In mid-July, JDA Software Group Inc. (NASDAQ: JDAS), a prominent global provider of integrated software and professional services for the retail demand chain with over 4,500 customers, and QRS Corporation (NASDAQ: QRSI), a leading provider of collaborative commerce and trading community building solutions, with nearly 10,000 retail and manufacturing customers, announced a definitive agreement for JDA to acquire QRS as the all-stock transaction for an estimated value of $100 million (USD).
Yet, the seemingly well-planned acquisition was never completed, since, with little more than a month left for JDA to close the acquisition, QRS broke off the "engagement" in favor of a better priced acquisition by another suitor. Namely, on September 3, Inovis International, Inc. , a fellow electronic data interchange (EDI) and value-added network (VAN) specialist (and sometimes a competitor too) of QRS announced a definitive agreement to merge with QRS. Innovis is a leading provider of business commerce automation solutions that facilitates the effective management of retail, supply, and manufacturing partnerships. .
As consumer markets become more competitive, retail customers realize they must do more than simply achieve increased efficiencies in their own organizations. In other words, a retailer's competitive advantage is now being defined by the efficiencies of their entire supply chain. In addition to enabling trading partners to collaborate in planning, forecasting, replenishment, and space planning decisions, some vendors are also developing additional functionality that should enable retailers and their suppliers to make collaborative decisions for marketing, assortment, and promotion activities.
But, as the retail industry supply chain process includes hundreds of collaborative steps among thousands of retailers, vendors, suppliers, brand manufacturers, and other intermediaries to create, manufacture, and move products from source to store, the industry is characterized by multiple product sourcing options, a wide array of products and multi-channel shopping venues. These shopping venues include retail stores, outlet malls, mail-order catalogues, and Internet sites. Given the competition for retail customers and wholesale orders is intense, industry participants must be able to meet consumer demand quickly, accurately, and at the most competitive price. To that end, even back in the mid-1980s, a cooperative industry effort to improve the electronic processing of data led to the creation of certain data format standards, including the adoption of electronic data interchange (EDI), uniform product code (UPC) and, in Europe and other international markets, European article number (EAN) standards. More recently, the global trade item number (GTIN) has been established.
The GTIN, UPC, and EAN data formats allow for the consistent identification of merchandise throughout the supply chain process, from product design to the point of sale (POS). The use of these data promises to greatly increase the efficiency with which retailers and manufacturers can mark, track, and exchange detailed product information. As a result of these standards and technologies, many retailers, vendors, suppliers, and brand manufacturers have been able to reduce the cost of financial operations, mismatches between purchase orders and invoices, inaccurate product shipments, and stock-outs. Yet, the still current, manual, paper-based item authorization procedures at some sites continues to create unnecessary shipment lag times and also impede the future growth. This is particularly true when, on average, a grocery retailer may be required to collect and enter hundreds of pieces of data to introduce one new product from one supplier a the network of thousands of trading partners.
Thus, some software vendors targeting the retail sector, such as QRS or General Exchange Services (GXS) (see GXS Acquires HAHT Commerce for More Synchronized Retail B2B Data) remain focused on enabling retail industry participants to connect with each other and transact business through the use of these automated communications and product identification standards.
Nevertheless, hand-in-hand with the trend to conduct business transactions electronically via the Internet is an effort to clean up the transactions and reduce the occurrence of errors. Often enough, the trouble with product attributes is that they do not match from one database to the next in the value chain. For every product under its brand umbrella, there are several product attributes, including definitions, specifications (product weights, measurements, calorie counts, etc.), images, marketing messages, and prices. As a result, something as bland as a can of food comes with arrays of data relating to pricing, description, promotion, and so on. To make things worse, companies may have hundreds or thousands of products and multiple individuals may maintain each bit of product information. Thus the task of organizing and maintaining all this information is critical to the company, since bad data costs companies billions of dollars in incorrect purchase orders, subsequent returns, and the manual effort required to fix them (see $40 Billion Is Being Wasted by Companies without Product Information Management Strategies—How Is Yours Coming Along?).
