Specialist
Former VP at Blue Yonder Group Inc (JDA Software Group Inc)
Agenda
- SCM (supply chain management) software industry overview, noting key trends and categories such as planning, execution and collaboration, and legacy offerings such as WMS (warehouse management system) and TMS (transportation management system)
- Impact of macroeconomic backdrop on demand, sales cycles and pricing
- Competitive dynamics, highlighting key participants, including Blue Yonder (TYO: 6752), E2open (NYSE: ETWO) and Manhattan Associates (NASDAQ: MANH)
- 1-3-year outlook, highlighting M&A trends
Questions
1.
Could you describe the SCM [supply chain management] software industry? How has it evolved over the last couple of years? Supply chain developments over the last 2-4 years have impacted how businesses operate and people live.
2.
What 2-3 key themes or trends are impacting the SCM industry most? You mentioned the pandemic and SCM being a differentiator. Given the US’s trade tensions with China, onshoring has become a lot more important.
3.
How much of SCM software in the marketplace is legacy vs cloud-enabled? You noted second- and third-generation software and broader digital transformations and cloud transitions. How might that mix evolve in 3-5 years?
4.
How might the macroeconomic environment, inflationary pressures and fear of a potential recession impact the SCM software industry? Given that SCM software uptake is tied, to an extent, to commerce and trade, a slowdown would have a notable impact on the industry.
5.
How might SCM software players potentially approach cost savings? Is it sourcing goods or components at lower prices? Is it about reducing inefficiencies in the supply chain that are wasteful? How might SCM players approach current and potential customers in this environment?
6.
You highlighted that a lot of the SCM technology currently deployed and relied on is quite antiquated. How important is it to modernise SCM systems such as WMS [warehouse management system] and TMS [transportation management system], which have been around for decades and haven’t had wholesale upgrades? To what extent does that reflect the critical nature of those systems that potential disruption when upgrading is more problematic than potential benefits from better technology? How important is to modernise given the increased focus on real-time analytics and forecasting?
7.
Is the current macroeconomic environment more likely to accelerate shifts to innovative platforms and products? Many companies probably have known that upgrading systems is the best approach, but there never is an ideal time to do these things and so companies have delayed upgrades repeatedly. Will economic uncertainty slow down changes because companies are looking at more obvious opportunities to save cost and expense, or will this be an impetus because they see an opportunity where there is a fair amount of disruption where they want to do something they’ve been thinking about?
8.
What are the major categories and subcategories in the SCM software industry? In a recent Interview [see E2open – Supply Chain Management Solutions, Acquisitions & Challenges – 19 October 2022], the specialist noted the company’s segments being channel planning, logistics, trade and supply. Manhattan Associates, another significant player, talks about supply chain, omnichannel and inventory. Where is the overlap among categories?
9.
What is the percentage of SCM software revenues coming from the three primary categories – planning, execution and collaboration? How might that shift in three years?
10.
How do you estimate the TAM of the SCM software industry? E2open has indicated it has a USD 54bn TAM with an indicated CAGR of around 12%. Given that E2open has a lot of different products across the three areas that you highlighted, I think that’s a decent representation of the market size and growth.
11.
Where do you see the most growth for SCM software and where do you see growth lagging? You touched upon collaboration. I’m assuming that the players you noted will be the ones that will grow at that outsized rate. On the other hand, if you’ve had a system in place for 15-20 years and are at risk of displacement, perhaps those are the more vulnerable areas, perhaps within execution.
12.
Who are the most significant companies and businesses in the SCM software industry? What are their relative strengths and weaknesses? Many players have been built on WMS and TMS offerings, which are now being disrupted.
13.
What do you think of E2open, which has been around for a long time and has many products across categories and subcategories? Many people have become reintroduced to it after the company went public again.
14.
You highlighted whether or not it’s imperative if you have a broad unified platform across planning, execution and collaboration and that everything is connected. Or if it’s not a winner-take-all kind of market and if you are particularly good in planning, execution or collaboration, customers will find you, and if you have modern and flexible enough technology it can connect in and provide more value. How will industry leadership play out over the next couple of years, given those dynamics?
15.
Can you discuss point solution areas and companies you think have potential? My sense is in planning you have Kinaxis and O9. For control tower, Elemica and Infor Nexus come to mind. In visibility, FourKites and Project44 are notable.
16.
What other categories with point solutions providers are worth detailing? What about in execution, acknowledging that right now that is the biggest piece of the SCM pie, but there are probably more legacy technology and vendors in that category?
17.
There hasn’t really been as much consolidation across SCM solutions recently as one might have expected. Blue Yonder was acquired in September 2021, but by a non-industry player in Panasonic. Llamasoft was purchased for USD 1.5bn by Coupa in November 2020. What other deals could you see coming? Might it be the big legacy platform providers buying point solutions-type companies? SCM have been trying to get more of a foothold in point solutions in recent years. Who will drive to make those deals, and who might be the targets?
18.
You didn’t include E2open in your initial comments about the primary foundational players in the industry, and one of the reasons is because of the number of deals it’s done and the lack of focus it has demonstrated. The flip side of that coin is Manhattan Associates, which really hasn’t done any deal-making for the entire existence of the company. You mentioned the Evant deal from over 15 years ago, which didn’t work out so well, and maybe that soured it on M&A. What is the value of doing M&A in SCM, because it seems you should really only do M&A if you can actually extract value as a result of connecting the systems and having full integration capabilities? Is that how M&A will develop, where it won’t be these large-scale deals, but rather smaller point solutions where you can have cloud technologies and data integrations?
19.
Which 1-2 companies will be clear winners over the next three years? Which 1-2 companies will face challenges over that period of time?
20.
What do you think Oracle will do with its SCM offering? People note strong benefits that an Oracle and SAP have because of the connectivity to an ERP [enterprise resource planning] platform, and you noted that can unify systems and processes. To what extent might Oracle not invest in SCM and leave it as is vs refocus on the area and potentially pursue an acquisition of industry players?
