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WMS by the numbers
When
it comes to warehouse management systems, the stats are both shocking
and thought provoking. Here are the numbers you need to know.
by Rene
Jones
Warehouses are built around numbers — from the facility’s square footage
to how many rows of racking it takes to stock the number of SKUs to the
amount of orders processed through a facility in a day. This article
takes the numbers associated with warehouse management systems you don’t
see in the marketing brochures or advertisements of WMS vendors and gets
you thinking before you purchase and begin to implement a warehouse
management system (WMS).
If you
watch television, you may be familiar with the CBS show NUMB3RS.
Rob Morrow stars as an FBI detective aided by his mathematician brother
in solving bank robberies and homicides. The show depicts how the
confluences of FBI work and mathematics provide unexpected revelations
and answers to the most perplexing criminal questions. Let’s take a look
at those number junctions in your distribution center.
Thirty percent
Less than 30
percent of warehouses are efficient, according to Benchmarking
Warehouse Performance, a study by Georgia Institute of Technology in
Atlanta. That probably speaks directly to why you’re reading this
article. You may have been wondering if a WMS system could make your
warehouse more efficient.
Interestingly, about 30 percent of the 600,000 warehouses in the United
States have a WMS system installed. As the guy on the television show
says, “Hmm…”
What are
the numbers telling us? Only 30 percent of warehouses are efficient, and
30 percent of warehouses have a WMS system installed. Do you see a
correlation?
Those
numbers are telling me we can solve crimes taking place in 70 percent of
warehouses. Although these crimes aren’t bank robberies or homicides,
they do involve money lost and people getting hurt.
Here’s
the point: There’s a lot of information out there on how to make your
warehouse more efficient, but what you need to realize is, it’s not what
you know that counts, it’s what you do with what you know. Many of you
already know your warehouse is inefficient, and you’re not doing
anything about it.
Assuming
you are part of the 70 percent that process orders through an
inefficient warehouse and you are also part of the 70 percent that has
not installed a WMS system, let’s look at possible reasons you’ve given
for not implementing a WMS.
• Your
warehouse is not big enough.
• You don’t have enough people or orders to justify
such a large investment.
• Your IT staff isn’t large enough.
• You are currently searching for a system.
The
reasons are endless, but your real reason is very likely because of the
next two numbers.
$100,000 to $500,000
A
company will typically invest between $100,000 and $500,000 for software
alone, but that software investment represents only a fraction of the
overall costs. By the time hardware, training, implementation, revamping
the warehouse and consultants fees are added, that number can reach more
than $1 million faster than you can say multiplication.
Those
intangibles will usually reach one to three times the cost of the
software. About 60 percent of the overall cost will be tied up trying to
integrate the WMS system to the existing enterprise resource planning (ERP)
system.
The main
reason only 30 percent of all warehouses have a WMS is because only 30
percent have been willing to bite the bullet and make the investment.
There are other contributing factors, though.
220
More
than 220 WMS vendors exist. How can anyone make an informed decision and
select the correct business partner with so many options? Most companies
don’t even try; they enlist consultants with an expertise in warehouse
management systems to help them make that decision. The ones that don’t
employ a consultant usually make their decisions based on cost, and then
bring in a consultant to help dig them out.
Believe
it or not, consultants provide an unbiased evaluation of your processes
and potential vendors. They have no emotional ties to the current way
you process your transactions. Many companies that automate their
inefficient processes and procedures on their own end up doing things
wrong faster!
Trying
to transform your warehouse into an efficient distribution center is
really not something you want to do alone. Think about your warehouse
for a second. Your warehouse provides the fuel your organization needs
to run. You may complain about high gas prices for your car, but the
fuel that runs your distribution center or your supply chain is so
costly that its value ranges between 6 percent and 20 percent of your
organization’s annual revenue.
In
layman’s terms, a $100-million organization will have somewhere between
$6 million and $20 million of fuel in its warehouses.
Think
about the type of fuel your organization and supply chain runs on:
inventory! Other than your people, nothing is more valuable to your
company’s success. Let’s look at the real value of that inventory fuel.
Let’s
assume your organization makes 4 cents on every dollar, which means for
every $100 of lost inventory, the company must generate $2,500 in new
sales to replace that $100 of lost inventory. Think about the effort
your highest-paid people must exert to generate $2,500 worth of sales.
It’s no secret that the highest-paid people within your organization are
salespeople. Think about why they are the highest paid in the company —
mainly because it takes a minimum of five visits to make a sale, and it
costs three times as much to get a customer back than it does to keep an
existing customer.
You may
think salespeople cause you all kinds of headaches, but in actuality,
nothing happens until somebody sells something. And salespeople cannot
efficiently or effectively perform their jobs if they do not know what’s
in inventory. That’s why it’s crucial to involve a consultant to help
select a system based on your current needs and your future
requirements.
The next
three number regarding WMS systems are pretty startling, too.
30,
42 and 56
More
than 30 percent of all WMS implementations fail. Only 42 percent are
implemented within budget. And, 56 percent of the implementations are
delayed.
