WMS Market Merge And Purge

I am often reminded of the old adage: "The more things change the more they remain the same." While on the surface this saying seems like the epitome of circular reasoning, it does hold true in several cases. For instance, in regard to my personal finances I've noticed over the years that I always seem to be a day late and a dollar short. Even though my income has increased substantially over the years since my first job, it still is never enough. Thus, the more things have changed the more they have remained the same. Another event that comes to mind is the concept of timesaving devices. When I think about how quickly food cooks in a microwave or information is sent via e-mail compared to the way things were done years ago, it amazes me to then realize in spite of these timesaving gadgets, how strapped for time so many people are. In fact, it seems that the more gadgets a person has, the more stressed and overwhelmed the person is. Once again, the more things have changed the more they have remained the same.

One technology that promises to defy this time-tested epigram, however, is the WMS (warehouse management system). The WMS market has been experiencing a lot of changes. Traditionally, WMS has been a fragmented market comprising about 300 vendors that average about 50 employees at their respective businesses. These small vendors had found their niche in the market by offering software solutions that helped companies automate their warehouse inventory tracking. But, in recent times inventory initiatives such as JIT (just in time), ECR (efficient customer response), and QR (quick response) have turned traditional warehousing protocol on its ear. Some analysts have predicted that within three years the WMS market will comprise only five vendors. But one question remains: After all this change in the WMS market, will things still be the same?

How Is WMS Changing?
To determine the answer to this question, we need to look at the components behind all the activity in the WMS arena and first answer the following questions:

• How are concepts such as JIT, ECR, and QR changing warehousing practices?
• What effect do acquisitions have on companies that are doing the acquiring?
• What effect do acquisitions have on companies that are acquired?
• How will the new products/solutions that result from the mergers and acquisitions affect consumers?

Chris Newton, analyst for AMR Research gives insight into the first question. "Corporate executives see inventory as evil. Because of the costs associated with stockpiling inventory in a warehouse, corporations are adopting newer practices like JIT, ECR, and QR. Advocates of these principles predict the demise and eventual elimination of warehousing facilities." These principles in conjunction with wireless and RFID (radio frequency identification) technology, which allow for tracking inventory in real time, are turning many warehouses into DCs (distribution centers). DCs are designed to speed up the flow of products to consumers and thereby reduce the need to store products. This paradigm shift has many WMS vendors rethinking their product strategies and changing their solutions.

One way that a WMS vendor can increase its products' functionality is by acquiring another WMS vendor that already offers the desired functionality. "WMS as a stand-alone solution is no longer a viable option," says Deepak Raghavan, Sr. VP of product and strategy for Manhattan Associates. "Companies that can successfully acquire the desired functionality can more quickly take their new solution to market." And everyone knows that time is money. Why reinvent the wheel when you can buy it from someone else? But obviously it isn't always that straightforward in real life. Like anything else, there are bad acquisitions and good ones. "An acquisition works best when the acquired company wants to be acquired and when there is a synergistic vision between the two merging entities," says Raghavan. "But even if a company has done its due diligence and acquired a company that fits its business strategy, the whole thing can be a huge failure if the acquiring company fails to execute the acquisition properly or if the two merging entities have incompatible corporate cultures."

What do these acquisitions mean for companies that are being acquired? "It really depends on the company doing the acquiring," says Glenn House, Sr. VP of strategic alliances at EXE Technologies, Inc. "There are basically two motives for acquiring another company. The first motive is to increase one's footprint in the marketplace, usually within a specific vertical market, by acquiring greater product functionality. The second motive is simply to gain a stranglehold in the market by putting the competition out of business." For companies that get acquired for the latter purpose, it will most likely have a negative effect. This would fall under the win-lose paradigm with the acquired company being on the losing side. Companies that are acquired because they have a special niche that complements the acquiring company's solution, on the other hand, stand a much better chance of a win-win situation. The best win-win scenario occurs when both parties' combined solution enables them to market the new solution to customers they previously could not reach individually.

