More than ever, businesses are relying on enterprise resource planning (ERP) systems to streamline their operations. From accounting to manufacturing to sales, the all-in-one solutions drive efficiency and collaboration. But for some businesses, the price tag of an ERP solution is simply too high.
Open-source ERP software is a cheaper alternative for many companies, especially small and medium-sized businesses (SMBs). It’s modular and flexible, allowing companies to only pay for the features and customizations they need.
What is open-source ERP?
An open-source ERP system is an enterprise resource planning system with publicly available source code. Companies can access the open-source code for free and customize the software themselves, rather than relying on the vendor. Most ERP solutions are proprietary or closed source, and customers can’t access the source code.
Benefits of Open-Source ERP
There are many reasons to choose open-source ERP software. Here are some of the benefits:
Lower costs
ERP software isn’t cheap. Solutions generally cost between $75,000 and $750,000 for SMBs and $1 million to $10 million for larger companies. These high up-front costs can stop many companies from investing in the technology.
Open-source ERP software can be a cost-effective alternative because customers don’t have to pay a license fee to access the source code. That means companies can install and customize the software for free.
Most ERP solutions have a broad range of features and modules that are included in their cost. On the other hand, open-source ERP systems come with only basic functionality. Companies can decide whether to add free modules or pay for proprietary features.
More control over customizations
When companies want to add customizations to their ERP solution, they often have to work with the vendor, their internal IT team and even an external consultant. It can take time to coordinate between groups, and there can be miscommunications. And if the vendor decides it can’t develop a particular customization, the company doesn’t have any other options.
With open-source ERP software, companies can create customizations internally, without having to go through a vendor. Businesses also have access to ready-made or industry-specific features and modules created by user communities. This reduces the time and complexity of customizations and gives companies more options.
Simpler to scale
One of the biggest challenges in selecting an ERP solution is considering future scalability. Many growing companies realize too late that upgrading their software or increasing the number of users requires costly reimplementation.
Open-source ERP is easier to scale and can be upgraded more frequently without disruptions. However, this is only the case when system customizations are properly implemented.
Demo at your own pace
Companies that want to test out an ERP solution usually have to contact a vendor, request demos and set up a meeting. This process takes time, and the company will likely sit through a sales pitch.
On the other hand, companies can access open-source ERP code through a publicly available database and test the software without interacting with a vendor’s sales team. Although the solution won’t have customizations at first, companies will be able to test it at their own speed and discretion.
High-quality coding
“High-quality” and “low cost” are words that are seldomly paired. But many low-cost open-source ERP solutions offer high quality coding because they’re built on previous open-source projects that have been reviewed by various independent developers.
Your internal IT staff also has the ability to audit open-source code for quality. With closed source ERP solutions, IT employees can’t access the source code. They can only test whether software processes work correctly with business data.
Challenges of Open-Source ERP
Although open-source ERP software has many advantages, it may not be right for every company. Here are several challenges to consider:
Underestimating the cost
Open-source ERP solutions have publicly available source code companies can access for free. However, this only includes basic functionality. Vendors may charge a fee for advanced features, proprietary modules, cloud deployments, training and support. Depending on what features and assistance a company needs, an open-source ERP solution can still be a sizable investment.
In addition, companies still pay implementation costs, which include internal IT staff, database hardware, and security and backup software. If the company uses an external consultant during implementation, that can increase expenses.
Requires knowledgeable IT staff
Companies that want to implement open-source ERP software need to have IT staff with significant programming and ERP expertise to design and install customizations internally. Many companies, especially small businesses, may not have the in-house technical knowledge to implement an open-source ERP solution
It’s important to note that if a company doesn’t buy a support plan from a vendor, internal IT staff will be responsible for maintaining the software. In the event of a system error or major crash, the company is on its own.
Management suspicion
As with any software adoption, it’s important to get buy-in from key stakeholders, such as executive management. But this group may be particularly suspicious of open-source ERP software, especially if it’s a new concept to them.
Executives might have concerns about the security and viability of software with publicly available source code. In this case, the implementation team will have to demonstrate that an open-source ERP solution can be safe and long-lasting. For example, positive references from other customers can help get management buy-in.
Excessive customization
ERP implementation is a long and complex process, and companies can waste significant time and money if it’s poorly planned. Because open-source ERP systems offer many potential customizations, companies need to set clear guidelines for the functionality they need.
According to Ned Lilly, CEO of xTuple, “It’s easy to fall into the trap of over-customizing, especially with open-source. The most successful implementations work with standard processes and methodologies, and make modifications only where the business need can’t be met otherwise.”
Lack of documentation
User training is a vital step in implementation and requires documentation that explains how users operate the ERP software. Most commercial vendors provide this documentation, but for open-source software, this type of reference material can be lacking or missing entirely.
IT and management may have to create software documentation so users can be trained.
Top Open-Source ERP vendors
- xTuple
- Odoo
- ERPNext
Bottom Line
Open-source ERP solutions offer many benefits. They also pose several challenges, and they aren’t for every company.
By Andrew Ly — a business writer with experience in the technology, finance and healthcare sectors.