SSA Global Forms a Strategic Unit with an Extended-ERP Savvy Part Two: Market Impact

Marketing Strategy

On June 14, SSA Global, a Chicago, IL-based extended enterprise solutions and services provider for process manufacturing, discrete manufacturing, consumer, services, and public companies worldwide announced the completion of its acquisition of substantially all of the assets of Arzoon Inc. (www.arzoon.com), a San Mateo, CA-based privately-held provider of integrated logistics and global trade management (GTM) technology. Financial terms of the transaction were not disclosed.

Arzoon's unified supply chain execution (SCE) infrastructure, which is used to increase global supply chain velocity and performance, is envisioned to augment SSA Global's existing supply chain management (SCM) solution and strategy, which was, coincidentally or not, announced at the beginning of June as a result of SSA Global's ongoing commitment to address the extended enterprise resource planning (ERP) needs of its customers worldwide. To that end, SSA Global's SCM strategy is "to deliver robust solutions that address the key requirements of customers and prospects at a competitive price, while extending the value of their existing technology investments".

The recent SSA Global's moves may convince many doubters who still tend to dismiss the vendor's recently invented modus operandi of growth by acquisition and of subsequent secured installed base service and maintenance revenue as opportunistic (or even scavenging). Namely, through its recently formed Strategic Solutions team, SSA Global might be showing that it is not just an ERP collector that is living off milking its install base, but rather an extended enterprise applications provider that can appeal to both its current and new users.

As for the existing SSA Global customers, the above-mentioned extended ERP solutions will be sold through existing geographic and regional sales executives but will be implemented by the Strategic Solutions Professional Services personnel, while other SSA services personnel can be brought in on an as-needed basis. The solutions will be supported by SSA Global OnePoint Support. On the other hand, for new SSA Global customers, the solutions will be sold by the Strategic Solutions Sales Executives, but, as in the case of existing customers, the solutions will be implemented by the Strategic Solutions Professional Services personnel, whereby other SSA services personnel can be brought in on an as-needed basis and the solutions will be supported by SSA Global OnePoint Support.

This has lately been proven as an effective business model, since in a market with a limited few new deals but with still low interest rates for borrowing money and financing, the companies with strong financial backing like SSA Global (which will likely go public soon, following on its recent initial public offering [IPO] intention announcement, and after being for the last few years a privately-held portfolio of New York's Cerberus Partners LP and General Atlantic Partners [GAP] of Greenwich, CT) are not to be blamed for opting to introduce many new products through bargain acquisitions rather than through grueling in-house developments and repeated software testing from scratch.

These "strategic" extension products represent a significant—approximately 20 percent—and rapidly growing portion of the SSA's revenues and with a much larger software license fee component, and hence the vendor's focus, dedication, and commitment of resources. On one hand, these solutions might represent a significant value for the existing customers by eventually delivering extended ERP functionality in a seamless, integrated, and cost-effective manner within a single delivery and support environment. On the other hand, these solutions might also represent a significant value for brand new customers by delivering best-of-breed point functionality in a cost-effective, stable, and financially viable environment.

To give the devil its due, while SSA Global remains relentless in its pursue of profitability, and while possibly in some instances putting architectural or cultural compatibility of acquired companies in the back seat, its solid financial viability and performance have continued unabated even while an industry average research and development spend was maintained (i.e., at 15 percent of total revenues), allowing the vendor to continue to reinvest in its own product offerings. Indeed, the vendor has also been committed to ongoing product enhancements in-house, which should allow the customers to extend the life of their existing technology investments. Furthermore, the recent array of acquisitions such as Arzoon, Baan, Ironside, and EXE Technologies would not exactly indicate acquisition of outdated technologies—although the vendors in case might have experienced financial difficulties, their ability to deliver innovative products has not been much impaired, if at all.

