QAD: A Software Vendor That Has Survived (if Not Thrived) in the ERP Market




In these days of rapid mergers and acquisitions, the mid-market independent software vendor (ISV) is becoming an endangered species in the enterprise applications market. With a relatively small collective revenue of only a few hundred million dollars, ISVs seem to be nearing extinction. It is impressive, therefore, to see QAD Inc., a renowned provider of enterprise software solutions for midsized, global manufacturers, outliving many of its contemporaries, as well as having reached a respected, veteran status.

QAD is a Santa Barbara, California (US)-based company with over 1,500 employees and $236 million (USD) in revenues. The vendor focuses on the mid-market and remains a leading provider of enterprise applications for global manufacturing companies. QAD has evolved from being a single, plant-oriented manufacturing resource planning (MRP) software vendor into a provider of Internet-enabled enterprise resource planning (ERP) and supply chain management (SCM) software and related services to single site, mid-market, and multinational companies of all sizes.

Indeed, QAD's early major competitors in mid-market manufacturing, some of which were once much mightier and higher profile, have exited the mid-market (though they are still represented in the ferocious newcomer Infor). Such companies, which have largely been acquired by other industry “giants” du jour, include SSA BPCS, Symix, Marcam Corp., JDA International, ASK, and MAPICS. Three of the former so-called “JBOPS elite club” (that is, JD Edwards, Baan, Oracle, PeopleSoft, and SAP), most of which joined the ERP fray well after QAD did (at least in North America) and that dominated the market from the mid- to late-1990s, do not exist as ISVs any longer.

However, it is far from the truth that the market is any easier for companies such as QAD, IFS, IBS, PSIpenta, SYSPRO, and Cincom Systems. These companies all remain independent (for the time being), and largely with a single-code indigenous flagship ERP product. Glovia could be included with these examples as well if one is to consider its fairly autonomous operation within its parent company, Fujitsu. Exact Software and Epicor Software could also be included, if one ignores a number of their disparate, secondary ERP systems.

Companies such as SAP, Oracle (including PeopleSoft, Siebel Systems, and JD Edwards), Infor, Lawson Software (including the former Intentia), Microsoft Dynamics, and Sage Group (most of which have ironically come to the market after QAD) have all made the undeniable point that enterprise application companies of QAD's size have harmfully high fixed costs. If midsized companies are unable to grow quickly and unwilling to merge with other like companies (thereby reducing these high fixed costs), their cost structures should put them at a serious disadvantage.

QAD, much like its independent and resilient peer IFS (see Enterprise Applications Vendor Reverses Fortunes—But Will Perseverance and Agility Be Enough?), is a prime example of the mixed blessings of a tier two ERP provider. QAD and IFS demonstrate that there is no “magic formula” or win-win approach in the industry. Every agonizing decision with regard to product development and marketing comes with a trade-off. Until very recently, both vendors have had one or two blossoming decades pre-Y2K (during the proverbial ERP salad days), when leads and opportunities were flying in from all directions.

The growth that these two companies experienced, however, came at the expense of overextended research & development (R&D). Pricey and overworked software developers had to either feverishly race to get the next product version out, or to have the old, prematurely delivered versions debugged. Thus, the vendors' bottom lines were less than impressive, and their customers were not the happiest in the world. Nowadays, QAD and IFS are able to show much better bottom lines, and their broadened products do largely what their sales forces claim they do. The downsides are the flat, organic revenues and the speculation about these vendors' ability to remain independent in the future.

QAD—Yesterday and Today

QAD was founded in 1979 by Pamela Meyer Lopker when she was offered a contract to write manufacturing software for a sandal company, owned by Karl Lopker, in California (US). He later became QAD's chief executive officer (CEO) and Pamela's husband. After successfully completing its first project, QAD began customizing products for other California companies. Its success continued throughout the 1980s and 1990s, with the vendor expanding internationally and making its products compatible with more and more operating systems. In 1995, QAD became one of the first International Standards Organization (ISO) 9002–certified ERP vendors, further attaining ISO 9001 certification in 2000. In 1996, QAD commercially released its flagship ERP application, named MFG/PRO, which was designed to control all main business functions for highly regulated industries, such as food and beverage, medical devices, and life sciences.

