June 2005 AMR Research Report

Compliance initiatives and ERP maturity have

combined to create a “perfect storm” for the MES
MES Market Rides Perfect market, increasing revenue from MES applications

Storm Through $1B Barrier
by Simon Jacobson, Colin Masson, Alison Smith, and Joe Souza
and services from $705M in 2001 to an estimated
$1.06B in 2004. Pent-up demand in Aerospace and
Defense, global brand management in CPG, and
warranty cost containment in Automotive are key
drivers for growth.
© Copyright 2005 by AMR Research, Inc.

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MES Market Rides Perfect Storm
Through $1B Barrier
by Simon Jacobson, Colin Masson, Alison Smith, and Joe Souza
The
Manufacturing is “in” and the long-quiescent MES market is riding the wave,
finally breaking through the $1B barrier.
Bottom
Line

The past 12 to 16 months have marked a resurgence in interest and

Executive investment in Manufacturing Execution Systems (MESs)—enough,
Summary in fact, to finally push the market past the billion-dollar mark for
2004. Estimated at $1.06B, the market is showing signs of renewed
vigor, with major gains in the Automotive, Consumer Packaged Goods (CPG), and
Aerospace and Defense (A&D) markets. Compliance initiatives are boosting MES sales
to high-tech electronics components and assembly producers, despite a mild contraction
in the pure semiconductor fabrication sub-segment. At the same time, the dust is set-
tling on Enterprise Resource Planning (ERP) deployments and consolidations, allowing
manufacturers to refocus on the basics of production. This convergence of events has
created a perfect storm for manufacturing, and MES is getting a lift.

MES revenue from sales to North American companies increased from 43% in 2001
to 52% in 2004 as global producers, particularly in CPG and Pharmaceuticals, expand
initial deployments and push for global standardization. Asian and European markets
continue to evolve. MES revenue from Asia is down from 2002 levels, but this is a
temporary lull as a new mix of manufacturing capacity is brought online.

Despite the past five years of consolidation, this perennially fragmented market contin-
ues to support a plethora of best-of-breed vendors—no dominant vendor has emerged.
The race is on, however, as large automation vendors GE Fanuc, Invensys, Rockwell,
and Siemens establish beachheads in strategic sub-verticals.

The main points discussed in this Report are the following:

• Dawn breaks for brand owners: unseen production data can hurt the bottom line.
• Compliance and ERP maturity drive MES market over $1B barrier.
• MES market remains vertically fragmented with no single dominant vendor, but
automation vendors are poised to make big moves.
• Products from best-of-breed MES vendors continue to be the staple of manufacturers
seeking operational excellence at the local level, while Semiconductor and High-Tech
MES are models for next-generation manufacturing networks.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 1

 Dawn breaks for brand owners: unseen production
data can hurt the bottom line
The impact of broadening regulatory oversight in the United States and abroad is fuel-
ing increased spending on manufacturing IT. Boardrooms across the globe are waking
to the fact that they are ultimately accountable for product manufacturing details they
didn’t even know existed. The truth is that for many companies, producing an audit
trail of how a product was made—or the details of what went into it, and where those
materials came from—is a nightmare.

If anything, this past year’s track record for warranty and safety recalls has driven the
point home dramatically. Outsourcing exacerbates this risk, and brand owners across
industries are wrestling with risk mitigation across a globally distributed set of suppli-
ers and contract resources (see the AMR Research Report “Contract Manufacturing at
a Crossroads: Brand Owner Need for Visibility,” April 2005). This has reinvigorated
spending on manufacturing IT, particularly on systems and software applications that
provide visibility and detailed audit trails of the production process, like MES.

