The consolidation among supply chain technology providers has accelerated at a more rapid pace.  In part one, I commented on the IBM-ILOG acquisition. In this part two post, we touch upon another major announcement.

JDA Software Group Inc. has announced the signing of a definitive agreement for that company to acquire supply chain technology vendor i2 Technologies, in a net cash deal valued at $346 million.  JDA is expected to finance this acquisition issuing additional debt, and further indicates that it is expecting approximately $20 million in annual cost savings through consolidation in operations, combined infrastructure and general and administrative expenses.

This announcement should come as little surprise to our community since speculation related to an acquisition of i2 have been prevalent for many months and i2′s Board had openly formed a strategic options committee back in November to seek other options for the company.  

Since 1988, i2 has been delivering highly sophisticated planning applications primarily to its core vertical, the high tech industry.  Customers such as Dell Computer, IBM, ON Semiconductor, Texas Instruments, TSMC and others were cited as customers.  The company to its credit has also expanded presence to other verticals.  Retail industry customers included the names of Best Buy and Barnes and Noble, and Aerospace included customers such as Bell Helicopter and Boeing.  While analysts at AMR Research in 2001, Larry Lapide and myself met with Bell Helicopter management and advised them to evaluate i2 as a potential vendor for their complex planning needs.

But alas these last few years have been rather challenging for i2 as it continued to find a more growth-oriented revenue model. License revenue sales had been struggling, with i2′s latest six month revenues coming in 3% below last year, which in-turn was not a stellar year.  The company of late has been refocusing itself toward more of a custom software and planning services vendor, leveraging its investment in a supply chain development center located in Bangalore India.  Many talented supply chain technologists cut their stripes during their tenure at i2, and I am pleased to continue to know them as they assumed other roles in our function.

Readers will recall that JDA is the same company that acquired Manugistics, another prominent supply chain planning applications vendor in July of 2006. Manugistics was also struggling to grow revenues, and ultimately placed itself in play for acquisition.  In that JDA acquisition, infrastructure redundancies were eliminated, and the former Manugistics applications, built on a Microsoft .NET architecture were consolidated onto JDA’s  J2EE architecture platform.  Since that acquisition, there has not been much to comment on in terms of newer functionality, while sustaining maintenance revenues continue to add to the JDA cash position. I recall that on the briefing call that announced the Manugistics acquisition, there was no presence from the then Manugistics senior management team.  Interesting enough, the same lack of presence from i2 senior management occurred today in JDA’s acquisition briefing

If you are an existing i2 customer, I would urge you to both listen to the replay of JDA’s management briefing, and insist upon an individual briefing of the long-term product roadmap and support plan. JDA’s CEO has indicated that he expects this product roadmap to be available in six weeks after the acquisition closes.  In the meantime, you may want to explore what are other long-term technology options, particularly if your ERP backbone is Oracle, SAP, or Microsoft, who continue to narrow functionality gaps for industry unique planning needs. Firms such as ours and others can help with your assessment.

Feel free to also provide your comments relative to this acquisition in the comments section of this post for others to observe.

It is unfortunate that the best-of breed vendor landscape continues to consolidate, and choices are getting to be narrower.   For now, let’s all reflect on the fact that yet another brand name departs the community.

 Bob Ferrari

Supply chain technology acquisitions have been in the news of late.  On July 28 there was a surprise announcement that IBM intends to acquire French software provider ILOG, and today JDA Software announced that it was acquiring supply chain planning technology vendor i2 Technologies, a fairly well known player in the industry.  In this Part One post, I will share my thoughts and observations regarding the ILOG acquisition, and in part two, the i2 acquisition.

IBM intends to acquire ILOG for an aggregate purchase price of approximately $340 million, subject to a series of approvals from both organizations. ILOG is essentially a software tools and custom applications provider. Over 500 software OEM’s embed ILOG business rules, optimization, and visualization technologies within their applications.  When speaking to my clients about ILOG’s role in software, I often use the 1800′s California gold rush analogy.  Who benefited more by the rush to discover gold, the individual miners panning for gold, or the makers of the picks, pans and shovels?  In software, ILOG serves as the optimization or business rules engine for many software vendor and internally developed applications, including supply chain planning and analytics.  ILOG serves as the “picks and shovels” for sophisticated software needs.

