Adexa Prepares To Step Into The Spotlight

Vendor Genesis

From its roots in advanced planning and scheduling, Adexa, Inc. has emerged as a strong challenger in the business-to-business collaboration software market. Based in Los Angeles, California, Adexa, formerly known as Paragon Management Systems, was founded in 1994 by Dr. K. Cyrus Hadavi and his brother Kameron. While working for i2 Technologies, Hadavi found that most supply chain management applications were built around shop floor scheduling, a foundation that prevented them from scaling effectively to support enterprise-wide decision making.

Paragon focused on producing a scalable solution that could optimize variables across the entire supply chain using a single data model. Its original product suite, Pacemaker, was developed with the semiconductor industry in mind and contained a broad array of functionality, encompassing high-level manufacturing planning across enterprises, detail-level demand/supply matching, ATP, CTP, and material procurement planning. In 1996, Paragon signed five new clients and generated $1.84 million in revenue, primarily from new licenses.

During the first two years of existence, Adexa invested its resources on developing its Pacemaker applications and working closely with its few customers on enhancements. Its efforts began to pay off between 1996 and 1998, when total revenues grew 340% to $8.1 million, far exceeding the growth rate of the APS market as a whole (~40%). This success proved to be only a prelude to its dramatic growth during 1999. Officially, its revenue increased by 194% over 1998 to $23.7 million, but this excludes $12 million carried over to 2000, which would have yielded a considerably higher growth rate.

Buoyed by its financial success and new surge in software sales, Paragon renamed itself Adexa, a moniker that combines "adaptability" and "dexterity," which the company believes are hallmarks of its collaborative supply chain planning suite, iCollaboration.

Vendor Strategy and Trajectory:

Today, Adexa's license revenue is approximately three times its services revenue, the highest ratio for an SCM vendor of its size. Though a high percentage of licenses is typical for young companies on the rise, Adexa does not maintain a large services organization, preferring instead to partner with consulting and systems integration firms for implementation services. These partners include traditional full-service integration firms such as Andersen Consulting, Deloitte & Touche, EDS, Compaq Professional Services, as well as e-business service providers like Origin, and most recently WaveBend Solutions LLC.

Adexa seeks to embed its advanced planning and collaboration solutions into third party enterprise applications and e-business applications through alliances. Its objective is to support independent trading exchanges and company run portals with business-to-business collaboration and intelligence in the form of advanced planning capabilities.

Alliances take the form of joint sales and marketing alliances as well as technology alliances where products are integrated and represent the second largest investment for Adexa following research and development. Among the complementary software partners that Adexa enlists in this strategy are ERP vendors QAD, a mid market provider to a broad range of industries, and WDS, a niche player focusing on aerospace & defense.

Adexa also maintains relationships with supply chain execution system vendors Essentus (formerly Richter Systems) and McHugh Software. A recent partnership with Selectica is intended to enable companies that sell configured products via the Internet to provide their customers with accurate ATP and CTP information. E-business infrastructure partners include Commerce One, which jointly sells and markets iCollaboration with its MarketSite portals, and Broadvision, which will provide customers with customized Internet access to iCollaboration and supply chain information. Access to product catalogs is provided through arrangements with Commerce One and Agile and as-needed data integration can be achieved through Vitria. iCollaboration is supported on a number of Unix server platforms and uses Windows NT/98 clients.

Adexa focuses primarily on semiconductor, electronics, textiles, apparel, and automotive industries, but also targets aerospace and defense with Western Data Systems. Some notable clients among its customer base are Toshiba, Panasonic, Milliken, General Motors, and Firmenich. Other key clients include Sharp, Xerox, Philips Semiconductor, Philips Components, AT&T Wireless, Lucent Microelectronics and Conexant.

For a small company, Adexa derives a substantial portion of its revenue from clients outside the U.S., especially Japanese and Asian semiconductor and electronics manufacturers, but also many in Europe, primarily electronics, semiconductor, and CPG companies. Privately held, Adexa receives substantial financial backing from Sutter Hill Ventures and Information Technology Ventures.

ANALYSIS:
Vendor Strengths

Broad product suite with advanced features: In iCollaboration, Adexa has built upon its original Pacemaker suite, adding product lifecycle management, extended enterprise planning, and collaboration. Other vendors offer broad suites, but Adexa's is the only one that was built from the ground up on a single data model. A host of third party software alliances further extend its applications into electronic procurement, order management, warehouse management, transportation management, and data warehousing.

Strong vision for expanding supply chain management to true multi-enterprise collaboration: Adexa has no plans to peddle Internet trading marketplaces, but focuses instead on providing the decision support capabilities required to enable efficient collaboration between an enterprise and external links in its supply chain. Adexa's vision involves not merely giving customers and suppliers access to iCollaboration via a web browser, but more importantly delivering advanced planning features geared specifically for business-to-business collaboration. The company is also working on intelligent agent technology to automate B2B transactions to improve speed and reduce the level of human intervention.

