Enterprise resource planning (ERP) vendors have stealthily evolved their warehouse management system (WMS) offerings to where they can now challenge best-of-breed (BOB) WMS solutions. As with other application areas (e.g., APS, CRM), the advantages of an integrated ERP/WMS system might seem intuitive, but companies must consider seamless integration versus meaningful issues such as functional breadth and depth as well as vendor domain expertise.
META Trend: Through 2003/04, Global 2000 companies will augment their current application portfolios with narrowly focused, high-ROI supply chain components. During 2005/06, emphasis will center on improved decision making and visibility, with increasing interest in SCM planning solutions. By 2006/07, increased intelligence delivered in supply chain execution systems will shift importance from infrastructure repair to process optimization.
Once exclusively the domain of best-of-breed vendors, WMSs are now becoming viable components of the supply chain management suites of ERP solutions (e.g., SAP, Oracle, PeopleSoft/JD Edwards, SSA). Although ERP vendors’ initial forays into WMS were little more than multibin inventory-tracking systems, the newer solutions are true WMSs that cover basic WMS functionality and will cover more of the WMS ecosystem over time as ERP vendors continue to enhance these solutions (see Figure 1.). We believe initial steps are underway that will shift market dominance from BOB to ERP WMS solutions, relegating BOB vendors to increasingly specialized markets (e.g., highly heterogeneous environments, non-ERP customers) and further driving market consolidation during the next several years.
Through 2003/04, WMSs will remain dominated largely by a shrinking list of BOB WMS solutions (e.g., Manhattan Associates, Red Prairie, HighJump, Provia). Market contraction, started in 2002, will continue with the strong becoming stronger and the weak being either acquired (e.g., SSA acquisition of EXE, Epicor acquisition of TDC Solutions) or forced to downsize for survival on maintenance revenues (e.g., Optum, Ann Arbor). Accelerating WMS market consolidation will be the maturation of ERP WMS solutions (e.g., SAP, Oracle, PeopleSoft). Although they are currently less completely robust than BOB offerings, ERP solutions now provide reasonable functionality - which continues to improve from release to release - for all but the most sophisticated and complex environments. By 2005/06, the evolution of these products will shift the emphasis away from functionality to issues that favor ERP vendors (e.g., integration, seamless fulfillment process flow, vendor viability, common technical stack). By 2007, ERP/WMS will dominate in homogeneous ERP environments where companies have crafted strategies to more tightly manage process flows that span the entire fulfillment/production life cycle. While market dominance will shift from BOB to ERP WMS, the heterogeneous nature of many companies and the continued trend toward logistics outsourcing will continue to demand standalone WMSs, which will become a lifesaver for the few BOB WMS vendors that survive (e.g., Manhattan Associates, Red Prairie, Provia, HighJump).
Although heterogeneity favors BOB WMS vendors, the desire to minimize the number of supply chain products and vendors favors ERP vendors. Indeed, many organizations will have dual strategies, where a BOB solution might be best for their largest, most complex, and most automated facilities and ERP WMS is better for supporting the rest of the organization. Before considering BOB versus ERP, companies seeking WMS solutions must take the following steps.
Step 1: Formulating Network Strategy
Our research indicates too many organizations make tactical-level WMS decisions (i.e., focusing on a specific short-term problem with the current warehouse environment) and do not make them part of an over all supply chain network strategy. This is often driven by necessity (e.g., technical obsolescence or functional issues with current system), but short of an absolute emergency, it should be avoided. Companies must first determine numerous factors pertaining to their current and future warehouse strategies (e.g., location, characteristics, workflow, work processes, scope of warehouse operations). Is WMS part of logistics only, or does it have a role in manufacturing? What level of automation is or will be deployed? What is the probability of outsourcing WMS? What is the global scope of WMS, and how do needs vary around the world? Are there different stratifications of warehouses (e.g., large central distribution centers with smaller regional or plant distribution centers)? This step should help determine the environmental conditions WMSs will need to support, the functionality required by areas in the network, the integration needs between the WMS and other business/application functions (e.g., fulfillment, manufacturing), and (most importantly) the key business drivers that must be supported by the new WMS.
Step 2: Determining the Role of WMS in the Organization
The network strategy will provide the facts needed for a company to assess the role WMS will play both currently and going forward. Is warehousing a core competency? Does it provide the opportunity for differentiation, or should outsourcing be considered? Is the role shifting from storage to other objectives for WMS (e.g., value-added service, flow-through, consolidation point)? Is WMS evolving away from a standalone process and becoming more seamlessly integrated with other business processes (i.e., integrated fulfillment life cycle [order entry/warehouse/delivery] or the entire production life cycle [i.e., receive/store/move/make/deliver])? How do flexibility and higher labor rates play against automation, less flexibility, and lower labor? The purpose of this exercise is to challenge organizational assumptions about warehousing before investing in a new WMS. Understanding the role of warehousing will help define the level of sophistication needed and the importance of other factors (i.e., integration with other applications). It is key for organizations to honestly assess the role of warehousing before investing to fundamentally understand where (if anywhere) they intend to seek value.
Step 3: Conducting a WMS Value Assessment
If the previous two steps are followed, identifying value should be straightforward. The next step is to specifically articulate areas of opportunity and value, and tie these to specific objectives for a new WMS - if, in fact, one is needed. At this point in the process, it is critical for this be done independently of WMS products to ensure the value statement does not inadvertently preordain a particular solution. The ultimate objective is to have the value assessment drive the high-level definition of the go-forward strategy, which in large part will help influence the ERP, BOB, or hybrid (i.e., combination ERP/BOB) WMS decision.
For many companies, the perceived value of an integrated single vendor solution will outweigh functional differences between the ERP and BOB WMS. This remains an oversimplified view of the world, and most companies will continue to benefit from conducting comprehensive evaluations that include both ERP and BOB solutions. Currently, we find that the marginal differences in core functionality - even across BOB solutions - is such that core functionality alone will not differentiate solutions, so companies must look to more intangible evaluation criteria (e.g., ease of use, look and feel, flexibility, tailorability, domain expertise, price) to further distinguish solutions and vendors. Likewise, though ERP WMS solutions now cover core WMS functionality, they do not yet extend their reach into value-added areas such as task management and yard management (see Figure 1), which are increasingly important in driving improvements in warehouse performance. In addition, vendor domain expertise must not be overlooked, given the lack of WMS-experienced external consulting organizations.
Business Impact: Modernizing WMSs can help companies improve customer service, reduce fulfillment cycle times, and shrink supply chain operating costs.
Bottom Line: Companies should consider WMS decisions in the context of the role they play in the overall supply chain strategy. Given the marginal differences in features and functions across WMS solutions, customers must make decisions based on other factors: price, service, perceived viability of the vendor, domain expertise, and compatibility of corporate cultures.
META Group originally published this article on 21 October 2003.