Companies often make promises when it comes to recouping costs and getting into positive return on investment territory, but when it comes to the thousands you’ll be spending on a new WMS, it can be a substantial risk.
Thankfully, a WMS will provide efficiency, accuracy, and visibility gains that offset the costs of implementation, installation, and continued use in many cases. Here, we’ll look at how to measure your ROI and a few big places to expect.
What is a Return on Investment?
Return on investment, or ROI, is a performance measure that can tell you the effectiveness of an investment. It focuses on the monetary or efficiency gains that the change returns to your business and measures them relative to the cost of the investment.
For a WMS, ROI measurements can become complex. You’ll need to account for the costs of installation, training teams, and actively using the system. Then, those are compared to operational efficiency improvements, such as how much you save by fulfilling orders more accurately or quickly, reducing inventory requirements, and much more. We’ll get into a little more detail on these areas below.
You can better estimate your WMS ROI potential by conducting a cost-benefit analysis that takes a systematic approach to determine operational gains.
Areas WMS Provides Cost-savings
Warehouse management systems provide a variety of returns for standard operations. While your specific benefits may differ, we’ll look at some of the broad categories where you can expect an impact.
- Workforce: First and foremost is the ability for a WMS to improve the effectiveness of your warehouse teams. Automation gives them better directions, tracks goods as they move through your warehouse to ensure stations are getting the right items, and makes pickers more efficient by supporting advanced picking methodology. WMS providers have also noted that a strong WMS can help reduce turnover.
- Inventory: WMS inventory tracking makes the most of what you have, from using all products and avoiding spoilage to making cycle counts much quicker and allows you to resupply only when you need to, reducing warehousing and inventory costs. Knowing what you have also ensures you’re taking and filling as many orders as possible.
- Location utilization: Some WMS systems generate ROI by helping managers make the layout of a warehouse more efficient. Improvements to lanes and locations can speed up your picking, generating gains relative to each order. You’ll also be in a better position to cross-dock without hiccups or interruptions.
- Order accuracy: A WMS introduces multiple checks to order accuracy as they are filled. Every improvement to your accuracy rate reduces costs associated with returns, shipping, repackaging, and lost inventory.
- Customer service: going hand-in-hand with order accuracy is improved customer service. The WMS ROI is related to delivering orders accurately and on time, with many systems also supporting automated messages to customers to know when their purchases will arrive. Keeping customers happy by delivering on your promise is a terrific way to increase their lifetime value with more sales.
Will WMS = ROI?
To understand your WMS options and their impact on ROI, it is best to think of the purchase as a business process change. You’re not making a one-off investment. In fact, on average, businesses spend $11,000 per user over 5 years, according to recent data; your WMS is a continual partner that will impact a wide range of processes and habits in your warehouse, and it should last a long time.
It will be easier for you to move into positive ROI territory if you can use the WMS to identify and solve workflow issues, order errors, wasted labor, and other bad practices. Every lasting change you can make that increases efficiency provides a compounding, positive return.
If your business could benefit from efficiency gains and you can identify areas where they might exist, expect a satisfying WMS return.
About the Author
Geoff Whiting writes for Explore WMS. He is an experienced journalist, writer, and business development consultant with a focus on enterprise technology, e-Commerce, and supply chain development.
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