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open-source ERP system that would just wail on what we have, Bailar told the conference audience. Bailars fellow conference speaker, JP Rangaswami, a well-known CIO who authors the blog Confused of Calcutta and serves as managing director of service de-sign for British Telecom Group, noted that his IT team is playing with an open-source ERP application called Thingamy. However, Thingamy is certainly not the only game in open-source ERP town. Many CIOs at midsize shops in particular would love to divorce their expensive, rigid ERP systems. Some of these midmarket CIOs have blazed a trail doing just that, using open-source products such as the Compiere ERP suite and OpenBravo. When Mark Alperin went looking to replace his ag-ing ERP system in 2006, he found himself in the same place as many CIOs of midsize companiesnot feeling terribly sought after by software vendors who prioritize large enterprise accounts, and facing few choices. Alp-erin serves as COO with CIO responsibilities for Vertex Distribution, a manufacturer and distributor of rivets, screws, and other fasteners. He wasnt happy with the two main packages for his industry, from Activant Solu-tions and Microsoft (neither of which he was using, nor did he want to use). I had lots of concern over the consolidation of the industry. I felt locked in to those two guys, recalls Alp-erin. That lock-in made him nervous, since he was al-ready frustrated by lack of flexibility with his old homegrown ERP system, which was not built around a relational database. Also, customization was a vital need when Vertex acquired other companies or needed to in-tegrate with new customers. Weve grown because of our flexibility, Alperin says. He didnt want to risk that growth. So Alperin chose to use the Compiere open-source ERP suite, so he wouldnt be subject to a ven-dors shifting priorities. The primary motivation was the ability to control our own destiny, he says. Open source addresses a key concern in this in-stance. Often, ERP vendors pitch smaller enterprises with packaged applications that they can run as is, re-quiring little or no IT investment. Its a logical pitch in environments with scarce technology resources, but a

Whats the most exciting emerging technology for enterprises in the next three to five years? Hint: Its not going to be designed by Apple. It just may be open-source ERP, Gregor Bailar, former CIO of Capi-tal One, told attendees of a conference called CIOI08: The Year Ahead. Surprised? Maybe youre not. You dont meet many CIOs who dont have some ERP angst. Worse, that angst has been simmering for three to five years now. So many CIOs experienced an ERP hangover in the 2004 timeframe after completely revamping their ERP systems, only to realize that the replacements were big and expensive, and took a lot of time and money to customize. Today, most CIOs still run newer versions of that same ERP software from the two biggest vendors in this market-place, Oracle and SAP. The lack of competition means that there hasnt been terrible pressure to innovate or slim down that software to make it more nimble, which is a serious flaw at a time when business needs IT to move fast. No won-der the hunger to find a worthy open-source alternative strikes IT leaders such as Bailar. Id love to have an

FIGURE 8.7

ERP systems have become the vital business software backbone to many companies that just cannot live without them anymore.

Source: Patrice Latron/Corbis.

REAL WORLD

CASE2IT Leaders, Vertex Distribution, and Prevention Partners: The Future of ERP May Lie with Open Source

Enterprise Business Systems 387

substantial percentage of smaller companies want or need to customize the applications to fit their specific business needsjust like larger enterprises, notes Paul Hamerman, vice president of enterprise applications at Forrester Research.

Theres such a diversity of needs. Some companies want a system they can mold to their business, which gives them more inherent flexibility. And open source is designed to be customized, he notes. Just as important, it can be customized without astronomical cost.

In Alperins case, he first asked a systems integrator hes used over the years, Transactional Data Systems (TDS), to develop a custom ERP application. Alperin wanted an ERP system he could directly control, with functionality equivalent to getting a customized version of commercial software, he says. But TDS suggested a money- and time-saving solution: Base Vertexs new ERP application on the open-source Compiere project. They said it doesnt make sense to develop all that code when theres an open-source basis to get started from, eliminating 30 to 50 percent of the coding needed, Alperin says.

The results? Alperin can now delve into the open-source code to move quickly on business needs. We have our own programming staff, and the ability be-cause of that to customize services on our own and re-spond to customer needs is an advantage, he says, so the direct access to the source code is very important.

