470 E. Paces Ferry Rd.
Atlanta, Georgia 30305
Telephone: (404) 261-4381
Fax: (404) 264-5514
Toll Free: 800-726-2946 (SCM-2-WIN)
Sales: $84.7 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: AMSWA
SICs: 7372 Prepackaged Software
American Software's suite of business solutions represents the most comprehensive line of integrated applications available today for multi-platform client/server processing environments.
Atlanta-based American Software Inc. produces, sells, and offers customer support for a line of business-based software applications. Its products, made to be used on IBM mainframes, and compatible with either Windows or UNIX client/server architecture, assist companies in maintaining control not only over finances, but over the myriad details of logistics--supply, inventory, and distribution. Its Flow Manufacturing applications, for instance, help businesses to optimize the flow of goods, reducing the period of time a supplier has to wait for new product to fill orders, and freeing marketing teams to concentrate more on sales and less on managing their customers' needs. Through the Logility subsidiary, established in 1997, American Software offers a comprehensive package which assists retailers, distributors, and manufacturers in coordinating their efforts. In the late 1990s, American became a leader in efforts to deal with the computer software "Year 2000 Problem," and thus a number of investment consultants predicted strong growth for the company.
The Highs and Lows of the First Two Decades
In 1970, two employees of Management Science America, James Edenfield and Thomas Newberry, established a small Atlanta company called American Computer Systems. Though computers had first appeared just after World War II, the industry's period of most explosive growth--which followed the advent of microprocessors in the early 1980s--lay more than a decade in the future. For example, the computers which operated the spacecraft used for the abortive Apollo 13 mission, launched the year Edenfield and Newberry started their company, were far inferior in memory to an ordinary household personal computer (PC) in the 1990s. Likewise, American Computer Systems was a tiny enterprise compared to the giant it would become during the next two decades.
The new company soon found its niche with the textile industry--particularly West Point-Pepperell--for which American Computer Systems developed a sales-forecasting program. Such forecasts, which involved detailed and complicated statistical calculations, had previously been created by teams of human analysts whose computations were often imperfect and sometimes became obsolete before they were completed. American's program, however, made it possible to feed data into a computer regarding past sales and production, and in a matter of minutes receive output that would assist in setting accurate quarterly production goals.
Though their software application was originally geared toward the textile industry, Edenfield and Newberry soon realized that production was production, whether the item produced was cloth, canned food, or computers. Therefore, they began marketing their software applications to a wide range of industries.
Within seven years of the company's creation, the founders changed the its name and increased its size through a merger. American Software and Computer had been founded a year after American Computer Systems, and in 1978 the two joined forces to become American Software Inc. In 1983 the company went public, with stock traded on NASDAQ. Growth was slow at first, but American received a significant boost following a 1987 agreement with IBM whereby it supplied software for the AS/400 mainframe computer.
Troubled Times in the Early 1990s
On August 2, 1991, GTE Corporation brought a lawsuit against American Software in the Boston U.S. District Court, seeking $17.3 million in damages due to what it claimed was "nearly total failure of a multi-million dollar computer software system" designed by American. According to a lawyer for GTE, the alleged failure had put his client "substantially beyond the time they expected to devote to the project."
American responded with a statement in which it "suggest[ed] that individuals at GTE wish to avoid responsibility for their own failures by blaming American Software. American Software products are performing well and up to specifications at sites all over the world." Neal Miller, a spokesman for American Software, told Newsbytes News Network, an industry information source, "This is all new to us. It hasn't happened before. Our clients have always expressed satisfaction with our products and services." Miller went on to speculate that the problems GTE was experiencing were due to hardware capacity, rather than software error. He stated his understanding that GTE had downsized its computer system from IBM mainframe to AS/400, and his belief that the smaller computer system apparently could not handle the application effectively.
Although the legal entanglement with GTE was problematic, of greater significance to American Software was a slump in profitability experienced by the company during the early- to mid-1990s. As product development slowed, sales began to drop off; in 1994 and 1995, losses reached 30 cents a share, and by 1996, 44 cents per share. In 1994, the company underwent a reshaping of its corporate structure, installing new officers and expanding its markets. It also clarified its area of focus, which it identified as producing UNIX- and Windows-based client/server products.
