Editors Note: This posting has been updated at Noon, August 19, to include an announcement from JDA indicating that it has completed a recapitalization of the company that involves Blackstone Group. (See my amended Comments below)
There has reportedly been a new development regarding prior Reuters and Wall Street Journal reports regarding the potential acquisition of JDA Software.
Reuters, the news agency that originally disclosed the presence of acquisition talks by Honeywell International has now reported that private equity firm Blackstone Group has appeared as an apparent white knight offering a financing bridge plan as an alternative to a Honeywell proposal. In its latest report, Reuters again cites unnamed sources that are familiar with the matter that are stressing confidentiality.
Neither of the parties involved or mentioned have responded to Reuters direct requests for comment.
Supply Chain Matters is obviously is not going to get in the middle of all of this and we have elected to just pass along awareness and web link to the published report.
According to the report, Blackstone is proposing a payment-in-kind financing plan that includes equity warrants that would give Blackstone a significant minority stake in the supply chain management technology firm. Further reported is that JDA’s current debt of more than $2 billion is within compliance to its loan covenants and does not require significant debt repayments for reportedly two years.
Given this report, JDA’s principal owners New Mountain Capital would appear to have another option on the table, namely stay the course and accelerate its turnaround with a new infusion of capital but with an added private equity partner with a voice. That implies a longer-term commitment to its 2012 investment in JDA.
It would seem that these confidentiality leaks continue while some sort of back and forth negotiation process continues among parties.
I suppose we all need to stay tuned for the next leak or announcement. For existing JDA customers, the situation must be perplexing to say the least.
Disclosure: JDA Software, while a prior sponsor of this blog, has no current client or sponsor relationship with The Ferrari Consulting and Research Group or the Supply Chain Matters© blog.
Acquisition interest focused on integrated supply chain planning and execution technology has indeed re-energized during this Q3 period. We previously alerted our Supply Chain Matters readership to last week’s published report indicating that Honeywell was in talks to acquire JDA Software. Also last week, mid-market ERP technology provider Plex Systems announced that it had acquired supply chain planning technology provider DemandCaster.
Last week’s blockbuster news regarding the potential acquisition of JDA Software came from an exclusive report published by Reuters which cited unnamed sources familiar with the negotiations. Today, The Wall Street Journal, further citing its own sources, reports that a deal is near among the two parties. The report further highlights JDA’s former strategy for integrating planning and execution including its prior acquisition of RedPrairie. The WSJ confirms that the deal values JDA at around $3 billion and could be announced rather shortly. The acquisition would reportedly boost Honeywell’s efforts to enter the software area with an integrated supply chain planning and execution provider.
Our Supply Chain Matters view of this latest report leads us to believe that Honeywell may be making a play to penetrate the Internet-of-Things (IoT) segment with a concentration on supply chain management and execution focused processes, We will know more once a deal is announced and consummated. Keep in-mind that another suitor could surface by the revelation of the very significant $2 billion debt burden of JDA places a high hurdle, one that only a large enterprise software vendor would undertake.
Plex’s Acquisition of DemandCaster
Plex’s acquisition, on the other hand, is focused on further enhancing its Cloud-based ERP platform with broader capabilities in supply chain and sales and operations planning support for its traditional manufacturing based customers. Since both firms are privately-held, no financial terms were disclosed.
For those unfamiliar, Plex has its original roots in support for the Automotive industry supply chain, specially multi-tier suppliers that constantly respond to changing component demand and replenishment signals from various OEM’s. The firm’s technology has had an end-to-end focus that includes a strong concentration and linkage of ERP to manufacturing execution systems (MES). The mid-market ERP provider has since branched out to other manufacturing industry verticals including after-market services and support.
DemandCaster was founded in 2004 principally by a former manufacturing operations executive who had a vision for a more user-friendly approach in supply chain and manufacturing support needs. Many former supply chain planning providers were founded by entrepreneurs with operations research or academic resumes. Its approach to the market is somewhat novel in that DemandCaster offers all of its customers the option to cancel their subscription at any time if the service is not providing expected value. The firm and its founders pride themselves in their intuitive end-user interfaces included within applications. The firm’s technology is native Microsoft Cloud multi-tenant based, providing a familiar MS Office and Microsoft Azure based look and feel. The founders additionally have shunned external financial investment partners electing a pure organic growth strategy.
Supply chain focused technology applications include support for basic forecasting and inventory planning, inventory optimization, distribution requirements planning (DRP) and capacity planning. A sales and operations application includes support for demand and supply planning. DemandCaster actually partnered with Plex about a year ago in an OEM arrangement. Earlier, the firm also partnered with Cloud-based ERP provider NetSuite as a supply chain planning focused extension application in a referral arrangement.
