Supply Chain Software Outlook

Logistics Insight Asia, 1/9/2007

Supply chain execution (SCE) applications will drive future growth in the supply chain management (SCM) software market. That is the conclusion of a recent ARC Advisory Group study, “Supply Chain Management Worldwide Outlook: Market Analysis and Forecast through 2010”.

Supply chain management covers execution applications such as warehouse, production and transportation management, which operate in near real-time, as well as planning applications that create plans to be fulfilled over longer time horizons.

For the worldwide market for SCM, which is expected to expand at a CAGR of 8.6 percent over the next five years to reach over $8.3 billion by 2010, increases in the much larger execution segment will be the true market driver. And within the SCE segment itself, growth is highest in the manufacturing sector.

“Contributing to growth is increased demand from developing regions that are constructing new plants and purchasing best-in-class solutions to achieve world class manufacturing capabilities and have their products well accepted around the world,” said Tom Fiske, ARC Senior Analyst.

The manufacturing plant is the focal point in a supply chain network and is often the determining factor of its overall performance. While costs remain an important issue of performance in the customer-centric and demanddriven environments, other factors such as time-to-volume, determining the correct product mix, and having the flexibility, adaptability, and responsiveness to exploit market opportunities are increasingly becoming important to success.

In the warehouse
Meanwhile, changing economics of the warehouse management system (WMS) market, and the larger enterprise software market of which WMS is a part, have led to increasing consolidation through acquisition. Leading supply chain execution companies, like RedPrairie, and enterprise resource planning (ERP) players, like Infor, have found that if they can acquire a company with a big enough installed base for a price of less than 0.75 times revenues, the acquisition makes financial sense.

In the longer term, however, supporting multiple platforms does create a challenge: the installed base wants to know the product will continue to be supported but supporting multiple platforms dilutes the product development expenditures and increases the costs of customer support.

According to Dr Steve Banker, Service Director for Supply Chain Management at ARC, “Five years ago most of the leading WMS vendors were investing 18 percent or more of their revenues into R&D. Today, most invest less than 14 percent, and part of that budget is often involved in trying to rationalize the diverse platforms these vendors have to support rather than in adding new functionality.”

Dr Banker adds, “There is arguably more innovation in warehousing technologies on the hardware side than on the software side. Today I am seeing newer more flexible conveyors, improvements in voice recognition, wearable computers with integrated scanning and voice capabilities, and interesting new robotic warehousing applications.

“And I am seeing how these hardware improvements could also lead to newer and better warehousing processes in many cases. In the future, WMS development will partially be driven by the increased possibilities provided by developments on the hardware side.”

Planning solutions
It’s a similar story in the supply chain planning (SCP) market with many of the smaller SCP suppliers being acquired by larger ERP vendors who can offer a superior installed base, a lower price-point for SCP functionality, and perceived ease of integration attributed to a single solution provider.

Suppliers of SCP solutions have noted increased demand from the automotive industry and distribution intensive industries such as consumer packaged goods and food & beverage. The increases in demand are believed to be partially attributable to globalization factors such as outsourced and offshore manufacturing, longer supply chains, and a greater number of trading partners.

It is notable that newer SCP solutions are using standardized architectures, like J2EE, Microsoft NET, and XML, making them much easier to integrate, easier to scale, and less costly to deploy. These architectures can also take advantage of packaged services to reduce development risk and time-to-market.

As the reputation of these standardized architectures and the associated integration benefits proliferate, they possess the potential to mitigate uncertainty surrounding application integration. According to ARC, such a reduction in uncertainty could weigh in favor of best-of-breed providers offering advanced SCP functionality designed to complement ERP systems. [ ]

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