2009 Third Asia International Conference on Modelling & Simulation
Critical Factors to Ensure the Successful of OS-ERP Implementation Based
on Technical Requirement Point of View
Zirawani Baharum,
Research Lab, Department of Modeling and
Industrial Computin, Faculty of Computer Science &
Information Systems, 81310 UTM, Johor, Malaysia
zirawani@gmail.com
Abstract – Currently, many of Malaysian SMEs was using
open source Enterprise Resource Planning (OS-ERP) as
the enterprise information system. With OS-ERP,
financial needs can be decreased and the system can be
customized freely and easily. Those factors are affecting
technical activity in implementing OS-ERP based on
Malaysian SME, such as an appropriate database
migration, synchronizing modules based on workflow of
Malaysian SME, designing interfaces as a user friendly
application, well-maintained user support and integrating
ERP with third-party software (optional). Otherwise,
work culture of SMEs must be changed to synchronize
with ERP workflow. Without changing work culture,
implementation process will not working properly. As for
detail, this paper will propose five major critical factors to
ensure the successful of OS-ERP implementation in
technical requirement point of view; specialize to
Malaysian small and medium enterprises (SMEs).
Keywords – critical factors, open source, ERP, SME,
technical requirement
I. INTRODUCTION
Malaysia is a developing country with many
small medium enterprises (SMEs) to support the big
companies such as Proton, Perodua, Honda and ACM-
Boeing. In the SME area, the usage of all resources
must be exploited effectively in order to decrease
production cost and time. Due to the difficulties in
managing the effectiveness of using limited resources
in SME, an Enterprise Resource Planning (ERP)
system is extremely needed because of the economical
way in handling labor, business process and the other
parts dealing with SMEs production flow. To ensure
the success in establishing an ERP system, the
company has to prepare all of infrastructure (database,
application and interfaces), human resources and
financial supports. Related with financial supports,
Malaysia government has given a financial aid for
funding ICT procurement in Malaysian SME.
978-0-7695-3648-4/09 $25.00 © 2009 IEEE
DOI 10.1109/AMS.2009.96
Mohd. Salihin Ngadiman, Habibollah Haron
Department of Modeling and Industrial Computing
Faculty of Computer Science & Information Systems
UTM, 81310 UTM Skudai, Johor, Malaysia
salihin@utm.my, habib@utm.my
This paper is structured as follows. Section 2
presents more about Malaysian SME and the definition
of SME foe Malaysia. While, Section3 discuss
concerning of ERP, open source ERP software, the
important of ERP for business and the evolution until
relief of fully open source ERP. Followed by section 4,
discuss on ERP versus OS-ERP and finally, in section
5, we describes critical factors for ensuring the success
of ERP implementation in technical requirement point
of view (Case study: Malaysian SME) and give the
model of open source which suitable to be established
in Malaysian SME. Last but not least in Section 6, we
conclude this paper and give the suggestion for
determining critical success factor in ERP
implementation.
II. OVERVIEW OF MALAYSIAN ERP
Presently, there is no common definition of SME
(Small and Medium Enterprises). In Malaysia, SMEs
have been defined based on their own criteria, usually
benchmarking against annual sales turnover and
number of full-time employees or shareholders funds
by different agencies [13] In addition, current
definitions focus mainly on SMEs in the manufacturing
sector. For wider coverage and applicability,
definitions of Malaysian SMEs will be based on two
criteria, namely:
(i) Number of employees
(ii) Annual sales turnover
Table 1 and Table 2 show the list of SME
definitions based on number of full-time employees
and annual sales turnover. The Economic Intelligence
unit –EIU [10] has predicted that the winners of 2010
in Malaysia should have to meet competitive
requirement such as:
1. Flexibility of business model, organization
and technology
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 2. Willingness to change, and ability to change
rapidly,
3. View of IT as a competitive weapon, and
integral to strategy, and
4. Willingness to invest in people as a strategic
asset.
Table 1. SMEs Definition based on Numbers of
Employees
Table 2. SMEs Definition based on Annual
Sales Turn Over
In order to stimulate small company to meet those
competitive requirements, ministry of International
Trade & Industry (MITI) of Malaysia has issued The
“Malaysia, Policies, Incentives and facilities for SMEs”
to provide a financial assistance scheme as “Grant for
ICT Application” for SMEs [15]. The main objective
of this scheme is assisting manufacturing and its related
services to purchase ERP software. The Small and
Medium Industries Development Corporation
(SMIDEC) has responsibility to manage allocation for
this grant. SMIDEC has provided another grant as
“Soft Loan for ICT Adoption” which provides
assistance for SMEs to user ICT to improve
competitiveness, efficiency and productivity with soft
loan term. Many SMEs are using this grant to establish
ERP software [15].
III. ERP & OPEN SOURCE ERP (OS-ERP)
An enterprise resource planning or ERP system is
an information backbone and reaches into all areas of
the business and value-chain. It is a set of applications
with a structured approach to optimizing an
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organization’s internal and external value chain.
According to a study by the ARC Advisory Group [5]
ERP systems have become very important in modern
business operations and ERP market is expected to
recover from the sharp downturn in 2000 and 2001 and
grow to $9.5 billion by 2006. The studied [5] come out
same as what all researchers studied the most important
and the goodness of ERP. So that, we believe that ERP
is an integrate all data and processes in organization
into a unified system (database) consist of more
modules, such as marketing, inventory control,
production, procurement, distribution, human resource
and accounting.
Nowadays, ERP are continuously growing up and
most companies use these system for make it their
management going with no much trouble but more
effortlessly and efficiencies. Although in recent years
most ERP system suppliers have increased their focus
on SMEs, but the current ERP systems are still
expensive. In a study done by Meta Group, surveyed by
63 companies including of small, medium and large
enterprise in a range of industries, it was found that the
average cost of implementation of ERP system was $15
million, with minimum at $400 thousand and maximum
at $300 million [2]. Corresponding with impacts of
information technologies and Web services, all
companies open their eyes for looking a new brand
offered as known as Open Source software. Open
Source Software is software for which the underlying
programming code is available to the users so that it
may read, make changes, and build new versions of the
software incorporating their changes. Open Source
ERP Systems are arriving to be appropriate ERP
suitable for SME’s according to their minimal
budgeting. The first adopters of open source ERP were
in Latin America, Europe, and Asian countries because
of economic reasons [6].
A. The Evolutionary
The evolution of ERP systems closely followed
the spectacular developments in the field of computer
hardware and software systems [18]. Since 1960s most
organizations designed, developed and implemented
centralized computing systems. They automate their
inventory control systems using inventory control
packages, but mostly without Web Services. These
were legacy systems based on programming languages
such as COBOL, ALGOL and FORTRAN, which is
BOM, was started. And now, many company is prefer
to choose open source as software to manage their
enterprise with ERP. Figure 1 summarizes the
historical events related with ERP, since 1960 - 2000s.

