SCT Corporation: The Last Viable Process Manufacturing Vendor Standing?

SCT Corporation: The Last Viable Process Manufacturing Vendor Standing?
P.J. Jakovljevic & P. Catz - January 15, 2001

Vendor Summary

SCT Corporation provides enterprise software for a certain number of industries and provides a range of IT services, including outsourcing, systems implementation, systems integration and maintenance and enhancements. Founded in 1968 with headquarters in Malvern, PA, USA, SCT Corporation generated $436 million in revenue in fiscal 2000 (approximately 5% derived from the international market). Approximately 85% of the company's sales come from outsourcing, consulting, maintenance, and other support services.

SCT Corporation, delivers solutions, through different divisions, for a number of markets including education, energy, utilities & communications, and government. Each division focuses exclusively on a specific industry. One division, which is the primary subject of this research note, focuses on the process manufacturing & distribution enterprise solutions. This division, called Process Manufacturing & Distribution Solutions, dates to the early 90's with the founding of an independent company, named Adage, focused on ERP solutions for the process segment.

Adage was founded by a group of individuals with strong application software, services and process industry credentials. SCT Corporation acquired Adage in 1995. SCT supplied the capital to expand both the product investment and operations. In 1998, SCT made a strategic investment, buying an advanced planning and scheduling solution to add to the process industry product line. The solution, known as Fygir, was acquired from a Dutch company by the same name and is a supply chain planning product focused exclusively on the process segment. As such, Fygir has proven to be a successful strategy in filling out the process industry solutions set from SCT. In addition, SCT acquired a specialty demand-planning vendor named APSI in 1999 to further enhance the Fygir solution set.

As a corporation, SCT has been a publicly traded company (NASDAQ: SCTC) since 1982. SCT does not split out financial data for the process division, but it has stipulated in its annual report for 2000, filed with the SEC, that 15% of its revenue was derived from the process division, which places it at approximately $70 million, with the estimated 40%/60% split between product license and service revenues. This division derives 100% of its revenues from the process segment. Within the process segment, approximately 50% of revenues come from the food market with the remainder split between chemicals (35%), pharmaceuticals and other process industries.

Today, the Process Manufacturing & Distribution Solutions division of SCT (which includes the iProcess.sct solution with the Adage, Fygir and Internet Business Suite product lines among other process-focused products) is a healthy, rapidly growing business that claims a 100% growth in license revenue for FY 2000 over FY 1999. New customers for FY2000 included Coca-Cola Fountain, a Division of Coca-Cola North America; FIS and Alcon Labs (divisions of Nestle); Wayne Farms (division of Continental Grain); Foodbrands (a division of IBP), Equilon Enterprises LLC (see Go Fygir! SCT Defeats Incumbent AspenTech at Texaco, Shell Venture) and Valvoline (see SCT Fygir To Lubricate Valvoline's Supply Chain), plus significant new business at Miller Breweries, Cargill, and L'Oreal.

Vendor Trajectory and Strategy

The Process Manufacturing Solutions division of SCT has demonstrated an ability to remain focused on the process manufacturing industry space and to expand its footprint within that space (for more information, see SCT Corp Previews New B2B Planning, Execution, and eProcurement Suite). SCT's process industry division has significantly repositioned and extended itself over the last year. When the company first entered the process manufacturing scene a few years ago, it provided only Adage, its flagship ERP suite. Through the 1998 acquisition of Fygir Logistic Information Systems B.V., it subsequently became involved in supply-chain applications, and most recently developed and introduced e-business components.

We expect SCT to remain with this strategy for the foreseeable future. With the exit or weakening position of most other process-focused vendors, SCT should thrive in this market space. SCT should benefit from the woes of other vendors with significant process customer bases, for example Wonderware, SSA and Ross Systems (see Process ERP Market Loses PRISM and Protean, What On Earth Is Going On With SSA? and Ross Systems Continues To Slip, But Pledges to Fight Tooth And Claw ), being an excellent upgrade choice for these users. By the end of 2000, the company had approximately 400 installations. The company offers its product and services primarily directly. With sales concentrated in North America, geographic expansion, particularly in Europe and? Asia, has become SCT's major endeavor.

