The long predicted consolidation within the warehouse management systems (WMS)/supply chain execution (SCE) market seems finally to be happening. It has started however by an unexpected route, since instead of a direct intra-market consolidation, some public SCE/WMS vendors and smaller, even profitable but undercapitalized and undervalued WMS/SCE vendors have found shelter under wealthy, more visible parents, companies with complementary products.
best example of an intra-market merger is the early February announcement by
RedPrairie Corporation (www.redprairie.com
, formerly McHugh Software International). This upbeat provider
of broad SCE solutions, announced its acquisition of LIS (www.lis-online.com),
its European counterpart and former competitor. The combined companies will
operate under the RedPrairie name with projected 2004 revenues of $130 million
(USD) and earnings before interest, taxes, depreciation, and amortization (EBITDA)
of $23 million (US). The company will supposedly employ over 600 associates
from offices in the US, UK, mainland Europe, and China. RedPrairie solutions
are also offered by partners in eleven countries, including Latin America, Russia,
and South Africa.
the outright intra-market consolidation within the ERP market has been both
apparent and logical, the SCE/WMS market remains modestly growing but also highly
fragmented with fewer pure-play vendors, some of which are still growing organically
albeit not at the breakneck pace of a year or so ago, such as HighJump,
Manhattan Associates, Provia, RedPrairie,
HK Systems, G-Log, MARC Global,
Swisslog, Logility, etc. There are several
reasons why SCE/WMS vendor consolidation has not followed the all too common
occurrence of strong vendors gobbling up weaker competitors, like it has been
the case in the ERP space.
a detailed examination of the differences between the merger and acquisitions
phenomena within the enterprise resource planning (ERP) and SCE markets see
Vendors Intrude on SCE/WMS Safe Haven.
is Part Two of a three-part note.
One discussed recent events.
Three will make user recommendations.
Impact of LIS Acquisition
the LIS acquisition by Red Prairie should not be a surprise, since it has several
merits that should outweigh inevitable challenges. It might be interesting to
note the vendors' similar culture and modus operandi, albeit on the
opposite sides of Atlantic. Both SCE vendors have witnessed many changes in
the market, yet they have managed to stay prosperous, achieving impressive growth
rate and profitability during the last few years. Yet, despite its long time
indisputable upbeat posture, RedPrairie's expertise has remained mainly within
the North American market and within the trucking mode of transportation, and
its solution footprint has needed improvements in terms of multinational capabilities,
ITL compliance, contract management, and payment processes.
the vendor opened a European office in the not so recent past, it failed to
make a major dent in the market, likely due to the fierce competition of incumbent
vendors like LIS and MARC Global, which have even held the earlier entrant and
the SCE leader, Manhattan Associates, to less than one hundred installations
so far. The competition from SSA Global (following its acquisition of EXE Technologies),
Catalyst International, FWL Technologies,
and also from the ERP vendors, including SAP, Oracle, Microsoft Business
Solutions (due to native WMS capabilities of the Navision
and Axapta products), and PeopleSoft will have also played
founded in 1985 as Logistics and Industrial Systems, LIS was
one of the first UK-based WMS vendors, which has since expanded its footprint
within the SCE space, boasting a large installed base in the UK and mainland
Europe (nearly 200 installations not including Online's base). Despite this,
it only had limited progress in the US. Along the way, ownership of LIS had
changed several times, and in 1996, it finally ended up as part of Symbol
Technologies, the large data collection and barcode systems developer.
Acquired as a complementary offering to Symbol's core products and services,
the presence of LIS in the product portfolio had created conflict with other
WMS vendors that also partnered with the company. As a result, promotion of
LIS in the US had been impeded.
RedPrairie acquired LIS from the Permira Funds and management,
whereas LIS' business has more than doubled in size since the buyout from Symbol
Technologies in 1998. In the US though, LIS has some presence in manufacturing
verticals including high tech, 3PL, CPG, food, and pharmaceutical/healthcare
products. To further assist its healthcare customers, release 7.3 of LIS's Dispatcher-WMS
offers added support for compliance with the Unite States FDA's (Food and Drug
Administration) 21 CFR Part 11 regulation. Further, the Dispatcher-VirtualView
product was designed to allow visibility of inventory and order information
as well as exception management capabilities within the extended supply chain
by leveraging inexpensive Internet access mechanisms and extensible markup
language (XML)-based adapters from participating server systems, including
various ERP products.
