SCE Market Looking Up, But Players Realigning

ARC study sees growth ahead, but solution providers face encroachments from ERP vendors in some segments

ARC study sees growth ahead, but solution providers face encroachments from ERP vendors in some segments

Dedham, MA — January 21, 2004 — Providers of supply chain execution (SCE) solutions and services are reporting that their pipelines are starting to fill and that a recovery from the downturn in information technology (IT) spending is in the beginning stages, according to a new study from technology consultancy ARC Advisory Group.

But not all application areas are growing equally, and certain categories of vendors are looking to gain ground at the expense of others, ARC reports in "Supply Chain Execution Worldwide Outlook: Market Analysis and Forecast Through 2008."

As defined by ARC, supply chain execution applications are real-time solutions used to execute supply chain plans efficiently and effectively. The SCE market is composed of warehouse, transportation and production management solutions.

The worldwide market for supply chain execution is expected to grow at a compounded annual growth rate (CAGR) of 9.7 percent over the next five years, according to ARC. The market was $3.3 billion in 2003 and is forecasted to be $5.2 billion in 2008, ARC reports.

But the consultancy sees suppliers of enterprise resource planning (ERP) solutions gaining ground in this market. "ERP suppliers are steadily gaining market share at the expense of the best-of-breed vendors," says Steve Banker, ARC service director for supply chain management and principal author of the report.

"However," Banker adds, "this is not true in all SCE application areas. Certain areas — an example is production management applications for process manufacturers — have been much less likely to lose market share to ERP vendors."

ARC reports that ERP suppliers have been steadily taking market share in the warehouse management system (WMS) market and that this trend will continue. For the transportation management system (TMS) market, this trend has not yet occurred to any great extent. However, a leading supplier is planning an upgrade for 2004 that will greatly increase its functionality for TMS. Another leading ERP supplier will have its first TMS release. On the other hand, TMS in many ways is an umbrella term that encompasses several different types of transportation applications, so not all TMS suppliers will see an impact from these developments.

Suppliers of production management systems for the process industries are in a more protected position, according to ARC. Many of the core process manufacturing verticals require extremely deep industry specific functionality, and this is particularly true of industries such as chemicals, paper, and oil and gas. The leaders in production management for the process industries are also leaders in automation and control systems in those industries. Their expertise in critical hardware used to optimally run process plants provides a certain amount of protection from the encroachments of suppliers that sell only software and can not provide "total" solutions.

Leaders in production management in the process manufacturing industries are also, based on market shares, among the biggest suppliers of supply chain execution. This is despite the fact that leading ERP and best of breed logistics management suppliers are far better known. While manufacturing is recognized as a supply chain node, the relative scope and importance of the leading production management suppliers is greatly underestimated.