It seems that the beleaguered warehouse management software (WMS) industry will have to wait a little longer for its miracle cure. Though companies across the country are spending millions of dollars to get "RFID-ready," WMS vendors will see little of that money.
Those vendors could use a boost. The WMS market is in a funk right now—sales sagged last year, shrinking by 2.7 percent worldwide while software revenues dropped 7 percent. But it's unlikely RFID initiatives will bolster sales. Though RFID may help ease the pain, "it's not a panacea," says Steve Banker, ARC Advisory Group's service director for supply chain management and co-author of a new report, Can RFID Save the WMS Market? "We've come to the conclusion that the impact on the WMS market is less than what a lot of other folks have been predicting." In the end, ARC expects RFID software sales to boost revenues a mere 3 percent—which translates to an extra $11 million for WMS providers this year. That's expected to grow to $25 million in 2008.
All this comes as a big disappointment to vendors. Mandates handed down by Wal-Mart and others last year calling for top suppliers to become RFID-enabled had raised their hopes.More than a few analysts projected that sales would soar as suppliers invested in add-on WMS modules to manage RFID-related activities throughout their distribution networks.
But ARC analysts remain skeptical. To begin with, ARC predicts that suppliers will RFID-enable just enough sites to ship to those customers requiring RFID. "We believe the suppliers who need to be compliant will do one or two DCs—not the entire 20 or so in their network," says Banker. Further, ARC believes sales of the modules will amount to little more than a one-time blip. In the long term, says Banker, most suppliers will end up incorporating RFID capabilities into their base solutions. If that happens, he says, customers will be more apt to get RFIDready by upgrading their packages than by purchasing add-ons.
Banker also argues that the rosy forecasts tend to underestimate suppliers' resistance to the mandate. "It cuts into manufacturers' margins, so many manufacturers are making noises to Wal-Mart," says Banker. "I think many may go right up to the deadline and say 'My dog ate my RFID compliance plans.'" He also points to the possibility that companies will decide to handle RFID tagging at the manufacturing plant, not in the DC. "After two or three years," he says, "we believe some RFID enablement work will shift from the warehouse to the factory."
Gartner, Inc.