CombineNet buy caps year of big deals
We’ve seen a rash of pretty significant acquisitions in the supply chain technology space over the past year.
There was the joining of transportation management powerhouses JDA and RedPrairie in November 2012, followed by the merger of GT Nexus and TradeCard in January.
Then, in early September, the cloud-based spend management solutions provider SciQuest acquired the procurement and sourcing software provider CombineNet in a deal worth $43 million.
The difference between the earlier deals and the CombineNet acquisition is the JDA/RedPrairie and GT Nexus/TradeCard mergers pertained to companies whose sole value proposition lies in logistics and broader supply chain activities.
CombineNet’s platform touches a much wider set of users within an organization, since the tool can be used to procure virtually any service or product. Yet while the platform is used for far more than logistics and transportation applications, it has become an integral part of its customers’ transportation procurement processes. CombineNet has about 100 customers, most of which are large and require a robust engine to process thousands of bids very quickly.
Among them are major manufacturers like Heinz, P&G, General Mills, and Bayer AG (whose use of CombineNet was profiled in the July 2011 issue of American Shipper), and retailers like RiteAid and Sears.
CombineNet’s principle advantage is its proprietary technology. In reality, there is little to differentiate the basic features and functions of the main transportation procurement tools on the market. What separates the vendors is their ability to allow users to customize the platform to suit their specific needs, like allowing them to bid on the more minute specifics involved in a refrigerated shipment. The other main differentiator, which admittedly is less important in a low rate environment, is engine robustness, or the ability to process millions of pieces of information instantly.
All vendors will offer a certain degree of speed, but not all engines are equal.
Thomas Kase, principal analyst for the Spend Matters Group, in writing about the CombineNet acquisition, said its customers consume the robust solutions set “happily and hungrily.”
CombineNet falls squarely in the “pure play” or “general purpose” procurement tool category, unlike a GT Nexus or JDA, which shippers use to procure capacity but rely on even more for visibility or spend management.
CombineNet’s acquirer, SciQuest, focuses on that spend management piece, albeit with a wider scope than GT Nexus or JDA. It competes against a broad swathe of technology providers, both inside and outside the supply chain management arena. SciQuest also focuses on supplier management.
The acquisition of CombineNet gives SciQuest a foothold in the sourcing market. SciQuest Chief Executive Officer Steve Wiehe said in a conference call the day of the deal’s announcement that there is no product overlap between the two companies, and SciQuest will now fill a singular need that is usually achieved with joint installation of two or more systems.
Though CombineNet is not a pure transportation procurement tool, part of the value it brings to the major companies that use it is the ability to leverage e-procurement across an organization (not just in the logistics department). The ability to integrate procurement across a range of uses can be invaluable, but then there are some unique characteristics that make transportation procurement a different kettle of fish.
CombineNet’s software-as-a-service architecture allows users to create networks with their suppliers (carriers, for the purposes of this discussion), but it doesn’t provide the network multiplier-effect that platforms like GT Nexus, JDA, or other logistics-specific tools do.
GT Nexus, for example, links an array of providers to one another, with the benefit coming to the entire network.
Such is the advantage of using a procurement tool that‘s tailored to the transportation market. You lose the procurement economies of scale that general purpose tools like CombineNet bring to bear, but gain the subtle benefits of using a tool designed purely for one use.
American Shipper research on transportation procurement shows there is still a divide among respondents about which approach is preferable. Among those that use some sort of system to automate their procurement process, responses in our 2013 Transportation Procurement Benchmark Study were split fairly even among those saying they use a general purpose procurement tool, those that use a procurement module within their transportation management system, and those that use a transportation-specific procurement system.
Bear in mind that nearly half of respondents to the survey said they still handle procurement in a manual or spreadsheet-based manner. And that percentage could be higher given shippers who took the survey are more likely to view procurement in a strategic manner.
All of these mergers point to the reality that vendors are increasingly facing — shippers want more functionality from fewer tools. JDA and GT Nexus both emphasized their respective mergers were precipitated in part by customer demand for integrated solutions.
In the case of GT Nexus and TradeCard, it was about integrating the financing of suppliers with logistics procurement and visibility. With JDA and RedPrairie, it was about leveraging the transportation and inventory management strengths of JDA with the warehouse management strengths of RedPrairie.
The acquisition of CombineNet suggests that same demand has arrived within the spend management process. Procurement teams often suggest to logistics teams they can refine transportation procurement, ignoring the subtle characteristics that can make transportation procurement difficult, especially internationally. It’s not the same as procuring office supplies.
CombineNet’s tool appeals to both sides of the shop, which is what makes it such a valuable tool. The $43 million price tag may not seem that eye-popping in the context of multibillion dollar deals, but when I mentioned the acquisition to an industry procurement expert, his first reaction was “whoa.”