Figure 1: 2005 manufacturing investment trends

Regulatory compliance or quality programs 44%

Six Sigma or continuous improvement 42%
Lean manufacturing 39%
Standardization of plant systems 27%
Root-cause analysis 14%
Asset management or maintenance 14%
OEE or process performance tracking 10%
Inventory visibility for available-to-promise 10%
Process analytical technology 10%
New product development and launch 4%
Other 1%
Don’t know 6%
0% 10% 20% 30% 40% 50%

Source: AMR Research, 2005

2 © 2005 AMR Research, Inc. AMR Research Report | June 2005

A 2005 AMR Research survey on manufacturing IT spending found that compliance-
related IT was projected to be 10% of the total IT spend for the 2004-2005 period.
An additional AMR Research study (see Figure 1) conducted during Q404 and Q105
reveals that both manufacturing and IT management ranked regulatory compliance
and quality as the top driver for plant-related IT initiatives over the next 24 months.
Respondents also ranked visibility into the details of product manufacturing as one of
the top areas needing improvement, indicating an awareness that traceability and vis-
ibility play a critical role in quality and compliance initiatives.

Compliance and ERP maturity drive MES market over

$1B barrier
In the wake of Sarbanes-Oxley hysteria, manufacturers continue to execute strategies
aimed at limiting manufacturing-related compliance liabilities and risk. The result is
a reinvigorated market for MES systems that provides broad manufacturing visibility,
audit trails, and early warning capabilities. A second and profound contributing factor
to this market’s sudden growth spurt is the maturity of the ERP market (see “SAP gets
the message to the top: production data and performance visibility is strategic”).

When AMR Research last sized this market in 2001 (see the AMR Research Report
“MES Market Landscape: By the Numbers,” May 2002), the vast majority of the
Fortune 1000 manufacturers were in the throes of massive ERP rollouts and consolida-
tions. As these draw to a close, manufacturers are realizing that their ability to mea-
sure and manage the performance of their manufacturing assets hasn’t proportionately
improved. Why?
• Myth No. 1: Agility from standardized global business processes—Standardizing
global order-to-cash and procure-to-pay business processes hasn’t produced the ben-
efits expected. In the rush to rationalize ERP systems to support these processes,
manufacturing, work-in-process inventory management, and plant scheduling have
taken a back seat, effectively cutting manufacturing visibility out of the supply chain.
• Myth No. 2: Creating a real-time enterprise—ERP drives the business on a set
of financial models that rely on standard costs and fixed lead times that are often
disconnected from the realities of production performance, often called “production
actuals.” This is exacerbated by the lack of timely data synchronization between the
two environments. Reconciliation in the ERP world takes place on daily, weekly, or
monthly intervals, whereas the production environment functions in real time. The
result is two disconnected versions of the truth: one in ERP used for planning and
one in production, which is tasked with performing to schedule and budget.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 3

 • Myth No. 3: Lower Total Cost of Ownership (TCO)—Corporations have bought
into the vision that ERP can be applied to the breadth and depth of manufacturing
business processes. Mandates to use ERP for manufacturing execution functions are
all the rage. While lower TCO and the prospect of maintaining a single, omnipo-
tent application have been seductive selling points at the corporate level, at the plant
level, reality is settling in. Mandates can’t improve performance if the tools and
technology aren’t up to the task. If ERP has to be heavily customized to support
manufacturing, as is often the case, lower TCO goes out the window.

SAP gets the message to the top: production data and performance
visibility is strategic

MES vendors and plant managers have often been staunch opponents of SAP in the execu-
tion environment, and have struggled to articulate “manufacturing excellence” in the financial
terms needed to win a share of limited IT budgets. Contentious relationships aside, SAP has
to be credited in part with this renewed interest in MES through its own initial forays into the
execution realm, and more recently, active support and evolution of stagnating manufacturing
standards (see the AMR Research Alert article “SAP Turns From Manufacturing Foe to Ally With
Business Package for ISA-S95,” October 15, 2004). SAP has also fueled growth in the Enterprise
Manufacturing Intelligence (EMI) market with its SAP NetWeaver Manufacturing Dashboards and
Shop-Floor Partner Program (see the AMR Research Alert article “SAP Defining Role in Plants With
Portals and Vendor Working Group,” May 12, 2004). In effect, SAP has acknowledged the role of
MES within the greater manufacturing landscape, providing well-defined integration points into
SAP R/3 and mySAP ERP 2004, and staked its own claim to the evolving market for supply network
operations functionality, starting with EMI (see the AMR Research Alert article “SAP NetWeaver
Hooks Manufacturing into Supply Networks, But Isn’t an Execution Platform,” June 4, 2004).

