Manugistics Indulges In The Open M&A Season

Manugistics Indulges In The Open M&A Season
P.J. Jakovljevic - June 04, 2002

Event Summary

In May during the enVISION2002 annual user conference, Manugistics Group, Inc. (NASDAQ: MANU), one of the leading global supply chain management (SCM) software providers, announced it had acquired the assets and business of privately-held ERP provider Western Data Systems (WDS),, with headquarters in Calabasas, CA, and with over 20 years of presence in the Defense industry providing plant-level transaction execution for manufacturing and Maintenance, Repair, and Overhaul (MRO) operations. The acquisition has a potential to create one of the largest Aerospace and Defense (A&D) installed client bases in the industry, and to enhance a strong solution set for optimizing the complex Service and Parts Management (S&PM) processes of these asset-intensive organizations. WDS, with revenues last year of $28 million, is a prominent provider of application software and services to A&D organizations, with more than 135 organizations and 33,000 concurrent users worldwide.

This announcement came after the yearlong lull that followed the spate of mergers and acquisitions in the first half of 2001 (see The Mid-Market Is Consolidating, Lo And Behold). The lull, which was likely partly attributable to reduced investors' optimism especially in the technology sector amid slow economic environment, seems to have ended with another slew of acquisitions (see SAP Tries Another, Bifurcated Tack At A Small Guy, Microsoft 'The Great' Poised To Conquer Mid-Market, Once and Again, and CA Unloads interBiz Collection Into SSA GT's Sanctuary).

With this acquisition, Manugistics strives to strengthen its offering of S&PM solutions that addresses the complex business operations inherent to asset intensive industries. Clients will supposedly have increased capability to plan, price, synchronize and execute with a comprehensive array of functionality. The solution set should feature capabilities that range from predictive system failure forecasting and parts optimization, to finite capacity and labor resource scheduling, to MRO shop planning and execution, and direct materials purchase management. Benefits of these solutions might allow customers to optimize asset availability, ensure an extended life for assets, and achieve inventory and physical capacity cost reduction.

WDS clients include BAE Systems, Boeing, GKN Aerospace, Lockheed Martin, Norshipco, Northrop Grumman, Sikorsky and Smiths Aerospace. In addition, the U.S. Department of Defense (DoD) has implemented WDS solutions at the U.S. Navy, the U.S. Marine Corps, and the U.S. Air Force. On the other hand, Manugistics' A&D clients include Kaman Aerospace, Rocketdyne Propulsion and Power, Mars Electronics International, Department of State, as well as the Defense Logistics Agency (DLA), the U.S. Air Force, and Naval Supply Systems Command (NAVSUP). Numerous depot-level MRO sites within the DoD will consequently rely on Manugistics' integrated planning and execution capabilities.

In addition to a notable A&D client base, Manugistics is reportedly the only leading supply chain technology provider to be listed on both the U.S. General Services Administration's Federal Supply Schedule for Management, Organizational and Business Improvement Services (GSA MOBIS) and the GSA's Information Technology Schedule. The NATO Consultation, Command and Control Agency (NC3A) have also awarded a Basic Order Agreement (BOA) to Manugistics. The agreement gives NATO's 19 member nations, 27 partner countries, and numerous governmental agencies direct access to Manugistics' solutions.

By following its strategy of investing in new, best-of-breed products and solutions, Manugistics believes it has assembled a powerful solution suite that now include WDS offerings such as:

  • CompassENTERPRISE for Original Equipment Manufacturers (OEMs) - This solution delivers comprehensive project or contract-oriented capabilities to discrete manufacturing clients with a need to maintain mandatory regulatory compliance, control, and reporting.

  • CompassENTERPRISE for MRO - This is a comprehensive repair and overhaul operations management and accounting system for commercial and military MRO facilities is a Web-based, workflow-enabled solution.

  • Buying Advantage - This e-procurement system, delivered by WDS' subsidiary Advisian, is designed expressly for direct material acquisition that makes up a great part of all procurement in complex manufacturing industries. The solution is workflow-driven, and has sophisticated tools for managing contractual and regulatory obligations that impact complex manufacturing operations.

As if one acquisition was not enough for within one month, on May 28, Manugistics announced that it has acquired the business of privately-held Digital Freight, a Lexington, KY-based provider of collaborative logistics solutions that facilitate online, real-time bids for global transportation contracts. Manugistics' Global Logistics Management Solution will now consequently offer buyers and sellers of transportation services an enhanced real-time, secure transactional environment designed to simplify and accelerate the logistics sourcing process. By utilizing an online marketplace to automate the time consuming task of requesting and processing competitive bids for transportation contracts, shippers and carriers should thereby reduce the resources required to manage their complex business operations.

The Digital Freight Marketplace solution has reportedly facilitated over $1.9 billion in transactions across more than 1,800 carriers and 38 shippers. The collaborative architecture of the Digital Freight Marketplace solution gives shippers and carriers major advantages over traditional bid processes by providing a collaborative framework for dynamic pricing. Digital Freight's clients include industry leaders like Crown Cork & Seal, Frito-Lay, Honeywell International, Safeway Inc., and Sonoco.

Manugistics has in the past offered one of the industry's broadest suites of Web-based logistics management solutions, although through partnerships. Customers like Bandag, Inc., Brown & Williamson, ChemLogix - a GATX affiliate, CMB LogiFlow, Deere & Co., Elemica, Ewals Cargo Care, Hershey Foods, Kohl's Corporation, Kraft Foods, NAVTRANS, Staples, Inc., Subaru of America, The Great Atlantic and Pacific Tea Company (A&P), The Limited, Inc., The TJX Companies, RadioShack Corporation, Toys "R" Us, Inc., Tronicus and Winn-Dixie have all turned to Manugistics for solutions to address their logistics challenges.

