SSA GT to EXE-cute (Yet) Another Acquisition Part Two: EXE

EXE Background

On August 18, SSA Global Technologies (SSA GT) (, and EXE Technologies, Inc. (NASDAQ: EXEE) announced the signing of a definitive agreement under which SSA GT will acquire the embattled global supply chain execution (SCE) provider. Under the agreement, a subsidiary of SSA GT will merge into EXE Technologies and all holders of EXE Technologies outstanding common stock will receive $7.10 per share in cash, which represents an 18 percent premium over EXE Technologies' closing market price on August 15, 2003. See Part One of this note for additional information including EXE's history.

EXE was formed in 1997 from the merger of Dallas Systems Corp. and Neptune Systems Inc. and went public in August 2000 (see EXE Technologies Begins Life In The Public Eye). Dallas Sytems had built its WMS product around the needs of automotive, retail, and wholesale distribution companies, while Neptune brought expertise in third party logistics (3PL) firms to the combination. Dallas Systems' EXceed product was offered on the IBM mainframe and the UNIX platform while Neptune Systems' solutions were supported on client/server UNIX and Microsoft Windows platforms. As a result, the vendor still has three WMS product lines that are being converged to a single J2EE set of inventory, labor, and task management services:

  1. EXceed WMS for High-Volume Distribution Environments (a.k.a., EXceed 2000), which nowadays runs on the IBM AIX and HP-UX OS platforms and on Oracle and Informix database platforms;

  2. EXceed WMS for Complex, Value-Add Distribution Environments (a.k.a., EXceed 4000), which nowadays runs on the Windows NT/2000, IBM/AIX, Sun Solaris, and HP-UX OS platforms and on Microsoft SQL Server, Oracle and IBM DB2 database platforms; and

  3. EXceed WMS for Mainframe Environments (a.ka. EXceed 3000), which nowadays runs on OS/390 and AS/4000 platforms

Hence, at the completion of the merger, EXE instantly became one of the largest WMS vendors in the SCE market, as its broad range of supported platforms gave EXE the ability to provide WMS solutions for companies of virtually any size.

Since the merger, EXE has enhanced its product set, formerly EXceed eFS (eFulfillment System) and now under the EXceed umbrella brand, which is a multi-platform, multi-language software solution for complex, global distribution, or high-volume fulfillment and warehouse management environments including: retail, grocery and wholesale firms, manufacturing firms, 3PLs, and outsourced e-commerce providers. The suite initially contained two extensions: eFS Fulfill and eFS Collaborate. eFS Fulfill (recently renamed into EXceed Fulfill) combined Exceed WMS products with transportation management functions such as shipping and receiving for multiple transport modes including air, ship, and rail. eFS Collaborate initially provided suppliers and customers the web-based capability to share information to support collaborative planning forecasting, and replenishment (CPFR) activities.

This is Part Two of a four-part note.

Part One detailed the event and the market impact.

Part Three will discuss the impact on SSA GT.

Part Four will present the challenges and make user recommendations.

EXE Software Portfolio

Nowadays, EXE's software portfolio is comprised of four complementary SCE product suites:

Fulfillment—EXE's fulfillment software solution provides an enterprise with visibility of inventory availability, enabling them to better serve the customer. EXceed Fulfill manages the activity within and around the four walls of the distribution center. In addition to best-of-breed WMS features that control and optimize the processes within the four walls, EXceed extends visibility, inventory, and operational control into trailer, container, and other extended storage or processing functions; provides support for value-added services, postponement manufacturing, or synchronized assembly operations. EXceed enables holistic optimization of complex or automated outbound warehouse processes; enables discrete asset and assignment monitoring, engineered labor standards or reasonable expectancies, cost-based product slotting, layout planning, and facility optimization. It enables vendors, suppliers, and customers to perform on-line scheduling, appointment, and load management and supports cross-docking to eliminate the holding of inventory and increase inventory turns by synchronizing outbound demand and inbound processing.

Inventory Management—EXceed Adaptive Inventory Management (AIM)
EXceed AIM is an automated demand forecasting, planning, and replenishment system for the demand chain that provides the tools needed to implement the principles of smart buying from a buyer/merchandiser's perspective. It automates repetitive, number intensive forecasting and replenishment activities with the goal of reducing the amount of time buyers spend manually entering, manipulating, and maintaining data so that they will have more time to analyze how well the company is meeting customer demand. Features include a best-fit forecasting engine with a repository of twenty-five forecasting algorithms and automated order generation with a buyer/merchandiser workbench to aid in the approval process. The latest product enhancements included a demand planning module that lets users compare adjusted forecasts with system-generated forecasts, view predicted inventory levels, and see future order forecasts. Other features have been added to closely tie product inventory to real world constraints for smoother supply chain execution, such as the ability to factor manufacturing constraints into distribution replenishment and direct-ship merchandise into vendor minimum requirements as well as allocate insufficient inventory to supply chain needs based on business rules.