We expect SCT to continue its focus on mid-market opportunities (companies with $50 million - $2 billion in revenues) and large enterprises with plant and divisional opportunities. The product will also be enhanced either in-house or through 3rd-party alliances in the area of customer relationship management (CRM) and product lifecycle management (PLM). We also expect the company to pursue alliances for business-to-business (B2B) e-procurement and supply chain collaboration within its industries of interest.


Vendor Strengths

Product Functionality: Rating SCT's product against the needs of process manufacturers yields the following analysis:

Table 1.

Small to Medium Enterprises
Large Enterprises
Supply Chain Planning (SCP)
Supply Chain Execution (SCE)
e-business - sell side
e-business - buy side
Customer Relationship Management (CRM)

The company's major product introduction was the recent launch of its iProcess.sct solution, a business-to-business (B2B) e-commerce suite designed for process manufacturers and distributors. iProcess.sct binds together SCT's Adage ERP/Supply Chain Execution (SCE) software, the advanced planning features of the Fygir Supply Chain Planning (SCP) suite and the Internet Business Suite, including standard trading exchange integration, such as ecFoods' Internet Trading Exchange. SCT claims the tight integration of these components although each individual component can be deployed stand-alone as a point solution.

The flagship ERP product, Adage, serves as the transactional backbone for the iProcess.sct solution and its functionality is laid down from a business process perspective. It supports the following major business processes: Design to Deploy, Plan to Produce, Order to Cash, Procure to Pay, and Manage the Enterprise.

Optimization is subsequently handled by Fygir, which consists of modules for advanced planning, advanced scheduling, and demand planning. The Fygir Supply Chain Planning product is especially strong. It enables users to improve their supply chain management performance and make their manufacturing process more efficient by applying mathematical techniques to optimize the supply chain. Fygir provides specific and required process functionality, for example, tank scheduling, quality control (QC) specs considered as part of available-to-promise (ATP), etc. SCT is selling Fygir both as a part of its integrated product suite and standalone, often co-residing with SAP, J.D. Edwards and other non-pure process manufacturing vendors. The company cites a significant penetration within SAP's customer base in process industries, where its product complements traditionally strong SAP's back-office functionality.

In early 2000, SCT introduced its e-business solution, iOrder.sct, a part of the Internet Business Suite. This product addresses the sell side applications with many of the unique features required by the process enterprise, including collaborative promotions execution for consumer packaged goods (CPG). It also provides self-service order management, order status and process industry-specific parameters (e.g., catch weights, lot tracing) visibility, and customer service functionality such as rebate promotion tracking and account management. Collaboration with ecFoods represents SCT's first step in developing trading exchange partnerships for multiple verticals, including consumer-packaged goods (CPG), chemicals and pharmaceutical industries.

Market Focus: A competitive advantage for SCT is its strong focus. The executives are committed to being successful exclusively in the process market with no hint of longing for different markets. SCT is currently one of the few financially strong ERP vendors focusing exclusively on the process market. This focus has resulted in both product and people, which deliver a high degree of functional fit and value within its defined process target market.

Customer Satisfaction: SCT has an impressive record in the area of customer satisfaction. Discussion with SCT customers yields a high degree of satisfaction with both products and services. The rate of customers gaining value from the investment in application products is among the highest in the industry. SCT has been successful with creating satisfied customers in both the Small to Medium Enterprises or SMEs (Furman Foods, Tennessee Pride, etc.) and large companies (Cargill, Smith Kline, Coke, etc.) The company claims that 8 of the top 16 food processors in North America as clients.