For SAP and the cadre of best-of-breed vendors serving the manufacturing operations space, this
has great potential to be a win-win scenario in which SAP still gets revenue, but the specialists take
on the messy details. One caveat, however, is that success for all will depend on how rapidly SAP’s
field sales force can internalize this dynamic. Prospective users should exercise caution, ask many
questions, and remain vigilant for over-zealous sales messaging.

4 © 2005 AMR Research, Inc. AMR Research Report | June 2005

Large automation companies and MES pure-plays represent 69% of the
overall MES market

AMR Research defines the MES market as the total revenue from sales of MES soft-
ware licenses, software maintenance fees, and implementation services related to train-
ing, custom development, and consulting. This market includes the following vendors:
• Pure-play MES vendors that derive 100% of their revenue from sales of MES
software and services to support those sales. Historically, these vendors tend to be
small—between $20M and $40M in revenue.
• Automation vendors that sell stand-alone MES applications—generally Intellectual
Property (IP) from prior acquisitions of pure-plays (see Table 2).
• Vendors of specialized MES products include software developed for packaging
applications, petrochemicals, and specialty chemicals. These more specialized prod-
ucts (see “MES equals advanced process control for Bulk and Specialty Chemicals”)
evolved through custom projects and are generally part of larger turnkey process
equipment or control applications—hence, not easily separated from the other prod-
ucts and services they are sold with. Note: AMR Research estimates revenue for
this segment of the market at a 5% Compound Annual Growth Rate (CAGR) since
2001. This estimate is included in the total market size, but this Report does not
cover these products in any detail.

This Report focuses on the vendors shown in Table 1 whose products compete head-to-
head in the market.

Figure 2: Revenue breakdown by vendor type

Other, $90M
8%

Pure Play, $267M Automation, $494M

24% 45%

Specialty, $258M
23%

Source: AMR Research, 2005

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 5

 Table 1: Selected MES vendors

2004 MES
Vendor Revenue Range* Top Three Industries Served**
Apriso $10M to $20M Medical Device, Pharma, Auto Suppliers
AspenTech $50M-plus Chemical, Pharma, CPG
Brooks Software $50M-plus Computer and Electronics, A&D, Auto Suppliers
Camstar $20M to $35M Medical Device, Computer and Electronics
DMI $1M to $10M Pharma, Medical Device
Datasweep $10M to $20M Medical Device, Computer and Electronics, Wood Products
Elan $1M to $10M Pharma, Chemical, Medical Device
Eyelit $1M to $10M Computer and Electronics, Auto Suppliers
GEFanuc $20M to $35M CPG, Auto OEM, Pharma
HMS Software $10M to $20M A&D
Honeywell POMS $1M to $10M Pharma
iTAC $1M to $10M Auto Suppliers, Computer and Electronics, Medical Device
Intercim $1M to $10M A&D
Invensys $35M to $50M Oil and Gas, Chemical, CPG
iBaset $20M to $35M A&D, Computer and Electronics
Rockwell $10M to $20M Pharma
Siemens $20M to $35M CPG, Chemical, Auto OEM
UGS/Tecnomatix $1M to $10M Computer and Electronics, A&D, Auto Suppliers and OEM
VIA IT $1M to $10M Auto Suppliers
Visiprise $10M to $20M Computer and Electronics, A&D, Auto Suppliers
Werum $20M to $35M Pharma, Chemical, Medical Device
*Ranges appear for non-disclosure purposes. Source: AMR Research, 2005
**In order of decreasing contributions to revenue.

