A Tale of a Few Good SCM Players - Part 4

Part 1 of this blog post series followed the genesis of Manhattan Associates from its inception in 1990 throughout the mid-2000s. During this time, Manhattan Associates was the epitome of an impeccable supply chain management (SCM) software company in terms of market share, growth, profitability, and its product capabilities. Indeed, the company set the industry standard for the supply chain execution (SCE) space and was the envy of its competitors.

But lately, the two competitors that had long looked at Manhattan from behind, RedPrairie Corporation and JDA Software, have been posting much more upbeat news in terms of growth in contrast to Manhattan’s declining revenues. Part 2 analyzed some possible reasons behind that occurrence and focused on RedPrairie’s track record.

Part 3 analyzed the current market dynamics in the retail sector, and explained the ongoing resurgence of JDA Software.

Part 4 of this blog post series will conclude with predictions about what’s in store (no pun intended) for all three renowned SCM vendors.

Deconstructing Manhattan, RedPrairie, and JDA

With an expanding product line, add-on business outside the traditional warehouse management system (WMS) workhorse has been a solid part of RedPrairie’s revenue stream. The acquired retail store systems mentioned in Part 2 have sold relatively well independently, although even this business has somewhat slowed during the ongoing recession.

The total customer count for RedPrairie's retail products is around 100, with a total of about 30,000 sites. The install base for the build-to-order (BTO) manufacturing suite is smaller, with about 30 customers. RedPrairie has cross-sold the retail applications to WMS customers and vice versa quite a few times, whereas the BTO in-line sequencing cross-sell has taken place much less frequently--only about a few times to the best of my knowledge.

RedPrairie is quite upbeat about its brand-new product, E2e Collaborative Flowcasting (or Flowcasting for short), which is basically demand sensing, but with an approach that is 180 degrees different from its traditional supply chain planning (SCP) counterparts. The process starts with actual item/stock-keeping unit (SKU) by store point of sales (POS) and inventory data to forecast demand up through the extended supply chain, and then adjusts the forecast daily based on the actual results.

In other words, Flowcasting is leveraging store data to direct more efficient and effective execution within the entire supply chain. The offering was the major focus at the RedShift:2009 conference, as well as RedPrairie’s brand refresh around productivity solutions for its traditional WMS, Workforce Management, and Transportation Management System (TMS) offerings. The vendor also announced and demoed the full E2e Business Process Platform (BPP) product and a new content library.

For its part, JDA is extremely strong within the overall Demand Management realm, from demand shaping, statistical forecasting, demand sensing, adaptive forecasting, promotional forecasting, and much more. For a long time, Terra Technology had been an inspiration for former Manugistics. Today, JDA is believed to be on a par with Terra because of their similar philosophies and focus on demand sensing and adaptive forecasting.

Recently, an executive from Oracle Retail told me that it used to be relatively easy to compete with JDA E3, with the former Retek Forecasting and Replenishment Planning product. However, that is no longer the case with JDA's single synchronized view of demand that leverages demand across all JDA’s respective solutions and drives plans for the following: merchandise, assortment, promotions, replenishment, transportation, and labor. Oracle’s executive begrudgingly admits to JDA giving Oracle Retail a run for its money of late, especially with JDA's essential link between retailers and consumer packaged goods (CPG) manufacturers.

Diversity and Simplicity Are the “Secret Sauce” Ingredients

In broader terms, I think RedPrairie's strategy of expanding its E2e Solutions (End-to-end) suite into retail operations, possibly even more in the future with Flowcasting, has been more successful than Manhattan's attempts to leverage the Evant acquisition to combine planning and execution (mentioned in Part 1). Manhattan has narrowed its focus too much, i.e., by still focusing on the distribution of finished goods and staying away from the the supply chain upstream (i.e., manufacturing) and downstream (i.e., in retail stores)--unfortunately at the wrong time, when diversification would have come in handy. For instance, sales and operations planning (S&OP) capabilities and store operations capabilities are sorely missed at Manhattan these days.

Although the vendor claims and believes to have an end-to-end SCM solution and platform (dubbed Manhattan SCOPE and SCPP respectively, as mentioned in Part 1), Manhattan has not yet figured out how to improve its sales holistically. The current economic environment seems more friendly towards recognized best-of-breed point SCM solutions that are easy to implement and result in quick payback.

Thus, I think that Manhattan has had only limited success with Evant in light of about 80 replenishment customers, especially due to only budding install bases in planning and forecasting.  One reason is the fact that former Evant was never a major SCP player and was not able to compete with the “big players” like JDA DemandOracle Retail (former Retek)i2 Demand ManagerSAP Demand Management, or even the lesser-known Island Pacific.

