Top 20 SCM software suppliers, 2013

The market for supply chain management software, maintenance and services continued its upward trajectory in 2012, generating $8.3 billion in 2012, including applications for procurement software. That figure represents a 7.1% increase over 2011 revenues, according to Chad Eschinger, vice president of supply chain for research firm Gartner.

Without procurement, the market generated $5.528 billion, a healthy $333 million jump over 2011 revenues for the group of applications that are most relevant to Modern’s readers, including supply chain planning and supply chain execution applications such as warehouse management (WMS) and transportation management (TMS). That’s a 6% gain over the prior year. Read last year’s SCM Top 20.

“At the end of the day, the supply chain software market is healthier than most other software markets,” Eschinger says. “We’re seeing interest in greater visibility, greater insight into the variability of demand and in satisfying the end customer. Those are all areas where supply chain software plays a pivotal role.”

Looking forward, Gartner is predicting a compound annual growth rate (CAGR) for SCM software, excluding procurement, of 9.9% for the next five years. The top five market leaders will look familiar to readers of last year’s survey. SAP ($1.721 billion) and Oracle ($1.453 billion) once again lead the pack.

While that is no surprise, both posted gains of more than 30% compared to 2011. As with last year, they were followed by JDA Software ($426 million) and Manhattan Associates ($160 million). Epicor displaced RedPrairie, which is now part of JDA, to take the No. 5 spot with $138 million. Toss in Infor ($111 million) at No. 7, and enterprise resource planning (ERP) suppliers now occupy four of the top seven slots. The Big Three of SAP, Oracle and JDA accounted for 48.5% of the total supply chain management software market.

Astute followers of the Top 20 list will also notice a few new names, including Unit4, a cloud-based business software provider; Quintiq, a provider of planning and optimization solutions; and Inspur Genersoft, a Chinese-based enterprise software provider. The addition of these new players, who are each generating between $46 million and $62 million in sales, demonstrate the changing nature of the supply chain software industry.

Making the list
This marks the 12th time Modern has reported on the supply chain software market from a business standpoint since 2002. Although we initially focused on the top providers of WMS solutions, the lines between supply chain execution and supply chain planning providers are no longer clearly drawn; ERP providers supply WMS and supply chain execution providers supply planning and optimization solutions.

For that reason, Modern now partners with Gartner to create the list. The list represents a numbers-based ranking and not a value judgment. The rankings are based on Gartner’s estimates of a provider’s annual sales for 2012. Gartner’s estimates are based on revenues related to supply chain management software excluding vendor-generated services and hardware and not a company’s total revenues.

Admittedly, this is an imperfect science. Gartner, for instance, strips out hardware sales from its estimates. Those are the reasons, for example, that Gartner credits Manhattan Associates with $160 million when the company’s overall revenues are more than double that amount. What’s more, Gartner does not follow the warehouse control (WCS) or manufacturing execution (MES) spaces for the purposes of its chart. Finally, it does not include SCM vendors that focus on specific verticals, such as Retalix, a $50 million plus vendor that is now part of NCR. However, it is an apples-to-apples comparison.

More importantly, whether you agree with all of the numbers, the order provides a good ranking of the major providers across the supply chain management space.

Notable trends
Several trends were at work last year in each of the four categories relevant to our readers: ERP and supply chain planning (SCP); warehouse management (WMS); transportation management (TMS); and manufacturing execution (MES) systems.

RedPrairie acquires JDA: This was the largest and most talked about acquisition last year. In this instance, David swallowed Goliath, with RedPrairie ($105 million) acquiring a competitor with four times the licensing, maintenance and services revenue. At this stage, it’s too early to predict how the combined companies will execute, according to Eschinger and Dwight Klappich, vice president of research at Gartner. Both, however, agree that it changes the dynamics of the supply chain execution market, where RedPrairie is strong.

“Not that long ago, there were at least 75 stand-alone WMS vendors, including RedPrairie and Manhattan Associates,” says Klappich. “After the merger, Manhattan is the last, large free-standing vendor.” Both add that there are solid strategic reasons to combine planning and supply chain execution. “The question is whether they can get synergy across their portfolios,” says Klappich. “If they can do that, it will be a strong acquisition.” 

ERP/SCP/SCM: Enterprise-level supply chain planning applications grew from $2.8 billion to $3.03 billion between 2011 and 2012. While it was a quiet year from a mergers and acquisitions standpoint, several trends were at work, including:

• For planning, it was business as usual: SCP continues to generate interest—especially around inventory optimization, a space that’s growing at roughly 6% a year. “Organizations are trying to satisfy their customers and improve service while simplifying the complexity of their supply chain nodes,” says Eschinger. “They have to do incremental improvements and inventory optimization can help with this.

