|Cost Justifying a Warehouse Management System
|In todays 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
|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.
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
- Warehouse capacity management
- Radio Frequency (RF) capability
for data capture
- Load planning
- Cross docking
- Picking optimization
- ABC stratification
- Interleaving of work
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
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.
reduction of up to 10% (one-time savings).
visibility and accuracy.
inventory carrying costs up to 35% (industry average).
inventory levels; higher space utilization.
investment based on cost of money @ 8%
handling paper - potential headcount reduction or resource redeployment*
the management of order and priorities, eliminating paper.
handling order picking - potential headcount reduction or resource redeployment*
picking productivity increases efficiencies.
handling shipping paperwork and confirmation - potential headcount reduction or resource
preparation work for shipping documents and ERP
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
|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
|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.
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Douglassville, PA 19518
IDII thanks IDSS for use of their white paper!
IDSS provides consulting, implementation, and software
solutions such as Maestro (Harmony) WMS and EagleSoft