Today, IBM announced that it has entered into a definitive agreement to acquire procurement sourcing, supplier lifecycle and contract management advanced technology provider Emptoris.  Financial terms have not been disclosed and the acquisition is expected to be completed in Q1-2012.

Supply Chain Matters considers this announcement to be very significant for the sourcing and procurement technology market because it adds another large and influential player to compete with the existing ERP players for buyer choices in this technology area. This market is about to become much more dynamic.

This announcement comes nearly a week after IBM’s other acquisition related announcement related to DemandTec, a cloud-based provider of pricing and demand optimization software. We had planned to dedicate a commentary just to this acquisition, but IBM has obviously stepped-up the clock speed for end-of-year acquisition announcements related to its Smarter Commerce umbrella.

Supply Chain Matters had the opportunity to attend IBM’s Impact 2011 conference last spring.  In our summary impressions commentary, our takeaway was that IBM is moving quickly and aggressively to make a renewed presence in supply chain related software that will umbrella B2B/B2C commerce and supply chain intelligence capabilities.  We believed at the time that something big was underway, and events to date certainly reinforce that belief.  When we assimilated our 2012 Predictions for Global Supply Chains, we had IBM in mind when coming up with prediction seven, our belief that there would be increased M&A activity within hot supply chain technology areas in the coming year. Obviously, IBM is first out of the gate in that dimension.

The IBM Smarter Commerce umbrella encompasses four broad segments: Buy-Sell-Market-Service processes.  According to this morning’s analyst briefing, Emptoris will augment the Buy segment of the unfolding IBM Smarter Commerce product strategy.  As with similar acquisitions such as that of Sterling Commerce, Emporia’s stand –alone brand will be subsumed by the IBM Smarter Commerce branding of technology and services offerings.  Existing Emptoris headcount will similarly be assimilated, but IBM executives were naturally reluctant to go into any specifics other than praise for Emptoris’s existing team.

The specific implications for the market and for Emporia’s existing customers are many.  The following is our initial observations:

For the market:

• IBM becomes an even more significant player in supply chain related technology, especially for the dimension of integrating customer fulfillment, supply chain networks, sourcing and procurement together in an integrated information stream.
• For the specific sourcing and procurement technology arena, whereas best-of-breed remains a compelling alternative to ERP offerings, IBM has the potential to add a third dimension, multi-entity B2B networks that connect Buy and Fulfill.
• The notion of providing procurement focused customers with both advanced software and complete business process managed services options just got more compelling because IBM now has the potential to bring both elements together as a single vendor. Emptoris has previously had strong relationships with Accenture and other consulting, procurement BPO and systems integrators.  That could change as Emptoris becomes the preferred option for IBM Global Services. For its part, IBM executives were quick to point out that they are comfortable with co-existence with current ERP and global services integrators and that a level of maturity has been reached regarding the reality of customer needs.
• IBM continues to broaden its strong influence on existing IT teams to now encompass Chief Procurement Officers (CPO) and other C-Suite executives that have continued concerns regarding their global supply chain management capabilities. IBM is moving its strong influence into supply chain functional decision makers as well.  IBM was not shy in expressing its goal to make this advanced technology available to broader geographic markets, including China.
• IBM has always demonstrated detailed due-diligence in its acquisition choices, and obviously surveyed the existing landscape of advanced procurement technology providers, including the other big elephant Ariba. The open question is what happens next, since the dynamics of this market have obviously changed.

For Existing Emptoris customers:

• According to IBM, both companies remain independent until this transaction formally closes, expected in the first quarter of 2012. Emptoris technology will then come under the umbrella of IBM Smarter Commerce division.
• The acquisition by IBM will obviously bring the potential for bigger pockets and for added resources in product development, enhancement and services. Look for more emphasis on industry-specific requirements in the sourcing and procurement of both direct and indirect materials and services. The transition period however could be a bit rocky as Emptoris is assimilated into a very large organization.  For its part, IBM has shown a rather positive track record to date in assimilation, going as far as to appoint a dedicated IBM Integration Executive as a firewall to internal in-fighting or perceived overlaps. However, Emptoris has had its own share of recent acquisitions and the integration effort may well be a bit more complex.
• Look for some senior executive changes of existing Emptoris management.  Obviously, the current era of the private equity stewardship, leadership and funding by Marlin Equity Partners will come to an end, with perhaps a lucrative financial reward. IBM will have to make subsequent decisions in providing a management structure that can now rely on broader executive leadership. In the analyst briefing, IBM did demonstrate a keen awareness to Emporia’s current stellar reputation for high touch customer service and more than likely will not want to mess that up.
• IBM has acknowledged that current Emptoris contractual terms and conditions will be honored. Over time, these agreements will fall under those of IBM and its sales teams, and Emptoris products will be listed within the IBM product catalog.
• Finally, Emptoris customers stand to gain, over time, broader choices in needs to tie supply chain cost saving mandates to other supply chain process dimensions, and to enhance advanced analytical capabilities. IBM Industry Solutions General Manager Craig Hayman was quick to point out his vision and belief that: “we want to embed analytics into the fabric of business processes”.