• Sales and operations planning is taking off: The market for S&OP applications, which tie supply chain activities closely to marketing and sales efforts, is growing at 20% a year. The most important trend is the addition of analytics that allow users to create what-if scenarios as part of their planning activities.

• Multi-business platform collaboration: Supply chain collaboration is a concept that is raised year after year. Now may be its time. “In almost every conversation I had with clients, there was interest in collaboration,” Eschinger says. Supply chain software platforms that allow trading partners to share plans and processes will enable this trend.

• Cloud computing continues to get traction: However, in many instances, it is geographically based. “We’re seeing the cloud take off in Latin America,” says Eschinger. One reason is that emerging markets don’t already have a legacy of on-premises installations to deal with. Just as many emerging countries went straight from no telecommunications to cell phones, countries just now adopting supply chain software are finding advantages in the cloud.

WMS: The market for warehouse management software (WMS) grew by 7% in 2012 to roughly $1.1 billion. And, despite the attention paid to the RedPrairie/JDA combination, Manhattan quietly grew by more than 13.2%, based on Gartner’s sizing of the market. For a mature technology, the market is evolving in at least two important ways.

• ERP is coming on strong: As we reported in May, Klappich has documented the growing dominance of ERP vendors in the WMS and SCE space, especially SAP, Oracle, Infor and Epicor. “When we look at the numbers, we estimate that SAP, Oracle and Infor alone will have more than 50% of the market in terms of the numbers of customers,” says Klappich. “They will not have the same level of revenues as the best-of-breed providers like Manhattan and RedPrairie, because many of the ERP vendors include WMS as part of a broader deal.” Klappich says there are about 250,000 warehouses in North America that can benefit from a WMS system. Of those, 25,000 to 50,000 require the functionality provided by the best-of-breed players. As to the remaining 200,000 or so facilities, “ERP functionality serves them well,” Klappich says.

• Growing interest in the cloud and software-as-a-service (SaaS): As noted by Eschinger, there is interest in cloud applications across the SCM landscape. WMS is no different. The factor holding back deployments has been a concern about whether the performance of the systems would be affected by the cloud. Those concerns appear not to be as serious as once thought. “There are a lot of players in the space right now, just as there were a lot of players in the best-of-breed WMS space at one time,” says Klappich. “We anticipate that there will be a shakeout over the next five years and we don’t know who the winners will be.”

TMS: The market for transportation management software grew by 14% in 2011, posting revenues of about $735 million.

• Growth of the mid-market TMS: As with last year, Klappich sees much of the growth coming from mid-size shippers spending $25 million to $100 million a year on freight. “The mid-market is underserved by TMS providers today, but we see several that are looking to that area for growth,” says Klappich. “They’re creating solutions for companies that don’t have the complexity of someone shipping $200 million a year, but who want to control their freight.

• Supply chain execution convergence: Klappich and his colleagues have been studying SCE convergence for the past six years. The idea is that too often, companies optimize their processes within silos, such as the warehouse or transportation department. Instead, the real savings come from orchestrating those processes in a way that optimizes them across silos. “We’re beginning to see logistics as a platform that allows processes to converge,” Klappich says. “We’re not there yet, but over the next five or so years, we believe you’ll be able to optimize warehousing and transportation as one end-to-end process.”

MES: Gartner does not formally survey and size the market for manufacturing execution software solutions, or MES, for discrete manufacturers. However, Simon Jacobson, a vice president who covers the MES space for Gartner, estimates it at $1.5 billion and growing. “In the past year, we’ve seen a significant increase in interest in MES from our clients,” Jacobson says.

More importantly, Jacobson says the market is changing in several different ways.

One is that end users are finally seeing the value of MES. The result is that the value of MES companies is on the rise. “Dassault Systemes announced in May that it was acquiring Apriso for $205 million, or about four times Apriso’s revenue,” says Jacobson. “That’s a substantial markup in this industry.”

Expect this trend to continue. “In the next five to six years, the number of standalone MES providers will dwindle due to strategic acquisitions by other vendors,” Jacobson predicts. And, it won’t be MES vendors buying MES vendors. Instead, he expects interest from product lifecycle management (PLM) and SCM vendors who want more end-to-end visibility to make those acquisitions.

Another is that suppliers are offering more pre-canned functionality than in the past. That means that less custom coding is required to get a solution up and running. “We’re seeing that 70% to 80% of the functionality is out of the box, rather than have to build a lot of the system from scratch for each implementation,” Jacobson says.

Finally, Jacobson expects to see the acceptance of MES spread as large manufacturers provide access to MES functionality to their partners in a distributed manufacturing network. “You’re going to see a large OEM customer extend its MES to its vendors so that it can get better visibility into what’s going on across its network,” says Jacobson.