Supply Network Management—Featuring EXceed SNx, a multi-agent system developed in the new J2EE native web-based technology. The EXceed Network Fulfillment solution acts as the higher-level system that sits on top of best-of-breed applications and allows them to integrate and interact seamlessly. The solution drives the end-to-end fulfillment processes in the supply chain, provides visibility at different levels and displays a view of what is going on in the supply chain through the use of a control center The EXceed Network Fulfillment system is a closed loop solution that evaluates the information in the context of the execution plan, determines the impact of the events to the plan, and calculates an optimized reaction, which is disseminated to the underlying systems. These reactions can be both automated responses or suggestions to an end user.

Business IntelligenceEXceed Analyze is a reporting and analytical tool set that enables managers not only to measure and analyze their supply chain but also directs them to detect and correct supply chain issues before they become problems. Analyze makes information readily available and easy-to-understand so that front-line decision-makers are empowered to take action immediately at the point of greatest impact.

EXceed Portals provides suppliers and customers the ability to share information to support collaborative activities. It opens up the internal supply chain to trading partners by giving them real time access to the EXceed warehouse management inventory data, shipment order information, and advanced shipment notice (ASN) information. The software lets suppliers add, change, and delete orders and/or ASN information, and comes in two flavors of Portals: Customer and Supplier. While inventory checks are a feature of both, the Customer Portals allows the customer to add, change or delete shipment orders, whereas Supplier Portals allows all the same actions but for ASNs instead.

EXceed Sentinel provides customers the ability to track and trace their products throughout their supply chain to ensure their brand is protected in the event of a product recall or quality issue. It promises to help companies manage quality in manufacturing and distribution networks, such as in food, beverage, pharmaceutical, and other consumer packaged goods (CPG) companies. The software can be used to trace products to the lot and individual item levels, which is necessary to identify and isolate consumer products in the event of a recall.

EXceed Data EXchange is the platform that enables EXE customers to integrate various systems with one another in addition to seamless integration with other EXE applications using a large variety of formats (i.e. EDI, flat file, EDIFACT, XML, shared database). The software sits behind a corporate firewall and converts EDI, XML, or flat-file documents into WMS formats, and vice versa, so that users of the WMS and their business partners can communicate without the need for expensive EDI value-added networks, for example. The types of EDI and XML documents that the system would actually be transmitting include shipment notifications, shipment orders, purchase orders, and receipt notifications. When communicating over the Internet with business partners, the software supports communications protocols including HTTP and FTP. Data EXchange is Java 2 Enterprise Edition (J2EE) compliant, and it also supports IBM MQSeries and Java Message Service as ways to move data within or between enterprises.

EXceed Unified Platform Architecture is the underlying technology and standards platform that enables EXE to deliver scalable, packaged "building block" solutions. EXceed products are based on a J2EE technology stack ensuring open, secure, scalable, highly-available, web-friendly applications that can be delivered through a single roles-based portal or any networked device. Support for wireless, voice, RFID, and other emerging technologies is provided through a flexible shared services layer.

EXE Strengths

Thus, EXceed software also bridges the gap between SCP and SCE with products that guide and implement planning and replenishment activities or provide collaborative visibility, monitoring, control and execution, within a business and outside it. EXE has become much more than a WMS supplier and with its focus shifting from a static node perspective to a much broader supply chain network collaboration and adaptive supply chain.

EXE is still arguably a premier solution provider for Microsoft technology in the SCE industry, given it has implemented nearly 300 warehouse installations using Microsoft technology, including Windows NT and SQL Server. EXE also has a worldwide database reseller agreement with Oracle Corporation, in which it offers a certified interface to Oracle's applications. Though it continues to support mainframe and Unix installations among its several hundred customer license base, EXE had for some time focused heavily on its Windows NT/2000 platforms and has more concentrated its development resources on former Neptune's NT-based WMS product, now EXceed 4000, which utilizes an open n-tier architecture, and reputedly has allowed EXE to become the first SCE vendor to be fully certified on Windows 2000.

Conversely, EXceed 2000 faces challenges of maintaining its highly modified code (the product requires the use of task and source code control applications to ensure performance and security) and lighter functionality, although the functionality is suitable for its targeted verticals—grocery retailers and auto parts suppliers. This will put SSA GT in a conundrum of deciding what to do with the product—while it caters to SSA GT's automotive industry of focus, its less attractive technological foundation is certainly a burden.

EXceed 3000 has gone largely un-marketed since the merger, although it has continued to sell to new customers and legacy accounts looking to move off of earlier versions of Dallas Systems DPPX offering. However SSA has a significant mainframe install base and will need to make a decision on continuing to market this product going forward.

Nevertheless, early on EXE was able to espouse a strong, comprehensive WMS functionality that would run on almost every common industry-accepted platform. EXE's product line has been the culmination of decades of development effort, employing feedback from customers and members of its Industry Advisory Board (IAB). Its multiple platform expertise has initially given it an edge over other vendors in providing integration services on client implementations. Other core strengths would include its considerable presence in the high-volume retail, 3PL, automotive, and high-tech verticals. A related edge for EXE would be products that are focused, relatively simple and easy to use, which tends to lower the total cost of ownership (TCO) for customers. EXE has long focused research and development (R&D) dollars on initiatives to offer a more packaged solution environment and has targeted a 1:1 ratio of licenses to services costs.

