Manugistics Indulges In The Open M&A Season. Part 2: Market Impact, Challenges, and User Recommendations

Part 2: Market Impact, Challenges, and User Recommendations
P.J. Jakovljevic - June 5, 2002

Market Impact Continued

Manugistics, remains one of the leading providers of supply chain management (SCM) solutions, with the extra sophistication of its supplier relationship management (SRM), profitable order management system (POMS), and pricing and revenue optimization (PRO) innovations all under its EPO mantra. Manugistics indeed offers a considerable portfolio of high level value chain planning, scheduling, optimization and management systems, and, as of recently, the factory level advanced planning and scheduling (APS) systems too.

Although prior to its acquisition of the UK-based shop floor APS vendor STG Holdings in 2000, manufacturing has not been Manugistics' forte, having a history of building solutions for the distribution end of the supply chain, the recent development of shop-floor applications bundled with the pricing and revenue optimization applications, might enable the company to provide a holistic approach to enterprise optimization throughout design, source, buy, receive, make, move, store, price, promote, sell, and deliver phases. These can take place in different environments, including paper-based, electronic data interchange(EDI), web-based (XML), and/or real-time web-based collaboration. Its solutions support, and are used by, both private and public trading exchanges, particularly following its acquisition of SpaceWorks, a sell-side e-commerce provider, in 2001, they also support all major operating systems and databases.

Manugistics' suite has also long been constraints-aware - from supply chain planning level at the top, down to the detailed scheduling of machines. For manufacturing specifically, it offers a number of modules owing largely to its late '90s acquisitions of Avyx and Promira, and the above-mentioned STG. NetWorks Production Planning provides process optimization with multi-site synchronization in a large-scale production environment, based on a modeling language that enables detailed descriptions of complex flows for simulation, optimization and control. NetWorks Production Scheduling is aimed at rapidly scheduling complex, single-site production, helping companies to improve customer service while minimizing inventory through the identification and management of both capacity and material constraints. Finally, NetWorks Sequencing optimizes shop floor operations by generating detailed schedules that respect manufacturing rules and production constraints, it is a good fit for complex assembly line sequencing and multiple attribute-sensitive problems where user-defined rules generate schedules.

Coming back to WDS' acquisition, the arrangement seems to be mutually beneficial at first look. The acquisition brings Manugistics a roster of high-profile WDS' customers and brings along a deep domain expertise in defense contracting and in other similar asset-intensive industries. Manugistics should hereby also extend its offering from supply chain planning (SCP), pricing/profit optimization and transportation into MRO management focused ERP functionality (e.g., complex cost accounting and product configuration), which should blend well with Manugistics' solid complex bill of material (BOM) collaboration capabilities.

Also, its SRM offering should be rounded up, as the Buying Advantage e-procurement module should add unique defense contract capability to its supply chain application for strategic sourcing and collaboration, along with a connection to the Exostar aerospace industry marketplace. Having acquired WDS' execution information at the OEMs and the repair depots should improve the supply chain process as a whole.

Conversely, Manugistics' S&PM module should complement the execution capability of CompassENTERPRISE for MRO, and, in the long run, Manugistic should be able to extend WDS' core competency into other asset-intensive areas like automotive, aviation, communications, high-tech, transportation/fleet management, rail and fixed plant facilities. Overall, the acquisition bolsters Manugistics' traditionally weaker spot - manufacturing capabilities as opposed to material management/distribution centric environments' stronghold - and it entrenches it well within the A&D industry. Manugistics will have likely been urged by its DoD clients to develop tighter integration to customer and supplier back-office systems, and, in the process, it will have found WDS's domain expertise handy at an reasonable price.

At the end of the day, it should enable Manugistics to fend off against its direct competitors i2 Technologies, Synquest and AspenTech, which have traditionally been stronger in manufacturing, as well as against SAP, Oracle, J.D. Edwards and Baan, which have long encroached into the SCM territory. However, Manugistcs' competition will hereby extend to include a slew of other ERP players in the MRO market such as Epicor Software, Mincom, Indus, Glovia, Cincom Systems, MRO Software, Relevant Business Systems, Avexus, Xelus, Lilly Software, Intentia, IFS, and Made2Manage.

WDS should possibly be happier with the deal as it certainly bodes well for its until recently uncertain future in consolidating and highly competitive market. The company had been struggling to extend its functionality footprint, to technologically prop up its product and to grow beyond its narrow (although revered) A&D installed base with it limited resources. The lack of strong financial management functionality and of some extended-ERP functionality (e.g., project management and APS) had threatened WDS' relegation to a niche specialist vendor facing acquisition by a direct competitor only as to hijack its customer base and migrate it to another product. WDS' users should therefore be pleased with Manugistics' acquisition, as it is more likely to result with preservation of their investment into WDS' product. Also, current OEM users of WDS may benefit from future improved demand visibility into defense customer requirements and integrated service and parts planning. On the other hand, Manugistics SCM customers in the maintenance and asset-intensive environments may benefit from getting more functionality from their original SCM rather than to pursue another best-of-breed route. The similar analogy holds for Digital Freight' acquisition.

