Is MAPICS Getting the Magic of PLM? Part One: Recent Events and Market Impact

Event Summary

For over two years, MAPICS, Inc. (NASDAQ: MAPX), possibly the largest global provider of extended enterprise applications for solving the challenges of discrete manufacturers following the acquisition of its former competitor Frontstep (see MAPICS To Leap Forward In A Frontstep Way), has shown signs of significant change and a persistent number of historically recognizable and invariant tenets of operation. During the same time, the vendor has continued with the painstaking process of producing and executing a strategy going forward that would pragmatically blend the company's traditional values and success factors with new approaches to stay in tune with market trends.

To that end, on May 5, MAPICS announced it recently acquired the MAGIK! Product Lifecycle Management (PLM) solution, from its longstanding partner—Ceimis Enterprises of Laguna Hills, California (US). This former strategic extension solution has purportedly been well received by a number of MAPICS customers and has already been integrated with the MAPICS ERP for iSeries product.

This acquisition certainly complements MAPICS' portfolio of evermore comprehensive software and services designed to help companies achieve world-class manufacturing success. The product lifecycle management (PLM) software applications' purpose has been discussed at great length (See The Many Faces of PLM), but, in a nutshell, it is the foundation that supports the management and automation of product lifecycle processes from early product conceptualization to retirement across multiple organization and enterprise boundaries.

Critical to the success of any manufacturer is the ability to utilize the latest electronic commerce technologies available for competitive business advantage, such as, leveraging them as a secure medium for the flow of trading partners' data, product designs, marketing data, and so on, all in near real time. To that end PLM applications, which typically integrate with existing ERP applications, extend critical product information visibility and processes beyond the Engineering Department and through the supply chain using the Internet. With a PLM solution in place, a company has the ability to automate, monitor, and track product development and revision processes with their customers, suppliers, and employees amid the increasing pressures of mass customization, globalization, regulatory compliance, increased outsourcing, and product accountability to name some of the market driving forces.

Specific terms of the acquisition were not disclosed and MAPICS refrained from acquiring the entire Ceimis' operations. However, MAPICS is bringing key individuals from the organization over to develop, service, and support the newly acquired solution, as to provide continuity and dedicated service to current and future customers.

The news came at the heels of the April 29 upbeat announcement of results for its second fiscal quarter ended March 31, 2004, when it reported its generally accepted accounting practices (GAAP) net income for the second quarter of 2004 as being $2.1 million (USD), compared to a net loss of $1.5 million (USD) in the prior year. Moreover, total revenue for second quarter of 2004 increased by 16 percent to $44 million versus $38.1 million (USD) a year ago, while license revenue was $11.7 million (USD) , up 13 percent from $10.3 million USD) in the second quarter of 20003 (see figure 1). This remains in a sharp contrast to not so distant MAPICS' quarterly reports featuring flat or often depressed revenues (see figure 2).

Figure 1

Figure 2

While the majority of revenue continues to come from loyal, existing customers, the vendor has signed fifty-two new customer accounts during the quarter compared to thirty-seven new accounts in the same quarter last year. Cash flow from operating activities was $10.9 million (USD), while the debt repaid during the quarter was $5.0 million (USD). As a result, the company still has a comfortable cash amount of nearly $25 million (USD), and maintains its acquisitive stance.

The Frontstep acquisition has obviously provided MAPICS with a boost in terms of product choice, having solutions on both leading platforms—Microsoft and IBM. With MAPICS SyteLine ERP release 7, whose localized solutions were delivered in France, Germany, Mexico, Japan, and Italy during the quarter, the vendor now boasts a notable application built on a Microsoft .NET architecture. However, the loyal IBM iSeries-based (formerly AS/400) install base should rest assured of MAPICS' continued support for the platform. The recent big news about the MAPICS ERP for iSeries product was that version 7.3 features Double Byte support, and expanded Java 2 Enterprise Edition (J2EE)-based client technology. Thus, although the second quarter featured continued strength in market acceptance of MAPICS SyteLine ERP release 7 solution, there was a more than 50 percent increase in MAPICS ERP for iSeries license volume over the prior quarter.

