Chain Reactions

The Supply Chain Worm Has Completely Turned

The second biggest news story this week in the supply chain world has been the acquisition of the best-known provider of supply chain planning solutions, i2 Technologies. The biggest story is how few people seem to care, perhaps because almost nobody considers i2 the "best-known" anything any more, other than maybe the best-known example of a company that had a good thing going before wildly overreaching its grasp.

Had this story the acquisition of i2 by JDA Software -- occurred in 1999, when I was working for another Penton publication (the late, great Supply Chain Technology News, it would've been front-page news and we'd all be buzzing about "what it all means" for weeks. Things have changed quite a lot since then, to say the least. In 1999, the two biggest names in supply chain technology were i2 Technologies and Manugistics, and nobody would've claimed otherwise. Both companies specialized in supply chain planning software, with i2 stronger on the factory floor side and Manugistics stronger on the warehousing/logistics side. Today, ironically, both companies have been absorbed into JDA, which was barely on anybody's radar during the height of the supply chain software craze.

I never throw anything away if I think I might need it later (don't scoff; having access to so much material at my fingertips was directly responsible for me writing my book, Supply Chain Management Best Practices, which recently became a textbook for an online college course... but I digress), so I dug up my notes from the debut issue of SCTN, Sep./Oct 1999. According to a ranking compiled by AMR Research, the top five players in supply chain planning in 1999 were:

1. i2 Technologies
2. Manugistics
3. ILOG
4. Logility
5. Numetrix

Today, i2 and Manugistics are, of course, no more, since they're now part of JDA. ILOG, coincidentally, was itself just recently acquired, by IBM. Numetrix wasn't even around when the AMR report was issued, since it had just been gobbled up by J.D. Edwards (which became PeopleSoft, which became Oracle). So today, of that top five, only Logility still remains as an independent company. From all indications, Logility seems to be doing just fine on its own, so they're proving to be the exception to the rule. "What rule?" you ask. Well, again referring back to 1999, AMR analyst Chris Newton told me at the time, "Watch for more consolidation, since small vendors and weak larger vendors find it hard to thrive in the new environment. SCM vendors will need to increase the functionality and depth of their products to continue to compete as best-of-breed vendors. ERP vendors will buy some while others will merge with or get acquired by other SCM vendors." Sounds like Chris knew exactly what he was talking about, way back when.

So what happened to i2, anyways? Back in 2000, I wrote an article about what was at the time the single largest acquisition of a software company. I'll pause for a moment while you try to remember which company i2 signed a deal to purchase for a whopping $9.3 billion (although the actual transaction eventually closed for far less than that).

Okay, time's up. That eye-popping deal was i2's acquisition of Aspect Development, and you can be forgiven if you can't honestly say you remember anything about Aspect. Even at the time (we're talking about the very peak of the Internet bubble days in the spring of 2000), $9.3 billion seemed like an excessive amount of money to pay for a company that wasn't even hitting $100 million in sales. As I observed back then, i2's price amounted to 68 times Aspect's revenues ($95 million in 1999), and 833 times earnings ($7.8 million in '99). The big catchphrase for these sorts of deals back then was "irrational exuberance," and that definitely fit for the i2-Aspect deal. But i2 had hit $1 billion in sales in 2000, so the company had reached the very peak of the supply chain mountain.

Nobody knew it at the time, of course, but the economy was about to head south and stay there for a few years, and manufacturing companies stopped paying so much attention to which technology companies were red-hot and concentrated instead on keeping themselves out of the red. It got worse before it got any better for i2, as for instance when Nike publically blamed $100 million earnings shortfall on its new supply chain planning system, which just happened to be an i2 solution. That supply chain glitch cost Nike a 19% drop in share price, but it ultimately cost i2 a lot more. At one point in 2000, i2's stock sold for $110 per share, but by 2003 the share price dropped below $1.00 and i2 was delisted from NASDAQ. In the years since, i2 has somewhat righted the ship, but the company's revenues have consistently stayed under the $300 million level for the past few years, so its days as a software juggernaut are long since past.

Meanwhile, up until fairly recently, JDA Software was strictly a niche player, focusing on supply chain applications aimed mostly at the retail and consumer goods markets. That all changed in 2006 when JDA acquired Manugistics, which at one time in the late 1990s ran neck and neck with i2 for the title of the biggest pure supply chain software provider. After the Internet bubble burst circa 2001 and companies still exhausted from their Y2K efforts decided it was simpler to just add on modules to their ERP systems rather than implementing global supply chain software packages, one-time high-flyers like Manugistics and i2 discovered they were in no-man's land. Their solutions were all-encompassing and expensive, putting them directly in the cross-hairs of software giants (SAP, Oracle, Infor) whose deep pockets let them buy up the small, best-of-breed developers to plug any technology gaps they might have.

As AMR's John Fontanella says this week, "The acquisition by its very nature is controversial: an icon of supply chain technology will be taken over by a company that three years ago had no presence in the industry. Let's look at the reality of the situation, though. i2 has lost 99.5% of its shareholder value since 2000. The company was on the block for 18 months, and AMR Research is aware of only one other party, Francisco Partners (lead investor in RedPrairie), that gave it a serious look. The i2 board made it very plain that the company was for sale and that their intent wasn't to put it in a holding pattern until the next Ken Sharma or Sanjiv Sidhu appeared."

So, for better or worse, JDA Software now harbors the products and solutions of the two biggest supply chain companies from the previous decade. Whether that means anything or not in 2008, it will be interesting to see how JDA attempts to position itself against today's Big Two, SAP and Oracle.

TAGS: Supply Chain
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