We pen this commentary from the JDA’s annual Focus customer conference being held this week in Las Vegas.  Supply Chain Matters provided an initial commentary with some general first impressions garnered from day one of the conference, and this commentary comes at the close of day two.

We previously noted the announced strategic shift in JDA’s product strategy over the next five years, being positioned as JDA Cloud. After some further briefings with JDA senior executives, it is the view of Supply Chain Matters is that this strategy is more to do with providing various options for the hosting of JDA applications, coupled with a variety of managed services that can span specific application expertise to full process management.

JDA has been working with these types of models with approximately 100 customers for the past three years.  Senior management indicates that the company’s supply chain functionally oriented customers are seeking more options for implementing more advanced capabilities but seek more options in terms of the value-proposition for IT infrastructure, planning expertise or other required expertise.  Existing customers are obviously interested in the pricing strategy, and JDA management appears to be favoring the classic capital license pricing model, but are quick to point out that subscription based pricing can be supported if that is what customers desire.  Another important clarification was that the platform is not a single instance, multi-tenant architecture because of a strong belief that customers are still favoring defined boundaries in their hosted instance, literally “hermetically sealed”  around the customer’s data.  This is certain to trigger responses from supply chain cloud based competitors.  Another meaningful statement was that over 90 percent of current JDA applications are already enabled for hosting options. Our recommendation to existing JDA customers is to seek clarification as to your supply chain business outcome needs, and contrast that to the specific buying options that JDA will support.

Another takeaway from Focus 2012 is the progress that has made since JDA’s acquisition of i2 Technologies nearly two years ago, Readers may recall our Supply Chain Matters past commentary when the first i2 deal was announced in 2008, JDA indicated that its plans for i2 included a software sales model reflected as a “CD replication” strategy, meaning that potential customers would receive standard, un-customized software.  That was rather significant at the time, since i2 was known for its industry-centric innovation in supply chain technology, and was quickly transitioning to a customized software and service provider with some rather significant customers.  Two years hence, it is clear that JDA has uncovered the need for differentiation and depth that customers require in their supply chain technology. For its part, CEO Hamish points to a four year roadmap related to assimilation of i2, and that the company is just beginning to leverage new innovations resulting from the capabilities that the former i2 provides for JDA.

A final observation is directed at the current customer footprint of JDA. Surprisingly, over 75 percent of JDA’s existing customers stem from manufacturing-centric supply chains vs. retailer-centric supply chains. In our view, the bulk of the conference messaging was directed at challenges in retail and ongoing revolution within online commerce.  JDA needs to not only direct its efforts on the opportunities of retailers and manufacturers coming closer aligned in supply chain capabilities but also focus on the widening gaps among manufacturing companies that are best-in-class in capabilities vs. those that need to close these gaps.

Bob Ferrari

We pen this commentary from the beautiful Aria Hotel in Las Vegas which is hosting supply chain technology vendor JDA’s annual Focus customer conference for three days this week.   This was the first time since the inception of Supply Chain Matters that we have been invited to attend Focus, and we praise both the JDA social media and industry analyst relations teams for their recognition of the influence of supply chain social media platforms such as ours. By the way, the Aria has some pretty nifty high-tech laden rooms.

We begin our initial commentary with some general first impressions garnered from day one of the conference.

One of the more pleasant surprises regarding this conference was to note the sheer presence of slightly over 2000 attendees at a conference dedicated to enabling supply chain business processes with technology. That should be an indicator that either conference education budgets are far healthier, or that the focus by many businesses on enhancing supply chain capabilities is a lot more focused.  We hope to gain a better sense of this in tonight’s networking reception.  Attendees are reading these commentaries are welcomed to share their motivation for attending.

Another impression to share is the announced strategic shift in JDA’s product strategy over the next five years.  In the opening keynote, president and CEO Hamish Brewer announced to his assembled customers the intent of JDA to move toward a cloud-based solutions provider, with JDA Cloud being positioned as a prime business development offering. Brewer’s message to customers was to not overtly change the current collection of product offerings but to give consideration to moving to the cloud delivery model over the next 3-5 years.  That statement comes with a lot of open questions for JDA as well as its current customer base.  The specifics as to what components are to be included in JDA Cloud seem to be a bit vague after day one.  This author managed to attend a customer presentation delivered by Lenovo’s E-Commerce business, which was an early adopter of JDA hosted systems. While we were able to gain some additional knowledge of what is being defined as Managed Services, JDA will need to get much more specific since the target buying teams now include functional supply chain and IT constituencies.

