Inovis Delves into PIM by Snatching QRS Part Four: Market Impact

Market Impact

On September 3, Inovis International, Inc. (www.inovis.com), an electronic data interchange (EDI), business-to-business (B2B), and value-added network (VAN) connectivity specialist, and a leader in providing e-business commerce automation solutions that facilitate the more effective management of retail, supply, and manufacturing partnerships, and QRS Corporation (NASDAQ: QRSI) announced a definitive agreement to merge.

This announcement occurred just as JDA Software Group Inc. (NASDAQ: JDAS), a prominent global provider of integrated software and professional services for the retail demand chain, was about to close acquisition of QRS. QRS broke off the "engagement" in favor of a better-priced acquisition by Inovis. For details of what happened between JDA and QRS see Not All Acquisitions Happen: JDA and QRS.

In a nutshell, while owing to a number of similar products and to former competition between the merging parties this merger has a merit of growth by acquisition in a slow growing (or even declining) EDI-VAN market, the merger of Inovis and QRS may well emphasize some interesting dynamics within the retail market segment. Namely, as consumer markets become more competitive, retail customers realize they must do more than simply achieve increased efficiencies in their own organizations. In other words, a retailer's competitive advantage is now being defined by the efficiencies of their entire supply chain. Thus, in addition to enabling trading partners to collaborate in planning, forecasting, replenishment, and space planning decisions, some vendors are also developing additional functionality that should enable retailers and their suppliers to make collaborative decisions for marketing, assortment, and promotion activities.

But, as the retail industry supply chain process includes hundreds of collaborative steps among thousands of retailers, vendors, suppliers, brand manufacturers, and other intermediaries to create, manufacture, and move products from source to store, the industry is characterized by multiple product sourcing options, a wide array of products and multichannel shopping venues that include retail stores, outlet malls, mail-order catalogues, and Internet sites. Given the competition for retail customers and wholesale orders is intense, the industry participants must be able to meet consumer demand quickly, accurately, and at the most competitive price. To that end, even back in the mid-1980s, a cooperative industry effort to improve the electronic processing of data led to the creation of certain data format standards, including the adoption of EDI, uniform product code (UPC) and, in Europe and other international markets, the EAN standards. More recently, the global trade item number (GTIN) has been established.

EDI is a standard data format for electronic data communication between businesses such as retailers and suppliers, whereby documents in EDI-standard format can be sent over a proprietary network (i.e., VAN) or over the Internet. A sort of an irony here might be that, since EDI has earned a reputation of a complex, rigid, and expensive means of business document and data exchange among trading partners, one would expect it to be relegated to a relic of a bygone era. Yet, while at the surface there would be few economic or strategic reasons for organizations to persist with EDI, many seem reluctant to adopt the alternative at this stage. For the time being, this wealth of businesses that have invested significant resources in EDI still use the technology for B2B communications, and many see EDI as the best choice for secure, reliable transactions, given it is a mature, standardized, and trusted medium.

Despite high initial set-up and value-added service costs, EDI implementations can actually be cost-effective. The advent of web-based EDI connectivity standards, software, and services has lowered entry barriers for many companies that, initially, would not have considered it an option. Thus, many former VAN providers are taking advantage of emerging standards like AS2, RosettaNet, chemical industry data exchange (CIDX), and UCCnet, while the emphasis has been moving from mere connectivity to becoming more flexible and better-rounded service providers. For more detail, see EDI vs XML—Working In Tandem Rather Than Competing. To that end, Inovis has greatly achieved this expansion through the 2003 acquisition of former IPNet Solutions, which has bolstered its portfolio in terms of software, managed services, professional services, and broader means for Internet transactions, such as AS1, AS2, ebXML, and UCCnet data synchronization.

The GTIN, UPC, and EAN data formats allow for the consistent identification of merchandise throughout the supply chain process, from product design to the point of sale. The use of GTIN, UPC, and EAN data promises to greatly increase the efficiency with which retailers and manufacturers can mark, track, and exchange detailed product information. As a result of these standards and technologies, many retailers, vendors, suppliers, and brand manufacturers have been able to reduce the cost of financial operations, mismatches between purchase orders and invoices, inaccurate product shipments, and stockouts.

The still current manual, paper-based item authorization procedures at some sites continue to create unnecessary shipment lag times and also impede the future growth. This is particularly true when on average a grocery retailer may be required the collection and entry of hundreds pieces of data to introduce one new product from one supplier into the network of thousands of trading partners. Consequently, the term PIM has appeared more frequently lately in the discussion of GDS and syndication because of a number of market initiatives that act as catalysts for change. For example, many large retailers, including Wal-Mart, Office Depot, The Home Depot, Target, Albertsons, and Safeway, have mandated their suppliers to synchronize product data via European article number (EAN)/UCCnet registry and data synchronization services. Other catalysts would include the Sunrise 2005 initiative that seeks to standardize on a format for global product identification via a new 14-digit code, and the radio frequency identification (RFID) initiatives in place to bring about the rapid adoption of new radio frequency tags on all products, so that they may be more easily tracked through manufacturing and retail environments.

This is part four of a five-part note.

Parts one, two, and three detailed the event.

