The Total Economic Impact™ Of Epicor Kinetic For Manufacturing

A modernized enterprise resource planning (ERP) solution is critical to running a successful manufacturing company. Manufacturers have a unique need: They need an ERP with the breadth to connect siloed business areas together, the depth of capabilities and customizability that they need to meet changing customer demands, and the ability to scale for expansion and growth. Epicor Kinetic is a cloud ERP solution optimized for manufacturers with composable modules for performance and scalability, as well as real-time business intelligence and AI, enabling manufacturers to extract incremental revenue growth, improve gross margins, and drive overall productivity.

As business executives modernize their legacy technology to meet today’s business needs of agility and innovation, they are replacing their traditional ERP systems with cloud architected software-as-a-service (SaaS) solutions. These new systems are more open, modular, cloud-architected, and ecosystem oriented compared with their predecessors. Increasingly, they support modern development techniques and provide AI capabilities. Forrester uses the term modern ERP to refer to this newer generation of ERP systems.¹

However, general-purpose ERP tools are built horizontally to support a broad swath of industry verticals and can be challenging to implement for most organizations with annual revenue less than $5 billion (vs. mega enterprises that are pragmatically not limited by resources). ERP solutions optimized for manufacturing include features such as supply chain optimization; configure, price, and quote (CPQ) for complex and customized manufacturing; bill of materials (BOM) management; inventory management; and financial reporting to comply with global standards. With an overlay of AI capabilities optimized for manufacturing ERP platforms, organizations can accelerate their delivery of new products and product variants.²

In addition to technological advancements, market and customer expectations for more customized products, innovative delivery mechanisms, and add-on services create market demands for these manufacturers. Largely due to the COVID-19 pandemic, which was both an unexpected and drastic demand and supply shock, manufacturers have been compelled to transform operations and realign their global supply chains. Factories that produce varying volumes for a smaller set of customers and/or deal with a limited set of suppliers are uniquely challenged to handle more complex operations with on-time delivery.

Epicor Kinetic is a cloud ERP solution optimized for manufacturers with composable modules for performance and scalability, as well as real-time business intelligence and AI, enabling manufacturers to extract incremental revenue growth, improve gross margins, and drive overall productivity. The system utilizes real-time business intelligence and tailored collaboration tools to streamline manufacturing processes for even the most complex products. Kinetic leverages Epicor’s experience in the world of diversified manufacturing organizations.

Epicor commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Kinetic.³ The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Kinetic on their organizations.

To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed five representatives from four organizations with experience using Kinetic. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization that is a discrete diversified manufacturing organization with $150 million in annual revenue in Year 1 expanding through acquisition to $300 million in Year 2.

Interviewees said that prior to using Kinetic, their organizations’ legacy ERP systems didn’t provide the resilience and scalability needed to continue growing. Their ability to collect data across all sites was limited, and their systems were not optimized or designed with manufacturing processes and systems in mind. These challenges hindered their organizations’ ability to compare performance, control pricing, drive improvements, and scale at the enterprise level. Ultimately, the legacy systems that were in place at the interviewees’ organizations, which included homegrown systems or less effective ERP platforms, were not meeting their needs and were hindering their ability to remain competitive in their respective industries.

After the investment in Kinetic, the interviewees noted their organizations immediately saw improvements in their end-to-end processes. Key results from the investment in Epicor Kinetic include increases in revenue, improved margins, and better productivity across their ERP support, IT, and operations teams. The interviewees’ organizations also experienced a smooth, fast implementation process with Kinetic, which provided faster time to revenue than they had with their legacy platforms.

Key Findings

Quantified benefits. Five-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:

• Net revenue improvement of 6.6% by Year 5 due to operations efficiencies. With Kinetic, the composite organization realizes operational efficiencies for factory production and the ability to deliver more units of product without a meaningful increase in resources. Compared to the prior state, the composite sees improvements in operational efficiencies for factory workers and experiences reductions in lead times and past-due backlog, among other revenue-driving metrics. The five-year profit generated from this incremental revenue is just over $4.1 million.