Late this afternoon, JDA hosted for invited industry analysts, media and influencers a specific demonstration of a rather cool product being termed JDA 3D, which was jointly developed by JDA and Red Dot Square Solutions. Our best description of this product is a combination of simulated retail merchandise planning, retail planogram, and 3D visualization wrapped together in software. The application fuses the needs for retail assortment planning, sales and marketing effectiveness and product demand sensing in a single application.  The application is being positioned to either help consumer goods manufacturers inspire customers to buy their products, help retailers to design a more pleasant and effective floor environment, and allow product development teams to virtualize how a product might fare in the market in a digital simulation.  Lots of possibilities for this application and hopefully JDA will provide more specifics.

Our final observation relates to the conference access that JDA grants to industry analysts and bloggers.  This is one of the very few technology providers that restricts attendance to certain product or customer presentations.  I was informed by long-time industry analyst attendees that the restricted list is narrower this year than in previous years, and thus JDA’s outreach teams should be commended for practicing some internal change management.    That aside, if a technology vendor believes in its products and its abilities to solve customer problems, than it should be willing to be transparent.  Heck, even enterprise vendors SAP and Oracle provide total access to all presentations.

Bob Ferrari

Nearly one year after a similar attempt, JDA Software Group announced today that it has once again signed a definitive agreement to acquire i2 Technologies. 

When I first read the news, my mind jumped to recall those latest Southwest Airlines ads that exclaim: It’s On, It’s Really On! 

You just gotta love the supply chain software industry.

Supply Chain Matters readers may note our previous commentary last August regarding the last acquisition event, when i2 broke off the proposed marriage.  At the time, JDA had difficulty securing attractive financing in a very turbulent lending market that was in meltdown.  The investors and management of i2 at the end, also decided it was in their best interests to move on, pocketing a hefty $20 million termination fee from JDA.

Interesting enough, today’s announcement indicates an acquisition value of $396 million, about $50 million higher than the previous episode, but represents less than a 10% premium over yesterday’s i2 closing stock price.   A lot has changed in such a short period. For one, i2 has boosted its balance sheet and cash positions, building on the company’s previous positive $80 million litigation settlement with SAP.  Rigorous cost control has led to a generation of over $42 million of cash from ongoing operations.

One now gets the sense that both management teams want to insure that this latest marriage will have all likelihood of closing.  The terms of the transaction call for two different financing alternatives, one intended, and one a back-up alternative.  Since roughly 79% of the acquisition monies must be financed, it seems that much of this round of acquisition negotiations were clearly focused on insuring that the transaction will not be inhibited by financing.  Both financing arrangements call for up-front cash for existing i2 shareholders, which should make i2 employees more supportive of this deal than last time.  In either financial alternative, owners of i2′s convertible preferred stock stand to receive $1100 per share in cash, a handsome reward for holding out. The Board of Directors for each company have given approval to the transaction.

In the briefing call, JDA senior management noted that the acquisition would be revenue accretive as early as 2010, and JDA has already identified up to $20 million in cost synergies. They also pointed to the combined total of 6000 global customers, which will no doubt provide an attractive maintenance annuity revenue stream in the coming years.

Since this is a blog dedicated to supply chain strategy and information technology developments, I will focus remaining comments on the implications of this acquisition.  They are pretty much similar to those we penned during the last episode.  Many questioned the lack of synergies among these two companies.  The obvious business strategy synergy, which was again stated by JDA’s CEO Hamish Brewer on the briefing call, was the marriage of JDA’s market strengths in retail and process industry planning technology, with i2′s solid strength in discrete manufacturing sectors.  But both business cultures remain different.  i2 has been concentrating more on supporting customer-specific, highly specialized supply chain process needs.  I2′s marketing boasts that 19 of AMR Research’s designated Top 25 supply chains utilize i2 software.  One could argue that this software is not necessarily what one would find in a standard CD. 

