For years, cost and technical issues have kept many smaller companies out of the warehouse management systems market. But the emergence of hosted warehouse systems could change all that.
By Lisa Terry
Like many small warehouse operators, Mike Durand was eager to automate his operation. But technical issues stood in the way: The move would have required him to install a warehouse management system (WMS) and take on responsibility for maintaining and upgrading it.
Then earlier this year, Durand, who is warehouse manager for digital photo finishing lab White House Custom Colour, ran across a company called SmartTurn during an Internet search. The pitch was compelling: For a modest monthly fee, he could use its Web-based warehouse management system to run his operation. The vendor would host and maintain the application, then deliver it as a service. There would be no hardware to buy, no software to install, and no IT staff to maintain.
Though he was initially hesitant about relying on the Internet to serve up the software, that all changed once White House Custom Colour deployed the SmartTurn application in its 14,000-square-foot warehouse. "It worried me a little bit in the beginning," admits Durand, "but after a while, it went to the back of my mind."
White House Custom Colour is just one of a growing number of small and medium-sized businesses (SMBs) that are abandoning paper and spreadsheets and using Web-based software to take their warehouse operations into the digital age. Up until recently, they didn't have that option. WMS applications were not available via the "on demand," or "software-as-a-service," model. If you wanted a warehouse management trickle-down technology system, you had to buy one or write your own. Many small outfits with limited budgets essentially found themselves cut out of the game.
But that's beginning to change. In the past 18 months, software developers like SmartTurn (which is a division of Navis), Click Commerce, and 7Hills have introduced hosted systems designed to help customers take control of their warehouse operations. SmartTurn was the first to market, introducing its ondemand offering in May 2006. 7Hills and Click Commerce quickly followed suit—7Hills with its eBizNETT-WMS software; Click Commerce with its WMX On Demand offering.
The concept of hosted software is not new. Software developers have been delivering applications via some type of subscription-based model since the late 1990s. On demand has proved to be a particularly popular delivery model for applications like sales support, transportation management, and even enterprise resource planning. But up until recently, the conventional wisdom held that there was very little demand for WMS delivered over the Internet.
SmartTurn, 7Hills, and Click Commerce think differently. They look at the 600,000 warehouses in the United States and see a huge potential market. The vast majority of those warehouses are small or medium-sized operations, they say. And they're betting that the advantages of the on-demand model—low overhead, low risk, speedy implementation, and access to sophisticated technology—will prove impossible for these small- and mid-sized players to resist.
At least one analyst agrees that it's a viable business model. "There is absolutely a place for low-cost WMS in an on-demand setting," says Steve Banker, director, supply chain management, for ARC Advisory Group.
A study conducted this summer by research firm Aberdeen Group bears that out. Aberdeen's report on the study, Supply Chain On Demand: Enable Flexible Business Processes, showed that while just 7 percent of companies surveyed are currently using an on-demand WMS, 24 percent are planning implementation. That compares to 28 percent who are planning to deploy a traditional warehouse management solution.
Automation with no upfront costs
It's not hard to see the on-demand model's attractions. The first, of course, is cost. With on demand, there are no upfront payments or licensing fees apart from local hardware, such as handheld radio-frequency (RF) terminals and WiFi network infrastructure. Monthly costs are low enough that most operations managers can fund them out of their operating budgets. SmartTurn, for example, charges $500 per site per month.
Another is the promise of quick and easy deployment. SmartTurn says its solutions are typically implemented in two days and require little training. Durand reports that White House Custom Colour was able to configure the solution to fit its needs and deploy RF-enabled handhelds using phone support alone.
Customers are also likely to be pleasantly surprised by the service and support they receive, says Bob Kennedy, vice president of business development at 7Hills. Since an unhappy customer can simply pull up stakes and switch to a rival, the hosting company has a strong incentive to be responsive to that customer's requests. That kind of leverage was rarely available to SMBs in the past, says Kennedy.
The early word has been positive, says Nari Viswanthan, Aberdeen's research director, supply chain and logistics, and author of the report on hosted supply chain software. "Companies using on-demand WMS are saying it exceeded expectations in the cost of software, implementation time, and the cost of ownership," he says.
If White House Custom Colour is any indication, they're pleased with the results as well. Durand says the WMS has streamlined the warehouse's operations, easing the administrative load, reducing the need for physical inventory counts, improving stock visibility, cutting down on stock-outs, and boosting accuracy.
