Last spring, Graybar Electric completed an overhaul of the company's supply chain management software with a $100 million enterprise resource planning (ERP) system from SAP (610-661-1000, www.sap.com). The only application not provided by SAP was the best-of-breed warehouse management system (WMS) running Graybar's fourteen warehouses.

However, that was subject to change. 'We're going to evaluate SAP's warehouse management solution and see if it makes sense to stay with best of breed,' Beatty D'Alessandro, Graybar's chief information officer, said at the time.

'From what I hear,' he added, 'it's pretty good.'

To best-of-breed WMS suppliers, those are fighting words. For years, ERP suppliers like SAP and Oracle were content to leave the nitty-gritty of managing order fulfillment to best-of-breed warehouse management suppliers. Given the relatively small size of the $1 billion WMS market and the 200 or more best-of-breed providers competing for that business, the warehouse just wasn't worth the big guys' time.

Those days are gone. Now that supply chain execution is playing a more prominent role in the business strategies of companies like Graybar, ERP vendors have taken off the gloves to jab away at the WMS market.

You can almost hear the announcer shouting: Get ready to rumble.

Jeff Woods, principal analyst, Gartner (203-964-0096, www.gartner.com), has been tracking this shift for some time. In 2002, Woods ruffled feathers when he identified SAP as a WMS 'visionary' in Gartner's 'magic quadrant.'

'I took flak for that call,' says Woods, 'but I was getting a lot of questions from clients who want to standardize all their applications on their ERP platform. They were asking when SAP was going to be ready to manage their supply chains.'

Like an old-fashioned prize fight, we asked both camps to come out swinging.

There are at least three reasons to buy a WMS system from an ERP vendor, according to industry representatives.

First, they argue that the functionality gap between best-of-breed and ERP solutions has narrowed. 'There are certainly WMS vendors that excel in particular market sectors,' says Jon Chorley, senior director of development for Oracle's inventory and warehouse management systems (800-672-2531, www.oracle.com). 'But we're making investments in our application. It's just a matter of time before we match them.'

With the purchase by SSA Global (312-258-6000, www.ssaglobal.com) of EXE, one of the leading best-of-breed providers, some ERP vendors may be able to match them now. 'Our functionality stacks up against almost any other competitor out there,' argues Cory A. Eaves, SSA's vice president of global solutions management and research.

For small to mid-size companies, dealing with just one vendor is a significant advantage. 'Many Tier II companies have the same compliance requirements as a Tier I company,' says Rodney Winger, director of marketing, distribution business unit, Epicor Software (502-327-0159, www.epicor.com). 'But they don't have the depth of capital or the depth of IT staffing that a Tier I company will have.'

'There is a risk associated with dealing with multiple vendors and multiple data files,' adds Bill Owens, marketing manager for Adonix (724-933-1377, www.adonix.com). 'By making one vendor responsible for one system with a common data environment, a user should be able to spend less on integration, implementation, and on the time it takes to reconcile the data.'

Spending less on integration adds up to a perceived lower total cost of ownership, which is the number one reason chief information officers (CIO) want to standardize all their applications on one platform. 'There is a built-in cost associated with sustaining integration between an execution system and your ERP system,' says Chorley of Oracle, echoing a message that had resonated in the marketplace.

That's because software is a continuously evolving product. Every time an ERP or WMS system is upgraded or modified, the integration between the two systems also has to be modified. That costs money.

'If you're a CIO and you're asking where do you drive cost out of these systems, it's the cost of maintaining integration and the risk of working with multiple vendors,' says Eaves of SSA Global.

Reduced integration costs and a lower total cost of ownership may seem like a knock-out combination punch.

The WMS community, however, counters with functionality, experience, and their own arguments for total cost of ownership.

Yes, the ERP vendors are producing better products than in the past, says Susan Rider, customer development leader, RedPrairie (262-317-2000, www.redprairie.com). But they are still playing catch up. 'ERP vendors are very good at developing enterprise systems because that's their bread and butter,' Rider explains. 'But logistics is complex and getting more complex all the time. You have to ask whether they will devote their resources to filling the black holes in the supply chain. We do know that best-of-breed vendors will fill those holes, and do it quickly.'

It's not just functions like dynamic slotting and task interleaving that separate best of breed from ERP systems. WMS vendors also have a broader execution footprint. 'In all honesty, ERP vendors will catch up on core WMS functionality,' says Prashant Bhatia, director of product management for Manhattan Associates (770-955-7070, www.manhattanassociates.com). 'But while they're catching up on core functionality, we're adding visibility and transportation management. We're focusing on all of the supply chain nodes between the component source and the end customer.'

Deep order fulfillment experience is another advantage. While the ERP vendors have been working in corporate offices, best-of-breed vendors have been getting their hands dirty in the warehouse. 'Dealing with a best-of-breed supplier is like going to a specialist instead of a general practitioner,' says Mary Haigis, chief marketing officer for Optum (914-993-3400, www.optum.com). 'We can handle complex operations like made-to-order, mass customization, returns and service parts. Those are functions that help you get closer to your customer and give you a competitive advantage.'

And while ERP suppliers tout their lower licensing fees and integration costs, WMS vendors argue that their experience and deeper functionality result in lower implementation and services costs. 'We recently won a deal where we quoted $1.5 million for software and services, and the ERP quote was $4 million just in services,' says Chris Heim, CEO, HighJump Software (800-328-3271, www.highjump.com).

The difference: the modifications the ERP supplier had to make to its product to provide the same level of functionality. Rather than total cost of ownership, Heim calls this TCBO, or total cost of business opportunity

Who's going to win this fight? Answering that is like picking the outcome of a championship bout before the first punch is thrown. But we do know this: the competition is real.

'Not everyone's ready to jump ship,' says Jeff Woods of Gartner. 'But CIOs are investigating when they can get their ERP vendor to support their warehouse processes.'

While best-of-breed suppliers currently enjoy a functionality edge in their core WMS systems, ERP vendors are catching up. What's more, Woods adds, WMS suppliers have been putting their R&D dollars into extensions to the WMS footprint, not into their core products. Meanwhile, the ERP vendors have bigger R&D budgets going forward.

For that reason, Woods expects companies with fulfillment as a core business strategy to remain with their best-of-breed vendors for now, but with an eye to what the ERP companies can offer in the future. Meanwhile, mid-market companies with smaller information technology budgets, and large companies with full-pallet, full truckload distribution will consider an ERP alternative.

A breakthrough technology, like radio frequency identification (RFID), could put one or the other back on the ropes. That's because to succeed with RFID both ERP and best-of-breed suppliers alike are going to have to rewrite their code to handle new processes.

'We're telling our clients that they need to look five years out and attach themselves to a bright and creative technology partner who can work with them to build the technology they need,' says Woods. 'ERP vendors are making a serious play to be the process partner for RFID-centric fulfillment process. So are WMS vendors.'

Who's going to win that battle is anyone's guess. But it's one that any company with an interest in RFID and supply chain execution should keep in mind.

Click on the icon to see our ranking of the world's leading WMS providers. (The world's largest WMS suppliers - June 2003)