According to documents filed with the U.S. Securities and Exchange Commission (SEC), IBM’s WebSphere software group intends to assimilate ILOG into their Business Process Management and SOA Suite of offerings.  ILOG joined the IBM SOA Specialty Program in October of 2006, and the two vendors have been jointly collaborating on customer implementations, as well as internal scheduling and other planning applications to support IBM’s internal manufacturing and supply chain processes. IBM’s Websphere group has been quick to recognize the growing importance of both business rules components and visualization as key components of a client’s overall SOA strategy.

Of added note is that in February of 2007, ILOG acquired supply chain network design and inventory optimization vendor Logic-Tools, and assimilated that company into a newly formed supply chain applications business consisting of ILOG’s custom production planning and Logic-Tools applications.  This particular group grew 35% in year-over-year revenues, thus far in 2008.

After reviewing current SEC and other briefing documents, I found no specific mention of plans related to the supply chain applications group.  I find that interesting since the LogicNet Plus 6.0 XE supply chain network design application has been positioned as a carbon footprint analysis tool to support green supply chain initiatives, and has been garnering a lot of attention of late. IBM has also been on the forefront of garnering attention to its green and sustainability initiatives. IBM currently offers its own inventory optimization application, and also partners with SmartOps, a competitor to ILOG in the inventory optimization area.

The acquisition transaction is not expected to close until mid to late September.  More specifics should hopefully emerge relative to plans related to plans for the supply chain business applications division of ILOG.  If your company is a user of Logic-Tools applications, I would encourage you to seek more specifics regarding longer term product support and development plans. IBM has often been a customer-responsive vendor and I would expect no less in the consolidation of ILOG’s supply chain applications business.

In the meantime, you can provide your comments, desires, and/or concerns relative to this acquisition in the comments section below this post. Call or email if you require specific assistance.

 Bob Ferrari

There was an interesting article in the Korea Times indicating that Korea’s premier high tech manufacturer LG Electronics has concerns relative to supply chain vulnerability.  The article points out that risks relative to supply chain fraud tend to rise as corporate supply chains become more extended as well as complex.  Companies increasingly have become the target of simple theft, misrepresentation of inventory, counterfeiting and piracy.  According to this article, LG who has 85 percent of sales originating from overseas markets.  is now placing more emphasis on “intensified supply chain management”  LG’s efforts include the 3P’s- Best Process, People, and Partners, along with improved information technology tools.

While better access to information through advanced technology can certainly pay dividends, I would suggest that LG Electronics and other internationally focused companies continue to place more emphasis on business process control, supply chain partner collaboration and monitoring processes.  There is ample evidence that initiatives that address the simultaneous improvement of management practices and information technology pay far higher dividends in the long run.  Supply chain vulnerability does not just concern members of the internal supply chain organization, but should also include a broad cross-functional and cross-company effort.

 Bob Ferrari

Chip maker Advanced Micro Devices has been in the news of late, and not of a positive note.  After suffering losses of more than $5 billion for seven quarters, Hector Ruiz the CEO was forced to step down earlier this month.  Ruiz remains in the role of Chairmen, and according to an article in SiliconValley.com, promises to devote much of his new time to completing a new manufacturing strategy for the company.  While many blogs have commented on the merits of Ruiz staying on, I would like to provide some comments relative to this pending transformation for AMD.

The needs for transformation at AMD go well beyond the outsourcing of manufacturing.  While AMD has prided itself on its manufacturing efficiencies, members of its supply chain organization have had increasing concerns relative to growing inventory and the need for more efficient processes. A benchmarking comparison relative to supply chain best practices conducted in May of last year led to the awareness of a number of supply chain transformation needs.  An understanding of the relationship between inventory vs. service levels, and the optimization of inventory was acknowledged as lacking across overall planning levels. Investment funds and senior management sponsorship was also lacking.