"We've had huge savings in the warehouse," reports Durand. "We're saving a great deal of time just doing everything online as opposed to paper forms."
Making it work
It's important to point out that the technology is not just taking hold at small operations. It's also starting to show up in larger DCs. Although 7Hills' largest customer to date is a 50,000-square-foot DC, the company has a 100,000-square-foot facility coming online soon. And SmartTurn reports that it's in the process of signing a customer that will use its Web-based software to manage a 300,000-square-foot DC. These applications are designed to be highly scaleable, explains Jim Burleigh, general manager for SmartTurn. "The size, volume, or number of users does not matter," he adds.
Still, hosted warehousing software isn't for everyone. On-demand WMS applications are best suited to simple to moderately complex operations. They're not designed for companies with complex processes or highly customized needs, or for highspeed automation environments—while the slight latency in delivering over the Web is a non-issue for human users, remote communication can't keep pace with super-fast conveyors.
While companies with revenues of under $250 million are the sweet spot, vendors are casting their nets wider than that. They also see potential demand from enterprises that need lower-cost solutions to support the largely unnoticed warehouses that many operate, such as stock rooms, satellite facilities, and supply depots in everything from hospitals to utilities to resorts. "That market is 10 times larger than the traditional warehouse market," says Burleigh.
To adapt their systems for use by a varied base of clients, designers must create a simple user interface and enough configuration options to address everybody's needs. Setup entails turning on and off desired functions, such as one- or twostep putaway, according to Burleigh. Configuration requires knowledge of the company's business processes.
When it comes to configuration, Ian Hobkirk of Aberdeen Group cautions prospective customers to beware of vendors that seem inclined to take shortcuts. "There is a tendency in WMS especially for SMB companies, when the vendor is selling, not to want to spend a lot of time discovering business processes," says Hobkirk, who is a senior analyst in Aberdeen's logistics practice. "They tend to oversimplify. But you've got to do your homework and do a thorough business process review." Hobkirk recommends bringing in some type of adviser or consultant to help oversee this process.
Some vendors provide that assistance themselves. Five Star Transport, a Honolulu distributor and third-party logistics service provider, reports that after it signed on to use 7Hills' hosted WMS, the company dispatched a rep to help with the configuration process. "They sent us somebody for a week who got a good look at our operations, met with people, and talked about what we do and how," says Michael Hruby, president of Five Star. (Five Star is subscribing to a suite of on-demand supply chain execution applications in a bid to attract and retain customers.) The representative helped Five Star work through the challenges of ensuring data format compliance with a large customer, although Hruby admits the process was not entirely smooth.
To Aberdeen's Hobkirk, bumpy installations are a potential red flag. He says that on-demand developers need their early installs to be flawless while they build market awareness—and the cash reserves to tide themselves over until demand takes off. Even then, there's no guarantee of smooth sailing ahead. Once demand reaches a certain point, competition is bound to heat up. "Three to four companies have WMS products ready to roll out once the market hits the tipping point for multi-tenant WMS," he says. "Two to three vendors a week ask me [when] I think" that will happen.
Some of the competitors could be formidable. Though the big tier one WMS vendors have concentrated on custom installs to date, Hobkirk thinks they would have little difficulty creating simpler, more generic multi-user versions of their systems. "If a tier one [developer] makes a commitment, they could bring out a product fairly quickly," says Hobkirk.
In fact, most—if not all—of the big players are already offering some of their products via a subscription-based model, which means it wouldn't be much of a leap to add WMS to the roster. "We're already doing on demand for retail, workforce, and transportation management applications," says Jim LeTart, director of marketing for RedPrairie. "We have the capability to do it [for WMS], but we haven't put it in place because there is not demand for it yet."
What are the implications for SmartTurn, 7Hills, and Click Commerce if the giants invade their turf? "When the model is no longer a competitive advantage, they'll have to compete on features and functions," says Hobkirk. "I advise these three players to get as many sales as they can, and they've got to put money back into R&D."
Few doubt that the on-demand model will take hold for WMS. What remains to be seen is the impact on the larger WMS marketplace. "We'll never get to a RedPrairie or Manhattan, but we'll be pretty close," says SmartTurn's Burleigh. "Will the market be willing to pay a lot for a small delta of functionality? That will be an interesting question."
About the Author
Contributing Editor Lisa Terry is a freelance writer specializing in supply chain/logistics topics.
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