6 © 2005 AMR Research, Inc. AMR Research Report | June 2005

 MES equals advanced process control for Bulk and Specialty Chemicals

For manufacturers in the Oil and Gas, Petrochemicals, and Chemicals markets, MES takes on a dif-
ferent look and feel. In these asset-intensive industries, applications that leverage the substantial
investments in Distributed Control Systems (DCSs) and process historians make an MES system
have a different look and feel from the traditional transactional system typically sold into discrete
environments. MES in these industries takes on a combined flavor involving a data historian, com-
plex process control and automation software, data reconciliation and yield accounting for creat-
ing mass and energy balance snapshots of continuous process flows, and a layer to handle the
visibility into production data. This is a closed-loop piece at the plant level with a need for visibility
across the entire network at the high level. For global producers in these industries, the ability to
oversee and manage the performance of multiple production sites that are widely distributed is
a key issue, and EMI schemas tend to trump classical MES for providing the multisite analysis and
visibility into manufacturing performance. Vendors that have had success in this space do so with
a specialized approach and include AspenTech, Emerson, Honeywell, Invensys, Lighthammer,
and Pavilion Technologies.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 7

Figure 3: 2001 versus 2004 MES revenue by industry

2001

Computer, Electronics, and Semiconductor $201

Pharmaceuticals/Biotechnology $82

Food and Beverage, CPG $29

Aerospace and Defense $23

Automotive and Auto Parts $21

$0 $50 $100 $150 $200 $250

Revenue ($M)

2004

Computer, Electronics, and Semiconductor $280

Pharmaceuticals/Biotechnology $97

Food and Beverage, CPG $61

Aerospace and Defense $57

Automotive and Auto Parts $52

$0 $50 $100 $150 $200 $250 $300

Revenue ($M)

Notes: Bulk, Specialty Chemicals, Wood Products, Paper, Printing not shown.
Predominantly serviced by specialty vendors. Segments under $20M not shown.
Source: AMR Research, 2005

8 © 2005 AMR Research, Inc. AMR Research Report | June 2005

Pent-up demand for commercial packages in A&D boosts MES
revenue by 150%

After several years of lackluster performance, the A&D market for MES is showing
signs of renewed vigor, growing from an estimated $23M in 2001 to $57M in 2004—
an increase of nearly 150%. Traditionally this market has purchased software top
down, focusing on ERP and then down the paths of Product Lifecycle Management
(PLM) and Supply Chain Management (SCM) functionality. New programs, how-
ever, are specifying MES as a requirement for capturing and documenting the details
of production quality data across the complex supply chain. This industry has histori-
cally been a bastion of homegrown systems, but cost pressures coupled with the need
to manage extensive supply networks are making commercially available products more
attractive than in the past.

Vendors in this segment including Apriso, HMS Software, iBaset, and Intercim
are seeing increased sales as new programs are rolled out. On the commercial side of
Aerospace, the drive to reduce new product launch is spurring investments as major
manufacturers like Boeing and Airbus strive to aggressively slash program timelines.

Strong growth in Automotive as suppliers rev up track-and-trace

capabilities

MES revenue from sales into the Automotive segment—predominantly top-tier

suppliers—is up from an estimated $21M in 2001 to $52M in 2004. Quality spill
containment and warranty cost recovery initiatives have turned detailed production
data into a must-have for brand owners and their top suppliers. With North American
companies committing between 2% to 3% of revenue to compliance and product
track-and-trace initiatives (see the AMR Research Report “Pouring the Right Foundation
for Early Warning With Vehicle Part and Process Traceability,” April 2004), AMR
Research expects to see healthy flow-through to manufacturing-oriented plant IT.
• Transportation Recall, Enhancement, Accountability, and Documentation (TREAD)
Act compliance and investment in Early Warning Systems (EWSs) opened up bud-
gets and MES spending doubled from 5% to 10% of overall market revenue, a boon
to incumbent automation vendors GE Fanuc, Rockwell, and Siemens.
• iTAC and VIA Information Technologies both gained traction this past year
extending MES to automate the collection of production-level lot and serial informa-
tion for correlation with the lot and serial numbers of finished goods. Building on
its high-tech heritage, iTAC offers deep component and sub-component level trace-
ability while VIA focuses on the sequencing and pick-to-pack challenge.
• Activity in this segment has also captured the attention of high-tech MES vendors
Visiprise and Brooks Software, industry veterans whose experience with
component-level traceability in High-Tech Electronics and Semiconductor translates
readily to this market segment.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 9

