QAD Pulling Through, Patiently But Passionately Part Two: Company Background

Market Impact

On August 20, QAD Inc. (NASDAQ: QADI), a global provider of collaborative enterprise applications for manufacturing and distributing organizations, reported upbeat financial results for the fiscal 2004 second quarter and six-month period ended July 31, 2003. The improved financial performance has not come without astute moves with regard to product functionality enhancements. These moves include:

  • A partnership with Johnson Controls (NYSE:JCI) to develop a next-generation Just-In-Time (JIT) Sequencing software module for MFG/PRO

  • Announcement of Kanban Visualization, which enhances QAD's existing Supply Visualization (SV) solution

  • More than two dozen important new functions and enhancements to MFG/PRO eB2, specifically designed in collaboration with QAD's manufacturing customers to help address their specific needs

  • Announcement of healthy sales momentum in Asia, with the MFG/PRO suite becoming a platform of choice for automotive manufacturers in China to automate business operations and collaborate with partners worldwide

The "fortune favors the bold" and "patience is a virtue" adages would be applicable to QAD's endeavor of finally getting far beyond its most trying days. "Patience" would stand for the reason of QAD staying true (and being finally vindicated) even during its most difficult times in the last few years (see Figure 2), to what had made it successful in the first placesolving manufacturers' real-world problems.

Figure 2.

This is Part Two of a five-part note.

Part One detailed the above moves.

Parts Three and Four will discuss the market impact.

Part Five will cover challenges and

Part Six will make user recommendations.

QAD Background

QAD (supposedly standing for "quality, applications, delivery"), headquartered in Carpinteria, CA, has evolved into a global provider of e-business enabled ERP and supply chain management (SCM) software and services to multinational companies of all sizes, with a special focus on the mid-market. The company was founded in 1979 when its founder Pamela Meyer Lopker was offered a contract to write manufacturing software for a sandal-making company in California, run at that time by Carl Lopker, who subsequently became the current QAD CEO and Pamela's husband.

After its initial success with its first project, QAD began customizing its product for other local California companies and working exclusively with HP computers. QAD grew steadily throughout the 1980s and 1990s, expanding internationally and making its product compatible with more operating systems. In 1995, QAD became one of the first ISO 9002 certified ERP vendors, while in 1996, it became part owner of Integral Datentechnik AG, a German data management system maker. In the same year, QAD commercially released its flagship ERP application named MFG/PRO (alluding the product for "manufacturing professionals"), which was devised to control all main business functions, from inventory management and planning to purchasing and finance for highly regulated industries, like food and beverage, and medical devices.

Indeed, QAD's sole ERP product MFG/PRO has since become one of the most functional and, at the same time, one of the easiest to install and maintain manufacturing-oriented products in the market, with a low total cost of ownership (TCO). The vendor offers a shop floor level solution (i.e., a very complete solution for inventory management, repetitive manufacturing, capacity planning, scheduling, and distribution) typically associated with fast implementation and reasonably appetizing price tags suitable for multi-national mid-market enterprises and their autonomous divisions that do not require a global unified finance and human resource (HR) management strategy.

Consequently, its large manufacturing client base remains satisfied and committed, as shown in typical follow up sales and project scope expansion to other functional modules and to other sites, after the initial MFG/PRO implementation. Thus, QAD's mind share within the automotive, medical equipment, and industrial and electronics discrete manufacturing segments remains strong. The above facts have therefore positioned QAD as a notable player in the upper middle of the discrete manufacturing market. It is a direct competitor for the likes of J.D. Edwards (now part of PeopleSoft), Oracle, SAP, SSA GT/Baan, IFS, Intentia, MAPICS, Epicor and so on, and it belongs to the top ten global manufacturing-oriented ERP vendors. QAD went public in 1987 and currently trades on NASDAQ.

Responding to Competition

However, the entrepreneurial spirit and enthusiasm of its founders/owners and an early-mover advantage could not entirely and indefinitely make up for its finite resources. As a result, during mid and late 90s, many above-mentioned and high-flying ERP competitors outpaced QAD both in the scope of the ERP (and beyond) functionality and market share-wise. Consequently, the lack of strong integrated global corporate financial and HR/payroll modules prevented QAD from securing many mega-enterprise deals. The difficulties were aggravated when the core ERP market became more than saturated towards the end of the 1999s, causing QAD to venture outside its manufacturing ERP stronghold.

To that end, and to again possibly leapfrog the competition, QAD embarked a few years ago on reinventing itself by delivering applications that would optimize complex order fulfillment processes across multiple enterprises/divisions. To that end, in 1998, the company formed an R&D site in Ireland to help develop QAD eQ (formerly On/Q), its collaborative applications suite that creates private trading exchanges (PTX) and enables intelligent order management via the Internet, with a business-to-business (B2B) application framework to help users manage and coordinate relationships with suppliers and customers. The initial eQ module, then referred to as Advanced Planning and Scheduling (APS), was released in 1998 in a reseller agreement with Adexa, while another eQ module, Collaborative Order Management, was natively released in 1999.

Another major product enhancement feat at the time was the QAD/Connects architecture, which was both an open architecture concept and a set of the following connectivity tools: 1) Q/LinQ (recently renamed into Q/Link), which provides a standard framework for data import/export between MFG/PRO and eQ components and other ERP systems, 2) an EDI Commerce tool with support for XML, and 3) Network User Interface (NetUI) for the Java platform. The last piece of the QAD product suite at the time was Qwizard software, which was intended to reduce MFG/PRO implementation and rollout training to employees. It still includes a business modeler tool, customizable implementation tools, interactive learning tools, and tools to design and customize the visual interface of MFG/PRO software, and is part and parcel of QAD's Q-Advantage implementation methodology.

Resultant Challenges

Nevertheless, delivery of the above products has taken its toll on QAD's performance during the last few years. In addition to venturing into a new territory for QAD (outside of traditional ERP), the dual product delivery had for some time confused/detracted customers, sales force personnel, and partners, all of which were not clear about whether and when to deploy MFG/PRO and/or eQ. Also, during the time of dot-com exuberance, with almost everyone offering some kind of "e" (business/commerce) value proposition, it was very difficult for QAD to prove its differentiating points, which had all led to customers' lukewarm reception, during a time when the vendor needed a higher (rather than dwindling) top line to compensate for its hefty R&D investments of over $30 million per year.

The technological foundation disparity of the products has also taken its toll by possibly doubling the development expenses and in delivering products integration. Namely, MFG/PRO is written in Progress Software's proprietary 4GL (4th generation language) development tool, which made QAD dependent and vulnerable owing to the poor performance of Progress Software at the time. Progress also appeared to have all but given up in the race for a respectable share of the database market and its 4GL toolset had struggled ever since to win notable market share among developers.

This concludes Part Two of a six-part note.

Part One detailed the above moves.

Parts Three and Four will discuss the Market Impact.

Part Five will cover Challenges and

Part Six will make User Recommendations.

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