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Analysis of WMS selection trends in Russia for the period of 1999-2009
The magazine "Markets conjuncture", ¹ 2, issued the article by Alexander Trotskiy – Director on Marketing and Sales, SOLVO LLC, the title of this article is “Analysis of WMS selection in Russia for the period of 1999-2009".
The analysis of the reasons for WMS selection and implementation for the period of 10 years is being carried out, the current trends of selection and crisis influence on the approach to the warehouses automation in Russia are being considered. Analysis has been performed on the basis of 10-year-old experience of Solvo specialists in the WMS market in Russia and CIS countries and there’re more than 90 implemented projects on warehouses automation for all this period.
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In 1999 the “SOLVO" company has launched the first 2 projects on WMS implementation in Russia. Actually they were the 1-st projects not only for the Company but for Russian business as well. Since that time 10 years have passed, the company performed more than 90 projects and has gained unique for Russia experience on duration and a number of implementations that enables to make analysis of changes in customers’ preferences and to express views on trends that have already been marked and will prevail in the Russian WMS market in the coming years.
1999-2002: how it all started…
For the first time they started to talk about the warehouse management systems in Russia in 1998. Several previous years of relatively successful development of Russian economy resulted in formation of large companies in a range of sectors, which started to build large warehouses and think of future prospects of their automation. At that time the company “SOLVO” made an attempt to introduce WMS system of American company RGTI in the market and started to discuss several projects based on this system. However the result of crisis of 1998 and significant ruble devaluation was that American solution at the cost of several hundred thousand dollars turned out overwhelming even for large companies. As a result “SOLVO” focused all efforts on development of its own solution which afterwards was introduced in the market in 1999. The Russian market was not original in terms of sectors which the warehouses automation has started from. The first projects were started in the pharmaceutical and alcohol distribution sectors. It was these sectors which were notable for more strict restrictions on production accounting, certifications, and were obliged to keep records according to series and parties of production at the warehouse. Therefore the basic needs of warehouses automation of such companies were primarily concerned with accurate accounting of both goods and documents and only then with the necessity to increase labor efficiency of the warehouse staff. As a result the project on automation of the pharmaceutical warehouse of the "Invakorp-Pharma" company in Moscow and a distributor of alcohol production "Svarog" in Saint-Petersburg were started up in 1999.
Actually severe requirements on partitioning and certification accounting specific to Russia were put into this solution on the basis of these projects, these requirements imposed significant constraints on the operations of the warehouse handling and storage. The requirements for warehouses automation solutions have been gradually grown.
As a result the Russian management systems appeared in 2001-2002, they were: Vector by the “BSE” company, CoreWMS by the company “Argus Soft”, warehouse management system by the company “Akant” (“Adalius” at the time being). The western solutions were being implemented during this period in the form of single projects as corporate solutions for branches of international companies.
Selection of Russian solutions was due to lack of proposals from Western suppliers in the market and orientation of Russian companies for the middle and lower price segment of WMS systems.
At the initial period of WMS market formation while selecting the system the key words were: "bar-coding", "address storage" and "headcount reduction". Even minimal warehouses automation using bar codes and address storage allowed to put things in reasonable order in the warehouse and in the warehouse accounting, to increase considerably labor efficiency of personnel in comparison with warehouses without automation and that was suggested as basic requirements to such solutions. It was during these years when the bases for the future WMS market in Russia were laid though by Russian companies, most of them couldn’t stand competition with the western analogues entered the market.
2003-2005: a period of formation
More than 10 projects on warehouses automation had already been performed in Russia by 2003 year. The abbreviation «WMS» hasn’t been innovation any more, and more companies turn to the idea of warehouses automation. The Russian WMS market becomes interesting also for the western suppliers which are introducing their own solutions at the market with the help of Russian partners. Although Russian WMS suppliers including SOLVO gained significant experience in warehouses automation and systems development, worship of western solutions typical for Russia at the times has an influence on selection of automated systems gradually.
This period is characterized by appearance of the well-known phrase "best practices". Often while selecting solutions a real analysis of own business requirements is inferior to the idea-fix that "there's all" in the western system. While selecting western WMS system the typical phrase was: "They have billing (or yard management or any other function), which is pronounced without clear understanding of what it is and how valuable the function is for real business".
The choice of western WMS systems during this period is often due to lack of knowledge of specialists on logistics, they believe that having installed such a system they will manage to resolve all the current and future challenges and implement "the western" technology, and all that is supported by insistent advertising of "best practices" on the part of companies - suppliers.
Certainly this approach does not depreciate the fact that the western solutions in many cases really exceed the functionality of Russian systems having appeared lately, although they don't comply with those requirements arising in the process of implementation to the full extent.
