might be interesting to dissect the differences between the merger and acquisitions
phenomena within the enterprise resource planning (ERP) and supply
chain execution (SCE) markets. One possible similarity might be in the
economic environment, though. Namely, even if the global economy bounces back
with a vengeance, there will still likely be more solution providers than a
real abundance of sales opportunities. Consequently, larger predators are going
to use their huge resources such as market capitalization, credit lines, and
cash to buy the smaller competitors' install base, intellectual property, sales
channels, and so on, right? Well, not quite across the board.
the outright intra-market consolidation within the ERP market has been both
apparent and logical, the SCE/WMS (warehouse management systems) market remains
modestly growing but highly fragmented with fewer pure-play vendors, some of
which are still growing organically albeit not at the breakneck pace as a year
ago or so, such as HighJump, Manhattan Associates,
Provia, RedPrairie, HK Systems,
G-Log, MARC Global, Swisslog,
Logility, etc. There are several reasons why SCE/WMS vendor
consolidation has not followed the all too common occurrence of strong vendors
gobbling up weaker competitors as it has been the case in the ERP space.
typical dynamics driving ERP vendors' mergers that, for example, acquire an
install base and increase market share, fill certain product gaps, and acquire
more advanced product and technology, etc., as seen in Frantic
Merger-Mania Spiced Up With Vendettas Leaves Customers Anxious, are
simply not that applicable in the WMS market. This is since only a few vendors
have large install bases and these leading vendors have been embroiled in upgrading
their own technologies, and, by and large, most of them are at similar functionality
or product technology plateaus. Thus, it was more likely that leading vendors
would buy products that would expand their supply chain management (SCM) footprints
as seen in Manhattan Associates' acquisition of Logistics.com
in 2002, (see Logistics.com
Becomes The Newest Of Manhattan Associates) or the three-way merger
between former publicly-held supply chain planning (SCP) provider SynQuest
with two privately held supply chain event management (SCEM) providers,
Viewlocity and Tilion into nowadays' Viewlocity,
Mania At Its Extremes). However, at this stage, there seem to be little
inclination and rationale to buy a direct competitor and further burden itself
with legacy product maintenance and support issues.
this is not to imply that the SCE vendors are "off the hook" and are out of
trouble, given most of them face certain challenges notwithstanding. The first
one is the fact that the sluggish economy has lately caught up with this resilient
market, while, on the other hand, the competition has been intensified from
many ERP vendors, particularly from the tier 1 ones like SAP,
Oracle, PeopleSoft, and SSA Global.
Another challenge for SCE pure players has been that dreaded word—"commoditization"
and subsequent price erosion. Namely, at least within the WMS market, which
is still the main breadwinning offering for most of the SCE vendors, if one
considers the "within the four walls" functionality, most products are functionally
on par, with mere nuances in ease of configuration or industry focus to differentiate
the winner. The above ERP vendors have taken advantage of this unfavorable perception
for WMS specialists to at least shore up their huge install bases, if not even
compete for some "green field" WMS opportunities.
SAP Takes Advantage
example, SAP has lately become the leader in the SCM arena, not only by mere
revenues from existing ERP install base, but also by a well-rounded functional
footprint within the mySAP SCM 4.0 suite. SAP has introduced
therein some value-adding WMS features that are typically found in best-of-breed
WMS products including task and resource management, with its enterprise performance
and event management capabilities. Also, SAP has been deeply involved in emerging
radio frequency identification (RFID) technologies, as illustrated
by its announcement of SCM applications with built-in RFID capabilities at the
recent National Retail Federation (NRF) show.
SAP has been tacitly researching RFID enabled processes since the late 1990s,
within which time it has created an RFID customer council with over eighty customers,
and was one of the first software suppliers to join the Auto-ID
center (now EPCglobal. It is an organization which is designing
the critical elements and creating global standards for the next generation
barcodes as a mainstream method of business-to-business [B2B] product identification—called
the EPC), and has created proof of concepts with retailers Metro
and Procter & Gamble.
a detailed discussion of RFID technology see RFID—A
New Technology Set to Explode.
been an overall enterprise applications leader, SAP has a more holistic view
of where RFID should fit and is building capabilities that will enable it to
have more flexibility in how RFID is applied for specific customer requirements
across the entire value chain. To that end, the solution provides out-of-the-box
support for packing and unpacking, goods issue, receiving, and track and trace
business processes. SAP applications bundled to provide these capabilities include
SAP's Web Application Server, SAP Auto-ID Infrastructure,
supply chain event management (SCEM), and SAP Enterprise Portal.