ERP
Extended ERP
(2000s)
MRP II (1990s)
(1990s)
MRP (1980s)
BOM (1960s)
(1960s) (1970s)
Figure 1. The Evolution; BOM to OS-ERP
IV. OPEN SOURCE ERP vs COMMERCIAL ERP
Research effort is required to provide an ERP
system that has the flexible assurance capabilities to
evolve with the dynamic changes of a company. Thus,
born from the problems in implementing ERP system
especially in cost and time of implementation,
flexibility, customization, maintenance and scalability,
nowadays most SMEs come over to change their
business to seeing Open Source ERP.
Most organization, it will be able to challenge the
domination of commercial realize the potential of ERP
systems, yet struggle to materialize real benefits. One
out of four ERP projects is over budget and some 20
per cent are terminated before completion. ERP
projects often fail to achieve business objectives even a
year after the system has been implemented. The
Return on Investment (ROI) also takes six months
longer than expected. There are many reasons that
contribute to the low success rates, yet one common
aspect that prevails is a misunderstanding of what ERP
entails. For a long time, smaller companies purchased
individual accounting and payroll packages and then
migrated to expensive ERP solutions for grew up the
company. It is because the company did not have many
options as ERP solutions were costlier and required
magnitude and many employees to justify their use.
Although more than 60% ERP user are dominated
by top five ERP vendors as explained above, as
mentioned by [2] and [4]. Open source community has
developed an ERP package under GPL to benefit
medium size businesses that do not need expensive
ERP packages like what just mentioned above. At the
mean times, Studied by Chen [14] said that the
prominence of open source software has led to
significant research interest as well and most of the
existing research has focused on the motivations for
developing free software, as research by numerous
researchers such [1], [7], [8] and [9]. Moreover the use
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of open source software was study by [16], [11], and
[17]. Finally, some researchers have used the open
source phenomenon to examine more general topics in
management and economics.
V. CRITICAL FACTORS TO ENSURE THE
SUCCESSFUL OF OS-ERP
Technical requirement in implementing ERP is a
major critical factor to ensure success in achieving its
goals and objectives. Reuther [12] has determined Six
major categories of critical selection factors were;
1. Technical Requirements – System requirements.
2. Business Drivers - Financial benefit to the
company of selected system.
3. Cost Drivers - Direct cost of the implementation
in terms of outlay and rcsources.
4. Flexibility - Ability to tunc or optimise the
system to meet company’s unique requirement.
5. Scalability - Size of the system to suit the
business and ability to grow with the business.
6. Others - Specific factors critical to the target
business which technical requirements rates as
the highest critical factor.
From direct interview which conducted at SJMFlex
Sdn. Bhd. and LBH Brothers Sdn. Bhd. as
representation of Malaysian SME, we have determined
several critical factors which can be concluded in
technical requirement. The critical factors had
mentioned as following;
1. Database Migration
2. Synchronizing Modules Based On Workflow
of Company
3. Designing Interfaces as a User Friendly
Application
4. Well-Maintained User Support
5. Integrating ERP with Third-party Software
Figure 2 show the phase to implement OS ERP
based on technical requirement point of view.
A. Phase 1: Database Migration
The main purpose of database migration is
converting company’s data from older to newer data
management system. There are many parameters to
measure the success of migrating database. Bansleben
[3] have proposed three parameters which are data
access, data concurrency and consistency, and database
security. The database migration must be met up those
three parameters and has better performance than
previous data management system.
 NO

