Article from Wash. Post. pretty good description of how the new e-commerce supply chains work.
Turnaround Is Richly Rewarded at Manugistics
By Jerry Knight
Washington Post Staff Writer
Monday, January 31, 2000; Page F07
When Gregory J. Owens was hired as chief executive of Manugistics Group Inc. last April, the Rockville software company looked like that hapless woman in the TV commercial who wails: "Help me, I've fallen and I can't get up."
Manugistics, once the darling of technology investors, was knocked to its knees in the spring of 1998 after stunning stockholders with an unexpected loss. When the quick recovery promised by founder William Gibson failed to occur, the stock fell flat on its face and Gibson was forced give up the chief executive's job and become chairman.
What had been a stock selling at $64 a share a year earlier was down to $7.81 a share April 25, when Owens signed his contract to take on the task of turning around Manugistics.
To lure Owens away from his lucrative job as a global managing partner of Anderson Consulting, the Manugistics board gave him a package of stock options that directly linked his pay to his ability to resurrect shareholder value.
The board granted him options to buy 2 million shares at the current price, a package that meant $2 million for Owen for every $1 he added to the stock price, but worth nothing unless the price improved.
As an added incentive, the company promised Owens another million options if he could get the stock price high enough. Double the price--to $15--and keep it there for at least 15 days and he'd get another 500,000 options at that price, the board told Owens. Hold it at more than $25 for 15 days and he'd get 500,000 more at $25 a share.
It was a potentially lucrative payoff, but it looked like a long shot. Manugistics not only was losing money, it was losing customers. Once the clear leader in creating software systems that major companies use to manage their raw materials and inventories, Manugistics was being out-marketed by bigger competitors that were better at selling.
Manugistics' problems were feeding on themselves. Competitors warned potential clients not to trust crucial operations to the fate of a struggling company. Employees were demoralized because their own stock options had become worthless when the shares skidded.
All that has changed in the past two months as Owens has executed a faster, stronger turnaround than even the most die-hard devotees of Manugistics could have imagined.
The stock closed Friday at $43.75, producing a payoff on paper of about $95 million on Owens's long-shot bet on his own turnaround talents.
To turn his paper profit into cash, the Manugistics CEO will have to keep the stock price up for another four years until the last of his options are vested, but other investors already are cashing in.
On Friday the Securities and Exchange Commission made public a filing showing that Gibson is selling 50,000 of the 5.4 million shares he owns. At Friday's closing price of $43.75, he would collect more than $2.1 million.
There has been evidence of other profit-taking in the past couple of weeks as investors took advantage of a big spike in the stock price Jan. 20, which drove the price to $44.25 a share from $31.50. The share price peaked Thursday at $47.62 1/2 and pulled back almost $4 during Friday's big stock market sell-off, closing at $43.75 a share.
Over the past 12 months Manugistics shares are up 392 percent.
Another way of looking at the gain for shareholders: Since Owens was hired as chief executive, the total value of Manugistics' outstanding stock has grown to $1.216 billion from $217 million.
The gain of nearly $1 billion undercuts any criticism of Owens's windfall on his options.
"I would call it pretty fair from a shareholder perspective," said Carol Bowie, director of publications for Executive Compensation Advisory Services, an Alexandria firm that tracks corporate pay.
"Obviously, the options were designed to motivate the increase in the stock price," she said. "He's going to end up a very rich guy, no question about it, but from a shareholders' perspective, that's the best they could ask for."
The turnaround at Manugistics has involved more than just revitalizing the company's traditional operations. For many years people explained what Manugistics does by pointing to Giant Food Inc., one of Manugistics' early clients.
Every can of Campbell's Pork & Beans scanned at a Giant checkout is tracked on a computer system by Manugistics' software. Giant knows how many cans are in each store, how many cases are in the warehouse and how long it will take to get a new supply from Campbell Soup Co. The system tells the distribution department when to ship more beans to the store and tells the buyer in charge of beans when to reorder.
That system, known as "supply chain management," is used not only by retailers, but also by manufacturers. It's the key to the "just-in-time" manufacturing systems in which the parts to build new cars arrive at the plant when they're needed, eliminating both excess inventory and parts shortages.
Since Owens arrived last spring Manugistics has extended the reach of the system, automated much of it and put it on the Internet. Under the latest version, human intervention no longer is needed for reordering.
"We actually go place the order online," Owens said in an interview Friday. "We route it through transportation software, which decides which carrier picks it up and what day, and we deliver without anybody going into the system."
The process goes even further with what Manugistics calls "intelligent e-business trading networks."
For example: You're a widget maker who buys a specific part from three different suppliers. When the supply of the parts runs low, the Manugistics systems will send inquiries to each of the suppliers, telling them when more parts are needed and asking for bids. The system picks the low bidder, then kicks the order into the transportation software, which finds the cheapest way to get the parts from the suppler to the plant.
One of Owens's key strategic changes for Manugistics is to take the firm from simply selling software and installing systems into actually running them and collecting a fee on each order that's handled.
The company's first move in that direction, Consumerstreamz.com, is designed to create an electronic wholesale market for the kind of goods sold in supermarkets--long a major market for Manugistics. Consumerstreamz.com will electronically connect retailers and suppliers over the Net.
Last week the company announced its most innovative effort, an electronic transportation exchange called FreightWise. It's a joint venture with Burlington Northern Santa Fe Corp., one of the nation's biggest railroads.
FreightWise is an online shipping marketplace that will match up companies that need to have items hauled by airlines, railroads and truck. A corporate customer that wants a load moved from Dallas to Washington on a certain date will key the order into FreightWise. The system will circulate the job to several shippers and pick the least expensive.
Companies now do that job by calling up a couple of trucking lines or a railroad and asking them how much they want to haul the load. FreightWise replaces that with an electronic auction market that benefits shippers by giving them lower prices while giving haulers a shot at new clients and helping them use their vehicles more efficiently.
Owens says Manugistics software can be used to create similar electronic marketplaces in all kinds of industries. The company is negotiating with partners to build both vertical exchanges (serving everyone in a particular industry) and horizontal ones (tying together all the suppliers of a particular company). The first of those, announced Tuesday, will be built for Canadian Tire Co., one of that country's largest retailers.
The announcements of the Canadian Tire deal, Consumerstreamz and FreightWise are what have pushed up the price of Manugistics stock in the past month. Two more variations on the electronic marketplace idea are in the works and are expected to be unveiled in a few days. |