Second, the supposed advantage of integrating SCE and SCP isn’t there unless traditional SCP gets down to the store-planning level where execution takes place. That’s why I feel that an astute and scalable distribution resource planning (DRP) offering, which starts at the SKU-by-store level, could be the answer to this integrated approach.

What’s Next for Manhattan Associates?

But Manhattan is certainly not despairing, and the company believes that its patience and resolute execution will win the day. During my attendance of the Manhattan Associates Momentum 2009 conference, I had the pleasure of speaking to many of the company’s knowledgeable staffers with a no-nonsense, no-arrogance (and with respect to competitors) attitude.

The company is seeing the light at the end of the tunnel due to having almost all of its solutions migrated onto the supply chain process platform (SCPP), while still delivering new solutions. The last product is the Total Cost to Serve (TCS) platform-based application.

While certainly not dismissing the challenge from RedPrairie and JDA, Manhattan’s aspirations (and targeted competitors) are SAP and Oracle, and thriving in these vendors’ ecosystems. The vendor especially likens its strategy to that of SAP, which, with the exception of Business Objectsprefers to develop a coherent suite of products on a single business process platform (SAP BPP), with only fringe acquisitions to fill in some gaps.

Manhattan points out that it has not made an acquisition since Evant in 2005, and that it has grown organically from US$246 million in 2005 to US$337.4 million in 2007. The reality is that the vendor is not really choking, but perhaps having hiccups due to two tough quarters of late.

One saving grace for Manhattan could indeed be the SCPP and its distribution order management (DOM) capabilities, but that product and references have yet to gel, and Sterling Commerce has been the leader there (as mentioned in Part 1). The conundrum is that selling extended SCM solutions to existing customers (where the vendor has an excellent standing) has slowed in this economy.

Indeed, Manhattan has so far managed to sell only a dozen or so DOM, replenishment, or reverse logistics projects to its WMS/TMS customers (albeit these were big-tickets projects at least). On the other hand, to find a brand new customer for its SCP solutions is difficult in light of Manhattan not really being recognized as the leader in the space.

On the bread-and-butter SCE side, wave-planning improvements, slotting optimization, and labor management in the warehouse seem to be possible quick sells with quick payback, even during these tough days, especially if slotting is optimized concurrently with labor (and provided there's no backlash from unions). Additionally, what seems to be of some interest to the prospects (retailers and distributors, since the vendor doesn't deal with manufacturers yet) is inventory optimization (IO) and replenishment in multi-echelon environments, with perhaps some carrier contract re-negotiations in TMS as well, but that's about it.

SCP spending and interest does seem to be on the rise a bit after its big drop-off for a number of years in the early 2000s. However, I don’t think this represents a shift away from SCE, just a climbing out of the trough. Thus, when the SCE market regains strength and companies embark on a new wave of WMS and TMS upgrades and replacement, Manhattan will be able to relax and perhaps sell better in other areas too (with less sense of urgency).

In fact, Manhattan folks assured me recently that "things are moving along quite nicely now." The vendor has a new site go live every 30 hours and I’d bet that the current negative trend doesn’t continue. Order management and dynamic supply chain process capabilities make sense, but will Manhattan and RedPrairie ever be able to own the order without owning back-end systems?

What’s Next for JDA?

With the viability concerns off the table, I am not surprised that the combination of JDA and Manugistics is flourishing. For years, Oracle and SAP had wanted to eliminate Manugistics in the SCM space. They thought they had both cornered the market around the 2004-to-2006 timeframe, when Manugistics was bought and i2 became mostly irrelevant.

With their "missions accomplished," both enterprise resource planning (ERP) giants moved onto other pursuits, namely trying to "kill" each other, move into different markets, become the platform, etc. This one-upmanship has allowed a window for a hyper-focused SCM vendor that serves two primary synergistic verticals to do okay.

But is JDA a SCM platform per se or just a collection of pieces? Can the company become a $1 billion vendor with Oracle and SAP around? In fact, is there another vendor like JDA out there (i.e. in terms of size and focus), and if not, what does that mean? Certainly, JDA cannot become a $1 billion company organically, i.e., without other major acquisitions.

As for the abandoned JDA and i2 merger, I was one of the people who was skeptical about the deal for at least two reasons. One, i2 was quite overpriced, and second, i2 did not really bring anything significant to the table that JDA did not already have (even if in a different flavor).

In fact, i2’s strength in many struggling discrete manufacturing sectors has been a liability in this economic milieu. JDA probably figured that out in the process, and the $20 million break-off penalty was not that damaging, in particular considering that the saga kept i2 in limbo for several months and that the company has not truly recovered yet.