It is becoming increasingly important for SCE suppliers to have global implementation and service capabilities, while the multinational user companies conversely benefit from working with global application providers. Now, the two merged vendors should have the critical mass and geographical breadth necessary to better serve the needs of their global customers with local, multilingual support and to compete for an ever-increasing number of multimodal transport, multinational engagements.
cross-selling opportunities also exist since the two product suites use similar
component-based architectures, supporting vertical encapsulation and making
cross-integration of appropriate modules not terribly difficult. For example,
a product acquired from Software Architects a few years ago
provides the fundamental component architecture for RedPrairie DLx suite. This
platform imparts uniformity among the various modules that, though drawn in
some cases from different sources, speak the same data language. Hence, RedPrairie
can offer diversity of scope with uniformity in presentation, data structure,
and business objectives, which might be an important differentiator in a market
characterized by a host of competitive offerings that are sometimes slapped
together with little thought to ensuring connections make sense.
Consequently, in the short term, RedPrairie will be adding LIS applications for duty and customs management, international proof of delivery (which LIS recently added with its acquisition of Online), and 3PL billing to its product suite, while its labor management, process management, and optimization applications, including recent developments in RFID will be integrated to the LIS suite. In addition, both vendors will be developing new products for ITL, inventory optimization and mobile resource management, to name some.
one of the main challenges will be the management of several WMS products on
disparate codes, in spite of RedPrairie's proven track record of supporting
multiple systems profitably and with positive cash flow. The company has also
long delivered different WMS products for process and discrete industries (for
example DLx/P and DLx/D versions), which,
although recently unified, still have different customer reference bases and
product maturity (i.e., DLx/P for process industries being much more prominent
than its discrete counterpart). LIS' Dispatcher SCE product suite does contain
overlapping warehouse management core functionality and a number of components
that deal with requirements such as slotting; serial number tracking; resource
and labor management; automation adapters; labeling; and proof of delivery.
older Dispatcher-CS product was built to support UNIX and Windows
NT platform, while its newer n-tier architecture release, which provides
an XML backbone to integrate with external systems, has still been maturing.
Furthermore, former Online's warehouse management system, SpaceMaster, will
continue to be actively promoted. While RedPrairie claims the maturity of the
respective WMS systems makes continued support of all systems financially viable,
the reality might not necessarily turn out as desired down the track. Especially
as the company might still need to make acquisitions or partnerships to quickly
provide a complete multimode transportation and distributed order management
products that comply with global trading.
The LIS acquisition might be a major step to RedPrairie going public in order to better compete against its larger publicly-held competitors. While the advantage of being public lies within the better visibility and access to capital for further strategic moves, the more public eye scrutiny to the vendor's financial performance will put additional pressures, which have gone awry in the case of a former publicly-held peer EXE Technologies.
also has work cut out for itself to improve the perception of its amenability
to the mid-market, and to increase its brand recognition within the transportation
management system (TMS) market—the company might still be omitted in many
TMS selections despite having long delivered the capabilities. As mentioned
earlier, the competition is not exactly negligible either given the likes of
Lilly Software, Syspro, and Adonix,
which have all espoused a strong WMS product in addition to their traditional
ERP products, could prevent RedPrairie from penetrating the ERP mid-market.
That might particularly be true in the Southern Europe market, which has remained
outside of LIS's coverage, and which has been Adonix' stronghold. Also, in Europe,
warehouses tend to have somewhat different requirements by being typically smaller
and having higher labor costs than their North American counterparts.
There is still the challenge of integrating the companies, as their cultures and work styles may come into play, and experience teaches us that often following a seemingly promising acquisition, a major difference in philosophy might emerge between the acquired and acquiring management teams on how to execute strategies for growing the company while "increasing operational efficiency." This inevitably results with the exodus of the first. LIS' employees are also yet to become familiar with RedPrairie's gospel-like "risk/reward" business model, which offers users two payment options. One choice is to identify potential savings, and reach mutual agreement on a fixed price prior to implementation, while the other option eliminates most upfront costs, but users commit to paying a percentage of savings produced from the system. The timeframe for producing savings is decided by both parties, and many users choose to break up goals into specific milestones.
about RedPrairie's shared risk-reward financial model (dubbed the RedPrairie
Approach) that focuses end-to-end throughout the project life cycle
on value realization and results achievement can be found in RedPrairie
- New Name For A Brave New Value Proposition Paradigm. Leading by example,
RedPrairie has, since mid-2002, transformed its own internal culture and processes
to support this results-focused approach, impacting every function and process,
from employee titles to measurement and compensation systems. The model was
intended to make RedPrairie more of a "logistics results company" than a mere
software vendor, and time will only tell how LIS will be grafted onto the RedPrairie
concludes Part Two of a three-part note.
One discussed recent events.
Three will make User Recommendations.