The New Manugistics Faces A New Millennium

Vendor Genesis

Formerly the supply chain planning (SCP) market leader, Manugistics was a pioneer in the advanced planning and scheduling market, arguably before such a market existed. Founded in 1969 as Scientific Time Sharing Corporation, a division of Continental Telecom, the company became independent under then CEO, William Gibson, through a leveraged buyout in 1986. Renamed Manugistics Group, Inc. in 1992, the company established a dominant position in the advanced planning and scheduling and transportation planning markets through successful integration of acquired technologies (such as ROVER Technology in 1991).

Manugistics has witnessed its market position erode steadily over the last several years in favor of more vibrant players in the market, most notably i2 Technologies. While Manugistics was not the only enterprise applications vendor to face financial upheaval in 1999, its decline cleared the way for competitors to move in and capture much of its former market share.

Evidence that all was not well began appearing on Manugistics' income statement in early calendar 1999. At fiscal 1999 year-end (February 28), license revenues were $73 million, a 30% decrease from the prior year, placing it second among other supply chain management (SCM) vendors (see Figure 1). For its 1999 fiscal year ended February 28, 1999, Manugistics posted the greatest loss in its history, $96.1 million, which included one-time charges related to business restructuring. Following shortly after 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.

Figure 1.

Figure 2.

In April 1999, Greg Owens, the partner in charge of Andersen Consulting's supply chain practice, was hired to replace William Gibson as CEO. (Gibson, who owns 20% of the company, continues in his role as Chairman but maintains a low profile.) Cost savings resulting from staff cuts yielded a positive bottom line in 1Q 2000, but losses have followed in each succeeding quarter.

Manugistics' current product suite, NetWORKS, includes applications for demand planning, transportation planning, manufacturing scheduling, replenishment planning, real-time ATP, strategic network planning, and business-to-business (B2B) trading partner collaboration. Its B2B/B2C product, bstreamz was announced in January 2000 and is available as a Manugistics-powered online marketplace or as a user-controlled version that makes use of Manugistics's WebWORKS architectural framework.

WebConnect, Manugistics' platform for both intra- and inter-enterprise integration is based largely on Extricity's enterprise application integration (EAI) software. In addition to its online trading networks and tools, Manugistics offers a product for companies who want to develop their own trading exchange environments, ExchangeWORKS, which features a pre-built infrastructure that allows the sharing of information, real-time visibility, and channel linkage. Manugistics' core SCM software is available on Unix (Digital, HP-UX, Solaris, IBM-AIX) and Windows NT servers. Support for Windows 2000 is planned for release in 2001 with version 6.2.

Manugistics' revenues are derived from the sale of product licenses and support services in the ratio of 40:60 (L:S) as of the end of FY2000. The ratio was a much healthier 60:40 (L:S) two years ago, but has shown signs of improvement in the two most recent quarters due to some wins in the B2B e-commerce market (see Figure 3). Competitors i2 and Logility enjoy higher percentages of new license revenues (see Table 1).

Figure 3.

Table 1. Leading Best-of-Breed SCM Vendors

Vendor Strategy and Trajectory

Like other SCM companies, Manugistics is positioning itself as a provider of back-end fulfillment capabilities for e-commerce companies. With its movement into B2B with WebWORKS and bstreamz, Manugistics is well-positioned to play this role in the marketplace as its product technology is mature and has been proven in over two decades of implementation. Its transportation strategy optimization capabilities are especially relevant to the needs of e-commerce as delivery costs have a profound impact on bottom line results. Recent evidence of its success in supporting e-commerce is Manugistics' win at Amazon, who, like other Internet retailers, is beginning to understand the importance of supply chain optimization on its businesses.

Manugistics has historically maintained strong alliances with complementary ERP vendors and systems integrators that shoulder much of the implementation support burden for its installations and it continues to foster these relationships. The company has a good record of customer service and a large customer base that represents a who's who among blue chip companies, including Procter & Gamble, The Gap, and Dupont.

This year, Manugistics has spared no expense in putting its name and revised identity in front of prospects, hosting lavish user events in Orlando, Florida, as well as Cannes, France and Tokyo, Japan. The new focus on image is a much needed departure for Manugistics, which desperately needs to shed its marketplace perception as a respected, but outdated relic of the SCM era. It remains to be seen whether its public relations efforts will pay off in the long term and whether Manugistics can live up to its message.

ANALYSIS

Vendor Strengths

• Strong product functionality in core SCM: Manugistics' long history gives its products a significant edge in maturity over much of its competition. Especially strong is its functionality for transportation optimization, which may be the most widely installed package of its kind. Manugistics was also one of the first vendors to offer flexible VMI and replenishment modules, and enable customers to integrate to POS and consumer data.
  
