Part 1 of this blog series talked about my attendance of the JDA FOCUS 2010 conference on the heels of the recent merger between JDA Software (NASDAQ: JDAS) and i2 Technologies. The article first discussed the different geneses and cultures of the two merging parties.
One major outcome of the conference was JDA’s unveiled plan to converge most of its existing and acquired product sets. To that end, JDA pledged several key commitments to its customers, starting with that the company would continue to support all of its products.
In addition, JDA will not replace one product with another, but will rather create a “Superior Solution” that is a “Superset” of the combined functionality. Last but not least, JDA will not impose a forced timeline to upgrade.
The Supply Chain Company – No Less
JDA has re-branded itself as “The Supply Chain Company,” as a major shift from being primarily viewed as “The Retail Company” for decades. The JDA FOCUS 2010 messaging was all “motherhood and apple pie” that no one can really dispute. I saw nothing earth-shattering in the analyst presentation at all, with the exception of the fact that there is finally one truly dedicated supply chain management (SCM) vendor on earth that can offer almost everything in the realm of SCM.
That is what happens when one combines the retail leader JDA with former supply chain planning (SCP) powerhouses, Manugistics and i2. It is not a true “ah ha” moment, but it certainly is cool to see one company take this mantle on. Suddenly, retail looks to be just one more vertical sector that JDA serves. But while SCM is of huge importance in the retail sector, will the “in-store” retail buyer be confused by JDA’s new branding as “the supply chain company?”
JDA’s latest branding is almost identical to Manhattan Associates’ tagline “The Supply Chain People.” This particular positioning hasn’t reportedly resonated with retail companies and would seem to be counterproductive to JDA’s many retail products. Perhaps subsuming “retail” within “SCM” might not be a huge deal, though, considering that former Retek remains the primary competition in retail, even though it is part of Oracle’s vast empire.
The other concern for me is that JDA still seems primarily focused on retail and consumer packaged goods (CPG) manufacturing, whereas i2’s forte has been discrete manufacturing, e.g., high-tech, automotive, metals, etc. What does JDA do today that would make one believe the company can effectively manage those verticals? Certainly, the “JDA” name is not a recognizable or respected one in these sectors.
In addition, sectors such as industrial equipment, automotive, aerospace and defense (A&D), industrial products, semiconductor, etc., cannot rely solely on demand shaping and promotions (i.e., JDA’s “Anticipate. Plan. Deliver.” tagline) as do their retail and CPG counterparts. These manufacturers and distributors require inventory balancing, synchronized supply and material planning, and supplier relationship management (SRM), among other services.
A company of JDA’s size can realistically support about five verticals well. Former i2 supported about eight, Manugistics six to eight, and JDA supported a couple. Getting that equation right will be a challenge.
To be fair, there is evidence of some synergy given that consumer electronics can use the experiences from both i2 and JDA. Combined teams are thus currently looking at the product sets from a cross-industry perspective. JDA can also benefit from i2’s strategic network optimization (SNO) product called i2 Strategist and i2’s Agile Business Process Platform (ABPP) capabilities.
But How Complete Is “The SCM Company”?
JDA’s vision is to provide SCM solutions that span from the supplier (raw material planning) via factory, vendor’s distribution center (DC) and retail DC to the retail shelf (or online catalog). The major FOCUS 2010 message was that today’s supply chain decisions (primarily in terms of replenishment shipments) are disconnected and far removed from the actual retail shelf assortments and point of sales (POS) data.
Current SCM strategies are still focused on sell-in or suppliers pushing inventories to the retail shelf. Retailers would then complain of lost sales, but would still want more products and market development funds (MDF) pushed out from their manufacturers. The unfortunate results of these practices have been misaligned inventories within customer regions, stock-out problems in the highest selling market, and, conversely, excess obsolete markdown inventory in slow markets.
JDA recommends the following five imperatives for achieving shelf-aware store-level plan-o-gram (POG)-based collaboration:
Dell, Sony Electronics, and Frito-Lay were some featured case studies with reported increased customer service levels, reduced numbers of weeks of supply (inventory investment), increased forecast accuracy, higher inventory turns, and so on and so forth.
However, warehouse management system (WMS) capabilities are still missing from JDA’s footprint to support its noble vision. I am not the only one who has mentioned Manhattan Associates as a potential acquisition target, but Manhattan’s recent upbeat results and hefty market capitalization might be out of JDA’s reach for the time being.
Moreover, a demand signal repository (DSR) is instrumental to make this entire value chain collaboration happen. However, DSR is an emerging and evolving solution likely to be bought only by category captains (and perhaps the number two company in each product category). In other words, this solution is not the high volume “off-the-shelf” software that fits JDA’s aforementioned professed product development and maintenance philosophy (as discussed in Part 1).
However, if JDA continues to lack a DSR product, Oracle is likely to eventually become the leader in shelf-level supply chain collaboration. Also, RedPrairie and Logility might currently have a more complete SCM offering (from WMS to retail shelf) than JDA. Needless to say, Oracle and SAP (if not even Infor) can always tout “one throat to choke,” in light of their enterprise resource planning (ERP) and SCM capabilities being under the same roof.
Automating SCM Innovation: Can It Work?
Part 1 discussed JDA Managed Services and how this structured offering might (or not) play with i2’s less than repeatable offerings. That possible mismatch remains a huge red flag for me as an industry analyst. As the recent Dillard’s lawsuit outcome with hefty punitive damages against JDA (i.e., i2) shows, i2 is far from a “software on a CD” or “managed services” company. Nimbly managing the SCM innovation of i2 with the repeatability of JDA to get the best of both worlds is a major concern.
