Large global shippers will always be tasked with managing a mix of old and new supply chain software, and thus have two paths to upgrade those systems.
They can either invest in multiple systems — such as transportation management, visibility, or trade compliance tools — and stitch them together, or they can look for a system with all of these tools in one place. In some ways, this is the classic question of whether a shipper is better off using a best-of-breed approach or using one brand’s pre-integrated set of tools.
Michael Farlekas, CEO of the supply chain planning software provider E2open, is betting that large shippers will gravitate toward the latter. That bet has come in the form of three acquisitions in the last nine months that have extended the range of functions E2open can provide its shipper customers and broadened the company’s connectivity to parties in freight — such as ocean carriers and freight forwarders -- that previously eluded E2open.
The acquisitions — INTTRA, Cloud Logistics, and most recently, Amber Road — have placed E2open squarely in the consciousness of the global logistics industry. Farlekas said that has given him access to ocean carriers and the largest freight forwarders as the company links the supply chain planning tools it previously sold to its new toys: global transportation management and trade compliance tools from Amber Road, domestic transportation management from Cloud Logistics, and booking and ocean visibility from INTTRA.
E2open's customer base is largely Fortune 250 manufacturers, including Boeing, Cisco, Dell, Foxconn, Panasonic, and Procter & Gamble.
Logistics software convergence
“To me, it’s about convergence, a company not thinking of these things as isolated events but as parts of the same process,” Farlekas said in an interview with JOC.com. “It talks to the challenges large enterprises face in terms of IT infrastructure with end-to-end supply chains.”
For instance, whereas a logistics-oriented team might look solely at tools that manage freight, a large enterprise making carbonated beverages and shipping them globally needs to coordinate the procurement and movement of the fructose that goes into a soda, the conversion processes of the product, all the way through the sales of the finished goods via different channels.
“That type of company, their IT environment looks like multiple [enterprise resource planning systems], multiple planning tools, multiple [transportation management systems],” Farlekas said. “The challenge then becomes; how do they integrate the data? How do I manage upgrading when I have multiple systems connected? How do I go about updating those in sync?”
The challenge is that supply chain software companies will upgrade and advance their products on different schedules. “So, I have to manage how I handle those upgrades [if I’m using different software for each function],” he said. “But maybe solution A hasn’t evolved enough for me to take advantage of the update in Solution B. We’re trying to offer a harmonization and upgrade path that is in sync.”
Farlekas said large shippers will “always have a continuum of old and new software. How do I deal with that, especially when some are still on-premise but they’re mission critical, while others are in the cloud? We can see what the connectivity of the two applications mean together.”
That’s the gamble E2open is taking — that stitching together its own “pre-freight” solutions with those of the companies it has acquired will deepen its relationships with shippers looking to simplify and condense the number of systems they use.
“Previously, we were about planning and collaborating end to end,” Farlekas said. “We have networks, which give us source data, and applications. The supply chain software world has been organized around application companies, data/connectivity companies like SPS Commerce and OpenText, and then algorithmic companies like JDA and Manhattan that optimize answers to questions. We’re trying to connect those worlds.”
Owning the source data
He characterized INTTRA as a “network company” and Amber Road as “a network and application company” in that Amber Road’s network is collecting trade regulation data all over the world.
“We want to own the connections to the source data,” Farlekas said.
E2open currently has 150,000 partners in its network, which Farlekas described as split between the company’s customer’s three ecosystems — suppliers, co-packers, and companies involved in the production of goods; retail and channel partners that provide manufacturers with demand signals; and transportation and logistics providers. “We think those connections will be hard to replicate,” he said.
In particular, the INTTRA acquisition has facilitated openings into a new segment. Farlekas said the deal has been “valuable, primarily because of access to carriers and freight forwarders. Prior to that, that community didn’t know us at all. To be able to articulate a vision that, ‘Hey, we have software assets that are interesting to put in front of your customers when you make the buy-versus-build decision and when you think about convergence.’ Overnight, it’s opened a market to us to one where we have unlimited access.”
The Amber Road purchase, finalized this month, tied a loose end on a deal E2open first initiated in early 2018. Amber Road rebuffed that unsolicited approach, but agreed to sell this year for $450 million, or approximately 28 percent higher than E2open’s final offer in 2018.
“It was a case of the dynamics of the sale process changed,” he said. “When we made an offer, it was a blind offer. They didn’t think it was enough. We went through a couple rounds — they’re so complementary to what we were. The world is becoming a smaller place. Trade is increasing over time and becoming more complex. [Amber Road] formed more than 15 years ago. By itself, it serves a great function, but connected to something else, it provides a better function.”
Amber Road’s ceiling
When asked what prevented Amber Road, and the global trade management software market in general, from growing more substantially, Farlekas said the company had done a good job of reaching companies with the network complexity to require such software, but that it had reached a ceiling of sorts.
“The primary product was essential for a narrow set of customers,” he said. “You need companies shipping internationally, and then ones that have such complexity and volume that need such a solution. Those are measured in the thousands, not the tens of thousands. As they’ve grown, the opportunity to find new customers has become harder. The ones that need what they provide have already become customers.”
Farlekas recognized the problem because he said E2open had similar challenges, especially as a public company, which Amber Road was prior to the acquisition.
“We did something specific for a set of customers, but had a hard time growing,” he said. “The mission critical nature of our product can mean it’s a slow process to sell into these companies, so organic growth is a tough path. You can acquire, but that requires capital. That’s why we decided to go private.”
He said E2open could also conceivably use Amber Road data to serve customers who don’t want the full trade compliance software suite. “Our solutions don’t have to be sold in a traditional way,” said Farlekas. “We could take Amber Road’s software and sell it as a service. We could bounce out and provide answers from Amber Road.”
Farlekas said E2open’s broader acquisition strategy revolves around what he called “adjacency,” meaning acquisitions don’t just fit in like missing puzzle pieces but overlap with products the company already offers.
“Every acquisition we have done has been adjacent to something we already have, so it’s a contiguous platform,” he said. “We don’t go to market as a portfolio, we go as a platform of interconnected products.”
E2open will likely acquire other companies, Farlekas said.
“There are other important software companies that would make us better and our platform would make them better,” he said. “There are other areas we’ll continue to focus on and we’re well-capitalized. Our innovation is in the connectivity of these companies and as a solution to the lack of connection.”