YES

Figure 2. Phase to Implement OS-ERP Based On Technical Requirement Point of View

In fact, Database migration can be divided into accessing the system. Each department responsible to
three types. There are; collect raw data and deliver to admin before processed
Establishment Migration: change data management in the system. Its mean that admin is only actor who has
system from rack-based to file-based data management responsibility to input and maintain the system. The
system. This type of database migration is establishing other characteristic of Malaysian SMEs is unused
computerized system in managing. The Beneficiation accounting module of the ERP system in the working
after migration process is CRUD (Create Read Update culture. They prefer to use manual accounting
Delete) process can be done easier, faster and more conducted by public accountant or buying third party
accurate. accounting software like MYOB (Mind Your Own
Inter-platform Migration: change data management Business).
from file-based data in different platform. Not all
environments are suitable for this type of migration,
since many migrations remain relational or object-
oriented rather than changing from one system to the
other. In case when the programming model changes or
needs of database features are increasing, inter-
platform migration may be able to be a solution if
legacy migration cannot cover the changing.
Legacy Migration: change data management system
from file-based data in the different (older to newer)
version of same database platform. This type of
migration is not completely change all the structure of
the existing database. It is change particular parts of
database which included in update or bug-fixed of new
version of database platform.

B. Phase 2: Synchronizing Modules Based On

Workflow of Company (Malaysian SME)

In fact, the samples of SME have established

commercial ERP system which developed by vendor
after conducting some research that related with
workflow of the company. In this activity, developer
must accommodate work culture, structure,
communication system between department and
financial matters of company into a model which can
be implemented in ERP. Malaysian SMEs have several
characteristics in business process. For example, in
operational they prefer to centralize ERP to an admin
and less in utilizing user role to manage right in
Figure 3. Malaysian SMEs Business Process
(generally)
Several modules have been proposed that
should be integrated in ERP minimally. It is determined
from direct interview conducted at samples of
Malaysian SMEs. ERP system is handling many crucial
parts in a company. In common, Customer Relationship
Management(CRM) are integrate in the system, but our
case study in Malaysian SME has found that the
company prefer to separate this module and using

