A Tale of a Few Good SCM Players - Part 1

Throughout the late 1990s and the mid-2000s, Manhattan Associates was the epitome of a well-managed supply chain management (SCM) software company in terms of market share, growth, profitability, and its products’ capabilities. Simply stated, the company set the industry standard for the supply chain execution (SCE) space and was the envy of its competitors. 

The Long Trail of Excellence

The company was founded in 1990 in Manhattan Beach, California, United States (US), and thus the name. Manhattan went live with its first customer in 1991, then signed its 50th customer in 1994, in which year the company had all but doubled in size, yet again.

In fact, AMR Research estimated at the time that revenues for 1995 were approximately $14 million (USD), and that revenues had doubled each year since 1991. The company relocated to Atlanta, Georgia (US) in 1995, and by in 1997 it boasted 200 employees and $32.5 million (USD) in revenue.

In 1998, the vendor held its initial public offering (IPO) and is still traded on NASDAQ under the MANH ticker symbol. In the same year, Manhattan opened an office in the United Kingdom (UK) and launched its Top 100 Retail Compliance Guarantee, which promised to meet all of the shipping and labeling requirements of the US's Top 100 retailers.

In addition, 1998 was the year of expansion via acquisitions, starting with Performance Analysis Corporation (PAC) for its slotting optimization capabilities. Another acquisition was some intellectual property from Kurt Salmon Associates (KSA).  Namely, Manhattan Associates acquired the former Distribution Center Management Systems (DCMS) application and related assets from KSA.

The two firms also announced the formation of a strategic alliance. With this transaction, Manhattan got a second IBM System i-based warehouse management system (WMS) product (in addition to its flagship pick ticket management system [PkMS] WMS product) and a very strong consulting partner focused on retail, consumer products, and health care industries with global coverage.

In fact, one of the four founders of Manhattan, Alan Dabbiere, was formerly with KSA, while Deepak Raghavan and P. Muthia worked together at Infosys Technologies, Ltd. The fourth founding partner was Deepak Rao; they all met while working on a project for Jockey International, which has remained Manhattan’s customer. In any case, the company had more than 170 clients in 1998 (with over 250 installations).

In 2000, Mahattan acquired Intrepa LLC, whose offering was the precursor and initial foundation of today’s Microsoft .NET Framework-based Manhattan ILS, or Integrated Logistics System. In that year, the vendor grew to $133.1 million (USD) in revenue, with 750 customers. In 2001, the company expanded business development and operations into France and Germany, and earned the International Organization for Standardization's ISO 9001 Certificate of Approval.

2002 was also a year of expansion after the acquisition of Logistics.com, which has allowed Manhattan to add transportation management system (TMS) capabilities to its bread-and-butter, world-class WMS solutions. This was also the year of geographic expansion, since the vendor opened its Center of Expertise (CoE) in Sydney, Australia and its Benelux Center of Expertise in the Netherlands. Manhattan also secured partnerships and began operations to serve customers throughout Asia-Pacific, including Japan and Singapore, and established an office in India.

The "Belle Epoque” Years

The mid-2000s represented even more of the vendor’s years of milk and honey. In 2003, Manhattan acquired ReturnCentral, Inc., and Streamsoft LLC that enhanced, respectively, the vendor’s reverse logistics and slotting optimization capabilities. At the same time, Manhattan joined the Auto-ID Labs (formerly Auto-ID Center) and announced its "RFID in a Box" solution (since subsumed into the company’s Radio Frequency Identification [RFID] Solutions).

Consequently, the vendor then expanded its Top 100 Retail Compliance Guarantee to include emerging RFID requirements. Calendar and fiscal year 2003 was closed out with more than 1,000 employees, more than 900 customers, and nearly $200 million (USD) in revenue.

2004 was a marquee year too, as in that year Manhattan introduced enhanced and integrated WMS and TMS products, grew research and development (R&D) staff by 33 percent, and incorporated operations in China and Singapore. In fact, the vendor expanded its worldwide presence to 1,400 employees in 20 offices and 11 countries. The relatively quiet acquisition of Avere Inc., based in Mountain View, California (US), gave Manhattan distributed order management (DOM) capabilities.

As pointed out earlier on, Manhattan has been investing substantially in R&D, and since 2006 multichannel DOM capabilities have been part of Manhattan’s Supply Chain Process Platform (SCPP). Functional DOM capabilities are roughly equivalent to those of Sterling Commerce that were explained in TEC’s recent research article entitled “One Vendor's Exploit of Marrying Infrastructure with Selling and Fulfillment Applications.”

Namely, one vendor might perform some functional tasks that the other one doesn’t do, and vice versa, although Sterling Commerce has a larger number of DOM references. But both Manhattan's and Sterling’s DOM capabilities are beyond what has been offered by i2 Technologies within its customer order fulfillment offering. In my opinion, i2 is no longer a leading market participant in the realm of DOM.

Then, in 2005 Manhattan acquired Evant, thus expanding its solution footprint to include Planning and Forecasting, and Inventory Optimization (IO) modules. While the best-of-breed IO vendors like SmartOpsOptiant, and ILOG LogicTools (now part of IBM) do not compete with Manhattan for the same business, these same vendors, at least in my observation, have a somewhat different view of the IO world than Manhattan does.

