Open source is picking up momentum in the ERP market because of its flexibility and relatively low cost
Infoworld.com, By Robert Lemos, CIO.com, April 22, 2008
Can open-source software find a home in mission-critical systems? Based on momentum in the open-source ERP (enterprise resource planning ) market, it's starting to look that way, particularly for IT leaders at midmarket and smaller enterprises.
While ERP systems are the heart and soul of the modern business, they've also been an IT bogeyman for the past decade. The software requires long and expensive customizations to fit the business processes of specific industries and companies. Tales of late, costly rollouts haunt IT managers looking to upgrade the way their companies currently do business. Recently, garbage-hauling giant Waste Management filed a lawsuit against enterprise-software maker SAP for $100 million to cover the cost of its failed ERP implementation.
The problem has lingered since the 1990s: In 1997, Nestle USA embarked on an ERP project that took more than six years and $200 million; the company originally intended to spend the same amount on rolling out the system to all offices internationally.
Even when rollouts are done, enterprises find themselves locked into costly licensing and maintenance agreements in a market without much price pressure dominated by two main vendors, Oracle and SAP.
Enter open-source software. Popularized by the growth of the Linux operating system, open-source software allows anyone to view and audit the source code and customize the software. ERP systems require a great deal of customization, making open source a seemingly ideal approach. Companies also appreciate the ability to audit the code that runs their critical systems.
In 2007, former CIO of Capital One Gregor Bailar told attendees at CIO's CIO-08 The Year Ahead conference that he was excited by the potential of open-source ERP systems: "I'd love to have an open-source ERP system that would just wail on what we have," Bailar said.
For small- and medium-sized businesses, the lower cost of open-source ERP systems is often the major selling point, initially. This was the case for frozen food maker Cedarlane. Going with an ERP system created by xTuple (formerly OpenMFG) saved the company "a couple of hundred thousands dollars" from the get-go, says IT director Daniel Baroco. To convince the company's owner to move the company to an ERP system, there needed to be little up front cost for the then-$40-million business, he says.
"You couldn't even put on the table that we were going to invest a million dollars in technology," Baroco said. "For emotional reasons, more than anything."
The impact of the system is obvious today, he says. The company has grown its revenues to $600 million, from $40 million, and the amount of paperwork created to fulfill orders has dropped significantly. In 2004, workers typically had to fill out 1,000 invoices per day, sometimes creating three invoices for the same order. Today, the company has reduced that number to 400 and can track food wastage; that's data it didn't have in 2004.
"I was really undereducated in the open-source thing at the time," Baroco said. "I became a fan of open-source because of this."
Small and midmarket businesses, such as Cedarlane, are the best prospects for open-source ERP implementations, says Ned Lilly, CEO of xTuple.
"The sweet spot for us is the $20 million to $50 million company that is hitting their head on the ceiling of trying to work on QuickBooks," Lilly says.
Lilly does not expect to convert many customers of traditional leaders such as SAP and Oracle, but for smaller companies that are worried about cost and the complexity of traditional implementations, open-source solutions are becoming a clear choice, he says.
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