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Expert Insight: The Supply Chain Technologist
By Mark Fralick
Date: August 29, 2008
Logistics News: Does a WMS Equal ROI?

A Warehouse Management System should be Thought of a Platform for Improvement, not a Discrete Investment

Does a WMS = ROI?

Recently in a meeting with a company contemplating replacing their old, home-grown WMS with a shiny new one from one of the premier WMS vendors, I asked a simple but potentially controversial question: Why are we doing this? Seeing the vendor’s jaw drop at this question and lots of side discussions quickly ensue, I clarified my question. If we are going to spend many hundreds of thousands of dollars and add the short-term risk involved with doing one of these implementations, I surmised, I think we better have some pretty clear objectives. Whenever anyone does one of these systems, there is always lots of talk about ROI and improvements, etc. The problem is that these things are not automatic. Having architected my share of this type of software, I am a huge proponent of them, but in my mind, it is incorrect to make the jump from getting a WMS to automatically getting improvements, let alone ROI.

Instead, you should think of a WMS as a platform for continuous improvement. Ultimately, that is where the ROI will come from. Sure, if you are putting in a WMS where a paper system had previously been, there is the immediate potential for improvement. However, in our current environment, it is more likely that customers are looking at their second generation of WMS. So, in these cases, the ROI equation can be much more subtle. Generally, the arguments for such a move revolve around issues of maintainability or the risk inherent in keeping old software around. I tend not to buy into these notions and find that they are more typically devices used by vendors to attempt to derive some ROI in these situations. It is not only misleading, in my opinion, but unnecessary in many cases.

Why? Let’s go back to my assertion that a WMS is a platform for delivering continuous improvement. So, it’s all about improvement and the ROI derived from these improvements. Take stock of your current system based on the idea that it will either help or hinder your ability to improve, adapt, and change with market forces. There are costs associated with the time and effort it takes to do such things (both from an IT perspective and operations perspective). Many of the new WMS packages out there make it extremely easy to make modifications that used to take a lot of time and add a lot of risk. They also tend to be good at adapting to new operational requirements like flow or Value-Add changes. Additionally, there are opportunity costs associated with not being able to do certain things (certain accounts might even pull their business if you cannot deliver product exactly the way they want it). Just as an inability to ship, the potential of this sort of failure should be considered as a breakdown in the platform.

WMS as a Platform Purchase

In the end I tend to ignore much of the discussion revolving around talk about bringing “Best Practices” to your operation. I tend to ignore discussions about how terrible it is that this system is old.

Just for the record, one of the biggest Packaged Goods companies in the world continues to implement new sites with a technical infrastructure I helped to develop in 1991. While there could be risk issues associated with older systems, in many cases, these can be mitigated.

In my mind, neither of these speak to the main issue. Instead, view this investment as a Platform purchase. Then define improvement targets: removing bad practices, improving flow, reducing errors, increasing labor, etc. Prioritize them - understanding that some may be reasonable to expect day one, others may take some work and planning by the operations folks to achieve. Use the platform to attack them.

Agree or disgree with our expert's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the web site. Upon request, comments will be posted with the respondents name or company withheld.

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profile About the Author

Mark Fralick writes about supply chain technology issues, and is a recognized expert in RFID, Service Oriented Architectures (SOA), Warehouse Management, material handling systems integration, and other technologies.He is also president of consulting firm ROI Solutions LLC, and prior to that Vice President of Architecture for RedPrairie. He is co-founder of Software Architects International, a successful Warehouse Management System (WMS) provider subsequently purchased by McHugh Software (RedPairie).


Fralick Says:

Instead, view the WMS investment as a Platform purchase. Then define improvement targets: removing bad practices, improving flow, reducing errors, increasing labor, etc.

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