In a move that serves its plan to become an applications provider in the supply chain management space, ILOG today announced the acquisition of LogicTools, a vendor of network modeling and inventory optimization products.
The $15 million cash and stock-based transaction brings ILOG a suite of products that helps manufacturing and retail companies make better decisions about how to build their supply chains. LogicTools' Supply Chain Analyst applications suite includes modules for supply network design & planning, inventory optimization, and production sourcing & asset planning.
The functionality in LogicTools' applications is partially enabled by ILOG technology. The companies have been partners for five years, with LogicTools building some of its supply chain management applications on top of ILOG's CPLEX optimization engine.
Indeed, for most of its history, ILOG staked its place in the market as a technology specialist whose products were incorporated into the applications of other supply chain vendors. The CPLEX optimization engine currently powers the planning and scheduling modules of vendors such as SAP, Oracle, and i2.
In 2005, an existing partnership with SAP spurred ILOG to cast its lot among the application providers, said Jean Francois Abramatic, chief product officer at Paris-based ILOG, in an interview today. The enterprise apps heavyweight enlisted ILOG's expertise in building out SAP's Advanced Planner and Optimizer product, and that began ILOG's push toward more of a customer-facing role, Abramatic explained. He dismissed speculation that ILOG's new role as an applications provider will place it in the path of vendors that have utilized its technology for their supply chain applications. "The markets we're embracing are markets... that are in the $100 million range," Abramatic said. "Those larger application vendors such as SAP and Oracle, they're looking forward to having those markets addressed by partners." He said ILOG will continue to act as a technology supplier to other software vendors.
The twist in strategy may also have been a response to the competition nipping at ILOG's heels, Bob Parker, vice president of research at analyst firm Manufacturing Insights, told Managing Automation.
"At one point, when people started building supply chain optimization engines, [ILOG was] the rules engine head and shoulders above the rest, and there are now some products out there that could be competitive with them," Parker said. "So it makes sense for ILOG to spread their bets a little bit."
ILOG's current supply chain management products cover real-time scheduling, planning and scheduling, and transportation planning. The addition of LogicTools' applications for network design and inventory optimization make for a complementary fit, Abramatic said.
"I think, from a product build-out perspective, it's good," Parker concurred, "because I think LogicTools gives [ILOG] the higher-order, longer-range decision-making to go with the nearer-term optimization [products] that they had built themselves."
ILOG's Abramatic said there has been no decision yet as to how ILOG will brand the acquired products. He did note that ILOG "will continue to not only ship them but also develop them in order to increase our market share in the corresponding market — in network design as well as inventory optimization."
LogicTools serves more than 200 customers across industries including CPG, distribution, high tech, manufacturing, process/chemicals, and retail. Analyst firm AMR notes that some of LogicTools' competitors are i2, Insight, Logility, Manugistics, and Optiant. ILOG also has customers across multiple industries, but with a decided focus on large enterprises such as BASF, General Motors Corp., Nippon Steel Corp., and Pfizer Inc.
As ILOG heads toward the close of its third fiscal quarter, its revenues are on the rise. Sales for the second quarter, ended Dec. 31, 2006, jumped 27% year over year, and the company reversed a loss of $144,000 to post $892,000 in net income for the period.
Parker said the prospects for the supply chain market appear strong, with particular emphasis on inventory planning products, which is seeing double-digit growth, he said.
"I'm seeing IT mission statements in manufacturing that say, 'Faster, better decisions,'" Parker noted. The burgeoning interest in integrated decision-making in the supply chain bodes well for ILOG's acquisition, he said.
"To the extent that you could combine the transportation management and the optimization modeling that ILOG has with the network modeling that LogicTools has," Parker said, "you've got a pretty good suite for companies that would want to build these integrated decision models."
At the end of the second quarter, ILOG officials felt confident enough about the business climate to raise their guidance for 2007 revenue growth from 10% to 17%. Officials said the LogicTools deal, which is expected to close in April, would likely have a negligible effect on 2007 revenues and become accretive in fiscal 2008. As of Dec. 31, 2006, ILOG had cash and equivalents of over $55 million.
ILOG will offer employment to all 43 of LogicTools' employees, including Chairman and co-Founder David Simchi-Levi, who will become a consultant to ILOG.