Inovis Delves into PIM by Snatching QRS Part Three: QRS Background

QRS Background

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.

The acquisition by Inovis comes at the heels of the nearly three year long turnaround that QRS suffered crippling losses of over $50 million (USD) and over $180 million (USD) in 2000 and 2001 respectively on revenues of over $120 million (USD). The current CEO, Liz Fetter, has since turned the company, in a great part by divesting the products outside the company's core competency, and by increasing efficiency. As for its genesis, QRS was founded in 1988 and it went public in 1995, with currently over 470 employees and $123.3 million (USD) revenues in 2003. Its historical focus has been on providing products and services to the GMA segment of the retail industry, which remains QRS' largest and most important segment within this industry.

However, the vendor has lately broadened its customer base across other segments of the retail industry, since, through QRS Retail Intelligence Services, it has penetrated the grocery and mass merchant segments. It also sells its Trading Community Management services in the grocery and mass merchant segments, whereas other products are primarily sold in the GMA segment. The revenue generated from US customers represents nearly 95 percent of total revenues. QRS has more than 10,000 customers in the retail industry including ten of the top ten retailers in the US (e.g., Lowe's, Sears, Best Buy, The Home Depot, etc.), five of the top seven retailers worldwide, ten of the top ten apparel and footwear companies worldwide (e.g., Adidas America, Reebok International, American Eagle Outfitters, etc.), ten of the top twelve department stores in the US (e.g., JC Penney, Neiman Marcus, Nordstrom, Sacks, etc.), and nine of the top ten supermarkets in the US (Ahold, Albertsons, Kroger, etc.).

Yet, in 2003, QRS experienced a decline in revenue from its traditional business, such as QRS Exchange and QRS Catalogue, primarily due to continued competitive pricing pressures offset to some degree by increases in transaction volume in its Trading Community Management Solutions Group. The Trading Community Management revenue was also impacted by a significant decline in leased lines and dial-up connectivity services due to technological obsolescence. To offset the decline in revenue from its traditional business, QRS reduced operating expenses and improved gross margin. As Inovis and QRS now review the prospects for their combined business, they might acknowledge expecting continued decline in the existing EDI-VAN component of the QRS business, which represents roughly $66 million (USD) in revenues over the past 12 months.

This is part three of a five-part note.

Parts one and two detailed the event.

Part four will discuss the market impact.

Part five will cover challenges and make user recommendations.

QRS Pre-Acquisition Challenge

The challenge QRS has been facing for some time is logically to launch new products and services that can generate new revenue to offset the decline in revenue from the traditional business, in addition to continued cost reduction in the traditional business while investing cash generated by its operations to develop and launch new products and services. During late 2003, within the Trading Community Management Solutions Group, QRS launched QRS Web Forms 7.0, which is an on-line application that manages data translation and trading partner compliance for small- and mid-sized suppliers. Also, in response to the movement by many large retailers and government agencies toward adoption of the EDIINT AS2 protocol, QRS also released the above-mentioned EDIINT gateway service offering in the fourth quarter of 2003, which allows current QRS Exchange customers to use their existing EDI solution to meet customers' EDIINT requirements.

The first new product to be launched as part of its 2004 growth strategy was the above mentioned QRS IMPACT PIM solution, which has been generally available since early 2004, and which comprises three main components:

1) Item creation (a web interface that enables input of data into the IMPACT repository),

2) Item Management (provides the workflow capabilities and business rules to manage exceptions and problems with data), and

3) Item Synchronization (enables end users to create custom rules to syndicate data to specific channels).

A centralized product information repository is key to helping both retailers and brand marketers conduct more efficient, cost-effective business. By improving the accuracy, quality, and accessibility of product data, both the retailer and the supplier can reduce costs and errors, while improving brand equity and increasing their ability to compete in a highly aggressive market. Further, the integration of QRS Catalogue and QRS IMPACT provides brand marketers, suppliers, and retailers with a more complete solution designed specifically for the retail industry. Namely, while QRS IMPACT helps manage internal data, enforce workflow processes, and publish highly targeted content, QRS Catalogue manages the synchronization across companies and trading communities.

