EPICOR EXPRESS WEIGHS IN AS A CONTENDER FOR SAAS ERP

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1 March, 2012 EPICOR EXPRESS WEIGHS IN AS A CONTENDER FOR SAAS ERP What is Epicor ERP? Epicor ERP, originally referred to as Epicor 9, is the culmination of an eight year effort to converge 9 different product lines. The first step was to create Vantage 8, which merged functionality, providing a growth path for: Epicor Avante Epicor DataFlo Epicor Manage 2000 Epicor Manfact Epicor Vantage 6.0 Epicor Vista Epicor ERP completed the vision with the convergence of three ERP systems and adds Global Financials into the mix: Epicor Vantage Epicor Enterprise Epicor iscala Epicor ERP is available in 3 editions: Epicor Enterprise Edition Epicor Standard Edition Epicor Express Edition In the recent Mint Jutras publication The Pros and Cons of SaaS ERP, the advantages appear to outweigh the disadvantages of Enterprise Resource Planning (ERP) deployed as Software as a Service (SaaS). As noted in that report, the depth and breadth of choice between solutions and deployment options have never been greater. While Epicor has been providing enterprise applications to manufacturers for more than 20 years, it entered the SaaS ERP race in May 2010 with Epicor Manufacturing Express Edition. With 20 months of SaaS experience to its credit, how does Epicor deliver the advantages of SaaS and how does it address those lingering concerns? WHAT IS EPICOR MANUFACTURING EXPRESS EDITION? Epicor Manufacturing Express Edition is a simplified version of its flagship product Epicor ERP, configured specifically for job shops and discrete manufacturers and delivered only using a SaaS model. The simplification process involves hiding selected features and functionality in order to remove some of the complexity inherent in a comprehensive enterprise-level ERP solution, making it more digestible for smaller companies with less complex environments. Epicor Manufacturing Express Edition (Express) targets manufacturers who need 10 users or less, although Epicor admits this number is somewhat arbitrary. Actual customers might have as few as one, two or three users, or as many as 20 to 25. It s more about the level of complexity of the manufacturing environment than it is about number of users. But because functionality is hidden and not actually removed, the solution remains scalable as companies grow both in size and complexity. Epicor ERP as the base product is packaged into three versions: Epicor Express Edition, Epicor Standard Edition and Epicor Enterprise Edition. As companies grow and may need more features and functions than have been packaged into Express, there is a good chance the features are already included in Epicor ERP. In some cases those hidden features can be turned back on, allowing the customer to remain in a SaaS environment. But if you outgrow Express, you can easily move to the Standard Edition. Today the Standard Edition is offered in an on-premise environment or a hosted environment. But this hosted environment can include managed services, allowing customers to continue to avoid investing in their own Information Technology (IT) infrastructure and staff. It is an evolutionary (and not revolutionary) path.

