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SaaS distribution method, open source model complicate ERP picture for SMBs

SMBs who are in the ERP software selection process aren't limited to large name-brand ERP packages. Many SMBs are choosing SaaS, cloud computing or open source to meet their ERP needs.

Not so long ago, when it came to ERP software, there was only one choice for SMBs: enterprise-grade name-brand packages running on the SMB's own collection of servers. But now there are options, including on-demand ERP software, or Software as a Service (SaaS), or ERP in the cloud (call it what you will), as well as open source ERP.

"Software as a Service is becoming a very viable alternative for SMBs as the marketplace matures, and vendors are developing feature-rich and stable applications," said Karen Patterson, senior consultant at Revolution Group, a technology consulting company headquartered in Westerville, Ohio. According to Patterson, SaaS can make it possible for the SMB to leapfrog into -- and remain current with -- continually changing technologies while maintaining a limited internal IT staff. In addition, she said, "a properly chosen SaaS selection can link SMBs with industry peers, essentially using 'group think' to drive development of an industry-best-practices application."

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Through this shared aspect of SaaS, subscribers can enjoy the benefits of continuous improvement and application development performed by all subscribing members while also contributing their own development efforts to the application.

One company that has embraced SaaS ERP is Vetrazzo LLC, a company that produces countertops from recycled glass. When sales of its countertops began taking off, the Richmond, Calif., company discovered that it badly needed an ERP system to handle its expanding business.

Vetrazzo didn't have an IT department, though, and its executives wanted to avoid having to purchase -- and manage -- hardware infrastructure. So with that self-imposed restriction, the company chose to build its own ERP solution from a selection of online components, according to company CEO and co-founder James Sheppard. With the help of partner The Claiborne Company, a consulting firm that works with the SaaS CRM product, Vetrazzo customized an existing ERP prototype to fit its specific business processes: customer service and order management; finished goods inventory management; production planning and scheduling; raw materials management; shipping and logistics; document management; and warranty management.

Through this process, Sheppard said, Vetrazzo was able not only to build and deploy an ERP system in just seven months but to achieve a full return on investment in another eight months. And, he noted, to this day the company still gets by just fine without an IT staff.

Ray Wang, an analyst with Forrester Research, cites the recent study he wrote, titled Competition Intensifies for the SMB ERP Customer, which shows that although a majority of SMBs are still wary of SaaS, it gives everyday business users the chance to be "in the driver's seat" in terms of making the major decisions around software. Furthermore, many prospective buyers turn to SaaS because they can deploy a SaaS solution faster, which means less strain on the business. Since licensing fees for the typical SaaS model are charged on a per-user and/or per-month basis, SaaS offers the additional benefit of turning an ERP investment into an operating expense rather than a capital expense that might require top management approval.

"For SMBs, SaaS has what you need," Wang said. "It offers rapid implementation and very appealing pricing models such as pay-as-you-go."

However, SaaS has a potential downside. Usage fees can grow beyond initial expectations. And once you're locked into a particular SaaS vendor, moving to another platform may be difficult. The key, according to Wang, is careful shopping -- making sure you know how you're likely to use the software and the technical requirements that you may have to meet in the future if you need to change platforms.

On the other hand, open source software can, like SaaS solutions, lower initial costs while providing more direct control over the software. Tony Im, practice director for Sciquest, a company that provides SaaS procurement software to improve supply chain processes, was skeptical when he first heard about open source ERP. But conversations with users have convinced him that open source can be the right choice for some organizations.

"There is a lot of excitement now because [open source] applications provide good functionality for most of the basic aspects of ERP," Im said. "And they can be readily tailored to the needs of a specific organization, either through custom programming or through integration with a specific functional application."

In other words, an open source ERP system can provide good, basic functionality, leaving room in the budget to acquire other critical functionality, whether that functionality is custom-built or from another vendor. Im admits, however, that this can all add up to more cost and complexity. "You need to be realistic about your internal capabilities," he said.

According to Ross Patterson, director of implementation services for Panorama Consulting, an SMB's support staff would ideally have the following skills in order to implement and maintain open source software:

Advanced system administration: Your team must be able to manage file systems and permissions, install software by script or by compiling from source code, manage users and groups, and manage memory and performance issues.

Database management: Your team must be able to install a relational database management system and secure it, create databases and tables, and make minor changes.

Web services support: Your team must have intermediate to advanced knowledge of Apache software.

Knowledge of Java, PHP or both: Your team must have intermediate knowledge of scripting for PHP and familiarity with Java Virtual Machine Architecture. Miscellaneous component knowledge: These needs vary widely, based on the components of the software, but your team must have advanced knowledge of installation of packages and source code.

Alan R. Earls is a freelance writer.

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