Made2Manage Systems, Inc.: M2M From A2Z For SMEs?

Vendor Summary

Made2Manage Systems Inc. (NASDAQ: MTMS) is a provider of enterprise-wide software solutions for small and midsize discrete manufacturing operations. Founded in 1986 with headquarters in Indianapolis, IN, USA, Made2Manage generated $31.1 million in revenue in fiscal 1999. Approximately 56% of the company's sales come from consulting, maintenance, and other support services, while almost its entire revenue is derived from the North American market. Made2Manage Systems went public in 1997.

Its flagship product, Made2Manage, is designed to meet the needs of small and midsize discrete manufacturers engaged in engineer-to-order (ETO), make-to-order (MTO), assemble-to-order (ATO), make-to-stock (MTS), and mixed styles of production. The product is an application suite designed to be the only business software these manufacturers need to effectively manage their operations. It includes applications in sales and marketing, engineering, materials management, production, quality management (through a partnership with Powerway, Inc.), finance and accounting, human resources (through a partnership with Best Software) and web-based applications for customer and supplier collaboration. The Made2Manage solution also offers advanced planning & scheduling (APS) and decision support-executive information system (EIS) capabilities.

Since its founding, Made2Manage Systems has evolved its product while remaining committed to Microsoft technology. With the release of Made2Manage for Windows in late 1995, Made2Manage became an early adopter of Windows NT and was the first manufacturing software application to receive the "Designed for Windows 95" endorsement. In 1998, Made2Manage acquired Bridgeware Inc. to deliver advanced planning and scheduling capabilities.

Vendor Trajectory and Strategy

Made2manage began with a vision to produce business management software that was very intuitive and, therefore, easy to use and implement. Realizing early the importance of business use of the Internet, Made2Manage was in 1997 one of the first ERP suppliers to offer web-based applications for small and midsize manufacturers. During 1999 it embarked on a strategy to provide e-commerce solutions for its target market. Made2Manage has been completing its evolution from a vendor of traditional MRP software to a provider of holistic business applications, including integrated front office, back office, business intelligence and e-business capabilities for its target market - small-to-medium manufacturing enterprises (SME).

Made2Manage has shown a good understanding of the needs of its customers, who typically wish to acquire most of their business applications from a single source while coping with very limited IT resources. To that end, Made2Manage still offers its core ERP solution, which has recently been enhanced with extended enterprise capabilities like advanced planning & scheduling (APS) through the Bridgeware acquisition, and customer relationship management (CRM), both through in-house development and the partnership with Interact Commerce. The company has also made a notable effort to provide e-business solutions with the launch of m2mEport site in March 2000, a Web-based community offering information, tools, and services to meet the e-business requirements of SME manufacturers. Recently, the following three separate portals have supplanted the m2mEport.com site, each providing a more focused set of functionality:

• m2mvip.com - provides manufacturers with customer relationship, collaboration and e-commerce applications
  
  
• m2mexpert.com - provides 24x7 customer support, education, and information
  
  
• m2mexpress.com - provides a subscription-based hosted service for smaller customers

In addition to improving Internet usability of its products, Made2Manage has also begun an international expansion by opening its first overseas subsidiary in the UK in 1999. By the end of 1999, the company had more than 1,300 customers, primarily North American discrete manufacturing SME organizations. The company distributes its products and services through a multi-channel sales and marketing approach that encompasses both a direct sales force and a network of business partners (VARs) throughout North America and the recently added distribution for Europe.

We expect Made2Manage to continue its focus on the lower-end of the ERP mid-market (companies with $5 million - $100 million in revenues), by rounding-up the functionality of its solution. The product might be enhanced also through third-party alliances in the area of Distribution Requirements Planning (DRP) & Transportation, Plant Maintenance, and Manufacturing Execution Systems (MES).

We also expect the company to further pursue alliances for business-to-business (B2B) e-commerce, Internet trade exchanges and supply chain collaboration within its industries of interest like its recent alliance announcement with Click Commerce, Inc. (for more information, see How Has Made2Manage Systems Been Managing Itself?). Additionally, Made2Manage will invest more aggressively in marketing, international business expansion through distributors, and will seek to become more vertically focused. It is very likely that it will also start pursuing alliances with more ASPs to further its penetration into this increasingly popular marketplace.

ANALYSIS

Vendor Strengths

• Made2Manage has from its early days had a sole focus on the low-end of the ERP discrete manufacturing market. The company has long demonstrated a deep understanding of this market dynamics and its requirements of inexpensive products, fast and simple implementations, and good service and support. These risk-averse requirements have traditionally been entry barriers for larger vendors. Made2Manage has been quite competitive in speed of implementation and total cost of ownership (TCO). It has also achieved good experience with its indirect channel, which is an important criterion for long-term success in the SME market segment.
  
