Open Source ERP vs Commercial ERP

As with any technical solution, define and document yours needs, the must have capabilities and the would be nice to have features. You will do this sooner or later for any installation. Compare the different systems to your criteria and do a gap analysis.

For the commercial products, send your criteria to the vendors. They will provide all the information for their product.

Treat your CTO as you would an outside supplier. If your CTO has specific, hands on, knowledge of the open source software, he/she can estimate the effort required to fill the gaps. Otherwise, find someone who knows the product to estimate the effort. It is to your benefit to find another user or contractor to verify capabilities.

I am very concerned about in house efforts. They tend to be ill-defined without criteria, milestones and an identifiable completion. If you go in house, make sure the resources are in place for the project to be successful. In house personnel are already busy and this increases the workload for both IT and Accounting. I have seen these projects drag on for years after the expected completion date.

One of the issues become the ability to customize the product. It's great for streamlining your processes, but there always another feature or function that will improve the product. This is where the scope enlargement occurs without a cost/benefit review.

The other issue to address is the single point failure potential. If your CTO is the only one who knows the custom product, what happens when he/she is not available due to sickness, vacations, terminations, etc. Contingency planning is necessary.

Hi Roger, You are not crazy - it is a very good question. I hope I can give you some good answers.

Summary: I have found open source ERP to be very capable at basic erp functions. Here is my analogy:
* Oracle and SAP are like a 10'x10' rug in a 10'x10' square room. They cover almost all corner cases in regards to functionality, vertical market exposure, and reporting.
* Open Source ERP is like a 10' round run in a 10'x10' square room. There is functionality and reporting that is missing. The question is "how much are you impacted?"

Who benefits the most from open source ERP? Medium-sized companies ($30M to $400M) typically gain the biggest advantages. These companies often have some technical talent that can take advantage of the fact that the source code is available to read and modify. I have found that small changes in automation can create discontinuous increases in productivity.
* Smaller companies tend to have less talent to use the below capabilities. The complexity tends to be too much. This is where netsuite.com really shines.
* Larger companies need more sophistication.

My qualifications: I have work with the ADempiere code base for about 9 years. I have actively supported installations since 2006. My smallest customer is $7M in revenue. My largest customer is $400M in revenue. My expertise is in wholesale and web distribution. I have some experience in shop floor manufacturing.

There are three major versions of open source erp:
(1) Compiere, OpenBravo and ADempiere: I group these together because they all came (forked) from Compiere. Compiere and OpenBravo are both commercial open source where advanced features will cost you $1K per year per user. ADempiere is purely open source (free). I have worked with all three products. Their code bases are amazingly similar. The biggest differences reside in the user interface. ADempiere is my favorite for reasons I will discuss below.
(2) OpenERP: OpenERP is purely open source. You only pay for training and support. The OpenERP company does not hold any functionality behind a commercial license. I do not have much experience with openERP; therefore, I am speaking from an outsider perspective. I am working with my first openERP project right now. It seems to be a capable product. I will know more as the project goes into production.
(3) xtuple: I understand that xtuple's strength and roots lie in manufacturing. I have not performed an evaluation yet.

Strengths of open source ERP (some points to do apply to commercial products)
(1) It works for general ERP (distribution, manufacturing and services)
(2) You can get everyone in your company in the system for no additional money. This is an amazingly big deal for medium sized companies. There is not much worse than fighting to get into Microsoft Dynamics when all concurrent seats have been taken. Often companies will create an email '[email protected]' to give a shoutout when Joe goes to lunch and stays logged in.
(3) The code base is not that complex. When someone asks me how the system work, I literally show then in code. Most customers can perform small changes to create drastic improvements in productivity.
(4) It scales to an appreciable size. ADempiere will support 100 concurrent users without any real optimization effort. I have worked on projects that exceed 400 concurrent users. BTW - 100 concurrent users on Microsoft Dynamics AX will cost you in excess 2.3K per user per year SAP will cost you about $5K per user per year. (source: see Microsoft's KapStone Paper & Packaging Corporation case study - http://www.microsoft.com/casestudies/Case_Study_Detail.aspx?CaseStudyID=4000009108)
(5) Open source ERP is open. It is pretty easy to integrate ancillary tools like BI, document management, middleware automation, etc... You are not dependent on canned tools.
(6) It supports multiple organizations, currencies and languages. All three products seem to excel in this area. I can personally speak from ADempiere's perspective. Creating consolidated financials across multiple sets of books inside the same system makes financial management and month close much easier.
(7) It is your asset. With ADempiere and OpenERP, when you download the code, you own it. When you build your business processes around it, you increase your company's goodwill. When you sell your company, this goodwill can account for a substantial amount of money.

Weaknesses of open source ERP
(1) Number of experienced integrators.:10 years ago, this was a deal killer. Today, it is common to have a Florida company use a California integrator. You are much less dependent on local talent. Having said that, it is still a disadvantage to have fewer choices.
(2) Canned functionality: there are two components to this statement. (a) the functionality many just not exist or (b) it exists; however, it is a lacking is some way as compared to its proprietary counterpart. This topic may or may not be a deal killer. If you need to re-invent the wheel for your specific need, that is a concern. If you need to tweak code to get exactly what you want, that can be a good thing. Generally speaking, you will spend more to get an open source ERP live than its proprietary counterpart.
(3) Just because you can modify the code does not mean you should. Many of the open source ERP implementations gone bad came from the fact they wrote a bunch of code that was not critical for go-live. Once you prove the system works for you, go with the minimum for production launch. The rest can be added later.

Having said all the above, I believe open source ERP is definitely worth a look. The benefits you stand to gain are worth the effort. I have been very fortunate to find great customers, and therefore, create great success with these tools.

It hope this helps!

Regards,

Chuck Boecking

Whether you use open source development tools or proprietary tools the answer is the same, it starts to look very much like custom development. Custom development has its place in business but not in a full fledged ERP system.

If you were to develop a custom system there would be some key issues:
- how to maintain it
- how to keep it running (computer operations)
- how to support it in the short run AND long run (key point)
- when hiring talent, everyone would need to be trained in the system (wastes resources)

There are so many ERP systems out there, it makes no sense to build from scratch. If you do, I think you will find that the functionality will be limited, it will take many years to be fully functional, and the cost would be more than if you had purchased off-the-shelf.

Regardless of which approach you take, you need to start with your business requirements. Do you have a requirements doc? Does your CTO KNOW your requirements? (it doesn't sound like it).

NOTE: I have no vendor affiliation or bias.

If I was going to go the open source route, I would look at the software that is already out there that has been developed using open source tools (like Intacct, xTuple, Netsuite?).

Or, the more proprietary approach would include looking at the bigger software vendors like MS, Oracle, or SAP (and others).

The common thread between the two approaches is that the software is supported by an existing software company. If there are problems down-the-road you can get assistance (with custom development you're on your own).

When ERP systems get installed, they are meant to be around for years, support is absolutely essential.

Good luck!