Transition
for Manhattan Associates Necessary for Long Term Growth
S. McVey - February 2nd, 2000
Vendor
Genesis
Based in Atlanta, Georgia, $78 million Manhattan Associates, Inc. develops,
markets, and supports supply chain execution systems for distribution center
management. Founded in 1990 by former KSA consultant Alan Dabbiere with Ponnambalam
Muthiah, Deepak Raghavan, and Deepak Rao. Manhattan installed its first Pickticket
Management System (PkMS) license at Jockey International in 1991. In February
1998, Manhattan purchased Performance Analysis Corporation and incorporated
its slotting product, SLOT-IT, with its PkMS applications. Later that year,
Manhattan completed an initial public offering worth $53 million, although falling
revenues and economic factors have eroded its market capitalization since then.
Root causes of Manhattan's decline centered on the company's rapid growth from
a staff of 25 in 1995 to over 500 today. In mid 1999, Manhattan reorganized
its staff and operations, bringing in CEO Richard Hadrill to complement the
vision of founding members with experience in managing a large organization.
Manhattan
Associates reported total revenues of $62 million for fiscal 1998, an increase
of 93% over the previous year (see Figure 1). Manhattan has achieved an impressive
70% growth in annual revenues since 1995, but high sales overhead and restructuring
expenses have kept earnings low. In addition, Manhattan's revenue mix has shifted
drastically toward services over the past two years (see Figure 2), a trend
that threatens to further erode operating margins. In 1998, services accounted
for 52% of its total revenues. The remainder was divided among new licenses
and hardware in the form of supporting computer platforms and radio frequency
devices used in conjunction with PkMS.
Vendor
Strategy and Trajectory
Manhattan occupies the fourth position among supply chain execution vendors
behind Industri-Matematik, privately held McHugh Software, and International
Business Systems. In contrast to some other players, Manhattan touts a relatively
narrow product offering, concentrating primarily on warehouse management systems
(WMS) and transportation management software for its six target markets: e-commerce,
retail, apparel/footwear, consumer products manufacturing, food/grocery and
third-party logistics. The PkMS suite has grown to encompass applications for
inventory management, freight management, parcel shipping, work order management,
and outbound distribution. The inventory management and outbound distribution
systems are supplemented by RF extensions for remote data entry. SLOT-IT is
a dynamic slotting system that optimizes the placement of items in a pickline.
ASN Enabler is an Internet extension to PkMS for sending advanced ship notifications.
Manhattan's applications have been used to support fulfillment operations by
many on-line companies, such as J. Jill Group, Patagonia, and Cornerstone International,
but only by integration to other products that create the web storefronts and
handle the transaction activities. Manhattan lags behind many of its competitors
in development of Internet-enabled applications such as intranet/extranet and
hosted applications, areas that could be vital for the company's long term growth.
Vendor
Strengths
-
Well-defined
warehouse management system: Manhattan offers as part of its warehousing
capabilities RF-enabled inventory management (IMS) and outbound distribution
(ODS), task management for IMS, cycle counting and work order management,
wave management, verification, freight management, and parcel shipping.
In addition, Manhattan can provide one-stop shopping by offering server
platforms, radio frequency equipment, and other peripherals.
-
Service
provider partnerships: Manhattan has one of the most comprehensive service
provider partner networks of its peers. Its 20+ systems integrator partners
include Andersen Consulting, Deloitte & Touche, PricewaterhouseCoopers,
EDS, plus a host of smaller, specialty firms like AnswerThink, Clarkson-Potomac,
and Sedlak Management Consultants.
Vendor
Challenges
-
Dropping
license revenues: Although license revenues nearly doubled from $7.2 million
in FY97 to $13.8 million in FY98, they have declined by an average of 6%
over the past four quarters. More alarming is the 9% rise in services revenues
over the same periods (see Figure 2). Though the company can subsist on
services revenues in the short term, its long term success depends on its
ability to resurrect market demand for its products in the form of new licenses.
-
Unclear
market perception: In the broader enterprise applications marketplace, Manhattan
is regarded as a WMS vendor with little or no transportation management
capabilities. Its marketing strategy lacks the intelligence to resolve PkMS's
highly interrelated warehousing and transportation features. The nuances
of this interoperability are lost when Manhattan's message reaches the IT
community.
-
Undefined
Internet product strategy: Apart from its success in providing fulfillment
back-ends for Internet retailers (See TEC News Analysis article: "Manhattan
Associates' New Partnership with CommercialWare"), Manhattan lacks web-enabled
products, in spite of the fact that many parts of its suite are well-suited
to deployment over an intranet or extranet. Warehouse management alone provides
huge potential for collaborative applications such as VMI (Vendor Managed
Inventory) and CPFR (Collaborative Planning Forecasting and Replenishment)..
- Heavy reliance
on direct sales: Essentially all of Manhattan's products are sold via direct
sales. The high overhead is evident in the company's sales and marketing expenses,
which account for over 36% of total expenses. Certain third party integrators
receive finder's fees from Manhattan and represent the company's only quantifiable
indirect channel.
Vendor
Predictions
-
As
part of a broader alliance strategy, Manhattan will form a significant partnership
in the next six months with an Internet technology provider. The candidate
will likely be drawn from vendors who support Internet retailers that see
PkMS as a common denominator among their suppliers (70% probability).
Vendor
Recommendations
-
To jump-start its Internet presence, Manhattan should consider a strong
alliance or merger with a company that can seal Internet fulfillment contracts
with e-tailers and other web commerce companies, such as InterWorld or Edify.
Its newly announced partnership with CommercialWare has the potential to
deliver its WMS and TMS capabilities to a much wider audience of Internet
companies.
-
Manhattan should look ahead for future Internet opportunities such as application
hosting and supplier network collaborative planning. Movement in these directions,
however, requires considerable investment in R&D, not to mention a change
in services support strategy.
-
Seek strategic marketing partnerships with complementary software vendors
and systems integrators. In addition to streamlining the sales cycle, it
can help expand business to overseas markets, a segment that accounts for
less than 5% of Manhattan's revenues. The recent alliance with Intentia
represents a positive step in this direction (See TEC News Analysis article:
"Manhattan
Associates Partners with Intentia").
User
Recommendations
For companies operating in retail, apparel, or consumer goods manufacturing
who need solid warehousing or transportation management capabilities only, Manhattan
is a logical short list candidate. Companies who are looking for support for
e-Commerce initiatives, such as e-Procurement and Internet fulfillment will
want to consider Manhattan, but only in conjunction with vendors that offer
web front-ends and transaction processing engines (such as CommericalWare).
On-line companies with special transportation and storage requirements, such
as those in perishable goods delivery should pass over Manhattan in lieu of
alternatives with competencies for these requirements such as Descartes Systems
Group.