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Mid-sized SCE Buys Small SCP: No Sure Bet on Short Term Profits

Written By: Michael Bittner
Published On: September 1 2005

Introduction

With much aplomb, leading supply chain execution (SCE) vendor Manhattan Associates has recently announced the acquisition of Evant, a relatively small supply chain planning (SCP) vendor primarily for the retail and wholesale distribution sectors. Those who follow software vendor consolidation have recently witnessed Oracle purchasing ProfitLogic and then Retek, thwarting the attempts of SAP. Arguably these two mega-ERP vendors, with deep bench strength on product integration, are in a better position to deal with the trials and tribulations of a software company acquisition. For a mid-sized software vendor like Manhattan Associates, who is predominantly characterized in the supply chain execution space, acquiring a supply chain planning vendor is a considerably more rarified event.

Let's think about the practitioners of supply chain execution applications for a moment. Supply chain execution users like stockroom managers, warehouse supervisors, traffic managers, pickers, inventory controllers, etc. are driven by their day-to-day events and activities. They just do not, by nature or by job responsibility, venture into the realm of long term planning, forecasting, and optimization. The same argument holds true of supply chain execution consultants and the majority of SCE vendor personnel who interact on a regular basis within their field of expertise. Supply chain execution applications are honed and refined during implementations via continuous workflow and process definition driving tens of thousands of similar transactions performed day-by-day. While there are certain facets of transportation and labor planning that require planning and optimization techniques, these tend to fall within the short term supply chain execution "window".

Supply chain planning is a different beast, and in many ways a more complicated one. SCP entails sensitive turns of the crystal ball with many nuances over extended periods of time that are not clarified or rectified through work flow and process repetition. A whole different skill set is involved, with a unique array of algorithms tweaked by years of insight and intuition around the products at hand and the customers who buy them.

While it is true that from a sales perspective the complementary nature of the products (within the retail and wholesale distribution sectors, at least) will potentially open more doors, Manhattan Associates is faced with uniting two diverse product portfolios and skill sets aimed at uniquely different user audiences. Manhattan's Integrated Logistics Solutions strategy is striving toward a common technology stack for of its SCE products, and now must include the SCP portfolio. Even if one assumes platform compatibility over time via the intended move to J2EE architecture for both product suites, the actual business issues and applications development going forward are considerably different.

What it means to existing clients

Existing Manhattan Associates clients that have no need, at present or in the near future, for any planning or optimization applications have little to gain, and might worry that internal resources will be diverted away from enhancing existing SCE products. A larger concern (or a potential opportunity) might be the long term financial implications and profitability impact on a public company measured quarter by quarter. After all, profitability in the SCP market as a whole has been challenging in recent years.

What it means to current prospects and future clients

Current prospects and future clients in the key verticals (retail and wholesale distribution), that are in the market for both supply chain execution and supply chain planning applications, either concurrently or as separate projects, will certainly find Manhattan Associates as a more attractive alternative. But there will not likely be large numbers of prospects who fall into this category.

What it means to Manhattan's Partners

Manhattan Associates has recognized for some time that achieving supply chain excellence requires comprehensive solutions that integrate cleanly with their customers' business processes. Through Manhattan Associates' Partner Program, alliances have been forged with experienced software and hardware providers, third party integrators and consulting companies who work together to ensure that customers receive best-of-breed solutions to suit their unique business requirements. A good example is Manhattan Associates' ties to radio frequency identification (RFID) support and services partners.

While efforts toward partnering with complementary solution providers will continue and likely expand as a result of this transaction, JDA Software is one complementary solution provider that stands to lose out on the relationship. Short term, a certain degree of confusion is likely to occur regarding the merits of a combined solution from the two vendors (Manhattan and JDA) as partners versus a single solution from Manhattan Associates as a preferred course of action.

Maintaining Evant's Services Momentum

RIS News identified "customer satisfaction" as the most important category in its 2004 Leader Board of retail software vendors. Evant was named a top-ten leader in three key areas related to customer satisfaction: Strategic Value, Overall Performance, and Ease of Upgrade. In the Strategic Value category, retailers that participated in the survey recognized Evant for the cost of its software in relation to the benefits it provides. While the company's distinction for Overall Performance was based on the technical savvy of its solutions.

This kind of customer service performance by Evant's management team is impressive and bodes well for the future, if it can be sustained during the takeover and transition to a Manhattan Associates-centric management style, culture, and structure. Holding on to key development, sales and support personnel who were a part of this achievement is imperative in order for Manhattan Associates to maintain momentum in this SCP market.

Conclusion

The common expression in the supply chain world that "a better forecast creates better execution" certainly resonates in this situation. Extending the supply chain footprint is a good marketing strategy, and can lead to more sales opportunities long term, as long as it does not dilute the lead held by Manhattan Associates within their core competency of SCE. Staples, Inc., which prior to the acquisition, had purchased SCE software from Manhattan Associates and SCP software from Evant, is a clear winner in that it will see benefits through synergy of dealing with only one vendor over time for its multiple applications purchased. Current prospects and future clients who are in the market for both supply chain execution and supply chain planning applications, either concurrently or as separate projects, will certainly find Manhattan Associates as a more attractive alternative.

Over time Manhattan Associates has to show that it can develop, manage and profitably sell SCP software solutions better than Evant did in the past (i.e. with some consistent profitability) while at the same time moving its SCE applications forward at a continuously progressive pace. They must achieve sales performance for SCP during a period of generally weak growth in the SCP market, and with the larger ERP vendors stealing market share. This is a tall order for a mid-sized SCE vendor striving for continued growth and profitability. Given Manhattan Associates' track record, they just might succeed over time.

About the Author

Michael Bittner has over twenty-five years of experience, with proven strength in the business applications area. He has held various senior management positions in product development, consulting, and research. Bittner has designed developed, implemented, deployed, and managed projects for financial, manufacturing, distribution, and logistics applications in both the US and Europe. While at KPMG Consulting, Michael was the North East regional director for ERP solutions. At AMR Research, he was the research director for the SAP Advisory Service and later the research director for Customer Fulfillment and Supply Chain Execution. Bittner has authored a number of publications on SCM, Logistics, PLM, and is currently a member of the Warehouse Education and Research Council (WERC), and the American Productivity and Inventory Council.

 
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