Ability to Execute: The parent company (SCT Corporation) is financially strong (see Figures 1 & 2) and has shown willingness to spend it on this market. SCT has a sizable research & development staff plus it has demonstrated both willingness and wisdom in acquiring other companies to fill out the product offering. SCT has invested appropriately in both people and technology to integrate these acquired products. The process division might also be able to leverage the parent organization's ability to provide outsourced services and operations.

Figure 1.

Figure 2.

Product Technology: Adage displays a very compelling and intuitive graphical user interface (GUI) in terms of ease of navigation and analysis. It also runs on a broad set of the most popular platforms and databases. Further, since SCT products originate in the 1990s, they have been based on object oriented programming (OOP)/component-based architecture concepts. Although a component-based architecture is not an explicit requirement for flexibility, component-based applications generally provide greater flexibility than their traditional monolithic counterparts. Furthermore, delivering functionality aligned with business processes rather than in the traditional stovepipe manner is the next enterprise applications market trend and SCT is thus the thought leader in that regard.

Vendor Challenges

Bland Marketing Effort: The Process Manufacturing Solutions division of SCT Corporation is challenged to establish itself as a name brand in the process segment owing to its late market entry and a small client base. Its marketing efforts are, however, both limited by and over shadowed by a traditionally conservative parent company that manages a plethora of other businesses within diverse industries.

Low International Presence: Today, SCT's relatively small client base is predominantly North American, resulting in insignificant brand awareness and an undeveloped channel outside of the North American market despite the company's recent more aggressive marketing campaign and wins in Europe. This is further aggravated by the fact that its product exhibits limited multi-national capabilities and supports only a few languages other than English. A result may be a number of missed opportunities as companies are increasingly seeking global providers for its supply chain management and collaboration requirements. Since the process manufacturing market is highly global, SCT must therefore expand its global coverage to address the needs of its current and intended customers.

Lack of Functionality: Despite its breadth, iProcess.sct does not cover all the bases. International financials, business intelligence, warehousing management, e-procurement, product lifecycle management (PLM), laboratory information management systems (LIMS), and plant maintenance are some of functionality that competitors, like Ross Systems, Wonderware, and Infinium may tout as superior.

Furthermore, SCT has not moved into the CRM market and this lack of functionality will limit its marketability in some situations. However, we expect SCT to address this weakness in the short to medium term through either internal development or acquisition. Also, SCT has not adequately addressed the buy side of its e-business applications by moving aggressively in the area of e-procurement. While SCT has formed a partnership with, a leading food ingredient exchange, as part of their buy side e-business efforts, it has not yet added similar partnerships for the remaining segments (chemical, life sciences, etc.) of their targeted process markets. The market should expect SCT's remedial actions in that regard.

Undeveloped Indirect Channel and 3rd-Party Implementation Partners Network: SCT still relies mainly on its direct sales and consulting force, which we consider as a cost ineffective (and possibly insufficient) sales and service and support approach within the SME market segment. The company will have to demonstrate substantial progress in developing an indirect channel to supplement its strong direct sales and product implementation force. Without it, we believe the company's growth and international expansion will be hampered.


Vendor Predictions

The SCT Process Manufacturing Solutions division will continue to grow at greater than market rates over the next 3 to 5 years. It will increase its penetration into the process industries with significant success in the food segment. With a focused strategy to remain within the process segment and to offer a complete product line, it will have significant success in mid-market process companies.

SCT will continue to face competition from less focused vendors (SAP, J.D. Edwards, QAD, Intentia, etc.) who are attempting to sell into the process market with more generalized products. These non-process vendors will gain some measure of success when the lead buying criteria are in the non-operational applications areas, for example financials or HRMS. However, when the buying criterion is focused on the operational areas, for example supply chain planning, production control, etc., SCT will win in the majority of engagements. Therefore, despite a competitive environment, we predict that SCT process manufacturing division will reach $160 million in revenues within the next three years (60% probability), assuming also its successful international expansion.

