LAS VEGAS -- JDA Software Group Inc.'s planned $211 million acquisition of struggling Manugistics Group Inc. will touch off a major consolidation of supply chain software providers, a trend in which i2 Technologies Inc. may participate, i2 CEO Michael McGrath said at the company's Planet user conference here this week.
But he noted that i2, which in recent quarters has reversed its own four-year string of losses, will be highly selective in executing its own acquisition strategy.
"There's going to be a lot happening through consolidation," McGrath said in an interview with Managing Automation. "We have to be bright enough and quick enough to make sure we emerge as the leader after that consolidation. We're looking at acquisition opportunities, but we have to be smart, aggressive, and careful. It's not necessarily whoever acquires the most companies who wins."
i2 considered making a bid for rival Manugistics, McGrath said, but backed off when JDA proved willing to pay what McGrath said was a high price for Manugistics.
"It wouldn't have made sense for us to load ourselves up with debt again and pay what worked out to $380,000 per [Manugistics] customer," said McGrath, who took over the leadership of i2 early last year. Since then, McGrath has made significant cuts in i2's operating costs and restructured the company's debt. When he arrived, the company had $317 million in debt due in 2006 and a shortage of cash to pay for it. Today the company has $117 million in cash (as of the end of 2005) and a $25 million debt payment due at the end of 2006.
McGrath called JDA's purchase of Manugistics for $211 million a high-risk move. "They are bringing together two companies that were losing money, and now they've combined them into one company with a large debt," McGrath said. "It might work. But now they have a whole bunch of other things to worry about while we're focusing on a new generation [of software]. Competitively it makes it harder for them to respond to what we're doing."
Indeed, i2 is placing much of its hopes for a continued comeback on its Next Generation supply chain management software products, which are built around the company's Agile Business Process Platform (ABPP), a service-oriented architecture platform and business process management development environment that, officials say, make it easier for manufacturers to integrate supply chain and other applications and processes using workflows.
At the Planet conference, McGrath said 35 i2 customers have implemented the ABPP , most of them using it to integrate existing i2 applications and other applications such as ERP systems from SAP AG. Over the past year, i2 has released nine Next Generation solutions -- such as the company's Collaborative Supply Chain Execution Suite -- which package the ABPP with specific i2 applications and pre-built workflows.
At the Planet conference this week, the company unveiled its latest Next Generation solution, this one for transportation management. The Transportation Management solution includes existing i2 applications such as Transportation Optimization as well as the ABPP, workflows, and an integrated dashboard for viewing reporting and analytics.
i2 customers have taken to the ABPP faster than the company expected, McGrath said. Still, he acknowledged that early success with the Next Generation products has not yet translated into improved top-line financial results for i2. That, McGrath said, is largely because much of the revenue recognition resulting from Next Generation contract wins is deferred until customers have deployed the software in production environments. At the same time, he said, customer demand for i2's current generation of products is slipping as attention shifts to the Next Generation products.
"We're having a hard time predicting what the mix will be," McGrath said. "The good news is that the [Next Generation] adoption rate is picking up faster than we expected. The bad news is that that's affecting our revenue because more of our sales are being deferred. In the short term it's an issue. In the long term it's healthy."
McGrath said i2 is attempting to use the Next Generation products -- specifically the ABPP -- to attract SAP and Manugistics customers. The company, he said, has developed software for integrating SAP applications into the ABPP and is marketing the platform and i2 applications to SAP customers as "overlay" functionality. i2 plans to take a similar approach with Manugistics, integrating Manugistics applications into the ABPP.
"They can use our platform to extend their Manugistics applications," McGrath said. "They'll find, over time, that they have less of a need for the underlying Manugistics applications."
McGrath acknowledged that i2 still has much work to do to educate customers about the company's Next Generation products and, specifically, the benefits of service-oriented architectures, which, advocates say, make it easier for manufacturers to integrate new and existing applications and to respond to business changes.
i2 officials focused much of the energy at the Planet conference on explaining the ABPP , and there were signs that their efforts were paying off. One i2 customer, cheese manufacturer Sorrento Lactalis Inc. (Buffalo, NY) is beginning to explore use of the ABPP even though the company, at this point, only uses i2's current transportation management products.
"We're looking to expand our use of the i2 planning applications, and our IT folks are looking into the Agile Business Process Platform," said James L. Stratton, logistics planning manager at Sorrento. "They see some potential benefits there in terms of integration."
Other customers, while intrigued by the potential benefits of the ABPP, said it will be difficult to make a case for investing in what is, essentially, IT infrastructure.
"We've been successful showing ROI on specific supply chain applications that benefit the business," said Charlotte Diener, vice president and chief supply officer at ON Semiconductor (Phoenix), which has deployed i2's Demand Planner and Corporate Planner applications and is now in the process of rolling out i2's Scenario Planner for what-if analysis of demand spikes. Those projects have all delivered significant ROI, Diener said.
"But showing specific payback for something like the Agile Business Process Platform will be a very tough sell," Diener said.
Separately at Planet, i2 rolled out a rebranded version of the Interactive multi-enterprise supply chain collaboration tool from RiverOne, which i2 acquired last year. The product is now called i2 Multi-Enterprise Interactive.