Don't Flinch

Remember when Michael Jordan retired from basketball and delved into a baseball career? How many of his games did you go see? Do you even remember the team he played for? Obviously, he didn't reach the same level of success on the baseball diamond as he did on the basketball court. Thankfully, he has returned to the sport he dominated for so many years.

A few years ago, Catalyst International, Inc. (Milwaukee) also took a short hiatus from its core playing field - the tier-one market (annual sales of $1 billion or more). Like many WMS (warehouse management system) software developers, Catalyst was swayed to enter the tier-two (annual sales of $250 million to $1 billion) market after analysts predicted a glut of opportunities in this arena in 1997 and 1998. Unfortunately, the company soon discovered its WMS skills weren't a fit for tier-two businesses (i.e. Catalyst's products are designed for UNIX rather than NT systems, which are more prevalent in tier-two). Thus, in a Jordan-like move, the $42 million software developer benched its tier-two dreams for a renewed focus on the market that made it a player. For Catalyst, that singular, renewed focus is the good news. With a lagging economy and inflated 2000 sales revenue (due to Y2K projects), the bad news is the company expects an approximately 20% decline in revenue as compared to last year. But, the Catalyst team now has a new coach who is determined to overcome this year's deficit by implementing the tier-one game plan.

Don't Underestimate The Tier-One Market
In June of 2001, Jim Treleaven became Catalyst's CEO and president. As such, he also assumed the daunting role of architect of the company's comeback. "One of the arguments against focusing on the Fortune 500 is you are limited to only 500 companies," Treleaven said. "But, people often forget tier-one companies have multiple warehouses and larger warehouses (as compared to tier-two and tier-three). I know there is an ongoing demand for WMS in tier-one. And, since that's where our expertise lies, that's where we'll stay."

Research firm Venture Development Corp. (VDC) (Natick, MA) also believes WMS will be in demand in the next few years. VDC predicts the North American WMS market will achieve a compound annual growth rate of 19% through 2003. However, much of that growth will likely come from tier-two and tier-three businesses trying to implement better B2C or new B2B systems. The dot-com crash taught these companies the value of just-in- time inventory and a tight integration between the Web interface and the back end distribution channel. "For many of the dot-coms, how to deliver the product was almost an afterthought," Treleaven said. "No matter how slick your Web site looks, if you can't get the products to the customer in a timely fashion, you're going to lose business. Remember, that's what happened during Christmas of 1999." Although VDC's predictions pertained more to the tier-two and tier-three markets, many of Catalyst's tier-one clients also took heed of the benefits of B2B and just-in-time inventory.

What Drives New WMS Projects In Tier-One?
A typical Catalyst customer's warehouse has a minimum of 250,000 square feet and a throughput of 10,000 items per day. For many of these tier-one customers, Treleaven said there are two basic needs that drive new WMS installations. First, legacy WMS' are often outdated. This, he says, is because tier-one companies have a tendency to replace systems such as inventory control, purchasing, accounting, and payroll before their WMS. Also, since warehouses are located all over the globe, they tend to be left for last in terms of system upgrades.

Secondly, tier-one companies frequently reconfigure their distribution channels in order to squeeze out costs. In fact, many of Catalyst's customers are consolidating warehouses and building larger, more sophisticated distribution centers. "We are always finding tier-one companies with multiple warehouses that aren't using the same WMS," he said.

Government Regulations Spur WMS Growth
Within tier-one, Catalyst focuses on the retail, chemical, industrial, and pharmaceutical markets. Many of these verticals have new government (e.g. FDA) regulations that have spurred upgrades to legacy systems. For example, pharmaceutical companies are now required to keep an audit trail of everyone who touched the product throughout the supply chain. The FDA is also requiring pharmaceutical companies to have a WMS with electronic signature capability. Similarly, the chemical industry has special handling requirements for hazardous chemicals (e.g. two chemicals that would explode if combined can't be stored in the same area).

"The more complex a warehouse and the more transactions being completed within that warehouse, the better we do," Treleaven said. "For instance, Catalyst has become a major player in the parts distribution vertical (e.g. General Motors) because of the huge number of SKUs (stock keeping units) and high transaction volumes found there." Other companies like Reebok use Catalyst's WMS for its ability to handle shipments involving a single SKU with a mixture of colors and sizes. Still other customers like Saks Fifth Avenue use Catalyst for increasing flow-through in a warehouse. Indeed, an average carton spends less than five minutes in the Saks distribution center.

Selling Via A Virtual Warehouse
Despite the seemingly favorable WMS growth statistics and Catalyst's familiarity with the tier-one market, Treleaven admits there are no slam dunks when it comes to making a sale today. In fact, the company's sales cycle is now 9 to 18 months as compared to 6 to 12 months a year ago. "In regard to ROI, companies need to consider the cost of the time spent sitting on the sidelines," Treleaven said. "If the decision [to buy] was normally going to take six months and now it's taking a year, what is that extra six months going to cost?"

Catalyst's customers are large, multinational companies that are sensitive to interest rates, changes in the worldwide political climate, and economic slowdowns in different global regions. These companies are also more demanding. They want a highly detailed analysis explaining exactly how much money can be squeezed out of the supply chain by implementing a new WMS. To accommodate these requests, Catalyst recently developed CatSIM, a virtual warehouse simulation software. By downloading a customer's WMS information (e.g. items, inventories, locations) into CatSIM, the program simulates warehouse operations under different sets of assumptions. Thus, the customer can actually see the savings afforded by a new WMS. Furthermore, existing Catalyst customers can use this software to fine-tune their operations.

Since CatSIM debuted in April 2001, its effect on sales has not yet been gauged due to the extended sales cycle. Nevertheless, as a large software developer, Catalyst has proven it is equipped to play in the tier-one league - even as the sales cycle goes into overtime.