IBS-Slow but Steady (and Demand-Driven) May Win the SCM Race

Event Summary

International Business Systems (IBS) (XSSE IBS B) is a Sweden-based global provider of enterprise resource planning (ERP) and supply chain management (SCM) industry-specific software solutions and other accompanying services for companies embracing IBM-based technologies. Since the early 1990s, IBS has achieved some success in transitioning from mainly being a Scandinavia-based solutions provider to a player in the broader European, Asia-Pacific, and North American markets. It now has an international network in over twenty countries.

IBS remains primarily a services company driven by the sales of its expanding enterprise software application portfolio. IBS has long focused on selling strong wholesale distribution functionality supplemented by financials and manufacturing functionality, including focus on logistics, sales order processing (SOP) and warehousing. It also provides general financial management, accounting, and some light manufacturing functionality. Its market is comprised of technologically conservative, mid-size companies that are looking for turnkey "one-stop-shop" solutions from a single supplier. This market segment is currently without an apparent leader, and one of the reasons only a few vendors have chosen to address this lower-end of the distribution market is likely because it has proven to be a less profitable (less margin-friendly) market segment.

Nowadays, IBS provides three main types of services: software, professional services, and hardware. The company's software products cover the fields of collaborative sales and procurement, customer service, order management, demand-driven manufacturing, inventory management, business performance measurement (BOM), and financial control. It has also provided software solutions for specific distribution-intensive markets, including the automotive and motor vehicle parts distributors, consumer durables, electrical products, electronic components, food, industrial supplies, industrial machinery and equipment, medical equipment and supplies, paper and packaging material, pharmaceutical and healthcare products, independent wholesalers, and business-to-business (B2B) distributors. This vertical strategy has been sales- and marketing-related, and has manifested itself in IBS' product development agenda.

IBS' professional services consist of analyses of business processes and improvement potential, customer support, development of complementary tailor-made systems, follow-ups of projects and results achieved, implementation, information technology (IT) strategy and system design, modification and development, operation and maintenance, project management, and training. Its hardware products are based on the IBM iSeries (formerly AS/400) hardware and include computers and network equipment that contribute towards SCM solutions such as the IBS Pharma Adaptive Supply Chain solution for pharmaceutical distribution.

Recently, IBS has refined its overall strategic direction which long focused business operations on medium and large companies, and the subsidiaries of major groups. The strategy is based on the following cornerstones:

  • A focus on key market areas in which IBS can maintain a leading position, provide customers with high value, and in this way achieve a sound level of profitability;

  • an emphasis on sector industry solutions that include pharmaceutical distribution, electronic components, industrial supplies, food, publishing and consumer durables;

  • a stronger market position through acquisition of companies with complementary customer bases and competence;

  • a global market presence in order to be able to serve international groups, such as the 2004 decision to open offices in Tokyo and Shanghai;

  • offering comprehensive solutions based on professional services (with experienced consultants with knowledge of pertinent industries), servers and network solutions as well as financing, all to vouch for long-term relationships with customers (of at least ten years); and

  • cost effectiveness in product development, marketing and sales, implementation and support, to offer integrated solutions at a competitive price.

IBS believes the value for its customers should come from its ability to

  • provide vertical solutions and multi-level processes for collaborative organisations;

  • implement customer projects with mainly own resources;

  • work primarily with its own software, in combination with some customised software solutions;

  • espouse specific focus on distribution, manufacturing, and service companies; and

  • achieve a market-leading position by focusing its efforts, passion and expertise on the aforementioned companies and industries.

This is Part One of a four-part note.

Part Two will present ASW features.

Part Three will discuss the market impact.

Part Four will cover warehousing, challenges, and make user recommendations.