  
• The company has, gradually, either developed in-house or incorporated through partnerships a line of integrated e-business, customer relationship management (CRM), business intelligence, and advanced planning and scheduling (APS) components within its core ERP solutions. It also embarked early on web-enabling its product and recognized the need for hosted applications within its target niche. This promotes it as one of the first of the smaller ERP vendors with the ability to embrace customer and supplier activities tied to a core transactional back-office system. Made2Manage can, therefore, often offer one-stop-shop functionality for small assembly-to-order (ATO) or make-to-stock (MTS) discrete manufacturers.
  
  
• Made2Manage has long embraced concepts of component technology in designing its product. The object-oriented product architecture has been devised entirely from scratch in-house within the Microsoft context, which provides for flexibility and ongoing agility. End users of smaller enterprises have also been impressed with its intuitive user interface, which provides ease of system navigation ("Navigator" feature) and of information retrieval ("Locator" feature), and with underlying workflow & messaging system capabilities ("Notifier" feature).
  
  
• Possibly differentiating Made2Manage from its main competitors is the company's readiness to provide smaller discrete manufacturers with the above-mentioned portals that offer a broad range of collaborative, interactive, and communications applications including collaborative engineering design, tools, trading exchanges, and access to information resources. Made2Manage has also been proactive in service and support cost reduction by harnessing the latest technology, like CBT, to deliver inexpensive users' training. The www.m2mexpert.com site hosts a full range of education, consulting and support services, and includes a virtual classroom capability for delivering instructor-led classroom education over the Web. While manufacturers usually prefer to keep their ERP systems in-house, many may opt to use Made2Manage hosted applications for collaborative commerce, which is available through www.m2mexpress.com portal.

Vendor Challenges

• The company's strong growth has all but stalled since the second half of 1999 (See Figures 1 & 2). This has put it in the difficult position of working with constrained resources, while executing a visionary strategy. Moreover, an increasingly competitive market and declining market growth caused the company to post disappointing results for five consecutive quarters (See Figure 2). The company has eroded its financial position in the last 15 months due to the combined effects of decreased license revenue and ongoing R&D, although the 86% growth of license revenues in the last quarter is encouraging.
  
  Made2Manage's low market capitalization of approx. $12 million, which is almost a third of its revenues, makes the Company a very attractive acquisition target, while its low available cash resources ($4.7 million) do not provide for any real expansion and defensive corporate initiatives. The corporate viability metrics expressed as revenue per all groups of employees, (R&D, sales and marketing, etc.) have been much below the market's respective averages. Particularly disconcerting is the low revenue per sales and marketing employee ($0.43M vs. $0.84M market average in 1999) owing to its large direct sales force, which we consider as a cost ineffective sales approach within the SME market segment. Also disappointing is the low revenue per R&D employee ($0.37M vs. $0.75M market average in 1999), which illustrates the difficulties smaller vendors have keeping up with the latest market requirements to deliver advanced product functionality.
  
  

Figure 1.

Figure 2.

• Made2Manage's native core ERP functionality across the board, particularly multi-site planning and distribution functionality has not been recognized as a differentiator in the market. While the latest product version (3.2) promises significant functionality enhancements in that regard, Made2manage is still perceived as a strong contender mainly for less-complex single-site enterprises. In addition to the above product functionality gap, the company does not exhibit much of a vertical focus.
  
  Given the fact that its bigger competitors offer a sharp vertical focus even to the precision of single Standard Industrial Classification (SIC) codes within an industry, Made2Manage's fast and cheap implementation track may soon be emulated. Furthermore, its product does not provide many standard interfaces to other packages, which limits its ability to penetrate the customer base of bigger competitors.
  
  
• Owing to its confinement to small discrete manufacturers, Made2Manage has only a small market presence in general, reflecting insignificant brand awareness and an undeveloped channel outside of the North American market. This is further aggravated by the fact that its product exhibits minimal multi-national capabilities and supports only the English language. A result may be a number of missed opportunities as companies are increasingly seeking global providers for its supply chain management and collaboration requirements.
  
  
• The company has long depended on less sophisticated database and development technology (Visual FoxPro), which has served the purpose of simplicity but has recently become a liability for the reason of scalability and integration issues for the higher end of the SME market. While its recently released MS SQL Server version of the product may mitigate these concerns, it might also exhibit problems related to its product immaturity. Furthermore, its continued two-pronged product database strategy will inevitably create some duplication of its R&D and Service and Support resources. Also, while the company's focus on Microsoft's proprietary technology and integration standards as its sole product technology standard has benefits on one hand, on the other hand it can be an impediment for future scalability and interconnectivity with other vendors' components requirements.
  