Prevention Partners, a maker of prevention pro-gram posters, buttons, and other health-related signage, had a similar desire for customization when it decided to replace an aging ERP implementation: As the com-pany grew, its Windows-based ERP software could not scale with it and was becoming unreliable, among other faults. I assumed the Oracles, SAPs, and Baans would be out of our price range, says Scott Rosa, CTO.

So he looked for mid-market-oriented vendors. Rosa found that they were cheaper than the large vendors, but licensing costs were still six figures, and even more money would be spent on customizing whatever it bought. We didnt want to spend our limited budget on licens-ing, he says. By saving licensing dollars with open-source ERP, he could redirect monies to additional customiza-tion efforts, which would give him a better fit at the end, for the same outlay as commercial software, Rosa says. The company has deployed the open-source WebERP software for its manufacturing arm.

Flexibility means money to me, says Rosa. His ex-perience with the companys previous commercial ERP system made it clear that, no matter its source, ERP software would require significant customization effort.

We had to build a whole ecosystem around our ex-isting ERP to fill the gaps, he recalls. Every business does something outside of what the software has in its business pro-cess, whether that software is commercial or open source, he says, so if I need to have that cus-tomization, Im going to do it myself.

Mid-market CIOs also have to be realistic about support optionsand the need to not only manage costs but also keep a few exit doors open in case of trouble. One aspect that attracted these open-source ERP adop-ters was the flexibility that open source provided with supporting their development and maintenance needs. Because smaller businesses usually have small IT staffssometimes just a few developers and a few network and desktop support stafftheyre used to working with IT consultants who specialize in their industry. That makes it easy to adopt open-source software because smaller companies can often turn to the same independent con-sultancies that support their other software.

The reality is that the people who do all the work in ERP deployments are in-house teams or system integra-tors, not the commercial software vendors, says Martin Schneider, senior analyst for enterprise software at The 451 Group market research firm. The availability of open source points out that disconnect in the value chain, he says. Its almost a miracle that SAP got as big as it did; theyre just selling a skeleton.

Analysts are split on how wide the appeal of open-source ERP will be in the coming years. When you consider the entire universe of ERP deployments, few companies have adopted open-source ERP software. Even the most established and longest-lived project, Compiere, mostly attracts companies that have signifi-cantly customized their commercial software and thus are more likely to do the same for open-source soft-ware.

When will we reach the tipping point where a large number of CIOs at midsize companies, and even at larger enterprises, can get their heads around using open-source ERP? Thats still to be determined, but consider the larger open-source picture in enterprises today. Many CIOs already run virtualized servers based

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on Linux for some core enterprise applications. Theyve developed in-house development expertise and security knowledge around open source. Theyve made open-source SugarCRM a success. In other words, theyve done some of the prep work necessary to weigh and plan an enterprises move to open-source ERP.

Heres one other hint: Rangaswami works for this lit-tle company called British Telecom. Bailar, who was in-

ducted into the CIO Hall of Fame class of 2007, used to run IT for Capital One and before that, for NASDAQ. Its not just the CIOs of midsize or smaller companies who see why a solid open-source ERP solution would be a hot technology development.

Source: Adapted from Galen Gruman, Is Open Source the Answer to ERP? CIO Magazine, February 15, 2007; and Laurianne McLaughlin, Open Source ERP: Todays Hottest Emerging Technology? CIO Magazine,October 30, 2007.

CASE STUDY QUESTIONS REAL WORLD ACTIVITIES

1. The case highlights differences in adoption of open-source ERP systems between small or me-dium and large companies. What are the main rea-sons behind these differences? Do you think it is only a matter of cost? Justify your answer.

2. Enterprise resource planning systems are clearly the backbone of the modern enterprise. How com-fortable would you feel about recommending the adoption of an open-source package to perform these functions, and why? What kinds of resist-ance, if any, would you expect to find about your proposal?

3. Do you agree with the rationale stated by some of the CIOs in this case that if ERP systems need to be customized anyway, starting with an open-source package may make more sense than with a commercial one? Why or why not? Justify your an-swer.

1. One of the leading products in the open-source ERP arena is the one offered by Compiere Inc. Search the Internet for other companies that have adopted this application package, and identify the positive and negative experiences they have had as a result. Prepare a report to share your findings with the class.

