Sunday, October 01, 2006

i2 innovates with hosted vendor-managed inventory services

A Spectator reader who works at i2 has just alerted me to i2's new vendor-managed inventory (VMI) offering for consumer industries.

I've written quite a bit in the past about i2's fall from leadership in the supply chain management software business. For example: i2's virtual abandonment of its SRM business. So, it's good to see something that appears to be a real innovation for i2.

i2 dubs the new offering "planning as a service (PaaS)." It combines i2's supply chain management software, hosted as a software as a service (SaaS) offering, with offshore business process outsourcing (BPO) services to operate the program on an ongoing basis.

i2's offering appears to be an outsourcing arrangement more than anything else. For example, a large consumer packaged goods manufacturer might go to i2 for help in setting up a vendor-managed inventory program. Instead of just selling software to the manufacturer and letting the customer struggle to put together all the pieces, i2 now takes the lead for all aspects of the program. It does the analysis to build the business case, designs the to-be process, sets up and tests the design through a pilot program, and implements and executes the full program on an on-going basis.

The software can be hosted by i2, or, if the client prefers, it can run the system behind its own firewall. The outsourced personnel are largely located offshore, in Banglore, India, playing to i2's strong relationships there. My source indicates that i2 is also looking at other offshore locales, including one in the Central or South America to balance out the time zones around the world. The offshore connection also suggests that i2 will be able to scale the offering more easily than if these personnel were located in the U.S. Early experiences indicate that i2's resource requirements are most heavy at the initiation of the project, when there is much work to do in understanding the client's business and normalizing/cleansing the client's data. Once the relationship moves into ongoing execution, the resource requirements taper off quite a bit.

Some might argue that i2 is finally recognizing what its clients were really looking for all along. Supply chain consultants have told me in the past that i2's products were really more of a tool set than complete package, and that it took a lot of skill and experience to tailor i2's products as part of a supply chain program that is specific to a given company and industry. Many clients simply do not have the expertise to do this.

Now, by taking responsibility for the entire program, including the results, i2 is aligning its resources to meet the real needs of the client. I suspect it is also enjoying a much larger budget (the whole pie) than it would get by just providing software and implementation service, which are just two small slices.

i2 includes a case-study for Panasonic, an early adopter of i2's VMI offering, and the results are pretty impressive:
Before deploying this consumer-oriented solution, Panasonic suffered from misdirected inventory, stock-out problems, and dead inventory in slow markets. Sales and profits were weak, and relations with key retailers were less than ideal.

After implementing the i2 solution, inventory distribution is now completely aligned with consumption, and customer availability jumped from 70% to 95%. The average week of supply in the channel went from 25 weeks in 2004 to just five weeks--and trending downward--in 2005. Unit sales of the targeted plasma television rose from 20,000 the previous year to approximately 100,000 in 2005. Operating profits for the business unit went from a 10% net loss in 2004 to a projected 13% profit for 2005.

Best Buy, the initial retailer covered by the vendor-managed inventory model, has since elevated Panasonic from a Tier 3 Supplier to a Tier 1 "Go To" Brand for plasma televisions.
Panasonic was i2's first success with its new VMI service, and my source indicates that there are two other consumer industry clients in implementation as well as two clients in high tech electronics that are in process. These accounts are not yet ready to go public, but their early progress is quite encouraging.

I believe that i2's offering is a good example of how technology providers can combine the concept of SaaS with managed services, including offshore outsourcing, to deliver greater value to clients. Other traditional vendors should take note.

Related posts
i2 kills off its SRM business
i2 fires 300, struggles to refocus
i2 founder gives up top spot to new CEO

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