 MES revenue from Food, Beverage, and CPG double as pilots
turn into rollouts

MES revenue from sales into the Food, Beverage, and CPG segment was up from an
estimated $30M in 2001 to $61M in 2004 as early adopters embark on wider deploy-
ments across the various industry sub-segments such as Brewing and Dairy. The need
to rapidly and consistently manage production across a high mix of brands and glob-
ally distributed manufacturing facilities has been a main driver of growth in this seg-
ment. Broadening regulatory oversight—the Bioterrorism Act in the United States and
the European Food Safety Authority (EFSA) Regulation 178/2002—is also having an
impact, driving producers to more stringent audit controls on product genealogy and
traceability.
• Brewing and Dairy have been fertile ground for both Siemens and Invensys/
Wonderware. Siemens is finding additional application in the Meat and Poultry
Processing segment, driven by increasingly stringent genealogy requirements both
here and in Europe. Both vendors have deployments in the Soda and Soft Drink
segments as well.
• GE Fanuc continues to evolve its Proficy assets, quietly making significant inroads
in the North American Brewing market.

Growth in Pharmaceutical and Biotech segments slow but steady

Regulatory compliance and faster time to market were the two main drivers for MES
purchases in Life Sciences (excluding Medical Devices), where revenue as a percentage
of the total market increased 2%, from an estimated $81M in 2001 to $97M in 2004.
For pharmaceutical manufacturers, the Electronic Batch Record (eBR) generated by
the MES is a central piece of compliance documentation.

Beyond compliance, though, these manufacturers are looking ahead to fewer block-
busters and additional competitive pressures from generics and over-the-counter pro-
ducers. With the writing on the wall, large pharma producers are looking to get leaner
and meaner. Many of the companies we’ve interviewed are either executing or aggres-
sively evolving manufacturing operations excellence strategies to carry them profitably
through the next decade. AMR Research expects to see the fruits of these efforts
reflected in 2005 MES revenue growth as product selections are solidified.
• Spending in Biotech and Pharma Active Pharmaceutical Ingredient (API) increased
as early pilots were completed and corporate projects received funding. Werum
maintained forward momentum in this market, while Honeywell reasserted itself
with the launch of its next-generation POMS.net product. AspenTech is growing its
penetration of this market as well, relying on its extensive portfolio of products to
offer batch execution, batch analysis, and pilot-to-production scale-up capabilities in
addition to implementation services.

10 © 2005 AMR Research, Inc. AMR Research Report | June 2005

• Decision Management International (DMI) grew on sales to smaller biotech and
pharma API manufacturers, getting an additional lift from joint sales activities with
Emerson as the DeltaV product continues to be enthusiastically embraced.
• Rockwell Propack’s PMX product continues to maintain a presence in the market,
predominantly in sales into the finished goods end of the industry.
• European-based vendors such as Siemens and Werum have continued their expan-
sion into the North American market, bolstering this growth. Elan Software, head-
quartered in France, has served the European Pharma market for nearly 10 years,
but is gaining some visibility in North America as global companies cross-fertilize
divisional technologies.

High-tech electronics MES revenue gets across-the-board boost from

regulatory compliance while semiconductor MES revenue is down

Electronic components suppliers are subject to virtually every compliance initiative

