A Strategic Hole in the WMS Market

ARC recently published my new Warehouse Management Systems (WMS) Market Outlook study.  In a previous Logistics Viewpoints article, I highlighted the fact that the largest WMS suppliers continue to grow as the market shrinks.  However, despite that, I believe that these leading WMS suppliers have a strategic hole in their supply chain execution portfolio that could make them vulnerable.

Obviously, having a larger suite of solutions has been a key advantage for these large suppliers.  All the key WMS suppliers can win deals based on a value proposition that extends beyond creating new efficiencies in the warehouse.  However, they are all lacking in one key area -logistics applications that leverage the power of a connectivity network. 

The two key supply chain execution solutions are WMS and transportation management systems (TMS).  When these solutions are integrated, transportation is generally optimized first and then the warehouse plan is developed, even if this results in sub-optimized labor productivity in the warehouse.  This is because the savings in transportation generally outweigh what can be saved in the warehouse. 

In TMS, customers deploy software-as-a-service (SaaS) solutions not only for their low upfront costs, but also to leverage the power of the connectivity network these solutions provide.  Transportation optimization has little value if companies can’t successfully execute the optimized loads.  Network-centric TMS solutions have a key advantage in on-boarding new carriers, suppliers, customers, and other trading partners and in managing the quality of the data exchanged between these trading partners (see “More Questions About Software-as-a-Service“).

Similarly, for global supply chains, supply chain visibility becomes a key application.  Again, a network-centric solution provides better data quality and higher fidelity supply chain event management.  These global visibility solutions can also feed critical data into analytics applications to get more accurate total landed cost data.

Moving to a network-centric model for the leading supply chain execution (SCE) suppliers will be difficult, as networked solutions are sold using a recurring revenue pricing model (e.g., subscription fees) instead of license fees.  In order to become more competitive in the long term, a supplier that currently sells software licenses would have to take a revenue hit in the short term as they transitioned to SaaS. 

Some SCE suppliers have taken steps in this direction, particularly in TMS.  But I would say their emphasis to date has been on providing clients with an alternative “software deployment model” versus taking a more strategic view of how to grow and leverage their networks.

If existing leaders don’t make this move, we may well see new leaders emerge in the WMS space that are able to provide both functionally-rich WMS and networked TMS and visibility solutions.  It is even possible to foresee networked/SaaS WMS solutions being sold to clients in certain vertical industries (e.g., freight forwarding, contract manufacturing), as much to provide them with high quality inventory and shipment visibility as for any efficiencies these solutions would provide in the warehouse.

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