Accordingly, GDS/PIM applications automate the process by which suppliers, manufacturers, and retailers share information relevant to issues like inventory status and product specifications. This technology might also be an important underpinning for emerging plans around the RFID technology, which is also high on these retailer giants' agenda. But, as mentioned earlier on, data synchronization would be a relatively simple task if the data was normalized, complete, and error-free. Unfortunately, this is rarely the case, given product information is not created by a single department within the company and is usually not overseen by any single group. It is this lack of process within a manufacturer's business and around managing product information that facilitates errors. Yet, related systems such as logistics, invoice reconciliation and POS also need the same product information. The retail sector, particularly food and grocery industry, would hence greatly benefit from some on-line industry coordination when it comes to managing catalogs and B2B trading communities.
This is Part Two of a two-part note.
Part One detailed the event and began the market impact.
Implications of the QRS/JDA Acquisition
For that reason, the QRS acquisition by JDA would have eventually brought together two providers of complementary e-commerce products that would help retailers, manufacturers, and suppliers manage and sell their products to other companies and customers on-line. Namely, as also seen with recent Click Commerce's acquisitions of Allegis and bTrade (see Click Commerce Acquires Allegis), in addition to the above mentioned merger of GXS and HAHT Commerce, and the partnership of The Kodiak Group and Cleo Communications, it is apparent that strictly retail-focused JDA offerings would have had a broader value proposition when bundled with the QRS technology. QRS's technology helps companies record the correct product data and push it throughout the channel in order to avoid such things as overstocking or under-stocking of often incorrect items. In other words, JDA would have gained PIM software, which aggregates and organizes item-related data from multiple application sources. It would have also gained data synchronization and syndication tools, which let manufacturers and suppliers synchronize items with retail partners through the entitled registers like the UCCnet foundation service. Given Wal-Mart's directive for its suppliers to meet data sharing regulations passed by UCCNet and given that many vendors' endeavor in addressing UCCNet's compliance, one should discern the major rationale behind the acquisition.
Therefore, JDA would have stood a chance of marshalling broader and deeper retail supply chain functionality than most of its rivals through QRS's hosted catalog, GDS, sourcing and collaborative B2B integration services. Also, in addition to increasing its size by over 50 percent and becoming the leading pure-player in the retail sector (its nearly double the size of the most direct peer competitor, Retek), there would have been an ample cross-selling opportunity for both JDA and QRS. JDA would have had the opportunity to sell its retail-specific applications to nearly 10,000 QRS customers and, conversely, to offer QRS' collaborative products to its 4,500 customers worldwide that might likely need a more collaborative relationship with their trading partners.
Accordingly, the QRS acquisition would have handily expanded JDA's internally focused retail demand chain optimization applications to include supplier-centric collaborative planning. Unfortunately for JDA, the QRS' "no show" in the nick of time leaves gaping holes in JDA Portfolio, which are possibly much more visible now after the market had been made aware of the ill-fated merger's prospects. JDA now remains on its own to define a revised PIM/GDS strategy, either by pursuing a standalone homegrown offering or to seek another partnership or acquisition solution to fill voids in the portfolio. However, either of these initiatives will be conducted under a somewhat difficult climate owing to recently subdued JDA financial performance and its stock value (which, in fact, has greatly to be blamed for the unsuccessful QRS acquisition). Thus, the $3.8 million (USD) compensation from QRS for breaching the agreement comes as a crumb of comfort.
ERP Vendors Address the Retail Market
One should also never underestimate the threat of traditional enterprise resource planning (ERP) providers that have lately made serious strides in the retail sector. For a discussion of the competition from Lawson Software, see Lawson's Approach To the Retail Market, while for a discussion of the like competition from SAP see SAP's Approach To the Retail Market.
Indeed, the decision to base the enterprise application backbone on an ERP system or piece together a best-of-breed strategy has never been an easy decision in any industry and in any other ERP-adjacent functional area like business intelligence/analytics, customer relationship management (CRM), supply chain management (SCM), product lifecycle management (PLM) and so on, at least given that there are a number of possible package combinations alternatives in most of these. Also, the ERP vendors had long ignored the retail sector to only recently move more aggressively into the wide-open market, striving to thereby provide greater industry-specific functionality if they are to displace today's still popular approach of opting for integrating best-of-breed software.