that comes down the pike. Suppliers of components to Automotive are subject to
TREAD, suppliers to medical device producers must comply with Food and Drug
Administration (FDA) regulations, and Restriction of Hazardous Substances (RoHS)
and Waste Electrical and Electronic Equipment (WEEE) (see the AMR Research Alert
article “MES: A Must for RoHS and WEEE Compliance,” April 13, 2005) affect pro-
ducers across the board. High-tech manufacturing has historically been a sweet spot
for MES, where the need for speed, short product lifecycles, and razor-thin margins
makes automation of production processes a necessity.
• Brand owners and top-tier contract manufacturers have historically invested in MES,
but this investment trend is now expanding to include the midsize manufacturers
and component suppliers. As a result, vendors such as UGS/Tecnomatix are see-
ing an increased uptake of their products in the midtiers, specifically in high-speed
Surface Mount Technology (SMT) and box-build applications. Relative newcomer
Eyelit is quietly gaining traction in Semiconductor-related accounts, displacing
aging tools and technologies.
• Revenue from MES sales to FDA-regulated North American medical device manu-
facturers also contributed to growth in the Electronics segment. Although this seg-
ment is not broken out in Figure 3, it accounted for approximately $40M of revenue
reported by MES vendors during 2004.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 11

 • Quality-focused MES vendors Camstar and Datasweep continued their push into
this market while also continuing to pursue opportunities in back-end semiconduc-
tors. Unlike the fast, highly automated high-tech applications of MES that are
found in Consumer Electronics or Semiconductor, those in Medical Devices tend to
be driven by the requirement for stringent procedural quality tracking (see the AMR
Research Report “Regulatory Compliance Reshapes the Quality Software Market,”
December 2004) and the Electronic Device History Record (eDHR) is rapidly
emerging in this segment as a critical piece of compliance documentation for FDA-
regulated industries.

MES market remains vertically fragmented

Figure 4: MES vendor segmentation

DMI Camstar
Apriso
Camstar

Elan
HMS
Software Datasweep

iTAC Honeywell
POMS
Intercim

UGS/ Werum
Tecnomatix UGS/Tecnomatix

iBaset
AspenTech
VIA IT Eyelit

GE Fanuc GE Fanuc

Siemens Siemens
Visiprise
Rockwell
Rockwell
Automation
Automation
Brooks Software
Invensys

Auto A&D Discrete Repetitive/ Elec./ Semi- Food and Life Chem/ Mills/Sheet
Assembly Flow Med. conductor Bev./ Sciences/ Petrochem Products
(incl. Devices CPG Pharma/
Auto Parts) Biotech

Automation Best of Breed

Source: AMR Research, 2005

12 © 2005 AMR Research, Inc. AMR Research Report | June 2005

Vertical fragmentation is a hallmark of the MES market, as vendors have historically
responded to requirements for application depth, not breadth. Manufacturing
processes—batch, continuous, discrete—align closely with particular industry verticals.
• MES applications that work well in batch and hybrid environments are quite distinct
from those that serve the high-speed discrete or complex make-to-order environments.
• With the exception of the large automation vendors, few vendors have the breadth
of domain expertise or deep pockets to support multiple verticals—from either the
product development or sales perspective. This creates a substantial barrier to entry
for smaller vendors, and as shown by Figure 5, pure-play vendors have responded by
maintaining strong vertical alignment.
• At the same time, large automation vendors that had previously approached the mar-
ket with very broad offerings are changing their tactics. Vendors like GE Fanuc and
Siemens are evolving specific templates above their base platforms to target specific
industry sub-verticals—like Dairy or Brewing—and approaching these verticals
with highly focused marketing and sales programs.

MES best-of-breed vendors make gains as large automation vendors

continue to evolve whole product offerings for target verticals

Figure 5: MES market revenue by vendor class and geography

200 Automation

$166 $163 Pure Play

$159 $156
150
Revenue ($M)

100

$58
50 $38

$15
$6
0
North America EMEA Asia-Pacific Rest of World

Source: AMR Research, 2005

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 13

 Table 2: MES market genealogy

Vendor Acquired By Year

EnaTec Wonderware 1995
Wonderware Invensys ne Siebe 1998
Consilium Applied Materials 1998
Consilium (FlowStream assets) Base Ten Systems 1998
FASTech Brooks Automation 1998
Industrial Computer Corporation GenRad 1998
POMS Honeywell 1999
Promis Systems PRI Automation 1999
Hilco Technologies ORSI Automatzione 1999
Realtime Information Systems CIMNET 2000
M2r S.A. Aspen Technology 2000
Base Ten Systems ABB 2000
ORSI Automazione Siemens Automation & Drives 2001
Compex Siemens IT PS 2001
PRI Automation Brooks Automation 2002
Propack Data Rockwell Automation 2002
Genrad Teradyne 2002
Real World Technology (RWT) divine 2002
Intellution GE Fanuc 2002
Teradyne/GenRad assets Visiprise Q103
Mountain Systems GE Fanuc Q203
US Data Tecnomatix Q203
Tecnomatix UGS Q105
Source: AMR Research, 2005