In his teaching note, Ananth Raman, the Harvard Business School professor of logistics, claims that the extreme variation in i2’s customers’ success didn’t seem to depend on anything in i2’s products per se. It depended instead on how the customer approached the overall planning process.
This creates a conundrum for JDA or any other SCM software company for that matter. If the company oversells a product and cannot be sure that the customer will get any value out of it, the company takes on a lot of risks including the embarrassment and financial consequences of possible lawsuits.
The risk seems much more severe with SCM software. Namely, ERP or customer relationship management (CRM) software will typically provide some automation and compliance reporting benefits, which make it harder for it to fail utterly. But if a SCP product, which can cost as much and take as long (or longer) to implement as an ERP product, does not provide a valid plan, it is providing no value at all (quite the contrary, as a matter of fact).
Forecasting and demand shaping is certainly not an exact science, but another major issue is how clued in are the actual users about their supply chains. In other words, if their assumptions as input to the planning system are wrong, the planning results can be detrimental. Another issue is whether the system is implemented to perform sub-optimizations, i.e., to create benefits for a certain departmental silo and often at the expenses of the entire organization. We have all heard about the need for holistic metrics and Kaplan’s balanced scorecard (BSC) strategic approach.
Therefore, i2’s “products-plus-services” traditional strategy was in part an attempt to solve these issues. Namely, if end users could not be relied upon to perform the correct steps (i.e., feed the system with correct data and interpret the system’s output), i2 wanted to take some responsibility for making sure they get and act on the correct answer (and also earn some additional bucks).
We will have to wait and see whether JDA can structure its indisputable vast SCM knowledge and products into repeatable and risk-averse services (e.g., pre-packaged analytics, workflows, etc.). The Optimization component of JDA Managed Services involves the ability of a customer to utilize JDA resources to implement the SCM process from a remote location.
Some examples of processes would be as follows: Store-level Monitoring, POS-based Forecasting, Replenishment Planning and Collaboration, Demand Shaping (Promotions Management), Assortment Management, Vendor Managed Inventory (VMI) Program Support, Product Lifecycle Management (PLM), and so on and so forth. JDA experts could use the following data sources: Marketing Plan, POS History, Inventory, Forecasts, Actual Shipments, Market Intelligence Data, etc. to provide the following solution features: Collaboration, Supply Simulation, Dashboards, Performance Reports, POS Forecasting, Inventory Planning, and Replenishment Planning.
For example, a JDA managed services consultant would extract data from ERP systems, load it into JDA’s demand management module, run the demand plans, ensure that the metrics are within limits and then send the finalized plan into the ERP system for execution. Examples of provided analytics could be the following: Operational and Financial Metrics, POS Analytics, Store Grading, Target Inventory Levels, Assortment Planning, etc.
JDA has large centers of excellence in Hyderabad and Bangalore (India) to help execute the abovementioned managed services initiatives. Should JDA be able to deliver such services repetitively and cheaply to customers’ satisfaction, that would present a significant competitive advantage versus other SCM software solution providers, especially in this economic climate. Namely, to deliver similar capabilities, SAP and Oracle have developed a partner infrastructure that likely results in higher costs for the end user.
A Landmark Lawsuit?
As mentioned earlier, a court in Dallas, Texas handed down a US$246 million judgment in favor of Dillard’s against JDA, as i2’s parent now. This exorbitant damage has sent shockwaves not only throughout JDA’s organization and ecosystem but also throughout the entire business applications industry.
Now, it is not my intention here to judge whether the jury’s decision was inexplicable, ridiculous, too harsh (taking away one fifth of the company’s market valuation), and so on. Neither am I going to judge JDA top management’s due diligence. JDA CEO’s letter to the company’s stakeholders can be read in full here.
Certainly, while a bruising defeat, this event is not the end of JDA by any stretch of imagination. If nothing else, in the US court system, large corporations and their creative legal counselors can drag and delay the process via appeals, offers, counteroffers, and finally settling for a more reasonable amount (if the appellate court does not already quash the previous judgment).
But my point here is that this lawsuit’s outcome might signal a complete end-user mindset shift and an inflection point in the industry. JDA was likely feeling the jurors’ wrath and paying for the sins of other reckless corporations, such as British Petroleum (BP) or Goldman Sachs from the recent past. But all other software vendors will from now on have to be careful about their aggressive claims and promises to prospective customers.
It has been general knowledge that companies used to expect their business software to work partially and that benefits would be dubious. It appears that no longer it will be sufficient for any software company to produce software that works the way the documentation says it should work (i.e., crunch numbers) or that one should customize software beyond recognition to meet specifications.
In other words, it will no longer be enough to deliver bug-free software and leave the customer to deal with the software and try to gain some benefits alone. If a vendor’s aggressive salespeople do happen to suggest that some benefits will accrue that are not actually achievable by the software in question, that might likely become the software company’s problem (and no longer only the customer’s).
On the other hand, if JDA can deliver its ambitious managed services with clear-cut repeatable solutions and benefits, that would certainly be a recipe for success and how not to repeat bad press headlines. That’s to say that JDA could parlay this unfortunate event to its advantage in the long term.
Dear readers, what are your comments, opinions, etc. on JDA’s approach and strategy, as well as on the shifting buyer’s expectations? What are your experiences with JDA and i2 (especially your experience with their solutions and services)? We would certainly be interested in your experiences with the abovementioned SCM software categories (if you are an existing user) or in your general interest to evaluate these solutions as prospective customers.