2 Page 2 of 9 SAS 70 Type II certified Statement on Auditing Standards No. 70: Service Organizations, commonly abbreviated as SAS 70 The SAS 70 certification was developed by the American Institute of Certified Public Accountants (AICPA) to annually audit the effectiveness of operations, controls and safeguards to host and process data. Express is offered as a multi-tenant SaaS solution where multiple companies use the same instance of software hosted from a SAS 70II certified data center. Unlike some of its SaaS-only competitors, it is not pushing its underlying cloud infrastructure as a Platform as a Service (PaaS) or an Infrastructure as a Service (IaaS). Epicor does not intend to dictate the platform or the environment to its customers and will offer up choice. As part of the Epicor ERP family of products, Express is built on Epicor Internet Component Environment (ICE), a second-generation Service-Oriented Architecture (SOA) and Web 2.0 technologies. In fact ICE provides the infrastructure that allows Epicor to both hide, as well as un-hide functionality and allow a certain level of customization, in spite of being delivered exclusively via SaaS. Express includes customer relationship management (CRM), product management, production management, materials management, financial management and built-in business intelligence. Built-in best practices are also layered on top of the software and templates and even a chart of accounts can be delivered right out of the box. Data migration tools can be included in the implementation package or not. These tools provide the ability to import data from QuickBooks, Sage Peachtree, or other sources where the data can be exported to a flat file format. Before diving in further, let s first meet an Epicor Manufacturing Express customer. EPICOR EXPRESS CUSTOMER: CHIRCH GLOBAL MANUFACTURING Chirch Global Manufacturing, LLC (Chirch Global) is an Illinois-based manufacturer that designs and builds close tolerance progressive dies and manufactures high-quality metal fabrications, stampings and assemblies. Chirch Global is a family-owned business founded by CEO Anthony L. Chirchirillo in In 2008, it acquired a precision metal stamping company based in McHenry, IL. With that acquisition it also inherited Epicor Vista. But the version installed was extremely outdated and as Tony Chirchirillo described it was, just one tick above manual processes. We couldn t extract even rudimentary information we needed. So the company knew it had to do something. Mr. Chirchirillo said, We had to make a decision. We could have upgraded to the latest server-based version, but manufacturing operations is a changing landscape and we would have quickly become out of date soon after. I didn t want to just catch up; I wanted to leapfrog the competition. We needed to come up with a revolutionary approach to managing our business information. Strategically, I wanted to go with a SaaS solution. To me, it s the way of the future. We didn t want to implement, only to have to re-implement again in the near future. With a SaaS solution we can always stay current. Cloud-based

3 Page 3 of 9 solutions also level the playing field for small to midsize enterprises (SMEs) to compete. Most of our customers are large global entities and they expect us to have a sophisticated ERP system to meet their just-in-time requirements. SaaS is an economical way to accomplish that objective. SMEs don t have the pocketbook for expensive hardware, software or IT professionals who are high priced, difficult to find and difficult to keep. So why did the company select Epicor Manufacturing Express Edition? The company knew it would be necessary to go through a full-scale implementation. It was Epicor s deep roots in manufacturing combined with a cloud-based solution that first attracted Chirch Global. Mr. Chirchirillo points out, While some SaaS solutions start out as cloudbased financial modules, or simply less complete or not integrated solutions, and then slowly piece together a full solution for manufacturing, Epicor went in the opposite direction. It accumulated decades of manufacturing experience first and then moved into the cloud. Epicor made a compelling business case because of its historically strong job costing capabilities. The heart of manufacturing is in the costing, the detailed cost components that drive gross margins. So we started with full, robust functionality right out of the box, and it was fully integrated. We feel we made the right strategic and long-term decision for our growing global business. We view Epicor as our business partner. Our working relationship is seamless. After acquiring the precision metal stamping company, we were looking to infuse a cultural change to professionally manage the business. We needed a state-of-the-art information management system to help us accomplish that objective. Today we have complete connectivity. With a high speed Internet connection, our team can have instant access and transparency to fundamental management information 24/7. It gives us the ability to stay focused on our customers and our business, not on IT infrastructure. With those introductions complete, let s examine how Epicor delivers some of the anticipated advantages of SaaS ERP and how it addresses fears and concerns that might remain. DELIVERING THE ADVANTAGES While all respondents cited a variety of different reasons why they found SaaS ERP appealing, two themes began to emerge: costs and upgrades. How individual solution providers deliver some of these benefits varies significantly and therefore we ll delve into them in more detail. Other perceived benefits such as the ability to pay for ERP as an operating expense (OpEx) versus a capital expense (CapEx), the ease of bringing up remote sites and supporting a remote work force and the avoidance of Information Technology (IT) resource costs (including hardware and staff) are more generic.