Acquisitions and Divestitures

IBS is expanding through selected acquisitions and in July 2005 announced its acquisition of an Iberian software company QUATRO Information Systems (Quatro). Quatro has 95 employees and 500 customers in Portugal and Spain and specializes in logistics and warehouse management. In 2004, Quatro had net sales of 9 million euro. The seller, Quatros Management, will continue to work in the new, consolidated unit, IBS Iberia Group. The acquisition should increase IBS' market share in Portugal and Spain. It should also create a stronger market presence in the region, falling in nicely with IBS' strategy to expand its customer base in selected industries and provide additional channels for sales and implementation of IBS software. After the acquisition, IBS Iberia will have a total of 250 employees in Lisbon, Porto, Madrid, and Barcelona with 850 customers. The purchase price was based entirely on future results of IBS Iberia over the next four years and will be paid in cash, whereas a positive effect on IBS Group results of approximately 0.4 million euro is expected during the second half of 2005.

Earlier, IBS had also acquired all shares of the software developer IDS (http://www.idses.com) as of May, 2005. IDS, whose product portfolio provides a broad SCM solution for the automotive industry, still has more than one hundred employees in the United Kingdom (UK), Netherlands, Australia, and Thailand. The company originated in Australia, but believes its fastest growing markets and largest future potential are in Europe, the US, and Asia.

For the financial year ending June 2005, IDS reported a full year revenue of 12 million euro and pre-tax profits of 1.2 million euro. The management of IDS will reportedly continue working in the company, whereas the revenue and profits are expected to increase with the addition of IBS' network of subsidiaries in twenty-four countries. Also, the investment in IDS' new competitive products will benefit significantly from the backing and support of IBS and IDS regional subsidiaries around the world. IDS has a twenty-two year history of providing solutions to many of the largest automotive companies including Porsche, Daimler Chrysler, General Motors (GM), Toyota, and Volkswagen. Logically, by acquiring IDS, IBS hopes to significantly increase its market share within the automotive market. With IDS' three products, IDSe42, MotoV8 (a fully integrated dealer management system) and CatSmart (an on-line electronic parts catalogue), IBS hopes to complement its current offering and create a world leading solution for both importers and dealers in the automotive business. The companies also have the same technology base with both IBM iSeries and Java technology in their software.

In March 2005, IBS has acquired all shares of another Australian software developer, TMS, which provides a niche enterprise solution for the publishing and consumer electronics industries. The company has sixty employees in Sydney, Singapore, and the UK, and a network of business partners in the US, Netherlands, and South Africa. During 2003/2004, TMS reported a full year revenue of 6.9 million euro and pre-tax profits of 0.9 million euro. With TMS' management and employees who will continue working in the company, the expanded IBS operations in Australia will reportedly have over one hundred employees. The revenue in the two companies during last year amounted to approximately 13.5 million euro, and is expected to increase substantially during 2005. TMS' publishing solution, Bookmaster, is already used by more than eighty publishers in sixteen countries and is the most widely used publishing ERP/SCM solution in the world. TMS' customers include major publishers such as Penguin, Pearson, HarperCollins, McGraw-Hill, Macmillan, Elsevier, and Harvard University Press, as well as international consumer electronic distributors including Hagemeyer, Pioneer, Makita, and Sanyo.

As for its geographic expansion, in mid-2004, IBS announced the acquisition of Janis Group Inc.s Supply Chain Division (JGI). With thirty-five employees, the division had been involved in sales and implementation of SCM business software solutions. The consultants averaged over ten years of employment with JGI and had in-depth knowledge in the fields of manufacturing and distribution as well as strong application and consulting expertise in customer relationship management (CRM), financials, integration, electronic data interchange (EDI) and business intelligence (BI). The acquisition has expanded IBS' business in the US, complementing its current office in Folsom, Calfornia and network of partners, with fully owned operations in Rochelle Park, New Jersey and Buffalo, New York.

Also in mid-2004, IBS expanded its operations into the fast-growing Russian software market (which is estimated to grow at about 30 percent per year) by signing a cooperation agreement with a Moscow-based software company Cinimex Informatica. Here the company will sell and provide installation, training, and helpdesk services for IBS' enterprise software on the Russian market. Cinimex is also an IBM business partner with extensive experience and has certified engineers on the IBM iSeries platform.

