Top 20 supply chain management software suppliers, 2015

The market for supply chain management (SCM) software, maintenance and services continued its growth in 2014, generating $9.924 billion in 2014, a nearly 10% increase over 2013 revenues, according to the research firm Gartner (gartner.com). That total includes applications for supply chain execution (SCE), supply chain planning (SCP) and, for the second year in a row, procurement software. Since 2009’s 2% decline, the SCM market has posted double-digit growth in three of the past four years, according to Gartner.

SCM applications outpaced most software markets, “because supply chain remains a key source of competitive advantage in driving business growth objectives,” according to Chad Eschinger, Gartner’s vice president of supply chain.

Looking forward, Gartner is predicting a compound annual growth rate (CAGR) for supply chain management (SCM) software of 10% for the next five years, reaching $16.3 billion in 2019.

“The industry is in a replacement cycle, but we’re also seeing supply chain capabilities spreading into places like retail stores,” Eschinger says. “The goal is improved collaboration across a broader platform, which can drive much higher levels of efficiency.”
Despite supply chain software’s rapid growth across a variety of applications, Eschinger says plentiful opportunities still exist. “Many existing systems have high levels of customization or are outdated legacy systems,” he says. “For many organizations, swapping and reconciling information internally is a challenge. There are few single systems of record, and if you don’t have your own house in order, you’re really at a disadvantage.”

The view from the top
Overall, the market for SCM solutions like warehouse management systems (WMS) and transportation management systems (TMS)—excluding procurement revenues—is at $6.74 billion, a 9.5% increase from 2013 and a 47% increase since 2010. Under the SCM umbrella, the market for supply chain planning systems rose 8.7% to $3.66 billion. The supply chain execution market topped $3.08 billion, a 10.5% increase. (Last year’s Top 20 SCM software list.)

The top five market leaders are the same for the third year in a row, but they have collectively added $905 million in SCM revenues over that period, for 23% growth. SAP ($2.563 billion) alone grew 20%—the third-highest rate of the list—and continues to pull away from the comfortable second-place finisher, Oracle ($1.451 billion). JDA is also likely to enjoy third place for the foreseeable future, but things start to get interesting from there. Less than $100 million separates fourth and 11th places, a group that grew by 9% in the last year.

Notable trends
Several trends were at work last year in each of the five categories relevant to our readers: enterprise resource planning (ERP) and supply chain planning (SCP), procurement, WMS, TMS and manufacturing execution systems (MES).

At first glance, procurement may seem like an odd category in a list of supply chain-related software applications. However, procurement continues to become more integrated with the broader supply chain process, Eschinger says. Increasingly, end users are bringing automation to their procurement practices to make that link. “In my view, there’s an emerging concept of ‘the procurement network,’” he says. “Think about integrated business planning, not only to share sales and operations plans (S&OP) internally, but also, in collaborative commerce, to share that plan upstream and downstream in the supply chain so everyone is on the same chapter.”

Ultimately, the industry is working toward enhanced visibility into each item’s total landed cost from supplier to consumer. “These capabilities are in their early stages,” Eschinger says, “but that view into total cost to serve will be incredibly valuable to an organization. Right now, they might know at the organizational level whether a division made money, but few can say whether a specific SKU or order was profitable.”

Continued interest in inventory optimization software was evident, growing 10% in 2014. Similarly, S&OP solutions posted the third-straight year of gains above 20%. Eschinger says the software markets for transportation grew 12%, while order management (18%) and global trade (16%) also posted double-digit gains.

Meanwhile, cloud-based software grew more than 17% over the past year, with strong interest in cloud solutions in the WMS space. “What’s notable is that it confirms the recognition that the WMS market is not one homogeneous marketplace,” says Dwight Klappich, research vice president with Gartner. “A lot of the focus on the dialogue, to be frank, has been at the high end of the marketplace, but the vast potential market is made up of less sophisticated organizations that need basic and easy-to-use controls.”

Klappich highlighted several trends in the WMS and TMS space:

• Cloud gains ground
In the supply chain execution space, including transportation and global trade, warehousing has traditionally lagged other applications. Solutions inside the four walls were considered mature and primarily on-premise, with no compelling reason to upgrade. “We’re past that now, and we’re seeing a lot more interest in cloud-based solutions,” Klappich says.

The two fundamental styles of cloud solutions are public, or multi-tenant, and a dedicated cloud. “Multi-tenant options are gaining some traction, but it’s generally not the preference,” he says. “Customers want the flexibility and scalability of cloud infrastructure along with the performance guarantees of a dedicated instance, especially at the higher end of marketplace.”

• The omni-channel imperative
Growth at the top end of the WMS market—the Tier 1 level—has largely centered on omni-channel commerce capabilities. “One retail CIO told me WMS systems were once seen as bottom up projects, where you need to make the case to senior management,” Klappich says. “They would run it up the flagpole every year until things got so bad that they finally approved the project. But omni-channel is so fundamental to business today that it now comes from the top down. They’re not going to argue or postpone these strategic decisions anymore, because you can’t be a retailer if you don’t do omni-channel.”