  Moreover, as digital market places and e-business transactions follow a path similar to EDI (endorsing specific EDI standards to transmit data), Made2Manage faces the challenge of overcoming the notion of suppliers adapting to multiple standards in order to support multiple customers. To make things even more complicated, different marketplaces indeed describe their transactions differently and cover different verticals and industries.
  
  
• Made2Manage faces the challenge of delivering multi-site and supply-chain management (SCM) functionality footprint extension, and delivery of vertical solutions as planned. Executing these initiatives with its ever-thinning resources will be a notable challenge. Any hiccups and delays in its product development execution, possibly bundled with continued poor sales execution, may put further significant strain on the company's performance.

BOTTOM LINE

Vendor Predictions

• Fiscal 2000 will continue to be challenging for Made2manage. We predict flat revenues or only a minor growth (less than 10%) as the best scenario, with a return to profitability in fiscal 2001 (60% probability). We also believe that, within the next 12 months, the company will put less emphasis on technological development and more on functionality enhancement of its product suite (60% probability).
  
  
• Made2Manage's service and support revenue will contribute more than 60% of its total revenue within the next 4 fiscal years (60% probability), based on the company's readiness to integrate its customers to Internet exchanges. For the next two years, more than 70% of license revenue will come from its existing customers, who will want either to replace an old DOS-based product or add new modules to an existing Made2Manage instance (70% probability). Within the next 3 years, more than 95% of Made2Manage's revenues will come from the North American market (60% probability).
  
  
• Despite its low market value, we believe that the company is an unlikely candidate for acquisition (30% probability) by a competitor within the next 2 years because of its awkwardly broad functional scope, the result of recent product alliances. No major acquisitions by the company are expected in the foreseeable future either (30% probability). Instead, the focus will be on interfacing with partnered applications, as well as on expanding its own product functionality and offering new vertical industry solutions.

Vendor Recommendations

• Made2Manage should further fortify itself within the lower-end ERP market in the following ways:
  
  
  • Expand business in its existing customer base, by upgrading older versions of software and by offering new extended ERP components.
    
    
  • Further expand its global presence, both by opening new subsidiaries and by developing new affiliate partnerships.
    
    
  • Deliver more focused and pre-configured vertical solutions for industries, and vigorously market its differentiating ASP and portals value proposition to make Made2Manage attractive to resource-constrained small enterprises.
    
    
• Made2Manage must remain committed to ambitious new product introductions and enhancements (e.g., multi-site capabilities and transportation) and take more decisive steps regarding its e-commerce vertical marketplaces delivery, possibly through product alliances.
  
  
• Made2Manage must conduct ongoing cost and organization scrutiny and identify opportunities for further improvements. In fiscal 1999, the sales and marketing personnel count, as a percentage of a total number of employees, was very high, 27%, compared to the industry average of 21%. Therefore, Sales and Marketing and General and Administrative costs as a percentage of net sales in 1999 were at exorbitant 51%, whereas the industry average was 38%. The company should, therefore, nurture and expand its indirect resellers network.
  
  
• Made2Manage should promptly resolve product interconnectivity issues with other vendors' products in order to attract divisions of large global companies. It should also ensure the full Web-enablement of its entire product portfolio and significantly enhance its multi-national capabilities.

User Recommendations

• Made2Manage's target market, general single-site discrete manufacturing companies and their divisions with up to $100 million-a-year revenue range and up to 100 concurrent users per site, should consider the company's value proposition, but avoid selecting it without looking at what the other vendors have to offer. We generally recommend including Made2Manage in the long list of vendors considered for an enterprise application selection by the lower-end of mid-market companies. These companies generally have a limited IT budget, a conservative IT strategy, and less complex discrete job shop manufacturing, CRM and B2B e-commerce collaboration requirements. The industries that would most likely benefit from using its products are electronics, instrumentation, machinery, fabricated products, and transportation equipment.
  
  
• Multi-national, fast growing, and companies looking for a deeper ERP functionality may benefit from evaluating other products at this stage. Organizations seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may want to inquire about the company's ASP offering. Support, connectivity, ease of use, security, acceptance, and scalability are only a few of the regular considerations. Companies with more intricate business processes may want to inquire how Made2Manage would deal with the issues of customizations and 3rd-party products bundling in an ASP setup.
  
  
• Existing users of earlier DOS-based product releases that face stabilization or discontinuation may benefit from querying the company's future product migration path, service and support, and scalability strategy.
  
  
• Customers should 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. Each e-business component should be put through its paces using a well-documented set of requirements, scripted scenario demonstrations, and rigorous reference checking. As for the new added functionality through partnerships, users are advised to ask for firm assurances on the availability and future upgrades timeframes, and more detailed scope of combined product functionality.