InformationWeek: The Business Value of Technology

CEO Sanjiv Sidhu says i2 will help companies provide information access and business-transaction capabilities on the Internet to their suppliers, manufacturers, distributors, and customers. "This is our next step," says Sidhu. "We want to be a provider of intelligent E-business systems."

Last week, i2 struck a partnership with consulting firm PricewaterhouseCoopers to develop and sell E-business products and services that extend i2's traditional supply-chain offerings. For example, the companies have agreed to share development of customer-relationship management software that links to i2's supply-chain systems. In July, i2 acquired CRM vendor Smart Technologies Inc.

At its user conference in Las Vegas on Oct. 13, i2 is expected to provide details of an E-commerce software suite for order-taking, managing Web-site content, and providing price quotes, due to ship by year's end. It will also introduce an online marketplace that will be powered by i2's supply-chain planning and collaboration suite, and will be open to any company that wants to purchase business supplies. The company says it will also disclose its first six suppliers for the marketplace at the conference. Says Yankee Group analyst Harry Tse, "i2 is reshaping itself. They're not just about supply chain, like they were two years ago."

In addition, i2 will showcase Sun Microsystems as the first customer of its recently introduced Internet Fulfillment Server, which lets companies provide suppliers with direct access to customer orders placed over the Web to expedite fulfillment. Sun is also using the new i2 Exchange Services, a software and services bundle that lets companies collaborate with business partners in private online trading communities.

AMR Research says i2 has captured the largest chunk of the fragmented $3.9 billion supply-chain management market, with a projected 13% share this year. The company's net income grew 132% to $8.5 million in its second quarter ended June 30, compared with last year's second quarter. Revenue increased 57% to $131 million.

But many supply-chain management vendors had a troubling year. Manugistics Group Inc., i2's closest competitor, on Sept. 15 reported a quarterly loss of $3.4 million on $33.8 million in revenue, marking its third quarterly loss in the past 12 months. Another rival, Numetrix Ltd., was sold to J.D. Edwards & Co. in June after more than a year of poor financial performance. "There has been a bloodletting in the market over the last year," says analyst Joshua Greenbaum of Enterprise Applications Strategies.

Analysts say there's still plenty of life left in the supply-chain management market. AMR predicts the market will mushroom to $18.6 billion in 2003, as supply-chain management finds new relevance in E-business. Many analysts agree that i2 is in a good position to capitalize on that growth. "i2 is regaining traction because they're identified as a company that can solve supply-chain problems that come with the new E-business model," says Greenbaum.

Still, i2 faces challenges. While the company has executed well in the automotive and high-technology industries--winning accounts with Compaq, Dell Computer, Ford, General Motors, and IBM--it hasn't tapped into the market for companies with less than $1 billion in revenue. Barriers include the software's multimillion-dollar price tag, implementation difficulties, and the need for professional expertise--which is expensive and difficult to find. Unless such issues are addressed, market growth could be stymied.

Midsize customers say i2 needs to make its software easier to implement. Leiner Health Products Inc., a $600 million vitamin manufacturer in Carson, Calif., says its multimillion-dollar investment in i2 software was wise, but difficult. "This is a complex software package," says Jack Hirsch, manager of corporate planning at Leiner. "Moving to i2 was a dramatic change. We had to conform to a new standard operating procedure and a more structured environment."

Occidental Chemical Corp., a Dallas manufacturer of chemicals and plastics, had a similar experience. Occidental plans to complete a two-year implementation of i2 software in December. "i2 is harder to install and implement than they tell you," says Craig Hull, Occidental's senior VP of supply chain.

To some extent, i2 is working to resolve these issues. It recently developed, with Hewlett-Packard, a supply-chain planning and collaboration Web portal for electronics distributors, for example. The portal is aimed at companies that can't afford to purchase supply-chain management packages.

Traditional suppliers of enterprise resource planning software, including Baan, J.D. Edwards, and SAP, have their sights set on the potentially lucrative supply-chain management market. Though it's not certain yet how their recent offerings match up with those from traditional supply-chain management companies, the larger ERP vendors stand to benefit from their significant research and development resources and huge customer bases.

Sidhu asserts that ERP's entry into supply-chain management only validates the market, where i2 has a three-year lead. "ERP vendors don't have complete solutions here," he says. "Having more people out educating the market is good for the people with the best solutions."