This author had the opportunity to directly speak with Jim Shepherd, Plex’s Vice-President of Strategy who confirmed that Plex had initiated its interest in DemandCaster prior to the recent announcement by Oracle of its intent to acquire NetSuite. Most all of Plex’s customers have global based supply chains that require more responsive capabilities to constantly changing product demand and supply needs. Plex was further attracted to the user-friendliness of various supply chain planning modules, the native Cloud based technology as well as the built-in integration to other ERP or best-of-breed SCM focused platforms. Plex having the established one-year relationship provided further awareness to the attractiveness of DemandCaster’s approach to supply chain planning and execution capabilities.
We would quickly add that from our lens, DeamndCaster has more appeal to line-of-business buyer teams who often weigh user-friendliness and time-to-technology value higher in the ultimate buying decision. Shepherd further confirmed that DemandCaster will remain an independent brand, as well as an inherent part of Plex’s future ERP capabilities. This is a similar strategy that ERP providers such as Oracle and QAD have employed in acquisitions specifically related to supply chain management focused technology. Such a strategy opens the door for cross-selling into other ERP or best-of-breed supply chain dominant environments.
Shepherd reiterated that a long list of planned additional investments is planned for DemandCaster, investments that could not be achieved without an external investor. Mentioned were building-out comprehensive analytics capabilities directly related to S&OP focused processes, and that DemandCaster would part of future supply chain focused analytics down the road.
What it Means
While both of these new developments come from somewhat different strategic motivations, they point to renewed and building market interest in integrated supply chain planning and execution capabilities that can be tied to future needs in enhanced analytics driven decision-making, more integrated business planning and abilities to support future IoT based business models that provide enhanced decision-making based on connecting physical and digital processes. By our lens, it will place additional pressures on existing best-of-breed supply chain technology players to further enhance their integration to physical supply chain execution.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Business media has of-late pointed out that that overall inventory levels among retailers and manufacturers has been unusually high, which is impacting both current procurement activity as well as logistics and transportation trends.
We at Supply Chain Matters decided to have a detailed look at the data to extract some insights
The most accepted and readily available measure of any inventory overhang is the inventory-to-sales ratio. The generally accepted definition of this ratio equates to the amount of total amount of inventory that businesses report has compared with the amount of goods that they have sold in a particular period of time. In essence it represents total business inventories divided by total business sales. A ratio value in excess of one would indicate how much more inventory is available to support existing sales levels. During times of severe recession, such as which occurred during the years 2008-2009, the ratio is high. During good economic times when sales are robust, the ratio should be lower.
For U.S. related activity, the U.S. Census Bureau calculates and reports this ratio. We downloaded adjusted historic data with a start year of 2008, just prior to the prior severe global recession, with values up to and including May of this year. (The last reporting value).
There are three different variants available from the U.S. Census:
Total Business (Adjusted)
Total Manufacturing (Adjusted)
Total Retail Trade (Adjusted)
For purposes of our analysis, we elected to analyze and share Total Business and Total Retail Trade. However, we elected to sort and present this trending data by month, which we believe would be far more of interest to our supply chain, manufacturing and product management reading audience. This is because inventory is managed continuously in daily, weekly or monthly dimensions.
Indeed, the data does present some insightful trends.
Our first figure is Inventory to Sales Ratio-Total Business Activity (Adjusted), 2008 to Date.
First, notice the distinctive spikes in the ratio for the early and late months of 2009, when the global recession took a severe toll on businesses. The average ratio across all of 2009 monthly values was 1.34, with the highest values ranging from 1.48 to 1.43 during the first-half of that year. What we further noticed was the ratio began a steady creep upwards beginning in November 2013 (1.33) thru May 2016. The average ratio value for the five months of 2016 was 1.41, rather close to the spikes in early 2009. Notice further that the spike in the ratio extends across all months
So what happened?
Again, we do not portend to be trained economists but it would seem by our knowledge of supply chain events that there were two rather significant events that occurred in the designated latter period. One was the U.S. West Coast port disruptions that extended from the latter-half of 2014 well into the first-half of 2015. The other was the ongoing boom of online commerce that has impacted retail channels, resulting in a boom in the construction of new online fulfillment distribution centers.
We further analyzed the ratios for Total Retail Trade (Adjusted) for the same period of 2015 and the first five months of 2016.
Notice that the 2009 spike was far larger and that a somewhat similar pattern of current creep is manifest in the 2015-2016 data. The average ratio for Retail Trade was 1.46 for 2015, and 1.52 for the five months in 2016. While not to the 1.6 levels of 2009, the trend is indeed worrisome.
We therefore suggest that with more and more products being offered online, and with consumers expecting immediate availability and delivery, it would seem that inventory levels have risen to the challenges in the explosion of online.
We conclude with the following takeaways:
- There is indeed strong evidence of a building overhang in inventory levels. Supply chain, procurement and sales and operations teams need to take a hard look at inventory trending in relation to supporting expected sales volumes.
- The U.S. West Coast port disruption appears to have provided its own impacts in ongoing inventory management. Whether that resulted in increased safety stocks, changed global transportation patterns or continued concerns, the ratio creep correlates in timing.