While I am not fond of making merger speculations, I wouldn’t be terribly surprised if JDA was in discussions to buy Manhattan (or RedPrairie as a "less clean" fit). Manhattan’s business and success is still heavily loaded with WMS. The company has gotten some visibility from the planning and execution integration message, but that has not really flown in the longer term because, as said many times before, the vendor has not really done much on the planning side.

So a combination with JDA could make more sense than for Manhattan to try and continue to succeed with that messaging/strategy on its own. Plus, it's tough for the vendor to go toward an on-demand software model except maybe for its TMS offering, where it actually bought an on-demand solution (Logistics.com as mentioned in Part 1), which it then ironically had to re-architecture so that it could be on-premise.

On the other hand, a handful of Manhattan’s non-WMS/TMS customers would not be a big burden for JDA to assimilate. Moreover, JDA could use Manhattan’s superior DOM and reverse logistics capabilities and the SCPP platform.

When former Manugistics, whose platform is the cornerstone of today’s JDA Enterprise Architecture (JEA), was beginning to embrace service-oriented architecture (SOA) in the early 2000s, the BPP trend and preaching by analysts was years off. The notion that a piece of Manugistics code could power a business process in the midst of a larger enterprise applications ecosystem was not the vision at the time. JDA applications can easily integrate with SAP or Oracle, but still more at the data level, i.e., by importing orders into the system.

The DOM concept was also abandoned after several attempts at trying to “own the order” by Manugistics. It just did not work out, and frankly, I am not sure Manugistics could speak the DOM language to the right buyer. That was more the province of the ERP and the WMS players, not the SCP providers.

To be fair, Manhattan’s most recent (Q3 2009) revenues were up, and the company posted the strongest earnings quarter in its history at US$0.43 for Q3 2009. Conversely, JDA’s Q3 revenue was somewhat stagnant, while privately held RedPrairie did not disclose any performance for its Q3.

Additionally, Manhattan’s stock is valued more highly than JDA’s, with a price-to-earnings (P/E) ratio nearly 80 percent higher.  Regarding the JDA acquiring Manhattan speculation, JDA would have to do that with cash because of Manhattan's high stock P/E ratio. JDA would have to raise a significant amount of cash in a capital constrained market. Manhattan’s stock has also been upgraded twice in the past two weeks, and JDA’s has not.

To Platform or Not?

Manhattan’s SCOPE/SCPP initiative sounds plausible, but in our experience, there just hasn’t been a lot of interaction between planning and execution in the supply chain (which is unfortunate). Thus, a “single solution” doesn’t buy that much for any SCM vendor yet, and many customers aren’t necessarily asking for it.

For instance, most of RedPrairie’s warehousing customers already have SCP systems from the major providers (like i2 or SAP) and would never consider swapping them out for a minor player like Manhattan (Evant). This situation raises the question as to whether any prospective company in need of SCM solutions would look for an all-in-one SCM solution (platform) per se, or would maybe start evaluating the service capabilities of their incumbent (and often revered) ERP provider, possibly combined with more focused best-of-breed vendors.

To that end, a final observation in Bob Ferrari’s post in 2008 relates to some of the market dynamics behind the SCM vendors’ numbers:
SAP’s SCM revenues grew by almost 32 percent in 2007 according to Gartner; SAP has not had any significant suite functionality releases for the past two years, due to the overall continued transition to the core applications of SAP Business Suite 2008. In my view, this is an indication that SAP SCM customers are weighting enterprise integration and the 80-percent-is-good-enough rule over superior functionality. Oracle and JDA on the other hand present a different scenario in their 26 and 67 percent respective market growth rates. Both of these companies have turned to acquisitions to fill-in gaps for best-of breed technology in planning, transportation, trade compliance and other areas. Their strategy of offering ala-carte best-of-breed with certain levels of integration are apparently equally attracted for the market. I will go out on a limb and predict that when the 2008 market actuals are released one year from today, SCM will remain a robust area of investment, and there may be even more surprises in the ranking of the top three.

Manhattan's CEO makes an interesting comment about the platform migration in the Q3 earnings transcript (starting on page 5). Evidenced by one of Manhattan's major wins last quarter, some companies are interested in having supply chain planning and execution on a platform from the same vendor. These are ecounraging signs of improvement for sure, but time will only tell whether "a few swallows can make a summer." 

At the end of the day, dear readers, your comments, thoughts, suggestions, or individual experiences with the aforementioned vendors and their SCM tools are more than welcome. What do you think about these vendors’ individual approaches and their chances to survive as independent best-of-breed SCM companies?

Is the resurgence that some of these vendors are seeing (and eclipsing of the others) a lasting thing? Is their success proof that SAP and Oracle have not succeeded in cannibalizing SCM as a space? Who do you think is the SCM market’s most valuable player (MVP)?
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