By Steve Geary and Shawn Winn
On the cover of the 2000 i2 Technologies Annual Report, CEO
Sanjiv Sidhu is quoted as saying, “i2 will add $75 billion
of value, in growth and savings, for our customers, by 2005.” Confident
words, but understandable, since i2 had just blown through
the billion dollar sales mark for the fiscal year ending December
At the end of 2000, i2 Technologies was trading at over $50
a share, Manugistics was still flirting with $60, Adexa was
an up and comer looking for an IPO, and the smart money remained
in love. And why not? The APS companies had a value proposition,
a customer base, a track record, a revenue stream, and at least
in the case of i2, serious profits.
And then the music stopped.
These companies were not dot bombs, but implementing APS was
never easy. Nike reported big problems with their APS implementation
in 2001, resulting in lost Q3 sales estimated in the press
as approaching $100 million. Hershey’s candy also ran
into trouble during their complex software transition and implementation,
of which APS was a part, resulting in lost sales estimated
at $150 million one Halloween season.
In fact, the supply chain problems that were supposed to
be solved by APS sometimes weren’t. Finger pointing
among the software buyers, the software companies, and the
implementation consultancies turned the market into a soap
opera. APS prospects took one look at the situation and headed
for the hills.
There has been an active marketplace in APS software for decades.
Today, the ERP application suite providers are making inroads;
there are many point solutions available from the vendor base,
as well as the APS suite providers. Two of these suite providers
are both publicly traded and well known, so they provide interesting
indicators for the APS market space. A snapshot of i2 and Manugistics
then and now provides some insight into what remains of a once
A billion dollar annual run rate is a distant memory for
i2. For the nine months ended September 30, 2004, SEC filings
report sales of $305 million, essentially breaking even,
reporting a net profit of $47,000. And who knows how much
value has been created for i2 customers, but now that we
have arrived in 2005 does anybody want to defend the $75
billion dollar figure? Today, i2 trades at less than $.75
a share and trades over the counter.
Even in the boom time,
Manu reported a loss of about nine million on sales over
$150 million for the fiscal year ended
February 29, 2000. In the fiscal quarter ended November 30,
2004 Manugistics continued to struggle, losing over $13 million
on sales of $45 million. Loss from operations is less bleak,
but they still report an adjusted operating loss of $3.3
million in the recently announced results. Today the Manu stock
is driving hard to recover and break three bucks.
So, given the meltdown that has taken place, should a forward
thinking supply chain professional still consider APS projects?
In fact, the market has survived, and the vendors haven’t
been resting. Traditional well-known players in the APS space,
like i2 and Manugistics, while retrenching, have refined their
focus and have improved their capabilities. The leading ERP
vendors, SAP and Oracle, have invested aggressively in bringing
their own products to the market. And specifically articulated
solutions, designed to solve point problems, continue to abound.
Cut through the hype, look past the war stories, and a supply
chain professional can find value with APS. But it is complex.
APS systems are enablers, but are useless in a vacuum. In order
for a technology implementation to succeed, it needs to be
bundled with serious, fundamental work in the area of process,
policies, and performance. There is no silver bullet.
APS is the application of complex mathematical modeling and
optimization techniques in the supply chain process to achieve
highly refined and achievable plans that best achieve the organization’s
goals, while respecting the organizations constraints. Properly
implemented APS software works as an “adjunct” to
the business core, operating in tandem with policy, process,
and performance, drawing on reams of business data to search
out the best solution. Business systems (legacy, MRPII, ERP)
are transaction based, and much of the analysis that occurs
in advanced planning and scheduling occurs above the transaction
level of detail.
So, now that most of us have our ERP houses in order, is it
time to leverage the transactional core and revisit the topic
of APS? Some examples of successful APS implementations:
- General Electric Plastics (GEP) implemented an
APS solution focusing on Production Planning and Inventory
Planning. Prior to the implementation, GEP turned eight
times a year. After the implementation, that number almost
- Delta Airlines creates detailed demand forecasts
and then uses these forecasts to optimize pricing strategies.
program, Delta produces on average twenty-five forecasts a day for each
of their nearly 5000 flights. The forecasts are used
to optimize their various passenger value classifications.
the implementation, there has been an 11% growth of revenue
in North America and 20% internationally.
- Cisco deployed
an APS system in service parts planning to change their "static
sparing" model to a "dynamic sparing" one.
Cisco benefited from a rise in service levels while
reducing spare parts inventory by 21%.
- Harley Davidson
applies APS techniques to production, reducing
work in progress and ensuring assembly parts availability.
This allowed Harley to free up 40,000 square feet of
floor space, gaining needed manufacturing capacity without
plant build-out. Harley achieved a 19.4% increase in revenue, without
new plant construction.
- Whirlpool uses APS to drive demand planning and forecasting,
realizing reductions in finished good inventory and
improving customer service. For example, in Australia, revenues
while finished goods reduced by $4.8 million, customer
service metrics improved by 10 percent, and product availability
from less than 60 percent to more than 70 percent.
According to their Director of Global Logistics Integration,
American benefits are "substantially greater."
- Sun Microsystems implemented APS and reduced their inventories
from $1.049 billion to $484 million. Inventory turns
had fallen to 6.7 in its worst quarter, but were brought
back up to 9
after the implementation. The inventory planning cycle
was reduced from three weeks to one.
- Dell implemented an APS and reduced
their on-hand inventory. Dell aggregates its orders every
20 seconds, analyzing
the material requirements. The APS platform compares Dell's on-hand
inventory with its suppliers' inventory, then creates
a supplier bill of material to meet its order needs. This
to operate with seven hours' worth of inventory on
the shop floor.
When investigating APS, it is important to understand the
nature of the problem set to be addressed, both now and in
the future. Analytical techniques can be applied in four general
- Demand Planning, Forecasting, Collaboration
Planning and Scheduling
- Transportation, Network Design
- Inventory, Distribution
Planning, Service Parts Planning
products fit different classes of problems. While generalizations
are always dangerous, it is important
to understand the implications of choosing a solution
Traditional APS offerings offer a breadth of power, configurable
to address problems across the Supply Chain spectrum. On the
other hand, integration with the transactional backbone can
be complex and a challenge with definite interface maintenance
issues in the long run. Also, proper use of one of these powerful
toolboxes requires a degree of analytical sophistication that
may not be present in all organizations.
The offerings from the ERP vendors have captured significant
market share over the past several years, and for good reason.
Technical implementation (i.e. interfaces) is far easier, for
the application is “under the umbrella” of the
ERP backbone, offering the potential of a speedier time to
benefit and reduced maintenance in the long run. On the other
hand, these offerings have less breadth and depth than the
traditional APS offerings, which serves as a drag on the achievable
Point solutions are exactly that. More fully articulated than
either of the other classes, these products are designed to
solve a specific problem. They offer the promise of a rapid
implementation, but are limited in scope and cannot be extended
to other problems in the chain.
Rather than viewing the current market turmoil as a negative,
the savvy buyer can take advantage of the situation. Step carefully,
understand your context, and plan, plan, plan. The value proposition
APS is worth remembering.
©2005 ChainLink Research, Inc.