Last week, I quickly pieced together a Friday Rant which was somewhat critical – from a strategic standpoint solution standpoint – of the announced merger of JDA and RedPrairie. This of course says nothing for the financial synergies of a roll-up play where, at the right valuation, 1+1 can still equal three. Still, looking at products, it's hard to discount that JDA and RedPrairie could potentially become the one vendor to bridge the visibility, inventory and scheduling gap at all levels of the supply chain in CPG, retail, warehousing and distribution (if they get things right). But it won't be easy.
As I noted in the original piece, I'm not the best judge of this myself. My experience with supply chain applications goes back to the client server days and has gotten rustier every year. But I do know a few folks who are up to speed on the nuances of the sector and have stayed closer in touch with its evolution in recent years. One of these folks is David Dobrin, who I've known since the .com era. David is one of the few software analysts I've ever worked with who really bothers digging into how technology actually works – or does not in all too many cases.
JB: I haven't followed either company over the years, and you have. Give me some background.
DD: Both companies help their customers move goods. JDA started out as a merchandising software company; "merchandising" is what retail companies call "figuring out which goods should be on the shelves and how much we should order." Red Prairie is primarily a warehousing company, with a lot of its customers also in retail.
Historically, JDA's biggest competitor was Retek, acquired long ago by Oracle; Red Prairie's is Manhattan, still independent.
JB: Is JDA the acquirer or the absorbee?
DD: Under Hamish Brewer, JDA has a long history as a serial acquirer; buying a warehousing company has always been part of the plan. Since Brewer is taking over as CEO of the combined company, I personally think of JDA as the survivor.
JB: So what companies did JDA acquire?
DD: Many. Most companies with merchandising software want to have some ability to plan what they're going to buy, so long ago, JDA bought E3 (grocery planning) and Arthur (hard goods planning). Then, they really moved into the big time, buying Manugistics (CPG planning and transportation management) and i2 (planning, transportation management, some retail). So by now, there's a whole lot of stuff added on to the retail core.
JB: But retail is what connects things?
DD: It's complicated. Merchandising is only one of the things retailers need; every retailer, for instance, needs a point-of-sale system. Then they need workforce planning, shelf planning, lots of things, and back-end financials. JDA offers lots of these, but most retailers also have lots of other providers. And at this point, a lot of the revenue comes from planning in other areas.
JB: Let me repeat. So is retail what connects things?
DD: It depends on what you mean by connect. Manugistics, for instance, was already doing transportation planning in retail before they bought; afterwards, they did more. But for the most part, the transportation planning and merchandising systems aren't connected, and there isn't even that much overlap.
What really connects all these pieces is that they're available from the same company.
JB: So what is this saying to the customer?
DD: Two ways of looking at it. Take the i2 acquisition. Hamish got rid of a lot of serious costs and silliness, which was a big benefit to existing companies. i2 had a lot of agenda items that the customers weren't following, and frankly, it spent way too much time and money on bright supply chain ideas that never worked. That stopped with Brewer. No more spending on bright ideas.
At the same time, that can be viewed as a negative. If you're looking to your supply chain provider for leadership and bright ideas, well, under the new regime, there's, er, less.
DD: I'll try to be kind. At the last conference I went to, there were very few good new ideas. If you read their financial statements, it certainly seems that they're growing, but they're not growing (in my view) from powerful new products, just from natural replacements and a certain amount of growth in the size of their customers.
Remember, as long as customers buy licenses for new employees, servers, site, etc. and they pay maintenance revenue, even if there is a 2% replacement rate, it is really hard not to grow 8%.
Stay tuned for the next post in this series, where our interview with David continues.