Declining Prices in the WMS Market Benefit Small Businesses. The worldwide market for Warehouse Management Systems (WMS) has had its best year in several years. After several slow years, the market grew by over 5 percent. The fastest growing customer segment is Tier 3, the small businesses segment. ARC defines these as businesses with under $250 million in revenues. This segment is a $256 million market today that will grow to $342 million in 2009.

The Warehouse Management System market is showing its maturity with sharply declining prices. This is particularly true for WMS solutions aimed at small businesses. Recognizing the opportunity for good ROI from small investments, small companies are buying more WMS solutions than ever before.

Declining Prices

Average selling price (ASP) for WMS software and services has fallen dramatically over the past three years. While ASP has fallen across all customer tiers, about 16 percent per year between 2001 and 2004, the decline in price for solutions aimed at small customers is most noteworthy.

Percentage of Small, Medium-Sized, and Large Customers in the WMS MarketHistorically, small companies that purchased WMS solutions tended to be at the high end of the tier, with revenues close to $250 million rather than under $100 million. But, declining prices, improved channels to SMB companies, and simpler implementations, have caused an explosion in the buying of WMS among companies with revenues under $100 million. One WMS supplier selling in this market sold to over 150 warehouse sites owned by small companies. This is far more site sales than many of the larger and better known suppliers were able to accomplish.

The price for solutions for small companies can be startlingly low. ARC talked to 6 suppliers who have an average selling price for software licenses of less than $50,000 for this segment. These solutions would also typically require an implementation fee of roughly $1,500 per day. Implementations would range from about 3 days for a simple, prepackaged solution to about 40 days for a more functionally rich solution.

The small company solutions range from having very basic process flow support (basic receiving, put-away, picking, and shipping) to support for more extensive functionality (lot/serial/expiration data tracking, carousal integration, etc.). Certain solution providers incrementally scale their pricing as the functionality increases. But all of these solutions are true, real-time Warehouse Management systems — not paper-based solutions. Real-time WMS solutions traditionally utilize Radio Frequency terminals, but today real-time capabilities can also be achieved through Voice Recognition terminals or Radio Frequency Identification tags and readers.

The price of hardware has also fallen significantly over the past few years and this has also contributed to the growth of this very price sensitive segment. For WMS, this includes server and server operating system software, RF infrastructure, RF handhelds, and a barcode printer. For a five user system, this can be purchased for about $15,000 today (for less hardy RF terminals), whereas just a few years ago the server and server software alone would have cost $30,000.

Source: ARC Advisory Group