If you are an existing or prospective customer of i2, insist that you get briefed on the closing schedules, and long-term strategies of the combined companies, particularly support, continued innovation and product development. If you have both existing JDA and i2 applications, you should be especially interested in product innovation plans.

No doubt, other competing software providers will be knocking at your door, providing all forms of incentives to either convert platforms or seek other software services approaches.  While this may not be an ideal environment to consider conversion cost options, it may pay to listen and be open-minded. It obviously helps in future discussion with the combined company.

As for JDA and i2, love is lovelier the second time around!

 Bob Ferrari

Last week I provided initial observations on the acquisition of i2 Technologies by JDA Software Group. In that post I reflected on yet another brand name departing the supply chain technology landscape, and my counsel to existing i2 customers to be cautious, and do your homework.

Since that time, others have provided commentary, to include Dan Gilmore’s End of Supply Chain Era commentary within Supply Chain Digest. Influential industry analyst firms AMR Research, IDC Manufacturing Insights and Gartner have all initially weighed-in on the acquisition, and I would urge readers to especially take note of the combined AMR Research commentary (available to non-clients for a limited time) as well as the August 18^th edition of Manufacturing-Insights Theory and Practice newsletter.. 

(Note of full disclosure- I was previously a contributor to both of these firms).

The consensus view seems to fall around the following observations:

- This acquisition represents the end of an era for both the original innovators and noted icons in the supply chain planning arena, both i2 and former Manugistics.

- Dan Gilmore cited the fact that an industry analyst had written that “When i2 goes off the cliff, there won’t be any skid marks”.  That quote actually came from my former mentor and manager at AMR Research, Larry Lapide, who insightfully observed back in 2000-2001 that while i2 was articulating the real needs for advanced supply chain planning and collaboration, the overall pace of the company was beyond its ability to ground users in the reality of the complexity of the overall process change and technology capability at that time.  A lot of course has changed since that time. Supply chain technology best-of-breed as well as ERP providers are much more grounded today in the capabilities of the technology.

- AMR Research observes that the model of a consolidator such as JDA Software typically leads to lower levels of product innovation in favor of recurring rates of maintenance revenues, but cautions users to wait and make their own individual assessments.  Bob Parker of IDC concludes – “There is some hope that the consolidation of one time market leaders, Manugistics and i2, will provide a viable alternative to the SAP/Oracle duopoly, but JDA will have to show a conviction to spending development dollars to maintain functional advantages, and marketing dollars to stretch beyond its retail comfort zone”.  Keep in mind that industry analyst firms have the both technology firms as clients, as well as end users, so they have to walk a fine line in their published recommendations. It is therefore best to conduct your own individual assessment or speak with a seasoned industry observer.

- Most all of the commentary and conversations that I have since this announcement has further pointed to the fact that i2′s model of shifting more towards a custom supply chain software development and services provider is a more important concern for what remains of existing i2 customers.

- AMR Research’s Bruce Richardson commentary in this week’s First Monday newsletter (sign-up required) raises a broader set of observations as to whether this event presents a new opportunity for custom supply chain software integration firms, especially the India-based firms- Bruce comments- “While employee retention is a concern in every acquisition, it may be a very real concern in terms of keeping the account teams for the Top 30 customers (at i2 Technologies). I’ve spoken at enough i2 events to understand the volatility and mood swings of its largest accounts. It’s not hard to imagine a customer approaching one of the large Indian services firms and suggesting it takes over the i2 work. This could result in a minor bidding war for development and account management talent.

The bottom line for readers and users of supply chain technology is to continue to demand continuous innovation and responsive product support from your existing or future supply chain technology or services provider. There are good examples of technology vendors who can both acquire and continue to add to product innovation.  An example would be Oracle Corporation, with their previous acquisitions of Demantra or G-Log.

Managing global supply chain processes is as complex as ever, and demands even more quality and responsiveness from the community of technology providers. Manufacturers need to continue to do their homework and be diligent. Supply chain technology providers need to first and foremost seize the moment and communicate their ongoing value to enabling supply chain process and information integration needs, while also fulfilling the financial business model.

Bob Ferrari

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