2. Search the Internet for examples of problems com-panies have had when implementing ERP systems. Break into small groups to discuss your findings; then brainstorm possible solutions and strategies to help companies avoid the problems you discov-ered.

FIGURE 8.8The major application components of enterprise resource planning demonstrate the cross-functional approach of ERP systems.

Customer/Employee

ProductionPlanning

Sales,Distribution,

OrderManagement

IntegratedLogistics

Accounting andFinanceHumanResources

398 Management Information Systems

third week of November is Perdues busiest time of year, the companys output doesnt change radically. The big difference is the form the turkeys take. Most of the year, its more food parts and deli meats, while this time of year its whole birds. Getting turkeys from farm to table is a race against time, so Perdue has turned to technology to make sure its products arrive fresh. Each of its delivery trucks is equipped with a global positioning system that allows dispatchers to keep tabs on the turkeys en route from each of the companys four distribution centers to their destinations. If a truck breaks down, a replacement is sent to rescue the palettes of poultry. We know where our trucks are exactly at all times, says Dan DiGrazio, Perdues director of logistics. Perdue uses everything but smoke signals to commu-nicate with customers, staying in touch via telephone, e-mail, and videoconferencing. Were always looking at new technologies as they come along to see what makes sense for us, says Taylor. Black Friday and Cyber Monday sound nothing like the joyous season thats supposed to follow. Theyre more ominous and scary. To many retailers and manufacturers those two pivotal daysand the month or so that fol-lowsare just that. These two days are ominous because the holiday shopping crush that happens just after Thanksgiving is a make-or-break time for retailers and consumer goods companies looking to bolster their fourth-quarter reve-nues with loads of sales. Theyre scary because what sells and what doesnt is just so unpredictable. Nowhere is that uncertainty and accompanying pressure more intense than inside supply chain depart-ments, where seasonal good cheer is replaced with gut-churning anxiety. The holiday season is a completely difficult time for manufacturers and retailers, says Brian Tomlin, an assistant professor of operations, tech-nology, and innovation management at the University of North Carolinas Kenan-Flagler Business School. Theyre making educated guesses and bets on what de-mand is going to be, and theyre not going to get it right every single time.

Although youve got only one turkey to handle at Thanksgiving, in 2003 the folks at Perdue Farms managed to move roughly one million turkeys, each within 24 hours of processing, to reach holiday tables across the nation. The task isnt as tricky as it was be-fore the food and agricultural products company in-vested $20 million in supply chain management technology five years ago. Using Manugistics forecasting software and supply chain planning tools, Perdue has become more adept at delivering the right number of turkeys to the right cus-tomers at the right time, says CIO Don Taylor. As we get to November, we have live information at our finger-tips, he says. Before investing in supply chain manage-ment and forecasting software, Perdues managers went by the gut feel of its suppliers and customers, as well as the seasonal history of past consumption. It worked well enough; the company Arthur W. Perdue founded in 1920 has grown to reach annual sales of $2.7 billion. With the forecasting and supply chain systems, Taylor says the privately held company moni-tors its products year-round, checking in more fre-quently as Thanksgiving approaches. Although the

FIGURE 8.14

Every year even the best companies are challenged by the pressure placed on their supply chain during the holiday season.

Source: Getty Images.

REAL WORLD

CASE3 Perdue Farms and Others: Supply Chain Management Meets the Holiday Season

Enterprise Business Systems 399

Indeed, the period from just before Thanksgiving all the way into the New Year is usually the moment of truth for retail and manufacturing supply chain and e-commerce systems. Not all of them are successful. Tomlin says that retailers and manufacturers face a deli-cate balancing act. If theyre overly optimistic, they can have too much inventory, have to mark down every-thing and do fire sale prices, he says. If theyre overly pessimistic, theyll have unsatisfied customers and leave a lot of money on the table.

There are a number of reasons for this. The first is that consumers tastes can change overnight, especially with toys, consumer electronics, and apparel. The prod-uct cycles are so short; whats cool today isnt whats go-ing to be cool tomorrow, says Dave Haskins, CTO of Kinaxis, a vendor that offers on-demand response man-agement for supply chains. Talking about his daughters recent cell phone purchase, he notes: Shes buying a cell phone for reasons of fashion and not function. The con-sumer today is unbelievably fickle.

