Sage has published a Total Economic Impact (TEI) report on Sage X3 created by Forrester. The seventeen-page report uses the standard TEI methodology developed by Forrester to analyse the benefits, costs and risks associated with using Sage X3 in a global mid-sized composite company based primarily in the US and EMEA. The findings are based on nine in-depth interviews with companies that have used Sage X3 for more than three years.
The financial benefits
The report looks at the quantified financial benefits across a range of departments. In total, the composite organisation realised a risk-adjusted present value benefit of $2,366,986. This was broken down further by function with the top three benefits by value as:
- Sales Management – sales discount savings $559,542
- Purchasing – materials and productivity savings – $528,456
- Inventory Management – reduced inventory levels $367,059
The report then breaks down each of these savings analysing how they were achieved and justifying the figures used. The Sales Management discount was calculated from the benefits that Sage X3 delivers through a centralised discounting approval process. With a centralised control of discount approval, organisations can ensure that guidelines are followed, and local discounting does not breach guidelines. This is perhaps the hardest number for Forrester to justify. Discounting can adversely impact baseline sales (Kopalle, Mela and Marsh.
Forrester is basing the figure on annual revenues of $125 million with discount avoidance levels of 0.2%. There is no reflection on if the more uniform discounting impacts revenue. It is also not clear from the report whether this saving is based on any statistical model or just an assumption. Did Forrester simplify the composite revenue number to show no growth over three years? A similar TEI report (registration required) about NetSuite indicated significant growth for the composite organisation across three years.
The savings for purchasing are better evidenced, though Forrester still uses some assumptions. Global pricing that Sage X3 can help manage and a reduction in FTEs annually make up this figure. Inventory Management benefits are probably the best quantified. The organisation saw a 12% reduction in average inventory levels (for some inventory) and a reduction in headcount. The report is comprehensive, yet when analysed, deeper does not seem to fully evidence all of the findings.
While the main focus is the financial benefits, it is the qualitative benefits that may hold greater interest. These benefits include:
- Workflow Automation enables the creation of alerts and notification that enable employees to work by exception. It makes jobs more efficient, as employees do not need to spend so much time reviewing and can spend more time taking actions and thereby make a difference
- Streamlining document management with documents ingested into Sage X3 means employees across an organisation can see the same version of a document quickly. This reduces paper costs and decreases error rates. There is no financial saving analysis of either of these in the report.
- Highlighted but not investigated are the benefits of Sage X3 working on mobile devices and the benefits of a centralised solution through M&A activity. There are several other benefits mentioned but not expanded upon in the report.
For example, benefits from implementing the manufacturing module include: “accessing manufacturing transactions and inventory in real-time with more accurate inventories and production schedules”. Other benefits also accrue from this simple statement: time saved from not having to do the monthly stock take, efficiency savings from using an online system rather than paper-based, both in terms of time and accuracy. One of the problems of taking a generic organisation is that some companies will adopt bar code scanners and mobile technology to drive greater savings. While some of this technology is mentioned, its use is not analysed
Costs and Risks
The report also analyses the costs associated with deploying and maintaining Sage X3. As an aggregated example, it is interesting in that it shows the potential costs of deploying and maintaining an ERP solution. While the total NPV amount is $756,397, this will vary considerably. The sample organisations interviewed ranged across different industries and employee numbers from 50 to 900. Forrester calculates that an ROI is delivered within the first six months with a total ROI over three years of 213%. It caveats this by noting that most organisations would expect to receive payback within six to 12 months.
Paul Struthers, Executive Vice President for Medium Segment, Sage, commented: “For industries that typically operate on low margins, technology investment must come with a rapid and significant ROI. As businesses navigate the new normal, they will increasingly seek ways to make their operations more agile, optimised, and efficient – Sage X3 is an ideal foundation for just this.
Disappointingly Forrester only highlights the risks associated with its financial analysis. There is no separate category that looks at any risks associated with the project and whether these were mitigated.
Enterprise Times: What does this mean
The TEI methodology does provide a uniform way of analysing the benefits of ERP solutions. Without further details of how Forrester reached all of its numbers, it is hard to challenge or validate many of the figures used. However, the high-level findings from the report appear valid. Costing savings due to a reduction in FTEs is more straightforward to validate than some of the savings used.
The report also highlights some of the competitive advantages that Sage X3 offers. Notably the ability to deploy on-premise or in the cloud. One customer, a technology manager, noted: “The biggest advantage with Sage X3 was additional flexibility and on-premises installation, whereas other vendors were pushing for cloud services. On-premises was our preference, and Sage X3 was instrumental in its support.”
This also means that savings as a result of a cloud deployment are not analysed. The world is likely going to adopt cloud more fully in the coming months, partly as a result of the pandemic and lockdown. In virtually ignoring it, Sage has left itself open to criticism from other vendors. The diverse nature of the companies involved in creating this report is also a weakness. While it demonstrates the flexibility of the Sage X3 solution, it also makes the findings less relevant.
Prospect of Sage will find some findings interesting. It includes understanding the possible savings that they could achieve and the likely costs of any solution. Most importantly, what functions areas they need to consider as part of any project and what changes they can make. This latter point applies regardless of whether any ERP solution is implemented. Tighter control of discounting is an issue for many companies apparently. If there are savings to realise there, perhaps sales and finance need to first validate whether they have an issue.