10 Critical Steps to Take Before Signing a WMS Contract

True story!

A client’s system selection team arrived at the three best warehouse management system (WMS) options for their ecommerce company. They still had open questions from the demos. The company did not have a total budget yet as modifications and interface costs were not yet identified. No project planning had been discussed. The contractual agreements had not been reviewed by an attorney.

Unbeknownst to the team, the salesperson went around them to the CFO and proposed a significant discount for signing within the next few days. It also meant in excess of 25%. After briefly reviewing the potential discount with several senior managers, he signed the agreement and announced the decision.

A year later the implementation proved to be a disaster and was not the fit the CFO had hoped for. After initial go live and subsequent failure, the legacy system had to be reinstalled.

As the year end approaches, software and technology vendors will offer significant discounts to secure your business and book it in the current year. This is also true with many vendors at the end of each quarter. But don’t let last-minute discounts distract you from prudent due diligence in selecting the right WMS for your business.

Here are 10 critical decisions you need to complete before signing for that WMS discount:

Deposits are Sizable and Not Refundable

We often see managers, especially in small to midsize companies, trying to lower the deposit amount or make them conditionally refundable if they later decide it’s not the best system for them.

To make financial statements more uniform, software and technology companies recognize revenue according to generally accepted accounting rules or principles (GAAP)as well as other financial industry requirements. Just like your business, an order is not a sale until revenue is received and processed.

Shipping and Acceptance Period is Short

You may think these are negotiable however under GAAP rules of . With hardware of course, you take physical delivery in your facility, while software is transmitted or downloaded. Acceptance periods do not allow enough time to install, train and test software. In the case of month-to-month cloud-based billing these rules will vary. Software and service warranties such as for a WMS cover system errors and program bugs found during the actual implementation.

Together with management, agree on the critical selection and decision steps. Nothing is more devastating to morale than choosing a system that later fail to meet the user’s requirements, as in the above scenario. Here are 8 questions you need to address and answer before signing onto a new system:

The Right System, Even Without the Discount?

Is this the WMS you would select if this discount wasn’t offered? Companies often keep systems 10 years or longer. Does it have the functionality and scalability you need now and in the future?

Does accepting the discount offer mean abandoning the selection process and any other vendor negotiations? Typically, that is a condition and you have a short period of time to accept the offer.

Resolving Open Questions

Have you gotten all your questions answered from the RFP? How about any that arose from the demo and follow-up? Will the vendor complete this or is your acceptance based on what you have seen?

Programming Costs and Responsibilities

Has the vendor developed cost estimates for mandatory modifications and interfaces and timeframes? Often there are limited program changes required, but the interface programming can be expensive.

Detail Planning

Have you identified the task schedule and the milestones? Who will manage the implementation? Who are all the responsible parties?

Total Cost of Ownership

Have you fully developed your total budget and gained management approval? Remember the deposit is only part of the TCO which also includes things like equipment and handhelds, licenses, implementation and training costs, support and maintenance.

Reference Checks and Site Visits

Have you talked to companies that use the WMS system? Have you gone to see it live in an operation similar to yours? You may not have completed these.  Don’t short circuit

Legal Review

Has your law firm reviewed the software and maintenance licenses and professional services agreement? Do they have experience with these types of things? In our experience this process alone can take weeks.

Companies hold on to a WMS system for about 10-15 years. The attractiveness of the discount will fade if you end up implementing a system that’s not right for your business.

Brian Barry is President of F. Curtis Barry & Company