Historically, enterprise resource planning (ERP) software suites have been too big and expensive for small and midsized businesses (SMBs). But now, proprietary ERP vendors like Oracle Corp. and several open source newcomers are trying to eliminate enough complexity and cost to make ERP a good fit for SMBs.
Germany's SAP AG is the clear leader in ERP with 45% of the market, followed by Oracle, which claims 19%, according to AMR Research Inc. Open source ERP products are so new that they're just a raisin in the market share pie, but advocates said these products will eventually catch on because they're a better fit for SMBs.
In general, SMBs have been using task-specific applications instead of large ERP implementations.
"Traditionally, SMBs have used point solutions because they didn't need as much functionality as ERP suites offer," said Frank Prestipino, vice president of Oracle's global enterprise applications strategy.
Today, however, globalization and IT sophistication have forced even small businesses to automate processes and integrate applications to facilitate stronger communication, data collection and analysis. Prestipino said that in this scenario, using standalone point solutions doesn't make sense.
"Using point solutions, like Ariba Inc.and I2 in supply chain planning, can cost a fortune in integration labor," Prestipino said. "It takes a lot of effort to keep point solutions linked and working together."
Suites are appealing, but the proprietary bundles available offer far more functionality than most SMBs need. Recognizing this, Oracle ERP offers modules that enable SMB customers to start small and gradually scale up.
Designed primarily for midsized businesses, Oracle's E-Business Suite Special Edition North America (SENA) contains the same business applications that its higher-end ERP suite offers. Those applications are preconfigured across Oracle Financials, Oracle Inventory, Oracle Discrete Manufacturing, Oracle Order Management, Oracle Purchasing, Oracle TeleSales, Oracle TeleService, Oracle Field Sales and Oracle Daily Business Intelligence applications.
Prices for Oracle E-Business Suite SENA start at $80 per user per month. The standard offering includes a license for a minimum of 10 users and a maximum of 50 users. Oracles' partners -- systems integrators, consultants and value added resellers (VARs) -- usually work directly with customers on implementation, hosting, education and support services, which are sold separately.
The SENA product suite is not highly scalable, Prestipino said.
"It's the requirements, not the size of the company, that determines if the product is a good fit," he said, adding that one Oracle ERP customer is a brokerage firm with six employees and $1.2 million in revenue.
"A small, sophisticated provider of time-critical or mission-critical products or services, like this brokerage firm, shouldn't buy a $499 out-of-the-box ERP solution," he said.
SAP is not currently offering a version of SAP on Linux for the SMB market, according to an SAP spokesperson.
Midsized companies are finding SAP more accessible than in the past and are adopting SAP, according to a recent SearchCIO.com report. The projects mentioned in that story, however, did not run on Linux.
Open Source ERP is ready
Generally, open source ERP suites contain the basic applications in the ERP lineup: product planning, parts purchasing, inventory, supply chain, customer service, order-tracking, finance and human resources. While agreeing with proprietary ERP vendors' assertion that SMBs today can benefit from integration of these applications in an ERP suite, open source advocates think they offer a more SMB-friendly option.
"The largest players are reaching down into the SMB space now that the enterprise space is saturated," said Bernard Golden, CEO of Navica Inc., a San Carlos, Calif.-based open source consulting and systems integration firm.
Rather than creating a product for SMBs, the large ERP vendors are scaling down their large business products, Golden explained. They have created templates, he said, but getting the products to work well still requires a sophisticated IT staff and/or plenty of consulting money, as well as time to develop customizations to proprietary software. "This isn't the SMB reality, which is more cost-focused and has thinner IT staffs," Golden said.
On the other hand, open source ERP developers are tailoring their new ERP suites to SMBs, both in terms of ease of implementation and application mix. "SMBs looking for more cost-effective ERP solutions may be well served by open source," Golden said.
The SMB zone
Tiny ERP and ERP5 are two open source products designed specifically for SMBs. Both were created and primarily used in Europe. Their user lists reveal growth across the globe, but mostly outside of the U.S.
Tiny ERP was designed specifically for small businesses of 80 employees.
"We worked very hard on the ERP simplification … with very simple installation [two clicks, five minutes], complete interactive documentations, and an easy but powerful interface," said Fabien Pinckaers, who created Tiny ERP.
A new version of Tiny ERP, 2.0.11, was released at the end of May. Among other improvements, this version includes new modules for project management, contract and recurring document subscriptions, and additional languages (Spanish & Romanian). At this point, Tiny ERP is primarily used outside of the U.S.
In 2001, European service provider Nexidi and apparel manufacturer Coramy worked together to create an ERP suite for SMBs called ERP5. With the SMB in mind, they built ERP5 on open source and the foundation of the well-known Zope application server and wrote easy-to-use training materials. ERP5's attention to SMBs' needs led the developers to accommodate distribution through lower-priced and relatively slow Internet connections.
In the U.S., Compiereand OfBiz are ahead of the others in user awareness, Golden said. Being a more specific ERP product, Compiere -- from Compiere Inc. of Portland, Ore. -- has made the most inroads in the commercial ERP market, he added.
E-business is the primary niche for OfBiz, but the Web isn't its only focus. OfBiz's open source application suite includes ERP, customer relationship management (CRM), e-business/e-commerce and supply chain management.
"OfBiz isn't exactly a traditional product that fits into these sorts of categories, which I guess is becoming more true of more and more commercial products that have in the past as well," said David E. Jones, a lead developer at OfBiz.
OfBiz is used by several U.S. organizations, including Magellan University, Adirondack Frostbite and EX-Cel Agricultural Belting.
Compiere was created in 1999, and the first implementation in 2000 was done by Goodyear Dunlop Tires Germany. Early adopters hailed from Latin America, Europe, India and China. Interest and sales in the U.S. have grown, and Compiere has set up U.S. offices in Portland, Ore., and Waltham, Mass.
The Compiere product is free, and support prices are low in comparison to that of proprietary ERP suites, according to Jorg Janke, co-creator of Compiere and founder of Compiere Inc.
"'Normal' companies usually use the license revenue to pay for the presales effort," Janke said. "Development is usually funded via maintenance/support [fees]." Janke and his Compiere development team financed the initial development themselves.
Janke estimates that support for proprietary products charge about $2,000 a seat for hosted ERP offerings, while licenses can run anywhere from $30 to $200,000, depending on the number of users. "We have a single support price regardless of what modules you use," he said.
SMBs that have in-house IT expertise can get self-service or second-level support for $1,500 for 10 users per year. This support package includes documentation, .pdf libraries and version migration.
"The alternatives depend on the individual circumstances," Janke said. "Normally, customers agree with our partners a service agreement, which often includes first-level support [i.e., how-tos] and additional services like disaster recovery, refresher trainings, continuous optimization, etc.""Businesses change, and people change their minds about their business models," Janke said. "An open source product can change with a business. With proprietary ERP, unless an SMB has an IT guru in-house or a budget for scads of consulting, then it's going to take a big effort to change the software. What usually happens is that the business has to change to fit the ERP and not the other way around."
Pinckaers agreed, noting that proprietary ERP evolves slowly and can't be easily or inexpensively customized for specific vertical markets. In the open source world, developers are rapidly adding capabilities to products and can react to users' demands quickly, he said.
Both proprietary and open source ERP options have advantages and drawbacks. "Open source ERP projects are fairly young, [and] have been building out their functionality set and do not yet provide a level of functionality comparable to the well-known commercial products," said Navica's Golden. "But nothing stands in the way of them growing to have that capability."