THE WAREHOUSE MANAGEMENT SYSTEM
AND ITS REAL COST BROKEN DOWN
The decision to invest in a WMS system is not an easy task. With an offer of over 1500 different software providers, companies have a tough time trying to find the best option that also offers great value for money.
Taking the above into consideration, warehouse operation managers will be faced with the need to make a strong business case, including tangible and nontangible financial benefits, to justify the investment and operational need for a WMS system.
SOFTWARE
Hardware
System modifications
Implementation
Support & Running Costs
ACQUIRING IN A WMS IS BOTH
A FINANCIAL INVESTMENT AND A FINANCIAL REWARD
Regardless of the supplier, generally the cost of a WMS can be split in the 5 key elements stated above.
The software cost consists of the acquisition of the software package (if and when applicable) and the end user licenses. The hardware required to run the operation adds to the total investment cost. Overall costs vary greatly and depend suppliers and business preferences. While each business is unique, typically hardware investments includes RF terminals or cell phones, printers, desktops, servers and more.
System modification may require both, interface programming to guarantee a seamless communication between the Host System (ERP) and the WMS and some operational changes / adaptations on functionalities to fit customer specific needs.
customer specific needs.
The implementation cost reflects engineering hours time and efforts to train staff / operators, on site support, trouble shooting and debugging during & after Go Live, and more.
Finally, all WMS’s have support and running cost associated with they day-to-day operation – this is true for on-site server based as well as cloud-based solutions).
- Procurement process
- Costs of implementing the Software on the customer end (IT department, consultant(s), other outsourced elements…)
- Project management
- Training and empowerment (change management)
- Contingencies (delays, force major, etc.)
- Seamless integration with relevant system(s)
- Paperless solution
- Standardized processes
- Industry compliance
- Optimized and more efficient picking
- Increased order fulfillment velocity
- End-to-end material traceability
- Significant reduction of human error
- Real-time activity tracking
- Ability to make informed decision based on reports & statistics
- More
HOW TO JUSTIFY SUCH IMPOTANT AQCUISITION?
TANGIBLE AND INTANGIBLE BENEFITS
The decision for the acquisition of a WMS should always be the result of a company wide agreement. Company wide “buy-in” should be achieved and the warehouse manager should have the full support from entities such as Finance, IT, and HR.
The most common goals businesses aim to achieve through the acquisition of a WMS are:
- Savings on operating cost
- Reduced labor costs
- Improved warehouse utilization
- Inventory visibility
- Inventory accuracy
- Others…
Industry standards [source] explain that Order Picking typically accounts for 55% of warehouse operating costs. Order picking can be broken down further in:
- Traveling time (55%)
- Searching (15%)
- Extracting (10%)
- Paperwork and other activities (20%).
In a conservative scenario, the implementation of a WMS could potentially reduce the cost of picking by 5% – 10% by using optimized picking paths to reduce traveling time and by eliminating other manual elements.
Jeff Rich
Intangible benefits of a WMS can only be seen and estimated after the system has been successfully implemented and benefits other than those expected start materializing.
When a business chooses to not make an investment into a WMS it actively chooses to limit improvement opportunities within the warehouse, as well as outside, such as improved service levels and customer satisfaction. In the medium to long term this will most likely allow their competition to make these technology investments and gain a competitive advantage through technology.
WMS investments bring many benefits and having such system is likely result in new business opportunities (organic growth + merger / acquisition). By having a Warehouse Management System, both your suppliers, business partners and customer will notice that your operation is more reliable and error free that that of competitors. Furthermore, having standardized processes and complying with industry standards makes you company a more prestigious place to work.
The implementation of a WMS for your warehouse is a complex task best performed together with a WMS implementor that understands your operation. Risk management is a key factor to the success of the project and understanding key risks associated with a WMS implementation is essential in order to plan ahead and have risk mitigating factors inside the project plan.
2020 was a year that clearly showed that risk management and forward planning can make the difference between success and failure. Wildfires, hurricanes and the Covid-19 disrupted the supply chain, heavily impacting most businesses. Such external forces have driven the needs and benefits of WMS’s forward, by companies wanting to rely less on individuals and more on defined standard processes and software guidance.
that’s the question”