In 1989, the warehouse management system (WMS) industry was in its infancy. At the time, firms such as Logisticon and McHugh Freeman were developing highly customized software applications that controlled inventory and warehouse labor resources in real time through the use of wireless radio frequency technology combined with bar code scanning.
Flash forward to 2011, and WMS has evolved into a sophisticated and mature $1.0+ billion industry in a highly competitive and rapidly consolidating landscape. Today, three companies lead the so-called best-of-breed pack without question: Manhattan Associates, RedPrairie Corp., and HighJump Software.
In addition, another 25 - 30 or so companies offer sophisticated WMS applications for niche markets or as modules within an extended enterprise application. In Europe and Asia, several specialized WMS vendors also service regional markets.
Several key trends are currently shaping the WMS market:
Expanded Supply Chain Execution Footprint
The top WMS providers have expanded their solution footprint beyond the warehouse. The term supply chain execution has been embraced within the industry to reflect this shift toward comprehensive logistics applications, of which warehousing is just one component.
Many WMS vendors have acquired other software companies to expand their footprint rather than attempting to internally develop new applications. These WMS vendors have added transportation planning/execution, engineered labor standards, slotting, yard management, supply chain visibility, event management, and trading partner integration to name a few. Some WMS vendors have moved well beyond the confines of supply chain execution in their quest for growth. For example:
- In September, 2005, Manhattan Associates acquired Evant Inc. to push its footprint beyond execution and into the world of supply chain planning thereby raising the competitive bar for the rest of the market.
- Manhattan has also invested heavily into its Distributed Order Management (DOM) system which manages order fulfillment, inventory allocation and product sourcing across multiple stocking points within a company's extended network (i.e. Distribution center, store, vendor). The application is designed to optimize how a complex retailer/wholesaler/distributor fulfills multi-channel sales orders taking into consideration many complex factors.
- In 2006, RedPrairie acquired BlueCube Software to provide retail store operations execution capabilities.
- In January, 2011, RedPrairie acquired SofTechnics, a provider of retail enterprise solutions. SofTechnics, provides mobile pricing and inventory management services to grocery and general retailers.
Clearly, the leading WMS companies recognize that future growth will be derived from expansion into other business operations and there is a strong push towards managing retail store operations. After all, there are many more stores than distribution centers.
Entrance and Domination of ERP vendors
Much has been written about ERP warehouse applications versus best-of-breed WMS applications: the logistics operators argue for best-of-breed solutions to optimize operations, and the IT people want integrated ERP solutions to reduce complexity.
Regardless of where one stands on this topic, SAP, Oracle, and Infor/SSA Global have made significant inroads into the WMS market either by self-developing advanced warehousing modules or through acquisition. In terms of market share, SAP has the largest share of the WMS market despite the fact that they are not even considered a WMS vendor within the trade. Infor /SSA Global’s acquisitions of EXE Technologies and Provia Software are examples of how quickly a powerhouse ERP vendor can move into a specialized software market. This contributes to heightened competition as market share is shifted away from niche WMS suppliers to large ERP firms.
The past ten years have seen a dramatic reduction in the number of companies that service the WMS market. Although the market was overdue for consolidation, few people could have predicted the collapse of so many firms in such a short period of time.
By mid-1999, the number of new WMS orders had declined to a trickle due to the focus on Y2K. This forced most WMS suppliers to drive more revenue from their existing customer base through upgrades, service, and support revenue. Without new orders in the pipeline, sales revenues plummeted, resulting in spending cuts to R&D and marketing. The downward spiral led to many firms selling out and larger WMS software companies ending up with multiple WMS applications.
Today, many of these acquired applications are being sunset because it’s far too costly for software firms to maintain and invest precious research and development dollars into upgrading multiple warehouse applications. Recently, Infor sunset the Provia application which is a shame because that was a great product in its hey-day and similarly the MARC Global application will no longer be developed by RedPrairie. Buyer-beware: vendor viability and financial strength continue to require careful scrutiny, and it is becoming increasingly important to understand long-term development priorities to minimize the risk of buying a WMS solution that may be earmarked for sunset.
