Open Source ERP Business Model Framework David L

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

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 (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 & Control 1 -manual; 2 -desktop software; 3 -custom software; 4 - commercial software- 5 -modified commercial software 1 Category None Spreadsheet In-house Small MSD BOPE SAP MRP Inventory Labor control planning 1. 87 2. 33 3. 02 3. 55 4. 14 4. 17 3. 88 2. 13 2. 71 3. 16 3. 41 4. 00 3. 95 3. 89 1. 63 2. 70 2. 62 3. 06 3. 50 3. 18 3. 07 CONFENIS 2011 Aalborg Shop floor control 1. 63 2. 67 3. 17 4. 00 3. 25 3. 38 Cost planning 2. 00 2. 83 2. 94 3. 28 4. 00 3. 91 3. 72

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. 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 Criteria Baki & Çaki [2005] Criteria Fit with allied organizations Cross module integration Compatibility with other systems References Vision Functionality System reliability Consultancy Technical aspects Implementation time Vendor market position Ease of customization Software methodology Fit with organization Service & support Cost Vendor domain knowledge Hecht [1997] * * * Brewer Rao [2000] * * * * * * FAIM 2012 the Baltic Verville & Kumar Mean Hallingten et al. [2002] [2003] * 4. 79 * * 4. 72 4. 28 4. 24 * 4. 22 * * 4. 15 * 4. 08 4. 06 * 4. 01 3. 94 * * 3. 87 * 3. 84 3. 83 * 3. 77 * * 3. 65 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 machines 2. Avoids maintenance contracts 3. Greater functionality, reliability, performance 4. Faster learning curve, available support tools 5. Avoid vendor lock-in 6. 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 • Open. MFG • Open for Business Project • Tiny ERP • Web ERP • Open Office • Open. Bravo • Open. Pro 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 1. 2. 3. 4. 5. 6. 7. 8. 9. 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] 1. Proprietary Public cannot view source code 2. Open Communities Source. Forge. net 3. Corporate Distribution Red. Hat, Spike. Source, Open. OSX 4. Sponsored Open Source Apache Software Foundation, IBM (Sun) 5. 2 nd 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 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 Los Alamos Give away Share ininformation for house, gain status government funding CONFENIS 2011 Aalborg Few companies create patent pools Limited sharing Share 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/Saa. S 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