This brings us to the fact that many ERP vendors are making their way into the retail market by internally developing, acquiring point solutions (as in the case of Lawson) or partnering strategically to embed retail-specific functions within their suites. Like in all other enterprise applications markets, eventually (albeit not any time soon) the retail market, too will come down to a showdown between the pure retail vendors like JDA, Retek, NSB Software, etc. and the mainstream enterprise application vendors (e.g., Oracle, SAP, PeopleSoft, SSA Global, Geac, Intentia, etc.), which have been striving to bundle more retail-specific capability into their products. As usual, the enterprise vendors will bet on leveraging existing customers who will have deeply invested in them, and have even reorganized operations around their ERP systems.
The promise of retail products from ERP vendors is the link to financial and manufacturing systems (albeit mostly the vendors' own, which is logical at this stage) and include collaborative supplier relationship management (SRM) and PLM capabilities and links to customer data in CRM systems. A single-vendor approach by ERP providers could produce other benefits too, like integrated and consistent processes throughout the supply chain, consistent data-model for the entire enterprise, and easier estimation of overall project cost and implementation management through primary relationship (i.e., "one throat to choke"). The business opportunity is to move from supply- to demand-driven retailing, via merchandizing, replenishment, pricing, promotions, consumer loyalty schemes, and multi-channel management systems, all working off the single ERP platform.
However, the retail vendors' holy grail has become working with information from heterogeneous sources, an order "du jour" within many large organizations, which often have more than one ERP system or various retail point solutions and legacy systems. This is analogous to the enterprise applications integration (EAI) market, since in larger corporations, customers still may prefer integration vendors with renowned product strength, vertical expertise, financial viability and savvy in extensible markup language-based B2B integration, multi-platform integration, and workflow management. The best-of-breed approach could still often provide a selection of a functionally richer system for each business area from a more specialized vendor, elasticity/exit strategy against a particular vendor's failure or demise, and greater flexibility in terms of substitution of individual elements as to accommodate any adaptation needs.
The current retail leaders' superiority, like in the case of the SCM and CRM markets, will eventually diminish as the ERP vendors continue to improve their retail-specific functionality, collaborative capabilities, and accessibility and add universal interfaces, including the new Web Service standards to facilitate access and integration of data outside their own environment. Thus, retail vendors need to establish as strong a hold on the market as possible before the enterprise and platform vendors catch up. This is especially the case with the remaining tier two and three retail point solution vendors. If they cannot gain significant traction and distinctive differentiation, they could find themselves in a position of needing either to be acquired or needing to join forces with a complementary functional or platform technology vendor via alliance or acquisition.
Incidentally, IBM, which has been working with many retail-specific software providers in some capacity, brings its own wealth of experience to the sector, particularly in terms of hardware devices, store systems, enterprise systems infrastructure (through WebSphere-based Store Integration Framework), data management (through recent Trigo acquisition), and professional services. Given JDA's recently espoused orientation to the Microsoft .NET platform, it is likely that the long-term partner IBM will even more vigorously pursue other partnerships now, particularly with its recently expanded relationship with SAP, and build more cohesive solutions for retailers that combines the best from both camps.
With nearly every retailer in the world now using something from IBM, SAP, or both, the two vendors intend to initially up-sell to current clients, particularly in North America, where SAP's retail sector presence has been limited. Still, IBM's infrastructure and data management offering might sometimes clash with an equivalent offering from SAP (i.e., SAP NetWeaver Master Data Management [MDM]) and Retek (i.e., MDM). In other words, "co-opetition" will be the name of the game and close attention to how these products will interoperate and where each would fit within a proposed solution becomes very important.