The basic trends of WMS selection at this stage are gradually shifting from address storage much-talked about to more precise formalization of warehouses automation requirements. The idea to reduce as many assembly workers as possible is gradually transforming into increase of warehouse capacity operation in the whole and reduction of dependence on the warehouse personnel. Besides increasing demands of warehouses customers oblige to think about and improve the quality of orders assembly, temporary and quantitative indicators (KPI) described as a general term - "quality of service".
The first western solutions appear at the market during this period - they are RadioBeacon WMS, Exceed WMS and some others. Developing and increasing WMS market attracts greater attention and Russian developers. WMS by the company "Buhta", Lead WMS by the "Logistics", AZ.WMS by the company "AZ-group", various solutions on the basis of 1C are being introduced in the market. New solutions of Russian developers are oriented for the middle and lower price segment and they are implemented by the companies with limited budget. If you are choosing the western systems the main idea is to acquire new technologies, when you’re choosing the Russian systems introducing proper order in and labor efficiency increase with easier solutions functionality continue to dominate.
Among Russian solutions only Solvo.WMS system due to long-term and initial orientation for full-function WMS development takes a participation in tenders with western analogues for large Russian companies on equal terms. The choice of this system is often due to complex and non-standard technological processes typical for production warehouses and distribution centers with conveyor equipment. The idea of having own developers in the company significantly reduces risks of complex projects that require modification of the system and integration with a variety of technological equipment, whereas the cost of the project is lower due to different hourly rates of Russian and foreign specialists.
At the turn of 2005 WMS system implementation wasn’t innovation any more. In Russia and especially in the Moscow region quite enough professionals have grown and developed who acquired an experience in the automated warehouses. Their transitions between companies led to the wide spread occurrence of the concept of automation which encouraged the growth of WMS market in future.
2006-2007: exponential growth
These years turned out to be the best for WMS market in Russia. To a large extent rapid building of commercial warehouses encouraged the development of the market in 2006-2007. Rendering of safe storage service in the warehouse of class «À» of itself means existence of the automated warehouse system. Besides the WMS system for 3PL-operators is an important part of their image. That is the sector which generated considerable demand for western solutions, sometimes even at the expense of the project cost. Solutions of key players of the worldwide and European market of Logistics Automation – such companies as Manhattan Associates, RedPrairie, HighJump Software, Oracle, PSI, Mantis and others – appear in the market during this period.
When selecting WMS system, greater attention is paid to the functionality of the system particularly concerning large expensive projects. A reliable supplier of solutions or the company—integrator is also starting to play an important role. The mere existence of WMS system at the warehouse complex is not even doubted. The cost of projects is increasing. The amounts in hundreds of thousands dollars for the project implementation without the cost of the equipment are no longer a rarity. Sometimes the choice of WMS system is based on that "we should have “mighty” system”.
However while implementing major Western systems such as customers and suppliers often deal with considerable difficulties. For the first that is due to a lack of qualified Russian companies-integrators, who have taken up solutions being new for them not having necessary experience in logistics and enough knowledge of the product itself. Although after the first implementations these problems lose their acuity. Besides the Western suppliers of WMS-solutions assist the Russian consultants during the first projects implementation, but the Customer has to pay for this assistance at the world rates. Secondly the non-availability factor of the customers to implement similar solutions. Only the availability of sufficient funds to purchase expensive WMS system and even the willingness to bring the Western consultants to the project doesn't guarantee successful implementation. Lack of qualified personnel of the Customer, the organizational problems concerned with rapid development of the young Russian companies bring to dragging projects out and significant increasing the terms and cost of implementation. Sometimes it is difficult to say that the experience of the first implementations of these solutions is successful.
The Russian companies continue to dominate in the middle and lower price segment. A number of the Russian solutions is increasing and has already been measured in tens. The leaders are turned out to be those companies which have started the projects in early 2000-ies and they have a sufficient number of reference objects in various sectors. The possibility to demonstrate operating warehouse object in its industry or similar one to the eventual customer increases significantly the probability of conclusion of a contract. In this case having an option the customers make more severe requirements on the functionality of a solution and also on terms and the cost.
As a result more requirements are specified for terms and the cost of projects at this stage of development of the market while choosing the automated system. Most of the companies start to declare the terms of systems implementation from 3 to 5 months, and some even confirm that they are ready to implement the project for a month. Customers who have experience in various information systems pay more careful attention to WMS systems support and update and their cost after implementation.
Increased competition in the WMS market as well as completion of the automation process of the majority of Russian companies leads to that in 2007 the average cost of the WMS project is falling. Nevertheless in the end of 2007 most of companies are rather optimistic regarding to future prospects of development for the next year, the staff of the companies on logistics trend significantly increases sometimes. However even without taking into account well-known events at the moment analysts of the WMS market are predicting its gradual cooling and reducing the growth rates.