Quite the contrary, SSA Global has seemingly made best-of-breed solutions more attractive and cost effective through economies of scale, eventual standard integration to ERP systems, assured long-term support, and significantly improved financial viability. Thus, given the continued attractiveness of the SCE market, SSA Global has relatively quickly and cheaply added a strong SCE functionality including warehouse management, fulfillment, collaboration, inventory management, and supply network execution through the last year's EXE acquisition. With earlier acquisitions of Baan, Ironside, and Elevon, also in 2003, the vendor has rounded out its SCM portfolio that now spans from demand planning (albeit this comes from the partnership with Logility), inventory management, order management, production planning, logistics management, to supply planning and replenishment.

Through Arzoon, as its latest acquisition, SSA Global might further bolster its set of best-of-breed SCE technologies combined with specialized industry expertise to support the ever-changing requirements in warehousing, transportation, logistics, and global trade management, since the Arzoon LIFE family of web-based solutions offers functionality in transportation sourcing, optimization and execution, import and export compliance, inventory visibility, event management, reporting and analysis, and freight settlement, and are used by leading Fortune 2000 companies around the world in the above-mentioned industries. Some notable customers include Solectron, Thompson Multimedia, McLane Company (a division of Wal-Mart), Canadian Pacific Railway, and Union Pacific Railroad. We believe that Arzoon has a potential of enhancing the existing supply chain management and execution functionality within the above SSA Global's portfolio of solutions, given immaculate execution of the merger, which is not guaranteed of course.

With this medley of best-of-breed SCE components, such as EXE Technologies, CAPS Logistics (formerly a part of Baan), and now Arzoon, SSA Global may be better positioned to handle complex multimodal transportation and SCE requirements than its still much bigger three rivals in the ERP arena—SAP, PeopleSoft, and Oracle. Furthermore, the vendor might now be able to compete head-to-head even with the best-of-breed SCE powers like Manhattan Associates, RedPrairie, HighJump, Optum, MARC Global, Provia, Yantra, HK Systems, etc. The fact is that most of the above competitors have long lacked strong international trade logistics (ITL) and GTM capabilities, often having to partner with a niche specialist as a stop gap measure, till recently RedPrairie went a bit farther and acquired some of these capabilities through LIS (see RedPrairie to Spread Across Europe through LIS Acquisition). The Arzoon acquisition should therefore strongly position SSA Global with a broad global supply network overview, upon which it can integrate its evolving SCM suite and accommodate the growing trend of outsourcing overseas.

To be exact, and as well-known and publicized, owing to communications and transportation networks that have improved dramatically over the last few decades, even faraway regions and nations around the globe are now within the reach of a mere Internet connection. As a result, companies have jumped into international markets, outsourced their manufacturing and procurement operations to cheaper overseas manufacturers and suppliers, while some have established subsidiaries around the world. The Internet-based e-business promises to further shrink the world into a global village as people research, source, and procure products globally via the ubiquitous Web, buy and sell these via various e-commerce sites, storefronts, and marketplaces, and manage international supply chains with collaborative software and trading exchanges.

However, this kind of e-business has yet to surmount the challenge of global trade compliance and the diverse needs of international customers and trading partners. Namely, while technology may be rendering a world that appears a lot smaller, the very same real-life world has become a lot more complicated in the process, as many barriers exist to conducting international business over the Internet and most businesses are not yet prepared for that. The Internet has enabled a networked world and it has enabled a communication infrastructure and emerging enterprise applications, which have opened the door for international trade in earnest. But not many applications really offer multi-enterprise services and software to automate the transportation and Internet-based logistics management needs of a global trading network. In other words, web-based buy- and sell-side applications fall well short of providing automated GTM and a traditional ITL. For a detailed discussion of the complexity of global trading and compliance, see "International Trade Logistics Challenge Automated Global E-Trading".

This is Part Two of a three-part note.

Part One detailed recent events.

Part Three will discuss challenges, and make user recommendations.

