News From the Web-Enabled World
By Peter Buxbaum -- Supply Chain Management Review, 11/1/2001
Vendors Revisit Positioning During Downturn
The economic downturn, according to some pundits, was supposed to be good for sales of e-business software. That may be true for some vendors, but don't tell that to pioneer supply chain management (SCM) vendor i2, which has emerged as one of the biggest victims of the downturn.
i2 reported a net loss of $66.4 million in its most recently reported fiscal quarter, as well as diminished software licensing revenue. This occurred at the same time that Manugistics was surging ahead with second-quarter revenues that were 78 percent ahead of last year's. SAP, for its part, said that its supply chain software licensing revenues surpassed those of i2 for the quarter at $131 million vs. $106 million. Whether by happenstance or by design, Manugistics and SAP seemed to be better positioned to tackle sales during the downturn than i2 was.
According to experts, the downturn put an end to i2's "elephant hunt" strategy—the quest for big deals that characterized the company's selling strategy for the past couple of years. Between January 2000 and March 2001, 10 percent of i2's deals exceeded $5 million, and 36 percent topped $1 million in size. Prior to this, in the late 1990s, less than 25 percent of i2 implementations had hit the $1 million mark.
Manugistics, for its part, was never seduced by the hunt for the big score, even in last year's hot market. Manugistics has long taken a more modular approach to its software sales and has tended to focus on specific verticals. To the company's good fortune, two of these—government and defense—have thus far been less susceptible to the e-business freeze experienced in most of the other sectors.
SAP's good numbers are likely attributable to success in selling additional modules to its already broad installed base. SAP's sales of supply chain management software in the second quarter surged ahead more than 45 percent, at $131 million vs. $90 million during the first quarter. SAP has experienced similar success in the customer relationship management (CRM) space, which supports the proposition that existing customers are buying additional software modules. Although still far behind number one Siebel, SAP came out of nowhere in the second quarter to contend for the number two spot in CRM with software revenues of $91 million.
According to AMR Research, the SAP example is one of those in which the economic downturn turned out to be a blessing in disguise. "For SAP and most of the other large enterprise resource planning (ERP) vendors," says a recent AMR report, "their strongest assets are their huge installed bases, to which they can more easily sell new products even in the slowing economy than niche vendors [can]. The ERP vendors have a big advantage because they don't need functional parity with the niche vendors; they just need to offer the majority of what users need today. Meanwhile, the niche vendors are having to develop way more than users are prepared to digest just to stay ahead."
Making the Transition to Private ExchangesOn top of the economic downturn, an e-business paradigm shift away from e-marketplaces and toward private trading exchanges has left many technology vendors in the lurch. Forrester Research says that 42 percent of the companies it surveyed are currently using private exchanges vs. 11 percent that are involved in public e-marketplaces. By 2003, those figures will be 53 percent over 19 percent, respectively, according to the survey. This period also will see a significant decrease in the use of EDI (electronic data interchange). (See accompanying graphic.)
e-Steel is one technology provider that appears to be making a successful transition. The two-year-old company initially focused on providing a public business-to-business (B2B) marketplace for the steel industry but has since changed direction.
"One of the big decisions we made at the outset was to develop our own platform," says e-STEEL CEO Ken Thompson. "When it became clear that people wanted private exchanges instead of public e-marketplaces, we were able to make the change because we owned our own technology." Technology providers that did not possess such an underlying asset, Thompson suggests, were the ones that fell by the wayside.
e-STEEL kicked off the private exchange chapter of its history with a private steel hub for Ford Motor Company. Ford decided to tackle the $1 billion that it spends with 175 North American steel suppliers by automating its existing off-line volume leverage program. Bob Adams, director of global raw materials at Ford's Dearborn, Mich., headquarters, reports that the e-STEEL hub allows him to share price benefits throughout the supply system automatically and to exert Ford's muscle deeper into the network.
"Ford was looking to provide a level of visibility and standardization across its supply chain," says Thompson. "With our hub there is now a standard way of specifying product, and the huge paper flow associated with a highly attributed product such as steel is now automated." Launched in early March of this year, the Ford-e-STEEL hub has attracted all of the company's North American stampers and suppliers at more than 175 locations and with 1,200 end users.
e-STEEL's plans for the future include adding supply chain functionality to its platform. "Once you have a picture of the entire chain all the way back to suppliers," says Thompson, "you can then start optimizing inventory position, collaborating on forecasts, and disseminating information throughout the supply chain." e-STEEL will rely on existing supply chain vendors, such as i2 and Manugistics, to provide that additional functionality.
At the same time, e-STEEL is no longer exclusively focused on the steel industry. "We have proven that we have a unique platform," says CEO Thompson, "and we are rapidly moving beyond steel and into other direct materials and components for companies that have outsourced manufacturing."
Bob Adams of Ford says he plans to deploy systems similar to the steel hub for the procurement of other raw materials.
Collaboration, Standardization, and SCM's FutureLong before the arrival of the Internet, anyone who had ever tried to get the right product to the right place at the right time knew the value and necessity of collaboration. No company, in other words, is an island.
Rodin also serves on the board of RosettaNet, the electronics consortium that is endeavoring to develop XML (extensible markup language) protocols for the industry. Rodin believes that standardization facilitates collaboration. "One thing I've learned from my trade association activities is that you can sell more and work more efficiently with standardization," he says. "All boats rise when companies agree on common standards and communications methods." Such standardization, he believes, does not enhance or impair the competitive positioning of any one company.
But there is still a ways to go before standardization and collaboration represent the new reality in the electronics industry. Although RosettaNet has made strides, it is by no means finished with its work. Bill Roeder, director of global Internet business at Phillips Semiconductor, suggests that the hitch is over product attributes. "Suppliers are unwilling to commoditize their products because it diminishes their ability to sell their version," he says. "Instead of [identifying all products] as apples, one guy wants to call his product a Mac while the other wants to be known as Granny Smith."
That line of thinking poses a high hurdle for standardization to clear.
| Author Information |
| Peter Buxbaum is a business writer specializing in technology and supply chain management. He can be reached at Pab001@aol.com. |
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