Open Source ERP Business Model Framework David L. Olson, Univ. of Nebraska Björn Johansson, Lund...

Open Source ERP Business Model Framework

David L. Olson, Univ. of NebraskaBjörn 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


Alternative Supply Chain Software SourcesMethod Advantages Disadvantages

Develop in-house Best fits organization Most difficult to developMost expensiveSlowest

Stand-alone APS Less expenditureSimpler installation

Harder to integrate

Full vendor ERP Relatively fastLess expensive than customizationIT efficiencyEasier to upgrade

InflexibleEmployees change work methods

Selected vendor modules

Less riskRelatively fast to installLeast expensive vendor approach

Expansion problems in time and cost

Customized vendor ERP Retain flexibility while gaining vendor expertise

SlowerUsually more expensive

Best-of-breed Gain best of all systems Difficult to link (middleware)Slow

Application service provider

Least risk of ERP changeLeast costFastest

At ASP provider’s mercyNo controlSubject to price increase

Open source system COST (it’s free to install)Flexible

Greatest risk (after in-house)Need computer-literate employees

GMRG Data AnalysisOlson, Chae, Sheu: International Journal of Production Research

accepted 2012Category Number (736) Use Strategic

Planning (1-7)Perceived Benefits

(1-7 good)

Perceived Cost Impact

(1-7 good)

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 & Control11-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 1.63 2.00Spreadsheet 2.33 2.71 2.70 2.63 2.83In-house 3.02 3.16 2.62 2.67 2.94Small 3.55 3.41 3.06 3.17 3.28MSD 4.14 4.00 3.50 4.00 4.00BOPE 4.17 3.95 3.18 3.25 3.91SAP 3.88 3.89 3.07 3.38 3.72


Methods Used to Record Data

Category Manual Typed into computer

Bar codes Automatic data

captureNone 0.51 0.39 0.06 0.03

Spreadsheet 0.04 0.83 0.04 0.08

In-house 0.04 0.67 0.20 0.09

Small 0.09 0.65 0.19 0.07

MSD 0 0.75 0.25 0

BOPE 0.05 0.62 0.27 0.05

SAP 0.02 0.52 0.31 0.15


ERP Selection CriteriaBaki & Çaki [2005]

Criteria Hecht [1997]

Brewer [2000]

Rao [2000]

Verville & Hallingten [2002]

Kumar et al. [2003]

Mean

Fit with allied organizations * 4.79Cross module integration * * 4.72Compatibility with other systems * 4.28References 4.24Vision * * 4.22Functionality * * * * 4.15System reliability * 4.08Consultancy 4.06Technical aspects * * * * 4.01Implementation time 3.94Vendor market position * * 3.87Ease of customization * * 3.84Software methodology 3.83Fit with organization * 3.83Service & support * * * 3.77Cost * * * * * 3.65Vendor domain knowledge * 3.46


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:1.Enabling use of commodity hardware rather than proprietary machines2.Avoids maintenance contracts3.Greater functionality, reliability, performance4.Faster learning curve, available support tools5.Avoid vendor lock-in6.Reduce need for security consultants & tools


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


Open Source ERP Products• Compiere• OpenMFG• Open for Business Project• Tiny ERP• Web ERP• Open Office• OpenBravo• OpenProSourceforge.net listed over 1,000 ERP projects May

2009


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


• 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


• 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

1. Cost sharing2. Risk spreading (offer software free, share maintenance)3. Loss leader4. Widget frosting (have hardware vendors add your

software)5. Give recipe, open restaurant (sell service)6. Accessorize (give free, sell associated products)7. Free software, sell the present (expiration date)8. Free software, sell brand (sell validation tests)9. Free software, sell content (fees for complementary

products)


Watson, Boudreau, York, Greiner & WynnCACM [2008]

1. ProprietaryPublic cannot view source code

2. Open CommunitiesSourceForge.net

3. Corporate DistributionRedHat, SpikeSource, OpenOSX

4. Sponsored Open SourceApache Software Foundation, IBM (Sun)

5. 2nd Generation Open SourceHybrid - corporate distribution & sponsored OSS


The Metropolis ModelKazman & 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


Yochai BenklerThe Wealth of Networks [2006]

Proprietary Public Intrafirm Barter/Share

Rights-based exclusion

Strict patent enforcement

Romantic Maximizers

Authors to publishers

MickeyDisney reuses inventory

RCAFew companies create patent pools

Nonexclusion-Market

Profit from selling information

Scholarly LawyersWrite articles to get clients

Know-HowProfit from lowering costs

Learning networksProfit from early access (engineering societies)

Nonexclusion-Nonmarket

Joe EinsteinGive away information for status

Los AlamosShare in-house, gain government funding

Limited sharingShare with few colleagues to gain comments


ERP’s Future

• SAP, Oracle prospering– 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– 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,…


Open Source ERP Business Model Framework David L. Olson, Univ. of Nebraska Björn Johansson, Lund...

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