Even in a slowing economy, many companies still find supply chain technology to be a sound investment. Over the past year, corporations have deployed a variety of software applications as part of an ongoing effort to gain tighter control and broader visibility over their supply chains. "The economic slowdown is having an impact, but companies can get the money [for technology] when they do their homework," says Dwight Klappich, a program director with the Meta Group, a market research firm based in Stamford, Conn. "If [the software allows a company to] do a better job at reducing costs, then it's a good investment."

Though business cooled for many industries, the market for supply chain planning and execution software remained hot last year. U.S. companies spent $5.2 billion on the software, according to AMR Research of Boston. Those numbers include revenues from software licenses, implementation, maintenance, and hardware purchases. The top three vendors for supply chain management software last year were i2 Technologies ($845 million), SAP AG ($353 million), and International Business Systems ($283 million). (See Figure 1 below.) And the boom is expected to continue. AMR forecasts that the supply chain software market should rise to $6.7 billion this year. (See Figure 2 below.)

Other hot applications this past year proved to be e-procurement and advanced planning and scheduling systems, reports AMR analyst John Fontanella. Although warehouse management and transportation management systems remained popular, vendors also began developing and offering event management programs, which provide notifications about the movement of shipments. "The big module this past year was supply chain event management," confirms Steve Banker, an analyst with ARC Research in Dedham, Mass. "That's a key module for getting more out of the investment in supply chain software. It pulls together planning and execution systems."

In conjunction with event management, software vendors developed modules to offer visibility of shipments once they leave the company's premises. "Every supply chain vendor wants to extend its application outside the four walls of the operation," says Chris Newton, another analyst with AMR. "They're all seeking to provide a centralized database view of information, whether in a single organization, across multiple DCs, or at the suppliers."

In a bid to attract more customers, vendors also began offering their wares on an application service provider (ASP) basis, essentially renting their applications over the Internet. But the ASP model hasn't been successful across the board. "ASPs are still strong in transportation but not in planning or warehousing," says Newton. "We haven't seen any tremendous market for this model."

The market also witnessed continued strong sales of WMS packages both to companies installing those applications for the first time and to organizations replacing older models. "Companies are finding out that the older WMS systems aren't flexible enough to handle cross-docking or adapt to picking for a specific carrier," says Meta Group's Klappich. "Also, a lot of ... vendors have stopped supporting the operating systems for which the older software packages were originally written."

Fortunately for logistics managers, the WMS business has become a buyers market, Klappich notes. "Smart shoppers can find some real bargains if they go about it in the right way."

Although software vendors saw strong growth, makers of automatic identification (auto ID) equipment continued to wrestle with a maturing market. Venture Development Corp. (VDC), a market research firm based in Natick, Mass., says sales for 1999—the most recent year for which numbers are available—amounted to $8.7 billion.

In the face of shrinking profit margins and stable demand for bar-code terminals and printers, auto ID manufacturers continued to merge. This past year saw Symbol Technologies of Holtsville, N.Y., combine with Telxon Corp. of Cincinnati, and Psion plc of London merge with Teklogix of Mississauga, Ontario. "The products are becoming more like commodities," says Steve Bernard, an analyst with VDC. "As the margins go down, the companies merge to get better distribution channels and to provide complete solutions that offer higher margins."

Although the market for bar-code equipment may have flattened, emerging technologies could revive the industry's fortunes. Bernard expects voice technology to come on strong over the next three years as prices drop. Radio-frequency identification tags for marking cases should also gain popularity, boosting sales. "Though RFID is currently limited to high-value items and reusable containers," he reports, "declining costs, developing standards, and improving technologies such as smart labels are expected to increase adoption in emerging applications such as work-in-process tracking and asset management."

One other sector of the logistics technology field, portal construction, drew considerable attention this past year. Although a number of Web-based exchanges opened their doors as digital marketplaces in which logistics managers could find and book carriers, their future remained in doubt. "The first foray into public marketplaces pretty much failed due to overaggressive business plans and undercapitalization," observes Klappich.

By the start of this year, many exchanges were transforming themselves into online software providers or operators of private networks. "The market," says Klappich. "has shifted from public to private [exchanges] driven by channel masters who have the clout to force people to do it their way."

Figure 1.

Top Supply Chain Management Software Vendors

Figure 2.

SCM Market Set to Quadruple