Q&A Closing the Loop

Q&A Closing the loop

As one of the pioneers of the supply chain solutions industry, Sanjiv Sidhu has a unique perspective on the roller-coaster ride the technology market has taken over the years. As founder, chairman and CEO of i2 Technologies Inc. (www.i2.com), Sidhu — with co-founder Ken Sharma — is often credited as the founder of supply chain management (SCM) software. The two met in the 1980s at Texas Instruments, where Sidhu was an engineer in the company's artificial intelligence lab. At TI, he developed intelligent software that helped production planners take real-life constraints into account while managing the production process. In 1988, Sidhu and Sharma founded i2, running it out of Sidhu's apartment. By 1990 the company sold its first planning and scheduling software to Timken Steel, and was well on its way to carving its own niche as the dominant player in the nascent SCM marketplace.

In 2000, at the height of the Internet heyday, i2 became the first pure-play SCM vendor to reach $1 billion in sales, but there hasn't been much celebrating at i2 since then. I2's collapse eerily parallels the collapse of the dot-com bubble, as the company's stock has plummeted from more than $220 in 2000 to less than one cent; in fact, earlier this year, i2 was delisted from the NASDAQ exchange for failing to timely file its annual report; the company is also under investigation by the Securities and Exchange Commission for irregularities in its financial statements.

Nevertheless, Sidhu remains firm in his convictions that i2's viability as a company should be measured by the value it brings its blue-chip roster of customers, such as Best Buy, Dell, IBM and Target. And this month, the company will release i2 Six.One, a closed-loop SCM solution suite that uses optimization technology to tie supply chain planning to real-time plan execution.

Logistics Today caught up to Sanjiv Sidhu at the recent Council of Logistics Management show in Chicago.

Logistics Today: How do you define “supply chain” as applied to solutions?

Sanjiv Sidhu: Large supply chain solutions weren't really around in 1988, when i2 started. The term itself defines what it takes to bring a product to the customer. You can define it in two ways — it can be the supply chain that any one company controls, or it can be the extended supply chain, which could mean yourself and your suppliers and your suppliers' suppliers. We use the term both ways to explain the supply chain and the extended supply chain.

The term we're beginning to use more and more, though, is supply and demand management because for some people, the term supply chain is focused just on managing the supply. But the process is as much about managing the demand as the supply, and if you look at the S&OP [sales & operations planning] process, it's really a supply and demand balancing process.

LT: You're using a lot more syllables, though. Do you think “supply and demand chain” will catch on? “Supply chain” seems to have caught on as a concept, to the point that the term means more than it originally did.

Sidhu: One of two things will happen: Either “supply chain” will expand to signify supply and demand management, or the term itsef will get enhanced to the point where people will start talking about supply and demand management.

LT: What are your customers typically asking for? Are they asking for supply and demand management solutions?

Sidhu: Actually we have a product called Demand Planner, which is our number one product in terms of sales. So people are looking for supply demand balancing solutions because SCM starts from judging demand, and first-generation supply chain software just judges demand and reacts to it. Modern-generation closed-loop SCM software tries also to influence demand.

For companies with excess inventory, our price optimization software is popular now. Payless Shoes, for example, decides how to price certain items and markdowns based on our software. It's totally supply and demand balancing. The software looks at how much inventory Payless has, it looks at what the demand is shaping up to be, and then it uses pricing to make the balance.

LT: Where is the marketplace right now? Are the supply chain glory days of the late 1990s impossible to replicate, or will we see a resurgence of interest?

Sidhu: As [Federal Reserve Board chairman] Alan Greenspan said, there was some irrational exuberance in the markets at that time. What I do know is, supply chain management will reach a point where it's considered even more important than it was then. It's a very important discipline for companies to follow, to make fundamental improvements to their performance.

You'll see that companies that focus on SCM outperform others significantly financially. That fact will drive people to do something about their own supply chains. Based on the low penetration levels — by that, I mean how many people are really doing something serious with SCM — and on watching other technologies to see how many years they take to mature and to reach the mainstream, I believe the 1990's SCM phenomenon wasn't a mainstream phenomenon. SCM will eventually be a mainstream phenomenon. I'm not a fortune teller so I can't really predict as to when it will happen, but I have a strong belief that it will.

LT: Are companies feeling a bit gun-shy about adopting supply chain solutions? Is it the old saying about after you've touched a hot stove once, you're not going to touch it again?

Sidhu: I don't think very many companies ever really touched the oven, though. Just as there was some irrational exuberance in the market back then, the reaction [to the dot-com collapse] was irrational as well. But we're seeing a return to rationality where people are looking at SCM again. It's not for everyone, but for most people the value proposition is huge — there are real dollars involved. You can prove that in one year there will be a huge payback to most supply chain projects carried out correctly.

So many times people look at companies that aren't successful [with technology] and figure, it doesn't work. I think that's a totally wrong way to look at tools and solutions that could provide you an advantage.

LT: Every industry leader, no matter what sector — whether it's retail with Wal-Mart or high-tech with Dell or consumer packaged goods with Procter & Gamble — are experts at managing their supply chains. So what disconnect is there with people at companies who say, “Supply chain is not for us”? Is it the cost of the solutions? Is it the time involved? Is it the expectation that the payback will take too long?

Sidhu: I think it's an education issue, more than anything else, and some of the onus is on us, and some is on the press and some is on the consultants. But I think that people will realize the value of SCM, and partly it will happen based on the companies that are good.

As an example, we're trying to sell our technology to a large steel company — we've been successful in some of their plants, but the other plants in the company were not adopting our software. It was very strange to us because many of the world's most successful steel companies use our software. It's a clear no-brainer, either to use something from us or from somebody else.

Within this steel company itself we had a huge success story, but the other plants were reluctant. Why were they reluctant? Some of them were in the middle of an ERP implementation, others were confused because they had five other alternatives — so there was no movement for several years. Just a few weeks ago that company's CEO visited POSCO, another steel company which uses our software, and was amazed at their performance. He then looked within his own company, discovered he had his own success story, so he called in all the other plant managers, and asked them, “Why aren't you doing SCM?” He got a lot of answers, but ended up mandating that they go to i2.

But the question remains: Why did it have to take the CEO and his leadership to mandate the change? So it is an education issue where people either have some irrational fears, or they're just too busy doing other projects.

LT: What do you wish you could go back and do over again? Were there any things that were in your power that you could've changed?

Sidhu: Hindsight is 20/20. There are a lot of things I'd do different — we'd be much more careful about our investments, not build our cost structure as high as we did, and gone a little slower and with much greater diligence than we were kind of compelled to do when the market was so hot.

On the other hand, if I'd have done some of those things back then, I'd have been called a complete dummy at the time. So what is important now is to figure out how to never make the mistakes that we made in the past again, and we're very focused on that.

LT: From your vantage point, where does the whole supply chain technology market go next?

Sidhu: We need to start with the customer, and find out what they want. I believe tolerance for inventory will be lower and lower. The rate of change that our customers will have to deal with — rate of new product introduction being one indicator of change — will be much higher. And thus people will need tools and processes to deal with the increased variability.

Broad extended supply chains will get better and better reacting to customer change without any inventory. So information will be much better — your supplier will know much better what you intend to do. For example, your supplier will know much earlier that you no longer need the parts that you asked for earlier. There's a lot of work to be done in that area, and new and emerging technologies — such as web services — will make it much easier to get there than in the past. LT

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November, 2003

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