4 Page 4 of 9 Cloud-based solutions level the playing field for SMEs to compete. Most of our customers are global entities and they expect us to have the systems to keep up. SaaS is an economical way to accomplish that. We don t have the pocketbook for expensive hardware, software or IT professionals who are high priced, difficult to find and difficult to keep. Anthony L. Chirchirillo, CEO, Chirch Global COST CONSIDERATIONS Both startup costs as well as longer term total cost of ownership (TCO) are often major factors in choosing SaaS over more traditional on-premise solutions. In large part because Epicor has packaged Express to appeal to smaller manufacturers, it has also kept the pricing simple and transparent. The first user is $399 per user per month and additional users are $129 per user per month. When Express was first introduced back in 2010, that was pretty much all you could buy, but now there are a few ways to expand on the pre-packaged functionality. Today several additional modules, including project management and product configurator, can be optionally added for a minimal fee. Integrated 3 rd party products are now available with Express as well. An example is Agile Ship Connect, which is used to integrate with shippers such as Federal Express (FedEx) or United Parcel Service (UPS). IS THE COST REALLY LOWER? There are still some that feel the cost of SaaS ERP is really not that much more inexpensive than on-premise, particularly over the longer term. Of course, this does not take into consideration avoiding the cost of hardware or internal IT resources to manage the installation. But even if you ignore the hardware factor, there is one advantage of purchasing SaaS ERP from a vendor that offers both SaaS and on-premise. That solution provider should be able to draw an apples-to-apples price comparison between the two deployment options. WILL THOSE COSTS ESCALATE? As noted in The Pros and Cons of SaaS ERP, an additional fear was one of escalating costs over time. After all, the price you pay for a subscription today may not be the price you pay next year, or at the end of the term to which you have agreed. However, Epicor has built a price assurance clause into its Service Level Agreement (SLA) which guarantees it will cap any end-of-term price increases at the Consumer Price Index (CPI). However, just because Epicor can inflate the price at the rate of inflation doesn t mean it will. In fact so far existing customers have not experienced any inflation from term to term. PRESERVING YOUR INVESTMENT Epicor has also built in an investment protection clause. As companies grow in size and complexity, the path forward today is to move from Express to the Standard Edition. As noted previously, the Standard Edition, as well as the Enterprise Edition, are either licensed for on-premise or hosted deployment, and both expand the available modules beyond what is included within Express. So does this mean the customer must now purchase a license? Until such time as the Standard Edition is made available as SaaS (which may indeed be a future offering), the short answer is, Yes.

5 Page 5 of 9 However, in moving from Express to Standard, customers are unlikely to pay full price for that license. Epicor s investment protection clause allows customers to earn a 20% discount per year off the price of a Standard license. So if they stay on Express for only one year, they will get a 20% discount off. But if they run on Express for five years or more, then they simply have to pay for those modules that were not included in Express and that they now need. KEEPING CURRENT: UPGRADES The availability of more leading edge technology through more frequent updates is second only to lower TCO in terms of the perceived advantages of SaaS ERP. MINOR UPDATES Epicor distinguishes between major and minor releases. Minor releases may be applied without the customer even being aware of the update, especially if the innovation does not directly and visibly impact daily operations. This keeps customers updated yet relieves them of the burden of scheduling and executing this type of upgrade. A minor update may also be performed to accommodate one-off requests for particular customers and are invisible to other customers. We want to always stay current. We didn t want to implement, only to have to re-implement again in the near future. With a SaaS solution we can always stay current. Anthony L. Chirchirillo, CEO, Chirch Global MAJOR UPDATES Because the Express, Standard and Enterprise Editions are all based on the same underlying code set, major releases are necessarily tied to Epicor ERP releases. After a major release the team responsible for Express applies the templates and conducts further internal testing to ensure the release is ready to go into production. While always having the latest and greatest is a plus, there is often a perceived trade-off in terms of the upgrade process. While relieving the customer of much of the burden is generally viewed positively, some users express concern over losing control. To address this fear, each Express customer is provided with a test area separate from its live production environment. Epicor first upgrades customers non-production environment and allows them a month to pilot the new version. During this pilot phase, the customer can evaluate the enhancements delivered and elect to use the new functionality or not, or perhaps simply to delay in turning it on. While Epicor Express Edition is a relatively new SaaS offering, the underlying product is a very mature application and innovation never forces a major change to the business. But yes, the customer is kept on an Epicor-defined time table. However this can actually be a good thing. No procrastination allowed and let s face it, work tends to expand to fill the time allowed so vendor-imposed upgrades can keep companies honest about being up-to-date.

