Merger Mania At Its Extremes Part 2: Challenges & User Recommendations

Merger Mania At Its Extremes

Part 2: Challenges & User Recommendations
P.J. Jakovljevic - October 10, 2002

Combined Value Proposition

At the beginning of September, to address the market demand for solutions that enable greater supply chain agility (in terms of visibility and event management) and bottom line impact, SynQuest, Inc. (NASDAQ/SC: SYNQ), a provider of supply chain planning (SCP) solutions, and two privately held supply chain event management (SCEM) providers, Viewlocity, Inc. and Tilion, Inc., announced that they had entered into definitive agreements to merge the companies. SynQuest and Viewlocity, both based in Atlanta, GA will merge operations, and Boston, MA-based Tilion will merge into the combined company to provide approximately $13 million in cash.

At first sight, one could even notice a prospect of differentiating the combined value proposition. On one hand, to differentiate itself, Viewlocity has long been harnessing SCEM to provide a complete network perspective, from supplier to shipper, in a single, integrated portal. To that end, its TradeSync product is aimed at helping manufacturers not to be distracted by the noise that typically results from having an overload of information. Thus, not only will the user get an alert if something goes wrong and an order is going to be late, but he/she will also get an advice about alternative remedies, as well as the option to conduct a number of what if' scenarios to find the true ramifications of opting or not for each alternative. The latest product release also features performance analytics in terms of trend-based KPI monitoring — when negative exceptions occur, one can drill down to understand the root cause. Addressing causes typically prevents errors and snowballing negative effect downstream the supply chain.

This is Part Two of a two-part analysis of recent merger announcements.

Part One detailed the announcements and began a Market Impact.

SynQuest

SynQuest, on its hand, was one of the first vendors to integrate advanced planning and scheduling capabilities with manufacturing execution. Its offering is an attractive candidate for mid-market companies that rely on precise synchronization around production and distribution scheduling. SynQuest has found particular success in the automotive (Tier 1 and OEMs) and electronics industries characterized by repetitive/rate-based manufacturing, although its solutions have also been implemented in process manufacturing environments, such as chemicals and pharmaceuticals, but more as the exception.

At the beginning of the year, the company rolled out SynQuest 7.0, a suite of collaborative planning solutions, which covers high-end strategic, operational and tactical collaborative (web-based) planning. Enhancements included improvements to the dynamic sourcing engine, new functionality focused on product-line profitability analysis, material substitution, returnable container planning, and advanced supplier collaboration. The product is aimed at addressing the following five complex planning tasks:

1. Supply chain rationalization with its Supply Chain Design Engine, which aims to model and determine optimal network resources, locations and functions.
   
   
2. Sales and operations planning (SOP) with its Tactical Planning and Open Demand modules, providing integrated views of the demand/supply chain and geared to maximizing profit by simultaneously rationalizing demand volume and revenues against constraints, lead times and supply network costs.
   
   
3. Inbound planning with SynQuest Inbound Planning Engine (IPE) which helps enterprises to coordinate the flow of materials from several thousand suppliers to arrive at just the right time for manufacturing or assembly, and at the lowest cost. This solution, developed with Ford (see SynQuest, Ford Deliver a Novel Application for Inbound Logistics), performs global supplier network optimization analysis by simultaneously evaluating many factors (from container costs to inventory and transportation costs) to produce a plan for supply chain operations.
   
   
4. Manufacturing co-ordination via its Dynamic Sourcing, Virtual Production, Customer Service and Order Promising modules, all aimed at determining how to manufacture orders as fast and reliably as possible at the lowest production cost.
   
   
5. Supply chain order co-ordination with its Dynamic Sourcing and Order Promising modules for companies that produce across multiple facilities -- enabling them to promise and co-ordinate complex orders to meet due dates at the lowest delivered costs.

