Supply Chain Gets New Link

It all comes down to making the pieces work together, and thats exactly why integrators are looking at the planned merger of Ariba Inc. and Agile Software Corp. to fill a big gap in supply-chain management.

Ariba, a business-to-business commerce software provider, last week announced plans to buy Agile, maker of collaboration software, in a stock swap valued at $2.55 billion.

The deal means Ariba will be able to offer customers some much-needed collaboration tools, thus extending its footprint into the direct materials market.

"Ill summarize this merger with one word: expansion," says Keith Krach, chairman and CEO at Ariba.

Specifically, Ariba plans to move into the direct materials procurement space where product procurement needs the collaboration and interaction of buyers and suppliers. Ariba currently plays primarily in the indirect, or commodity, materials space.

"Our next strategic move is powering Internet-based value chains by providing commerce and collaboration," says Krach. "This market dwarfs the shrinking market that ERP and traditional supply-chain companies are fighting over."

The combined company, says Krach, will continue to work extensively with its stable of systems integrators and other partners. Company executives say their top two or three partners overlap, but Agile works primarily with Accenture, Technology Solutions Co. (TSC), and midmarket and boutique consultancies, while Ariba partners with major systems integrators and consultancies such as Accenture, Deloitte Consulting, EDS and KPMG Consulting.

"Agiles collaborative commerce solutions provide Ariba with a more complete footprint," says Barry Jennings, Ariba relationship partner at Accenture. "Its a good acquisition and meets a need in the industry."

David Wasson, senior VP of TSCs e-procurement practice, agrees. "All of our clients are looking for [commerce and collaboration] and for a firm that has a clear road map," says Wasson. "We think there is a lot of value [in the acquisition]," he says.

Although Ariba is paying a 26 percent premium for Agile, most of Wall Street reacted favorably to the deal. "This deal will be important to [Ariba] in expanding its footprint in the collaborative supply-chain area. Agile is the gorilla in this space," noted Chris Shilakes at Merrill Lynch in a written statement.

Ariba and Agile contend that partners, both big and small, will play a key role. "As we move into a fundamentally new type of solution, there is no way were going to scale without these guys," says Rakeshi Sharma, VP of product marketing for Agile.

These companies know they need their solutions provider partners.