The warehouse management system (WMS) market grew by close to 5 percent in 2002, standing out as a nice recovery story within the enterprise software market. Between 2000 and 2001, by contrast, WMS sales worldwide shrank by 6 percent, while in North America they slumped by almost 12 percent during that time period. These are among the findings contained in a recent study by the ARC Advisory Group, a research firm headquartered in Dedham, MA.
WMS applications have faced the natural downturn in sales following the surge of buying from year 2000 and the e-fulfillment "boomlet," says ARC. Further, the slowdown in the global economy added to the downward pressure on the WMS market.
"The bounce-back in revenues this year is not a harbinger of fast growth in the future," stated Steve Banker, service director, Supply Chain Management at ARC. "ARC is forecasting a cumulative average growth rate (CAGR) of under 5 percent for the coming five years. Overall, this is a mature market, but it has interesting internal dynamics.
WMS systems have a core functionality that users need and through which they obtain significant, measurable ROI, explained Mr. Banker. In 1998, the market was $659 million, while in 2002 the market for WMS software and services stood at $737 million. Thus, the CAGR between 1998 and 2001 was 4.1 percent, representing a growth rate for a period that begins before the "boomlet" and ends after the "hangover," he noted, adding that this average is a good indicator of what the future growth rate is likely to be.
ARC forecasts a growth rate of 4.5 percent for WMS over the next five years, noting that this comparative stability is good news for potential customers of WMS solutions. A mature market features falling prices and more-fully-featured, reliable products that better meet the needs of a specific industry. The research firm notes that prices have fallen significantly in the WMS market and that there is also evidence that the falling prices are leading to the implementation of WMS across a broader spectrum of warehouses than has historically been the case.
WMS applications have often been seen as a solution for finished-goods distribution centers (DCs). However, among best-of-breed WMS suppliers with revenues of over $10 million, over 30 percent of implementations are outside of DCs. Falling prices also mean that radio frequency (RF) solutions will likely become practical for a broader range of warehouses. RF-enabled WMS solutions are used by warehouses designed to support manufacturing, customer service, merge-in-transit facilities, or "mixing center" warehouses.
Finally, falling prices and the emergence of simpler solutions will also lead to growth in the Tier 3 market (companies with less than $250 million in revenues), the study projects. Previously, the majority of Tier 3 companies that bought WMS had revenues of over $100 million. Now, however, streamlined solutions have emerged that can be implemented by value-added resellers with much lower skill sets. In effect, this is beginning to open up a fourth tier of buyers for WMS.