Therefore, the company believes that the market is improving in certain manufacturing segments and in several geographies. As a result, it anticipates greater license volume from MAPICS SyteLine ERP solution as it is introduced into more markets. MAPICS is encouraged by these developments and plans to further invest in its products and channel to capitalize on these trends. As a result, the company now anticipates total revenues for the fiscal 2004 year to range between $170 million and $180 million (USD).

This is Part One of a three-part note.

Part Two will continue the market impact.

Part Three will discuss challenges and make user recommendations

Market Impact

The MAGIK! PLM acquisition is pretty much in tune with the MAPICS' prudent strategy of late to focus more intently on the installed customer base and to continue developing functionality enhancements to its ERP solutions and strategic extensions via a web services model. In order to do so, the company may develop, acquire, or resell solutions from partners. Among the many expected benefits of this strategy would be that these solutions should be more rapidly developed to respond to changing business conditions, thus implementations could be significantly easier, and customers would be able add MAPICS' solutions to meet specific business demands as needed and at their preferred pace.

Therefore, using applications such as portals, PLM, enterprise asset management (EAM), and supplier relationship management (SRM), the last one being slated for some time in the future, as coarse-grained Web services (including pricing, inventory, supplier performance, order management, and catalog components within the SRM suite) on top of both Microsoft .NET- and J2EE-based ERP products' foundations via a Web services interface layer should result in synergies. This is despite the downside that it cannot be done within the underlying core ERP products because of a sizable gap between the products' technologies and functional capabilities.

For some time now MAPICS has been expressing its acquisition appetite for companies that would broaden its customer base or broaden its offerings to customers, where MAGIK! fits the bill. The acquisition of a former ERP peer, Frontstep, has particularly accomplished both objectives, since with that acquisition MAPICS has added over 1,800 customers and acquired a number of solutions that can be used as tools to develop new customer relationships or can be used as tools to broaden sales to its installed base of customers. Yet, that was not exactly the case with the 2000 acquisition of its former, struggling competitor Pivotpoint (see How Has MAPICS Been Extending?). It had only burdened MAPICS with the immense task of blending different corporate cultures (i.e., less formal Pivotpoint's versus more rigid and conservative MAPICS' one) and with the inherited problems of Pivotpoint, which, at the time of the acquisition, was in a state of a flux—it had poor financial viability, its own channel erosion, employee exodus, and a poor service and support record. Thus, over three years later, MAPICS learned important lessons, which it leveraged in the case of Frontstep's acquisition as the perfect attempt at harnessing Microsoft's technology.

Dual Platform Vendor

As a result, MAPICS now offers collaborative business solutions built on the IBM iSeries (using OS/400 and Linux OS platforms), Microsoft Windows, and Microsoft.NET platforms. MAPICS claims to have deliberately selected IBM and Microsoft as its key technology platform partners as they represent the undisputed leading technology platforms. Thus, MAPICS has become an active dual platform vendor, which will continue to sell and enhance its traditional breadwinning product for the "IBM faithful" world where the iSeries, J2EE, and WebSphere are important to users and prospects, along with the MAPICS SyteLine ERP release 7 product, which has immediately before the Frontstep's acquisition been completely re-architectured on the Microsoft .NET platform (see Frontstep Ups the .NET Ante).

MAPICS ERP for iSeries, logically, is an IBM iSeries (a still popular platform with manufacturers in the target market) based solution whose integrated applications enable single-site, multisite, and multinational manufacturers to manage their business. The product leverages a J2EE environment and, with web-enabled functionality, delivers solutions for growing manufacturing organizations and offers an architecture that gives customers the flexibility to expand as their business evolves. Since its inception in 1978, the product has evolved to a broad range of functionality for discrete manufacturing enterprises.