Federal Regulations

The US federal government has since completed its legislative agenda with congressional approval of a series of laws, including the Maritime Transportation Security Act and the creation of the Department of Homeland Security that has realigned twenty-two former federal agencies and 170,000 federal employees. Resulting from this legislation has been a need for shippers, carriers, and ports to introduce technology to better coordinate global trade processes. New transportation and trade security legislation has instituted far stricter compliance and asset tracking requirements, whereby technology has become vital to meeting the demands of these regulations.

For example, the new 24-Hour Rule from December 2002 requires ocean carriers to provide the new Department of Homeland Security, Bureau of Customs and Border Protection (CBP) with a cargo manifest twenty-four hours before a ship sails from its original port to a US port. Given that manual keying of manifest information can take a few days, which in the past would mean the US Customs receiving cargo data only after the ship has sailed, the rule has ramifications on shippers' contract management and streamlined collaboration with customers and delivery scheduling. Namely, while even before 9/11 for shippers it was all about getting as much work done as possible prior to reaching the border, the importance thereof nowadays goes without saying, given that most work now needs to get done before the ship even sails off.

Also, the Department of Transportation and US Customs have launched Operation Safe Commerce, which is intended to enhance security for international container cargo, and which will make global logistics systems even more dependent on timely, accurate data collection regarding shipment contents and movement. Since manual data entry is time-consuming and prone to errors, global logistics systems operate much better when supported by data collection based on automatic identification technologies such as bar code labels and radio-frequency identification (RFID) tags, which can be scanned at strategic locations between point of origin and destination.

Thus, SSA Global too recognizes that RFID is one of the emerging technologies that will drive increased supply chain visibility, control, and compliance. Additionally, the RFID mandate to suppliers from Albertsons, Target, Wal-Mart, and the US Department of Defense proves that RFID will have a significant impact on future supply chain operations (see RFID—A New Technology Set to Explode?). To that end, in response to customer demands, SSA Global pledges to soon, albeit not more precisely specified, deliver RFID solutions for manufacturing and distribution companies, so that its customers will have a viable solution to address these standards.

Arzoon's Contribution

To recap, exporters continue to struggle to coordinate old-fashioned international freight, financial, and regulatory processes. While these manufacturers might isolate production from inbound logistics, increasing market pressures keep on forcing better coordination. The help might come from their adoption of a new crop of web-based applications aimed at improving intricate multiparty coordination. One of these, founded in September 1999, Arzoon, with its operations and offices located throughout North America and Europe, was one of a few dot-com era TMS start-ups that has not only weathered the enterprise applications storm so far, but has also stayed ahead of the curve. Namely, when it acquired From2, Inc., a provider of trade compliance content and automation software in March 2001, it became possibly the first software vendor to provide an integrated TMS and GTM solution. The move has availed Arzoon with a web-based ITL and GTM capability for regulatory compliance, cross-border landed costing, and global trade document generation to its then existing suite for procurement, inventory management, and transportation management.

In addition to referring to itself as a logistics resource management (LRM) solutions provider, Arzoon has also bolstered its supply chain process management (SCPM) capabilities via its recent acquisition of a supply chain event management (SCEM) provider Vigilance. That, as well as the major competitor Vastera's acquisition of SpeedChain at about the same time, might have been harbingers of impending transportation and logistics, SCEM, and GTM services convergence. Moreover, Arzoon has partnered with A.T.Kearney for strategic sourcing and implementation services, TIBCO Software for enterprise application integration (EAI), Billing Zone for electronic freight bill presentment and payment, OANDA for currency conversion, PC Miler and Rand McNally for road distance calculation, and ILOG for request for proposal (RFP) and bid optimization analysis, which may further illustrate the complexity of the global trade complexities and the resulting fragmentation of the market.

While many TMS and LRM vendors provide a multimodal product, the options for rail have typically been limited, and that is where Arzoon has also excelled. The company has developed Internet transportation technology (logistics exchange) to help companies procure, monitor, and manage services that involve one or more modes of transportation—rail, highway, air, or water.