Namely, all of the above named companies are manufacturing-process-centric. They provide "bolt-on" optimization engines essentially for enterprise resource planning (ERP) solutions (e.g., the SAP and SmartOps relationship). Manhattan’s IO solution has a purposely designed holistic approach to multiechelon inventory optimization for retail and wholesale distribution. Similar to ToolsGroup, Manhattan does not try to play in the manufacturing material requirements planning (MRP) and/or strategic network optimization (SNO) space either.

Broadening the SCM SCOPE

Furthermore, in its quest to continually expand its products via added capabilities to better serve its customers, in 2006 Manhattan launched possibly the industry's first fully integrated SCM suite spanning from supply chain planning (SCP) through execution (SCE). The idea here is to help customers use the business process management (BPM)-based platform to identify the weak links in their supply chains, reconfigure their business processes, and optimize their supply chain performance.

To that end, in 2006 alone, Manhattan added 400 employees to help initiate 260 implementations. The product suite was officially branded in 2007 as SCOPE: Supply Chain Optimization—Planning through Execution. Again, SCOPE aims to eventually bring together all the tools users need to integrate, upgrade, and optimize their supply chains on a single process-oriented platform.

The major Manhattan SCOPE modules are the following: Planning and Forecasting, IO, Order Lifecycle Management, Transportation Lifecycle Management, and Distribution Management. The unified platform approach aims to ease upgrades, extensions, and optimization.

At the same time, Manhattan introduced X-suite Solutions (currently consisting of Flow Management and Extended Enterprise Management) to address complex cross-functional business issues, such as collaborating with trading partners to efficiently communicate and ensure goods move smoothly to end customers at minimum cost. The vendor also introduced IBM Cognos-enabled supply chain intelligence (SCI) to enable the quick creation of dashboards, analytics, views, user-defined alerts, and key management reports.

It is thus small wonder that the company’s R&D investment continues to exceed its peers', and has increased 250 percent in the last five years, to the 2007 total of $45 million (USD) (and $200 million cumulatively over the last five years). During these years, Manhattan has grown to meet the needs of its more than 1,200 global customers by employing 2,000 people in 10 offices on four continents, with $337 million (USD) in revenue in 2007 and 2008. With the exits of the erstwhile market co-leader EXE Technologies in 2003 and Catalyst International in 2004, Manhattan Associates has since been the SCM company to beat.

Trying to beat Manhattan has been  the privately-held competitor RedPrairie Corporation. The company has always been a respected SCE player with equivalent products, but many times smaller (and thus less visible) than publicly held Manhattan Associates. For its part, JDA Software, prior to its blockbuster acquisition of Manugistics in 2006, was a juggernaut in the retail SCM space but plagued with obscurity.

This obscurity was in great part due to JDA's protracted disinterest in engaging in sharing its strategy with the market influencers and with a hodgepodge of point solutions on disparate technologies and with no coherent vision and strategy. For more details on the pre-Manugistics JDA, see TEC’s six-part series from 2004 entitled “JDA Portfolio: For the Retail Industry.”

The Turning Tides of 2008/9

Well, what a difference a few years can make. Based on recent quarterly reports, JDA Software and RedPrairie are still growing in a difficult environment, while Manhattan has been stagnating.

Let me reiterate here that Manhattan Associates is still a well-run company (with no debt), but has been somewhat hurting lately in terms of declining revenues. Still, it is a profitable company that is generating cash (currently at $90 million) due to prudent cost-cutting moves (including recent layoffs of about 10 percent of its global workforce) and in spite of its continued hefty R&D expenditures.

The company is almost done with service-oriented architecture (SOA)-enabling its functional modules and putting them on the underlying Java-based process platform. Namely, 22 out of 25 total modules can run on Manhattan Supply Chain Process Platform (SCPP) (the two mature IBM System i-based WMS products will not go on the platform anyway).

The above-mentioned DOM capabilities are the lynchpin that ties planning and execution together. The platform has a business rules engine, Eclipse-based supply chain process modeling capabilities, and a workflow engine. I was pleasantly surprised and impressed to learn of these capabilities that are along the lines of leading BPM offerings, as described in my recent “The Wizardry of Business Process Management” series.

Still, in an amazing reversal of fortunes, RedPrairie might even overtake Manhattan in terms of booked revenues this coming fiscal year or so, while JDA has long done that after assimilating Manugistics--with $390 million (USD) in revenue in 2008. We should note here a substantial difference between RedPrairie’s booked revenue figures and Manhattan’s recognized revenues in accordance with Generally Accepted Accounting Principles (GAAP).

Namely, in the software industry, accounting rules limit a vendor's ability to recognize revenue for software that is not completely implemented. This is especially true if any modifications are involved. Therefore, revenues typically lag bookings by two to four quarters from when the deal is signed.

Bookings are good indications of future revenue streams, but current revenue is a much more conservative look at the vendor’s results as required by GAAP. Regardless of the exact revenue figure, the mere notion of RedPrairie becoming even as large as Manhattan seemed like science fiction only a few years back.

Part 2 of this blog series will talk about RedPrairie’s genesis and try to explain the differing fortunes of the two archrivals. In the meantime, your comments and feedback with regard to the opinions and assertions expressed thus far are welcome. What are your experiences with any of the vendors and their SCM solutions mentioned in the article?
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