6 Page 6 of 9 SaaS versus Hosted SaaS or on-demand: The software itself is not licensed or owned by the end user, it is provided as a service. SaaS solutions can be multitenant or single tenant. Hosted: Licensed applications are hosted by an outside third-party. This may be in a separate instance on a separate piece of hardware, or in a separate virtual instance (dedicated to your company) where the application is housed on hardware shared by multiple companies. Hosted applications are single tenant. We could have upgraded to the latest version of Vista, but manufacturing operations is a changing landscape and we would have quickly become out of date soon after. I didn t want to just catch up; I wanted to leapfrog the competition. We needed to come up with a revolutionary approach. Anthony L. Chirchirillo, CEO, Chirch Global CUSTOMIZATION One-off modifications mentioned above are really customizations. It is important to note here the difference between customizing and configuring or tailoring within the confines of the standard product. The difference is more than just terminology. All modern ERP solutions today provide some level of tailoring without the need for customization, whether it is the configuration of screens, the development of dashboards, inquiries and reports or the configuration of standard work flows, to name just a few. This type of tailoring generally keeps companies from having to muck around in the underlying source code and presents little or no barrier to upgrading. While Epicor doesn t allow source code changes to Express, customers can customize/configure the system with the embedded design tools. For example, modifications may include adding/removing fields on a screen or modifying the flow of the business process. As the customizations are at the metadata level, all customizations are customer unique and protected through upgrades. Further, if a customer prefers Epicor Custom Solutions Group can perform the work for them. But what about those who feel they must heavily customize, including existing Epicor customers that are running customized versions? In this case, moving to Epicor Express would require reimplementation to eliminate custom code. However, it is far more likely that these existing customers would be running one of Epicor s legacy applications (e.g. Vista, like Chirch Global) and not Epicor ERP. Therefore moving to Express would likely be a reimplementation anyway. While often reimplementation is viewed as a dirty word, most Epicor customers that have already taken this route view it instead as an opportunity to reengineer their ERP implementation to take better advantage of new functionality and technology. Functions that used to require a customization could very well be available as standard features today. Would Epicor offer a single tenant environment to accommodate more invasive customization for an additional cost? The answer is a qualified, Yes. Why qualified? Because it is more likely that a customer who truly has a need for heavy customization is a better candidate for the Standard Edition running in a hosted environment with managed services. ADDRESSING LINGERING CONCERNS While SaaS ERP is gaining in acceptance, there is still a significant segment of the population who will not consider this deployment option and even those that will consider it still have some lingering concerns. Only 10% of the Mint Jutras ERP Solution Study indicated they had no concerns whatsoever in considering SaaS ERP. We have already addressed the issue of the possibility of escalating cost (Epicor s pricing assurance clause) and also touched on fear