In Russia, it is essential to find a strong local partner, since local references to support the decision-making process is needed. Additionally, the support services must be in Russian and as close to the customer as possible. Thus, IBS' enterprise software has been translated and is now available in Russian, with the main goal being to serve IBS customers operating in Russia. The first Russian installation, for the Finnish customer Helkama Forste, went live early in 2005. The software has also been modified to meet Russian legislation by adding customs number monitoring and necessary documents in Russian to the sales and materials management system. The financial solutions require various reporting features, such as accounting for value added taxes (VAT) and Russian corporate income taxes.

However, as to remain true to its SCM focus as well as to maintain its solid financial position, in March 2005 IBS signed an agreement to sell 100 percent of one of its UK subsidiaries, IBS Public Services Ltd, by means of an initial public offering (IPO), fully underwritten on the London Stock Exchange (LSE), listed under the name of IBS OPENSystems plc. IBS was expected to receive 75 million euro of cash consideration, generating a capital gain of 63 million euro. This was a significant step in the strategic development of IBS to focus operations on core business areas.

With a substantially strengthened balance sheet, as a result of the sale, IBS will now accelerate its strategic measures to focus on SCM solutions for certain vertical markets. Conversely, IBS Public Services, acquired by IBS in 1991, has focused on public sector software and services, mainly for management of social housing, collection of local taxes and payment of benefits. During 2004, the company had a turnover of 24 million euro, amounting to some 9 percent of the IBS Group's total turnover. IBS Public Services operated solely in the UK, with hardly any international synergies with IBS' distribution-oriented business. IBS will continue to increase market penetration in the UK market for SCM software through the development and expansion of its remaining subsidiary, IBS UK Ltd.

Product Direction

IBS has been one of a few application vendors to long stand by the ageing IBM AS/400 platform, and possibly remains the last of the major vendors to have the sole IBM iSeries (a modernized incarnation of AS/400) server platform strategy for its flagship ERP product ASW. ASW, standing for Application Software, may also indicate the vendor's traditional insipid approach to marketing and branding— IBS, like the customers it sells to, remains technologically, fiscally, and marketing conservative.

The primary development environment for IBS has, till recently, been Report Program Generator (RPG) IV, with some client side development done in the Smalltalk object-oriented language. ASW has its own application configuration tool. For customizations, IBS often used former Synon, which once dominated the worldwide market for third party application development tools for AS/400, and is now part of Computer Associates). IBM DB2 is the primary database.

On the client side, ASW has added support for all Microsoft Windows platforms, and since the ASW 3.5 release (shipped in the late 1990s) there has been support for a Java-based front-end, called Internet Connection e, to handle basic on-line order entry, information on product availability, pricing, and order status checking requirements. Use of Internet technologies has been in line with other more technologically conservative vendors, and ASW features the basic Web-enablement features, such as a browser-based interface for certain transactions, Internet access to the system for inventory level checking, order status checking, and so on.

However, vital for the long-term success of IBS is the completion of its next-generation applications based on the IBM WebSphere platform, which, among other things, has been designed to speed up the software application development process. Despite this, IBS' global organization might still experience difficulties evolving into a cross-platform sales and delivery channel. The biggest area of technical advancement made by IBS lately has been with its development effort with IBM WebSphere to build a base set of object-oriented infrastructure and application business logic. This can be expanded and enhanced by independent software developers in the areas that they chose to address to deliver competitive differentiation.

The goal of IBS is to leverage the resources of IBM to offset the costs of building a next-generation application framework. At the same time, IBM intends to assist iSeries-based software developers in moving to an objects-based development environment, add additional hardware platform support, and keep the developers on the platform. At the next layer up, on top of the hardware base resides WebSphere framework, common business objects, and core business processes. Within the base layer all the infrastructure elements, like consistent programming interfaces and a structure for building multiplatform applications, can be found. The base layer also includes a set of kernel services that help shield the underlying platforms from the application developers, thus allowing the applications developers to focus on application functionality. Within the common business objects are object model classes that define the application model when building a WebSphere-based application.

To that end, in May 2005 IBS, in alliance with IBM, announced an extensive development plan for its software portfolio. To offer customers increased flexibility regarding technology infrastructure and to increase market share in selected industries, IBS plans to offer versions of its supply chain-focused ERP software suite in 2006. The solution, ASW will run on IBM i5/OS, Linux, Unix, and Windows platforms. Consequently, IBS' somewhat amended product strategy consists of several areas.

