Open Source ERP Business Model Framework David L. Olson, Univ. of Nebraska Björn Johansson, Lund Univ. Rogério Atem de Carvalho, Instituto Federal Fluminense FAIM 2012 the Baltic

ERP Integrated BPR efficiency Reduced IS payroll MANY OPTIONS International differences SELECTION PIRCS meta-method SMART multicriteria selection FAIM 2012 the Baltic

Alternative Supply Chain Software Sources Method Advantages Disadvantages Develop in-house Best fits organization Most difficult to develop Most expensive Slowest Stand-alone APS Less expenditure Simpler installation Harder to integrate Full vendor ERP Relatively fast Less expensive than customization IT efficiency Easier to upgrade Inflexible Employees change work methods Selected vendor modules Less risk Relatively fast to install Least expensive vendor approach Expansion problems in time and cost Customized vendor ERP Retain flexibility while gaining vendor expertise Slower Usually more expensive Best-of-breed Gain best of all systems Difficult to link (middleware) Slow Application service provider Least risk of ERP change Least cost Fastest At ASP provider’s mercy No control Subject to price increase Open source system COST (it’s free to install) Flexible Greatest risk (after in-house) Need computer-literate employees

Use Strategic Planning (1-7) GMRG Data Analysis Olson, Chae, Sheu: International Journal of Production Research accepted 2012 Category Number (736) Use Strategic Planning (1-7) Perceived Benefits (1-7 good) Perceived Cost Impact None 42 1.27 4.17*** 4.07 Spreadsheet 25 2.76 4.50 4.13 In-house 152 3.77 4.49 best 3.90** Small 361 2.86 4.66* 3.72*** MSD 8 2.50 4.75 3.88 BOPE 38 3.71 4.37 3.82* SAP 110 4.08 4.53 4.13 best CONFENIS 2011 Aalborg

Methods Used – Planning & Control 11-manual; 2-desktop software; 3-custom software; 4- commercial software- 5-modified commercial software Category MRP Inventory control Labor planning Shop floor control Cost planning None 1.87 2.13 1.63 2.00 Spreadsheet 2.33 2.71 2.70 2.63 2.83 In-house 3.02 3.16 2.62 2.67 2.94 Small 3.55 3.41 3.06 3.17 3.28 MSD 4.14 4.00 3.50 BOPE 4.17 3.95 3.18 3.25 3.91 SAP 3.88 3.89 3.07 3.38 3.72 CONFENIS 2011 Aalborg

Methods Used to Record Data Category Manual Typed into computer Bar codes Automatic data capture None 0.51 0.39 0.06 0.03 Spreadsheet 0.04 0.83 0.08 In-house 0.67 0.20 0.09 Small 0.65 0.19 0.07 MSD 0.75 0.25 BOPE 0.05 0.62 0.27 SAP 0.02 0.52 0.31 0.15 CONFENIS 2011 Aalborg

ERP Selection Criteria Baki & Çaki [2005] Hecht [1997] Brewer [2000] Rao [2000] Verville & Hallingten [2002] Kumar et al. [2003] Mean Fit with allied organizations   * 4.79 Cross module integration 4.72 Compatibility with other systems 4.28 References 4.24 Vision 4.22 Functionality 4.15 System reliability 4.08 Consultancy 4.06 Technical aspects 4.01 Implementation time 3.94 Vendor market position 3.87 Ease of customization 3.84 Software methodology 3.83 Fit with organization Service & support 3.77 Cost 3.65 Vendor domain knowledge 3.46 FAIM 2012 the Baltic

Open Source Software Operates under license allowing release of source code free of charge for others to use & modify Free redistribution Open source code allowing modifications Modifications to be distributed same as source code

Open Source Development Red Hat [2009]: Can save by: Enabling use of commodity hardware rather than proprietary machines Avoids maintenance contracts Greater functionality, reliability, performance Faster learning curve, available support tools Avoid vendor lock-in Reduce need for security consultants & tools FAIM 2012 the Baltic