EXE also has global reach, with about half of all installations in the US, and the other half equitably divided between Asia and Europe. This is advantageous given that many customers are going global and need a software vendor that can work with their divisions around the world. Also, the supply chain often starts in Asia, because most companies are moving their manufacturing operations overseas, so any SCE vendor must be able to do business starting in Asia and follow the supply chain all the way back to the US. No other WMS/SCE vendor enjoys a customer base so evenly distributed over the globe, and in fact, EXE's area of fastest revenue growth during 1990s was Asia with a compound annual growth rate of over 80 percent from 1997 to 2000. The European market has also provided a steady performance for the vendor even during recent years of economic decline.

EXE Challenges

Still, despite its promising genesis and despite the fact that geographic diversification should have better insulated EXE against local economic downturns, the vendor has failed to grow its business significantly in the several years following the merger. Total revenue more than tripled from 1997 to 1998 but sagged significantly from 1998 to 1999, in which the company grew by just 6 percent to $96.8 million, when it was still the SCE leader in terms of revenues. As a cost-cutting measure during the Y2K-induced lull in its customers' buying activity, EXE restructured its operations in August 1999 and reduced its total headcount by 18 percent. During 2000 the company's stock peaked at more than $125 per share, the company was dependent on sales to a then new breed of Internet companies, such as on-line groceries, that disappeared with the dot-com bust. The quite belated focus on brick-and-click players has never born fruit for the company. For a long time, the company's revenues continued to decline and an array of losing quarters spiraled, all resulting with customers' reticence to deal with a beleaguered vendor, despite an attractive product line for the still buoyant SCE market.

To make things worse, the company's multiple restructuring steps since 1999, which might have yielded short-term cost savings, never helped the vendor turn around. Quite the contrary, reducing the number of R&D resources and the exodus of other professional staffers has ultimately brought about a loss in technological leadership. This plus inexperienced pre-sales employees that had to be trained over time in a complex expert matter, and a declining level of customer support, contributed to all but stalled sales in the fastidious US market. EXE enlisted the aid of outsourced development and implementation services through Hindustan Computers Limited and Span Systems Corporation but these were an insufficient substitute for dwindling in-house resources.

Raising capital through an IPO in 2000 to make acquisitions (at that stage, like its likely new parent SSA GT nowadays, EXE believed the best way to grow market share was through acquisitions, since it felt that it was easier to acquire a complementary software vendor and assimilate than to develop functionality in-house) also had poor timing, and has not helped much. Still, EXE bought AllPoints Systems in 2001, in a stock deal worth approximately $30 million. The acquisition was to add key functionality to the EXceed product line, especially in the area of one-to-one, business-to-consumer (B2C) fulfillment and to give EXE a broader reach into its primary verticals, including retail and electronics. Although for similar reasons, Manhattan Associates successfully acquired Intrepa in a similar deal in 2000, EXE's acquisition of AllPoints meanwhile failed, and the product was written-down and discontinued from a new sale product offering in 2002.

EXE has tried its luck in partnering nonetheless, both with independent software vendors (ISVs) with complementary functionality, and system integrators (see EXE Latest Vendor to Join IBM Supply Chain Club and EXE and i2 Advance Relationship), but the traction from these had only limited success in reinvigorating the unfortunate vendor. Actually, EXE has recently shown a limited and slow-moving recovery through cost-cutting measures and much smaller losses, but the negative sentiment has still been hovering above it.

For the above reasons, once the SCE/WMS leader, EXE has long lost the leadership to the now seemingly unstoppable Manhattan Associates (see Becomes The Newest Of Manhattan Associates), while a slew of upbeat players like HighJump (see HighJump Grows in a Period of Low Growth Through Adaptable, Broad Function Products), RedPrairie (see RedPrairie - New Name For A Brave New Value Proposition Paradigm), G-Log, HK Systems, Provia (see Provia Proves Its Way To Success) and Yantra (see Yantra Leader in Distributed Order Management, But Wait There's More), have eclipsed EXE's mind share, if not exceeded its total revenues and market share.

Further, as the demand for more integrated collaborative SCE suites abounds and industry consolidation increases, all the above vendors offering standalone, complexity-handling SCE applications face increased competition from ERP and SCE suite vendors for middle-to-less-complicated environments, such as Irista, Swisslog, Optum, SAP, Oracle, J.D. Edwards, Lilly Software, SYSPRO, and Adonix, to name some. While the WMS market is expected to continue to grow modestly but faster than many other enterprise applications, it appears the customer order fulfillment process management as an add-on solution to WMS will experience much higher growth. Look for many of the above vendors to continue bolstering that functionality, through increased product development budgets, alliances, and acquisitions, the onset of which began very recently (see SCE Leaders Partner To See Beyond Their Portfolios).

This concludes Part Two of a four-part note.

Part One detailed the event and the market impact.

Part Three will discuss the impact on SSA GT.

Part Four will present the challenges and make user recommendations.

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