When Mark Alperin went looking to replace his aging ERP system in 2006, he found himself in the same place as many CIOs of midsize companies\u2014not feeling terribly sought after by software vendors who prioritize large enterprise accounts, and facing few choices. Alperin serves as COO with CIO responsibilities for Vertex Distribution, a manufacturer and distributor of rivets, screws and other fasteners. He wasn\u2019t happy with the two main packages for his industry, from Activant Solutions and Microsoft (neither of which he was using, nor did he want to use.)\u201cI had lots of concern over the consolidation of the industry. I felt locked in to those two guys,\u201d recalls Alperin. That lock-in made him nervous, since he was already 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 integrate with new customers. \u201cWe\u2019ve grown because of our flexibility,\u201d Alperin says. He didn\u2019t want to risk that growth.So Alperin chose to use the Compiere open-source ERP suite, so he wouldn\u2019t be subject to a vendor\u2019s shifting priorities. \u201cThe primary motivation was the ability to control our own destiny,\u201d he says.Alperin shares that desire with plenty of mid-market CIOs, more of whom are now tapping into open-source ERP, for reasons of cost and flexibility.Custom FitOpen source addresses a key concern in this instance. Often, ERP vendors pitch smaller enterprises with packaged applications that they can run as is, requiring little or no IT investment. It\u2019s a logical pitch in environments with scarce technology resources. But a substantial percentage of smaller companies want or need to customize the applications to fit their specific business needs\u2014just like larger enterprises, notes Paul Hamerman, vice president of enterprise applications at Forrester Research.\u201cThere\u2019s 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,\u201d he notes.And customized without astronomical cost. In Alperin\u2019s case, he first asked a systems integrator he\u2019s 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 Vertex\u2019s new ERP application on the open-source Compiere project. \u201cThey said it doesn\u2019t make sense to develop all that code when there\u2019s an open-source basis to get started from, eliminating 30 to 50 percent of the coding needed,\u201d Alperin says.The results? Alperin can now delve into the open-source code to move quickly on business needs. \u201cWe have our own programming staff, and the ability because of that to customize services on our own and respond to customer needs is an advantage,\u201d he says, \u201cso the direct access to the source code is very important.\u201dPrevention Partners, a maker of prevention program posters, buttons and other health-related signage, had a similar desire for customization when it decided to replace an aging ERP implementation: As the company grew, its Windows-based ERP software could not scale with it and was becoming unreliable, among other faults. \u201cI assumed the Oracles, SAPs and Baans would be out of our price range,\u201d says Scott Rosa, CTO. So he looked for mid-market\u2013oriented vendors.Rosa found that they were cheaper than the large vendors, but licensing costs were \u201cstill six figures\u201d\u2014and that even more money would be spent on customizing whatever it bought. \u201cWe didn\u2019t want to spend our limited budget on licensing,\u201d he says. By saving licensing dollars with open-source ERP, he could redirect monies to additional customization efforts\u2014getting 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.\u201cFlexibility means money to me,\u201d says Rosa. His experience with the company\u2019s previous commercial ERP system made it clear that, no matter its source, ERP software would require significant customization effort.\u201cWe had to build a whole ecosystem around our existing ERP to fill the gaps,\u201d he recalls. \u201cEvery business does something outside of what the software has in its business process,\u201d whether that software is commercial or open source, he says, \u201cso if I need to have that customization, I\u2019m going to do it myself.\u201dTruly, control ranks right up there with costs on the list of CIO concerns regarding ERP. The open-source community, of course, values individual control as a key part of its culture. When Galenicum, a three-year-old supplier of raw materials for the pharmaceutical industry, sought its first ERP system in summer 2006, customization and control were key requirements. The company looked at two commercial applications\u2014SAP Busi\u00bfness\u00bfOne and Microsoft Dynamics\u2014but chose instead the Openbravo open-source ERP software. For COO Erich B\u00bfchen, \u201cthe most important factor was that it is easier to customize Openbravo than the other two. SAP and [Microsoft] Dynamics are much more rigid in what they can do, or at least in what their consultants say they can do.