Stop the bloodshed

Stop the bloodshed

When software licensing costs began to wither the flanks of a rural supplier, the 41-year-old trading society shed its Microsoft and SCO Unix operating system in favour of open source Linux.

The industry farming supplier Farmlands Trading Society serves is, by necessity, not particularly squeamish. However, when faced with the prospect of an operating system upgrade costing hundreds of thousands of dollars in licensing fees, Farmlands decided to put an end to what it perceived as business bloodshed. “On one hand, we had Microsoft bleeding us for licence fees. On the other, it was SCO for Unix. I can’t stand parting with money for software licensing, and the costs were getting annoying,” says Craig Waterhouse, commercial manager and ‘honorary’ chief information officer for Farmlands.

Historically, Farmlands used SCO Unix and the Microsoft Windows operating system for head office and branch IT functions. The IT systems installed in each of the 27 (now 28) Farmlands stores operate in isolation from head office and from each other, and stock and sales updates were traditionally exchanged between head office and branches via disks couriered every week.

Waterhouse says Farmlands has never found a need for more frequent exchanges of stock and sales information. But, when the society reviewed its entire IT infrastructure in October 2001, it decided it wanted to free its branch managers from the need to courier disks to head office.

Escalating licensing fees

In tandem with that goal, Farmlands sought a system able to support inter-branch email, company-wide intranet connections and the facility for customers to place orders online. To achieve these advances, Farmlands discovered it would need to upgrade to the enterprise version of the SCO Unix operating system – or seek an alternative.

“If we tried to dial into the branches over the previous Unix host system, the connection would quite often fall off. And if you had a problem like a faulty disk or file and you wanted to get the update to the store by dialling in through the host version of Unix, you’d be dreaming,” says Waterhouse.

However, when SCO held out their hands for a $6000-per-branch re-licensing fee for Farmlands’ then 27 branches – a cost not including Unix Enterprise training, support or implementation costs – Farmlands began to consider infrastructure and software alternatives.

One option was to replace the Farmlands distributed network (in which each store operates independently of the others) with a central communications system via which each branch would work from and report back to one core system. That, says Waterhouse, would have resulted in lighter licensing fees. However, he says the telecommunications costs of a centralised system were prohibitive. So Farmlands kept its distributed network and instead established email communications over ADSL connections.

“Frame relay costs from Telecom were going to cost an arm and a leg. Because we had decided to continue with stand-alone branches, inter-branch communications were not mission critical,” says Waterhouse.

However, the issue of affording licence fees remained.

Bucking the nationwide trend of companies avoiding large-scale Linux installations, Farmlands, together with business consultants Deloitte and key IT partner Napier Computer Systems (NCS), decided the most cost-effective answer to the licensing problem was to replace Farmlands’ SCO Unix and Microsoft Windows software with the Linux operating system and customised application software at all 27 of its branch stores.

Waterhouse says the Farmlands board didn’t understand how radical it was to make the ‘full on’ move to Linux his IT team and its partners were proposing.

“We weren’t making the recommendation on our own; we had Deloitte, and NCS ticking the box with us. And we didn’t present the budget first, but the outcomes. We’re a risk-averse company; we saw the platform as being stable enough to run with and we’d done extensive testing.”

He says he knew very little about Linux as a platform and knows even less about Unix than he used to. “It has got to work and work well. You don’t give a business board technical information unless you want to confuse them.”

Thinning out

Based primarily on a cost and business issues case, a teaser presentation was put before the board in early 2002. A formal proposal and final budget followed that June.

Subsequent to board approval, NCS – together with Waterhouse and his team – began Linux development using Red Hat Linux and testing different brands of thin client hardware, eventually choosing the Wise brand over Compaq/HP.

By the end of 2002, NCS had spent six months developing Linux software for Farmlands. More time was spent in testing before Farmlands eventually launched a pilot at its Napier branch. The pilot ran for a month, after which Farmlands rolled out five more branches, and let those sit for a further month.

Linux was then rolled out to the remainder of its stores and all 27 stores were operating in a Linux environment by June of this year (Farmlands’ 28th store, in Stratford, will be running Linux by December).

While Farmlands continues to run its head office on a Unix platform (supporting SAP financials, among other programs), its branches run applications including a 15-year-old, much redeveloped COBOL-based point of sale (POS) system on the Linux platform. Some stand-alone PCs still use the Windows operating system.

Farmlands made a significant hardware investment, replacing half its Unix ‘dumb terminals’ (most of which Waterhouse had bought second-hand at an auction for $200 each!) with the new Wyse thin client terminals. Waterhouse says branches now average two PCs and between two and six thin client terminals, with 28 HP servers supporting the branches.

“Hardware makers favour the Windows operating system, which is why we found the Wyse terminals superior for use as thin clients.”

He says there were issues with Linux, including constant changes being made to the source code, but operational problems were minimal. “We learned that Linux changes quite rapidly and it gets too many updates. So things we’d get working we’d find didn’t work later on.

Or we’d get everything working and then the hardware platform would change. We had little, niggling problems we ironed out. But we also controlled the rollouts carefully. If something is going to go wrong, you don’t want it to go wrong 27 times.”

In retrospect, Waterhouse says the Napier branch pilot lasted about the right amount of time (“If we’d allocated longer, we’d have taken longer”) and the time Farmlands spent in planning and execution made a huge difference to user buy in.

