August 2003 | Commentary | IT Matters

The WMS Quandary: Where's My Savings?

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Several times a year I get a call that goes something like this: "Albert, we automated our distribution centers with a new WMS and we haven't seen the savings. In fact, our costs are higher! We did our due diligence in selecting the best package. We did the training and wrote interfaces. We toured sites and read about how wonderful this would be. We're stumped. Where's my savings?"

This is when the promise of the project meets reality; when white board talk, ROI calculations, and meeting after meeting end and pure numbers take over; when total cost of distribution must go down and service must go up; when no one cares about scope, trade offs, and compromises made in the "project." You are now in production and internal operational performance is the only measurement.

When I field these calls, I ask two questions: Were the expectations in savings too aggressive? Is the company utilizing the new Warehouse Management System tool properly?

A one- to two-year payback for WMS is common. An organization will normally save 15 to 20 percent in operating costs or in cost avoidance by not having to increase expenditures to meet higher demand and service levels. A common error is to start estimating savings too early. I recommend waiting several months after a go-live, and longer if the project is done in phases.

Another frequent expectation mishap is not considering the costs of internal labor for training and support just prior to, then after, go-live. Don't forget the overtime usually required to catch up for slower productivity during the early stages of ramp-up. These costs hit the operating budget and often are not accounted for up front.

Proper Use of WMS

Too often a system is implemented without the organization being sufficiently prepared to operate in the new environment. Users may know what the F5 key does and how to print a report, but there is a big gap between understanding tactical steps and knowing how to use the WMS tool to run, change, and improve the operation.

Customers and CFOs do not care that you just put in a new WMS. Having the best hammer does not make a craftsman. Similarly, having the best WMS does not make a world-class operation.

Savings come from a variety of areas, but specifically from increasing the confidence and certainty in the operation. As confidence increases—knowing that inventory, orders, and lead times are correct—the organization becomes more certain in its ability to execute and meet unique customer requirements.

You can create confidence in the WMS by examining and respecting shop floor tasks. Look for areas where the system and the physical processes do not flow in concert. Then look for areas that introduce errors and attack them. Errors breed inefficiencies, so inventory inaccuracies have an exponential impact on purchasing, order processing, customer service, and workforce operations.

Usually operations that are not achieving savings have not reached the required 99.9-plus percent inventory accuracy. The foundation of a successful WMS is real-time inventory location. Identifying and attacking sources of inventory location and quantity errors should be the first priority.

Next, look for process improvements from someone who knows all three aspects of the puzzle: the operation, the WMS, and the need for transition management. Opportunities may exist in each of these areas. Rarely is it the WMS that is in error. Rather, it is usually faulty business rules, a disconnect between the processes and the system, or the lack of comprehensive transition management for the people.

If you have made a major investment in a new WMS and it's not performing to your expectations, look beyond the system itself. Consider a variety of factors: validity of data, timing of inputs, interfaces to other systems, operational processes, and the often overlooked "people factor."

Ultimately, the WMS question "Where's my savings?" is often asked by a person who lacks confidence and certainty.

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