Cost Justifying a Warehouse Management System

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Benefit Analysis

Cost Justifying a Warehouse Management System
Executive Summary
In today’s competitive marketplace, the primary focus of many organizations is on improving customer service. To accomplish this, companies are embarking on a wide range of process-improvement initiatives. In many cases, increasing customer service levels involves adding personnel and increasing overall expenditures. Unfortunately, these additional expenses can erode profitability.
One proven method for increasing customer service without incurring additional long-term expenses is the implementation of a warehouse management system (WMS). The WMS concept and technology are not new. These systems have matured into time tested methods for reducing inventory costs while increasing overall efficiencies. Implementing WMS technology within an organization already using an ERP system allows that company to achieve a higher return on their software dollars and provide the best possible service to their customers.
Our firm possesses a strong background in delivering distribution and warehousing solutions. This allows us to offer a powerful, intelligent and full-featured WMS solution to our customers. The better WMS solutions consists of three integrated modules – warehouse management with radio frequency (RF) technology, integrated shipping, and Work-In-Process tracking. The result is a system that provides a new standard for inventory accuracy and visibility through all phases and operations within a facility.
WMS can provide an organization with tangible benefits quickly, improving warehouse operations and increasing efficiencies without adding headcount. By implementing a WMS, a company achieves a number of dramatic benefits. They include:
  • Directed put-away and directed order picking
  • Warehouse capacity management
  • Radio Frequency (RF) capability for data capture
  • Load planning
  • Cross docking
  • Picking optimization
  • ABC stratification
  • Interleaving of work
These benefits translate into direct cost savings. The extent of these savings depends on a number of factors including existing inventory levels and accuracy, premium shipping costs and personnel currently required for picking, packing and shipping. Our firm will provide a quantified cost saving summary after further study and analysis.
Categories for Potential Cost Savings
The categories presented in this table are based on accepted industry standards and represent areas for high-visibility cost reductions. Our consulting company will assign dollar values for cost savings to each category after an on-site study of the current warehouse situation.
Tangible Costs
Inventory reduction of up to 10% (one-time savings). Inventory visibility and accuracy.
Reduced inventory carrying costs up to 35% (industry average). Lower inventory levels; higher space utilization.
Reduced investment based on cost of money @ 8% Reduced inventory.
Premium shipping costs Reduced shipping errors.
Personnel handling paper - potential headcount reduction or resource redeployment* WMS automates the management of order and priorities, eliminating paper.
Personnel handling order picking - potential headcount reduction or resource redeployment* RF based picking productivity increases efficiencies.
Personnel handling shipping paperwork and confirmation - potential headcount reduction or resource redeployment* Eliminate preparation work for shipping documents and ERP ship confirmations.
Eliminate physical inventory Cycle counting will replace physical inventory requirement.
* Savings in headcount reduction will be based on the average loaded cost per person per year.
Total net savings in tangible costs can range from $500K to well over a million dollars in the first year. The result translates into a complete payback for the WMS within the first year after implementation.
Intangible Benefits
In addition to the tangible costs and associated savings, there are a number of intangibles difficult to accurately quantify, but are nonetheless valuable to any organization as the result of implementing a WMS.
Ability to receive orders and ship same day without expediting. Consider the value of receiving orders as late as 3:00 PM and shipping the same day. This brings a higher level of service that helps differentiate you from your competitors.
Improved customer service levels. A WMS enhances the overall warehouse operation. Data accuracy and inventory accuracy both improve. Mistakes are pushed to an absolute minimum. Deliveries are timely, shipments are accurate and customers stay happy. This results in avoiding the very costly problem of losing existing customers to the competition. The cost of acquiring a new customer is up to five times greater than maintaining existing an existing customer.
Self-managed employees. With system-directed operations available to the users, supervisory intervention is held to a minimum. Much of the decision making required in a typical warehouse is handled by the WMS. Workers do not need to take the manager away from his/her primary job. Rather, the WMS directs the employee's actions based on the user profile and location within the facility. Managers have more time to make higher level decisions.
Redeploy excess resources to other process improvement initiatives. Rather than take on additional personnel to increase sales volume and revenue, WMS allows better facility management. Additional resources are usually not required to support increased business. WMS frees up resources in many cases. These people are available for redeployment to other areas of the business.
Contact Information

Deborah Campbell

447 Old Swede Road
Douglassville, PA 19518
(610) 385-0056

IDII thanks IDSS for use of their white paper!

IDSS provides consulting, implementation, and software solutions such as Maestro (Harmony) WMS and EagleSoft WMS.

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