“We had someone from head office go to each branch at the time of the Linux and intranet access roll out. If you are on the spot and can answer user questions you save yourself a lot of trouble.”

Waterhouse demonstrates just how much trouble can be saved by describing an incident in which he once (by phone) asked a user to shut down their system and restart it. The repeated restarts weren’t working until Waterhouse realised the user was shutting down the computer’s monitor instead of the CPU. “We’ve learned that people are not as good as you think they might be. And they don’t like change,” he says.

Waterhouse says a timely project was always going to be important, particularly half-way through the rollout.

“We had half our branches on Unix and half on Linux. So we couldn’t take forever, because once we began we couldn’t make changes to the [Unix-based] POS software.”

Legal undercurrents

Although research conducted into the local Linux market shows few organisations are ready to invest significantly in Linux [see MIS New Zealand’s March 2003 cover story], Waterhouse says Farmlands never considered large-scale Linux take-up to be a risk.

“It’s true that we looked for reference sites in New Zealand and couldn’t find them; the only other retailer investigating Linux to the extent we were proposing was Burger King. But we’re a co-op, and so are required to be a low risk organisation. We consider our Linux investment to be very low risk.” Waterhouse says the Linux system entirely meets Farmlands’ branch IT needs.

“Stock management is about management, not just information. You can do a lot without developing a phenomenal system to give you real time information. Good management will deliver better dividends than fancy IT.”

Nor is he fazed by recent court action on the part of SCO, owners of the Unix operating system, against developers of Linux software possibly containing Unix source code. The complex row, which blew up late last year, began with SCO claiming IBM allowed parts of SCO’s Unix V source code – licensed to IBM for use in AIX – to be used in the rival Linux operating system kernel.

However, Novell and SCO itself have also made Unix code additions. Companies such as IBM write their own code, and Linux was developed separately. While unaware of the row, Waterhouse says NCS has worked with Red Hat Linux to develop the Farmlands system. “Red Hat is pretty universal, so we feel secure about that.”

On August 4, Red Hat filed a formal complaint against The SCO Group. The preamble to that complaint stated: “The purpose of this complaint is to demonstrate that Red Hat’s technologies do not infringe any intellectual property of SCO and to hold SCO accountable for its unfair and deceptive actions … Red Hat is confident that its current and future customers will continue to realise the significant value that our Red Hat Linux platform provides without interruption.”

The cost base

Waterhouse says the biggest incentive for Farmlands to move to Linux was undoubtedly cost.

“When you analyse what our Linux investment cost compared to what a Unix investment would have cost, and put that together with the extra time the Linux system provides for branch managers to build customer relationships, the payback is extensive.”

While Farmlands’ courier fees won’t drop – because head office requires its stores to courier other items once or twice a week – Waterhouse says even small savings add up to a lot when you multiply them out 27 times.

“If you have something that costs a branch $10 a week, that’s about $14,000 a year in administration costs for 28 branches.”

He won’t give an exact figure for Farmlands’ Linux investment, other than to say it is six figures. However, he says the total cost includes the purchase of thin client hardware and training. Linux, he says, generated a one-off cost for software redevelopment.

“If we’d got the new Unix licence it would have lasted a couple of years. Linux redevelopment cost only a third of the cost of Unix licensing. Not only that, but if we had wanted to move from 16 Unix users to 18, we’d have had to move up to a 32-user licence with Unix.”

Having moved to a Linux operating platform, Waterhouse says he will eventually look at alternatives to office application licensing; Farmlands still uses Microsoft Works on stand-alone PCs.

“It’s not something we’ll be looking at for a while, as Works is perfectly adequate. But when it’s time to re-licence, if we buy 56 MS Office licences, we’d be into the tens of thousands, whereas Linux’s Open Office licences will cost us nothing.”

Tackling e-business hype

But how well will Farmlands’ new Linux systems provide for any future e-business plans? Put another way, how does Waterhouse feel about being out of the Microsoft .Net loop?

“With farmers, their interest in e-business, as opposed to just accessing information online, is still 1 on a scale of 1 to 10. They’re not rushing to us saying, ‘We want this.’”

He says while more farmers are online, thanks to farming sector e-business champions like Fonterra, the number is generally overestimated.

“Often [rural internet research] goes by the number of rural internet connections. But the farmer’s kids may be the only ones using the internet, the farmer may never go near it.”

In support of this view, Waterhouse says he has received the grand total of two requests from customers wanting to access their credit card information in real time from the Farmlands website (Farmlands has its own credit card and loyalty scheme). But, says Waterhouse, even if IT systems permitted it, Farmlands receives electronic updates from the agencies that accept its card only twice a month. In other words, daily transaction information for a Farmlands card is not available offline – never mind online.

“Instead, we send statements electronically, and many farmers then import the data from these into their accounting packages.”

Waterhouse, who previously worked for Lion Breweries, says his IT position at Farmlands “evolved”.

“I’m involved with statutory accounts; financials; accountancy; internal auditing; budgeting; all the IT; managing the cash flow; and a large side of the agencies which accept our credit cards. The boss sometimes describes me as the protector of margin.”

Not surprisingly, he works 60-hour weeks; something that will probably change when his Palmerston North home sells and his wife makes the move to Napier (Waterhouse presently commutes between the cities).

Tongue in cheek, he says he likes IT projects that don’t involve relying on people. “The worst thing about any job is managing people.”

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