Manugistics Faces Uncertain Future

Vendor Summary

Formerly the SCP market leader, Manugistics has witnessed its market position erode steadily over the last several years in favor of newcomers to the market, most notably i2. Based in Rockville, Maryland, Manugistics was founded in 1969 and went public in 1992. License revenues were $73 million in FY98, a 30% decrease over the prior year, placing it fourth among other vendors offering SCM (see Fig. 1). In 4Q98, Manugistics posted the greatest loss in its history - $71 million, including one-time charges related to business restructuring. Following a period of take-over speculation, the overhaul included a 30% staff reduction and renewed focus on "customer-driven" industries, including automotive, electronics, consumer products, apparel, textiles, food & beverage and pharmaceuticals. In April, Greg Owens, formerly of Andersen Consulting, was hired to replace William Gibson as CEO. Cost savings resulting from staff cuts yielded a positive bottom line in 1Q99, but does not indicate a move into long-term profitability. Manugistics has historically maintained strong alliances with complementary ERP vendors and systems integrators. The company has a good record of customer service and a large customer base that includes Procter & Gamble, DuPont, and The Limited. Its current product suite includes applications for demand planning, transportation planning, manufacturing scheduling, replenishment planning, real-time ATP, strategic network planning, and internet collaboration.

Fig. 1

Vendor Strengths

• Product functionality: Manugistics offers mature functionality for transportation optimization, flexible VMI and replenishment modules, and enables customers to integrate to POS and consumer data.

• Demonstrated relatively short implementation time frames: Manugistics' well-developed functionality and seasoned implementation resources leads to shorter average implementation times (six months vs. nine-twelve months average).

• Large customer base (between 850 and 900 customers): Manugistics' customer base provides an advantage, if properly utilized, for new license revenue generation.

Fig. 2

Vendor Challenges

• Financial position severely weakened by acquisition-related growth: Manugistics' inability to effectively incorporate acquired sales forces into its existing organization contributed to a 30% decline in license revenues over previous year; 4Q98 loss of $71.2 million, including $33.1 million for restructuring.

• Product functionality: Forecasting for CPG is effective, but only at the finished goods level; Performance may not be sufficient for some complex planning problems such as those involving large bills of material and high volumes of orders.

• Retention of experienced consultants due to recent financial problems: Traditionally, one of its advantages over newer SCM entrants, the implementation expertise and industry knowledge of Manugistics' support staff has shown signs of fading due to turnover.

• Minimizing damage to customer confidence brought on by SEC review and other legal problems: While a shakedown of its management team may help appease some investors, Manugistics must still move forward from several class actions lawsuits,and an SEC review of its accounting for in-process R&D related to the ProMIRA acquisition in fiscal 1998, and resolve ongoing litigation by IRI Logistics.

Fig. 3

Vendor Predictions

• Little to no revenue growth during FY2000, while management focuses on completion of reorganization activities and in expanding the sales force (70% probability).

• Moderate revenue growth in FY2001 as restructuring efforts around core markets bear fruit, but not enough to recapture significant market share (70% probability). Manugistics market share has declined by approximately 60% since 1995.

• Unlikely candidate for acquisition by a larger vendor within the next year due to lack of suitors with both functionality need and financial wherewithal (40% probability).

Vendor Recommendations

• Further develop middle market penetration to boost revenues: Manugistics needs to tap into new and existing alliances with ERP vendors (SSA, JDEdwards) and software integrators (AnswerThink, JGI) to expand its mid-market customer base.

• Work aggressively to effectively deploy restructured sales force to generate new license revenues: Despite spending on Y2K remediation, companies do have cash available for supply chain projects as evidenced by i2's recently announced record revenue growth in 2Q99. At 42% of total, Manugistics' license revenues are 10% below their 5-year average.

• Pursue technology partnerships that allow entry into the CRM market: Manugistics has fallen behind other players in capitalizing on the CRM movement, although it has a vast, leverageable customer base. Manugistics has shown its willingness to partner with other SCM extensions, such as warehouse management system vendor, HK Systems and business to business integration software vendor, Extricity.

User Recommendations

• Manugistics belongs on a short-list for companies in CPG, food & beverage or high tech seeking an add-on or standalone SCM solution due to its mature product functionality and expertise in these industries. Until Manugistics regains a secure financial foothold, however, potential customers should proceed cautiously.

• Companies that need an integrated SCM-ERP solution should seek to acquire a package offered by a full-fledged ERP vendor.