From all indications, the overall supply chain execution (SCE) market is now mature. Sure, some segments show stronger growth, but those are just pockets.

According to Steve Banker, director of supply chain research for ARC Advisory Group, the SCE software market is growing at a modest 4 to 5% per year. Much of the growth in the $2.25 billion market, Banker says, comes from transportation management systems (TMS).

"WMS (warehouse management systems) is just a very old, mature market," he says. "The TMS market is younger, and it's got more legs."

And that maturation is apparent looking at this year's list of the 20 largest suppliers of SCE software. The smallest suppliers on the list—Foxfire Technologies and Integrated Warehousing Systems—reported no growth in sales last year, and yet no other companies rose to challenge their positions. Several of the larger companies, including RedPrairie and Swisslog, actually reported lower revenues in 2005 than in 2004.

That said, maturity is only part of the story in the evolution of SCE software. Market forces have reshaped the SCE landscape in recent years, resulting in roughly four major categories of SCE software suppliers on our list.

The first category comprises traditional best-of-breed WMS suppliers, such as top-ranked Manhattan Associates.

The second covers enterprise resource planning (ERP) suppliers that provide SCE solutions in their suites of services, such as SAP and Oracle.

The third category is supply chain management suppliers that focus on the broader supply chain network (e.g. Sterling Commerce and Click Commerce).

The final category is automation companies that offer WMS along with warehouse control systems (WCS). Dematic and Knapp, both new to the list this year, join Swisslog, Daifuku and HK Systems in this category.

Best-of-breed WMS suppliers still hold the largest market share, but that share is shrinking along with the number of best-of-breed WMS suppliers. The large ones sit firmly at the top of Modern's ranking (Manhattan and RedPrairie), and small ones fill out the bottom (Integrated Warehousing Solutions and Foxfire Technologies), but the mid-sized best-of-breed companies are being bought up or crowded out.

MARC Global Systems and Provia, for example, struggled to compete in 2005. MARC's revenue dropped 34.5% and Provia's dropped 45%. Both companies were acquired in early 2006. RedPrairie bought MARC in February, and SSA Global bought Provia in March.

The remaining mid-sized best-of-breed companies, according to Banker, are earning much of their revenue through channels other than the sale of new SCE systems—mostly on implementation of ERP software. And, the companies posting the biggest gains on this year's list are ERP suppliers. These suppliers are winning customers in traditional warehousing operations such as in satellite warehouses or in a warehouse feeding a manufacturing plant, Banker says.

By Modern's industry estimates, SCE revenues at SAP grew 138% in 2005, thanks in part to the company's new Global Trade Management solution. Modern estimates Oracle's SCE revenues grew by 367%, due mostly to its acquisition of TMS supplier G-Log.

Epicor, another ERP company, reports a 250% increase in SCE revenues, making it a strong contender in the fight for the mid-market. And the mid-market is where the action is likely to be in the next few years. With the Tier 1 market saturated, SCE suppliers are now looking to small- and medium-sized companies for their next growth opportunities, Banker says.

This is Modern's sixth ranking of the top suppliers of SCE software by fiscal year revenue. To be considered, a supplier must do business in the United States and offer software with a strong WMS component and broad SCE functionality. Companies involved only in specific vertical markets—such as the automotive or grocery industries—are omitted.

Modern's annual survey asks suppliers to report fiscal year revenue from SCE software systems contracts, including licensing and services. For some, this represents the company's entire revenue and for others it represents a segment of their business. For instance, certain automated materials handling companies report revenues from both WMS and WCS software, as the two are becoming impossible to distinguish.

If a company declines to report revenue or to break out the SCE portion of its revenue, Modern produces an estimate in consultation with industry experts.

As competition in the SCE market stiffens, SCE suppliers are attempting to differentiate themselves.

Some are redesigning their software to take advantage of service-oriented architecture (SOA). SOA-based software, like that offered by HighJump and Sterling Commerce, is said to be more flexible than traditional software, making it easier to reconfigure and upgrade.

Other suppliers, especially those who target small companies, have begun offering their systems "on demand," meaning customers pay for a subscription service rather than buying software packages and then paying for maintenance.

For instance, Navis, a small company that did not make the ranking, launched its on-demand SmartTurn WMS earlier this year. Navis says it designed SmartTurn for customers unable or unwilling to take on the high upfront costs associated with traditional WMS applications.

Another way suppliers are attempting get ahead of competitors is by adding functionality. The pace of mergers and acquisitions in the field slowed somewhat in 2005, but has picked up again in 2006.

The two largest best-of-breed WMS suppliers are working to broaden their offerings. Manhattan Associates added supply chain planning to its suite with its acquisition of Evant in September 2005.

In addition to its recent acquisition of MARC Global Systems, RedPrairie acquired Alta A/S, a provider of manufacturing execution systems software for the automotive industry, in January 2006, and recently announced its purchase of BlueCube Software, which provides store operations management applications.

Supply chain management companies have also expanded offerings through acquisitions. Click Commerce bought WMS supplier Optum in early 2005 and has since added channel management, service parts planning and other functionalities. Sterling Commerce acquired WMS supplier Yantra early last year and recently announced its acquisition of TMS supplier Nistevo.

The ERP suppliers are also playing the acquisitions game. The latest move was in May when Infor announced plans to acquire SSA Global. Infor didn't make the top 20 list this year, but with SSA (which recently bought Provia) under its umbrella, the company will most certainly make the list next year.