14 © 2005 AMR Research, Inc. AMR Research Report | June 2005

After a flurry of acquisitions (see Table 2), the MES market has temporarily stabilized,
striking a balance between the large automation vendors and a handful of best-of-breed
vendors.
• For the automation vendors, the race is on to be first out of the gate with an archi-
tecture that supports vertically integrated applications for specific industry segments.
In the meantime, the more nimble best-of-breed vendors have updated their archi-
tectures and been quick to capitalize on the recent upturn in the economy. The
majority of small best-of-breed MES vendors have experienced high growth—some
doubling in size between 2002 and now, with many anticipating 25% to 30%
growth in 2005 based on current pipelines.
• Automation vendors GE Fanuc, Invensys, Rockwell, and Siemens have been preoc-
cupied with the task of assimilating software IP from various acquisitions. Of the
four vendors, Siemens is the most mature and visible in terms of executing a go-to-
market strategy, partnering with a global network of service providers to extend its
reach and deployment capabilities. Invensys has committed considerable funding to
rebuilding Wonderware’s fragmented FactorySuite into a single application develop-
ment framework, ArchestrA. GE Fanuc has standardized on the Proficy brand, and is
building a highly configurable operational excellence application platform.
• Honeywell reaffirmed its commitment to Life Sciences and Biotech this past year,
rolling out the next generation of its veteran POMS product. Several years of
neglect places this vendor in catch-up mode with respect to market perceptions, but
Honeywell is betting on the strength of the new POMS.net offering, deep domain
experience, and its ability to sell turnkey applications into large greenfield biotech
opportunities.
• Emerson and ABB have been notable laggards in the software arena. Both continue to
lead sales with automation and controls, although Emerson has engaged in a success-
ful working relationship with DMI, which provides an MES front end for Emerson’s
popular DeltaV products. ABB offers a number of plant management software appli-
cations, but continues to be perceived first and foremost as an automation vendor.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 15

 North America and EMEA show slow but steady growth; Asia-Pacific
poised for growth
Figure 6: 2001 versus 2004 MES revenue by region

2001

5%

25%
43%

North America

EMEA
27%
Asia-Pacific

2004 Rest of World

6%
19%
52%

32%

Source: AMR Research, 2005

• MES revenue attributed to the Asian market has tapered off from 25% to 19%,
reflecting the decrease in number of large, greenfield semiconductor fabrication
facilities. A large portion of 2001 MES revenue from this region was the result of
large sales and service engagements for semiconductor automation vendors AMAT,
Brooks Software, IBM, and PRI (now part of Brooks)—virtually all associated with
the offshoring of fabrication capacity.
• This current decrease in MES spending is cyclical, and AMR Research expects to see
a new wave of spending in this geographic segment as consumer electronics
manufacturers and their midsize components suppliers invest in MES for traceability
and compliance purposes, especially at the Small and Midsize Business (SMB) and
box-build levels.

16 © 2005 AMR Research, Inc. AMR Research Report | June 2005

• MES revenue from sales to North American companies increased from 43% in 2001
to 52% in 2004 as global producers, particularly in CPG, expand initial deployments
and push for global standardization.
• As shown in Figure 5, large automation vendors with global support and services
organizations are already outpacing U.S.-based best-of-breeds in the European and
Asian markets, and AMR Research expects this gap to widen dramatically over the
two years.

