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
FAIM 2012 the Baltic
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
CONFENIS 2011 Aalborg
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
CONFENIS 2011 Aalborg
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
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: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
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• OpenProSourceforge.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
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)
FAIM 2012 the Baltic
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
CONFENIS 2011 Aalborg
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
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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
CONFENIS 2011 Aalborg
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,…
CONFENIS 2011 Aalborg
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