19 Dec 2002


Shell, i2 Combine To Build Industry-Specific Supply Chain Software

Large enterprises looking to get more for their IT expenditures in a down economy are striking some unusual deals with software vendors. In some cases, companies are turning the traditional "you build, we buy" model upside down and selling intellectual property to software makers. In other cases, enterprises are jointly developing software to improve their return on investment.

 

An example of the latter scenario came when i2 Technologies Inc. and Shell Global Solutions, a network of technology companies within the Royal Dutch/Shell Group, said they're building a supply chain management suite for the so-called downstream market within the oil industry. Downstream oil refers to oil shipped to refineries and then moved as products to distributors, retailers, and wholesalers.

 

Another novel deal was struck this past summer between consumer-products giant Procter & Gamble Co. and supply chain software vendor MatrixOne.

 

In that case, the software vendor became the buyer, with MatrixOne licensing P&G-developed software that's used to manage technical product specifications. The software runs on top of MatrixOne's eMatrix collaboration platform.

 

I2 and Shell Downstream Oil suite will include modules for demand planning and fulfillment, supply chain planning across manufacturing and distribution sites, and distribution and refinery scheduling. The applications, which sit on top of a company's enterprise resource planning, transaction, and legacy systems, are expected to help oil companies with demand forecasting and scheduling of shipments.

 

Shell Oil Products U.S. plans to finish deploying the first module, called Demand Planner, by the second quarter of next year. Following the U.S., the software will be deployed in Asia and then Europe. I2 has started selling the product, which is being marketed by both companies.

 

Shell has been working on the project for three years, evaluating options of either building the software itself or joining with a software vendor. The oil giant started working with i2 in March, contributing its industry expertise and opening up its business processes to developers. As part of the deal, Shell is supplying the beta sites and has agreed to be a customer reference for the product.

 

"Traditionally, the supply chain for the petroleum industry has been driven by supply rather than demand," Greg Lewin, incoming CEO of Shell Global Solutions, said in a written statement. "This joint-development agreement changes the rules in terms of combining tools and business processes that are designed to help petroleum companies focus their strategy from a demand perspective." Shell officials were not available to elaborate on their work with i2.

 

Financial details of the joint venture were not released. But Amir Kazmi, General Manager of i2's energy and chemicals group, said the arrangement enables i2 to enter a market with a new product faster.

 

Shell, on the other hand, is licensing software that has been tailored to its needs and gets to be the first company to deploy a product that could make some business processes more efficient and less costly. Kazmi said the deal is a reflection of enterprises' "increased scrutiny of IT investments in light of the down economy."

 

"Customers are analyzing their spend a lot more closely, are looking at who their software providers are, and really want to make sure their solution providers add value," Kazmi said.

 

 

Other software makers say deals like i2/Shell and MatrixOne/P&G are increasingly a trend among customers, who are looking for creative ways to reduce costs while boosting the likelihood of a strong return on investment. "[The deals] can work, but they're complex," said John Dragoon, senior VP of marketing and product management for software maker Art Technology Group.

 

Joint-development arrangements, for example, are often driven by a sales representative looking for a way to attract a large customer. But for the deal to be profitable, there has to be a market for the software.

 

"You only make money if you can pick a joint development project that has an audience greater than one," Dragoon said. "You need critical mass to justify the product long-term."

 

In the P&G/MatrixOne deal, P&G will work with the vendor for a couple of product releases over a period of less than 12 months. After that, MatrixOne will handle all future development, marketing the software to consumer-products and pharmaceutical companies. P&G claims it has saved hundreds of millions over the years through its technical product specification applications. The company says it has also been able to eliminate more than 20 local and regional specification systems, as well as the associated processes.

 

In the past, MatrixOne has struck similar deals with General Electric and auto parts maker Johnson Controls.

 

For enterprises, such deals make sense because they can represent a new revenue source in an economy in which it's difficult to squeeze growth out of their core businesses, said Whit Andrews, an analyst for market research firm Gartner.

 

"If you're an enterprise, and you need to find some growth to show at a shareholders meeting in a year, then pointing to a brand new division that resells something that you already have and for which there's an infinite source of supply, that looks like a pretty darn good idea," Andrews said.

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