When logistics managers consider implementing a new WMS they want an idea of what the results will be to build the right business case. And they need to know how to get that information. To answer these questions you need a good overview of your processes, knowledge of the possibilities a system offers, and find out more details about earlier projects at other companies.
Together with his colleagues, Magnus Jarnekrantz, Logistics Consultant at Consafe Logistics, created a concept that measures the expected ROI on a WMS investment. In the following interview Magnus explains the study and its results.
Magnus, do you agree that companies have a hard time building the case for a WMS investment?
Well, it depends on the kind of company and what the sense of urgency is. Generally, logistics managers and warehouse managers understand the possibilities of a WMS from an operational point of view and can forecast performance improvement once the system is in place. It’s more difficult, to underpin the benefits from a cost point of view. There are a lot of processes and side effects you have to take in consideration beyond the actual warehouse.
Can you give an example of side effects?
One is effects of pick-error reduction. Obviously this leads to a decreased return of goods. There will be less transportation costs, and less handling in the warehouse, at the call centre, within the finance department etc. We see that people tend to only think within their own area, we can help them to broaden their view by conducting a ROI study. This will give them a proper indication regarding payback time on their investment.
When is the best time to conduct a ROI study?
It’s is not good to have a ROI study too early. A company has to have made up its mind. Sometimes people want answers to questions before they have even thought about them themselves. Performing an ROI study two years before the actual due-date, without any commitment is not advisable. On the other hand, these kinds of studies usually take place before a proper project team has been formed.
We often see that companies need more detailed answers when they have oriented themselves regarding different suppliers and different solutions.
So Consafe Logistics will have met a company several times before they perform a ROI study?
That’s true, a ROI study is a thorough investigation. It requires an open dialogue and willingness to share information. We always like to think of it as the first step towards partnership. During this time we will look at the processes, define the scope, discuss different areas of savings, and collect data. It is obvious you don’t share that kind of information after just one phone call.
What does a ROI study consist of?
The first step is information gathering via a questionnaire. In the next step one or two Consafe Logistics business analysts will spend a day at the company. They will meet the logistics manager and/or warehouse manager and talk to them about the input on the requirements list. We want to make sure there are no misunderstandings from the start, as using wrong data or information will affect the reliability of the outcome.
After this session we take a tour of the warehouse. We start at the inbound process and follow the goods flow throughout the processes. We will gather information by talking to process owners within the warehouse and occasionally visit other departments such as the Finance department.
This visit gives us a good insight into how the warehouse works and if there are complex processes or special specifications that we should take in consideration.
We then need time to interpret the data and perform the calculations. Within a few weeks we return to the company with the results.
Are most companies open to sharing information about their operation and results?
Data is absolutely necessary to perform a ROI-study. It is the input for our calculations. We have developed formulae that enable us to make a fair estimation of the effect the Astro WMS solution will have. If a company wants to make decisions based on the outcome of the ROI study they have to provide us with all relevant data, so yes, they give us all information needed.
What results will the ROI study offer a company?
We often present the ROI study during a management meeting. The presentation helps logistics managers to strengthen their business case for the investment involved in a WMS. That is, provided the study results in a positive return on investment.
The study gives an indication of the increase in efficiency when using our WMS products and what the savings will be. We always present a best case and a worst case. It is important for us that all people present truly understand the calculations, especially how the gains are won, or not won, with a WMS. The return on investment study gives the company a realistic insight into payback times. This makes the decision to invest easier.
What is a positive or accepted ROI?
We normally see a payback time of between 8 and 18 months. It depends on the efficiency improvement we think is possible. Any ROI study showing a calculated payback time of over two years is not recommended by us.
Does the ROI study offer any other benefits?
There are several benefits. First of all, they will learn more about their own operation. We often ask questions that the company doesn’t ask any more. We sometimes give them simple tips and tricks that can help them straightaway. They will also learn more about the possibilities of a WMS and have a strong business case if the outcome is positive.
This study minimizes risks when investing in a WMS. It is also easier to understand differences between suppliers.
Why does Consafe Logistics provide this tool?
We provide this tool because we know it makes a difficult decision easier to take. We know that our WMS solutions work. This is a good way to show how companies can improve warehouse processes and performance in any particular case.
And companies trust us. First of all, we use their own data, so it is a study that is only applicable to them together with our solution. If we manipulate the outcome in any way, it will only backfire on us. We only run good projects where we can achieve the estimated KPIs and good improvement results.
We are never too positive. We even take internal project costs within a particular company in consideration. For example time lost through training and implementation. Some companies remove these costs, but we want to be as open and transparent as possible.
What do companies think of the ROI study afterwards?
Companies where we conducted this study were positively surprised. Both about the thoroughness of this study and about the number of side effects that they would not have thought of. People are also very positive about the way we conducted the studies. We never over-promise which means people trust the outcome.
At Consafe Logistics we believe in our PIN-code: Partnership, Innovation and No-nonsense. That is also the way we conduct this study: based on the customer input, clever calculations and a realistic result.
By: Cynthia Leest