Running The Numbers - August/September 2005

Fulfillment/Logistics

WMS Market Seen Reaching $1.3 Billion by 2009 Despite Vendor Viability Concerns

The worldwide market for warehouse management systems (WMS) has had its best year in several years, recovering from several slow years to grow by over 5 percent in 2004 and set to continue an upward march through 2009, even as consolidation has roiled the marketplace and left users with questions about long-term vendor viability, according to new study from ARC Advisory Group.

The market was $1.067 billion in 2004 and is forecasted to be over $1.339 billion in 2009, according to the report, "Warehouse Management Systems Worldwide Outlook Through 2009."

Steve Banker, service director for supply chain management at ARC Advisory Group, and principal author of the study, said that based on the number of acquisitions and mergers in this market, which has seen more than 20 deals affecting companies with WMS solutions in the last couple years, the market's growth has been surprisingly strong. Material handling-centric suppliers of WMS were not active in acquiring other WMS companies, the larger ones having made these acquisitions several years ago.

ERP companies that were active in this area in 2004 and 2005 included Oracle, Infor and Retailix.

Depending on the research cited, 50 to 80 percent of acquisitions never produce the anticipated benefits, according to ARC. The WMS market withstood the surge in acquisitions this year, but the research firm says that the true test will be to see how well the acquired companies' revenues hold up in coming years.

Source: ARC Advisory Group

Supply Chain Integration & Technology Infrastructure

Small Companies Increasingly Eye ERP; Focus on Compliance

In a survey of more than 550 companies, conducted by technology consultancy AMR Research and a manufacturing industry magazine, just 27 percent of companies with fewer than 500 employees indicated they use enterprise resource planning (ERP) systems today (Fig. 1), compared to 57 percent of companies with 500 to 2,499 employees, and 70 percent of large enterprises with 2,500 or more employees.

However, the study reports that more than 20 percent of the small enterprises are evaluating ERP systems for the first time in the next 12 months. Overall, 16 percent of respondents said they are evaluating an ERP system for the first time in 2005.

AMR attributed the growing number of small enterprises looking at ERP to the economy's shift to a more demand-driven model. "Many organizations, particularly smaller manufacturing shops, have realized that they do not have the IT architecture needed to compete in the new demand driven world," said David Caruso, senior vice president of research at AMR Research.

Compared to the old push supply chain model, the new business model defined by AMR Research as "demand-driven supply networks" (DDSN) states that consumer demand should drive all supply chain activities. Traditional manufacturing technologies, such as ERP, and business processes need to be amended to operate within this new model, AMR asserts.

The study revealed that nearly 40 percent of all companies surveyed completed their initial ERP investment within the last two years, and almost 50 percent of the respondents interviewed indicated that they would be making substantial changes to their existing ERP systems over the next 12 to 18 months.

Many organizations are making their new ERP systems the data management hub for compliant manufacturing, with investments focusing on providing key stakeholders improved access to operational data and business intelligence.

Source: AMR Research

Procurement

Greater Supply Base Consolidation Yields Greater ROI for Procurement

According to the Hackett Group, reporting in its latest "Procurement Book of Numbers," there is a direct correlation between a decrease in the number of suppliers/billion of spending and decreased total procurement cost as a percentage of spending. Each reduction of 2,000 suppliers per billion of spending generates savings of more than 5 percent of overall procurement costs.

Most importantly, Hackett found that when companies reduce the number of their suppliers, they are able to focus proportionately more of their resources on building stronger, more strategic, relationships with the resulting effect that they are able to simultaneously gain purchasing leverage and lower the cost of ongoing supplier monitoring and management.

According to Hackett, if 80 percent of a company's annual spend is spread across 20 percent of its suppliers, every dollar spent on procurement translates into $2.10 of spend reduction. For a typical company with $1 billion in spending, this translates into an annual spend reduction of $21.5 million derived from a $10.1 million investment in the procurement function. But if companies concentrate their annual spend across less than 2.5 percent of their suppliers, the ratio of spend reduction to procurement process costs is over 5 to 1. In other words, that same company could realize an annual spend reduction of $51.4 million, doubling the previous savings figure and increasing the procurement function's return on investment to over 500 percent.

"Few companies still cling to the belief that working with a large pool of suppliers keeps cost down," said Hackett Procurement Practice Leader Chris Sawchuk. "The empirical evidence is unequivocally to the contrary."

Finally, Hackett found that world-class procurement organizations embrace techniques to reduce complexity beyond supplier relationships in many other areas of procurement. For example, 100 percent of all world-class procurement organizations use both a company-wide item master file and company-wide commodity coding.

Source: The Hackett Group

RFID

Shakeout Impending in the RFID Industry?

Increasingly, attention is turning to the software that enables RFID data use within the enterprise. New initiatives are flying thick and fast.

ABI Research believes that this space is primed for a shakeout in the coming six to nine months. There will be rollups, acquisitions and consolidation as the need for more focused RFID-related software and applications grows, the technology research firm writes in its latest "RFID Research Service," which provides updates on the rapidly changing RFID market.

According to Erik Michielsen, ABI Research's director of RFID and ubiquitous networks, movement into this software space comes from several directions. "SAP (with its Auto ID Infrastructure, part of NetWeaver) is pushing down from the enterprise application space and picking up functions traditionally done by OATSystems, Acsis, Connecterra, Sun and GlobeRanger," says Michielsen.

In turn, some of these companies are broadening their focus beyond RFID middleware and into data analytics, business intelligence and automation networking. "OATSystems is a good example of this," Michielsen notes. "OAT is pushing up and becoming competitive with some NetWeaver functionality; and it is joined in the business intelligence space by T3Ci."

Sun, Connecterra, Oracle and Microsoft are all moving into this field according to their respective strengths, ABI writes.

Others, such as Manhattan Associates and Siemens, continue to develop RFID middleware in house, but Michielsen questions their need to keep building closed-system and/or customized solutions between the reader and the enterprise application integration layer, commenting, "I think they would be better off partnering and focusing resulting free energy on services and higher end software."

Source: ABI Research

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