To fend off retail moves from the common foe, SAP, and bundled with the recent strategic announcement between PeopleSoft and IBM, on September 21, during PeopleSoft Connect 2004 user conference, PeopleSoft and JDA announced an alliance to develop and market a solution for retailers that will supposedly provide integration between PeopleSoft Enterprise Financial Management applications and the JDA Portfolio Merchandise Management solution. This integration will eventually provide retailers visibility to critical operations data, including financial information, merchandising data, POS transactions, and inventory, enabling them to monitor revenue fluctuations and merchandise changes throughout the enterprise in real time.
The JDA Portfolio Merchandising solution delivers wide-ranging transaction capabilities that enable retailers to closely manage their inventory—from order management, to inventory tracking, to floor displays, to POS returns, and returns to suppliers. The integration of JDA's merchandising solution with PeopleSoft's Financial Management application will supposedly provide retailers with a comprehensive view of store profitability across all departments, particularly for retailers that are placing different ads with different pricing for different geographic regions, which typically require an army of people to monitor details (hopefully) in near real-time. This might particularly come in handy in addressing multichannel issues, such as when a customer buys in one store and returns the goods elsewhere, or makes an on-line purchase but returns it to a brick-and-mortar location.
PeopleSoft and JDA claim the alliance will address a significant market need for retail applications that deliver strong merchandising and financial functionality in an integrated, shared framework based on open technology standards. This holistic view of retail and financial information includes merchandise movement, labor costs, individual store performance, and real estate management, while, unlike many competitive solutions, customers will supposedly have the flexibility to upgrade discrete portions of the joint solution without it affecting other applications.
PeopleSoft has also selected JDA as its Industry Software Partner for the retail industry as part of PeopleSoft's Global Partner Connection Program, whereby both companies will collaborate on strategy, product development, marketing, and sales activities.
Yet, the alliance will by no means solve the above PIM/GDS conundrum, while the cloud of Oracle's potential (and now more likely by the day) acquisition will hover over many prospective customers' minds.
Prospective and current customers from retail and consumer products segments of all sizes, and with the need for data synchronization should not expect JDA to offer PIM or GDS technology any time soon unless it acquires a point provider rather quickly or unless it (gets over the likely "bad blood" and) continues to partner with QRS, as to at least leverage the conceptual work it has been done to integrate the products. The users should also be aware of the existence of some other PIM and GDS players like IBM/Trigo, Velosel, FullTilt Solutions and Comergent Technologies that might be a better alternative at this stage.
On a more general note, retailers will have to find a fine balance between investments in emerging technologies and their ability to tactically stake out effective competitive differentiation in what seems to be challenging times for all. The winners will be those who can align their investments with the ever-changing preferences of their customers, who may prefer in-store or off-store channels, or both. On one hand, technology investments that facilitate speed of checkout, self-service, multiple sales channels, inventory availability, and personalized content are what will engage customers and make them feel close to being the only customer. On the other hand, strategic technology investments in historical data analysis, demand-based forecasting and replenishment (store- and distribution center -level), seasonal profiling, allocation, space planning, and measuring shelf space performance, will be the pedestals on which growing revenue and improving margins will be built.
Whether considering new enterprise applications based on a single-vendor offering or constructing a best-of-breed portfolio of retail applications, prospective users should espouse a consistent technology infrastructure to avoid the pitfalls of too many supported platforms, while ensuring open and broad integration functionality that focuses on common product and pricing data sources and the necessary, ubiquitous connections to trading partners. In retail companies where employees have more autonomy and initiative, the best-of-breed approach will typically let employees work with the best tools for their peculiar needs and talents. On the other hand, the sweeping changes imposed by usually more rigid single-vendor solutions (particularly from unified ERP offerings) may work better in more autocratic companies.
Thus, while the JDA/PeopleSoft combination is promising the best of both worlds, still, even if one neglects Oracle's cloud, users should not expect first integrated applications to be available before some time in late 2005, and should challenge the companies to commit to a more certain product development and migration strategy roadmap. Consequently, until that time, users evaluating the above individual products should keep themselves informed, and consider generally available (GA) functionality only.
This concludes Part Two of a two-part note.
Part One detailed the event and began the market impact.