ARC: Growth being driven more by demand for real-time production management applications than for logistics applications
Dedham, MA October 26, 2005 The worldwide market for supply chain execution (SCE) is expected to grow at a compounded annual growth rate (CAGR) of 9.2 percent over the next five years, according to a new ARC Advisory Group study. SCE solutions are real-time systems that manage supply chain operations.
The market was $4.2 billion in 2005 and is forecasted to be almost $6.6 billion in 2010, ARC said.
SCE solutions are composed of warehouse management systems (WMS), transportation management systems (TMS), collaborative production management (CPM) applications and other real-time supply chain applications. "The growth in the supply chain execution market," noted Steve Banker, ARC service director for Supply Chain Management, "is being driven far more by the demand for real-time production management applications than for logistics applications."
Banker is the principal author of ARC's "Supply Chain Execution Worldwide Outlook: Market Forecast and Analysis through 2010."
SCE Logistics Applications Experience Price Pressures
SCE logistics applications have experienced downward pressure on average selling prices (ASPs), ARC said. This has been most dramatic in the WMS and TMS markets. In the WMS market for example, the CAGR for the ASP fell by over 16 percent between 2001 and 2004.
In the TMS market, the on-demand model has also put severe downward pressures on prices. License fees have remained virtually flat the past couple of years, while on-demand revenues continue to grow. The net effect is smaller deal sizes and a smoothing out of revenues over multiple years, according to ARC. With few exceptions, a traditional TMS vendor will now have to sign about 2.5 new clients to generate the same amount of revenue it captured from a single client six years ago.
Further, enterprise resource planning (ERP) SCE solutions for tier-one and -two clients usually cost less than solutions from best-of-breed suppliers. This exerts a downward pressure on ASPs in two ways. First, as ERP suppliers gain market share, a greater percentage of industry revenues come from lower-priced solutions. Second, ERP pricing puts pressure on the best-of-breed to lower their prices.
SCE Production Application Vendors Resist the Encroachments of ERP Suppliers
ERP suppliers' inroads into the CPM space have not been as impressive as they have been in the TMS and WMS areas, ARC said. Many of the larger CPM manufacturing verticals require deep, industry-specific functionality, and this is particularly true of heavy process industries like Chemicals, Paper, and Oil & Gas, as well as the Semiconductor industry, which ARC classifies as a discrete industry. Most of the leaders in CPM-process are also leaders in automation and control systems for those industries.
Several of the larger CPM-process suppliers supply factory automation, devices and sensors to process manufacturers. ARC said that process manufacturers are acutely aware of the need for a link between their factory control systems and production management systems. This knowledge of both hardware and software has helped protect CPM suppliers to process industries better resist the encroachments of ERP suppliers.
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