bells and whistles. That’s where experience matters. You need to talk to vendors who know your industry inside and out, not someone who’s figuring it out as they go.

ERP system tiers

Traditionally, ERP systems are categorized into Tier 1, 2, or 3. We will review characteristics and players found in each of those spaces.

Types of ERP: Tier 1

Tier 1 ERP applications are positioned to meet the needs of companies generating more than $750 million in revenue. That number is not firm, but an accepted baseline. These are enterprise-level solutions. The organization needing a Tier 1 type of ERP system typically has thousands of employees, multiple national and international locations, different financial entities, and many operational complexities.

The usual ERP solutions seen in this category include SAP S/4HANA, Oracle Fusion, Microsoft Dynamics 365 (Finance and Operations), and Infor LN and Infor M3, as part of the Infor CloudSuite options. Those are the big four, plus there are other niche players.

The problem is these applications struggle to adapt to different environments, as one size truly does not fit all. For example, large companies using SAP may attempt to push it into a discrete manufacturing division. It is a challenge to simplify SAP S/4HANA so it can be easily used by lower-volume discrete manufacturers, versus a right-sized ERP application that is purpose-built for manufacturing. Tier 1 ERP solutions like SAP and Oracle are so complex that you must spend a lot of time configuring these applications for different environments due to the volume of functionality they provide.

Also, remember that the financial component or the CFO of the organization is prescribing these monolith ERPs to be able to measure operational and financial performance of the enterprise. Unfortunately, there are many sites and divisions that must suffer lack of efficiency for the greater good of the enterprise.

Is a Two-Tier ERP Strategy Right for You?

Of note, the introduction of two-tier ERP is something we’ve seen being adopted more and more where large companies use an industry specific ERP at the division level, and roll up to a Tier 1 ERP for financial consolidation. This strategy allows the divisions to use right-sized and vertically proficient applications, including Infor VISUAL and Infor SyteLine, and yet still roll up financial and performance data to the parent ERP, such as SAP or Oracle.

Types of ERP: Tier 2

Tier 2 is a crowded marketplace. Having so many players makes it exceedingly difficult for those trying to determine the best type of ERP for their business. Tier 2 solutions are usually suited for companies with revenue from $20 million up to $750 million. It is a noticeably big space. There is crossover of solutions capable of working at the Tier 1 and Tier 3 levels as well.

Leaders in this space include the Infor CloudSuites, Oracle NetSuite, Microsoft Dynamics 365, SYSPRO, Sage X3, and emerging ERPs such as Acumatica and Rootstock.

Many of these products have yet to scale north of $500 million in revenue, but that does not mean they are not capable.

Related: ERP for Mid-Sized Businesses

However, scalability, number of users, and revenue are indicators of fit as much as the ERP’s actual functionality. The ability to scale is often hardware related, and that has been effectively addressed by true multi-tenant cloud ERP providers like Infor and Oracle. Companies like SYSPRO and Epicor have solid functional applications, but are behind on the technology side, such as being a native browser-based application. This constrains them from offering multi-tenant cloud options.

Types of ERP: Tier 3

Tier 3 is also a crowded market space. The most popular option is QuickBooks because it is excellent at accounting functions. It is easy to use, many people already have experience using it, and it’s inexpensive. However, as smaller companies start to grow and have more demands in a manufacturing environment, QuickBooks rapidly starts to fall short.

There are other Tier 3 players that are remarkably successful at suiting companies with less than $20 million dollars in revenue, including E2 and its related product, JobBOSS. These products meet more advanced needs (in comparison to QuickBooks), but struggle to provide functional depth on the accounting side. In addition, they are limited from a functional footprint to address manufacturing specific requirements. Another option in the Tier 3 space is Global Shop, which offers more functionality, but is still limited on technological architecture and offers only single-tenant (hosted) cloud.

How to select the right ERP system

Choosing an ERP is a big decision. It’s not just about features or price—it’s about finding a system that fits your business and will support your growth. Here’s how to approach it:

1. Know what you need

Before you start looking at vendors and the different types of ERP, get clear on what you’re trying to solve.

• Are you looking for something tailored to your industry?
• Do you need flexibility for future growth?
• What’s your budget?

Keep in mind that cheap ERP isn’t always cheap in the long run. A system that looks affordable upfront can cost you more later in inefficiencies, lack of support, or needing to replace it altogether.

2. Think about deployment

Deployment options are a big deal. If you’re a company that likes to control everything in-house, an on-premise ERP might be for you. If you want to avoid the hassle of hardware and updates, cloud ERP is the way to go. There’s no right or wrong answer—it depends on what’s important to you.

3. Ask the right questions

When you talk to vendors, don’t just focus on what the software can do. Ask about their experience in your industry and their support structure. Questions like:

• “How many companies like mine do you work with?”
• “What’s your approach to upgrades and support?”
• “What happens if we outgrow the system?”

4. Get help when you need it

One of the best things you can do is bring in someone who knows ERP to help you evaluate your options. As I always say, “It’s tough to be an expert on ERP and run your business at the same time.” An experienced consultant can save you from costly mistakes and help you find a system that fits.

A final thought

ERP isn’t one-size-fits-all. Whether you’re a small business just getting started or a global enterprise with complex needs, the right ERP is out there—it’s just a matter of finding it. Take your time, ask good questions, and don’t be afraid to lean on experts when you need to.

If you’re ready to explore your options, give us a call. We’re here to help.