September 15, 2008    Volume 15, No. 16

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Guest Editorial: JDA Acquires i2: Does The End Of An Era In Supply Chain Applications Signal The Beginning Of A New Landscape?

By Simon Ellis
Manufacturing Insights

When I learned of the acquisition of i2 by JDA ($346M cash deal or 1.3 times trailing revenue/ 7.5 times trailing EBITDA) and I began to think about what to write, I couldn't help but take the tone of a newspaper obituary:

Supply Chain Pioneer, i2 Technologies, Dead At 20

DALLAS, TX -- Born in 1988, i2 built sophisticated software that captured the potential of applying Eli Goldratt's Theory of Constraints (TOC) approach to planning and scheduling. The company enjoyed tremendous success, delivering huge productivity gains to A-list manufacturing customers. A decade after its founding, the company fell victim to hubris, a disease from which it never fully recovered. The company is survived by a loyal base of customers. Funeral arrangements are being provided by JDA software.

Forgive the sardonic tone, but this acquisition feels like the end of an era. The bigger question revolves around what the market landscape in supply chain applications looks like going forward and how should buyers approach their investment roadmap. For existing i2 customers the answer lies in whether JDA will satisfy the pent up needs of the installed base or ride out the maintenance stream until customers move on.

In a conference call to discuss the acquisition, JDA executives explained the drivers of the transaction like it was a piece of financial engineering and used the Manugistics acquisition of two years ago as an example. The path taken in absorbing that other high flyer of the independent supply chain application era was to integrate the modules into the JDA portfolio and then press on in the market. However, the financial discussion showed only modest license growth and emphasized recurring revenue (largely maintenance) and better than accretive cash flow. In fairness, this call included financial analysts who liked what they heard, but i2 manufacturing customers would not be encouraged by the capture maintenance/slash costs message.

These customers have good reason to be concerned. The independent i2 of the past four years has been transparent about its efforts to sell the company and, although there was some product rationalization and improvements to the platform, much of the effort was to stabilize revenue and minimize expenses. The customer base that remains (and 50 percent of its revenue comes from only 30 customers) will have to see aggressive commitment to improving a product that no longer enjoys a huge functional lead over other vendors in the market. Manufacturing Insights is not optimistic that JDA has the resources to make this happen.

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. The avenue to success may be in presenting a complete collaborative decision environment for the supply chain domain -- from strategic to tactical to operational decisions -- all integrated for complete closed loop control of performance. The technology enabler may be in the combination of the product platforms -- process mapping from i2, scalable data handling from Manugistics, and advanced analytics from the JDA legacy.

If you are a current i2 user, our advice is similar to what we have been telling Manugistics customers: have a replacement plan devised as soon as possible. There is no need to panic, but thinking through the alternatives and having contingency actions ready is wise. Once the plan is understood, watch for JDA to show progress toward the integrated decision environment. This progress must be faster than SAP improves its supply chain execution capabilities or Oracle unifies its collection of excellent applications. If not, the safer and more logical route would be to put your money with one of those ERP leaders. For those companies looking for industry specific capabilities, JDA will have to show it can improve the product along a number of vertical paths. If not, there are a number of good specialty applications:

  • Adexa. The company claims to cover many verticals, but it shines in the semiconductor industry. Semi companies using i2 should put this company on its short list.
  • Aspentech. A good choice for asset intensive industries especially chemicals.
  • Kinaxis. This company is doing a great job in supplier intensive planning and execution in industries like consumer electronics and aerospace.
  • Logility. A good alternative in demand intensive planning for consumer goods segments.

It would be hard to imagine that i2 founders Sanjiv Sidhu and the late Ken Sharma anticipated the company's early success and, by extension, its rapid decline. Don't spend too much time grieving i2's passing as the Darwinian nature of the software market has appropriately thinned the herd and created new opportunity for vendors that can take advantage of advancing technology to bring superior products to market.

-- Simon Ellis currently leads the Supply Chain Strategies practice at Manufacturing Insights, an IDC company. Within the Supply Chain practice, Ellis specializes in advising clients on low-cost sourcing, RFID, data synchronization, lean, Six Sigma and more.

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