Calculating the ROI of WMS
The most common request from leadership is to justify the cost of what you want to do. That’s true for bringing in pizza on Fridays, getting a better coffee maker, each new ad campaign, or significant investments like a WMS. The ROI is always the driving force for getting a “yes.”
So, we’ll dive right into that justification for the WMS you’ve got your eye on today, or the one you want to save your back and nerves tomorrow. Much of what we’ll discuss is general and should give you a reliable framework. Vendors and RFPs are your two sources to fill in the gaps and uncover the hidden costs.
To get you in your best position to start the hunt for WMS justification and positive ROI, this guide will show you:
- Why knowing a potential WMS ROI is important
- What research you need to do to understand the cost
- Top areas of WMS gains
- How to bring it all together to judge your investment
Let’s look at the reasoning you might need to bring to leadership. Your warehouse is a people-driven environment. Taking care of the people is just as important as taking care of partners or inventory. To ensure you capture that, we need to start by expanding the definition of ROI for your software.
Understanding the value of WMS ROI
About 99% of the time you think of or discuss an ROI, it’s a monetary decision. The same is true for WMS in most respects, but there are a few other things to understand as well. Defining the actual ROI of implementing a warehouse tool comes with three considerations:
- Tangible. These are your benefits that are easily measured and validated. Your most common ROI elements are going to be things like reduced overhead costs, improved order accuracy, efficiency gains, and inventory accuracy.
- Intangible. Here are your benefits that will feel apparent, but it is hard to validate the specifics. Your team might enjoy their workday better when cycle counts are automated or when they get notices about where a component should be on the floor.
- Support. Some of your WMS benefits are measurable but can vary greatly and need to be put into their own bucket. These might be if a WMS makes your operations meet partner/vendor requirements and opens you up to potential new revenue streams. Or, a WMS’ reporting functionality may make it easier for you to comply with best practices and future regulatory demands. This return is mostly about long-term potential.
Think of your ROI on these levels, and you’ll start to see value as soon as you learn the functionalities of the WMS you might select. When you begin to quantify them, you’ll often discover that you have more budget to invest elsewhere, can improve sales numbers, or are enhancing the work environment in ways that reduce turnover and attract high-caliber staff.
Take time to define and understand the ROI you expect and what you achieve will give you a better understanding of your vendor choice, change management practices, and can even make your next software purchase more comfortable and productive.
Forecast costs of WMS
Like most enterprise software, WMS vendors are notorious for hiding the total costs of the platform without you having to provide details or sitting through a consultation. That can seem frustrating, but it is a smart thing too.
Working with vendors through a lengthy RFP process that includes demos and data sharing is the best way to ensure you have a legitimate understanding of actual cost for the services your warehouse needs.
We have a set of items covering cost expectations that are worth reviewing:
- General pricing information covering size and delivery model
- WMS pricing guide based on information directly from vendors
- Commonly overlooked WMS costs
- And methodology to compare pricing
Your best bet is to do your homework and ask vendors for prices covering every step. This includes installation and integration with your current systems, implementation and go-live, training, annual costs, and continuous costs. Ask about their direct pricing as well as any upgrades you may need, such as new hardware for workers or infrastructure upgrades.
A low-cost alternative may only set you back a few thousand dollars each year. However, a more expensive option might be able to more than make up for the difference if it has additional modules that save you money.
Forecast expected WMS returns
Your specific warehouse and the WMS you choose will dictate your complete list of returns – both possible and expected. To maximize the returns you can achieve, try to get a handle on your budget and costs, then plan on choosing an option that should meet the majority of your needs for at least the next 3-5 years.
Let’s consider some of the major areas where you can see a positive ROI.
Warehouse and facility space
Utilizing your space better can save you time and money. Among WMS must-haves are the capability to adapt picking lanes and locations to improve the flow of your teams. You might be able to pick faster with batch or wave options, set controls to reduce honeycombing, or even maximize your shelves by reducing how much space you set aside for items not in stock.
Inventory costs can quickly eat up any business. Look for WMS returns here when you’re able to use it to better forecast demand and reduce inventory levels while still meeting sales demands. You’ll also be able to better control perishables for spoilage, ensure proper rotation to use your raw materials, and track refrigeration or other requirements for goods. Compound WMS returns when you extend this data to partners for greater trust and visibility to your needs.
Here’s our simplest one. When you optimize space and inventory, you’re also optimizing equipment usage. Limit the amount of use on your lift trucks and other equipment, and they’ll last longer. You might see further ROI on WMS choices that can automate maintenance and service reminders for your equipment.
Sales and service
On-time, accurate orders are good business. They make your customers happy as well as your vendors and partners. It’s easier to do business when you know your inventory, and customers like it when they know you can fill an order. Every aspect of this that a WMS improves is a significant financial boon to your business.
Get good enough, and you can even have an excellent entrant to working with giants such as Walmart, thanks to OTIF scorecard and guidelines.
Workforce and labor
Labor is another significant cost of a warehouse, so savings here is a straightforward way to move into positive ROI territory.
You can see WMS value in your workforce when it generates productivity gains by reducing picking errors, reducing training, adjusting your schedules, enhancing shipping accuracy, and minimizing damage or product loss. As your workforce picks and packs better, you’re also likely to reduce rework hours. The longer the WMS is active, the more likely you are to see compounding gains.
Requirements and compliance
We mentioned Walmart’s OTIF compliance in the sales and service numbers, but it is worth noting again that a WMS can help you meet the various standards your partners have. A robust platform can integrate with a variety of ERP and other planning tools, making data sharing easier — and data sharing is going to continue to grow as a partner requirement.
Compliance savings can also be found when it becomes easier to meet service level agreements, hasten payments, reduce errors around specialty handling requirements, and meet federal regulations.
Analyze your final ROI figure
How you build your warehouse and adapt your WMS to it will impact the ROI you can achieve. Variables, adjustments, integrations, and more all change the ROI equation.
In the strictest sense, you’re comparing all the costs against the gains you’ve made. For many companies, a WMS will pay for itself when it starts reducing errors and leads to either repeat business or higher orders from new customers. You might also be able to save on workforce training and hiring or limit raw material waste.
The calculation is complicated but worth a thorough review. Think about how your WMS will make you money over the course of five years and you’re on the right path to understanding the value of such a purchase.
One final note for this analysis is that there are many different ROI calculators available online. It can be a smart idea to look and see if the vendors on your shortlist provide them. Even if you rule someone out during the RFP process, their calculators can help you set some ROI expectations.
Using a mix of calculators — like ones from Snapfulfill, RF Pathways, and HighJump — also temper expectations. It helps you stay realistic about what gains you might see and not get caught up in marketing.
There’s no uncomplicated way to approach the process from the beginning. What should give you hope, however, is that it often becomes incredibly easy for companies to see how significantly they are saving once a successful implementation finishes.
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