The above impressive functional footprint that caters for business, profit, distribution/logistics, and manufacturing planning, with all the horizontal and vertical sector finesses like finished goods vehicle scheduling, trim/off-cut optimization and contingency planning, has been underpinned by an n-tier architecture. Preferred platforms are UNIX and Windows NT, with Microsoft BizTalk and XML providing its primary on-going development path and foundation for Web services support. SynQuest applications have been available for UNIX since the company's inception in 1994 and these are probably the most mature of its offerings. Windows NT followed as a server platform a few years later and, most recently, SynQuest partnered with IBM to port its manufacturing management application to iSeries Server (see SynQuest Ships Manufacturing Software for AS/400). The key technology that ensured fast implementations in the past is the software's open, data-driven architecture that connects to anything from legacy systems to Internet-based applications, and lets customers leverage data on-hand to model and solve problems without heavy custom programming.

Challenges

However, the existence of a prospect (i.e., an enhanced combined offering) does not necessarily grant it will happen either any time soon or ever, as both SynQuest and Viewlocity will have joined the matrimony with their baggage as well. Viewlocity has the integration technology legacy from its inception as one of the first (formerly known as FronTec AB) enterprise application integration (EAI) vendors. The culmination of its transition from EAI vendor to SCEM vendor took place this year with the sale of its integration products and operations to a systems integrator. SynQuest, a renowned SCP vendor, has nonetheless struggled to gain mind and market share ever since its IPO in 2000 (see SynQuest Posts Mixed Results). Despite partnering mutually and with other providers (see J.D. Edwards Names SynQuest Preferred Solution and SSA Seeks Support from Synquest), neither company has ever experienced a merger with and integration with another company, and both have shown irregular sales execution and have gone to the market with too complex marketing messages in the past.

The compound company now has to make tough and quick decisions on the combined product range and its technology underpinnings. Although SynQuest has a "quick-solving" execution capability that can be linked with Viewlocity and Tilion's event management, it is still not a real-time but still rather a batch-mode architecture, so the synergies will not be immediate, as a real-time architecture development effort will require significant time and other resources. Also, the official press release is awfully quiet about Tilion's possible contribution to the merger (e.g., whether that could be some of its SCEM functional components that cater for integration, process management, agent or analytics aspects of event management, or its application service providers (ASP) expertise) other than inherited cash position, which should make its current staff members and customers quite disconcerted.

Consequently, the imminent challenge lies in coordinating current sales activity and pipeline management, since the companies must pursue their respective sales opportunities as they concurrently integrate the sales forces and cross-train them. But the challenge for the respective customers of former constituent companies in the long term is that these will continue to focus on their fortes (e.g., execution-oriented solutions rather than traditional SCP and vice versa). Although customers should gain from having a more comprehensive system for planning and event management once the products are integrated, there will still be a need to integrating it with a back-office functionality, which the above-mentioned ERP vendors may even offer at this stage.

Finally, while the merger is justifiable it does not provide the new entity with almost any room for mistakes. SynQuest also needs to quickly figure out the best combination of its disparate products and technologies and articulate a clear and assuring message to the market that it can deliver a strategy for the planning, executing, and adaptive management of supply chains in a foreseeable future.

User Recommendations

While the above merger could be synergistic in the long run, treble cultures, integration issues, and positioning of likely redundant SCEM components are to be expected. Still, combined respective customers should consider this event as a move toward a more viable position for their IT investment, given a likely growth in SynQuest's R&D and sustained support for the ongoing development of its products, likely by deepening its ability to provide adaptive supply chain with real-time decision support. Enterprises should nevertheless monitor the consistency between the announced strategy and the new company's actions in continuing to support all of the former products strategically.

Consequently, until the merger is consummated, users evaluating the above individual products should exercise moderate caution, keep themselves informed, and consider generally available (GA) functionality only. Existing users should urgently clarify their support status and the long-term product development and migration strategy with the new management. Customers adopting the first integrated products in the future should anticipate significant changes in later versions of the products after first users' experiences and product refinement requirements.

Users should ask the following questions when evaluating the SynQuest-Viewlocity-Tilion combined offering:

• Are there any price advantages offered to existing clients who elect to purchase/migrate to the future integrated products?
  
  
• What technology will be used to integrate the applications?
  
  
• Will (and when) the applications share a common server platform and user interface?
  
  
• What assurances can the company give that installed products will be supported if the merger fails to materialize in the long run?