Supply chain execution software can expect strong sales in the next several years as companies replace aging systems and respond to new priorities prompted by the recession.
While other industries struggled during the recent recession and sluggish recovery, supply chain management (SCM) software companies for the most part were able to maintain sales. As the economy revives and companies look to increase productivity, the SCM software market will be well positioned for even greater growth.
At Gartner Research, we are optimistic about sales growth in that market for the next several years because of the results of recent user studies. For the past four years, Gartner has conducted an annual survey of the wants and needs of supply chain management organizations. That study provides a picture of the current and projected business climate facing those organizations.
The 2011 study found the business climate ripe for investment in supply chain technologies. Exhibit 1 shows that some users planned to invest in upgrades and new implementations in a variety of applications.
Changing priorities
While demand continues to be strong, it is driven by different needs than those that have influenced sales in the past. In the two most recent Gartner studies, supply chain management organizations reported that they are now making more strategic decisions about what applications to invest in. In the past, they exhibited a myopic obsession with having the latest software features. Now, they are more interested in choosing applications that target their priorities while addressing the barriers to achieving those goals.
According to the survey results, the priorities for supply chain organizations have changed during the last few years, while the barriers to success have not. Improving productivity and efficiency has surpassed reducing costs as the number-one priority for respondents. Meanwhile, demand variability, complexity, and lack of visibility were again identified as the most significant barriers to achieving an organization's goals and objectives.
Why the change in priorities? When the recession hit, many SCM organizations initially used brute force to drive down costs. Now, they hope to maintain those low costs while also growing their businesses. The only way they can achieve this, however, is by improving efficiency and productivity. For this reason, companies are expressing interest in supply chain execution technologies like warehouse management systems (WMS) and transportation management systems (TMS) that target process efficiency.
Demand for wms increases
Even through the recent recession, demand for warehouse management systems remained surprisingly strong. Demand was projected to increase even further until at least the beginning of 2012.
The majority of new WMS engagements in North America and Western Europe are replacements of aging or technologically obsolete systems. Although an added cost, these replacements are needed to improve companies' overall efficiency as well as the agility and adaptability of their systems and processes. Additionally, many WMS users need to replace their old systems because the older systems' technical architecture cannot compete in today's fast-paced marketplace. Consequently, while they could add a stand-alone capability like labor management to their legacy WMS, the desire for greater agility justifies a complete overhaul.
Our clients also state that they are looking to new systems to drive additional productivity improvements. Along these lines, there is increased interest in productivity-improving capabilities like labor management, task interleaving, slotting, yard management, dock scheduling, and performance management.
This need for system replacements and enhanced productivity is driving significant WMS sales in mature markets such as North America and Europe. Emerging markets in other parts of the world will see sales increase but at a somewhat slower pace. This is largely because the lower cost of labor in those countries creates less motivation to use technology to cut costs. Additionally, the types of applications that these companies are interested in are much different than those that are currently popular in more mature markets. In emerging markets, process control and things like order and document accuracy and on-time shipment are higher priorities than productivity.
Gartner also anticipates accelerating demand worldwide for WMS delivered through a software-as-a-service (SaaS) model, in which the buyer "rents" online use of the application. We believe that demand will increase now that the core functionality of SaaS warehouse management systems is approaching parity with on-premise WMS. In addition, since enterprise resource planning (ERP) vendors now offer credible WMS, they will benefit from global market growth, particularly in warehouse environments that are not very complex or sophisticated.
Changes in TMS market
Transportation management systems will also continue to witness growth beyond 2013. Historically, the prime justification for purchasing a TMS has been cost reduction. As the freight market shifts from favoring the shipper to favoring the carrier, however, the justification for a TMS will rest on how it can help shippers to secure capacity, handle capacity constraints, collaborate with carriers, and manage rate volatility. The paradigm must evolve from simply reducing costs to managing cost volatility in an era of scarce capacity.
Changing conditions in the marketplace will also alter what features users will be looking for in a TMS. For example, costs will be harder to handle in the near future as fuel costs remain volatile, carriers raise rates, and hours-of-service rule changes increase detention penalties. These factors will put more emphasis on rating engines, performance management, more sophisticated route-planning tools, and the ability to manage complex models like rail or intermodal freight.
TMS is also one of the strongest supply chain management markets for SaaS. Demand is already robust, and it shows signs of increasing. The need to support a carrier network and the model's total cost of ownership make SaaS an attractive option, although demand for on-premise versions remains strong as well. To date, demand has been largely concentrated in North America, but we are now seeing increased interest and growth potential across the globe.
The business challenges facing supply chain organizations require innovative solutions, and that's creating a fertile environment for investment in SCM software. Accordingly, we expect the adoption of supply chain technology to accelerate over the next few years, resulting in a projected return to double-digit growth.
Editor's note: This story first appeared in the 2011 special bonus issue of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media's DC Velocity. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership includes the Quarterly's subscription fee). Subscriptions are also available to non-members for $89 a year. For more information, visit www.SupplyChainQuarterly.com.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”