In-Depth

IT Briefs: SAP Components, Manugistics’ Strategy Summit

Catalyst's visionary ComponentsNow marketplace for SAP users; Manugistics updates its progress on strategies announced at last year’s Envision conference, plus insight into company's view of its market

• By ARC Advisory Group
• 04/23/2004

Briefing: Catalyst International and Components for SAP

Catalyst has done something that verges on visionary; they have developed a ComponentsNow marketplace for selling application components to SAP users. These components, some very granular, will help SAP's users more closely tailor their SAP solutions to their individual needs. As Catalyst is a Supply Chain Execution supplier, many of the Catalyst supplied components designed to supplement SAP Warehouse Management.

It is clear that SAP and other large ERP suppliers are transitioning from being sellers of Enterprise applications to being providers of business platforms. What has been missing has been a marketplace for these components. Without such a marketplace, SAP's attempts to leverage their Netweaver technology will not come to full fruition. Application developers commonly use similar marketplaces. Microsoft's success was built in large part on their ability to get thousands of third party developers to create applications and customized solutions built on Microsoft technologies. SAP needs to do the same.

ARC Advisory Group believes that SAP needs to view this marketplace strategically. SAP product managers may complain to SAP senior management that the site is causing them to loose revenues in their application areas. And, that very well may be true. In the longer run, however, Microsoft is apt to be SAP's greatest competitor. Strengthening this site, improves SAP's ability to compete against Microsoft over time while better serving SAP customers.

Catalyst foresees three categories for the SAP components:

1. The transaction level - for example, a component that ties into SAP Console that allows for unique screens on an RF terminal to facilitate an industry specific form of receiving.

2. The application feature level - a component that plugs into a native SAP application to extend the functionality.

3. A new independent application - SAP currently does not offer an Advanced Labor Management module to work with their Warehouse Management solution. New applications would use the basic SAP data model but would not tightly integrate into SAP workflows.

While Catalyst International created this Internet marketplace and will develop logistics components for the site, its ultimate success will depend upon other suppliers and third party developers participating. To insure neutrality, the site uses a content management system hosted by a third party to allow suppliers to post components, insure that leads are fairly doled out, and prevent visibility of one supplier into the leads and revenues generated by other vendors. Catalyst will recoup their investment by garnering the advertising revenues from the site.

The future of enterprise software is the use of more granular components assembled to fit the specific processes of companies. Certain vendors have proven that component assembly, as opposed to application configuration, can lead to quicker implementations and easier upgrades. ComponentsNow strikes ARC as a very useful path to the future.

"The future of enterprise software is the use of more granular components that can be quickly assembled to fit companies’ specific processes," said Steve Banker, Service Director, Supply Chain Management, for the ARC Advisory Group. "With ComponentsNow, Catalyst has done something visionary in creating a marketplace for selling application components to SAP users. These components will help SAP’s users more closely tailor SAP solutions to their individual needs."

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Field Report: Manugistics’ Strategy Summit

Manugistics recent Strategy Summit provided the analyst community with a progress report on strategies announced at last year’s Envision conference, further insight into Manugistics’ view of their market space and opportunities, and an introduction to some new faces on the management team.

Greg Owens, Manugistics CEO, kicked-off the meeting with a review of the progress they have made against their three phase strategy for managing the company through the challenging environment created by the IT slowdown in 2002. He believes that they have completed the first two phases, expense reduction to match structure with new market realities, and balance sheet improvement including debt-to-equity conversion and generation of positive operating cash flows. They are now firmly focused on growth and the rest of the summit addressed how they expect to achieve it with a three-legged strategy based upon Focus, Technology and Partnering.

Focus: Manugistics has increased their focus by segmenting the SCM space into five vertical markets as indicated in the following vertical markets: Retail, Consumer Goods , Electronics, Aerospace & Defense, and Travel. Consumer Goods is defined broadly as anything that ends up in a consumer’s hands, including autos, groceries, pharmaceuticals, etc. The common thread across these markets is their tendency to be distribution-intensive, which has always been a Manugistics’ strength. Government Aerospace and Defense has been an ongoing focus for Manugistics and is separated to reflect the significant differences in how they conduct business with those clients. Similar comments can be made regarding Travel, Transport and Hospitality where they have a strong base in Pricing and Revenue Optimization solutions.

Competition from ERP SCM offerings in Retail, Travel, Transport & Hospitality, Government, and Aerospace & Defense, is still moderate and Manugistics' challenge is to maintain their strong presence in these markets as ERP suppliers focus more on selling SCM solutions to their installed customers. Manugistics’ Parts Inventory Management and Maintenance Repair and Overhaul (MRO) solutions are specifically designed to address the unique requirements of GA&D which is another strength that they can be expected to capitalize on.

Technology: Manugistics believes their new J2EE-based, version 7, architecture provides the requisite scalability for demanding consumer markets and distinguishes them from ERP SCM suite solutions. For instance, in replenishment planning where SKU explosion can be a major challenge, Manugistics solution manages problem complexity to a linear increase in the number of servers. This is particularly important in Retail, Consumer goods, and Electronic/High-Tech, where Manugistics’ focus is on the larger, more complex problems, and consistent with Manugistics previous strategies. External technology developments like RFID also contribute to Manugistics’ optimism. They expect to capitalize on the current high interest in RFID as an enabler for many of their SCM solutions.

While ARC Advisory Group’s research indicates that manufacturers remain skeptical about the benefits and costs of RFID and are only grudgingly complying with Wal-Mart, the DoD strategy may have more direct impact for companies like Manugistics, who have a strong foothold in the government space. In a similar vein, Manugistics believes that the business disruption planning requirements of Sarbanes-Oxley will present additional opportunities for sales of solutions they have developed in scenario planning for emergencies and logistics solutions that enable organizations to respond. The jury is still out on the effect that either of these developments will have for the SCM market and for Manugistics. Yet we all remain hopeful. The benefits of SCM solutions remain high and anything that can drive organizations to continue the drive towards supply chain operational excellence is welcome.

Partnering: Just as aspiring authors might purchase Microsoft Word to help them write the great 21st century novel, they probably wouldn’t ask Microsoft for advice on how to construct and write the masterpiece. Similarly, Manugistics has considerable expertise in SCM processes, yet they remain a product-focused company and have less to say about best-practice supply chain processes, appropriate organizational structures, and change management. But customers want a complete solution today. Their newly announced partnership with IBM is therefore critically important to their growth strategy. IBM not only understands processes, they are focused on helping companies adopt the best practices for their industries. Manugistics is now one of six strategic partners for IBM, and in total IBM only partners with 125 application software companies. In principle this gives Manugistics access to IBM’s 60,000 person sales channel, and 65,000 sales consultants. In return Manugistics will port its applications to WebSphere and DB2 in a two-step process over the next twelve months.