Should you make or buy a WMS?
In-house and packaged systems can seem like two completely different species, but you can avoid making fruit salad out of this important decision by concentrating on the issues most critical to your operation
By Ward Crimmins
Should you make or buy your next warehouse management system? Although change may be inevitable, one type of WMS is not necessarily better than another. It’s like comparing apples and oranges. The choice depends on your business requirements rather than the inherent qualities of a specific system.
As Dan Thompson, development manager for Orange, TX-based Kenco Group, points out, a purchased WMS system isn’t a perfect fit, but in many cases, systems developed in-house also fall short of the mark. You can make an informed decision for your company only after careful research and thought.
The past decade has seen the emergence of major software development companies that offer WMS software to address the varied needs of supply chain management—from demand planning and production scheduling to order fulfillment and transportation optimization. These companies have captured some 40%–50% of the logistics software market and are expected to gain even more market share in the coming years.
According to Rick Franke, senior director of consulting for Atlanta-based Manhattan Associates, the third-party logistics software market is expected to grow by 30%–40% percent annually over the next five years. Larger retailers and manufacturers now support multiple distribution channels in response to growth in the business-to-business sector, requiring more flexible WMS software.
Spokesmen for Dallas-based EXE Technologies and for Manhattan Associates state that a major reason to consider their software is the hefty research and development budgets that their companies allocate for product enhancement. Both companies emphasize the large development teams they retain as a significant advantage over the typically much smaller staffs retained by vendors who build their own systems.
Rich Sherman, vice president of visioneering for EXE Technologies, believes that the top criterion for choosing a packaged WMS solution is weighing the software development life cycle against the useful life of the program. Five years is the maximum life cycle today for a WMS. Most in-house development life cycles take up to two years, thus leaving only three years of useful life in a typical scenario for systems developed in-house, according to Sherman.
In this view, time to market is everything in terms of software development. For instance, if your in-house staff takes 12 months to develop, test, and deploy an Internet-based track-and-trace capability, and WMS software companies can do the same thing in six months, or even offer this capability now, you put yourself at a competitive disadvantage by developing it on your own.
Recipe for success
No matter what your bias, you need to accomplish some basic tasks for every software evaluation process. Although this process is tedious and time-consuming, the result will be a valuable resource for the duration of the project. Following these four steps will enhance your ability to make a decision you won’t regret:
1. The traditional approach has been to define in detail your business processes and the data elements you want a system to track. This will provide a written explanation of the ways you complete transactions within your company and the information components you need to measure your business. You can refer to these documents when you are evaluating WMS packages or when you are laying out programming guidelines for your development staff.
2. Define the processes and functionality you must have in a WMS—those that are essential to your business. You should eliminate software that does not provide this critical functionality from your list of viable options.
3. Define exactly how your critical processes need to be accomplished. Using the list of functionality from step 2 above, add definitions of your business rules that determine such things as which locations are replenished first, which locations are pick locations, rules for cross-docking, how you stage orders to assist in loading trucks, and rules for performing quality checks in your warehouse. The point is to know exactly what the systems do and how they do it, not just to create a shopping list of the key functionality the systems provide.
4. Now compare your list of critical tasks to industry best practices. Are you leaving out anything that might be important in the near future? The fact that your current WMS may not provide an Internet-based track-and-trace capability today doesn’t mean that you will not be required to provide it within the coming year.
Some WMS software companies are promoting a different approach to the traditional requirements definition process outlined above. The new method operates on the premise that it is too time-consuming to define all of your business requirements, and that you would spend your time better if you were to conduct extensive evaluations of the packaged software under consideration.
This position assumes that WMS packages have evolved over the last few years to a point where most systems have the basic functionality every WMS buyer is seeking. In addition, many business processes are changed during the pilot room conference process, so there may be less value in spending large amounts of time documenting such processes in detail. It’s also possible that in the course of defining your business requirements you may document outdated systems requirements, confusing rather than clarifying current needs.
Purchasing a system that you can implement quickly reduces operational costs. From this viewpoint, spending large amounts of time to detail your business requirements will extend the time cycle considerably.
Although both points of view have their merits, experience shows that successful systems implementations are the result of a detailed understanding of what needs to happen in processing your transactions, as well as how the new software systems will process your transactions.
Years of operations knowledge are built into systems that have been developed in-house, so you need to be sure to bring this valuable information forward into a new system. Not having defined this encyclopedic knowledge can cause those evaluating the software to become confused during demonstrations, making the decision regarding the best functional fit more subjective and less likely to be based on a set of objective specifications.
