Strategies of SCM vendors flounder

Spending on supply chain management (SCM) software plummeted to new depths during recent months. Some of the largest vendors in the sector again cited customer purchasing delays as the trigger for double-digit quarterly losses, but analysts highlight questionable diversification strategies as another factor.

A case in point is US-based supply chain software vendor Manugistics. Greg Owens, the company’s CEO, was quick to attribute a 19% drop in first quarter revenues to organisations “deferring large capital expenditures”. As a result, losses rose to $27.1 million from $23.4 million in the year-earlier quarter, a situation that forced a further reduction in headcount of 12% and the departure of company president Rich Bergmann.

However, financial analysts are laying additional blame on Manugistics’ strategy to broaden its market footprint. Three acquisitions between December 2000 and June 2001 – of US-based Talus Solutions and SpaceWorks and UK-based STG Holding – have done little to halt revenue erosion. The expansion is central to Manugistics’ attempts to reposition itself as a supplier of ‘enterprise profit optimisation’ (EPO) software, with products designed to enable organisations to establish efficient collaborative buying and selling infrastructures across the Internet.

Another weakness Manugistics’ has encountered has been in its attempts to sell into niche manufacturing segments. The company has been targeting its applications at areas such as transportation in order to reduce “its reliance on the mega-deal”, says analyst Gerald McNerney at AMR Research. But smaller vendors, including US-based enterprise transportation software vendor G-Log, are still beating Manugistics in many deals, he adds.

The outlook for UK-based SCM software vendor Kewill Systems looks no brighter. Its latest figures for the year to 31 March show Kewill with losses outstripping revenues. During the period, losses soared to £57.6 million ($83.0m) from a breakeven position in 2001, as revenues sunk a painful 30% to £48.1 million ($69.3m). Most of the losses, however, stem from a £44 million ($62.9m) charge related to a reassessment of the valuation put on a prior series of acquisitions.

Kewill’s aim now is to focus solely on SCM, a move that precipitated the sale of its enterprise resource planning (ERP) software division for £13 million ($20.2 m) to Netherlands-based business applications vendor Exact Holding, in May 2002 Ironically, Kewill ERP, which accounted for a hefty 41% of the company’s total revenues in fiscal 2002, was one of its few profitable divisions, achieving an operating profit of £900,000 ($1.3m) for the year. Robert Malley, CEO of Kewill, argues that there was little synergy between the ERP customer base, technology or strategic direction and the SCM side of the business.

A major component of the new strategy is the company’s Kewill.Net suite, a suite of applications and enterprise portal for helping organisations automate transaction processes across their supply chain partners. To bolster the capabilities of Kewill.Net, the company added Globeflow, a Spanish SCM vendor, in April, paying £360,000 million ($510,000) in April 2002.

The lacklustre results at supply chain execution software vendor Descartes underscored the gloom in the sector — but with one area of exception. Revenues at the Canadian company fell 28% to $16.8 million ($24.0m) durirng its last quarter. Descartes has also repositioned over the past year to focus on services and applications for logistics networks.

In contrast to the situation at other vendors, this strategy appears to be working. For its latest quarter, its network-based logistics division generated revenues of $7.8 million ($11.2m), a 27% increase on the year-ago quarter. That flowed from 42 new customers.

Supply chain management software vendors
Company   Description   Period   Period end   Revenue ($m)   Rev change   Net Inc ($m)   Prev net Inc ($M)  
Agile Software Corp Product chain mgmt s/w 4Q02 30-Apr 15.2 -19% -18.7 -83.7
American Software Inc Supply chain management s/w 4Q02 30-Apr 16.3 -13% 15.3 0.3
Descartes Systems Group Supply chain execution s/w 1Q02 30-Apr 16.8 -28% -6.1 -12.3
Industri-Matematik Intl Supply chain mgmt s/w 4Q02 30-Apr 12.6 -32% -3.0 -26.9
Kewill Systems Plc* Supply/demand chain mgmt s/w 2002 31-Mar 68.8 -30% -82.4 0.5
Manugistics Group Inc Supply chain mgmt s/w 1Q03 31-May 74.6 -19% -27.1 -23.4

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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