Supply Chain and Logistics Technology: WMS continues its reign

Best known as the grandfather of the supply chain software space, warehouse management systems (WMS) continued their reign as one of the most important tools in a logistics professional’s toolbox over the course of 2011. Despite economic problems and the fact that most companies that need a WMS probably already have one in place, the software sector continues to attract companies’ attention as vendors differentiate their offerings and delivery methods.

Coming off of 2010—a year that saw worldwide WMS sales jump up by 8 percent according to ARC Advisory Group’s latest market report—the sector remained on pace with above-average growth expected for 2011 as well. The 8 percent pickup came on the heels of a market contraction in 2009, according to ARC, and relatively flat sales in the prior years. Clint Reiser, ARC research analyst, attributes the growth to “a broad-based rebound in sales across geographic regions and industry verticals.”

While ARC reports that large, Tier 1 shippers and those based in North America drove much of the WMS market growth over the last two years, emerging markets are also fueling the expansion—in particular, those countries with economic growth outpacing that of developed nations. “This trend is reflected in sales of WMS solutions,” says Reiser, who expects firms in emerging markets in Asia, Latin America, and the Middle East to continue to adopt WMS to “obtain operational efficiencies in an effort to retain and improve existing cost advantages.”

In examining industry sectors where WMS is most likely to gain ground this year, Reiser expects strong demand from firms that are dealing with new compliance and traceability requirements across the supply chain. Pharmaceutical, food, and beverage companies will be particularly good candidates for a new or upgraded WMS in 2012. “There will be a decent level of demand for WMS capabilities from these sectors,” Reiser says.

With emerging markets and specific industries in line to fuel the WMS market in 2012, Logistics Management spoke with top analysts in the sector to get a feel for what other trends are driving expansion and key points that shippers should keep in mind when investing or upgrading. Over the next few pages we’ll explore those trends and examine what WMS vendors are doing to meet the demands of today’s shippers. 

2012: Year of the upgrade
Many of the WMS systems that companies are using have been in place for 10 to 15 years—some even more. Technology has advanced rapidly over the last few years, making 2012 the “year of the upgrade” for WMS users that are looking for increased capabilities, expanded functionalities, software as a service (SaaS) models, and other state-of-the-art offerings.

With companies expected to rekindle their capital investment activities over the next 12 month, upgrade activity will be prevalent in established WMS markets in North America and Europe, says Dwight Klappich, research vice president for Gartner, Inc. “A lot of shippers are sitting on old, heavily-customized legacy WMS applications right now,” he says.

And while vendors have migrated their systems to keep them up to date, affording and making the time for upgrades isn’t always top of mind for companies. “It’s not uncommon for me to run into shippers that are five or six releases behind on their WMS,” says Klappich. “They see the cost and the effort it takes to move forward as major deterrents, so they just keep using their old setups.”

Compounding the challenge are advancements within shipper business models. Ten to 15 years ago, for example, the majority of a retailer’s business was focused on its brick-and-mortar presence. When e-commerce emerged, many hired separate third-party logistics (3PL) firms to manage their online transportation and warehouse processes.

“They segregated their inventory, basically making it inaccessible to the brick-and-mortar component,” says Klappich. “As retailers bring their e-commerce activities back in-house, they need a contemporary WMS that can handle e-fulfillment and traditional activity.”

To accomplish that and other warehouse-related goals, Bob Hood, senior manager of supply chain for consulting firm Capgemini, says applications that date back 10 or more years will either be replaced or brought up to speed through upgrades. “We saw this trend start in 2011, and we think it will increase in 2012, both for WMS and for transportation management systems,” says Hood. “As the cost associated with maintaining old applications increases, companies will definitely be looking for alternatives.”

Vendors answer the call
Right now, according to Hood, four key players dominate the WMS market: Oracle and SAP on the ERP side, and by best-of-breed vendors RedPrairie and Manhattan Associates. The former tends to attract companies that are already heavily invested in ERP and are in need of an integrated WMS, says Hood, while the latter lures in logistics operations that have more sophisticated requirements and that don’t have to comply with corporate, ERP-related mandates.

Leading WMS vendors continue to enhance and extend their products’ core capabilities while also expanding the breadth of their application by providing more value-added capabilities surrounding the core WMS, or what Klappich refers to as the “extended WMS.” He says vendors have been focused on enhancing their offerings’ technical architectures, adding SaaS delivery models, and enabling more user adaptability of the WMS—a far cry from the highly customized and proprietary systems of the 1990s.

Reiser says that vendors are also adding functionalities like labor management systems, voice recognition, and warehouse analytics to their systems. “Customers are adopting these add-ons as they extend their WMS footprint to capture additional efficiencies and increase productivity in their warehouse operations,” says Reiser. “We expect strong growth rates to continue for add-ons as a collective group.”

Driving the warehouse of the future
The WMS market is expected to continue down its growth path as vendors in the space continue to hone their offerings, and as shippers in both developed and emerging markets increasingly rely on the systems to manage their warehousing and associated activities.

Capgemini’s Hood adds that global trade management (GTM) could be one area that WMS vendors see as a viable add-on, based on shipper demand and compliance issues like product traceability. “Certain features already incorporated into WMS do address global trade requirements,” says Hood. “This could be one area that vendors pay more attention to this year.”

The small business sector is also catching the WMS vendors’ eye as they look beyond the low-hanging fruit to find new customer segments. According to Reiser, small firms have historically shown limited levels of interest in and adoption of WMS due to high cost and large upfront expenditures associated with traditional software licenses.

That started changing in 2011, says Reiser, thanks to the introduction of subscription-based SaaS models. “These solutions provide smaller customers with an affordable alternative to the use of paper pick sheets,” says Reiser, “and are driving increased sales of WMS solutions into the small business market.”

The usefulness of SaaS-based WMS systems expands beyond those small firms that lack capital resources for purchase-and-install implementations. In fact, Klappich sees SaaS delivery as a growth driver for the WMS market this year, noting that the offering is no longer limited to the “low end” of the marketplace. “It’s interesting to see how demand for SaaS has accelerated as more robust on-demand systems have been introduced to the market,” says Klappich. “It’s going to be interesting to see if this delivery method becomes a real option for larger, more complex facilities.”