Another challenge is that sometimes one Christmas gift grabs more worldwide attention than any market-ing or operations manager could have ever predicted even in his wildest dreams. The resulting mass hysteria feeds on itself (remember the late 90s Furby craze?) and becomes wonderful fodder for holiday news. It also leads the general public to think that someone made a mistake, says Tomlin, even though the situation was too difficult to foresee. Although it may seem like a nice problem to have, its a frustrating situation for manufac-turers who try to keep up inventory and retailers who try to keep their shelves stocked.

So while speed and flexibility are paramount to re-spond to volatile demand, many retailers and suppliers are stuck because of one big self-inflicted wound: Half of their supply chain is sitting in Asia, Haskins says. Now suppliers have to deal with the fact that their product has to sit five weeks on a boat because the boardroom said, We want it cheaper. The result is that longer travel dis-tances lead to elongated supply chains.

That critical cost-versus-flexibility trade-off can rear its ugly head during the holidays, when marketing plans and inventory strategies have to be made far in advance. The challenge is that suppliers need to make sourcing decisions early, and when they do that, de-mand uncertainty is high, Tomlin says. Yet just over-stocking inventory is a mistake companies are typically not foolish enough to make. What smart companies do is figure out how best to use information as a substi-tute for inventory, he says, because inventory is an

expensive strategy.Haskins, whose company sells supply chain demand

software, notes that many manufacturers supply chain systems work on monthly planning cycles, which dont give enough information. There can also be a vast gap between the retailers systems and the point of sale (POS) data that they can send to their suppliers and what the suppliers can actually do with it. The distri-bution signalsmeaning whats actually selling and the actual inventoryneed to be coordinated on a continu-ous basis. Most organizations are still struggling to do that, he says.

The holiday shopping season will expose any supply chain weaknesses. Thats because the window to re-spond to fluctuations is so much shorter, Haskins says, adding that companies with better systems typically perform better during the holidays, and do better throughout the year.

Haskins advises retailers and their suppliers to ask themselves these questions right now: How quickly can I respond to something that happens in my supply chain? Am I providing good, actionable information to my suppliers and filling in any gaps in the data? Am I acting on up-to-date point-of-sale data that Im getting from my retailer? Do I understand exactly what is being sold every day?

The first questionflexible, fast response to supply chain eventsis a key tactic that can help both retailers and manufacturers move more product. For example, if demand for a manufacturers product is hot in the east-ern part of the United States but not the West, compa-nies have to make sure they have the right systems in place to see that, detect the trend, and share that infor-mation, and the right pro-cesses and logistics to adjust and remedy the situation.

Companies have to err on the side of flexibility rather than forcing in rigidity, Haskins says. Of course, picking up on the supply chain signals, interpreting them, and reacting is still a monumental personnel and technical challenge for many manufacturers and retailers. If youre waiting for the store to tell you theres a stock out, youre way too late, he says.

Another trend that retailers and manufacturers need to be aware of is the exploding financial girth of the gift-card season, which has seen multibillion-dollar gains in the last several years. A 2006 report from AMR Research noted the trend and its substantial effect on inventory and staffing decisions for the months of Janu-ary and February, when many people who received gift cards redeem them. Data from Ellen Davis, a commu-

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nications director at the National Retail Federation, back that up: Only 20 percent of all gift cards are re-deemed within the week after Christmas; the remaining 80 percent is spread over January and February.

To match the spirit of the holiday season, Haskins offers a practical piece of advice for retailers and manu-facturers that need each other more during the holidays than ever. Remember, he says, youre only as good as

your suppliers supply chain and your suppliers ability to have a quick, integrated view of total demand and supply.

Source: Adapted from Sharron Luttrell, Perdue CIO Talks Supply Chain Management, CIO Magazine, November 1, 2003; and Thomas Wailgum, The High-Stakes Search for Supply Chain Excellence dur-ing the Holiday Rush, CIO Magazine, November 16, 2007.

CASE STUDY QUESTIONS REAL WORLD ACTIVITIES

1. What are the key factors that determine the suc-cess or failure of supply chains during the holiday season? Which of these are or could be under the control of companies, and which are inherent in the end-consumer business? Provide several exam-ples.