Excellent growth: Because of its low profile, Adexa is rarely the first choice for larger multinational companies and, in fact, often is not invited to participate in software selections. Adexa's growth comes in many cases as a result of being the second choice, acquired by clients who are unsatisfied with their first selection. In instances where Adexa does compete head-to-head with other SCM vendors, it often comes out on top due to its ability to demonstrate a working solution.

Vendor Challenges

Poor visibility in the SCM marketplace: Paragon Management Systems failed to capture significant mind share among top-level corporate IT professionals, those vested with the power to make buying decisions. As Adexa, the company hopes to shed its anonymity and assume a place among the supply chain management market leaders on every shortlist.

Reliance on small direct sales force: In spite of recent additions to its sales organization, Adexa's direct sales channel is grossly undersized compared to its competition, especially i2. Adexa has 32 quota-carrying salespersons, making up 14% of its total employees. This compares poorly to the industry average of 22%, not to mention the fact that its competitors have significantly more salespersons in absolute numbers.

Lack of capital a barrier to growth: As a private company, Adexa's growth is limited by the supply of venture capital funding. With the recent decline in software company valuations, private funding will be harder to come by, even from established firms. Although it has accomplished much in terms of product development and alliances, Adexa will find it difficult to grow as a private company, at least without significantly diluting its equity base.

BOTTOM LINE:
Vendor Predictions

• Adexa has embarked on an aggressive marketing campaign aimed at avoiding the lack of visibility it suffered as Paragon. In conjunction with these activities, the company has hired a new public relations firm, launched a major advertising campaign, and planned high profile events featuring well known speakers. Though effective marketing can often compensate for little substance behind the image, we believe Adexa will be successful due to its compelling vision and very real accomplishments in the marketplace. In response, its total revenue growth rate in 2000 should top 50%, outpacing the rest of the market, as its marketing efforts pay off (70% probability).
  
  
• In the longer term, Adexa should prosper as it can offer itself as the "i2 alternative" for semiconductor and high tech electronics and has set in motion the right partnerships to increase the applicability of its products. Provided its capital position remains steady, we expect Adexa to grow with the rest of the market over the next three to five years (60% probability).
  
  
• When its collaborative planning products and architecture are completed, Adexa will pose serious competition for Logility in the apparel market, from which it will derive a 15% increase in new license revenue in 2001 (80% probability).

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Initial public offering: In spite of the recent turmoil on Wall Street, we believe Adexa's long-term growth prospects and viability are excellent. Adexa should continue with its IPO plans, but may want to delay it until the market stabilizes to avoid needless loss of valuation arising from general volatility.

Target industry expansion: Though it can expect growth from its existing target industries, Adexa should consider a move into the lucrative consumer packaged goods or retail sector by marketing its collaboration products to large CPG manufacturers and distributors.

Seek stronger alliances with mid market ERP vendors: To increase its profile among mid market corporate IT buyers, Adexa should build stronger alliances with those ERP vendors that have yet to launch their own supply chain management modules such as Ross Systems or Solomon Software. In addition to sales and marketing agreements, Adexa can improve its win rate by developing standard interfaces to ERP products so that clients have fewer reasons to acquire competitive products. While Adexa maintains a relationship with mid-tier ERP vendor QAD, Inc. in which QAD resells its APS solution, Supply Chain Optimizer, with its MFG/PRO manufacturing execution suite, it needs to expand its software alliance network to generate more license revenue.

Consider a strong partnership or merger with a supply chain execution vendor: Adexa should begin looking forward to the time when enterprises will require seamless integration between planning and execution systems in order to maintain their competitive standing. Several vendors have taken steps toward realizing this goal such as SynQuest, SCT Corporation, and Aspen Technology. A possible match for Adexa is EXE Technologies, an SCE vendor with broad geographic coverage that offers fulfillment and distribution execution software on Unix platforms. A choice that would bring synergy in the apparel market is Manhattan Associates.

User Recommendations

Users in semiconductor and electronics should place Adexa high on any short list and should not be daunted by its relatively short operating history and small size. Adexa's applications have proven themselves in difficult environments of small and large companies.

Users should keep in mind that many of Adexa's third party software alliances are in early stages, especially Commerce One, Selectica, and Essentus. Still, movement of its primary competitor i2 into e-commerce imparts new urgency to these new partnerships, which improves their chances for producing tangible results.

Users should approach Adexa's collaborative products with realistic expectations, a difficult proposition amid the B2B hype that prevails in the marketplace. Scripted scenario demonstrations are a must for the collaboration products and these should replicate actual business processes used by clients to plan and coordinate forecasts and replenishments with their customers and suppliers.