WMS + WMS = SCM
Ultimately the million-dollar question revolves around the final product that these mergers and acquisitions produce. Specifically, how will these new products benefit the companies and their customers that use the solutions? "The first thing that companies will notice about these new WMS solutions is that they are significantly less expensive than their forerunners," says Russ McCabe, COO of Vertex North America. "A WMS solution that cost $500,000 a few years ago now costs $300,000 - and it comes with additional features that clients want." McCabe attributes this dramatic cost reduction to WMS standardization, which is the result of companies integrating their products with a newly acquired company's product. An integrated solution saves the WMS buyer from having to shop for best-of-breed modules from different companies and attempt to interface the products internally or by contracting integrators to program the two software solutions to be more compatible. Besides taking longer to get the new solution up and running, taking the best-of-breed approach usually results in interfaced software versus integrated software. "Interfaced solutions work together but they require duplicate data entry, which wastes time and also can cause problems if the data is not duplicated perfectly, as can be the case for manual data entry," notes AMR Research's Newton. "A fully integrated solution, on the other hand, is more efficient, more accurate, and can be installed and implemented quicker because there is less software programming involved to make the modules work together."

Another benefit that larger WMS vendors promise is improved customer service. When WMS companies acquire other WMS companies they don't just acquire added functionality to their existing WMS solution, they also acquire a seasoned sales force and skilled personnel. This increase in skilled personnel benefits the buyers of the WMS solutions when inquiring about technical issues. This is especially helpful compared to companies that buy their WMS solutions in the best-of-breed fashion and have to deal with multiple vendors - that may not understand one another's solutions - and then have to try to troubleshoot technical issues that are a result of interfacing two disparate solutions. In theory the large WMS company makes perfect sense. In reality it depends on other factors as well. For instance, some large companies become very inefficient and breed a "that's not my job" mentality. Usually, a call or two to get technical support will give this company away. Some of the warning signs may be a long chain of command before getting in touch with someone willing/able to help with a question. Or, getting sent to a voice mailbox that announces the box is full and you may not leave a message could be another warning sign. By checking references before purchasing a new WMS/SCM (supply chain management) solution, these headaches can be eliminated.

Another benefit that integrated WMS solutions promise is improved CRM (customer relationship management) initiatives. "Companies that use integrated WMS solutions have the ability to postpone the final production of goods, thus saving on inventory costs," says Steve Goldsmith, director of marketing for EXE Technologies, Inc. "By postponing the finishing of goods, companies can more easily customize certain products to their customers' requirements as opposed to stockpiling products in a warehouse and trying to modify the products after the fact." Additionally, companies can insert promotional material that is tailored to each customer's needs. For example, a book distributor that takes orders over the Internet can use the data it gathers from each of its customer touch points to insert marketing material specific to each customer. A customer who purchases a Stephen King novel, for instance, might receive a letter enclosed with the book that lists two or three other novels in the same genre that are very popular with the 3,000 other customers who also bought that same Stephen King novel. "This level of marketing is much deeper compared to previous marketing strategies which, using the previous example, would only be able to send the customer a 200-page catalog that contained all the horror novels that the book distributor offered," says Goldsmith. "The previous type of marketing was not only a burden for the customer, who had to sift through the 200-page catalog; it was also much more costly for the company to produce and ship such a large catalog." (For more information on CRM and one-to-one marketing see "A One-On-One Discussion About CRM" in the March issue of Integrated Solutions magazine).

Final Verdict: Change Can Be Good
While change is inevitable, change in and of itself doesn't always mean that the end result will be good. But, in the world of WMS, many analysts and larger WMS vendors feel that the benefits of merging WMS vendors and their technologies will be a good thing for consumers and their customers. Additionally, there will be another category of people who will reap rewards from successful mergers and acquisitions - stockholders. "Overall, a successful WMS acquisition can be a win-win-win situation," says EXE Technologies' Glenn House. "The acquiring company wins because it gains a larger foothold in a particular vertical market. The acquired company wins because it directly contributes to the growth of the company into that vertical market. And the shareholders in the company win because the company can now reach more customers with its new solution, thus increasing its profitability."

"It truly can be a win for all parties involved," says AMR Research's Newton, "as long as those buying a WMS solution do their homework first. It's important to ask the tough questions up front - especially regarding how the data is passed between the modules." In other words, make sure each module is integrated and not just interfaced. Additionally, those who already have a legacy WMS system will need to know exactly how the new system will integrate/interface with the legacy system. "The best advice I can give is to ask a lot of product-related questions, especially when a product is the result of a recent merger, and check references," says Newton. Once a WMS/SCM vendor has three to six months to work out its bugs and establish a few solid references, the consumer should have much more confidence in the new solution. And not only will end users have confidence in their new WMS/SCM solution, more importantly they will realize...the more things change the more they will never be the same.