  
• Demonstrated relatively short implementation time frames: Manugistics' well-developed functionality and seasoned implementation resources lead to shorter average implementation times (six months vs. 9-12 months average). A recent implementation at Matthew Clark, a large UK-based drinks wholesaler, was completed in three months.
  
  
• Large client base (approximately 900 customers): Larger than those of its main competitors including i2 and SAP (for supply chain), Manugistics' customer base provides a great advantage, if properly utilized, in generating new license revenues. Loyal customers can be persuaded to purchase Manugistics' newer, less proven applications and tend to be more forgiving of shortcomings, such as delayed product releases.

Vendor Challenges

• Financial position 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 in calendar 1999. Though its cost-cutting measures worked to reduce expenses, we are concerned that Manugistics' development staff is now somewhat thin at 27% of its total employment. For comparison, i2's development staff is 35% of total and Logility's is 39%.
  
  
• Selling and supporting its Internet collaboration application: Manugistics' bstreamz application for trading partner collaboration was announced with fanfare in January 2000 with early testimonials from the first client, Canadian Tire Corporation. Succeeding months have brought little growth to this segment of its business model, however, and Manugistics has reacted slowly in response.
  
  
• Retention of experienced personnel 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 been compromised due to attrition. This is especially true for its transportation group. Defections have slowed since the beginning of the year, but many of its experienced resources have moved on.

BOTTOM LINE

Vendor Predictions

• Moderate revenue growth should continue in FY2001 as restructuring efforts around core markets bear fruit and web initiatives expand, but not enough to recapture significant market share this year (70% probability). Manugistics market share has declined by approximately 62% since 1995.
  
  
• Provided that Manugistics invests more in development and marketing for its web marketplace offerings and forms more alliances with e-commerce companies, similar to that with Moai signed in July 2000, we expect its revenue growth to increase substantially through FY2002 (ending February 2002) and approach that of the rest of the B2B e-commerce marketplace, 45% (60% probability).
  
  
• Unlikely candidate for acquisition by a larger vendor within the next year due to lack of suitors with both functionality need and financial wherewithal. In addition, Owens's management team seems intent on remaining independent, tying its future to e-business (40% probability).

Vendor Recommendations

• Further develop middle market penetration to boost revenues: Manugistics needs to tap into new and existing alliances with complimentary software vendors (Siebel, JDEdwards) and software integrators (AnswerThink, JGI) to expand its mid-market customer base. Signs that it is pursuing such alliances include recent deals with BORN and IBM mid-market services. Manugistics has also shown its willingness to partner with other SCM extensions, such as warehouse management system vendor, HK Systems and EAI vendor, Extricity. Manugistics should also consider expediting its port of key parts of its application suite to Windows 2000/NT as this platform is expected to find increasing favor with the mid market. Current release is scheduled for spring of 2001.
  
  
• Continue advances into Customer Relationship Management (CRM): Manugistics had fallen behind other players in capitalizing on the CRM movement, although it signed a joint marketing agreement with market leader Siebel earlier this year. If its financial base continues to improve, Manugistics should consider acquiring CRM technology for customer personalization or data mining and integrating it into its core applications.
  
  
• Simplify marketing message: Manugistics has released a slew of products related to Internet collaboration and marketplace connectivity. Names of the products are similar and marketing communication further confuses their capabilities, which may lead users to conclude that they comprise vaporware more than real software.
  
  
• Manugistics should consider offering web-hosted versions of its applications. Though other enterprise software companies are seeing customer reticence in subscribing to hosted applications, the ASP model is expected to grow substantially over the next few years and vendors need to pursue opportunities aggressively in order to establish a presence.

User Recommendations

• Manugistics belongs on a short-list for top tier companies in consumer packaged goods, retail, food & beverage or high tech seeking an add-on or standalone SCM solution due to its mature product functionality and expertise in these industries. Though Manugistics has regained much of its financial footing, potential customers should not assume that its recent success assures long term viability.
  
  
• Mid market companies ($50 to $500 million revenue) with IBM platform technology in-house may want to consider Manugistics' Supply Chain Collaboration products that features Manugistics NetWORKS, along with IBM Global Services consulting and implementation services, IBM MQSeries message-queuing software, IBM RS/6000 and IBM Netfinity servers and customer support, with financing options provided by IBM Global Financing.
  
  
• Investments in Manugistics' new marketplace offering, bstreamz and supporting infrastructure application ExchangeWORKS should be made only after a thorough evaluation that includes on-site demonstrations showing the integration of multiple trading partners. Its only blue chip customer to date, Canadian Tire, chose Manugistics primarily based on a long, successful history with its core SCM applications and a certain degree of faith that Manugistics can deliver on its Internet vision. Users should also ask for references from other customers, including FreightWise, Commerx, and National Transportation Exchange.