Increase Seen in Fulfillment Software Spending

Global investment in fulfillment software applications by enterprises and logistic service providers will grow from $1.4 billion in 2001 to $2.7 billion in 2005, according to Datamonitor.

Most of the investment in fulfillment software will come from enterprises’ in-house logistics followed by third-party logistics providers (3PLs) and courier organizations. Datamonitor’s study found that enterprises globally are turning to fulfillment software because they need solutions that are fast, accurate, flexible and technologically advanced.

While businesses talk of the need for synchronized supply chains and collaborative abilities, the final delivery to customers is where it counts. Over the past 18 months, the need to establish clear return on investment (ROI) metrics and business cases for IT implementation projects means that fulfillment solutions are increasingly modularized to address specific pain points, integrate more easily and cost less to implement. This has stimulated the uptake of fulfillment solutions that integrate with other applications within enterprise networks, according to Datamonitor.

“Fulfillment solutions can ensure flexible, accurate, fast and technologically advanced delivery,” said Eria Odhuba, Datamonitor technology analyst. “Businesses looking to attract and retain customers are integrating final delivery with customer relationship management (CRM), enterprise resource planning (ERP) and inbound delivery processes. The benefits of having effective fulfillment processes include improved competitive positioning, business opportunities and the ability to react to changes in business or economic conditions.”

With companies trying to improve their ability to manage inventory flows, global investment on warehouse management solutions (WMS) accounted for the largest share of enterprise spending on fulfillment solutions, reaching $626 million in 2001. In 2002, however, as organizations realize the need to tackle a myriad of customs regulations, multiple order channels and delivery requirements, the emphasis will shift to investment in other fulfillment activities.

Transportation management systems (TMS) will dominate medium-term investment, but order management systems will experience fastest growth. Given the infancy of customer-centric solution capability for many companies, focus is still on the fulfillment operation most closely related to back-office activities.

Datamonitor forecasts that TMS solution spending will dominate the fulfillment market in 2005 with global spending rising from $564 million in 2001 to $1.2 billion in 2005. Spend on returns management (RMS) and order management (OMS) will also grow from $68 million and $190 million in 2001 to $197 million and $399 million in 2005, respectively, as organizations look to enhance their customer relationship capabilities with better interaction systems and options for the return of unwanted goods.

“The terrorist attacks of Sept. 11, 2001, have focused minds on the ability to provide audit trails for security reasons, while increased globalization and complex customs regulations also require investment in TMS solutions that ease the transportation, clearance and delivery of goods,” Odhuba said. “OMS expenditure will increase as more customers use the Internet to place and track orders. RMS investment is driven primarily by demand for processes that allow unwanted goods to be returned, with a consequent impact on integration with WMS systems for inventory updates. Warehouse storage capacity has, in many regions, reached saturation point. WMS investment will tend to be for advanced inventory management and collaborative forecasting technology.”

According to Datamonitor, the United States currently accounts for 50 percent of global investment in fulfillment software and it will remain the largest market in the world. Europe accounts for 26 percent and Germany, France (due to their market sizes) and Britain (due to the very high proportion of logistics solutions that are contracted out to specialists) are where investment will be greatest. Japan still leads investment in the Asia-Pacific region, but China’s entry into the WTO will open up significant opportunities for vendors. In the short to medium term, Datamonitor recommends that vendors should aim to develop their channels to market in the Asia-Pacific and European regions as both will have a higher growth rate than North America.