Supply Chain Software: On-demand WMS is looking up …. Sort of

Steve Banker, an analyst with ARC Advisory Group (http://www.arcweb.com), recently completed his annual report on the WMS industry. One of his predictions being trumpeted by the WMS industry is that the market for on-demand warehouse management systems will double between now and 2014. On-demand software is also known as Software-as-a-Service (SaaS) and cloud computing. In this model, the provider hosts the solution and end users pay a subscription fee to access the software over the Web.

In this economy, a double sounds pretty impressive. When I talked to Banker the other day, he put that number into perspective. Just a few years ago, he said, on-demand WMS represented less than 1% of what is a $1 billion market, or about $10 million. Today, it’s still less than 5% of the market. A double will mean that it’s less than 10% of the overall market for warehouse management systems. “It’s still a small part of the market,” Banker said. But, he added, it’s poised for growth, and he sees some opportunities that might be surprising. And, hey, 10% of a billion is still $100 million. That ain’t chump change, especially given that there are a relatively few number of players in the on-demand WMS market. So, what has changed and who is potentially the big winner?

The answer to both questions may turn out to be RedPrairie (http://www.redprairie.com). Here’s why.

First, RedPrairie purchased SmartTurn last spring. SmartTurn is arguably the leading provider of on-demand WMS. That purchase brings credibility to the market, Banker said. “With RedPrairie, you have a big, financially-stable company in the on-demand game,” Banker said. “The SmartTurn solution is not feature rich. But, if you’re a big customer, you can now get a hosted solution from someone that you know will be around in the future.” In the software business, few companies want to bet the store on a start-up but they may take a risk on a new application from a name brand.

Second, Banker believes the candidate for a hosted WMS is evolving. Conventional wisdom says the target customer for a SaaS solution is the small-to-mid-size company. They don’t have the IT horsepower or the financial resources to implement a best-of-breed WMS. While that may still hold true, Banker now believes that big sophisticated companies are candidates for a stripped-down on-demand WMS as well. “The big players will spend millions to put a sophisticated solution into their primary DCs,” Banker said. “But, they also have smaller warehouses that just don’t have the volume to justify the investment in a Tier 1 solution.”

The result is that those satellite warehouses are often black holes in the network, prone to inventory and order errors. While an on-demand WMS may not have the functionality to drive labor and productivity efficiencies, they can provide inventory accuracy and global visibility into what’s in those warehouses. For the small, paper-based warehouse, Banker said, the ROI is less than a year and it’s all about inventory visibility.
“A paper-based warehouse is about 92% accurate at the slot level,” Banker said. “With barcode scanning and a WMS, it goes to 99% accurate. Plus, a big company now has better visibility across its entire network.”

The result is that they will order less inventory that they don’t need, order fill rates will be more accurate and timely and there will be fewer returns, which are very expensive to handle. “You can realize those benefits with no improvement in productivity,” Banker said.

And, as the first major player in the WMS industry to try to tap into the on-demand market, RedPrairie may have a leg up on its competitors.