WMS Market Seen Reaching $1.3 Billion by 2009

Consolidation roiling the market, leaving end users with questions about vendor viability, ARC reports

Consolidation roiling the market, leaving end users with questions about vendor viability, ARC reports

Dedham, MA  July 14, 2005  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.

"While some acquired companies with WMS solutions can expect to continue to grow their revenues, historically mergers and acquisitions have more often served as a drag on growth," Banker noted.

Acquisitions and Mergers

ARC classifies WMS suppliers as being in one of three types of camps: best of breed suppliers; enterprise resource planning (ERP) suppliers who sell WMS solutions that are based on the same code base and data model as their larger ERP solution; and suppliers who differentiate themselves based on their knowledge of material handling and often sell WMS and warehouse control systems (which control material handling equipment) as an adjunct to a much bigger material handling consulting or equipment sale.

Material handling-centric suppliers of WMS were not active in acquiring other WMS companies. Many of the larger material handling companies had made these acquisitions several years ago.

ERP companies who were active in this area in 2004 and 2005 included:

  • Oracle, which acquired PeopleSoft in December 2004. Previous to this, PeopleSoft had acquired JD Edwards, which did offer a WMS solution.

  • Infor, which acquired the ERP companies Lilly Software Associates, NxTrend and daly.commerce between March and September 2004.

  • Retailix, which acquired OMI International, which has a best of breed solution focused on the grocery industry, to increase their product suite in January 2004.
When ERP companies acquire other ERP companies that have WMS solutions, customers ask themselves questions like, "Will they continue to support this platform? Will they continue to improve the functionality? And will the support be at least as good as what we have been experiencing?"

Best of Breeds Active in M&A, Too

Some prominent best of breed companies were acquired as well, including:

  • LIS, a prominent European supplier, which was acquired by RedPrairie in February 2004 to increase their reach on that continent. RedPrairie, in turn, was acquired by Francisco Partners, a private venture fund, in May 2005.

  • HighJump Software, which was acquired by 3M in January 2004. Although not known for software, 3M does have some profitable software divisions. One 3M application, for example, is focused on providing solutions for packaging lines. HighJump subsequently announced they were developing a production management solution, and there is the prospect that their supply chain execution suite will come to have considerably more manufacturing functionality.

  • Catalyst International, acquired by ComVest Investment Partners in September 2004. Catalyst was a public company. Their shareholders sold out to ComVest, which then took the company private.

  • Yantra, acquired by Sterling Commerce in January 2004. Sterling's goal is to create a platform for enabling the extended supply chain, and they found Yantra's technology stack quite appealing for this purpose.
Acquisitions of best of breed vendors can also create questions. When best of breed companies are acquired by private investment houses or companies with few roots in the software industry, customers can question how well they understand software in general and their particular industry in particular.

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.

For more information on this study, see www.arcweb.com/res/wms.

Additional Articles of Interest

 Understanding and filling customer needs collaboratively adds more value than designing processes and systems to beat the competition. For an example of how one company did it, read the SDCExec.com article "Aligning Fulfillment Metrics to Customer Segment Requirements."

 Words of wisdom from one university professor go a long way to help business students excel in supply chain management. Read "Interview with Dr. John T. Mentzer: Teaching Supply Chain" in the June/July 2005 issue of Supply & Demand Chain Executive.

 For more information on the latest trends in the fulfillment space, see the article "The Analyst Corner: Fulfillment & Logistics" in the October/November 2004 issue of Supply & Demand Chain Executive.