Made2Manage acquiring ETO vendor Encompix

Made2Manage Systems, a Tier III ERP vendor, is acquiring Encompix, an even smaller player focused on engineer-to-order manufacturers. The deal shows once again how difficult it is for small enterprise system vendors to remain independent these days.

I've had the opportunity to evaluate Encompix a couple of times in the past. It is not a big name in the ERP space, but it has carved out a nice niche for itself among engineer-to-order manufacturers. Most ERP systems require inventory items to be defined before a purchase order, sales order, or manufacturing order can be created. For companies that build products based on customer specifications, such an approach simply does not work. The sale may be made, but material must be purchased, and some production activities must take place before the product design has been completed. The approach that's really needed is to treat the customer order as a project, and to tie all design and production activities to activities in the project plan. There also needs to be a tight integration between engineering functionality (e.g. product data management) and the production system.

There are only a few ERP systems that do this well. Baan (now owned by SSA and renamed ERP LN) is one. Glovia is another. Oracle can do it, but its functionality in this area is relatively new and evolving. Encompix is another, and one of the smallest. As I understand it, it originated in the early 1990s as a joint venture of several ETO manufacturers in the Midwest that were unhappy with the lack of attention being given to their requirements.

Made2Manage has been turning out to be an aggregator of small niche vendors over the past two years. What all of its acquisitions have in common is that they serve very narrow industry segments. The acquisitions include DTR Software (ERP for plastics manufacturers), ADS (a former M2M reseller and developer of M2M extensions), Cimnet (ERP for PCB manufacturers), and AXIS (ERP for manufacturers of "rolled products," such as cable and wire).

I like the narrow industry focus of M2M's strategy, but I'm not sure how easily it will make money doing it. Some of these acquisitions are on entirely different technology platforms: M2M's original system is Microsoft .NET-based, while Encompix and AXIS are Progress-based. This limits the economies of scale that can be achieved in product development. Operating each of these products as separate business units also limits sharing of administration, management, and sales resources.

Update, Apr. 13: For an extended discussion and clarification on the strategy of M2M, see my post on April 13, "Making money in software with a niche-industry strategy."

A press release on the Encompix deal is on the M2M website. Managing Automation has an article discussing M2M's previous acquisition of AXIS, with more details on who is putting the money behind M2M's acquisition program.