October 1997, Volume 3, No. 10 Tremendous Growth Predicted for Supply Chain Management Software

The Supply Chain Management (SCM) software applications market is expected to grow 45% annually over the next five years, according to research compiled by Advanced Manufacturing Research (AMR) (Boston, Mass.; www.advmfg.com), a market research firm. "The market's growth is based on a chain reaction," said John Bermudez, AMR's group director of supply chain research. "As more and more manufacturers adopt SCM applications, they are pushing their trading partners, distributors, carriers and suppliers to do the same. Competition will then be forced to buy SCM software to meet the higher demands of their corporate customers." Riding the wave of the recent surge in the enterprise resource planning (ERP) market, the SCM software applications market is experiencing vigorous growth. According to AMR, the demand for improved supply chain management drove the market to a record $419 million in applications software revenue in 1996 and is expected to push revenue to $2.7 billion by 2001. While the ERP vendors are making a viable move into this space, there are still three major independent segments of the SCM market: supply chain planning & execution (SCP&E), transportation management Systems (TMS) and warehouse management systems (WMS). SCP&E vendors currently dominate the market with 65% and will continue to grow market share in the next five years. The SCP&E segment is trailed by WMS vendors with 20% and TMS vendors with 15%. By 2001, AMR predicts that WMS and TMS will lose market share to SCP&E vendors, but given the interlocking nature of these segments, growth within individual categories will indirectly fuel overall market growth. Although SCM vendors overall will benefit from expanding market opportunities, the face of the market is changing rapidly. Fragmented by hundreds of vendors, the market has recently seen two companies, Manugistics and i2 Technologies, emerge as key players who together now command 16% of overall market revenue. Mergers and acquisitions have further consolidated the market and strengthened the position of these and other key players. Earlier this year, both Manugistics and i2 Technologies made acquisitions and Logility acquired two supply chain businesses from its parent company, American Software, in advance of its IPO. Among supply chain execution vendors, Dallas Systems and Neptune Systems recently merged to form EXE Technologies, building on last year's merger of McHugh Freeman and Weseley Software to form McHugh Software International and BDM International's acquisition of RGTI, a warehouse management vendor. The consolidation trend continues, as indicated by the recent announcement that Descartes Systems Group intends to acquire Roadshow International. The software market is also faced with outside competition from ERP vendors offering SCM functionality as part of their product suite. The ERP vendors want to position their products as the "enterprise backbone" that spans not only their internal organization, but links to suppliers, customers and prospects. Extending the backbone to cover the external world requires a push into SCM. In addition, customers are pushing the ERP vendors to add planning and optimization functionality to their traditional transaction processing systems. The ERP vendors have several primary advantages, including access to their own installed base, as well as the ability to bundle the software with their other applications — in effect giving the SCM applications away for free. The pressure to streamline supply chain operations at all levels of the enterprise will continue to drive the supply chain management software market well into the next century. "There are still areas of supply chain management that are virtually untapped," Bermudez said. "As manufacturers reap the benefits of improved supply chain processes, we expect to see the SCM market expand into areas such as Internet commerce and supply chain collaboration."

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