The market for supply chain management (SCM) software, maintenance and services continued its growth in 2016, generating more than $11.1 billion, a 9% increase over 2015 revenues, according to the research firm Gartner.

That total includes applications for supply chain execution (SCE), supply chain planning (SCP) and procurement software. Since the market’s 2% decline in 2009, the market has posted double-digit growth in four of the past six years, according to Gartner. The SCM market is expected to exceed $13 billion in total software revenue by the end of 2017 and exceed $19 billion by 2021, Gartner forecasts, with software as a service (SaaS) enabling new growth opportunities.

“It continues to be a good year for the supply chain overall,” says Chad Eschinger, managing vice president of Gartner. “The Cloud-based segment grew 20%, which is consistent with what we’ve seen in recent years.”

The push for Cloud capabilities also fueled some of the acquisition activity over the last year. Eschinger cites examples such as Infor’s acquisition of GT Nexus, Kewill’s acquisition of LeanLogistics, Oracle’s acquisitions of LogFire and NetSuite, and E2open’s acquisitions of Terra Technology and, more recently, Steelwedge.

“Broadly speaking, we’re seeing cyclical consolidation,” Eschinger says. “For some companies it’s a land grab, for others it’s an effort to add functional and technical underpinnings to go to the Cloud or provide a fuller complement of Cloud capabilities.”

Suite vendors are increasingly inclined to offer end-to-end solutions, Eschinger says, tying in customer relationship management capabilities, replenishment, network design, clienteling and more. In addition to supply chain efficiency, these solutions are also aimed at improving and standardizing the consumer’s experience.

“The Amazon effect continues to wreak havoc in retail and for manufacturers selling direct-to-consumer,” Eschinger says. “Everyone wants real-time visibility into inventory, so data and the associated analytics continue to be front and center for most organizations.”

Inside the numbers

Market leaders in the overall category of supply chain management continued to dominate the market in 2016, with the top five providers accounting for 49% of the total market.

The individual market segments also posted impressive gains. Supply chain execution systems, which includes warehouse management systems (WMS) and transportation management systems (TMS), grew more than 10% to $3.5 billion. Once again, the top five providers accounted for nearly half of the total. The market for supply chain planning systems crossed the $4 billion mark after growing nearly 8%, with the top five companies accounting for 59% of the list’s total revenues.

The same top five market leaders had dominated the list since 2012, but Infor’s acquisition of GT Nexus has bumped it from 11th place in 2015 to No. 4 with $243 million. There is still a sizable gap between fourth place and the top three, where SAP ($2.93 billion), Oracle ($1.55 billion) and JDA ($476 million) retain their ranks.

In fifth place is Manhattan Associates with $209 million, followed by Epicor, which grew 18% to $192 million. The remainder of the list continues jockeying for ranks with each separated from the next by a few million dollars. Five of those companies posted gains of 25% or greater.

The rise of the mid-market

Eschinger says 2016 was the year the mid-market really became a focus. Both LogFire and NetSuite targeted small and mid-sized customers before they were acquired, he adds, and other smaller providers with good functionality and install bases also were looking to expand their footprint. Companies of all sizes are trying to do more with fewer vendors, Eschinger says, so industry consolidation was a natural byproduct. He adds that 2016 was also notable as a year when private equity played a big role in the acquisition activity.

“Think about the digital transformation and the impact that’s having,” Eschinger explains. “E-commerce is pushing organizations to be more agile. On-premise technologies with a high level of customization can make them less able to react efficiently and be competitive. They have piled on different technologies and created a hybrid environment, but for a large enterprise, that’s a difficult thing to unravel, whereas mid-market companies might find it easier to rip and replace. It’s not less complex, but there isn’t the sheer decades of investment and legacy to contend with, so a Cloud deployment is a more reasonable option for them.”

Around the world

Dwight Klappich, vice president of Gartner, spoke to Modern about the global supply chain software landscape, where significant shifts remain ongoing.

“There is significant interest around all things automation,” Klappich says. “Five years ago, automation came up a few times a year, now I get at least a call a week.”

