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Focus: Distribution/Materials Handling

Feature Article from Our Distribution and Materials Handling Subject Area - See All

From SCDigest's On-Target E-Magazine

- June 18, 2013 -

Supply Chain News: SCDigest Introduces New Tool to Calculate the Value of Making Warehouse Management System Modifications

In Part 2 of a Series on WMS Modification Trends, New Helpful Spreadsheet Tool Allows Users to Assess the ROI from Customizations


 SCDigest Editorial Staff

In part 1 of this series, several of the industry's leading consultants offered thoughts on the state of having modifications made to Warehouse Management Systems (WMS). (See Are Warehouse Management System Modifications Going Away? Should They?)

SCDigest Says:

Barnes hits on the key point - it's all about the ROI, and that number can be easily calculated
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There was thorough agreement among our expert panel that as WMS capabilities advance, the need for modifications is certainly way down from a decade or even five years ago, but that for most complex implementations some modest level of modifications were still being required.

This week, we also solicited some comments on the topic from John Pearce, a long time WMS industry expert, now a consultant at Stonecross Group.

Pearce told SCDigest that "mods years ago used to be something like, "We don't do quality audits using those rules" or, "We don't replenish quite that way, etc. Now, mods are higher level, more value-added."

He cites examples such as connecting a WMS into dashboards for risk management or pulling in data from other systems or to business intelligence tools for analytics.

"The point is that you don't have to worry so much with the more traditional mods around four-wall functionality," Pearce said. "You can apply your dollars and efforts to other areas that drive competitive advantage or higher asset utilization."

(Mouse over Pearce picture below for some interesting additional thoughts on mods that represent true innovation.)

Although enVista CEO Jim Barnes in general thinks a goal of zero mods is a good one for most facilities, he does believe there can be opportunities for innovation.

For example, Barnes said enVista worked with a large WMS provider at a food service company to create something it called dynamic load planning.

"Typically at wave release there is hard allocation of the inventory and the pick tasks are automatically created. We wanted to evaluate the cube of a pallet and the initial load plan of the trailer on a specific route instead," Barnes told SCDigest. "Based upon the initial load plan and the cube of the pallet, we would re-spread the work sent to the floor to ensure that pick path was optimal and the trailer load plan was optimal. We then re-ran the wave allocation rules to give us work balance."

(Distribution/Materials Handling Story Continues Below )


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That mod cost almost $100,000, Barnes said, but that amount was saved in DC operations in just three months.

Introducing the SCDigest WMS Modification ROI Calculator

Barnes hits on the key point - it's all about the ROI, and that number can be easily calculated. SCDigest is releasing here a new tool determine that ROI in a simple spreadsheet.

As shown the in the graphic below, the tool asks for handful of inputs:

(1) A company's cost of capital as a percentage, used to discount the savings and cost streams over time into a net present value.

(2) Operational savings resulting from the mod(s) each year for five years. Note savings can vary across years as mods are implemented across multiple DCs. Users might also want to slightly increase savings from expected labor reduction over time if costs per hour for labor would be expected to increase over time (value of hourly labor reduction increases).

(3) Costs of mod(s) over five years. Those costs are initial mod costs, maintenance if any on those mods, and any additional costs for an upgrade.

There may be other costs that need to be added, and users of this tool have to decide when and if they want to include extra upgrade costs. If different than an upgrade in year 3, user has to make a slight adjustment to the formula, as explained in the calculator notes.


WMS Modifications ROI Calculator

The tool then creates a net present value for savings and costs, then compares the two in both dollar and percentage terms.

Note proposed mods that are just "paving over cow paths" - meaning they do not drive any real value - will not fare well in this analysis. Clearly the number of mods made to just enable a company to keep doing things the way they have done them in the past without any real financial value are quickly becoming extinct.

You can download new calculator here: SCDigest WMS Modifications ROI Calculator. It's free, but we ask you note the name and source in your private usage. If you have any issues, email us to request a copy of the calculator.

Should the goal be zero mods in a WMS deployment? What do you think of our WMS Mod ROI calculator? Let us know your thoughts at the Feedback button (email) or section (web form) below.

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