Trends-September 2008

On Aug. 10, 2008, JDA Software signed a definitive agreement to acquire i2 Technologies for approximately $346 million, uniting two key rivals in the transportation management system (TMS) space.

While the implications for current customers won’t become manifest until JDA releases its much-anticipated product roadmap, it is clear that the situation for mid-sized companies seeking affordable TMS just improved significantly.

In the late 1990s and early 2000s, i2 and Manugistics were the two giants in the supply chain planning and transportation management software market, fighting it out in the heyday of the tech bubble when globalization was an emerging concept.

But when Manugistics fell behind technologically and was acquired by JDA in 2006, i2 and Oracle assumed the dominant role as TMS providers for large, global companies seeking greater control of logistics costs. This field has once again contracted.

Transportation management is only a portion of what these two supply chain giants offer—both companies provide strong supply chain planning, demand management, and retail planning products—but in today’s business climate, containing transportation costs is a key initiative for many shippers.

It remains to be seen what JDA’s strategy will be going forward. JDA says the merger will allow it to leverage each company’s key strengths in a single offering, with JDA addressing retailers, the old Manugistics portfolio covering process manufacturing, and i2’s applications oriented to discrete manufacturing.

Talk to industry analysts, however, and the distinctions among the three companies are not so clear.

“There is significant overlap between JDA’s offerings and those of Manugistics and i2; for example, both provide strong TMS products,” says Nari Viswanathan, research director for The Aberdeen Group’s supply chain planning practice.

“The question remains whether JDA will follow the path of companies such as Infor that have maintained separate products for specific vertical industries, or if it will eventually provide a single retail and manufacturing platform.”

No company wants to be stranded on a platform that is no longer enhanced, which raises a red flag for current users.

While JDA competitors would not go on record, they do express concern about users having to migrate to a new platform if their existing one is no longer being enhanced.

“When users are forced to migrate to a new platform, the developer can only do so much to mitigate the pain,” says one product manager. “Licensing pain may go away, but re-implementation pain does not.”

“Even when some enhanced functionality might be available, most companies prefer to keep the application they have,” says John Fontanella, vice president of research for AMR. “The cost of switching is just too high.”

JDA CEO Hamish Brewer offered a glimpse into the company’s plan during an investor call after the i2 acquisition announcement.

“Our goal will be to create one comprehensive offering that we can deliver across the entire manufacturing market,” he said. “We’re not going to look at it as two distinct solution offerings.”

Companies should not draw any conclusions before the roadmap is rolled out, cautions Larry Ferrere, JDA’s chief marketing officer. “JDA has a strong record of supporting and enhancing parallel products simultaneously when it makes sense,” he notes.

As an example, Ferrere cites E3 and Manugistics’ demand management applications, both of which were acquired by JDA. They have overlapping functionality, are actively sold and used, and are still on an enhancement track.

Mid-sized companies seeking a TMS solution will likely benefit from this merger. LeanLogistics, MercuryGate, Sterling Commerce, and Transplace currently dominate the market, and all offer a rapidly deployable product on a Software-as-a-Service (SaaS) platform. i2’s FreightMatrix product line is also SaaS-based, providing the international transportation management functionality that many players lack.

“On-demand TMS projects are our fastest growing area of business,” says Razat Guarav, vice president, global transportation and distribution group for i2 Technologies. “We see growing demand for this offering from both large and mid-market shippers and third-party logistics companies globally.”

JDA, which uses both direct sales and re-seller partnerships, claims many more mid-sized clients than i2, but until now, JDA has not had a SaaS-based TMS to offer them. So here may be an excellent marriage between a company with a product, and one with access to a key market segment.

Current customers are reluctant to comment on the record about how the merger may affect them, but two large JDA clients say they see the merger as a means to access a broader suite of applications without the interoperability issues that can occur when working with multiple vendors.

Another source notes that regardless of whether a company is using one or the other’s applications, they should lobby JDA heavily to continue to enhance and innovate the platforms they’re using—and do that lobbying now.

JDA’s promised roadmap is due in the next two months and pressure from large corporate users may influence the path the company chooses.

The merger will benefit both mid-market and large companies, provided JDA doesn’t aggressively push users down a migration path that may not be to their liking. And there’s no indication that this will happen.

“JDA did exactly what it said it would do when it acquired Manugistics,” says AMR’s Fontanella, “so I’ll give it the benefit of the doubt that it’ll do the same thing this time, too.”

IL: What should existing i2 and JDA customers make of this news?

Ellis: There is no need to panic, but thinking through the alternatives and having contingency actions ready is wise.

Once you understand your plan, monitor JDA’s progress toward the integrated decision environment. If you don’t see that progress, the safer and more logical route is to put your money with SAP or Oracle. For companies requiring industry-specific capabilities, JDA will have to show it can improve its product along a number of vertical paths.

IL: To what extent does continuing consolidation within the segment change how smaller, best-of-breed IT vendors pursue new customers?

Ellis: Opportunities still exist for best-of-breed vendors, particularly those with either a specific industry focus or high level of narrow functional expertise.

While end users increasingly express concern about ease of integration, the reality is that in many areas best-of-breed vendors still hold significant functional advantages.