7 Page 7 of 9 of loss of control over upgrades and requirements for customization. Some additional concerns are quite easily addressed. While some SaaS solutions start out as cloudbased financial modules or less complete or not integrated solutions, and then slowly piece together a solution for manufacturing, Epicor went in the opposite direction. They accumulated decades of manufacturing experience first and then moved into the cloud. Anthony L. Chirchirillo, CEO, Chirch Global LACK OF ROBUST FUNCTIONALITY As noted in The Pros and Cons of SaaS ERP, there is still the perception among 23% of survey respondents that SaaS ERP solutions do not offer the same level of robust functionality that on-premise solutions provide. Where the exact same solution is offered through both deployment options, this point becomes moot and the question comes down to whether the solutions being considered adequately meet your needs. While Express, like its on-premise counterparts, is based on Epicor ERP, which is a very mature and robust solution, it is not identical to the other Editions of Epicor ERP. Some of the functionality has indeed been masked from sight. However, remember that this functionality is hidden and not eliminated and the decision as to what to hide or disable was a very carefully crafted one, targeting prospects with less complex manufacturing environments. If your manufacturing and inventory management requirements are more complex, a hosted version of the Standard Edition may be the better option. But often companies looking for a solution today will also anticipate needs that will allow a solution to scale with them as they grow. If the Express meets your current needs, chances are you will save money by choosing it. And by the time you need options available only by upgrading to the Standard Edition, who knows? Perhaps it will be offered with a SaaS deployment option by then. If not and you are not ready to go on-premise, there is always the hosted model. THE RISK OF DOWNTIME The risk of downtime and unpredictable performance was cited by almost half (46%) of survey respondents and therefore requires due diligence in considering different SaaS ERP solution providers. In the case of Epicor, its standard SLA has a written guarantee of 99.5% uptime. Credits to your monthly fee are applied if this performance is not met. BUT WHAT ABOUT SECURITY? As noted in The Pros and Cons of SaaS ERP, the top concern in considering SaaS deployment is security, with 58% of survey respondents expressing this fear. And as noted in that report, with so much data and access available online today, everyone should be concerned over security, regardless of deployment option. express concern It is almost a certainty that the small manufacturers that Epicor targets with Express do not have a dedicated IT security expert on board, all the more

8 Page 8 of 9 reason to leave security and other IT issues to the experts, including networks, storage, operating systems, databases, application servers, web servers, disaster recovery and backup services. These are all services for which Epicor takes responsibility. KEY TAKEAWAYS Epicor Manufacturing Express Edition is a simplified version of Epicor ERP, a mature ERP solution which integrates a broad range of functionality including CRM, product management, production management, materials management, financial management and built-in business intelligence. Configured specifically for job shops and discrete manufacturers, it is delivered exclusively using a multi-tenant SaaS model. By hiding features and functions that add complexity, its target is more about the level of complexity of the manufacturing environment than it is about size. But because functionality is hidden and not actually removed, the solution remains scalable as companies grow. Because it shares the same architecture, and literally the same code as its big brothers Epicor Standard Edition and Epicor Enterprise Edition, as manufacturers grow in both size and complexity, moving up is evolutionary, not revolutionary. Epicor has made the price of entry quite affordable, with low up-front setup (and optional data migration) costs and recurring fees for an average six user system costing less than $1,100 per month. Its pricing assurance clause protects customers from unexpected price hikes and its investment protection clause provides a 20% discount per year when moving up. After five years on Express, license costs for moving to the Standard Edition are reduced to the license fees for any new modules added and training is minimized because processes and navigation don t change. The system is hosted from within a SAS 70II certified datacenter and Service Level Agreements guarantee 99.5% uptime. For small job shops and discrete manufacturers looking for their first ERP solution, or looking to replace existing applications that cannot effectively meet their current and future needs, weigh carefully the pros and cons of SaaS ERP, but also consider Epicor Express as a contender: Lightweight in terms of complexity. Heavy weight in terms of ERP maturity, security and protection. Can Epicor Express float like a butterfly and sting like a bee?

9 Page 9 of 9 About the author: Cindy Jutras is a widely recognized expert in analyzing the impact of enterprise applications on business performance. Utilizing over 35 years of corporate experience and specific expertise in manufacturing, supply chain, customer service and business performance management, Cindy has spent the past 6 years benchmarking the performance of software solutions in the context of the business benefits of technology. In 2011 Cindy founded Mint Jutras LLC ( specializing in analyzing and communicating the business value enterprise applications bring to the enterprise.