A tough job ahead

By Jacqueline Emigh  |  Posted 04-18-2005

Manugistics Poses New Pitch to IT Buyers

CIOs, IT managers and other enterprise buyers are getting a new sales pitch these days from supply chain vendor Manugistics Group Inc.

Under the helm of Joe Cowan, who joined Manugistics last July as CEO, Manugistics is trying to switch from a "software" approach to a vertically focused "solutions" strategy aimed at thwarting both the lower pricing of SAP AG and the high specialization of some smaller players.

"Companies that don't view the supply chain as a core competency might go to SAP. But companies that do view the supply chain as a core competency will come to us," said the CEO, during an interview with CIO Insight.

Under a recently announced restructuring led by Cowan, sales is no longer a distinct division at Manugistics.

Instead, sales functions—along with products and services—have been wrapped 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.

"Manugistics used to chase after any opportunity it could find," Cowan told CIO Insight. "[Salespeople] would go into a [customer organization] and try to find whatever [Manugistics] software would fit. Then, they'd move on to the next customer."

Instead, Manugistics has now begun urging salespeople to build long-term relationships with users, according to the CEO.

Through the new SBUs, supply chain technology is being touted as a "dynamic" entity—adaptable to quickly changing business needs—as opposed to a "static" system only requiring replacement every 10 or 15 years.

Although Manugistics is in cost-cutting mode, the reorg hasn't involved massive layoffs, according to Cowan. But in February, Jeffrey L. Holmes resigned as executive vice president of sales operations. Holmes has stayed with the company as a consultant.

New personnel are in place—including Ronald Kubera, who was hired in March to oversee the new CG SBU.

Cowan is now on the lookout for someone to head up the Retail SBU. "I want someone who can 'talk solutions,'" he said.

Plans are also in the works to hire a crop of recent college grads, and ultimately, to start grooming some of them for sales positions.

"We'll be hiring new, lower-priced people we can train. I love young, aggressive 'Type A' people. We'll bring them into support and services first, and then turn some of them loose into sales," he told CIO Insight.

At the same time, some salespeople—viewed by Cowan as "unproductive"—have been let go.

Products based on Manugistics' new Web-based architecture—such as IPO (Inventory Product Optimization), rolled out in March—are also key parts of the revised equation.

But beyond "out of the box" product components, Manugistics will also be working with customers on co-developed product extensions.

Some of these will be custom extensions, for specific clients, yet other deals with clients will "extend the functionality of products, [while not being] client-specific."

During a recent Webcast, Cowan pointed to the U.S. Navy as one of the organizations in this emerging set of co-development partners.

Manugistics is also eyeing a "risk-based" scenario, in which pricing will revolve around users' "success with the solution," Cowan said.

Next Page: A tough job ahead.

A tough job ahead

In a recent study by industry analyst firm Nucleus Research Inc., 80 percent of Manugistics users said they had achieved positive return on investment from their supply chain deployments.

The customers pointed to gains in five areas: reduced inventory costs; reduced order-to-fulfillment time; increased productivity; increased revenue; and savings in operational costs.

But other analysts think that Cowan has a tough job ahead, citing factors ranging from increased competition to continued lackluster demand for supply chain solutions.

Cowan told CIO Insight that, out of the four verticals targeted by the new SBUs, government is the most volatile, due to its longer sales cycles.

Manugistics' C&G SBU is the one that faces the strongest competition from SAP, according to the CEO.

"But SAP doesn't 'own' C&G, even though they might think they do," he contended.

Manugistics' list of C&G supply chain customers includes Coca-Cola Bottling Company, H.J. Heinz Company, The Scott's Company and Coty International.

Other enterprise users range from John Deere and Harley-Davidson Inc. to retailers such as Circuit City Stores Inc. and LL Bean, for instance.

Meanwhile, SAP's attempts to play in the retail space have been largely muffled by Oracle Corp.'s acquisition of Retek Inc., Cowan said.

Cowan does expect Oracle to land as a big competitor in retail, but not right away. "At first, [Oracle] will have trouble bringing together the PeopleSoft and Retek acquisitions," he told CIO Insight.

Cowan said he views i2 Technologies Inc., another leading best-of-breed supply chain firm, as most successful with high-tech manufacturing firms.

"But we also do run into them here and there in other places, including retail," he added.

Last week, i2 announced plans to expand its supply chain solutions into other application areas.

Cowan also cited some smaller competitors—including Manhattan Associates, which has been moving into transportation management—but he dismissed this crew as "anklebiters."

Analysts disagree over how Manugistics ought to handle potential competition for decision-makers' dollars.

"To significantly improve the top line, Manugistics must focus on sustainable growth beyond its CPG [consumer products goods] base," wrote Noha Tohamy, an analyst at Forester Research, in a report published last August.

"To do that, the vendor must try to block competitors out of new growth markets—for example, by stopping SAP's progress in pharmaceuticals or i2 in retail. By more aggressively promoting its customer successes in these high-growth verticals, Manugistics can make it tougher for competitors to gain traction."

But Lora Cecere, an analyst at AMR Research, said she believes the supply chain market is finally on the rebound—and that both Manugistics and i2 have been missing the boat on some opportunities with customers.

"While companies renew the focus on their supply chains, the number and intensity of deals are increasing, but Manugistics and i2 Technologies are not capitalizing on the opportunity," according to Cecere.

"Smaller niche vendors are reporting robust business by targeting specific programs for improving demand-driven supply chains and providing real solutions," she said, in a report issued in February.

Manugistics unveiled its reorganization in March.

Last week, Manugistics announced total revenues of $45.2 million for the fourth quarter of fiscal 2005, down 22 percent from the $57.8 million the company reported for the same quarter the previous year.

But during a Webcast, Cowan cast these results in an optimistic light, comparing them instead to the third quarter of fiscal 2005, when Manugistics tallied $45.0 million in revenues.

Also during the Webcast, Cowan told financial analysts and journalists that some of the sales completed during the fourth quarter of fiscal 2005 won't be counted until subsequent quarters.