By 1997, The Atlanta Journal and Constitution reported that American Software had shown a profit of 10 cents per share that year--a figure which analysts predicted would grow to 42 cents in 1998. "In essence," the publication stated, "American Software suffered--and recovered--from an erosion in revenue and profits while retooling its products to meet the changing demands and improvements of computer hardware technology." Now, according to Edenfield--who along with Newberry remained owner of nearly three-quarters of the company--"the transition is complete and new products are in the pipeline." Management's goal became to double the size of the company by the end of the century.
Strategic Alliances and Diversification
In the late-1990s, American Software created strategic alliances with computer-industry enterprises such as Rijnhaave Information Systems. It also developed strong marketing ties with leading companies such as Nestle and Heineken, and further built on its core mission of supply chain planning. The latter, sometimes called supply chain management or inventory management, simply equates to business management practices--ordering, production, storing, and shipping of products from one place to another, accompanied by the relevant billing and bookkeeping. American Software made these tasks its business by creating software applications which led computers to shorten the process, making it more efficient and less costly.
Further diversification occurred with the introduction of new product lines. In November of 1996, the company presented Warehouse P&RO (parts and reusable objects), a system for managing warehouses. Warehouse P&RO incorporated the advanced tools necessary for a company's computer system to track incoming and outgoing items, as well as receive and locate products in real time. This capability would enable warehouse managers to know precisely when and where an item is received, stored, moved, picked, packed, or shipped.
Another software solution was released by American Software in December of 1996--Resource Chain Voyager. The company introduced the supply chain planning software so that it could be used on the Internet or on a company's intranet--or even in an "extranet" set up for the purpose of managing a supply chain. The software package would make it possible for customers, wholesalers, retailers, and distributors to interact via the browser capabilities of either Netscape Navigator or Microsoft Internet Explorer. These browsers, by offering a medium for exchange of information, would overcome the problem posed by incompatible software platforms.
An example of a successful American Software supply chain management application at work was the one that was developed for Heineken, the world's second-largest beer manufacturer. Called HOPS (Heineken Operation Planning System), the system cut down on lag time between orders from a retailer and the actual shipment of the product. Reported Charles Waltner of Communications Week, the $6.5 billion Dutch-based company "couldn't do much to cut the two to five weeks it took shipments to reach America." So instead it worked to facilitate a faster relay of information between its approximately 450 U.S. distributors, the headquarters of Heineken USA, and the parent company headquarters in Holland. HOPS taps the Internet to create a comprehensive and easily deployable network for coordinating the exchange of crucial business information about such operational matters as orders. Heineken expected its new system to reduce the order cycle from an average of thirteen weeks to an average of five. Under the old way of inventory management, during the two months' extra lag time, beer aged and the distributors' money remained tied up in orders; under the new system, a distributor reported, "We can now focus on what is going to happen in the marketplace."
The Birth of Logility
In September of 1996, American Software reported that it was considering the creation of a new company to handle its supply chain planning solutions. At that time, a software package called Supply Chain Planning (SCP) was the leading product family in American Software's line of supply chain management systems. SCP was a software suite that included planning capabilities for demand, requirements, replenishment, constraint-based manufacturing, and scheduling.
American desired to expand its presence within this growing market, and the solution was the creation of a new company. In the early weeks of 1998, the parent company unveiled its new subsidiary: Logility. With headquarters also in Atlanta, Logility was formed to develop, market, install, and support software applications designed to optimize operations throughout the value chain from manufacturer to retailer. Logility Value Chain Systems make use of a trademarked implementation methodology called ROI to achieve results quickly. Among Logility's clients, in addition to Heineken USA, are Eastman Chemical, Newell, Pharmacia & Upjohn, Reynolds Metals, Sony Electronics, Timex, and VF Corporation.
