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===== INDUSTRY TRENDS =====

>> December Manufacturing Activity Signals Sixth Consecutive Month of Growth

December economic activity in the manufacturing sector grew for the sixth consecutive month. This is its best month since December 1983, according to the latest Institute for Supply Management (ISM) Manufacturing Report on Business. ISM's PMI registered 66.2 percent in December, an increase of 3.4 percent.

Much of the momentum is in New Orders, where the index is at the highest reported reading since July 1950. ISM's New Orders Index rose 3.9 percent to 77.6 percent in December.

According to ISM, Backlog of Orders increased in December and the Employment Index grew for the second consecutive month. ISM's Prices Index indicates that manufacturers again experienced higher prices in their purchases. The New Export Orders and Import Indexes continue to grow with exports accelerating during the month.

ISM's Production Index rose 4.7 percent to 73 percent in December. The ISM Employment Index reached 55.5 percent in December, an increase of 4.5 percent.

 

===== COMPANY NEWS & BRIEFINGS =====

>> Briefing: Invensys's ERP Group Turns Over a New Leaf

By: John Moore

Invensys's remaining ERP group, the former process ERP supplier MARCAM, which Invensys acquired several years ago, visited ARC's offices to update us on their progress and plans for 2004. This group has had a troubled past. Undergoing several reorgs, becoming lost under the much larger, and ultimately ill-fated Baan acquisition (which Invensys sold to SSA-Global in June 2003), and recurring questions as to what exactly will Invensys do with this group, it appears that the clouds are finally lifting.

This group is coming out of a protracted storm, one may even call it a white-out. A new management team has been put in place and wisely, Invensys corporate has given this new group the flexibility needed to put them on a new course. And the course is guided by a very tight focus and a return to its historic roots.

That return begins with yet another name change, but for many the change will be quite welcomed as this group will now be called Invensys MARCAM. Moving forward the MARCAM Group will migrate away from an opportunistic approach to the market and focus on those markets where it has traditionally done well. First and foremost, will be food and beverage, second is pharmaceuticals and third, specialty chemicals. MARCAM has always had one of the better ERP solutions for food & beverage (testimony can be found at marquee customer, Kraft, which has 100 plants on this system in North America) and the turmoil in this sector should provide MARCAM an excellent opportunity, if they execute well.

This year saw prime competitor, Ross get acquired by ChinaDotCom and it remains to be seen what CDC will do with Ross outside of the Asian market. Agilisys, which acquired the process ERP solution of SCT is another competitor who appears to be walking away from the food & beverage ERP market with its recent focus, via acquisitions, on automotive. Certainly, large ERP suppliers SAP, Oracle, and PeopleSoft also compete in this market, but MARCAM is targeting the SMB sector, a market that these Tier 1 suppliers have only recently begun to target. Microsoft is another potential competitor in the SMB space but does not have near the functionality of MARCAM to serve the unique needs of the process industry sector.

That's not to say MARCAM will not have it challenges. One supplier that will give MARCAM some trouble is SSA, which has competing products in BPCS and the recent Infinium ERP acquisition. The tier one suppliers will also create some challenges as they increasingly target the mid-market. This organization has also gone through significant turmoil over the last several years, loosing a lot of momentum in the market, as well as numerous, deeply experienced, and talented employees. However, with the new management team in place, renewed focus, and a stable and happy customer-base to build upon, Invensys's MARCAM group has a rare opportunity to rise like a Phoenix from the ashes and capture a market, that has as well gone thorough some significant turmoil of its own.

 

===== ACQUISITIONS & PARTNERING NEWS =====

>> 3M Acquiring HighJump Software, Supply Chain Execution Solution Provider

3M announced today that it has entered into a definitive agreement to acquire HighJump Software Inc., a provider of Supply Chain Execution (SCE) software and solutions (including Warehouse Management, data collection, and other SCE applications). Terms of the transaction were not disclosed, and is subject to approval by HighJump’s shareholders. It is expected to close in late January 2004.

In the corporate press release, the synergy between HighJump’s software and 3M’s Integrated Packaging Tool was emphasized. 3M is active in providing software and related services to manage complex packaging needs for manufacturers. End of line packaging is an area within Supply Chain Execution which has not recieved enough attention from analysts and press (ARC is an exception; see ARC Insights 2003-43E, "The Merging of Outsourced Packaging and Logistics).

However in a briefing the day the acquisition was announced, a top executive from 3M made the point that 3M's current strategy is to drive an increasing percentage of corporate revenues from services and solutions. Supply Chain Execution is seen as a logical area of expansion within the Industrial Solutions and Systems Division. This division also does Six Sigma consulting. Discussions about additional acquisitions at 3M are ongoing.

HighJump will be branded as HighJump Software, a 3M Division. They will be a standalone subsidiary and management has been incented to stay.

According to Steve Banker, Director, ARC Advisory Group,"This deal offers both potential benefits and risks for HighJump. On the positive side are the financial stability of 3M, potential synergies in the Supply Chain area around RFID(3M holds some patents) and Six Sigma consulting, a reduced cost to market their solutions globally, and finally 3M will use HighJump internally. However, in acquisitions involving very large corporations, synergies are often not achieved. It is not easy to get elephants to move nimbly. The main risk is that 3M is not viewed as a company with Supply Chain expertise, to the extent that HighJump's identity becomes subsumed by 3M, it will become harder to close deals. The final risk is one to culture, HighJump has been one of the fastest growing SCE companies and a company known for writing good code quickly. The 3M executive stated that he recognizes HighJump's 'unique' culture is an advantage and needs to be retained."

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