Its strength remains largely in the discrete manufacturing arena, and until not long ago, its sweet spot has been within single plant installations. With features such as rate-based planning, serial number traceability, and product data management (PDM), the product can handle make-to-stock (MTS), assemble-to-order (ATO) and less-intricate engineer-to-order (ETO) manufacturing environments. MAPICS' focus has also long been on embedding workflow functionality designed to support business processes across many functional areas, having first delivered this capability for design and engineering functions, and having recently expanded workflow throughout the entire product. It has paired well with the Ceimis' proficiency with the workflow side of PLM, which will be addressed later on.

The most recent version of MAPICS SyteLine ERP release 7, is built and deployed on the Microsoft .NET technology platform, including SQL Server 2000 and Exchange Server 2000. It presents data in a Microsoft-like user interface that has the data management abilities of standard Microsoft productivity applications like Microsoft Office. Hence, users can fairly easily add, remove, and edit fields, labels, and complete screens—without the need for technical programming. Moreover, as the business changes, the system can adapt and move forward with the business.

With its enhanced functionality, prior to being acquired by MAPICS, to natively deliver solid supply chain management (SCM) and customer relationship management (CRM) modules (see Mid-Market ERP Vendors Doing CRM and SCM in a DIY Fashion), former Frontstep had also positioned itself as a primary business systems provider that offers comprehensive enterprise solutions ranging from sourcing to fulfillment capabilities, on top of a strong discrete manufacturing ERP capability and experience. In that regard, the MAPICS SyteLine ERP suite for mid-sized manufacturers, by and large offers support for customer service, order processing, inventory control and purchasing, manufacturing production management, production planning and scheduling, cost management, project control and financials, sophisticated product configuration for sales order management and manufacturing, advanced planning and scheduling (APS), business intelligence (BI), workflow automation, with business process definition and execution, and advanced forms. The traditional shortcomings in terms of multinational financial management modules should be overcome with the alliance with SunSystems. (for more information, see Analyzing MAPICS' Further Steps after Frontstep).

Accordingly, MAPICS now has a firm product direction of optimizing investment to maximize customer loyalty and retention for MAPICS ERP for iSeries and older releases of MAPICS SyteLine ERP (i.e., the release 6 and earlier), whereby for MAPICS SyteLine ERP release 7, the vendor plans to maximize investment as a new business engine. As Microsoft-centric technology and the .NET initiative have become all but mainstream in the business applications mid-market, MAPICS has had to get over its traditional IBM platform preference and sentimental hang-ups, and to bow to its prospects' preference for Microsoft solutions that incorporate .NET and the SQL Server database technologies. To that end, MAPICS SyteLine ERP release 7 is a solid solution for those Microsoft-oriented customers and prospects. Further, while the re-architecture of .NET is important, it is this combination with new functional capabilities in areas like APS, flexible multisite deployment, and flexible business process automation that position the product better going forward, although the recent upswing in the ERP for iSeries product related revenue should keep the vendor warm around its heart.

This concludes Part One of a three-part note.

Part Two will continue the market impact.

Part Three will discuss challenges and make user recommendations

About the Authors

Predrag Jakovljevic is a research director with TechnologyEvaluation.com (TEC), with a focus on the enterprise applications market. He has over fifteen years of manufacturing industry experience, including several years as a power user of IT/ERP, as well as being a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade, Yugoslavia, and he has also been certified in production and inventory management (CPIM) and in integrated resources management (CIRM) by APICS.

Jim Brown has over fifteen years of experience in management consulting and application software focused on the manufacturing industries. He is a recognized expert in software solutions for manufacturers and has broad experience in applying enterprise applications such as product lifecycle management, supply chain management, ERP, and customer relationship management to improve business performance. Brown began his professional experience at General Electric before joining Andersen Consulting (Accenture), and subsequently served as an executive for software companies specializing in PLM and process manufacturing solutions. He is a frequent author and speaker on applying software technology to achieve tangible business benefits. Brown can be reached at jim.brown@tech-clarity.com.