The evolution of service-oriented architecture makes integration among different vendors easier. And the rapidly expanding global nature of supply chains, combined with massive energy cost increases, has restored some sensible balance to the need for advanced functionality and visibility.

The likes of SAP and Oracle have significantly closed the functionality gap in recent years, so the long-term survivability of small, best-of-breed vendors will depend upon their ability to retain industry-specific distinctions.

IL: How does this new supply chain application megalith frame the existing rivalry between SAP and Oracle?

Ellis: Application vendors can be in one of three places: scale, niche, or in the middle.

Scale vendors such as SAP and Oracle offer strong functionality, broad industry appeal, and the benefits of enormous scope and market traction.

Niche vendors have the laser focus of specific functionality with narrow industry appeal and the ability to be agile and responsive.

Sitting in the middle, without SAP/Oracle scale, can be a dangerous place and will require JDA/Manugistics/i2 to be very clear about where it focuses future strategic investments.

The consolidation of one-time market leaders Manugistics and i2 may provide a viable alternative to the SAP/Oracle duopoly. But JDA will have to show a commitment to spending development dollars to maintain functional advantages, and marketing dollars to stretch beyond its retail comfort zone.

The avenue to success may be in presenting a complete collaborative decision environment for the supply chain domain—from strategic to tactical to operational decisions—all integrated for complete closed-loop performance control.

The technology enabler may be in a combination of product platforms—process mapping from i2, scalable data handling from Manugistics, and advanced analytics from the JDA legacy.

Packaging a Punch

From small package redesigns that use lighter-weight materials with little visible change to major overhauls that introduce new items to store shelves, consumer goods companies are unwrapping new ways to capture consumer attention while towing the green line—all in an effort to keep inventory moving and sales rising.

Georgia-Pacific, for example, recently introduced a major package redesign of its Dixie PerfecTouch Grab ‘N Go insulated 12-ounce paper cups. Traditionally, stacked paper cups are wrapped in a polyurethane bag with little room for branding or graphics to grab the customer’s attention.

In stores, this form of packaging is typically found on the very top or bottom shelves, out of the prime viewing area.

To enhance the shelf appeal of its Dixie cups, Georgia-Pacific redesigned the package to include a paperboard carton that provides more room for brand marketing. The box’s rectangular footprint also allows for neater stacking on store shelves and in transit.

Beyond designing its own innovative product packaging, Georgia-Pacific is helping customers meet their own sustainability and profitability goals with its Packaging Systems Optimization (PSO) program.

The PSO effort entails a five-step process in which a team of packaging engineers analyzes a company’s entire packaging supply chain. The PSO team then delivers a detailed report outlining areas where cost savings, profitability, and sustainability can be mutually achieved.

In concert with its PSO program, Georgia-Pacific’s Innovation Institute simulates retail and packaging environments, allowing customers to experience sustainable innovation and novel package design solutions in action.

By leveraging these resources, users can identify and reduce supply chain costs, increase shelf velocity, and measure sustainability factors.

Show Me the Manufacturing!

True to its nickname, Missouri is putting its best foot forward as a major target for manufacturing and logistics activity, according to the 2008 National Manufacturing and Logistics Report Card by Ball State University’s Bureau of Business Research.

In addition to ranking first among the 50 states, the Show-Me state earned stellar grades for research and development efforts as well as relatively low long-term health care costs and health insurance premiums.

High marks also went to Utah, Florida, Alabama, South Dakota, and Indiana; at the other end of the grade curve, New York, Kentucky, New Jersey, Vermont, Rhode Island, Maine, and West Virginia received an “F.”

The report card grades states in 19 categories including property, sales, and corporate taxes; unemployment insurance; crime; manufacturing share of the economy; and foreign direct investment.

By and large, manufacturing and logistics industries across the country are growing despite a general belief to the contrary.

American manufacturers enjoyed a record year in 2007, with inflation-adjusted values higher than in any previous year, according to Ball State University’s corresponding 2008 State of the Industry report.

Nationally, production growth continues to follow a robust path, and even as the U.S. economy began slowing in the final quarter of 2007, industrial production rose at a rate of 2.8 percent.

Risky Business

If you don’t think it can happen to your company, duck, then cover your assets. Despite a seemingly endless string of product recalls, natural disasters, labor strikes, and other contingency cues, businesses are still vulnerable to potential supply chain mishaps.

Ninety-nine percent of companies experienced a supply chain disruption during the past year and 58 percent suffered financial losses as a result of those exceptions, according to a recent survey of best-in-class companies across all major industries conducted by Boston-based think tank The Aberdeen Group.

Among the most frequent supply chain disruptions identified in Aberdeen’s study:

  • 56% Supplier capacity not meeting demand
  • 49% Raw materials price increase/shortage
  • 45% Unexpected changes in customer demand
  • 39% Shipment delayed/damaged/misdirected

Faced with longer supply lines and shorter customer leashes, companies need to consider risk factors that cover the entire length of the supply chain, including source countries, suppliers, congestion and capacity, fuel price, and non-environmental catastrophic events, the report indicates.