\u201dGiven that any ERP software would need extensive customization (for example, for interacting with Galenicum\u2019s customs management and logistics partners), commercial software offered no advantage, he says. That\u2019s not music to the ears of SAP, but B\u00bfchen\u2019s not alone.Retail distribution firm Frilac chose Openbravo to ensure control over the ERP system\u2019s capabilities when it decided to replace its hodgepodge of disconnected back-office applications with a unified ERP suite. \u201cAn open-source software system meant we were in full control\u2014with customizations suited to us, the software adapted to our particular needs and with no restrictions from the product manufacturer,\u201d says Carlos Villanueva, Frilac\u2019s sales director.Flexible Support SystemMid-market CIOs also have to be realistic about support options\u2014and the need to not only manage costs but also keep a few exit doors open in case of trouble. An aspect of open source that attracted these open-source ERP adopters was flexibility with who could support their development and maintenance needs.\u201cIt\u2019s easy to switch if one consultant doesn\u2019t work out,\u201d B\u00bfchen says. \u201cWe could easily change suppliers if we were unhappy with the service,\u201d echoes Villanueva. \u201cI\u2019m not tied to any proprietary vendor who tells me what I can do,\u201d says Rosa.Because smaller businesses usually have small IT staffs\u2014sometimes just a few developers and a few network and desktop support staff\u2014they\u2019re used to working with IT consultants who specialize in their industry. That makes it easy to adopt open-source software, since smaller companies can often turn to the same independent consultancies that support their other software.That was the case at Vertex, whose preferred consultant recommended the use of open-source software. Or they can turn to the commercial arm of the open-source project to customize their deployments, ensuring that the development team intimately knows the software. That\u2019s the approach taken by Galenicum. But even in this case, familiarity with the consultant played a role: Because Openbravo and Galenicum are both Spanish companies, \u201cwe knew them,\u201d B\u00bfchen recalls.\u201cThe reality is that the people who do all the work [in ERP deployments] are in-house teams or system integrators, not the commercial software vendors,\u201d says Martin Schneider, senior analyst for enterprise software at The 451 Group market research firm. \u201cThe availability of open source points out that disconnect in the value chain,\u201d he says. \u201cIt\u2019s almost a miracle that SAP got as big as it did; they\u2019re just selling a skeleton.\u201dHowever, anyone relying on open-source software should understand what kind of support mechanism is actually available, says Peter Bohnert, a principal at TDS (the integrator Alperin used). For example, some projects (such as Compiere and Openbravo) have a services division, while others (such as Apache Open For Business) do not. All have independent consultants who offer support as well.Future OutlookAnalysts 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 significantly customized their commercial software and thus are more likely to do the same for open-source software, says Forrester\u2019s Hamerman. (There\u2019s little hard deployment data because the software isn\u2019t licensed through normal sales channels.)\u201cThe vast majority of companies prefer the vendor to maintain the system for technical support and compliance,\u201d says Hamerman, who expects that approach, not open-source adoption, to remain the norm.Early adopters tend to be the smaller companies. \u201cMany developers are intrigued by\u2014and therefore gravitate toward\u2014open-source solutions,\u201d says Timothy Burks, a principal at PTRM Management Consultants. \u201cBut these developers typically report to CIOs and CFOs who are far more risk averse and unwilling to jeopardize their careers; consequently, open-source ERP solutions aren\u2019t likely to take off too quickly in the commercial space.\u201d Burks expects smaller companies to be more willing to take that risk.However, Gartner research director Laurie Wurster does not think that companies are so cautious. \u201cToday, ERP is very low on the list in terms of open-source adoption,\u201d she says. But it\u2019s on a growth path. According to recent Gartner research, among companies currently using or considering using open source in any form, 12 percent are using open-source ERP today. And 14 percent plan to do so in the next 12 months. Open-source ERP should have increasing appeal because of the wave of ERP consolidation\u2014mostly acquisitions by Oracle, Microsoft and Infor, she says.\u201cSAP and those guys are not serving the mid-market\u2014they provide more functionality than customers need at a price they can\u2019t afford,\u201d she says, \u201cbut open source is meeting the needs.\u201d And open source has proven itself in many other enterprise applications, so any concerns center around the software\u2019s fit and support system, she says.\u201cOpen source will become more rampant,\u201d agrees The 451 Group\u2019s Schneider. \u201cPeople using old SAP R3 and pre-Version 11 Oracle Financials systems in a few years will be looking at [SAP\u2019s] Netweaver and [Oracle\u2019s] Fusion [middleware platforms] and say, \u2018We don\u2019t want your middleware,\u2019\u201d he predicts. That opens the door for a serious look at open-source ERP.