This is Part Two of a two-part analysis of recent news from Manugistics. Part One detailed the recent acquisition and began the Market Impact.

Challenges

The downside, as a rule, is the painstaking integration effort yet to be exerted. Manugistics must still figure out how and whether to integrate the WDS' applications that have been developed on a hodgepodge of technologies. To be fair, while the concept of an integrated supply chain execution (SCE) and supply chain planning (SCP) system is attractive, the defense market has also in the past shown a willingness to buy independent modules for MRO and spare parts planning. As for Digital Freight's integration, it will likely consists of flat file imports/exports for some time to come.

This will furthermore have been Manugistics' seventh acquisition in last few years and its priorities might not coincide with WDS' and/or Digital Freight's customers' wishes; not to mention that Manugistics' resources are not infinite, given its poor recent financial performance. The company is still deep into developing and delivering on its middleware-neutral integration server strategy. Also, some enterprises still struggle to grasp Manugistics' EPO message that might seem too far-fetched (or even unneeded at this stage), and one is to watch how this concept will be married with WDS's OEM and MRO functional expertise.

While Manugistics' acquisition of Talus has produced far more than mere price management as enterprises can use intelligent statistical modeling tools to discern how price affects sales within seemingly identical product lines and/or demographic groups by collecting and analyzing sales into given market segments, it might not fly with defense contractors, for whom the price is not always the most decisive factor (i.e., time is often of more essence). Although Manugistics caters for many different pricing strategies within its PRO module (e.g., promotional, target, precision, and revenue management pricing) the value of such data is enormous typically for CPG and retail companies. Moreover, while the benefits of EPO might be obvious at a higher-level supply chain planning, the necessary data and process requirements can significantly complicate SCM implementations and deter a prospect, who might find it not worth the trouble.

However, the Digital Freight's acquisition might indicate that Manugistics has not forgotten that supply chain planning and execution have been its roots and that much of the market is still grappling with these intricacies. Pricing and revenue optimization, Manugistics' mindshare capturing watchword, is seemingly also more plausible to be married with logistics e-procurement. The acquisition enhances Manugistics' transportation management capabilities, which might keep it abreast of the likes of Logistics.com, i2, Descartes, and G-Log, provided new functionality will be delivered so that it can be digested by Manugistics' target customers. Although the above acquisitions hold a promise for Logistics to cover many bases of ever-increasing SCM functionality footprint and thereby keep its competition scrambling to match its value proposition, the company needs to continue delivering on the basic SCM business processes that have once promoted it into a market leader.

User Recommendations

Experience teaches us to be wary of the outcome of mergers' and acquisitions' as the market has witnessed both success and disaster stories. While we believe that the above mergers might be synergistic in the long run, some growing pains, integration issues, and discontinuation of redundant products are always to be expected. Consequently, until Manugistics clearly articulates the strategy to integrate WDS and Digital Freight and the mergers are consummated, users evaluating the above individual products should exercise moderate caution, keep themselves informed, and consider generally available (GA) functionality only.

Prospects considering WDS for a new implementation should question Manugistics' commitment to invest in the acquired applications. If you are waiting for unified technology stack, do obtain Manugistics' commitment to the timeframe, whereas, in the short term, it is very likely that you might be offered a joint development partner agreement for WDS' functions outside it's A&D stronghold.

Existing WDS' and/or Digital Freight's 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 product should anticipate significant changes in later versions of the product after first users' experiences and product refinement requirements. Given the slew of recent acquisitions, users should proceed warily as these are still new territories for Manugistics. Current WDS' users should also query the development partnership with Adexa to deliver AgilePlan and Theory of Constraints (TOCs) modules as it overlaps with Manugistics' above-mentioned products. Likewise, Manugistics' users of other transportation management systems (TMS) might want to evaluate Digital Freight if the current TMS product does not offer bid optimization and transportation procurement functionality, bearing in mind that the product integration is a work-in-progress and that more comprehensive intermodal transport procurement (e.g., air, marine, and rail transport in addition to trucks) is slated only for some time next year.

As for Manugistics per se, it targets primarily the large corporations with revenues exceeding $500 million and with strong collaboration and distribution requirements mostly in transportation and logistics, automotive and automotive supply, communications and high tech, chemical and energy, pharmaceuticals, consumer packaged goods (CPG), apparel, footwear and textiles, and food and agriculture industries. For more detailed recommendations, see The New Manugistics Faces A New Millennium.