When users purchase an ERP solution, providers will install the software inside the business's computer system or they host the system on their own servers and allow users to access it via the Internet. Called software-as-a-service (SaaS), the latter model has gained in popularity in recent years.
"Software as a service definitely is a growing trend, but I wouldn't say it has eclipsed buying a package and installing it yet," says Folia Grace, former vice president of ERP marketing for Oracle. "It gives small to medium-sized businesses a way to get the capabilities of a large company without the IT staff and the data center of a large company."
While the SaaS model has the benefit of a generally lower price point and less internal effort needed to implement, most businesses still prefer to install systems on their own servers. However, SaaS is becoming increasingly popular with third-party applications, such as Ariba and JPMorgan Xign, designed to enhance an ERP system's capabilities.
Due to the variables surrounding an ERP implementation, such as the complexity of the user's organization, the number of employees, the level of functionality the user wants, and what level of automation they already have in place, few providers are comfortable quoting a price for their system without knowing all the facts.
A representative of ERP provider Infor says an enterprise-wide implementation can cost between $20,000 and $200,000. Small businesses can expect to pay between $20,000 and $25,000 while very large companies can see costs into the millions, although that is rare. Mid-market businesses, which are the primary target for most new ERP implementations, usually pay between $25,000 and $75,000. Users buy their systems by paying an up-front fee and renewing a license regularly, often once a year.
Opening Up to Open Source
Cost-conscious businesses now have another alternative when it comes to managing their processes: open source technology. Open source ERP systems have been slowly growing in popularity since their introduction in the late 1990s. The way open source works is that users typically download the software from providers free of charge, although there are some exceptions. Users then have the option of paying the provider to tailor the software to their particular business needs and to provide ongoing technical support and software upgrades.
Bill Freedman, marketing director for Compiere, an open source ERP system which targets retail and distribution businesses, says there are two main advantages to using open source technology. First, since users have full access to the ERP system's source code, they can better understand the capabilities and the limitations of the software.
Secondly, using open source software eliminates vendor lock-in. "What this means is [users] are not beholden to a proprietary vendor because they hold all the intellectual property and all you have is a license to use it," Freedman says. "Our software can't be bought or merged out of existence. From a user standpoint, this means you have a guaranteed long-term investment."
While open source software such as Compiere offers similar functions as licensed ERP systems, Eric Kimberling, owner of ERP consulting firm Panorama Consulting, says businesses should be careful when considering open source.
"One of my clients was interested in open source and we looked at it closely," he says. "The cost of configuring the software and writing the code erased the savings he would have seen with [a licensed ERP vendor]."
Although costs associated with writing code can be high, especially for small businesses with little IT expertise, Freedman says the cost of hiring the open source software provider to configure and maintain the system is still a fraction of the cost of a licensed system. Freedman was unable to quote a price range for Compiere's software configuration services, adding that too many factors had to be considered.
