i2 Shows Supply Chain Software Isn't What It Used To Be

For a fleeting moment in August 1999, i2 Technologies' market capitalization hit $28.4 billion, buoyed by an A-list customer roster for its supply chain management (SCM) software that included Dell and General Motors. Last week, rival JDA Software acquired i2 for $346 million.

JDA, which also acquired rival Manugistics for $211 million in 2006, is scrapping for SCM market share against a handful of independent, mostly narrowly focused vendors, as well as with ERP titans SAP and Oracle. JDA earned $3 million in its second quarter ended June 30, but license revenue declined 20% to $15.5 million. With maintenance and services, total revenue inched up 1%, to $91.8 million. Another independent SCM software company, Manhattan Associates, earned $9 million in the second quarter as license revenue declined 17%.

The SCM software market hit $6 billion last year, says Gartner--a far cry from the $18 billion forecast in 1999 by AMR Research, which now predicts a $7.9 billion market by 2010. SCM is still growing at 17.6% over the previous year, as manufacturers and retailers, mostly, look to it for ways to cut supply chain costs, but the best-of-breed SCM vendors are suffering as businesses look to SAP or Oracle to provide applications that integrate with their ERP software. SAP has 22% of the market, Oracle 16%, and JDA 4%, Gartner says.

"We're increasingly hearing from manufacturers that ease of integration is probably more appealing than the extra functionality they might get from a best-of-breed vendor," says Simon Ellis, an analyst with IDC's Manufacturing Insights.

Plus, SAP and Oracle have been pumping up their SCM functionality. An upgrade to SAP SCM this summer includes more features for collaborating with manufacturing parts suppliers on inventories and work orders, the ability for suppliers to submit Web invoices, and more features for managing warehouse workforces. Oracle introduced several applications in April, including ones for managing the data flow between factory floors and ERP systems, predicting consumer demand from retail store data, and planning parts inventories. Oracle acquired Retek and 360Commerce for retail-specific SCM, Demantra for demand management, and G-Log for transportation management.

BEST-OF-BREED SURVIVAL PLANS

As for i2, it has kept some longtime customers, including Dell and GM. But Ellis says JDA hasn't done much to boost the functionality in Manugistics, and he believes i2 will be much the same. JDA executives declined to discuss the deal.

Independent SCM vendors have had to find niches. RedPrairie, whose customers include Procter & Gamble, Kimberly-Clark, Pepsi, Nestlé, and Unilever, anticipates 15% revenue growth this year, to $289 million, making it a "tremendous year" thus far, says Jim Hoefflin, executive VP of products and marketing. Owned by private equity investor Francisco Partners since 2005, RedPrairie has made a series of acquisitions while focusing on the execution side of supply chain--areas such as inventory and workforce--rather than the planning side, which is tied more closely to ERP data.

Another formerly high-flying SCM player, Ariba, has reinvented itself by focusing on spend management software and software as a service, with SaaS now more than a third of its $85 million in quarterly revenue. Ariba just announced that JetBlue Airways is adopting its procure-to-pay software. Like the other independents, however, Ariba must keep looking over its shoulder. SAP had an announcement last week, too: a new spend management application, called SAP Spend Analytics.