The purpose of this document is to answer two questions:
- “Is Open Source ERP a viable alternative to today’s commercial ERP systems?”
- “What is the ROI of choosing Open Source ERP over a common commercial alternative?”
This document assumes that if you honestly and accurately answer question #2 across the many branches and complexities of ERP, you will get a satisfactory answer to question #1. If you disagree, please let me know your thoughts.
A manufacturing and distribution company wants to improve (1) efficiency of operations, (2) visibility into systems and processes, and (3) accountability of its employees. Their current inventory and manufacturing system is 14 years old, and a recent internal focus group determined there is a need to replace their current system. The primary reason for the group’s decision was the number of times the IT department was forced to say ‘no’ to strategic initiatives.
The company has manufacturing and distribution operations in four countries. The company engages in business around the world via a direct web presence, direct sales and distribution. The company employees a little over 1,000 employees worldwide, and it generates a little under $300K gross revenue per employee per year. The company generates about $300M in yearly gross revenue.
The focus group determined the new solution has the following major components. (1) ERP or Enterprise Resource Planning, (2) webstore, and (3) BI or Business Intelligence. A single ERP system will be chosen to manage the processes normally associated with ERP. These processes include managing accounting, inventory, manufacturing and business partners. Along with the new ERP system, the company needs a webstore architecture to support the North American, Asian and European regions. The company needs a business intelligence package that can aggregate data from all data sources and presented as a single meta-data source to create global insight and accountability.
The focus group was very excited to find the following Microsoft Dynamics AX case study. The study was amazingly similar to their situation.
Microsoft vs. SAP vs. ADempiere – Company’s Perspective
The Kapstone Microsoft Dynamics AX case study profiles how Kapstone saved about $380K per year by choosing Dynamics ($2.4K/user/yr) vs SAP ($5.5K/user/yr) in support costs.
A quick spreadsheet calculation reveals the following math:
|Annual Per User Cost||$5,537.00||$2,371.00||$0.00|
|Summed Yearly Cost||$553,700.00||$237,100.00||$0.00|
|Go-Live Vendor Services||$250,000.00||$250,000.00||$250,000.00|
|Yearly Vendor Services||$130,000.00||$130,000.00||$130,000.00|
|TCO across 5 Years||$3,668,500.00||$2,085,500.00||$900,000.00|
The question is: “Is ADempiere or Open Source ERP worth investing time to research its strengths and weaknesses?“ A better question is “What is the potential ROI increase by including ADempiere in the top three considerations?”
Estimating an ROI is challenging. Here are some of the group’s considerations:
- We desire to become a $1B per year in gross revenue.
- Significant investments will be made in funding and measuring market penetration and customer acquisition.
- We understand that aggressive growth requires an increased systems investment.
Items that Enhance ADempiere’s ROI
- ERP Commoditization: ADempiere has the core set of ERP and MRPII features on paper needed for our organization.
- All hands on: We want all employees to be able to use the system. We were disappointed to learn that Kapstone only purchased 120 licenses for their 1,000 employees. The majority of our company works to support our core business. We want as many employees on the system as is needed.
- Ownership: Our processes and our quality standards are considered to be a source of strategic advantage and directly attributed to customer contracts. Implementing our core strengths on a platform we own is believed to represent an appreciable financial goodwill.
- Ability to Customize: Not only can we modify ADempiere without incurring additional expenses, we are free to modify without requiring special permission or review from Dynamics or SAP. It is our experience that no ERP behaves exactly as needed. It is also our experience that small changes can create a 10x increase in productivity. Customization examples include automating manual processes and exposing additional information in key places.
- Discounted Totals: There is a belief that the above Microsoft $ totals are a best-case scenario. The study offers little information regarding the additional costs associated with traditional service fees and upfront licenses. Therefore, we believe the TCO is higher than what is represented in the above table.
- Licensing Expert: Based on experience with Microsoft and SAP, we will need to assign an additional resource just to manage license negotiation, research and audits.
Items that Diminish ADempiere’s ROI
- Missing features: It is assumed that both SAP and Dynamics have advanced feature sets over ADempiere. Investigation will be needed to confirm that ADempiere meets technical and business requirements.
- Fewer Support Resources: SAP and Dynamics have a superior volume of talent in the US market. Finding a talented and knowledgable integrator could pose a challenge.
- Connector Availability: The aftermarket availability of plugins for SAP and Dynamics exceeds that of ADempiere.
With a potential incremental ROI exceeding $1M, the decision was made to include ADempiere in the top three choices for ERP. It is believed that if ADempiere is the second choice, it can be used as a financial negotiation tool with commercial ERP companies to help reduce the total cost of ERP ownership. If ADempiere proves worthy, it is believed that ADempiere represents a discontinuous change in how we invest in our company.
About Chuck Boecking: I am an ERP educator. I believe that open source ERP have achieved mainstream capabilities, and as a result, more companies can create greater efficiency across their organization. I started using the iDempiere code base in 2003. Back then, it was called Compiere. In 2006, I started my first multi-million dollar installation. Since then, ADempiere has helped me create great success with distribution and manufacturing companies all over the world. My vision of success is to find companies that can best use open source ERP to help them achieve a single, global instance that drives a discontinuous increase in profitability. I believe that organizations win when they own their technology.
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