• Faster time to revenue with Kinetic deployment reducing time by 20%. The composite organization reaps the benefits of Kinetic sooner, thanks in large part to the faster implementation timeline. While other ERP tools take a longer time to deploy, the composite organization takes advantage of the embedded business intelligence capabilities in Kinetic, helping it get the ERP system deployed faster and thus reduce the time to revenue for each newly deployed factory. The five-year profit resulting from two faster deployments for the composite amounts to more than $2.1 million.
• Gross margin increases by as much as 1.9% through improved cost efficiencies. In addition to improving time to revenue and overall sales, the composite organization also benefits from Kinetic by reducing its costs, which in turn helps increase its gross margins. Having a better understanding of supplier relationships has a positive impact on gross margin and additional improvements, such as better procurement practices, improved inventory management, reduced write-offs, and standardization of BOM collectively contribute to the composite organization’s gross margin impact. The composite yields under $10.7 million in five-year profits from this benefit.
• Improved the net productivity of business users by 20% and the net productivity of the ERP support team by 40% by Year 3. The composite organization’s team of business users improves productivity by 20% after fully implementing Kinetic across all three factory locations. These users saved time through faster reporting, easier price adjustment processes, and reduced time spent cross-referencing data with a legacy ERP. The core ERP support team supporting Kinetic achieves a net productivity improvement of 40% by Year 3 after fully implementing Kinetic. The five-year value of this benefit for the composite is over $2.5 million.

• Cost savings from reducing or retiring legacy platforms totaling $956,000. The composite organization can phase out its two legacy ERP systems after implementing Kinetic across all three of its factory locations. Maintenance fees for these previous ERP systems total $240,000 annually and internal support costs total $270,000 annually. The composite organization saves 100% of those maintenance and support costs by Year 5, when both legacy ERP platforms are fully decommissioned and are no longer in use.

Unquantified benefits. Benefits that provide value for the composite organization but are not quantified for this study include:

• Improved product quality. Kinetic users at the composite organization can more easily customize their products and streamline production processes to improve overall product quality. With Kinetic, the composite organization is able to make better engineering drawings and track any changes made to products in real-time. These changes can be accessed and reused for future production efforts, which ensures overall quality and consistency in the composite organization’s products.
• Increased responsiveness with changing customer needs. Customer needs are always evolving in their sophistication and complexity. By implementing Kinetic, the composite organization can leverage data to improve overall responsiveness to customer needs. Kinetic enables the composite organization to adapt to product customizations or meet a new delivery timeline, and having information ready generally helps the company to be more proactive with changing customer needs.
• Simplified processes to improve employee satisfaction. The benefits of implementing Kinetic stretch beyond the customer-facing aspects of revenue and product quality. Having features like centralized dashboards, streamlined reporting, and sophisticated production monitoring that are all bolstered by Kinetic’s AI capabilities, the composite organization helps to make their employees’ jobs easier.

Costs. Five-year, risk-adjusted PV costs for the composite organization include:

• Kinetic solution costs. Subscription costs for Kinetic Cloud reflect the number of users the ERP platform has within the composite organization. Epicor typically recommends add-ons for manufacturing companies like the composite organization and estimates for those are also included in the financial model. These costs total just over $2.0 million over five years.

• Initial and deployment-related training. The composite organization needs to dedicate resources to train its ERP support and business teams on how to best leverage the Kinetic solution. Business users require 5 hours of training for Kinetic, while ERP support team personnel are estimated to need 20 hours of initial training. Both sets of users increase incrementally as Kinetic is implemented in each additional factory. These costs total under $270,000 over five years.

• Kinetic deployment costs for additional factory deployments. The composite organization needs centralized ERP resources and local factory SMEs to deploy Kinetic at its factories. These costs also include the time Epicor’s professional services team spends helping with Kinetic deployment. Over five years, these costs total under $2.5 million.

• Ongoing support costs. The composite organization incurs ongoing costs to support the Kinetic platform. Just as the composite organization saves on these support costs from decommissioning its legacy platform (Benefit E), it needs to pay for ongoing support costs for operating the Kinetic platform. The total for this cost is over $780,000 over five years.

The representative interviews and financial analysis found that a composite organization experiences benefits of $20.39 million over three years versus costs of $5.50 million, adding up to a net present value (NPV) of $14.88 million and an ROI of 270%.

Appendix C: Endnotes