DEL.ICIO.USTHE BRAINS BEHIND THE SUPPLY CHAIN
Atlanta firm's software is a lifeline for retail giantsThe Atlanta Journal-Constitution
Published on: 03/09/08
Surrounded by a mind-boggling array of sports equipment, Ashley Johnston is hobbling and stumbling under a heavy load. A leather Rawlings baseball glove from the Philippines. An Easton metal bat from China. A tennis racket from Indonesia. Sports clothes made in El Salvador and Vietnam.
She's on a spring shopping binge at Dick's Sporting Goods in Kennesaw.
 Pouya Dianat/AJC | ||
| Manhattan Associates, the world's third-largest supply chain company, has a goal 'to grow rapidly,' said CEO Pete Sinisgalli. | ||
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"It's amazing," says the 34-year-old Paulding County mom, shopping with daughter Emily, 8, son Nick, 6, and husband Keith, also 34. "Everything we want is here. And everything you can even think of."
It's no accident. Dick's is a major customer of Atlanta-based Manhattan Associates, a high-tech master of the dynamics of supply chains, the lifeline for firms such as Dick's, Home Depot, Victoria's Secret and 1,200 other customers around the world.
Manhattan — a company named for Manhattan Beach, Calif., where it was founded — engineers and sells complex software programs designed to keep the many segments of the product pipeline flowing, inventories in line and prices down.
"The goal of companies is to provide customers with the right product at the right place at the right time at the lowest cost," said Pete Sinisgalli, Manhattan's 52-year-old president and chief executive. "That's what we help our customers do."
But it's not simple, which is why, of Manhattan's 2,300 employees, 743 are engineers and dozens are scientists.
Software cuts guesswork
Terry Tillman, an analyst who studies Manhattan for Atlanta-based SunTrust Robinson Humphrey, said its software reduces guesswork and "helps manage a lot of math and other variables."
He said the company is "the best of the breed leader" in supply chain management software. It recently reported record revenues and earnings for 2007, and Tillman and other analysts expect growth to pick up. Revenues have nearly tripled to $337 million since 2002, and net income has risen 30 percent, to $30.8 million.
"Customers know the software is a key part of doing business," Tillman said. "So every quarter Manhattan is signing up new business."
Think of a supply chain as a kind of ecosystem, consisting of related and interlinked parts, as in nature. It is a network of retailers, distributors, transporters and warehouses involved in the manufacture, delivery and sale of products.
Jeff Woods, a New York analyst for information technology research firm Gartner, said "supply chain has become an incredibly sophisticated and incredibly math-oriented concept.
"Supply chains process billions of dollars worth of goods," he said. "A triviality in a supply chain can cost you millions."
That is why supply chain software can range in price from $100,000 to a couple of million dollars.
In a global economy, Manhattan's math whizzes — and their counterparts at their customers' tech departments — must constantly track thousands of variables and then adjust mathematical algorithms to keep supply chains from clogging. Spreadsheets and street-savvy smarts are no longer enough to keep up with ever-changing bits of minutia such as snowfall amounts in China, the size of swells in ocean shipping lanes, availability of raw materials, congestion in ports, fuel costs, driver shortages, even labor laws.
What happens when one link goes haywire, say, as in China recently, when unusually heavy snow delayed production of many types of goods, causing ripples in supply chains around the world? Manhattan software is designed to take such unpredictables into account in much the same way that variables input into pilots' practice computers help them simulate actions they'd take in an emergency.
Mathematicians who scribble the nonlinear equations for various software "solutions" must anticipate all sorts of possibilities in advance and be ready to make quick adjustments, Sinisgalli said.
Variables and algorithms
The goal for retailers is to have what customers want, but not too much, said Miles Mewherter, a top software guru for Dick's Sporting Goods at its Pittsburgh headquarters.
"We have a pretty good idea how many gloves we're going to sell in any of our 350-plus stores," he said. "We can contract with manufacturers months in advance, giving them our forecasts. Then, they get with their raw materials providers.
"But these are dynamic systems. The dry weather in Atlanta may have increased demand for golf balls and baseball gloves," he said. "So, we can call up the Manhattan software and change certain variables, adjust the algorithm to account for waiting times and changes in forecasts."
Buying too much wastes time, space and money, leading to money-losing discounts; buying too little means lost sales.
"What we do well is react, and the software helps us do that," Mewherter said. "I can see in real time what's happening in every store. When we're running out of something, we see it, we act. Before we had this Manhattan software, it was calls and faxes."
Tiny error, huge problem
A low-tech exercise called the "beer game" — devised at the Massachusetts Institute of Technology — encapsulates the challenges of running a supply chain. Teams simulate retailers, wholesalers, distributors and beer brewers, and at the end, every time, even tiny errors in assumptions cause huge problems.
A classic example occurred in the mid-1990s, when a European car company found itself with too many green vehicles. Sales departments reacted by offering bargains, and the cars began to sell.
Problem was, the manufacturing side wasn't told why green cars had become red hot, so it interpreted the sales increase as higher demand and sped up production. It's to prevent such snafus that Dick's and other giants like Home Depot buy Manhattan's software.
Even with scientists analyzing data, unknowns are inherent. But supply chain experts such as Mark Holifield of Home Depot say software can improve efficiency and profits.
He said Manhattan software, for instance, can help Home Depot make sure it has enough workers at loading docks when trucks arrive, right down to the number of forklift drivers needed.
"Now, we can actually tell how much time it should take for various tasks," said Holifield, adding that Home Depot will spend close to $260 million on supply chain improvements by 2010.
"You need to have a system that helps you find the product, prepare it for shipping and send it out the door on a trailer to the stores and customers," he said. "You are able to understand and predict what's going to happen tomorrow and respond accordingly."
Mewherter of Dick's Sporting Goods said the retailing giant has "invested quite a few millions of dollars in supply chain software in the last couple of years" and that "no retailer could grow without this kind of software. We've gone from fewer than 25 stores 12 years ago. Without the technology, that couldn't have happened."
Sinisgalli said some companies spend more than $100 million on transportation alone, and Manhattan's software can shave 10 percent off that.
The company, founded in 1990 in a California beach town, now runs its worldwide operation out of an office park in Cobb County.
"We are a small component of a $10 billion supply chain market," Sinisgalli said. "We're the third-largest supply chain company in the world. And our objective is to grow rapidly."
Back at Dick's Sporting Goods, the means to such supply chain efficiency is invisible to the Johnston family, but the end result sits right on the shelf.
"It's nice to know that whatever you want will be right here," Johnston says.
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