Part five will cover challenges and make user recommendations.

Targeting the Retail Sector

Thus, some software vendors targeting the retail sector, such as QRS, IBM, SAP, or General Exchange Services (GXS) (see GXS Acquires HAHT Commerce for More Synchronized Retail B2B Data) remain focused on enabling retail industry participants to connect with each other and transact business through the use of these automated communications and product identification standards. There are a number of other best-of-breed PIM players on the market, including FullTilt Solutions, Blue Martini, Cardonet, SAQQARA, Sterling Commerce, Comergent Technologies, CommercialWare, Flow Systems, Stibo, Liaison Technologies, and Velosel. Each has a number of customers using its solutions, but the PIM market is just now heating up and the lion share of the market is still up for grabs.

Nevertheless, hand in hand with the trend to conduct business transactions electronically via the Internet is an effort to clean up those transactions and reduce the occurrence of errors. Often enough, the trouble with product attributes is that they do not match from one database to the next in the value chain. For every product under its brand umbrella, there are several product attributes, including definitions, specifications (product weights, measurements, calorie counts, etc.), images, marketing messages, and prices. As a result, something as bland as a can of food comes with arrays of data relating to pricing, description, promotion, and so on. To make things worse, companies may have hundreds or thousands of products and multiple individuals may maintain each bit of product information, so the task of organizing and maintaining all this information is critical to the company, since bad data costs companies billions of dollars in incorrect purchase orders, subsequent returns, and the manual effort required to fix them (see $40 Billion Is Being Wasted by Companies without Product Information Management Strategies—How Is Yours Coming Along?).

Accordingly, data synchronization applications automate the process by which suppliers, manufacturers, and retailers share information relevant to issues like inventory status and product specifications. This technology might also be an important underpinning for emerging plans around the RFID technology, which is also high on these retailer giants' agenda. But, as mentioned earlier on, data synchronization would be a relatively simple task if the data was normalized, complete, and error-free. Unfortunately, this is rarely the case, given product information is not created by a single department within the company and is usually not overseen by any single group. It is this lack of process within a manufacturer's business and around managing product information that facilitates errors. Yet, related systems such as logistics, invoice reconciliation, and POS also need the same product information. The retail sector, particularly food and grocery industry, would hence greatly benefit from some on-line industry coordination when it comes to managing catalogs and B2B trading communities.

Like most software solutions, PIM has evolved along a path on which the most pressing needs are met first. For CPG companies, the highest-priority need is GDS, and when faced with mandates from their largest retail partners to synchronize product information via EAN/UCCnet, many CPG companies have thus quickly implemented solutions to upload information to the registry. However, they have also soon afterwards discovered that they did not have all the requested information, or a process for keeping the registry information up-to-date. Therefore, a long-term PIM strategy requires integration with other systems, workflow, an information repository, and the ability to synchronize and syndicate information to a variety of destinations in multiple formats. For more information, see The Role of PIM and PLM in the Product Information Supply Chain: Where is Your Link?

Complementary E-Commerce Products

For that reason, the QRS acquisition seemingly brings together two providers of complementary e-commerce products that should further help retailers, manufacturers, and suppliers manage and sell their products to other companies and customers on-line. Namely, as also seen with recent Click Commerce's acquisitions of Allegis and bTrade (see Click Commerce Acquires Allegis), in addition to the above mentioned merger of GXS and HAHT Commerce, and the partnership of The Kodiak Group and Cleo Communications, it is apparent that strictly trading community connectivity-focused Inovis offerings should have a broader value proposition when bundled with the QRS technology that helps companies record the correct product data and push it throughout the channel in order to avoid such things as overstocking or under-stocking of often incorrect items. In other words, Inovis gains PIM software, which aggregates and organizes item-related data from multiple application sources; and more of data synchronization and syndication tools, which let manufacturers and suppliers synchronize items with retail partners through the UCCnet foundation service, in addition to Inovis' basic messaging and GDS services. Given the giant retailers' requirements for its suppliers to meet data sharing regulations passed by UCCNet and given many vendors' endeavors in addressing UCCNet's compliance, one can discern one major rationale behind the acquisition.

Therefore, Inovis stands a chance of marshalling broader and deeper retail supply chain functionality than most of its rivals through QRS's hosted product attribute catalog, global data synchronization, sourcing, pricing analysis, and collaborative B2B integration services. Accordingly, the QRS acquisition handily expands Inovis' connectivity applications to now include supplier-centric collaborative planning. There is an ample cross-selling opportunity for both Inovis to sell its connectivity applications to many of nearly 10,000 QRS customers and, conversely, to offer QRS' collaborative products to its vast install base worldwide that might likely need a more collaborative relationship with their trading partners. In other words, Inovis might be able to expand its customer base with QRS users and thereby gain a large share in the market for vertically focused offerings in some retail supply chain segments, such as apparel. The merger might force Inovis to offer new services (such as hosted GDS) to more customers, thereby improving its operating margins, while QRS users will obtain more options regarding VAN service offerings from Inovis, which they would logically not have had from JDA.

This concludes part four of a five-part note.

Parts one, two, and three detailed the event.

Part five will cover challenges and make user recommendations.