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By Jacqueline Emigh  |  Posted 05-05-2005

Revamped Supply Chain Vendors Take on ERP Giants

At international user conferences this month, new management teams at supply chain vendors Manugistics Group Inc. and i2 Technologies Inc. are trying hard to win more customers, while steering existing users clear of enterprise resource planning titan SAP AG and a throng of other rivals.

But with lackluster financial performance over the past several quarters and big restructurings now underway, do these two major supply chain companies stand a good chance with CIOs and other IT decision-makers?

The obstacles are hardly insignificant, but these "best-of-breed" supply chain vendors still have a lot going for them from the customer's perspective, according to industry analysts.

"Manugistics and i2 are kind of caught in the middle," said Kevin O'Marah, an analyst at AMR Research. "They're not small enough to sort of fly beneath the radar and do quiet deals, but they're not large enough to have the heft or staying power of a SAP."

On the other hand, i2 and Manugistics are each being led by energetic new CEOs, who are attempting to articulate and carry out new visions for their respective companies.

Moreover, IT decision makers recognize that the products of the best-of-breeders remain largely superior to those being turned out by ERP giants such as SAP and Oracle Corp., industry analysts agree.

"If a company is struggling financially, it makes sense for [decision makers] to be uncertain. But it's a testament to the strength of the solution when the vendor is able to sign up new customers anyway," said Steve Banker, an analyst at ARC Advisory Group.

At the i2 Planet user conference in Phoenix next week, i2 plans to introduce new solutions in a couple of areas, said Michael McGrath, i2's recently appointed CEO.

McGrath told CIOInsight.com that i2's new offerings will revolve around two areas: supply chain visibility among trading partners and synchronization between supply chains and demand chains.

Meanwhile, at its Envision 2005 user conference in Atlanta this week, Manugistics unveiled new customers that include beverage makers Barton Inc. and Swire Beverages, along with an expanded relationship with CHEP, a global provider of synchronized supply chains.

Click here to read about Manugistics' new sales pitch to IT buyers.

ARC's Banker said he spoke with a number of existing customers at the Atlanta show this week who plan to stick with Manugistics for at least the next four or five years.

"A high proportion of these customers are also using SAP, but they're only using SAP for ERP," Banker said

"I asked them whether they were worried about [Manugistics' financial situation]. They told me, 'We have Manugistics now. If Manugistics is bought by somebody else, that someone is likely to be an aggregator,'" Banker said.

But if Manugistics is indeed acquired by an aggregator, some of these customers might "throw open a search" in a couple of years, according to the ARC analyst. "That's because aggregators don't tend to do as much with R&D."

Yet, he added, Manugistics might have a harder time swaying new customers to make a switch, especially from the less pricey supply chain software offered by ERP players.

Essentially, Manugistics and i2 are each working on returning to profitability by reducing internal costs, while at the same time driving more revenues among both new and existing customers.

Next page: Differences across target markets.

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Still, the two vendors are hardly cut from the same cloth. They show differences across target markets and other aspects of their future strategies, analysts say.

Also, their "in the middle" status doesn't necessarily translate into lower opportunities for profitability, according to O'Marah. Competitors such as Manhattan Associates and Logility Inc. are also "in the middle" but are faring much better financially.

"Maybe that's because, unlike i2 and Manugistics, [Manhattan Associates and Logility] never overshot themselves during the boom years, so they've never had to pare back," he said.

During a recent conference call with journalists and financial analysts, i2's McGrath spelled out a future strategy involving "big results for customers, reigniting enthusiasm," and use of the company's restructuring to set a "strong foundation" for future growth.

"Cheesy as it might sound, i2 is trying to be a solutions provider. Manugistics is going for a somewhat similar kind of approach, but i2 might have a little bit of an edge because it has a CEO with the buying and selling background of McGrath," O'Marah said.

"Customers look at [IT deployments] in terms of projects. They say, 'We need to fix our replenishment system,' for instance, and i2 tends to budget and execute in much the same way," he said.

McGrath said that i2 is also eyeing licensing its MDM technology to systems integrators—as well as to vendors outside the supply chain—for use in "non-supply chain" application areas such as financial services, health care and education.

Currently, i2 is strongest in the high tech vertical, O'Marah noted. But during the fourth fiscal quarter of 2004, for instance, i2 added 19 new customers, including users as diverse as US Foodservice Inc., Oji Paper Co. Ltd., and metals manufacturers China Steel Corp., NTN Corp., and Aluminum Konin-Impexmetal S.A.

Meanwhile, Manugistics CEO Joe Cowan has declared that, under its recent restructuring, sales is no longer a distinct division at Manugistics.

Instead, sales functions—along with products and services—have been rolled into each of four new SBUs (specialized business units): CG (Consumer Goods); Retail; Government; and Revenue Management, a unit that also folds in travel and hospitality, Cowan said during an earlier interview with CIOInsight.com.

"Manugistics has been working in this direction for a few years anyway—but possibly the message hasn't really been getting out there until now," Banker said.

For its part, Manugistics has shown the most customer wins so far in the CG market, according to O'Marah. The retail market could be a tough one for the company due to competition from both SAP and Oracle, he added.

Government and hospitality don't have much transferability to other sorts of supply chain applications, O'Marah said. "So maybe if Manugistics put [even more] effort into [CG], it'd be better off," he said.

Publicly, Manugistics has been highlighting existing relationships with blue-chip CG customers such as The Coca-Cola Co. and retailers such as Circuit City Stores Inc., as well as emerging co-development work with government customers like the U.S. Navy.

Both supply chain vendors' restructurings have also involved job cuts, including layoffs of longtime sales reps, a factor that industry analysts generally acknowledge as one contributor to the revenue slowdowns.

"I'm afraid that [company restructurings] can have the effect of making customers more cautious. But although this is something [for vendors] to worry about, it is not a backbreaker," O'Marah said.

"Vendor viability is simply not that thin, especially when customers are already hooked in," he said.