Auto ID, software drive the supply chain
Supply chain software and auto ID equipment sales are expected to remain strong as companies continue to implement supply chain management strategies.
By James Aaron Cooke -- Logistics Management, 7/1/1999
Technology forms the backbone of most corporate supply chains. It's no wonder then that the adoption of supply chain strategies throughout corporate America is helping to drive demand for automatic identification (auto ID) equipment and logistics software. As corporations look to gain market share or cut manufacturing and logistics costs by synchronizing product flow with customer demand, they will increase their use of this technology.Auto ID equipment marks products, parts, and components for tracking through a distribution channel. Because automatic identification capability is the underpinning of any initiative to monitor supply chain flow, auto ID equipment sales are expected to soar in the coming year. The North American market for auto ID equipment totaled $11.3 billion in 1998, according to Venture Development Corp. (VDC), a technology research firm in Natick, Mass. VDC's researchers predict that the market will exceed $19 billion by the year 2002.
VDC estimates that sales of traditional handheld bar-code scanners amounted to $521 million in 1998, while sales of stationary scanners totaled $493 million. Sales of portable data-collection terminals, on the other hand, reached $1.6 billion in 1998.
Bar-code printers and related products constitute another major part of the market. VDC reports that sales of bar-code printers in 1998 exceeded $1 billion. Sales of printer supplies, meanwhile, totaled more than $5.8 billion.
Although bar-code scanners and printers have been the mainstay of most auto ID equipment sales in the past, other technologies are beginning to make their mark. One of those is the so-called "2-D" or two-dimensional bar code, which uses both the horizontal and vertical axes to squeeze more data into a small space than do conventional linear codes. VDC's researchers believe that spending on 2-D symbology will grow to $445 million by the year 2002 from $80 million in 1998.
Another auto ID technology that is increasing in importance is radio-frequency identification (RFID). Unlike bar codes, radio-frequency (RF) tags can be read from some distance without having a direct "line of sight" because the reader picks up radio signals. Until recently, high unit costs and a lack of uniform standards had hobbled the widespread deployment of RF tags. But manufacturers are addressing both of those problems: Not only are they developing high-caliber, low-cost tags, but they also are weighing the creation of a standard that would ensure compatibility among tags. One step toward resolving the compatibility problem is a proposal submitted by Philips Semiconductors and Texas Instruments to the International Standards Organization (ISO) for "smart labels," a version of RFID that places transponders between layers of paper or plastic.
Unless such standards are developed quickly, says one consultant, RFID will go nowhere fast. "The manufacturers of these various tags are starting to understand that they are shooting themselves in the foot by having no standards,'' says Rick Bushnell, president of Quad II Consulting in Chalfont, Pa.
VDC analysts predict that the push for standards and the introduction of lower-cost RF tags will drive RFID sales, especially for equipment used in monitoring freight transportation. The group expects RFID sales will double to $841 million by the year 2002 from $328 million in 1998.
Another important trend is a major push by auto ID equipment makers to align their products with those of vendors marketing supply chain software. "Perhaps the most important change we are seeing in the strategies of these technology suppliers ... is 'contexting','' says VDC analyst Christopher Rezendes. "Contexting" is a strategy that aims to put auto ID and RFID technologies and their suppliers within the "context" of the larger IT community and supply chain marketplace, he explains.
Many auto ID and RFID installations could be characterized as stand-alone, closed-loop systems, Rezendes notes. "As market demands, technology capabilities, and industry requirements have changed, however, leading [auto ID and RFID] suppliers have recognized the need to de-emphasize their discrete positions and now are working feverishly to put their businesses squarely in the context of other critical supply chain and logistics management technologies,'' he observes.
ITL Software Comes On Strong
While auto ID provides the means for monitoring product movements, software provides the information know-how that makes it possible to optimize supply chain activities.
To manage the logistics component of their supply chains, most companies have purchased single-point solutions; that is, applications designed to oversee specific tasks such as warehousing, transportation, order management, or inventory control. AMR Research, a Boston-based technology research firm, pegs the supply chain management software market (which encompasses all single-point solutions) at $2.6 billion in 1998.That figure includes revenue from software licenses, implementation, maintenance, and hardware purchases.
In the past year, "merger mania" swept the logistics software industry, as single-point solution vendors have bought one another in an effort to broaden their offerings. These vendors have embarked on a strategy of building software "suites"--bundles of applications that can cover all functions involved in supply chain planning and execution.
Although many of the mergers have involved developers of warehouse management systems (WMS), AMR Research analyst Greg Girard says he expects vendors of Customer Relation Management (CRM) software to begin pursuing acquisitions as well. CRM vendors develop applications for automating customer call centers.
Once companies have resolved their Year 2000 computer problems, AMR's analysts predict, they will increase their investments in supply chain software during the latter half of 1999. Companies still will tend to buy individual packages rather than suites, despite recent marketplace developments, the analysts project. And they believe that supply chain planning software sales will grow 58 percent, to about $2 billion this year from $1.28 billion in 1998. Advance planning and scheduling (APS) packages make up 70 percent of the supply chain planning market and will continue to be the hottest application in that segment. APS programs allow manufacturers and retailers to gauge outbound and inbound inventory demand.
The market for supply chain execution software will grow by 42 percent, to about $1.89 billion this year from $1.33 billion last year, AMR predicts. The most popular packages in this segment continue to be WMS applications, which oversee warehouse operations. WMS, together with transportation management systems (TMS), make up 70 percent of that market segment. Another hot application this year will be international trade logistics (ITL) software, which facilitates documentation and monitoring of exports and imports. This software has gotten a boost from the rapid growth of international sourcing and sales over the last few years.
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