- The ongoing explosion of online commerce, online consumer demands for immediate availability, and the added build-out of new fulfillment centers seems to have a direct correlation to ratio creep timing, however there may be other factors at-play. Bottom-line, inventory levels are indeed creeping up to concerning levels, despite all the current advanced planning and technology tools currently available. It may further explain why global PMI indices have trended more toward contraction levels.
We encourage our readers, particularly those of economic and/or academic backgrounds to weigh-in on the above. What do conclude from the current high levels of inventory overhang?
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
Reuters is reporting that Honeywell International is in talks to acquire supply chain management planning and execution software provider JDA Software for a reported sum of $3 billion. This report has since been picked-up by other media outlets including Yahoo Finance.
The report cites sources that asked not to be identified because the ongoing negotiations are confidential. That alone would seem to imply that someone wanted such information to be leaked to media.
Neither Honeywell nor New Mountain Capital, the current owners of JDA declined to comment to Reuters regarding its report.
The report also indicates that JDA has been struggling with more than $2 billion in debt and that credit agency Moody’s Investors has warned that the software providers debt load might be unsustainable without a sizeable equity infusion or reduction in debt. Further indicated is that New Mountain Capital has explored a sale to private equity firms as well.
Honeywell has reportedly been looking to beef-up its sensing and productivity and automation solutions division adding to its prior acquisition of Intelligrated Inc for $1.5 billion.
Supply Chain Matters will continue to monitor this reported development, but we caution readers that this report should be considered as not definitive and that talks could not come to fruition. If JDA is acquired, it would be rather significant news regarding the supply chain technology landscape.
Disclosure: JDA Software, while a prior sponsor of this blog, has no current client or sponsor relationship with The Ferrari Consulting and Research Group or the Supply Chain Matters© blog.
August marks the traditional start of the peak transportation period leading up the October thru December peak holiday fulfillment period involving both traditional and online retail channels. Today we feature two Supply Chain Matters commentaries addressing two separate but important trends that will make the forthcoming period far different and perhaps far more challenging for industry supply chain teams. The first was our prior posting, Amazon’s continued strategic and tactical efforts in deploying owned logistics, transportation and last-mile delivery capabilities.
In this posting, we highlight a recent report echoing the currently gross overcapacity conditions concerning global ocean container fleets, a situation which supply chain and procurement teams need to pay close attention to in the coming weeks.
Global Trade Magazine reports that certain industry alliances involving ocean container shipping lines have now suspended shipping services available for the current peak holiday global shipping season. In this report, Why are Shipowners Parking Containships?, the publication observes that in ideal world, ship fleets would be fully utilized during this upcoming peak holiday period as goods make their way from Asian based suppliers and manufacturers to global markets in-time for the forthcoming holidays at the end of this year. Instead, the G6 Alliance has suspended transpacific service resulting in five of its six vessels being idled while the Ocean Three alliance suspended its Manhattan Bridge service idling nine container ships. The report cites Drewry Shipping Advisors proprietary data indicating that over 300 container vessels, with a combined capacity of over 800,000 TEU’s were idle by early July, at the start of this year’s peak shipping period. The report further implied that the ongoing peak period is rather weak and resulted in the decisions by shipping alliances to idle vessels much earlier in the season. More importantly, the report speculates that carriers are not only moving to park unused capacity earlier in the peak period, but further attempting to boost spot rates up by increasing load factors on remaining active vessels.
This commentary further declares:
“As deliveries of new ships continue, carriers are starting to run out of options on how to deploy them even their largest ships in today’s over-supplier market.”
The above is the obvious red flag to industry supply chains as the overcapacity crisis now reaches an extreme stage. Compounding the problem is the opening of the expanded Panama Canal that occurred in June, causing ships with 4500-5000 TEU capacity to be now idle as carriers begin to route their largest vessels directly through the canal.
For industry supply chain and services procurement teams, particularly those directly related to the retail industry, the coming peak season obviously requires very careful planning of inventory and capacity needs. Those that have a higher reliance on spot market movements and rates need to be especially vigilant in the coming months, particularly if inventory movement needs relate to supporting post-peak market needs in the January-March period. By the end of the year, the overcapacity situation involving ocean container lines should be even more of a challenge that can impact transit times as well as vessel availability.
Thus, it remains critically important for industry supply chain teams to pay close attention and double-check all planning related to inventory requirements and transportation servicing needs. This advice includes teams who have outsourced much of their transportation planning and execution needs to third-party providers. While there may be an assumption of predictable rates, industry dynamics are changing quickly, and along with this, vessel availability and global shipping transit times.
Technology can certainly aide in this area, particularly that which tracks spot ocean container shipping rates and vessel availability trends. But in the end, you cannot afford to assume that your transportation partners totally have your back, especially if you are an organization that dwarfs the shipping needs of far larger global retail or manufacturing enterprises. Small and medium businesses are often subject to the mercies of the spot market.
Insure your organization does its homework, constantly checks and validates planning assumptions and keeps a keen eye on spot market transportation rates. Consider using technology that can assist in navigating these unchartered waters.