Buyers Market Seen for WMS

Warehouse management systems market seeing relative stability, dropping prices, expanded applications, ARC finds

Dedham, MA — November 19, 2003 — The warehouse management systems (WMS) market was an island of relative stability last year and will continue to grow at a slow-but-sure pace of about 4.5 percent for the next five years, according to a new report from technology research firm ARC Advisory Group.

In its latest "Warehouse Management Systems Worldwide Outlook" report, ARC finds some strength in the mature WMS market, predicting that the compound annual growth rate through 2007 will be slightly higher than the CAGR of 4.1 percent for 1998 through 2001.

"'Strength' is a relative term, particularly when compared to other supply chain management applications in recent years," says Steve Banker, service director for supply chain management and author of the study, noting that between 2000 and 2001, WMS sales worldwide actually shrank by 6 percent, a period of falling sales for the entire enterprise software space.

But the WMS market bounced back in 2002 with growth close to 5 percent, reaching $737 million for WMS software and services, even as other enterprise applications markets remained in a funk.

However, Banker warns: "The bounce back in revenues this year is not a harbinger of fast growth in the future. ARC is forecasting a CAGR of under 5 percent for the coming five years."

This overall stability drives internal market dynamics that are good news for potential customers of WMS solutions, according to ARC. A mature market features falling prices and more full-featured, reliable products that better meet the needs of a specific industry. ARC is reporting significant price drops in this market, as well as evidence that the falling prices are leading to the implementation of WMS across a broader spectrum of warehouses than has historically been the case.

In particular, 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 mean that radio frequency (RF) solutions 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.

Another market dynamic is that falling prices and the emergence of simpler solutions will lead to growth in the "Tier 3" market, companies with less than $250 million in revenues. Except for public warehousing companies, the great majority of Tier 3 companies that bought WMS had revenues of over $100 million. Now, however, simpler solutions have emerged that can be implemented by value-added resellers (VARs) with a much lower skill set than has traditionally been needed. This is, in effect, beginning to open up a fourth tier of buyers for WMS.

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