We believe that, within the next 6 -12 months, the company will have to officially announce an alliance with a vendor whose products would provide it B2B e-procurement and vertical marketplaces capabilities other than for the food industry (70% probability). The potential alliance candidates are the likes of Clarus and Elcom. We also believe that, within the next 12 months, the company will have to partner with vendors whose products would significantly enhance its customer relationship management (CRM) capabilities (70% probability). The potential alliance candidates for eCRM functionality are GoldMine, Pivotal, or SalesLogix.

SCT Process Manufacturing & Distribution Division's license revenue will contribute more than 35% of its total revenue within the next three fiscal years (60% probability). Within the same period of time, we believe more than 30% of its new customers will be companies with more than $500 million in revenues (70% probability). Within the next two years, not more than 25% of SCT's revenues will come from outside the North American market (60% probability).

With a larger parent company (SCT corporate) the Process Manufacturing Solutions division of SCT could change its form in the next few years. A spin-off into a free standing company or a divestiture by the parent is possible (30% probability) as this portion of SCT continues to gain in investor value. Although these options will change the nature of the Process Manufacturing Solutions division, negative impacts on its future success or ability to invest are not seen as significant. In fact, it would offer the Process Manufacturing Solutions division SCT direct access to market capital and greater visibility in the marketplace.

Vendor Recommendations

SCT should expand its visibility within the global ERP mid-market in the following ways:

  • Expand business in its existing customer base, primarily by offering new extended ERP components. Also target disconcerted customers of struggling competitors

  • More aggressively expand its global presence, both by opening new offices and developing new affiliate partnerships in Europe and in the Asia-Pacific region. Consider acquiring or partnering with affiliates of languishing competitors, e.g., SSA, Ross Systems and Wonderware/Baan.

  • Deliver more focused and pre-configured vertical solutions for industries, and leverage more vigorously application outsourcing to make iProcess.sct attractive to resource-constrained enterprises.

SCT must promptly address its above-mentioned product functionality needs, particularly in the areas of CRM and buy-side e-business/e-procurement.

The company should launch much more vigorous marketing and market awareness creation than has been done so far. SCT needs to leverage their successful mid-marketing and large enterprise client base in their marketing efforts.

SCT should continue to bolster its product interconnectivity to other products. It should also selectively target the higher end of the market, preferably through alliances with Tier 1 ERP vendors (e.g., SAP and PeopleSoft) that would benefit from SCT's strong process plant-level functionality in specific proposal situations.

User Recommendations

SCT deserves consideration by all process manufacturing and distribution companies since it is one of the few vendors who focus exclusively on that market segment. As such, users can expect a greater depth of functions in those areas that require specific process functionality, for example supply chain management (SCM) and production control.

SCT's target market, process manufacturing companies in the $50 million - $2 billion-a-year revenue range, should certainly consider the company's latest product offering, both as an integrated bundle and on a component base, but avoid selecting it without looking at what the other vendors have to offer. For process companies, SCT should be placed on the short list for most functional areas of the business. Mid-sized companies should view SCT as a single source vendor for all ERP, SCM and significant portions of their e-commerce needs. Large companies should consider SCT as a single source vendor for divisional level systems and as a SCM and plant level provider to corporate level systems.

Since requirements differ significantly among different types of process manufacturing companies, users should focus on those functions that make their kind of process industry unique. From SCT and any vendor, get in-depth demonstrations of those functional areas. Each e-business component should be put through its paces using a well-documented set of requirements, scripted scenario demonstrations, and rigorous reference checking. Users will want to provide detailed scripted scenarios that mimic real business processes encompassing all segments in the supply chain to SCT during vendor evaluation and then expect a demonstration that addresses each step in the scenarios. Though time consuming, the preparation demanded by a diligent selection will invariably produce better results - and less headaches.

Customers should also insist on a contractual timeframe for delivery of a solution, and seek reference sites (preferably in their vertical market space), which have been successful with the product suite.

More general recommendations pertinent to process manufacturing & distribution software selections can be found in What Makes Process Process? and Supply Chain Planning - Issues for Continuous Chemical Companies.

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