When you
add the fact that it takes nine to 12 months to implement and 24 to 36
months to realize a return on your investment, you begin to wonder if a
WMS system is really worth it.
When you
work the numbers, on a potential $1 million investment you won’t see
that money back for at minimum three years, and that is if everything
goes perfect. If everything does not goes as planned, your return on
investment could take four years or longer. By then, your business model
might have changed so much it will be time to invest in the next new
thing, if your organization is still around.
You may
be wondering where that last statement came from: A WMS is the one piece
of technology that can shut your business down if not implemented
correctly. Why? Because most organizations make dumb decisions. Why do
they make dumb decisions? Because without the assistance of an outsider,
“You don’t know what you don’t know!”
Another
example of a bad decision that most senior executives make when
investing in a WMS system is implementing it at their corporate
location’s distribution center first.
Typically located at the company’s headquarters, executives often want
to implement where they can see the progress. And because the
headquarters’ warehouse is usually the largest, executives think a
return will be realized much faster because of the volume. But when
satellite locations are dependent on that corporate location, what
happens when the hub has the sniffles? It becomes the flu at the
locations downstream.
Look at
FoxMeyer, WebVan, Adidas, Nike, Builders Plumbing Supply, Toys R Us and
many others. Three of those companies are no longer around, two saw its
stock price plummet as much 20 percent, and one gave up and turned its
fulfillment process over to a third-party logistics provider. All
because of a WMS system.
Some of
you are probably wondering what the value of a WMS system is. The
following numbers show the justification.
300
vs. one
Your
data-entry personnel produce one error every 300 keystrokes. With
radio-frequency (RF) scanning of barcodes, that number reduces to one
error every 3 million scans. Think about the accuracy of your inventory.
Now think about your receiving department. How many keystrokes do they
make a day?
50 percent
System-directed
picks and put-aways will reduce your forklifts travel time by as much as
50 percent. Your put-away people spend at least an hour a day searching
for put-away locations. That hour will be eliminated immediately.
Picking accounts for 55 percent of your warehouse labor dollars. And 50
percent of the picking process consists of traveling to and from the
locations.
35
percent
You
can expect to receive as much as a 35-percent reduction in your
operating expenses.
27
percent
The
cost of carrying inventory is usually about 27 percent less in an
automated environment.
20
percent
Inventory accuracy increases around 20 percent with a WMS system.
5
percent
Shipment accuracy improves around 5 percent.
Zero
After the system
is implemented, you’ll have zero inventories to perform. However, anyone
that says you can live without a physical inventory count is nuts, and
you should take an additional wall-to-wall physical inventory six to
eight months after implementation. But, at that point, the learning
curve will be over and everyone will understand the value of maintaining
an accurate inventory. From that point forward, physical inventories
won’t be necessary.
A look
at those numbers should be enough to get you off of your hands and begin
to seriously investigate a WMS system, but I know many of you will
continue to gather data and take it back to your manager, vice
president, president and so forth only to have them again shoot down the
idea of investing in a WMS system.
Tell
them a WMS system will also:
• lower the total cost per unit shipped;
• reduce the number of inventory out-of-stocks;
• improve delivery accuracy and timeliness;
• increase profitability per order and per customer;
• reduce customer service cost;
• reduce phone communication costs; and,
• increase sales.
Now is
the time to take a serious look at your operation.
Bottom line
I don’t want you
to think this is a doom-and-gloom article, but I want to make sure you
get not only the good news about this technology but also the truth.
Many WMS vendors want you to believe that your company will experience
WMS benefits relatively quickly after going live. In reality, at best,
it will take two years. Benefits can be experienced faster with a
smaller system in a smaller location. Rolling out a WMS at a branch
offers the opportunity to evaluate processes that need to be completely
revamped and what type of training will be required to ensure success.
Most importantly, it prevents any and all disruptions of customer
shipments.
Protecting your customers should be your top priority when purchasing
and installing a WMS system. Today’s most serious business challenge is
not selecting and implementing new technologies, raising capital, or
hiring the right people. Today’s most serious business challenge is a
scarcity of customers. The key to your organization’s success lies in
knowing how to exploit scarcity no matter when or where it appears.
In
today’s environment, your customers have too many supplier options and
too little money. Your customers won’t continue to patronize an
organization that cannot send them what they want when they want it at a
competitive price. You cannot do that efficiently without a WMS system
properly installed.
You
already know having a lot of customers does not guarantee success when
other key performance indicators suffer. You must energize your
operation with the one tool that was designed to do just that: a
warehouse management system.
Rene
Jones is the founder of Total Logistics Solutions Inc., a warehouse
efficiency consulting company headquartered in Burbank, Calif., and the
author of several books, including
WMS
101 (Selecting, Implementing and Maintaining a Warehouse Management
System). Jones can be reached at (818) 353-2962
or via e-mail at
rene.jones@logisticsociety.com. Visit the firm’s Web site at
www.logisticsociety.com.
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