2. Consider the increasing use of gift cards in lieu of gifts during the holiday season. What effects does this new practice introduce into demand planning and supply chain management? Consider the fact that virtually nothing is known about the recipients of gift cards. What strategies can retailers and their suppliers consider to accommodate these effects?

3. Prof. Brian Tomlin says that smart companies sub-stitute information for inventory. What do you think he means by this statement? How do you think companies can take advantage of more exten-sive and accurate information to improve their in-ventory and logistic practices? Provide some examples.

1. Search the Internet for news stories about stocking (either over or under) problems that happened during recent holiday seasons. How can you relate your findings to the issues discussed in the case? Do you think the affected companies could have done something differently? Why or why not? Jus-tify your answer.

2. How do your holiday shopping practices compare to those discussed in the text? How early do you decide how much money you are going to spend and what you are going to purchase? Break into small groups to compare your experiences and how those feed into the issues identified in the case: de-mand uncertainty and planning.

ucts or services a company produces, a supply chain is frequently called a value chain, a different but related concept that we discussed in Chapter 2. In any event, many companies today are using Internet technologies to create interenterprise e-business systems for supply chain management that help a com-pany streamline its traditional supply chain processes.

Figure 8.15 illustrates the basic business processes in the supply chain life cycle and the functional SCM processes that support them. It also emphasizes how many companies today are reengineering their supply chain processes, aided by Internet technologies and supply chain management software. For exam-ple, the demands of todays competitive business environment are pushing manufacturers to use their in-tranets, extranets, and e-commerce Web portals to help them reengineer their relationships with their suppliers, distributors, and retailers. The objective is to significantly reduce costs, increase efficiency, and improve their supply chain cycle times. SCM software can also help to improve interenterprise coordina-tion among supply chain process players. The result is much more effective distribution and channel networks among business partners. The Web initiatives of Moen Inc. illustrate these developments.

Enterprise Business Systems 415

REAL WORLD

CASE4Autosystems: The Business Value of a Successful ERP System for a Small Manufacturer

Autosystems is an automotive lighting designer and manufacturer. Located in Belleville, Ontario, they employ approximately 800 at three facilities. Autosys-tems trading partners include General Motors, Visteon, Ford, Chrysler, Saturn, Harley-Davidson, Mack Truck, and Bombardier. Established in 1986, Autosystems manufactured its first headlamp assembly in 1987, and by 1997 had manufactured more than 10 million head-lamp assemblies. In 1994, they received the Ford Q1 award, and they were GM Supplier of the Year for head-lamp assemblies in 1995 and 1996. For the first years of its existence, Autosystems concentrated only on manu-facturing. They ventured into design by launching their design center, located at plant 3, ten years later. The Impala and Monte Carlo headlamps were their first black box products, managed from design through production. Now, Autosystems is continuing their growth trends by consistently adding new customers. Until a few years ago, Autosystems was still trying to manage their manufacturing process with a variety of paper documents. They had previously installed an ERP system from Infor Global Solutions called TRANS4M, but they had not applied it to their shop floor processes. Finally, Autosystems management de-cided to consider installing the shop floor reporting module available for their ERP system, asking them-selves the following questions:

Can the information that is usually written on shop documents be incorporated into an ERP system in a timely manner?

Do we want our shop floor employees to access our ERP system?

Is it worth the effort to train shop floor em-ployees to use the system?

Is there a way to get good, timely information into the system with low risk?

Would the effort involved in implementing an ERP-based electronic shop floor reporting sys-tem have enough of a positive impact on the company to make it worthwhile?

After Autosystems management answered all those questions affirmatively, they installed the ActivEntry