At first take, this announcement has potential positive connotations for existing Emptoris customers and prospects, and rather dynamic ones concerning the existing advanced procurement technology market.

Supply Chain Matters will provide added commentary as further information and additional conversations become forthcoming.

Bob Ferrari

©2011 The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

This continues our series of commentaries outlining our 2012 Predictions for Global Supply Chains. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, and in helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the New Year.

Readers are welcomed to review our previous series of postings.  These include:

The full listing of 2012 predictions

Predictions One and Two.

Prediction Three

Prediction Four

Predictions Five and Six

Prediction Seven: Expect additional M&A and strategic partnership activity among supply chain technology, consulting services and ERP providers as vendors shore-up application areas with the best prospects for sustained future growth.

This is the natural follow-on to predictions five and six.  As concepts of supply chain control tower, more leveraged deployment of predictive analytics, multi-channel supply chain operations management and cloud computing options gain more traction and interest among technology buyers, the vendor community will make additional market moves either in acquisition or strategic partnerships to shore-up overall product offerings for buyers.

While we predicted high activity in 2011 which do not come to pass, we believe that 2012 will provide more motivation, namely because overall spending on software is predicted to decrease in 2012. This makes any path to growth dependent on a keen focus on near-term customer buying needs, quickly filling gaps in technology offerings or gaining market growth by outright acquisition.

Supply Chain Matters believes that two smaller vendors in the planning area, and perhaps one or two vendors in the B2B procurement area are likely targets in 2012 from multiple larger acquirers and we will anticipate, as our readers, on what actually transpires.

We expect more acquisition efforts by the major ERP, B2B cloud services and procurement technology providers, and do not be surprised if some leading vendors in these new adoption areas get acquired by larger players. Some targets will be acquired with high multiples to prevent competitors from scooping them up.

B2B commerce and collaborative planning and execution networks will most likely be the hottest area for deals and shifting of players and anticipate more announcements as big players IBM, Salesforce, Amazon, Google and  possibly Microsoft square-off and bankroll for control of online commerce infrastructure and business process control.  Similarly, SAP and Oracle will continue to fill-in advanced supply chain technology software gaps, particularly in cloud and control tower areas.

Prediction Eight: The challenges related to higher incidents of counterfeit products, cargo theft and other unscrupulous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts.

This collective area has been percolating for many years and we anticipate that 2012 will be the year when government and industry finally become motivated to take action to address the growing incidents of non-conforming materials that have penetrated multi-industry global supply chains.

In the U.S., legislative leaders and industry groups have become much more alarmed with the existence of counterfeit electronic parts penetrating defense and industry oriented supply chains, much of which is alleged to be originating from China and other countries.   The U.S. government has already discovered 1800 cases of suspect counterfeit electronics being sold to the U.S. Defense Department from commercial and military suppliers.  The Semiconductor Industry Association testified that U.S. semiconductor companies face more than $7.5 billion in costs related to counterfeit parts each year as non-conforming electronic microelectronics are being embedded in automotive, aerospace, communications, medical device, and other industry supply chains.

In our industry-related prediction pertaining to Pharmaceutical and Healthcare, we noted that increased shortages of drugs has led to more unscrupulous and criminal behavior relative to grey market supply, cargo theft and prescription drug abuse.  Increased outsourcing of production to global contract manufacturers and API providers adds to the problem.

Regarding cargo theft, brazen criminals have stepped up their sophistication of methods in stealing whole cargo shipments, by utilizing active surveillance of driving patterns, GPS global tracking and other means to circumvent existing security measures.   A challenged economic environment often leads to increased criminal behavior, and in 2012, the criminals can leverage more sophisticated means and methods. Stolen cargo adds to the problem of non-conforming products.

Look for governments to increase the pressure on industry players to accelerate initiatives in authentication, tracking and genealogy of components, parts and raw materials. In the U.S., state wide initiatives and efforts were enacted to overcome lack of any concerted action by the federal government. In Pharmaceutical and healthcare, the looming deadline is the California anti-counterfeiting and diversion legislation which requires pedigree tracking.  After numerous industry lobbying efforts to postpone the implementation, the program remains target for implementation in 2015.  Serialization and authentication program mandates continue to evolve across the Eurozone countries and Brazil has called for implementation of serialization and track and trace requirements in 2012.

As the deadlines come closer, and the costs in terms of revenue, liability and implementation costs loom ever larger, we believe that industry teams will become much more actively involved in influencing some forms of global-wide process standards and inter-industry cooperation in sharing product movement information across global supply chains. We may finally have the opportunity to observe industry teams stepup efforts to actively influence global standards and enhanced mitigation initiatives in prevention as well the tracking and interception.

This concludes Part Six of our Supply Chain Matters 2012 Predictions.  In Part Seven, we will explore our Prediction Nine, our continued belief in wider-scale adoption of and leverage of in-memory computing technologies harnessed into predictive analytics and decision-making process needs.

In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.

Bob Ferrari

© 2011 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters, All rights reserved.