SCDigest Editorial Staff

Fralick Says:

Automation and WMS companies have pricing templates that pile on a lot of project management and other overhead costs based on the estimate of the real work to be done. What do you say? Send us your comments here

When implementing a new material handling automation system in distribution or manufacturing, companies often leave themselves open to significant charges for changes down the road to the control systems - charges that could be reduced with better upfront strategies.

Case in point: we recently spoke with a consumer goods manufacturer that needed to have a modification made to a conveyor system to read a new bar code symbology and send a new data element to the WMS for cartons that had that type of label. The work involved some modest scanner configuration, and some minor changes to the control system logic. Price tag from the vendor: $50,000.

It’s a story familiar to many, if not mos,t automation users. Most may not like the cost, but in the end, pony up anyways.

So, how do fairly minor control system changes result in such large price tags?

There are two key factors, according to Mark Fralick, SCDigest Technology editor and president of ROI Solutions, a consulting company focused on distribution projects.

First, Fralick says, even small modifications become “projects” for the automation vendor. That means beyond the base coding and configuration work, a lot of other project overhead costs are layered onto the modification.

“Automation and WMS companies have pricing templates that pile on a lot of project management and other overhead costs based on the estimate of the real work to be done,” Fralick says.

That can result in a small amount of software work turning into a large overall quotation.

Certainly, in many cases, the project management costs are justified. In others cases, however, the pricing template may vastly overstate the real effort. The vendor should be challenged to line-item the total cost, and review and justify the overhead elements.

“These charges are usually just part of a standard formula,” Fralick said.

Having Another Option Provides Leverage

While challenging hours and overhead that seem excessive can help, if a company has no alternative to get the work done except to use the automation vendor, it has little leverage to get the quote to a more reasonable level.

The key to achieving leverage: getting access to the automation control source code as part of the original contract negotiation. 

“Getting the source code and having the right to make your own modifications if needed now gives you another option when the inevitable changes happen,” said Fralick. “It is a perfectly reasonable request, and something most vendors will accede to in order to win the original business,” Fralick said.

“You may never actually do the modifications,” Fralick said. “But having that option gives you a real option, and will require the vendor to sharpen their pencil for future quotes.”

While making modifications to someone else’s code can involve risk, it’s a practice many companies do in fact adopt, Fralick said. When looking at the vendors at the time the system provider is being determined, having an idea of which of the potential control systems would be easiest to work with should be among the evaluation criteria.

Do you agree or disagree? Share your perspective by emailing us at feedback@scdigest.com