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third–party CRM software to be operated. In Figure 3,
as generally, based on our case study there is
Malaysian SMEs business process which, integration of
modules is well connected from purchasing until sales.
There are many sub modules under the main module.
C. Phase 3: Designing Interfaces as a User Friendly
Application
GUI (Graphical User Interface) is human-
computer interface that uses windows, icons and menus
and which can be manipulated by a mouse. A user
friendly interface can affect the effectiveness in
utilizing software. A major advantage of GUIs is that
they make computer operation more intuitive, and thus
easier to learn and use. For example, it is much easier
for a new user to operate software by clicking mouse
than by having to remember and type commands to
accomplish the same task.
In ERP, user should be able to know about the
function of GUIs element in the system. Normally,
ERPs vendor provide main menu or dashboard where
all the sub function of the system can be accessed
directly from here. The entire menu in the dashboard
can be customized and adjusted by admin. Design GUI
for ERP system has to accommodate request from the
user. ERPs vendor must be selective in GUI designing
phase. Enterprise information system like ERP has
many requirements about GUI designation because of
its affecting the marketing point of view. An
application with a confusing interface can surely
difficult to be used. The requirements which can be
identified from the user is simple, clear interface, easy
access and usability, intelligibility, flexibility, more
interfaces, three-tier architecture and have their own
independence platform
According to the theoretical structure of the
three tier architecture and the requirements of the life-
cycle it seems to be practical to make the user interface
independent of the application tasks as much as
possible, and retain only the visualization. This
solution has greater chances to survive architecture
changes and to offer accessibility from different
environments and platforms. In practical, there are
three of structure which identified from ERP
implementation in Malaysian SME.
The first one is Plain three layer structure
which divided ERP into three parts which can be
modified separately. The second type is thin client
which combining database and business logic as a part
and putting GUI as a client. This type of three-tier
architecture needs less time in communicating client
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and server, because all the process that requested is
handling in server. Hardware specification of the server
is must be a high-end because it is containing database
and business logic which should be operating
simultaneously. The last one is thick client which
combine business logic and GUI as a client and put the
database as a server. This model needs more cost than
thin client because hardware supports must be a high
end PC for client. Besides that, time for processing
request is separately at each client. The advantage of
this model is the server does not need to handle many
processes (just for DB query process). The advantages
of user friendly GUIs are mentioned as following;
• The system can be simpler in view.
• GUIs are facilitating in adding media as a part
of the application.
• Smaller learning from the user to operate the
application.
• With GUI, the application can be accessed in
multiple form and do multiple task at the same
time.
• See more object in the same space of
windows (i.e. by using proportionally spaced
fonts, user can get a lot more data across a
line instead of using large font).
D. Phase 4: Well-Maintained User Support
In implementing a system, user supports are taking
an important part in ensuring success which is usually
provided by vendor to assist the user in operating the
system. This part is containing troubleshooting,
guideline and FAQs (Frequently Asked Questions).
The user supports which mentioned above are:
• Advice for new users in operating and
accessing system, etc.
• Help desk - for general questions about the
system
• Online guides,
• Training - a practical guide for user,
• Frequently asked questions - general questions
about the system, and
• Tools and utilities downloadable tools
developed by ERP vendor.
With the well maintained user support, user
can be assisted to use the system without always
depended to vendor. It can be a beneficiation for the
vendor.
E. Phase 5: Integrating ERP with Third-party
Software (optional)
 In Malaysian SME, ERP is not main software that
controlling business process. They are using several
supporting software which operated regularly with
ERP. The staff of Malaysian SME has mentioned that
they are using MYOB as accounting software and
Mozilla Thunderbird as a desktop mailing service,
that’s mean, those two modules inside ERP are unused.
This condition is impacting other modules which using
output parameter from those two modules. To fix this
matter, operator must entry the data manually from that
third-party software to ERP. Our experimental research
has found that ERP can be integrated with third-party
software. It can be conducted with two methods of
migrating data;Importing DB file – Migrating data is
conducted by importing DB file to ERP’s database.
This process should be done periodically. The
migration process is containing dumping and importing
process. (Implement to medium-level DBMS –
MySQL, and PostgreSQL)DB server replication –
Establishing twin server which can be replicated
periodically. This method is suitable to be implemented
in high-level DBMS such as: Microsoft SQL server and
Oracle.
VI. CONCLUSION
This study aims to identify and determine critical
factor to ensure ERP implementation in Malaysian
SME. The contributions from this paper are proposing
5 critical factors which identified from technical
requirement point of view. Those critical factors can be
a minimum requirement to be fulfilled for
implementing ERP in Malaysian SME. From this
paper, we have concluded that Malaysian government
has prepared SME to face global competition with
giving soft loan to implement ERP in their company.
This aid is effective to stimulate SME in order to
compete with another company. In other hand, work
culture of SMEs must be changed to synchronize with
ERP workflow. Without changing work culture,
implementation process will not working properly. The
proposed critical factor are appropriate to be a pattern
of ERP implementation in Malaysian SME because of
determined from experimental research and direct
interview from 2 (two) samples SMEs. The main
objective of the next model is scheduling maintenance
in open source ERP with the approached model based
on the modules of SME in Malaysia.
ACKNOWLEDGMENT
This work is supported by the Ministry of Science & Technology
and Innovation (MOSTI), Malaysia and Research Management
Center, Universiti Teknologi Malaysia under the VOT: 79096
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