Top executive changes and reorganizations at i2 Technologies and Manugistics, the two leading independent suppliers of supply chain management software, reflect a market category in the midst of redefinition, relatively low growth rates and, perhaps, oversupply, say analysts and vendor executives.
In March, i2 named Michael E. McGrath as interim president and chief executive, replacing founder Sanjiv Sidhu, and cut approximately 15% of its 2,000-person workforce. The company lost $3 million in FY 04 on revenues of $389 million, from $495 million. Its revenue in '00 was $1 billion.
Also in March, Manugistics announced a sales reorganization around vertical industries. Last July it named Joe Cowan as CEO, replacing Gregory Owens, who remains chairman. In its fiscal year ended February '04, Manugistics lost $102 million on revenues of $243 million, down from $272 million.
For the last several years, i2 has had a raft of specific issues to deal with including shareholder suits, financial restatements and a stock exchange delisting. But both i2 and Manugistics have also had to deal with a sputtering SCM market -- which declined in 2002 and 2003 (according to AMR Research), upticked slightly in 2004 to a projected $5.4 billion and is expected to inch to $5.6 billion this year -- that has been in the throes of transformation.
"It's not really a coincidence that the leadership in these two companies has changed," says Kevin O'Marah, a vice president at AMR, in an interview. "The SCM market has matured. The world of supply chain management has grown from logistics to the entire design of the supply system, and SCM has become a table stake that no longer supports expensive, expertise-rich specialty products. Price points have come down considerably, and a lot has been picked up by the ERP vendors.
"i2 and Manugistics are stuck in the middle," O'Marah adds. "They're not large enough to be enterprise vendors and not small enough to fly under the radar."
Executives at i2 agree that the SCM market is transforming, but they say i2 is changing with it.
"The definition of the supply chain market has changed to one of agility," said Pallab Chatterjee, president of i2's Solutions Operations, in an interview. "Businesses have to make changes every day and, effectively, the supply network is constantly morphing. We are actually considering the whole concept of SCM to be a complete cycle of planning through to execution, and we're completely transforming our product portfolio to embrace these ideas."
Chatterjee says that, fundamentally, the SCM market has shifted from a replacement market to what he calls an "add-on" market. As a result, he says, i2 has undertaken initiatives including embracing the idea of agility in products, componentizing software to enable the creation of composite applications and changing its engagement model with customers from a traditional packaged license model to one that emphasizes access to intellectual property, people and tools.
The effect of these initiatives, Chatterjee says, is beginning to show up in prices i2 can command for its products and services. "There has been a resurgence of the business based on these pieces," he says. "Based on a few deals so far, [average selling prices] are actually rising as a result."
Chatterjee also says that re-thinking i2's business has changed his view of the SCM market's potential. "We believe that most people haven't seen the whole elephant yet."
Logility Inc., one of the SCM market's smaller, but more focused, players, which recently acquired Demand Management to get a stronger foothold in the SMB market, agrees that the SCM market may have more runway than projections suggest, but that success can only come through discipline and focus. In the nine months ended in January, Logility had a $67,000 loss on revenue of $17.7 million.
"There's confusion about the market definition, but we've kept our definition focused on supply chain planning and execution," said President and CEO J. Michael Edenfield, in an interview. "We kept the focus on key verticals like CPG, food and beverage and soft goods. We never went after high tech."
The growing opportunity in the market, Edenfield says, is in collaborative tools that enable manufacturers to link to their suppliers and partners, and in performance management. Adds Karin Bursa, Logility's vice president of marketing: "Customers are really talking about business planning. There's a resurgence in sales and operations planning technology. It's more global and performance based."
Edenfield, who has said the acquisition of Demand Management may be followed up with other buys by Logility, expects consolidation in the SCM market to continue, but he's upbeat about the market itself. "Through the downtimes, customers implemented and saw value. In our last quarter alone, we gained 21 new customers. I think the category is definitely sustainable."
This story was repurposed from the May 2005 issue of Managing Automation magazine.