Are you the traditional type? Or maybe you’re more open.
Companies face an ever-changing global marketplace. As manufacturers come up with new projects to stay competitive and have new business requirements, the need for integrated business application software becomes more apparent.
That’s where Enterprise Resource Planning (ERP) comes in. There are two types of systems to choose from: traditional or open source. Both have their own unique set of pros and cons.
Traditional ERP System
• More secure than most open source systems
• Integrates with legacy systems
• Companies are used to it
• Vendor provides subscription and support services
• Inflexible and more complex
• High license fees
• High maintenance costs
• Built on older technology platforms
• System is controlled by the vendor
“Traditional systems are complex and less flexible than open source because they are built in stages over a period of years,” claims Don Klaiss, CEO at Compiere. “The technology may not be the most up-to-date, there is often a high upfront user license fee, and the vendor is in charge of the system.”
Open Source ERP System
• Reduced cost
• Strong base of developers and new tools
• No upfront license fees
• Users have more control
• Financial viability in the long run is questionable
• Companies are resistant to change
• No assurance of periodic updates
• Switching costs from traditional to open ERP tend to be extremely high
• Challenging to integrate with legacy systems
• No single vendor or person responsible for the system
• Security breaches could leak core business information to the public
“On the functional level, both systems are similar,” said Mac McHenry, Manager, Packaged Solutions, RSM McGladrey's Business Solution Practice. “The user would most likely be unable to tell the difference between an open and a traditional system.”
“Open source ERP systems work on a software as a service (SaaS) model through a web browser, or they can be run on premise through a company’s own computer,” said Klaiss. “It tends to have dramatically lower licensing fees and support costs.”
Klaiss adds that while an open source system can be downloaded and put into production for free, there is, however, typically a subscription for premium services.
“Stability is an issue for open source systems,” McHenry added. “A traditional system is thoroughly tested before it is distributed. The open source systems are more immediate and may not have been through enough testing.”
“If a company wants to implement an open source ERP system, they have some options,” Klaiss said. “Businesses with a sophisticated IT department can opt to do self-implementation and attend training class for support. Midsize companies with less advanced IT departments usually engage partners that have experience implementing the systems and then the company maintains the system on their own.”
“The vendor in an open source system serves as more of a traffic cop,” McHenry added.
If you’re a CIO looking into one of these systems, here are some areas to think about:
• Support -- If you have problems, is there a company behind the product to offer help when you need it?
• Security -- Can you control access to critical data?
• Intellectual property protection -- What happens if you want to license something under or change the code under an open source system? Does it become public domain?
“In a traditional system, the vendor wants the biggest bang for their buck,” said Louis Columbus, Senior Industry Consultant for Cincom Systems. “If you want something changed and you’re the only customer who wants a particular change, the vendor probably wouldn’t do it because it wouldn’t be worth the development costs.”
According to Columbus, open source systems work for young, emerging, high growth companies with no legacy systems. Traditional systems typically work better than open source when it comes to integrating with legacy systems.
“Some companies can’t afford to do a rip and replace to move from traditional to open source ERP, but open source certainly has economic advantages,” said Columbus.
Each has its place, but open source systems are an exciting new option that companies should look into.
“Talk to people,” suggests Columbus. “Find customers in your industry that have worked with whatever vendor or system you are interested in and get their insight.”
McHenry notes that the market for open source systems can be more competitive. There are more opportunities for more people to be involved, so some costs may be lower.
“In my opinion, I would look hard at open source,” McHenry said.
“There is no such thing as an off-the-shelf, plug-and-play implementation for ERP,” added Columbus. “Both open and traditional ERP systems take a lot of time and money to implement.”