• Retailers are not alone
The concept of omni-channel is bleeding into other industries, including manufacturing and the distribution of high-end designer products. “A manufacturer might have commercial products that move in traditional full truckloads,” Klappich says, “but they have 60,000 other SKUs that move in much lower volumes.”

In the past, a bath design shop in California that needed a specific $5,000 bathtub would place an order that would trigger the manufacturer to produce and ship another unit. Meanwhile, a distributor in Massachusetts may have that same tub in stock and is wondering what to do with it. Manufacturers are looking for functionality that will allow them to combine omni-channel commerce with a wholesale distribution model.

• Distributed order management
Distributed order management—or DOM—is an emerging capability coming from WMS providers. For the past several years, brick-and-mortar retailers have focused on establishing themselves as players in the e-commerce space. Now, the focus is on how to most profitably fill an order from a network of DCs, retail store locations or drop shipments from a manufacturing partner or supplier. DOM solutions, which sit in between an order management system at the enterprise level and the WMS, fill that need. A DOM solution figures out the most profitable way to fill and ship an order based on customer expectations or some other parameter.

“Companies realize that they can no longer ship an order for more than it’s worth,” Klappich says. “The more they virtualize inventory across their network, whether it’s in one or more warehouses, at stores or at a supplier, the more they need strong analytic capabilities to manage that process. That has created a brand new environment that is driving a lot of investment.”

• Execution at the extremes
Klappich notes an accelerating bifurcation of the TMS marketplace into systems aimed at the high end and those geared for less sophisticated users. “A large, complex company managing $100 million of freight will tend to attract the big software providers,” he says. “The rest of the market is going after small, regional operations, and there are far more companies managing less than $75 million in freight than there are big players.”

In North America and abroad, even with new solution providers entering all the time, Klappich suggests the low-end marketplace is maybe 10% to 15% penetrated.

• Parcels a bigger part of the package
Klappich notes a resurgence of demand in the parcel handling market, fueled in large part by omni-channel pressures. “Parcel is not new, but it’s different,” Klappich explains. “Aside from the last mile complexities, if you need to ship a sweater from Los Angeles to Atlanta, the person processing that is not a full-time shipping clerk. When a college student working part time needs to get five orders out this afternoon, the solution needs to be very simple.”

He adds, “The bottom line is this is a new era for parcel. I still talk to people running 20-year-old systems who say they’ve been happy with it, but these new business models heat up the need to change.”

MES on the move
In comparison to the supply chain planning and execution spaces, the manufacturing execution (MES) space has always been fragmented and difficult to quantify.

That remains the case today, according to Rick Franzosa, a research director and author of Gartner’s MES Market Guide. “It’s always been frustrating to pin down a precise definition of MES, and each of the half dozen variations of MES has a fairly small number of players,” he says. “In fact, Gartner’s Market Guide references just 37 suppliers in the MES space.”

It has also been a dynamic market, with a significant number of acquisitions over the past decade. Once a supplier gets above $30 million in revenue, it’s often a candidate for acquisition by a bigger player.

With those caveats, Gartner pegs the MES market at roughly $2.2 billion in revenues, split into four areas.

1. Operational technology suppliers make up about 50% of the MES market, and include companies such as Rockwell Automation, GE Intelligence Platforms and Honeywell that include some MES capability in their core businesses.

2. ERP suppliers such as Oracle, SAP, FlexSystem and Epicor.

3. Companies focused on product lifecycle management (PLM) and CAD/CAM engineering, including Siemens, Dassault Systémes, and Mentor Graphics.

4. Best-of-breed suppliers, which comprise 33% of the MES market.

Cloud is also a contender in MES, where Franzosa says the solutions are much more effective than many potential users believe. “They say they aren’t on the cloud, but instead use a corporate data center 300 miles away,” he says. “In my mind, what’s the difference? Latency, availability, uptime, security, all those things have been taken care of. It’s not rocket science, it’s not the future. It’s today.”

The question for MES companies, Franzosa says, is whether they have the resources to make their products cloud-ready. Small and large companies will struggle with this, he says, and currently only about a dozen MES suppliers have 10% or less of their install base running in the cloud.

Acquisitions continue to drive the market
Eschinger says the industry can expect a new wave of acquisitions to continue to drive market disruption in 2015. A few notable developments in 2014 included:
•  Accellos and HighJump Software merged, each a leading global provider of supply chain management software and trading partner network technology.
•  Dassault Systèmes, a product lifecycle management supplier, acquired Quintiq, a leading provider of on-premise and cloud-based supply chain and operations planning, and optimization software.
•  Descartes Systems Group, a leader in on-demand, software-as-a-service solutions, acquired Customs Info, a leading U.S.-based provider of trade data content for global trade management systems and automation.
•  Kewill, a leading provider of supply chain execution software, acquired the IBM Sterling TMS, a SaaS-based multimodal transportation management system.
•  Manhattan Associates, a supply chain commerce solutions provider, acquired the assets of Global Bay Technologies, adding in-store sales and client capabilities to its omni-channel inventory and order management solutions.
•  NetSuite, a leading provider of enterprise-class cloud ERP suites, acquired the WMS product side of eBizNET.
•  Siemens acquired MES specialist Camstar Systems.