The Auto-ID Infrastructure, which links RFID data to disparate back-end systems,
includes a Business Rule Configurator for creating new business
processes, while SAP Event Management aims at monitoring exceptions
to business processes triggered by data coming from RFID-tagged products or
core data structure of the solution will be built on the Handling Unit
Management module within SAP Warehouse Management
(WM), to which SAP has added RFID adaptors to integrate the
data with its core ERP, SAP APO (Advanced Planning
& Optimization), and other SCM applications. SAP's concept of a "handling
unit" (i.e., a distinctively defined entity that can capture a nested setup
of sub-elements, such as a mixed palette or multiple items in a case) is aimed
at deploying RFID at various levels (for example palette, case, individual item
etc.). This will be important as RFID technology matures to support these intricate
requirements. This RFID infrastructure with the handling unit concept appears
a bit more ambitious and thus heavier and more expensive than that offered by
SCE best-of-breed-vendors, but will eventually allow for the practical usage
of RFID data across more and broader processes and applications within the value
chain. For example, it could be applied in warehousing, manufacturing, and transportation
and at touch points between them which include production line replenishment
of the warehouse, cross-dock from receiving to production line, shipment verification
in warehouse, to manifesting and then to proof of delivery in transportation.
Oracle and Others
too has recently introduced its WMS offering by combining a rule-based architecture
with its workflow engine, rendering it quite a configurable solution. The product
tackles task dispatching and management functionality within its Task
and Labor Planning Control Board module, while some other value-added
WMS capabilities including yard management, dock scheduling are expected in
future releases throughout 2004 and 2005 delivery. At its recent AppsWorld
2004 conference, the vendor unveiled RFID-ready versions of its SCM
applications and middleware. PeopleSoft and Microsoft have
also joined the fray, and updates that add RFID-data support to their warehouse
and inventory management applications and data-collection middleware are in
the works and are expected to be delivered some time in late 2004.
Consequently, the size and viability of the vendor begins to increasingly matter in the SCE market in addition to functionality, scalability, and ability to integrate with other systems, which favors the near $200 million (USD) undisputed leader Manhattan Associates and the anticipated $130 million (USD) second best RedPrairie, while a slew of vendors with less than $40 million (USD) in revenues will have to scramble to decide on their best strategies going forward. The prospects have lately increasingly started paying attention to the perceived stability and viability of the vendor, in addition to the typical price, quality of service and customer references decision-making factors in the industry segment. Thus, the "$50 million (USD) and above" revenue mark might be adopted as a comfort zone for users disconcerted with the onset of market consolidation and vendor viability.
the best and most recent endorsement of this theory could be the Optum's
late February acquisition of V3 Systems, another small SCE
vendor. Optum has been specializing in the high tech and electronics, wholesale
distribution, consumer packaged goods (CPG), retail, heavy-equipment
manufacturing, and 3PL markets, and has over 750 installations worldwide. The
move extends Optum's supply chain network coordination and execution capabilities
to Microsoft environments from formerly only UNIX platforms. With flagship MOVE
WMS and TradeStream, the collaborative integration
and aggregation application that provides centralized visibility of order and
inventory information, Optum has carved a special niche for manufacturers that
have a highly complex outsourced supply chain and are doing outsourced product
development and project management with lots of contract management while trying
to hold it all together.
Still, time will only tell how V3 will bolster Optum's arsenal of warehouse management and visibility solutions that automate small warehouses or "depots," enabling enterprises to optimize the performance of their entire supply networks. Optum has also recently introduced new solution sets, packaged applications tailored to meet discrete supply chain challenges such as mass customization, contract manufacturing, supply network coordination, supplier enablement, shipment optimization, reverse logistics, and service parts management. These modular offerings will be used in a phased approach to help customers create a customized enterprise supply network solution focused on their intra-enterprise supply chain, and then later on their extended supply chain, but there are no details about how V3 technology will be leveraged.
if not the rampant consolidation a l ERP market, we may rather witness
the stratification of the big getting bigger and the small recoiling to mere
survival mode. This survival mode of wandering in the shadow of the giants and
focusing on some "safe heavens", such as very heterogeneous environments, will
not have the feasibility of ERP vendors' value proposition of seamless process
flows spanning the entire production and order fulfillment life cycle. Indeed,
the diverse nature of many enterprises and the trend towards the logistics outsourcing,
as well as ERP vendors' lagging in addressing more complex value-added areas
such as slotting, task interleaving, labor management and performance, or yard
management are still giving a lease on life for surviving pure-play WMS providers.
Also, the SCE leaders can still often be complementary to the likes of SAP.
As a defensive mechanism, RedPrairie has for example developed a number of integrations
to SAP for its customers, arguably more than anyone in the segment, and its
pre-built SAP adaptors might negate any integration concerns SAP may raise with
It is becoming increasingly important for SCE suppliers to have global implementation and service capabilities, while the multinational user companies conversely benefit from working with global application providers.