Providing supply chain participants with access to universal, standardized electronic product information is the foundation on which effective global brand execution is built. The benefits of instituting a comprehensive data synchronization solution may include fewer out-of-stocks, increased speed-to-market, reduced costs associated with correcting inaccurate information, and improved response to consumer demands, ultimately enhancing a company's brand equity. Other benefits include overall improvements in companies' supply chain costs, and a boost to the bottom line.

Further, mid-April, QRS announced the general availability of QRS Catalogue Release 4.0, which is supposedly the first generally available release of the product that is fully compliant with UCCnet services. As announced in February 2004, QRS Catalogue received UCC Solution Partner Program UCCnet Synchronization Suite 2.2.1 certification. Even earlier, the product was certified for the UCCnet Communications Solution using the EDI-over-the-Internet, or EDIINT AS2 protocol, during the third quarter 2003, meaning QRS is now able to exchange messages with UCCnet's data registry via an AS2 connection.

The full UCCnet certification took place during the first quarter of 2004, and release 4.0 features a new product module, QRS GDSNconnector, which enables communications with the global data synchronization network (GDSN). Using QRS GDSNconnector, customers can register items with the UCCnet registry and publish items to retailers with UCCnet synchronization services. QRS also offers a suite of enablement and support services to ensure QRS Catalogue customers' data integrity and readiness to join the GDSN. As indicated earlier on, QRS Catalogue release 4.0 also has expanded attribute support—now totaling 550—making it compliant with EAN.UCC system standards for trade item data.

Then, at the beginning of May, QRS announced QRS QuickSync, a new reasonably cost-effective, easy-to-implement software solution designed for retail suppliers that need to comply with retailer mandates and thus syndicate their item information to data pools such as QRS Catalogue, which can then publish that data to UCCnet services. QRS QuickSync is now part of QRS' data synchronization solution suite, which includes QRS IMPACT and QRS Catalogue. The solution offers an introduction to the benefits of the complete enterprise PIM solution, QRS IMPACT, and it allows retail suppliers to collect, manage, and publish item data relatively quickly and easily, since it is also pre-configured to meet the needs of retail suppliers and thus requires minimal upfront investment. In addition to the option to syndicate to UCCnet services via QRS Catalogue Release 4.0, QRS QuickSync features include:

• Flexible data model, allowing product data to be organized according to business needs
  
  
• Data cleansing and normalization capabilities for improved data quality
  
  
• Product information in multiple formats, available to internal parties according to unique requirements
  
  
• Easy integration with existing internal systems and applications

Most recently, on October 8, QRS announced the general availability of QRS Reveal, a new solution for transaction life cycle visibility, which includes increased supply chain efficiency and improved accuracy of trading partner communications, whereby Boscov's and Federated were two participants in the beta program. Somewhat resembling the Inovis BizManager's new capabilities mentioned earlier on, QRS Reveal improves the way retailers and suppliers manage and monitor trading community transactions from original order placement through delivery and payment. Without transaction life cycle visibility, many retail companies can only passively track documents that are sent and received. This passive type of tracking allows companies to identify problems or disruptions—but only after they occur.

Conversely, with customizable business rules and proactive alerting capabilities, QRS Reveal allows retailers and suppliers to identify impending disruptions before their effects are realized. This advance notification and visibility can help companies improve their business by reducing stockouts and late or missed deliveries, with resulting chargebacks and missed sales due to disruptions. To that end, QRS Reveal features include

• Document tracking—comprehensive view of inter-document tracking history for a range of retail business users including buyers, salespeople, and supply chain managers
  
  
• Configurable business rules—multiple warning and violation conditions for different trading partners' requirements
  
  
• Alerts and notifications—delivered to users within the retail organization or along its supply chain
  
  
• Expansive reporting capabilities—reporting and ad hoc querying on historical information to identify trading partner performance and resolve trading disputes.

This concludes part three of a five-part note.

Parts one and two detailed the event.

Part four will discuss the market impact.

Part five will cover challenges and make user recommendations.