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.
