Last week I completed and published ARC Advisory Group’s annual warehouse management systems (WMS) market research study. ARC has been publishing this research for over 20 years and this history provides valuable context for understanding the changes that occur and serves as an anchor to our five-year market forecast. The WMS market settled into a mature state several years ago, and then jumped back into a growth stage due to the rapid global growth of e-commerce and the subsequent fulfillment demands. E-commerce continues to propel demand for WMS, in a seemingly tireless fashion. E-commerce continues to grow, competitive dynamics evolve, and new factors come to the forefront. Recent factors include expedited delivery, dynamic order release, parcel shipping requirements, and the rapid expansion of grocery retailer investments. These are some of the leading factors that contributed to the recent growth of the WMS market, above and beyond my expectations.
The Shifting Tides of E-Commerce Fulfillment
The grocery vertical of the retail segment is exhibiting outsized demand for WMS. This is perhaps the greatest upside surprise in the 2018 base year WMS report. Apparel retailers were at the forefront of the retail paradigm shift to e-commerce. Although apparel remains strong, there are signs that strength in WMS demand is shifting from soft-line items to hard-line items. Most notably, grocers are investing in WMS to support their direct delivery businesses. Competition in this business line has intensified recently, and many companies are making the investments to secure market share. Investments are strong, not only in the WMS market, but also in the warehouse automation market (that report should be available in about a month). As a result, WMS that includes out-of-the-box integration with warehouse control systems is experiencing heightened demand from grocery.
Expedited delivery of e-commerce orders is a more recent competitive phenomenon that is placing pressures on retailers. This is creating additional urgency around order-release and fulfillment response times, along with the ability to assure order accuracy and efficiency. Customer delivery expectations are also playing to the value proposition of omni-channel fulfillment capabilities, such as the ability to order a product online and pick it up at a store on the way home from work.
Cloud WMS Growth Remains Rapid
In 2015, I wrote an article on the WMS market that included my thoughts about why SaaS was not getting traction in the WMS market. More recently, I have noted that Cloud-WMS is definitely gaining traction. Today I am saying that the momentum is undeniable. ARC’s WMS market study breaks down the market across revenue types. SaaS revenues are now consistently growing at a rapid pace. However, the transition from perpetual licensing to SaaS temporarily delays the market’s growth rate due to the periodic revenue recognition of SaaS contrasts. Over the long-term, SaaS offers potential to serve as contributor to the growth of the WMS market. There are a couple of potential mechanisms through which this can occur. First, cloud solutions will likely increase the adoption of WMS in low-cost labor regions such as Latin America and India by reducing cost barriers to adoption. It will also be an appealing option for smaller, tier 3 organizations for the same reason. Second, cloud solutions bundle software functionality and ongoing maintenance/support with server capacity and backend IT support. The server-side hosting capabilities are an add-on service that extends the solution provided by the SaaS vendor, when compared with traditional on-premises sales. Finally, SaaS deployments are an ongoing revenue stream to the vendor and cost to the customer. This is in contrast to a perpetual license that can, in concept, be utilized in perpetuity without additional licensing costs. In this sense, SaaS WMS increases the likelihood that a customer will continue to make periodic payments to the vendor when compared to maintenance fees for a perpetual license.
ARC’s research on the global WMS market discusses the market context and influential factors. It includes estimates of the size of the 2018 global market and segments it across a number of dimensions including regions, revenue types, end-user industries, and functional categories. Supplier market shares are also estimated. Finally, a five-year forecast of the market and market segments are developed. For additional information, please contact ARC Advisory Group.