The article points out that AMD’s transformation to a fabless manufacturing model while difficult may payoff benefits.  In my view, benefits would be shortchanged without also investing time and resources into achieving associated supply chain business transformation needs, and a good place to start would be in supply-chain wide inventory management and partner collaboration. Mr. Ruiz and AMD management are advised to broaden their vision perspective, and take note that supply chain does matter.

Bob Ferrari

The recent episode of recalled tomatoes provides yet more compelling lessons related to supply chain risk in the most vulnerable of supply chains, that being food related.  An outbreak of Salmonella type illness began to occur as early as April of this year. On June 7, the U.S. Food and Drug Administration (FDA) warned consumers against eating certain types of raw tomatoes, suspected of carrying the virulent Saintpaul strain of salmonella. The FDA alerted consumers to avoid eating certain raw tomatoes- red plum, red Roma and round red tomatoes, while federal agencies searched for the root cause of this outbreak.  Food chains and restaurants reacted to the ban by removing these products from store shelves and menu’s often including many more sources to insure that they would not be sued by consumers.  Meanwhile, tomato growers in Florida, California, and Mexico had significant trouble selling their crops, with Florida growers alone claiming up to $100 million in losses.

By mid-July, the U.S. Center for Disease Control (CDC), and the FDA were still attempting to determine a source of this outbreak, and had determined that ill persons were more likely to have recently consumed raw tomatoes, fresh jalapeno peppers, and fresh cilantro, since these items were commonly, though not always, consumed together. No doubt we all tend to like Mexican style cuisine. By the end of July, the CDC had definitively found the smoking gun, tracing the outbreak to peppers grown on a farm in Mexico.  Earlier, the FDA had traced a contaminated jalapeno pepper to this same farm, indicating the source to be the irrigation water supplying this farm.  Both agencies issued a statement that consumers should not eat jalapeno and Serrano peppers imported from Mexico.

As a result of this episode, approximately 1300 people suffered illness and U.S. tomato growers had incurred an estimated $300 million in losses.  While federal officials conceded that no single contaminated tomato was ever found, they refused to completely clear tomatoes as another source for this outbreak, since tomatoes originated from this same identified farm in Mexico.

While politicians from the effected agricultural states will no doubt add more fodder and blame to the debate, the obvious challenge for the food and produce industry is to insure consumers that there is adequate track-back traceability as well as consistent quality in all forms of supply, be it domestic or foreign. It seems to me that if any clear lessons that can be learned from this incident, they should relate to the following:

• You cannot assume that foreign sourced food has the equivalent quality standards as that of the U.S., unless you actually have processes in place that insure consistent quality. Even if you do test, common testing methods will not uncover scrupulous suppliers, as was brought out in my previous posts  involving the recall of the life-saving drug heparin.
• The crossing of borders adds more challenges to traceability and accountability among governmental regulatory agencies, and each of these incidents continually provides evidence that governmental agencies are not adequately funded or staffed to be able to monitor today’s volume of cross-border movements.
• In this particular case of fresh produce, product traceability is an even more complex problem due to a lack of consistent labeling and traceability tools. As pointed out in a recent New York Times article, This particular industry needs to move beyond weak tracing capabilities, and track sources of potential outbreaks in a much quicker and more efficient manner.

It would seem to me that the food supply chain is overdue in investment in cost-effective quality processes and supporting technology that will address these problems and insure consumers that their food supply remains safe. Instead of pleading with members of Congress to have taxpayers compensate growers for losses, heal thy own house. This responsibility lies with the growers as well as the distributors and brand owners. The use of bar coding and RFID tracking tools at the case level can at least provide traceability to source farms and distribution points.  Remote quality monitoring is another obvious need.

Continued incidents of tainted lettuce, spinach, peanut butter, seafood, and now peppers and tomatoes should be a call to action to address supply chain risk factors among food producers and all other participants of the food supply chain.  I don’t know about all of you, but I will continue to rely on my home garden as the most controlled source of my tomatoes, lettuce and peppers.

 Bob Ferrari