Recent research from both ARC Advisory Group and Gartner indicates that the market for supply chain management (SCM) software is growing as demand picks up and companies plan their technology investments. In fact, demand for these software systems continued to be relatively stable even during the recent recession.
According to Gartner's "Market Share Analysis: Supply Chain Management Software, Worldwide, 2012," the worldwide supply chain management software market grew 7.1 percent to $8.3 billion in 2012, even though IT decision makers were still cautious about how they spent their budgets.
"While IT budget scrutiny and global economic conditions are moving cost reduction back to a main business driver, supply chain remains a key source of competitive advantage in driving business growth objectives," said Chad Eschinger, research vice president at Gartner. "North America and Western Europe continue to be the prime consumers of SCM software, with nearly 77 percent of market revenue. However, Western European growth slowed and Asia/Pacific continued to experience robust growth, reflecting a shift toward investment in technology in emerging-market manufacturing centers."
Eschinger says that SCM growth has outpaced most other software markets, even during the recession. "Even in 2008 and 2009, the market posted positive growth, which is encouraging because it points to the overall importance of these solutions," Eschinger says. "It's really outpaced the growth of the software market in general."
ARC examined the growth of the warehouse management system (WMS) space, which grew by eight percent in 2012 across both well-established and emerging markets.
Omni-channel retail operations are one key driver of WMS growth as retailers and third-party logistics (3PL) companies re-configure their operations to cover both in-store and e-commerce demand. Some retailers are also buying store-level WMS solutions to improve inventory accuracy and expand their own order and fulfillment operations such as in-store pick-up for online orders. 3PLs are also establishing stand-alone distribution centers specifically to support e-commerce fulfillment for their customers.
“Omni-channel retailers are integrating brick and mortar and e-commerce distribution channels," says Clint Reiser, enterprise software analyst and author of the "Warehouse Management Systems Global Market Research Study" report. "Traditional warehouses are being outfitted with WMS functionality to support the individual item handling requirements of e-commerce fulfillment."
According to ARC, add-on modules for warehouse management systems, such as labor management, slotting optimization and warehouse analytics also are increasing.
Software as a service (SaaS)/hosted/cloud-based SCM solutions showed above market growth of 13 percent last year, while perpetual new licenses grew just 3.5 percent. According to Gartner, that's because companies are focusing on fast implementations and lower upfront costs, which are both enabled by subscription-based software implementations.
Eschinger says most of the traction for cloud-based solutions has been in the procurement space, but the number of cloud-based supply chain planning solutions is expected to grow as companies move away from homegrown forecasting systems.
"Warehouse management has seen very little traction in the cloud, but we feel there is a positive opportunity for transportation management systems, particularly around creating networks where you put shippers and carriers on a shared platform where everyone can bid and gain visibility into goods being shipped," Eschinger says.
Compliance with global trade regulations is another area where companies are looking for new tools, particularly since the rules and regulations can change so frequently. "They want to be able to collaborate with shippers and carriers in moving goods more effectively and efficiently," Eschinger says. "There is a great opportunity there to get the interested parties on a standard platform."
In terms of growth in specific modules, Eschinger says that sales and operations planning tools have seen a lot of activity. "We're seeing that among buyers and sellers as they look to get off of spreadsheets for planning capabilities," Eschinger says. "That's evolving into integrated business planning, so that you can provide against those what-if scenarios. They want the capability to make the best decision for their business using that intelligence."
Gartner says that SAP still leads the SCM market, holding 20.8 percent of the market and generating $1.7 billion in software revenue. Oracle remains in the number-two slot, followed by JDA Software.
The remainder of the market is highly fragmented. While the top five SCM software vendors accounted for nearly 50 percent of revenues, the rest of the market is split among hundreds of different providers. "There are a lot of smaller companies that offer niche products, either from the point of view of the actual functionality or the vertical market they service," Eschinger says. "The larger companies are focused on satisfying a broader audience, but that leaves a lot of white space where smaller companies can fill a need."
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