In terms of WMS in particular, North America and Western Europe are very mature markets where the majority of new deals are medium to large organizations replacing systems, he says. They are on their second-, third-, sometimes fourth-generation WMS.

“The focus has evolved,” Klappich says. “When I did warehousing in the 1980s, it was just about getting control, some inventory accuracy, and perfect order rates were terrible. Once that’s done, it’s about how to become more efficient. When you look at the same grouping of companies outside North America and Western Europe, their requirements tend to be more like where we were in the 1980s, with a first-gen WMS.”

Klappich notes a marked interest in mature markets for software modules like slotting and labor management systems (LMS) to achieve the next level of productivity. In developing markets, however, where many companies are moving into their first full-blown WMS, SAP, Oracle and others are seeing strong growth. Particularly when scaling to peak, Klappich says, labor shortages are also a global concern, and have motivated companies to pursue more automation and related software.

“For example, there was a large Asian tire manufacturer where the conversation started around best practices in a manual warehouse. That’s an oxymoron,” Klappich says. “Over the next five to 10 years we’re going to see a very heavy focus internationally. Where it took us 40 years to get to where we are, those emerging markets will quickly climb the ranks, probably in about a third of the time.”

The Cloud

For the last 10 years, Klappich has conducted an annual study that includes questions about the adoption of Cloud-based supply chain software.

“The number who have adopted Cloud is up a little bit, but what has gone up dramatically is intention,” he says. “Last year we asked how likely a new system would be Cloud-based, and it was 27%. This year it’s close to 40%.”

The WMS space is actually among the slower segments to adopt the Cloud, which Klappich attributes to the strong legacy of on-premise deployments in that space. Nonetheless, Klappich says he is seeing concerns being addressed and Cloud interest picking up in WMS, as well as applications like transportation, sourcing and procurement.

“In transportation, with the multi-enterprise nature of carriers, it quickly became clear that it made sense to build a network on the Cloud,” Klappich says. “In the warehouse, there are a couple barriers. Security is a smokescreen, but the real ones are performance and customization. The reality is that as much as we coach people to be as close to standard as possible, there are scenarios where they need customization, and the question becomes how to do that in a multi-tenant Cloud environment.”

Spend analytics are also heating up, Klappich says. Multi-modal TMS solutions have included analytics around spend, and 100 carriers and a thousand shipments a day is pretty straightforward. It’s a very different situation, he says, for a client that peaks at 2.5 million orders per day.

“There are a lot of complex rules that carriers all have, like dimensional weight pricing, and companies are wondering if their people are costing them money by not being disciplined with box size,” Klappich says.

Multi-modal TMS is increasingly Cloud-based, but Klappich says parcel is the area where interest is really heating up as companies try to tie parcel into the omni-channel fulfillment process. Parcel systems are plenty mature, he says, almost as much as warehousing, but it’s the users who are changing.

“At the end of the line, you print labels and do some rate shopping. Now with omni-channel you need systems that work with what you need in the DC, but also in the store,” Klappich says. “A high school employee who is asked to ship omni-channel orders before the UPS guy comes will need a different user interface than in a traditional DC, and that’s where you see more Cloud-based solutions.”

Making the List

This is the 16th time Modern has reported on the supply chain software market from a business standpoint since 2002. Although we initially focused on the top providers of WMS solutions, the lines between supply chain execution and supply chain planning providers are no longer clearly drawn; ERP providers supply WMS and supply chain execution providers offer planning and optimization solutions. Companies are increasingly looking to integrate their procurement activities into their manufacturing, distribution and transportation strategies.

For that reason, Modern partners with Gartner to create this list. Our starting point is Gartner’s annual list of the top supply chain management providers. It is a numbers game and not a popularity contest. The rankings are based on Gartner’s estimates of a provider’s annual sales for 2016. Meanwhile, Gartner’s estimates are based on revenues related to supply chain management software and not a company’s total revenues.

Admittedly, this is an imperfect science. Gartner, for instance, strips out hardware sales from its estimates. What’s more, Gartner does not follow the warehouse control systems (WCS) or manufacturing execution system (MES) spaces for the purposes of its chart. Finally, it does not include SCM suppliers that focus on specific verticals. That said, it is an apples to apples comparison to previous years.