Semiconductor and High-Tech MES are models for next-generation

manufacturing networks

MES and related manufacturing software vendors to the Semiconductor and High-
Tech markets continue to set the bar for functionality and flexibility. These markets’
need for speed and reliance on globally distributed manufacturing resources requires
products that can scale both horizontally and vertically. As a result, vendors serv-
ing this segment of the market—such as Brooks Software and Eyelit—have created
architectures that use event-driven workflows to coordinate activities across far-flung
resources and execution environments.

This combination of global visibility, global coordination, and support for heteroge-
neous local execution is the model for next-generation MES.

Conclusion
Early adopters of MES are embarking on broader second-generation implementations,
and penetration is growing in markets where MES can offer clear value at the local exe-
cution level. Global coordination has yet to come, but large automation vendors that
have invested heavily in unified platforms for their manufacturing software offerings
are poised to effect a sea change in this market. AMR Research expects to see market
share increasingly shift to these players within the next 12 to 18 months. Today’s best-
of-breeds are flourishing, and this is likely to continue as automation vendors focus on
establishing beachheads in large accounts with global rollout potential and on dominat-
ing specific industry vertical sub-segments. Products from best-of-breed MES vendors
will continue to be the staple of manufacturers seeking operational excellence at the
local level.

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 17

 Recommendations
The market for MES ranges from users seeking local execution excellence to those seeking
visibility across their extended supply networks. Buyers must assess their needs from both
angles and select systems that can either scale or be integrated appropriately. Advances
in integration and messaging standards will ultimately trump the scalability issue as plat-
forms evolve—like EMI frameworks—that can accommodate local MES plug-ins.
• If you are finally making a long-overdue investment in MES, you have a broad range
of options to choose from. While product functionality is an important criterion,
even more important is the product’s ability to accommodate your business culture
and style of working. If your business processes change frequently, evaluate candi-
date products on their ability to be easily configured. Ease of configuration figures
into total cost of ownership from a lifecycle maintenance perspective.
• For many companies, manufacturing style differs by facility, and the MES you use
in one may not be the best choice for another. In this case, choose the MES that
best supports the type of manufacturing process you’re executing locally, but make
sure your master data is standardized across all the sites. If you must have visibility
across sites, consider an EMI application. This approach gives you the best of both
worlds—you have the right tool for the job at a local level, but still have a unified
aggregate view at the global level.
• Finally, if you are seeking an approach that couples local manufacturing into an
extended supply network, look for products that offer event-driven workflow capabili-
ties above and beyond the execution function. High-tech MES vendors are your best
bet for this kind of functionality, so even if High-Tech is not your vertical focus, you
should take the time to include this class of vendor in your evaluation process.

18 © 2005 AMR Research, Inc. AMR Research Report | June 2005

 Notes

AMR Research Report | June 2005 © 2005 AMR Research, Inc. 19

Notes

20 © 2005 AMR Research, Inc. AMR Research Report | June 2005

 Company List
ABB www.abb.com

AMAT www.appliedmaterials.com

Apriso www.apriso.com

Aspen Technologies www.aspentech.com

Brooks Software www.brooks.com

Camstar www.camstar.com

Decision Management International www.dmius.com

Datasweep www.datasweep.com

Elan Systems www.elan.com

Emerson www.emersonprocess.com

Eyelit www.eyelit.com

GE Fanuc www.geindustrial.com

HMS Software www.hmssoftware.com

Honeywell www.honeywell.com

iBaset www.ibaset.com

IBM www.ibm.com

Intercim www.intercim.com

Invensys www.invensys.com

iTAC www.itac.com

Lighthammer www.lighthammer.com

Pavilion Technologies www.pavtech.com

Rockwell www.rockwelllautomation.com

SAP www.sap.com

Siemens www2.automation.siemens.com

UGS/Tecnomatix www.tecnomatix.com

VIA Information Technologies www.via-it.com

Visiprise www.visiprise.com

Werum www.werum.com
Acronyms and Abbreviations
A&D Aerospace and Defense

API Active Pharmaceutical Ingredient

CAGR Compound Annual Growth Rate

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