Developing a Business Case for WMS

An illustrative business case that analyses both quantitative cost justifications and qualitative intangible benefits can help understand how implementation of WMS solution can make a difference. Deploying WMS results in reduced operational costs of various categories such as inventory, shipping, labor, space, etc., and thereby cutting down the total cost of operations (TCOp).  Let us analyze the cost savings usually realized through WMS solution that impacts the TCOp and RoI, along four different dimensions, viz., productivity, inventory accuracy, shipping efficiency, space utilization.

Labor Productivity

Warehouse labor cost savings realized through the implementation of WMS is the major contributor for the reduction of total cost of operations (TCOp) and quick realization of ROI. Each process of the warehouse has to be analyzed thoroughly against the projected time/cost to get the true picture of the labour cost savings. As the use of WMS results in improved labour efficiency, most of the material handling activities such as receiving, put-away, picking, shipping, etc., can be completed within the standard working time avoiding the need for overtimes. Due to system directed execution of operations, time spent on identifying and planning the activities that are to be done is minimized, while time taken to locate, travel and perform the activity also reduces increasing the direct labour productivity. Use of auto id technologies that automatically captures data, such as barcode readers, radio frequency (RF) eliminates paperwork and the data entry activities. Further with the cross-docking ability, WMS eliminates the need for put away, storing and picking operations so that labor resources can be effectively used for other activities.

By the way of improvements in the productivity around 20 per cent, the direct labor will cost much lesser than earlier. Similarly, indirect and administrative labor costs also reduce as the supervisors and clerical staff productivity improves by about 30 and 70 per cent respectively. As the supervisors can proactively plan the day-to-day operations very easily with WMS, they can focus on other activities. Efficiency of clerical staff also improves with the data integrity maintained by WMS, while elimination of paper work avoids handling and managing volumes of paper.

 Inventory Accuracy 

Lack of true inventory status information leads to over or under stocking, missed sales opportunities, reduced labor productivity, affected customer service levels, etc. Inaccurate inventory data loses the confidence on the warehouse and leads to excess purchases than required to ensure against stock outs. This way additional capital is tied up with the excess inventory and also affects the warehouse capacity.

Warehouse Management System (WMS), with its capabilities such as auto data capturing, cycle counting and self-checking, provides almost accurate inventory data at any time. It improves the material handling and purchasing activities reducing the safety stock requirements. As WMS provides credible inventory information, warehouse managers make informed purchasing that will avoid excess stock keeping. In these ways, the overall inventory level reduces usually by 5 – 20 %. Besides, better visibility into inventory may increase the capability to shift book value to the suppliers.

Inventory reductions convert into costs savings in several ways. Reduced inventory means reduced capital tied up in the inventory, which obviously is the lower interest payment. On the other hand, minimized inventory levels results in reduced warehouse space needs decreasing the space or carrying costs. Further, the risks such as obsolescence and damages are minimized, while reducing the need for inventory write-offs. Thus, deployment of WMS results in the reduction of working capital requirements and associated costs, carrying costs, cost of risks and inventory write-off costs.

Shipping Efficiency

Errors in outbound shipments can cost the warehouse very much, while delays in shipping/receiving results in the detention charges. Most often, the shipments are expedited to cover their delays, which involve in additional freight and labor costs. Inaccurate shipments ultimately lead to return processes adding the restocking and return freight costs.

In a warehouse with WMS, the accuracy of shipments increases as it provides capabilities such as automated order complete verifications, shipment loading confirmations, etc. As the accuracy and timeline performance of shipping activity improves with the use of WMS, the chances of first time correct order shipment increases. Obviously the volume of orders returned due to incorrect shipment also decreases.

With enhanced accuracy and timely shipment, all the associated costs reduce significantly. Most importantly, the detention charges levied due to delayed shipments decreases. Similarly, other costs such as expedited order costs and returns management costs are also minimized or eliminated.

Space Utilization Savings

One of the significant factors contributing to the reduction of warehouse operating expense is the space utilization. Mis-managed inventory may often create the need for additional storage requirements, which is mostly outsourced. Usually outside storage space can’t be available on demand.  It has to be leased out on certain cost for the predetermined period, irrespective of its utilization. When outside storage space is leased, along with the cost of lease other costs such as insurance and transportation costs are involved.

As WMS improves the space utilization, the need for outside storage capacity reduces, proportionately cutting down the associated costs. Usually the cost of lease, insurance and transportation associated with it is eliminated or reduced. Even the associated labour costs are reduced as the volume of stocking or unstocking and the need for transporting the inventory back and forth are minimized.

Apart from above-highlighted quantifiable benefits, other qualitative benefits such as improved customer service, increased customer satisfaction levels, employee satisfaction, etc., add to the savings in terms of reducing the operating expense or optimization of warehouse value.  With fast pack back period, WMS optimizes the returns on investments, while increasing the sales and employee retention.

Firms seeking to implement WMS solutions should assess their warehouse processes and identify WMS that meets both current and future requirements. As the return potential of WMS depends on the scope and size of operations involved, a specific project study should be undertaken either by engaging a project consultant or setting up an internal team.