WMS by the Numbers

Warehouses are built around numbers —the facility’s square footage, how many rows of racking it takes to stock the number of SKUs, the amount of orders processed through a facility in a day. In their marketing materials, warehouse management system (WMS) providers discuss all sorts of numbers. But there are other numbers that you won’t see in their marketing brochures or advertisements that you should nonetheless keep in mind before buying and implementing a system.

Fewer than 30% of warehouses are efficient, according to the Benchmarking Warehouse Performance study by the Georgia Institute of Technology. Interestingly, about 30 % of the 600,000 warehouses in the U.S. have a WMS installed. Do you see a correlation?

Assuming that you work in the 70% of distribution facilities that process orders inefficiently and that do not have a WMS, let’s look at possible reasons you’ve been given for your company’s lack of a WMS:

• Your warehouse is not big enough.

• You don’t have enough people or orders to justify such a large investment.

• Your IT staff isn’t large enough.

• Your company is currently searching for a system. (Perhaps you’ve been researching WMS systems for years by attending trade shows, reading articles, and talking with vendors, but you still haven’t made a decision and purchased one.)

The reasons are endless, but your real reason is very likely because of the next two numbers:

$100,000-$500,000 A company will typically invest between $100,000 and $500,000 for WMS software alone, but that software investment represents only a fraction of the overall costs. By the time hardware, training, implementation, revamping the warehouse, and consultants fees are added, that number can reach more than $1 million. Those intangibles will usually reach one to three times the cost of the software. About 60% of the overall cost will be tied up trying to integrate the WMS to the existing enterprise resource planning (ERP) system.

The main reason only 30% of all warehouses have a WMS is because only 30% have been willing to bite the bullet and make the investment. There are other contributing factors, though.

220 More than 220 WMS vendors exist. How can anyone make an informed decision and select the correct business partner with so many options? Most companies don’t even try; they enlist consultants with an expertise in warehouse management systems to help them make that decision. The ones that don’t employ a consultant usually make their decisions based on cost, and then bring in a consultant to help dig them out.

Believe it or not, consultants provide an unbiased evaluation of your processes and potential vendors. They have no emotional ties to the current way you process your transactions. Many companies that automate their inefficient processes and procedures on their own end up doing do things wrong faster.

Trying to transform your warehouse to an efficient distribution center is really not something you want to do alone. Think about your warehouse for a second. Your warehouse provides the fuel your organization needs to run. You may complain about high gas prices for your car, but the fuel that runs your distribution center or your supply chain is so costly that its value ranges between 6% and 20% of your organization’s annual revenue. In layman’s terms, a $100 million organization will have somewhere between $6 million and $20 million of “fuel” in its warehouses. The fuel in question is inventory.

Other than your people, nothing is more valuable to your company’s success. Let’s assume your organization makes 4 cents on every dollar, which means for every $100 of lost inventory, the company must to generate $2,500 in new sales to replace it. Pretty startling, eh? The next three number regarding WMS systems are pretty startling too:

30, 42, and 56 More than 30% of all WMS implementations fail. Only 42% are implemented within budget. And 56% of the implementations are delayed.

When you add the fact that it takes 9-12 months to implement and 24-36 months to realize a return on your investment, you begin to wonder if a WMS is really worth it. After all, we’re talking about a potential $1 million investment that you won’t see a return on for at least three years— and that is if everything goes perfect. By then, your business model might have changed so much it will be time to invest in the next new thing.

By now you may be wondering what the value of a WMS is. The following numbers show the justification:

300 vs. 1 Your data-entry personnel produce one error every 300 keystrokes. With radio-frequency (RF) scanning of bar codes, that number plummets to one error every 3 million scans.

50% System-directed picks and put-aways will reduce your forklift travel time by as much as 50%. Your put-away people spend at least an hour a day searching for locations. That hour will be all but eliminated. Picking accounts for 55% of your warehouse labor dollars. And 50% of the picking process consists of traveling to and from the locations.

35% You can expect to receive as much as a 35% reduction in your operating expenses.

27% The cost of carrying inventory is usually about 27% less in an automated environment.

20% Inventory accuracy increases around 20% with a WMS.

5% Shipment accuracy improves around 5%.

0 After the system is implemented, you’ll have zero inventories to perform. Anyone who says you can go live without a physical inventory count is nuts, however, and you should take an additional wall-to-wall physical inventory six to eight months after implementation. But at that point, the learning curve will be over, and everyone will understand the value of maintaining an accurate inventory. From that point forward, physical inventories won’t be necessary.

A look at those numbers should be enough to get you to seriously investigate a WMS, but I know many of you will continue to gather data and take them back to your manager, vice president, or president, only to have him again shoot down the idea of investing in a WMS. Tell him a WMS system will also lower the total cost per unit shipped, reduce the number of inventory out-of-stocks, improve delivery accuracy and timeliness, increase profitability per order and per customer, reduce customer service and phone communication costs, and even increase sales.

Many WMS vendors want you to believe that your company will experience WMS benefits relatively quickly after going live. In reality, at best, it will take two years. Benefits can be experienced faster with a smaller system in a smaller location. Rolling out a WMS at a branch offers the opportunity to evaluate which processes need to be completely revamped and what type of training will be required to ensure success. Most important, it prevents any and all disruptions of customers’ shipments.

Protecting your customers should be your top priority when buying and installing a WMS. Today’s most serious business challenge is not selecting and implementing technologies, raising capital, or hiring the right people. Today’s most serious business challenge is a scarcity of customers. The key to your organization’s success lies in knowing how to exploit scarcity no matter when or where it appears.

In today’s environment, your customers have too many supplier options and too little money. Your customers won’t continue to patronize an organization that cannot send them what they want when they want it at a competitive price. You cannot do that efficiently without a WMS properly installed.

Rene Jones is the founder of Burbank, CA-based Total Logistics Solutions, a warehouse efficiency consultancy.