Open Source ERP/EIS Jaisingh et al. [2008]: OSS ERPs can be customized to modify code, gain competitive advantage Serrano & Sarriegi [2006]: OSS ERP benefits: Increased adaptability Decreased reliance on single supplier Reduced costs FAIM 2012 the Baltic

Open Source ERP Products Compiere OpenMFG Open for Business Project Tiny ERP Web ERP Open Office OpenBravo OpenPro Sourceforge.net listed over 1,000 ERP projects May 2009 FAIM 2012 the Baltic

Open Source ERP Benefits Cost Blue-Star reengineered, switched to new open platform Total investment $2.5 to 3 million Much lower than proprietary would have been Saved $100,000 to $150,000 per year Streamlined processes Updated best practices Eliminated third-party vendors Save $25 million in license & maintenance fees

Open Source ERP Benefits Agility & Scale Can modify, grow Paypal increased server farm to meet demand Linux enabled upward scalability Chicago Mercantile Exchange Switched to Linux 20% drop in time to process trades Higher customer satisfaction

Open Source ERP Benefits Quality & Security Constant testing & improvement Breaking Vendor Lock-in High investment in vendor software leads to stickiness Open source avoids this Compiere maintains lift of available consulting partners

Open Source Risks ADOPTION NOT WIDESPREAD Licensing issues Often written by software engineers, not lawyers License-detection agents exist Competitive worries Any competitor can obtain the same system Can customize Expertise required Documentation Support

BUSINESS MODELS Cost sharing Risk spreading (offer software free, share maintenance) Loss leader Widget frosting (have hardware vendors add your software) Give recipe, open restaurant (sell service) Accessorize (give free, sell associated products) Free software, sell the present (expiration date) Free software, sell brand (sell validation tests) Free software, sell content (fees for complementary products) FAIM 2012 the Baltic

Watson, Boudreau, York, Greiner & Wynn CACM [2008] Proprietary Public cannot view source code Open Communities SourceForge.net Corporate Distribution RedHat, SpikeSource, OpenOSX Sponsored Open Source Apache Software Foundation, IBM (Sun) 2nd Generation Open Source Hybrid - corporate distribution & sponsored OSS CONFENIS 2011 Aalborg

The Metropolis Model Kazman & Chan [2009] CACM Crowdsourcing Both for software development, general business Move to service orientation vs. product Emphasize: Crowd management Separation of kernel content and peripheral components Less formal requirements process Focus on architecture Many eyes testing FAIM 2012 the Baltic

Yochai Benkler The Wealth of Networks [2006] Proprietary Public Intrafirm Barter/Share Rights-based exclusion Strict patent enforcement Romantic Maximizers Authors to publishers Mickey Disney reuses inventory RCA Few companies create patent pools Nonexclusion-Market Profit from selling information Scholarly Lawyers Write articles to get clients Know-How Profit from lowering costs Learning networks Profit from early access (engineering societies) Nonexclusion-Nonmarket Joe Einstein Give away information for status Los Alamos Share in-house, gain government funding Limited sharing Share with few colleagues to gain comments CONFENIS 2011 Aalborg

ERP’s Future SAP, Oracle prospering Microsoft moving into SME market High end of the market will continue to be strong Upgrades Microsoft moving into SME market Very large potential International vendors finding niche Local advantages Open Source opportunities Parallel to Linux Related SOA/SaaS model

Conclusion Open source ERP projects are increasing Not all projects are highly structured Reluctance to use open source ERP in firm’s core activities PROVIDES OPTION FOR SME VENDORS CAN USE TO REFINE THEIR SYSTEMS Open source an access to free labor

Spectrum Major vendors Outsourcing Mid-range vendors Local vendors SAP, Oracle (BAAN) for large organizations Outsourcing Application service providers (EDS, IBM,…) Mid-range vendors Microsoft (Sage, Lawson, etc.) for smaller organizations Local vendors Country specific vendors (China, Korea, Taiwan) OPEN SOURCE Compiere, Nexedi,… CONFENIS 2011 Aalborg