2008: a new stage and basic tendencies
Already the beginning of 2008 was marked by reduction in a number of requests for warehouses automation particularly from large customers. Increased competition even in the sphere of large western solutions leads to that the average number of projects of one company is not increasing and sometimes it is even reducing.
The WMS market, which was more focused in the central regions of Russia or selection of WMS system was performed in Moscow (for federal companies) continues to expand geographically. WMS suppliers pay more attention to the regions especially to multi-million-strong cities. Some of them start an expansion in the markets of Kazakhstan and Ukraine which are slow in their development of automation of the Russian market for several years. Almost all the companies announce of the start-up of the new projects in summer of 2008.
The crisis of 2008 has almost stopped the process of warehouses automation for a half a year. Most of the contracts have been remitted, even started projects are being frozen. There are only projects on completed warehouse objects and long-term corporate contracts being carried out. The companies - suppliers of WMS solutions - carried out reductions of headcount and expenses. Particularly the companies have entered the market recently affected most of all and they lived only due to income from new projects. The companies having the definite circle of customers are turned out to be in the best situation. Earnings from systems support, modifications, new projects implementation for the current customers allow them to pass through sudden slowdown of the activity at the market with insufficient losses.
As a result of sudden devaluation of the ruble the position of suppliers of western systems changes significantly. The cost of licenses of the Western WMS systems is determined in U.S. dollars or Euro. And even without it since summer of 2008 the cost has increased by 30-40% in ruble equivalent. Besides the expectation for the further deviation of the ruble continues to maintain pressure on this segment of the market and that brings more uncertainty in the cost of the project. The Russian companies nominating their services in rubles get an essential price advantage.
However since spring 2009 the market begins to recover. At the present time a number of requests for WMS implementation is comparable to the former sudden growth of the market for years (the level of 2005-2006). Still the structure of requests is significantly being changed. Nowadays middle and regional companies oriented for the internal demand market generate the highest percentage of requests. The prices for their budgets don’t allow to consider the large western systems and the greater number of requests is the share of Russian suppliers of WMS. Whereas the average budget for automation is being reduced. On the one hand this is due to smaller sizes of objects for automation, on the other hand – due to the total economic situation in the country when suppliers of any production are ready for considerable discounts.
So far it’s rather early to talk about steady tendency of the WMS market reduction but on the analogy of the previous crisis the price factor is starting to play more important role. The difference of the current situation is that clear differentiation of WMS systems has developed and formed for the last ten years. While choosing low-price solutions the customers realize that the functionality of these solutions is weaker than the systems of higher class have. Besides during selection the factor "price/quality" is placed in the forefront. The desire to install the system “to grow into” and for all occasions is passing. The total savings on expenses force to decline the image-based approach to selection of the system and continue with reasonable estimation of own needs and own budget. However in the quest for the price not enough attention is paid to the financial stability and reliability of the solution supplier which should play more significant role now. The attempt to leave for "the natural economy", shifting support problems for “the shoulders” of own IT department seems to be inconsistent in the long-term plan.WMS is not installed for 1-2 years and the lack of development and support of the system by the supplier could result in serious problems for warehouse operating over the years.
The market of expensive projects is in more stagnation. Nevertheless here is a certain demand which is mainly created by the companies of FMCG segment being the most stable in conditions of the world crisis. Here the price factor is less important than requirements to the functionality of warehouse management system. But requirements of selection WMS have increased. Most of the companies having worked with various western companies clearly understand that there are no ideal systems. Besides if once they have received considerable bills for modifications of such systems by western developers they start to formulate thoroughly the requirements for the functionality and budget estimate of modifications. The image of the western system doesn’t play a significant role any more, the choice between Russian and Western systems is based on real comparison of their functionality.
It is obvious that in the crisis conditions the completion of which is still early to speak about, while selecting WMS system the price factor will remain still significant in future. But even in this situation we expect increasing of demand for warehouses automation from Russian companies particularly middle-sized ones. Other than major players middle-sized companies are less burdened with credits, targeted at the development at their own expense, and they react to changes more flexible. Working in the territory of Russia they consider the Russian suppliers as equal business partners. “SOLVO” appreciated the potential of this segment last year having introduced the “budget” version of WMS project in the market which significantly reduced the cost and terms of the project. Other Russian WMS developers also managed to create rather advanced solutions taking into account peculiarities of the Russian laws and requirements to the warehouse business. The western systems have been and will remain in the Russian market although in the short term the considerable reduction of their quantity is possible due to the companies with a small number of implementations in Russia which are likely to fail in the competition with suppliers appeared at the market earlier.
23.06.09
