Earlier today Infor announced it would acquire GT Nexus and its cloud-based, global commerce platform for $675 million. Pending regulatory approval, expect the deal to close within 45 days.
While at first glance this might seem to be a “me too” move following in the footsteps of SAP’s acquisition of Ariba, this is actually different in that it is all about direct (versus indirect) procurement, which is inherently more complicated because it must tie back to the sale of goods and the production process.
This is something Infor CEO Charles Phillips says he and Infor President Duncan Angove have been looking to do since coming on board in late 2010, pointing to the continued shift to contract manufacturing that moves much of the production process outside the four walls of the traditional factory. “Continued” is indeed the right adjective to use here.
This shift started decades ago when low-cost country sources made “outsourcing” very appealing. As companies have tended to become less vertically integrated, reducing costs and focusing instead on their core competencies, this necessitates new ways of doing business with each other. Through the purchase of subassemblies or finished products, the contracting of manufacturing or distribution services or the outsourcing of customer service or information technology, the value chain has lengthened and become more complicated. Yet expectations of response time and delivery performance have risen dramatically.
This is actually a topic that is near and dear to my heart. I went back and dug up something I wrote previously back in the day, before the digital age, when we talked about “E-business.” Here is what I wrote:
These new business models involve multiple companies working cooperatively and collaboratively together, in a seemingly seamless manner, as if they were a single virtually vertical enterprise. A company that can successfully interoperate in this way can claim to have reached the goal of full E-business integration.
As a result of this push toward full E-business integration, businesses face challenges that force them to push the envelope of business information systems. ERP grew from its predecessors of MRP and MRP II, constantly expanding its solution footprint to address more and more needs of the enterprise. Yet ERP was not conceived to look beyond the “four walls” of the enterprise, regardless of how expansive those walls would become, simply because the concepts of MRP and ERP were born in a time when companies were run as independent enterprises with arm’s length relationships with customers and suppliers.”
Mr. Phillips and Mr. Angove both acknowledged this situation today in announcing the proposed acquisition. They talked about “post-modern ERP” that (with the addition of GT Nexus) would push beyond those “four walls” and “provide customers with unprecedented visibility into their supply chains to manage production and monitor goods in transit and at rest.”
But none of this is really new news. That excerpt above is from my book, ERP Optimization, which was released in December 2002. Has it really taken more than a decade to deliver on this promise? Yes and no. First of all, when I look back on where we were when I wrote ERP Optimization, I realize just how far we have come. Back then “trading exchanges” weren’t much more than online dating sites for buyers and sellers, and very few offered value-added services like trade financing, logistics, electronic payment and settlement. Connecting these functions back to your ERP was difficult at best. Internet procurement was in its infancy. Most companies were still struggling with all the non-standard versions of “standardized” EDI. And the smart phone and other mobile devices (apart from the cell phone) had yet to be invented, so most of us couldn’t even dream of being as “connected” as we are today.
So yes, we have come a very long way. But through that progression, our expectations have also risen. We no longer simply “outsource.” We participate in a networked economy and we look to the cloud to keep us all connected. We also deal in a much more global economy, including emerging economies in countries that were hardly industrialized a short decade ago. The speed of business, as well as the speed of change has accelerated beyond anyone’s expectations.
So it is no wonder that the executives of Infor have wanted to fill this need since coming on board. They actually thought about building their own network. But I think they were smart in acquiring one. After all, the value of the network is largely measured by its size, scope and strength. And let’s face it, you don’t build one that is 25,000 businesses strong (like GT Nexus) overnight. And once networks like these are established and mature, it becomes harder and harder to build a brand new one. Once companies like adidas Group, Caterpillar, Columbia Sportswear, DHL, Home Depot, Levi Strauss & Co., Maersk, Pfizer, Procter & Gamble and UPS have joined, that network becomes that much more attractive with each new major brand added – hence the attraction to Infor.
GT Nexus is also a good choice because it is unique in that it includes supply chain financing partners that add even more value. Buyers and financial institutions offer pre and post export financing and payment protection. Infor admits that many of its own customers in manufacturing and retail aren’t even aware of financing options available, even though they might be struggling to finance procurement of materials and services in advance of collection of revenue. And who doesn’t want to get paid faster? Infor therefore sees a lot of opportunity to expand these offering even further. And the fact that Infor, GT Nexus and many top banks are all in Manhattan doesn’t hurt either.
The integration of GT Nexus and the Infor CloudSuites (there are several for different industries, including retail and fashion, which represents about 60% of current GT Nexus business) should be quite straightforward because both use standardized object models (Infor uses OAGIS). This is in fact one of GT Nexus’ strengths in being able to easily connect to back office solutions. Unlike traditional EDI where each connection is unique, this data model mapping allows suppliers to join the network once and talk to all buyers, avoiding custom maps and portals and invasive code development. So this leaves open the question of how the combined company will continue to work with other solution providers, including existing partners like Kinaxis.
Infor will continue to run the GT Nexus operation as a dedicated business unit. The entire management team is joining the larger corporation, a further testament to the cooperative and friendly nature of the acquisition.
All told this appears to be a win-win-win for Infor, GT Nexus and its customers. If not a match made in heaven, at least it is in the cloud.