First, it will secure return on investment (ROI) for customers by developing solutions that facilitate increased automation, e-business, collaboration, and integration throughout the supply chain. Most companies today have reached a fairly high level of efficiency within their organizations, whereas the big potential in process improvements for cost and customer service remains in communication with customers and suppliers. Thus, IBS will offer solutions that secure customers improvement potential through increased collaboration and integration with their customers, suppliers, and other business trading partners.

In order to maximize business advantage for customers, IBS software solutions are currently built on open and widely available technology standards. To do this, IBS will extend the use of IBS ASW software to additional platforms. By combining the IBM WebSphere platform, which is one of the most widely installed open standards-based middleware in the industry, with IBS' business solutions, new and existing customers should be able to build on current IT assets without having to replace existing servers. IBS software solutions utilize a combination of technology with object-oriented Java for e-business, modern middleware in IBM WebSphere, and proven technology for handling high volume business transactions in mission critical systems.

IBS will also add advanced functionality for key business processes and integration. Currently, IBS has over 5,000 customers in over 40 countries. Its product range covers applications for CRM and sales order management, distribution and warehousing, planning and forecasting, service management, manufacturing and production, supplier relationship and procurement management, financial management, BI and performance management, and integration and collaboration. It also offers human resource management (HRM) in many countries.

Current development activities cover enhancements in the areas of project management and planning, accounts receivable (AR), credit control and management, inventory handling and stocktaking, pricing mechanisms and controls, sales restrictions and validations, backorder handling, shipment handling, returns handling, picking efficiency, multi-distribution centre handling, advanced planning, and many other functional areas. IBS software also handles radio frequency identification (RFID), and all these enhancements will be part of the next release of the IBS product range that will be available at the end of 2005. The new release will initially be offered for iSeries/i5OS and will be followed by additional Java deployment versions during 2006 for customers who wish to run the solution on other operating systems or databases.

Finally, IBS will continue its development of industry specific solutions. IBS software is developed for mid-sized companies or subsidiaries of large international groups in selected industries. The common denominator for these industries is, among other things, the need to handle high transaction volumes (IBS points to the 2001, 2.9 million orders per hour ASW iSeries benchmark). IBS software has specific functionality for a number of industries, such as pharmaceutical distribution, automotive aftermarket, paper and packaging, electrical distribution and electronic components, consumer durables, food and industrial supplies. Coming releases will contain added industry-specific functionality.

These major announcements came at the heals of the mid-2004 announcement of a significant expansion of IBM and IBS global strategic alliance to provide fully integrated and consolidated SCM solutions to help medium companies lower costs, improve supply chain efficiency, and increase profitability. As part of the extended agreement, IBM and IBS agreed to jointly market and sell solutions to target segments and customers worldwide. IBM's worldwide sales force will market the combined offering, further extending IBS' market reach. IBM will also have dedicated consultants to support application development, testing, optimization, tuning, and other development activities. Further, IBS will also work closely with IBM Global Services (IGS) and IBM Global Financing in selected marketing and sales activities. As part of the alliance, IBS will optimize its core ASW suite and the IBS Virtual Enterprise supply chain collaboration applications on IBM's open standards-based software and hardware.

IBS believes that standardizing its applications on IBM's infrastructure hardware and software will enable fast development, implementation, and integration of collaborative enterprise solutions that can run on different computing platforms at a reasonably lower cost. To that end, IBS will optimize the ASW suite and IBS Virtual Enterprise with IBM WebSphere Application Server and WebSphere Application Server Express, WebSphere Portal and WebSphere Portal Express, DB2 Universal Database, and Lotus Domino. IBS will also promote IBM eServer iSeries and xSeries hardware as well as IBM middleware as its technologies of choice and optimal reference platforms in marketing and sales activities.

This concludes Part One of a four-part note.

Part Two will present ASW features.

Part Three will discuss the market impact.

Part Four will cover warehousing, challenges, and make user recommendations.

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