shop floor reporting system to move their shop floor information into their TRANS4M ERP system. Using ActivEntry, the information is now available by work center, about labor efficiencies, cost of production, and scrap. Entering timely, accurate information into the system from the shop floor allows Autosystems to plan more efficiently, make production changes to avoid la-bor or scrap problems, and discuss these issues with production employees while they are still current and meaningful. Lori Asbourne, a business systems analyst, and Peggy Shires, a cost accountant, handled the implemen-tation of the ActivEntry system at Autosystems. Lori was responsible for the ActivEntry piece of the project. Peggy was responsible for finding what needed to be done with the TRANS4M ERP system to make things work together smoothly. Lori and Peggy did research to prepare for this implementation. They visited an Activ-Entry user, looked at quotations for the costs of the software and hardware involved, and viewed product demonstrations. Before the implementation of ActivEntry, Autosys-tems had no PCs on the shop floor. They now have 20 PCs throughout three plants, with plans to increase this number as necessary. They purchased three bar-code printers and 20 PCs and had cable run. They are also looking into the future addition of scanning capabili-ties. The additional PCs also required the upgrade of the telecommunications capacity of the Autosystems network. Instead of just implementing ActivEntry, all aspects of the TRANS4M ERP system that would interface with ActivEntry were looked at and improved. By mak-ing process improvements, they hoped to make use of ActivEntry easier for all employees involved. One job, entitled Production Analyst, was created because of the new system. Yvonne Millette is responsi-ble for training, support, and continued assistance to production associates. Yvonne looked at all the paper-work being used on the shop floor prior to the ActivEn-try implementation. Each plant was using individual sets of paperwork. This was changed to reflect the in-formation necessary to update the system, and stand-

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ardized across all three plants. Not only did this assist in training for the ActivEntry implementation, it also helps when staff is transferred among plants. Long term, Autosystems would like these forms to go away. The plan is to move to a fully electronic system.

Reporting is done at the end of the shift. Team lead-ers are expected to stay until they have keyed in their shift data and looked at their audit information. Our scrap rate has improved in all three plants by 2.7 per-cent in the last six months, shares Yvonne Millette, production analyst. There is now visibility on the floor. The team leaders are responsible for keying in the data. Through team meetings, they are reporting to manage-ment and their teams, on a daily basis, their progress. By 8:30 a.m. everything is keyed in and reports are ready to discuss, by work centerslabor efficiencies, cost of production, and scrapin the 9 a.m. meetings.

Other successes that Yvonne mentions: Each em-ployee is now more aware of what is costing the com-pany money. They are more likely to shut down if there is a scrap problem because they realize how it affects the organization. Workers are more aware of crew sizes and how they can impact the comparison of actual to payroll dollars. This actual versus payroll number is getting really close.

You can see everything! Before ActivEntry you couldnt see it! Yvonne says, The shop floor workers love it now. They are getting creative, coming up with ideas for improvements.

Autosystems production managers have access to the supervisory mode of ActivEntry. They can see the information from all three plants. Supervisors are now trained to know if there is a problem, and to check with the production manager to make sure the information was uploaded into the system quickly.

We now have the ability to capture labor, effi-ciency, production, scrap, etc., on time and by work center, for every cell, and are able to talk about that every day in our team meetings. We can discuss what went well and what went wrong, shares Yvonne.

Lori and Peggy like to share their successes with Autosystems planners. It has helped our planners a lot with visibility. They have good, accurate data in the TRANS4M ERP system to make their decisions. They are able to rely on the data, which means they are get-ting away from their separate spreadsheets for planning. There are no longer supposed to be any spreadsheets. We are temporarily running ActivEntry in parallel with their spreadsheets to confirm that the data is accurate.

Lori sums up the success of integrating ActivEntry into their ERP system: My job was to find a tool that put the responsibility on the floor and we gained a lot more than that out of this project. We have some happy, happy people.

Source: AUTOSYSTEMS: Bringing the Shop Floor into the 21st Century, Customer Success Story, Infor Global Solutions, www.infor.com, 2006, and Scott Berinato, The Post-PeopleSoft Landscape and the Future of ERP, CIO Magazine, June 1, 2005.

CASE STUDY QUESTIONS REAL WORLD ACTIVITIES

1. Why did Autosystems decide to install the Activ-Entry system? Why did they feel it necessary to in-tegrate it with their TRANS4M ERP system?

2. Which three business benefits of the many that re-sulted from the use of ActivEntry gave the com-pany the most business value? Defend your choices.

3. What changes are already being planned to im-prove the use of ActivEntry? What other improve-ments should the company consider? Why?

1. Go to the Infor Global Solutions Web site at www.infor.com to find other stories of the business value of ERP systems. Can you discover any common reasons for the success of these companies with ERP systems? Present your findings to the class.

2. Search the Internet for examples of problems com-panies have had with ERP systems. Break into small groups with your classmates to discuss your findings and what solutions you can propose to help companies avoid the problems you discov-ered.

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