Global logistics systems should also be well equipped to classify shipments, identify denied parties, collect and disseminate data electronically, and provide the visibility needed to ensure shipment security. To that end, Arzoon LIFE software suite takes the item-level data from the purchase order and then records each movement of the shipment to document who exactly has touched it. The system, which incorporates a database of trade regulations, tariffs, and duties from more than twenty-five countries, lets user companies correct shipping document inaccuracies before goods reach the border, heading off potential problems at border-crossing. The system also lets companies track shipments by multiple reference numbers in a single lead of cargo, providing them with much greater visibility into shipment status. This visibility into individual shipments—via pre-inspection of purchase orders—also makes it possible for the companies to move the freight they absolutely have to and to conversely hang on with less urgent shipments.

Arzoon's acquisition by SSA Global might again indicate that more accelerated restructuring in the logistics services market is inevitable, given a plethora of point solution providers that specialize in narrow areas, from land cost calculation, visibility, collaboration, export compliance, trading document generation, hazardous material handling, to more complete transportation management capabilities. Some of the remaining players would be Vastera, NextLinx, Open Harbor, Precision Software, Nistevo, MercuryGate, G-Log, Xporta, Tarrific.com, Bolero.net, TradePoint (which has recently acquired ClearCross), GT Nexus, LOG-NET, Qiva, BridgePoint, etc. But, none of these vendors handles all the requirements of automating global e-business, and some of these vendors have already merged with or acquired other companies to provide more complete offerings. For example, in addition to the above-mentioned intra-market mergers, Qiva, which had originally only sold transportation and SCEM software, acquired Capstan in 2002 to strengthen its ability to handle import and export compliance, landed cost calculations, and trade document generation.

Also, a vast majority of the leading ERP and SCM vendors still lack GTM functionality, but considering the continued increase in global sourcing, they are likely to pursue filling this gap via an acquisition of one (or even more) of the above providers. Through the acquisition, SSA Global should obtain three solutions wrapped into one package, because Arzoon provides supply chain visibility, SCEM, GTM, and solid TMS capabilities. Moreover, it is likely that Solectron, a major account for both Arzoon and former Baan has played a key role in bringing these companies together, and the integration and interfacing experiences therein should facilitate Arzoon's integration with other ERP solutions within the SSA Global's fold.

Therefore, in return for improved viability, Arzoon bestows on SSA Global a best-of-breed fringe SCE functionality that enriches the SCM functionality the vendor has obtained from its earlier purchases. Like the previous few SSA Global acquisitions, this merger too seems aimed at enlarging its customer base, market share, and, more importantly, its predictably recurring support revenue and consequently larger R&D pool. Both companies have notable customer bases with a wide geographic spread (particularly in emerging markets that have been much less affected by the now arguably fading recession), and they already share several customers in the manufacturing sector. Also, several above-depicted Arzoon modules might be a great cross-selling opportunity to existing SSA Global customers. As a matter of curiosity, Arzoon means "bang for the buck" in Farsi and Persian, and the vendor's credo has long been to sell small, manageable chunks of web-based transportation services functionality with quick implementation and payback timeframes.

In 2001, the vendor delivered Arzoon QuickStart Solution, a series of fixed price deployment bundles to address specific logistics needs, including Arzoon Import Manager, Arzoon Inbound and Outbound Transportation Manager, Arzoon Freight Payment, and Arzoon Fastrack Rail Manager. By tailoring these software modules to specific departmental needs, bundling them with services, and scheduling aggressive implementation time frames (several weeks) and price tags (often less than $100,000 [USD]), the vendor has strived to help customers reduce project risk while establishing a route to a more comprehensive system through up-selling more functionality down the track. This seems to be very much in tune with its new parent's recent modus operandi.

This concludes Part Two of a three-part note.

Part One detailed recent events.

Part Three will discuss challenges, and make user recommendations.