Buying an off-the-shelf software solution may make more sense in some circumstances than others. Here is a list of factors that might argue strongly in favor of a ready-made WMS solution:
1. Your company has little or no expertise in developing software.
2. Your company is unwilling or does not have the resources to fund a software development staff over a number of years.
3. You have several new facilities that need WMS software, they need to be brought on line quickly, and you need uniformity across these locations.
4. You need additional functionality in your WMS software, you need it speedily, and you don’t have the expertise to make the enhancements. A good example is the certified interface required for one of the large ERP software systems. Most leading WMS providers have already developed such systems interfaces.
5. You have high turnover in your software development staff.
6. Your IT team may not fully understand industry best practices, so you could inadvertently omit audit or control features that competing systems have.
7. Your WMS may not be keeping up with changes in the marketplace. Software development companies claim that they are much better at staying up-to-date with trends because of their large number of employees, bigger R&D budgets, and knowledge of best practices in the WMS industry.
Some circumstances do strongly favor developing a WMS system with your own staff. Here are examples:
1. You are a third-party logistics company with a WMS tightly customized for a particular customer’s business, and you are in a long-term contractual relationship.
2. Your company has experience in developing a WMS package, and its use significantly reduces operating costs in the facilities you manage for your clients.
3. Your IT staff has a proven ability to produce a winning WMS package, and they are able to keep the product updated. You can implement changes quickly, and you have good system testing procedures in place prior to releasing upgrades.
4. Your WMS focuses on a particular operational objective and is built around delivering operating efficiencies in a specific area.
5. You can offer a quicker response to a customer business requirement when a software change is needed, rather than having to wait for a future general release of packaged software that may or may not answer the business need right away.
6. Your information systems staff provides user training and technical support or a business partner for every location in which your software is used. You have an established help desk service for users of your software.
If you choose to develop a WMS in-house, you will be able to avoid many of the pitfalls of adopting a brand-new system. If you purchase a packaged WMS solution, you need to check some specific capabilities before you sign any contracts.
Look for successful implementations at other companies in your industry. Ask for a list of clients and call every one on the list. Verify that the vendor has real experience with the tasks its software must perform for your industry—this is often referred to as “domain knowledge.” Make sure that several customers have successfully installed the version of the software being proposed to you. You do not want to be the first user of a new version of the software.
Require a realistic project implementation schedule and a breakdown of the cost of consulting services required to install the software.
Interview the consulting companies as closely as you screen the software. Make sure you know hourly billing rates, the number of consultants required, travel and lodging expenses, and all incidental costs that will be billed to your company. Verify that implementations for other clients have been completed on schedule and within budget.
Explore the database and programming methods used. Make sure the architecture of the system is based on current, leading-edge technology. Ensure that the programming techniques and database structure allow for rapid changes and additions of functionality to the software.
Examine the size of the provider’s development staff, and their certifications and experience. Find out how many programmers, how many database designers, and how many database administrators work for the software company on a full-time basis. Do they have the resources necessary to produce a world-class system and keep it updated?
How often does the WMS vendor release software updates? How easily can you adapt the new releases to your existing system?
Do not buy a system that lacks thorough documentation. Make the software firms show you their system documentation, either in written or in online form. Is there an extensive index of help topics that a new user can easily understand?
Try to find a solution that meets at least 80% of your required business processes so you can keep modifications to a minimum.
Write demonstration scenarios based on your documented system requirements. Ask the software companies to show you during the demo how the system will handle your most important processes and how it will archive your critical data.
What type of query capability does the software have, and what size server is required to handle database queries without a slowdown in system performance? How intuitive is the query capability?
Is the reporting software used with the WMS a best-of-breed package, or did the developer write the capability?
Can the vendor supply software modification services? What types of help desk services are provided?
Do not agree to become a beta test site unless you understand the extensive testing and error resolution process that is always a part of being a beta customer. The reduction in the price of the software you will usually receive in exchange for agreeing to act as a beta site is typically much less than the cost of the time your staff will spend testing the software. You should also make sure that you have a strong project manager on your staff to guide testing and implementation if you choose to become a beta site.
Whichever choice you make, approach the project from a “no surprises” point of view. If you’re buying, do a thorough analysis of what you need, and do a thorough investigation of current users of the software you are considering. Know what you are shopping for. Make sure the software will perform as promised by conducting extensive software demos, using scripted scenarios that reflect your true business transactions.
Choosing a WMS package is a complex process, but implementing a software system is even more complex. If you see your timetable and/or budget getting off track, call in some outside help.
Ward Crimmins is founder of Dynamic Processes, Inc., an IT management consulting firm in Signal Mountain, TN. This article includes information from John Pulling, vice president and COO, Provia Software, and Dan Thompson, development manager for The Kenco Group. Crimmins can be reached by phone at (423) 886-9169 or by e-mail at email@example.com.