When Kinaxis CEO John Sicard tells a potential client that his company can solve all of their nagging supply chain problems in minutes, the response is almost always the same: “Bullshit.”
Real innovation invariably needs to overcome skeptics. “They ask us to prove it,” Sicard says. And then he does. Among the companies that have gone from doubters to believers are some of the largest on the planet: Ford, Lockheed Martin, Nikon, Cisco, NCR, Sikorsky, Celestica, Avaya and Schneider Electric are just some of the multinationals Kinaxis now counts as customers.
For manufacturers like these, a well-run supply chain is crucial to success, but their operations can’t be easily contained on a single spreadsheet. They produce thousands of products made from thousands of tiny components from external suppliers. One out-of-stock piece can bring a multibillion-dollar manufacturer to its knees. Companies may pour time and resources into their supply network, but plans are rigid and forecasts are most often wrong.
Given the complexity of the job, it’s easy to see why some potential customers question Sicard’s claims. But his Ottawa-based firm has survived competition from established giants like SAP and Oracle, quietly becoming one of the top companies in the supply chain planning space. As a whole, the industry was pegged as a US$2-billion business in 2014 and is growing 3% to 6% a year, according to Gartner, a market research company.
But supply chain planning really doesn’t fully capture what Kinaxis does. The company’s cloud-based software enables its users to tap directly into suppliers’ data and spot pinch points across the whole supply chain. It also serves as a throttle that allows companies to speed their supply chain up or slow things down when new orders arrive or existing ones get cancelled. In effect, it breaks down the silos between part suppliers, purchasers and the manufacturing floor. And should a problem arise, the software will put managers directly in contact with the person who can fix it.
The legacy model for managing a supply chain is to develop a detailed plan and hope it works. Using an older system, it would take a company up to two weeks to develop an estimate on whether its supply chain could handle a new order. It may even have to run a simulation after hours, since the work would require taking the servers offline. And the final result is an educated guess. “There’s no breakthrough in that; that’s not innovative,” Sicard says. “What happens when the plan doesn’t come true? How quickly do you know you are off-kilter, and how quickly can you course-correct?” Kinaxis’s goal isn’t to develop the perfect plan—it’s to develop the correct response to a set of challenges. Hence the name of its key product: RapidResponse.
RapidResponse does the job in minutes and in real time, says Sicard, a 20-year company veteran who took over as president and CEO in January. The assessment will tell the company whether it can accomodate the new order request and what impact that order might have on other commitments, which may share some of the same parts. And because assessments can be run so quickly, companies have the option to run alternate scenarios to see how well they might absorb changes.
Kinaxis’s website offers a stream of testimonials from companies thrilled by the software. First Solar claims it was able to reduce its finished-goods inventories by 20%. Dow AgroSciences says it can now pinpoint potential problems over the next five years—an important consideration, given that it can take that long to get a product to shelves due to regulations. Overall, Kinaxis claims it can cut product lead times by 50%, reduce rush orders by 83% and improve overall supply chain efficiency by 15%. The company is also winning praise within the technology community too. In late January the company was named the 2015 TSX Tech Stock of the Year by Cantech Letter, an online magazine focusing on Canadian technology.
“‘Innovative’ is certainly a good word to describe [Kinaxis],” says Richard Tse of Cormark Securities. Of the 22 supply chain companies that operate in this space globally, Gartner pegs Kinaxis as one of the leaders, with the third highest ranking for ability to execute and tied for best for “completeness of vision.” It was the only company Gartner tracked that scored highly in both categories. Kinaxis customers surveyed by Gartner reported above-average levels of satisfaction and were not only pleased with the results but also with how simple the system is to use and upgrade.
Kinaxis might sound like another breakout tech startup trying to disrupt a market segment stuck in its ways for far too long. But the company’s origins stretch back to 1984—ancient by tech standards. While the team has morphed over the years, the same core group remains with the company. As far back as 1992, the New York Times hailed Kinaxis as “too good to be true,” but the business failed to gain much traction at the time. It set itself up for its current success in 2005, shifting to a software-as-a-service cloud-based model—again, a move that was ahead of its time. Moving to that delivery method was critical to the company’s success, says Sicard.
Its big opportunity came in 2008, when the global recession hit. Businesses were looking to cut costs and manage resources more effectively. In the past, those companies paid millions to buy their supply chain management software outright; Kinaxis’s business model meant they now had the option to rent it, eliminating the capital expense. “It was financially motivated, and they wondered why they hadn’t done this all along,” says Sicard. “It was awesome.”
The fact that most of Kinaxis’s early adopters were in the tech space also helped shape the company, says Gartner analyst Amber Salley. High-tech companies make products with short life cycles, meaning that any excess inventory is an expensive writeoff, she says.
It’s for these same reasons that Kinaxis is starting to appeal to the life sciences sector. Until recently, the industry was flush with cash, so it hasn’t faced the same pressure to optimize supply chains, explains Sicard. “You can hide a lot of supply chain pain inside an 80% margin,” he says. “In terms of life sciences today, with a lot of patent cliffs hitting simultaneously and generics growing faster than you can imagine, it’s putting a lot of financial pressure on the largest companies. And then they are looking for operational excellence; they are realizing they can be a lot more efficient if they try.”
While the company is getting the attention of multinationals, few Canadian firms and even fewer Canadian investors have even heard of Kinaxis. Many investors likely only discovered it in December when it was added to the S&P/TSX composite. Kinaxis was a market darling in a down year for the Canadian market, surging 156%, and easily topping the performance of the next best stock on the index.
That it’s getting noticed could make it a takeover target, although that’s not the company’s objective. “It has a lot of things going for it,” says Tse. “This is probably one of the most interesting names I’ve come across in recent years.” And now that the Kinaxis software is integrated into its customers’ systems, it’s going to be very difficult to dislodge.
While Kinaxis is an all-Canadian operation, don’t expect many Canadian firms to sign up as clients—most are just too small, without a big enough budget to afford RapidResponse. The majority of the customers are multinationals dealing with an international supply network.
If there is one blemish on Kinaxis, it’s its low level of investment in research and development. According to Gartner, most companies in this space plow an average of 20% of their revenues back into R&D; Kinaxis’s R&D spending stands at 17%. So far that hasn’t hurt the company.
When MIT meteorologist Edward Lorenz postulated that the flapping of a butterfly’s wings in China could cause a hurricane in the Caribbean, it was his way of saying that even the smallest, most seemingly insignificant thing can have huge implications. Further, Lorenz meant that nobody could really ever truly understand how everything is connected. But Kinaxis can—and it’ll put you in touch with the person who can fix it.
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