Service Oriented Architecture
SOA has become an important trend even though the concepts behind it have been around for more than a decade. SOA is an architectural style that enables a collection of independent services to communicate with each other. SOA has gained extreme popularity due to Web services.
Today, technology developers face complex issues like distributed software, software customization, application integration, varying platforms, varying protocols, numerous devices, the Internet, etc. In short, SOA (along with Web services) provides a solution to all of the above. It eliminates the headaches of protocol and platforms so that applications integrate more seamlessly, and it allows customized software enhancements to be constructed in isolation of the source code, which facilitates ease of upgrades.
SOA also enables true event-based processing, which improves how and when information flows and sends out Web alerts for exceptions or potential problems. It is an important evolution in the world of software development and mobile computing.
WMS On-Demand or Software as a Service (SaaS)
Large companies with small warehouses and small/mid-sized companies need WMS because they have the same operational challenges as their larger counterparts. Unfortunately, price can be a show-stopper because WMS solutions can be cost prohibitive to deploy in smaller facilities with lower head counts.
To this day, tens of thousands of firms rely on antiquated systems, memory-based processes, and paper-based human-directed warehouse operations. The WMS market opportunity is beyond huge - it’s epic. The age-old questions are how to reach this market and whether or not there is a profit in it for the WMS supplier.
Several WMS suppliers have decided to go after the low-end of the warehouse market by providing their software as a service (SaaS). In other words, the software is rented on-demand at a very low monthly subscription cost per user. For example, a small facility with say 10 operators renting a WMS can do so for $1200 per month. While it remains to be seen if this generates a profitable business model for these WMS software firms, it’s a concept that is definitely gaining momentum based on the number of new customers signing up. WMS vendor SmartTurn was one of the first companies to promote this model and in May, 2010 RedPrairie announced the acquisition of SmartTurn which provides a good indicator that this business model may have validity if it is backed by an established sales and marketing machine.
Expect to see the On-Demand Supply Chain Execution Software market take over a much bigger market share in the years ahead as companies seek greater flexibility and less capital investment for these types of systems, especially for smaller facilities. It is important to keep in mind that the cost of services to integrate, implement and support on-demand WMS does not necessarily change for the end user because it is a SaaS model and these costs can often account for the lion’s share of expenditure.
Cloud computing is a term that conjures up images of the Internet which actually is not a bad analogy to understand this concept. Quite simply, cloud computing means that the WMS vendor hosts the software application and hardware infrastructure as an on-demand, scalable and flexible service offering. Basically, the WMS vendor becomes the IT equivalent of a third party logistics service provider. For companies that have stretched their IT budget and have very limited resources to take on a WMS project, cloud computing is an important option to consider because the burden of application upgrades and ongoing support can be outsourced to the WMS experts - at a cost of course.
A Web user interface is used to access the WMS software which is basically a rented / hosted application (think of it as a timeshare vacation home). The benefit is that there is minimal capital investment required to get into WMS end game which helps to reduce risk for many companies that have not yet made the plunge into automating their distribution centers.
The WMS market wasted no time in developing solutions for RFID, typically for outbound slap-and-ship type applications. A number of WMS suppliers have simply partnered with RFID firms to develop an integrated solution. Unfortunately, the whole RFID excitement fizzled out when the true cost equation became a reality and powerful retail forces began to back off on compliance pressure. The RFID hype bandwagon has subsided but it is making a resurgence of late. Most of the WMS vendors have been burnt by making big R&D investments in this area with little or no return. We anticipate that going forward most of the tier one WMS suppliers will take a “wait and see” approach rather than taking a leadership position. As demand increases for case-level or even item-level RFID tags then there may be a greater emphasis placed on enhancing the RFID solution offering.
Marc Wulfraat is the President of MWPVL International Inc. He can be reached at +(1) (514) 482-3572 Extension 100 or by clicking here. MWPVL International provides 100% unbiased warehouse management system (WMS) consulting services as well as the development of the economic business case for WMS technologies. Our services include: distribution network strategy; distribution center design; material handling and automation design; supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.