At that time, American Software announced the initial public offering (IPO) of 2.2 million shares of Logility on NASDAQ, where it carried the ticker symbol "LGTY." Selling shares at $14.50 each, the company collected some $29 million in the IPO--funds it intended to invest in research and development, as well as on sales and marketing efforts. Some 330,000 of the shares went to the underwriters, and after the sale, American retained slightly more than eight out of ten shares in the new company. In a June, 1998 review of American Software's earnings in the fourth quarter of 1997, the Atlanta Journal and Constitution reported "better-than-expected results" for Logility.
The Year 2000--Opportunities for Expansion
By the end of the decade, the business world as a whole--and the software industry in particular--was abuzz with discussion of the "Year 2000 Problem," or "Y2K." When growth in the software industry exploded during the early 1980s, the end of the twentieth century still lay nearly two decades in the future, and programmers did not take it into account in creating date-related logic for their software. For dates, most programs use a two-number system to designate years; hence "98" would mean 1998. Had the programmers used a three-digit system, this would not have solved the problem: the end of the millennium would bring a change in all four digits, from 1999 to 2000. Because of the inefficient system, computers would assume that "00" meant 1900, not 2000--and this could lead to untold havoc in calculating interest and other functions.
The problem might have seemed simple, but it was anything but: large programs and networks such as those in place on corporate intranets use millions upon millions of lines of code. One industry analyst compared a programmer's efforts to adjust date-related logic with those of a plumber attempting to find a leaky pipe--but instead of searching the plumbing system of a single house, the plumber would have to inspect all the pipes in a city. Research by the Gartner Group indicates that approximately thirty percent of all computer applications would not be Year 2000-compliant by the end of 1999, and the same study indicated that companies worldwide would spend between $300 billion and $600 billion to convert their software.
American Software was not slow to see the growth opportunity offered by the Year 2000 challenge. "It's a business problem, not a technical problem," Vice President Ron Harris told the Atlanta Journal and Constitution. "This has the potential for shutting down your business." As for American Software's role in dealing with the crisis, Harris said, "In addition to being an enormous service opportunity, this is a huge licensing opportunity." To meet the needs of its clients, American Software has developed a seven-step process to discover, adjust, and test all date-related logic in software and interfaces between programs.
To begin the process, American Software technicians spend between one and four weeks on-site, conducting an in-depth study of the client's software. From this results a detailed printed assessment of the problem, identifying critical dates on which the software may stop functioning. Having mapped out a strategy, the technicians move on to analyze codes, convert them, test the unit's date calculations, convert all data, conduct verification testing, and implement post-conversion activities. In April of 1998, American Software reported that it was assisting Harley-Davidson, Bausch & Lomb, and other companies with Year 2000 issues. As the turn of the century drew closer, American Software was a company truly prepared for the next millennium.
Principal Subsidiaries: Logility (82%)
"American Software Sets Up Seven-Step Plan for Year 2000," Newsbytes News Network, January 13, 1997.
"American Puts Supply Chain on the Net," Electronic Buyer News, December 16, 1996.
Bond, Patti, "New Jersey Firm, American Software Enter Joint Venture," Atlanta Journal and Constitution, July 18, 1995.
DeVoe, Deborah, "Top of the News: Case Study," InfoWorld, December 30, 1996.
"Earnings Report: Georgia: American Software," Atlanta Journal and Constitution, June 10, 1998.
"Inside Wall Street: 'American Is a Bargain,"' Business Week, December 22, 1997.
Kannell, Michael E., "Software Firm Tackling 'Millennium Bug'," Atlanta Journal and Constitution, January 11, 1997.
McMullen, Barbara E. and John F. McMullen, "More on GTE vs. American Software Lawsuit," Newsbytes News Network, August 7, 1991.
McKeefry, Hailey Lynn, "American Software Offers Managed Warehouse System," Electronic Buyer News, November 25, 1996.
Trommer, Diane, "American Considering New Supply Chain Planning Co.--Unit Would Focus on Burgeoning SCP Market," Electronic Buyer News, September 30, 1996.
Walker, Tom, "Spotlight on Georgia Stocks: American Software Is Starting to Click with Investors," Atlanta Journal and Constitution, August 6, 1997.
Waltner, Charles, "Case Study: Heineken Taps Internet's Utility Orders System," Communications Week, May 19, 1997.
Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.