This is Part One of a two-part analysis of news from Manugistics. Part Two will continue the Market Impact and make User Recommendations.

Market Impact

The renewed frenzy of enterprise applications software company mergers and/or acquisitions appears to be more than a sheer consolidation that is normal to almost every industry. The cash-depleted smaller vendors that have admirably survived both the Y2K conundrum, dotcom's en mass demise, and protracted economic slowdown crunches still have to keep themselves abreast of the growing demands on the underlying collaborative product architecture and functionality breadth, with customers remaining vendor viability cautious. While customers increasingly demand that these applications collaborate better with one another and also with external, third-party and legacy applications, the enhanced functionalities of these technologies and an abundance of interfacing software should make this feasible.

Still, although the advent of Web services based interconnectivity and collaboration between disparate applications is promising despite being nascent, customers will still increasingly look for one strategic vendor to fulfill the vast majority of their business application needs, particularly in the lower end of the market. This market segment has traditionally been more amenable to buy from their incumbent ERP vendor rather than to engage in yet another exercise of qualifying and assimilating another vendor's offering. It is not any more a question whether any ERP vendor provides some SCM, e-procurement, portal, or CRM functionality, but rather how much functionality and with what level of integration (see Integration is the Name of the Game in Software Systems).

To that end, in the ERP market, the major vendors focused on the high-end of the market have virtually evolved into providers of comprehensive e-Business suites. While that has long not been the news for SAP, Oracle, and PeopleSoft, many Tier 2 vendors like J.D. Edwards, Baan, IFS, Intentia, MAPICS, QAD, and others, have recently significantly expanded their traditional ERP suites, either internally or via acquisition, or both. All these moves reflect the morphing of the enterprise applications landscape as all vendors scramble to outrival competition or, more often, survive and position themselves well for the next phase of e-Business that features a market cognizance of the need for a seamless link between demand and supply along the entire supply chain.

Consequently, a further degree of integration and convergence is to take place between ERP, SCM and CRM applications in 2002 and beyond, with SCM and CRM moving towards the transactional aspects that have until lately been the stronghold of ERP. In fact, the recent acquisitions may confirm the theory (still considered by some pundits as heretic) that ERP systems will remain a foundation of broad applications portfolio spanning activities across the entire value and/or supply chain. Likewise ERP vendors being grilled about their extended-ERP capabilities, their SCM and CRM counterparts are conversely barraged with questions about their back-office capabilities or, at least, about their ability to provide a seamless integration (or close) to these systems.

Manugistics did not exactly depart from Siebel Systems' or i2 Technologies' route of providing integration (see Siebel Rallies Its Integration Alliance Troops), since, in its latest Manugistics 7 product release it features a Web-based portal framework/layer that works as an user interface (UI) that resides over underlying disparate ERP and legacy systems and also as a workflow engine for moving forms, documents, and files throughout an organization, providing visibility into pertinent data. The product also supports the now all-too-familiar mantra of Web service standards - SOAP and XML - for accessing and aggregating data from multiple data sources. Nevertheless, Manugistics has with this acquisition also pursued an additional option of acquiring some ERP capabilities, with a sharp vertical focus to boot.

Enhancing the Level of Collaboration

Furthermore, as ERP, SCM and CRM applications individually improve to collaborate better, other technology components might also come into play to enhance the level of collaboration. In addition to e-procurement (including transportation services procurement) and private trade exchanges (PTXs), one of these could be the pricing and revenue optimization technology, which extracts data from ERP, SCM and CRM applications to, e.g., determine the best prices to quote and the best promotions to apply in every particular case. To that end, Manugistics has possibly been a torchbearer in marketing the concept of using advanced mathematical algorithms to optimize supply chain processes that would extend beyond traditional manufacturing and distribution cost-based operational optimization into pricing and revenue optimization - providing thereby the opportunity to enhance margins to the entire enterprise by addressing both the supply and the demand side of the business simultaneously.

The original idea, introduced over a decade ago, was that mathematical models could help companies find the most cost-effective methods of fulfilling orders and increasing their profit margins. Today, Manugistics promulgates applying mathematical algorithms directly to the profit side of the equation well above low-level transaction processing. That is the logic behind the Enterprise Profit Optimization (EPO) strategy that Manugistics started formulating shortly after acquiring Atlanta-based Talus Solutions. In that deal, which took place at the end of 2000, Manugistics obtained a software program that can determine the optimal price to charge for specific products based on current market conditions (see Manugistics Lays Groundwork For Talus Integration). The system picks the brain from the airline and/or hospitality industry's practice of adjusting ticket or room prices based on how quickly/slowly those spaces are filling up at any given time.

Likewise, a company that sees demand for a particular product surging can use Manugistics' optimization package to simulate how changing the price affects that demand. If, for example, an optimization model indicates that raising the price does not affect demand, the company should perhaps make plans to produce or acquire more of the product. If, on the other hand, the model shows higher prices suppressing demand, that could be an indication that the product is likely already priced to produce maximum profits and it may not be a good idea to increase production levels. Manugistics has therefore been striving to offer profitable-to-promise (PTP) concept, which will allow companies to determine their profit spread before committing to delivering an order to a specific customer.

This concludes Part One of a two-part analysis of recent news from Manugistics. Part Two will continue the Market Impact, including the Challenges presented, and make User Recommendations.


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