It wasn't all that long ago that the world order in the warehouse management system (WMS) sector was nice and orderly. If you needed a robust package, best-of-breed was the way to go. And demand was strong enough to post some nice year-over-year revenue increases for the leading suppliers.

Then the economy changed and IT spending growth went in reverse. That eventually led to consolidation among WMS suppliers starting last year. But the changes in this sector haven't stopped there.

Off to the side, major enterprise resource planning (ERP) suppliers made a big-league push to make their WMS modules considerably more robust. And they were successful. Now, certain ERP suppliers are working to win the hearts and minds of companies previously only interested in best-of-breed solutions. But the evolution of this sector didn't stop there either.

The best-of-breed suppliers have been busily adding functionality to their packages and now offer integrated yard and transportation management modules, to name two. And with that, best-of-breed WMS suppliers became supply chain execution (SCE) software suppliers.

Meanwhile, automation specialists like HK Systems/Irista, Daifuku, and Swisslog continue to expand their presence in the WMS space as warehouse management and warehouse control work more closely together.

After years of doing a list of the largest best-of-breed WMS suppliers, we have renamed it to reflect these changes.

With all that said, in one way this industry has not changed much in the past year. Take a look at the top two players – Manhattan Associates ($197 million) and RedPrairie ($75 million). Both were in those spots a year ago too.

While those two companies were able to grow their revenues in fiscal year 2003, the sector, as a whole, cannot say the same.

If anything caught industry watchers off guard in the past year, it was that revenues for WMS applications actually shrank by 2.7% to just over $900 million, according to Steve Banker, service director, supply chain management, ARC Advisory Group (781-471-1000, www.arcweb.com). Looking forward, Banker expects the market to grow with inflation.

'Core WMS is a mature market,' Banker explains. 'Large companies probably already have a WMS, and our research shows that once a company implements a system, they hold onto it for 8 to 10 years.'

Banker did find a few bright spots. While core WMS was on the decline, the market for applications that complement WMS, like transportation management, yard management, labor management and visibility, is picking up steam as users look for more ways to gain efficiency. RFID will also help as companies upgrade their systems to comply with mandates from Wal-Mart, other retailers and the Department of Defense.

Still, those shrinking WMS revenues in part explain why the long-awaited consolidation of the industry finally got underway. In fact, there were a significant number of mergers, acquisitions, and a departure from the industry coming as the calendar turned at the end of the year.

This is the fourth year we have looked at the leaders in the WMS industry. And it is the first that we have put our leader's table together under the supply chain execution banner.

WMS is still the core offering for the providers on Modern's list, but most also offer transportation and yard management, collaboration tools, and event management capabilities.

In addition, a supplier must do business in the United States to be considered for inclusion. And suppliers must be willing to report their total worldwide revenues from WMS, including licensing, support and services for all supply chain execution offerings.

There are also a number of companies with strong inventory management solutions for very specific applications, like wholesale grocery distribution or parts sequencing in the automotive industry. We do not include those companies, opting instead to focus on those suppliers that offer a best-of-breed WMS solution with deep order fulfillment functionality across verticals as their core product.

A shrinking market and competition from the big boys at the ERP companies contributed to a restructuring of WMS suppliers that got underway in late 2003 and continued full steam ahead in early 2004. That means that several of the names on this year's list will not be on next year's.

SSA Global Technologies got the ball rolling in December when the provider of ERP solutions to mid-market manufacturers purchased EXE Technologies (#4, $72 million).

A few weeks later, 3M jumped into the WMS market when it purchased HighJump Software (#9, $35 million).

In February 2004, RedPrairie joined forces with LIS (#8, $36 million).

More recently, Optum (#12, $29 million) acquired V3 Systems, just shy of making our list at $6 million, and World Chain, a provider of networked supply chain management solutions.

At the other end, Ann Arbor Computer, the software arm of Jervis B. Webb, decided to exit the WMS business to focus on warehouse control and automation software.

It's not just shrinking opportunities for WMS that's forcing the best-of-breed providers to expand their offerings. It's also continued competition from ERP players.

'ERP suppliers have been steadily taking market share in the warehouse management system market and we see this trend as continuing,' says ARC's Banker.

SAP, for instance, continues to gain ground as the number five provider of WMS systems with $50 million.

Now that it has acquired EXE, SSA Global should be one of the top providers in 2004. And while Oracle declined to provide Modern with revenue numbers from its WMS business, the company is becoming a force to be reckoned with.

'I am familiar with deals where Oracle won in head-to-head competition with best-of-breed providers,' says Greg Aimi, director of supply chain research, AMR Research (617-542-5600, www.amrresearch.com). 'They're still not a player in complex order distribution, but in many facilities they're good enough.'

All of that should make 2004 a year to watch.

Click on the icon to read the list of 2003 top suppliers.