Interview with Greg Owens, CEO of Manugistics
ASCET:
What do you see in store for 2002?
Owens: Fortunately, 2002 is going to be a better year, I think, than 2001. As we entered 2001, some of the technology companies were already starting to hit the wall. The hardware guys got there first, and then the software guys were starting to see significant slowdown in the first quarter. We were fortunate, we were operating well, and we were in a diverse number of industries, so we didn't really feel the slowdown until we got into the late part of the summer. But now I see activity picking up.
You read these articles now that the recession started in March of last year, right? It's like (laugh) no kidding. Somebody in the media finally wakes up, but it's December before you first read that. Those of us that are operating figured it out long before. A lot of people said through the summer until September that "it's going to get better, it's going to get better" — it was a false sense of optimism. I think what happened on September 11 clarified the picture — reality hit, and everybody realized that we've got a problem with the economy and this is just going to make it worse. People had to go back to their executive meetings and say "OK, here's where the business is, and we know it's unrealistic to not invest in the business, but we've got to prioritize. Instead of taking on seven initiatives right now, we can only pay for three initiatives, so what are the priorities?" What I saw come out of those kinds of meetings is that, starting in October, our proposals started going up. We had a record number of proposals in October.
Right now, I'm seeing some momentum. When companies are starting to see some light at the end of the tunnel, they start to do some reprioritizing of investments. We're starting to see benefits from that, but that doesn't mean that everybody's going to see momentum at the same time. It's when those priorities are made that people start to come back on board and invest back in their companies — because they've reached a level of stabilization and they see a path forward.
What we're going to see going forward into 2002 is that the economy will start to rebound. I don't think it's going to come bouncing back like a superball; I think it's going to come back slowly, because there's still a lot of unemployment out there in the marketplace. Fortunately interest rates are very low.
ASCET: What is "enterprise profit optimization," and how does the supply chain fit into it?
Owens: What became apparent to me, and the reason I went after this acquisition of Talus (PRO software) and the whole pricing/revenue optimization area, was that we had always taken a static demand plan from a supply chain and worked backwards. We started doing inventory deployment, fulfillment planning, supply planning, manufacturing planning, the whole bit backwards to be able to meet that demand picture. What became apparent to me was that pricing — and the elasticity of pricing — drives demand behavior. So you drop the price, you tend to drive more demand.
But being able to determine the level of demand changes based on price elasticity allows you to align supply to it, and then to optimize around the margin contribution of making the sale and selling what you should. So if you increase demand you increase your sales and maybe your market share, but you should also try to increase your margins. How much investment did you need to make to increase the demand? How many trucks and plants did you need to allocate? If you already had capacity within the system to produce, then it was probably a good decision. But if you have had to make a lot more investment in physical assets, you may have had to put a lot more capital cost into it than it was actually worth.
Traditionally, people haven't looked at that. They make the initiative to increase sales, but they really don't look at where their margin contribution is coming from and how pricing optimization and supply worked in concert. That overarching umbrella is what we call enterprise profit optimization.
ASCET: Have you seen any evidence of real collaboration among a group of supply chain partners, and how important is collaboration in gaining a competitive advantage?
Owens: I think it's going to be very important for taking inventory out of the system. A lot of struggling retailers have a huge amount of working capital tied up in their inventories. Because of debt financing that is in large part due to their inventory building, it becomes a very important piece of the puzzle. So if you can capture exactly what the customer wants, when they want it, and where they want it delivered, and then align the inventory to get it there (as opposed to having excess inventory), then that becomes a huge competitive advantage.
For example, Dell figured out a way to not hold inventory, but to produce the product when the customer ordered it, which allowed them to produce a lower cost model than their competitors. I think what we're going to see around collaboration is the same thing. Collaboration in forecasting, management, and replenishment is going to be a big deal between retailers and consumer products companies. The consumer companies need that demand information on a real-time basis. They don't need it a week later, batched over as it's been compiled. They don't need to continue to replenish back to a retail warehouse that draws down and then makes a huge reorder. So I do think collaboration is important in that aspect. It's also going to be important on the supply side of things and I think some of the things that you're seeing now — where companies are collaborating around the physical design of the product, trying to reuse part — are going to come into play a lot more, as well.
ASCET: Do you think that trading portals may rise from the ashes?
Owens: We'll see once the economy starts to pick up. I would call what we are in right now an operating environment, and companies don't spend in that kind of environment — they're in blocking and tackling mode. Companies are trying to produce with very quick results, with very fast return on investment. Once profitability bounces back, spending will increase and they will try to upgrade the networks. I do think that many of the larger companies in particular are going to go after private trading networks themselves as opposed to public consortium marketplaces. You'll see more networks set up for a company hooking up to its own suppliers in its own trading network.
ASCET: With all of the consolidation in the industry, many analysts are talking about "mega solution providers" who will have a single, huge suite with all the answers. Is there a total solution provider, and is Manugistics a total solution provider?
Owens: I think you will have total solution providers by segment. I
don't think you'll ever have a software company that does everything, but companies
will end up owning categories. Manugistics plans to be the owner of the supply
chain enterprise profit optimization area.