Today, QAD's enterprise applications, including the core ERP application suite MFG/PRO (recently renamed QAD Enterprise Applications 2007) and related extended enterprise applications, address the needs of multinational manufacturers. QAD's applications enable these manufacturers to operate globally while preserving their ability to meet local requirements. The vendor's applications provide business-critical functions and processes on two levels: 1) the enterprise level, providing traditional ERP functionality for intra-enterprise (within the four walls of the enterprise) functions, and 2) the extended enterprise level, providing communication capabilities for supplier management and customer management functions.

QAD's applications provide vital functionality for managing manufacturing resources and operations within and beyond the enterprise. This enables global manufacturers to collaborate with their customers, suppliers, and partners to make and deliver the right product, at the right cost, and at the right time. Consequently, QAD has built a solid customer base of global Fortune 1000 and small to medium business (SMB) manufacturers.

After focusing for nearly 30 years on the manufacturing industry, and having approximately 5,800 licensed software sites in more than 90 countries around the world (in as many as 27 languages), QAD is well qualified to meet the business and technology requirements of global manufacturing companies worldwide. Further, since its inception, QAD's applications have focused on and have been optimized for six select manufacturing industry segments: automotive, consumer products, electronics, food and beverage, industrial, and life sciences. The vendor develops its products and services with input from leading multinational manufacturers within these six vertical industries, and this vertical industry focus has long been a key differentiator for QAD (see QAD Inc.: The Art of Vertical Focus).

A vertical industry focus has also enabled QAD to gradually develop straightforward offerings that provide needed flexibility for multinational manufacturers. Indeed, QAD's sole ERP product, MFG/PRO, with its relatively low total cost of ownership (TCO), has become one of the most functional and, at the same time, one of the easiest applications to install and maintain in manufacturing-oriented sectors. Lopker's design philosophy and approach was to create an uncomplicated ERP product, built to be standard (with the most common sense) and to do exactly what standards organizations like The Association for Operations Management (APICS) prescribes material management software should do.

Consequently, QAD Enterprise Applications 2007 (also known as QAD 2007, the current broad suite offering that has evolved from MFG/PRO) offers a shop floor–level solution (that is, a complete solution for inventory management, repetitive manufacturing, capacity planning, scheduling, and distribution) typically associated with fast implementation. QAD 2007 comes with reasonably priced implementation costs suitable for multinational, mid-market enterprises and their autonomous divisions that do not require global, unified finances and human resources (HR) management strategies. The elegance of QAD's solutions and services enables its customers to implement QAD applications more rapidly, realize a higher return on investment (ROI), and achieve a lower TCO when compared with the product offerings of competitors that (allegedly) target the same industries.

QAD's industry focus and comprehensive offerings (which have been garnered over time) have also contributed to the vendor's reputation for being easy to do business with. This reputation is reflected in the vendor's positive, long-term relationships with its customers. Consequently, its large manufacturing client base remains satisfied and committed, as shown by follow-up sales and project scope expansions to other functional modules and sites after the initial QAD Enterprise Applications 2007 (MFG/PRO) implementation.

Thus, QAD's mindshare (consumer awareness) within the automotive, medical equipment, industrial, and electronics discrete manufacturing segments remains strong. As indicated earlier, QAD software was licensed at thousands of sites in nearly 100 countries, and no single customer accounted for more than 10 percent of the total revenue during any of the last 3 fiscal years.

Further, QAD's list of high-profile customers in its six targeted industries is extensive. Most of these companies or subsidiaries have each generated more than $1 million (USD) in software license, maintenance, and services billings over the last three fiscal years. This broad client base, along with the points discussed above, has positioned QAD as a notable player in the upper middle-market of discrete manufacturing. QAD has been a direct competitor of JD Edwards (now part of Oracle), SAP, Infor, IFS, Lawson M3, Epicor, CDC Software (including Ross Systems and IMI), and others, and belongs to the “Top 10” global manufacturing–oriented ERP vendors.

QAD went public in 1997, and currently trades on the NASDAQ under the ticker sign “QADI.” Pamela and Karl Lopker own a majority of QAD common stock; therefore, QAD is a “controlled company” according to NASDAQ's rules. Specifically, QAD is not required to have a majority of independent directors on its board of directors, and it is not required to have nominating, corporate governance, or compensation committees composed of independent directors.

 

 
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