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Determining the ROI of a WMS upgrade

More and more manufacturing firms are making the business case for a warehouse management system (WMS) upgrade. A WMS software upgrade can generate ROI in less than 12 months.

How does a company know when it's time for a warehouse management system (WMS) upgrade? How can it determine WMS ROI? 

Richmond Cold Storage, of Richmond, Va., provides freezer warehousing to food processing companies. The company provides SKU-intensive case picking programs and blast freezing to its customers through 16 U.S. facilities, totaling approximately 40 million cubic feet of warehouse space. The company also has a logistics division that provides 3PL transportation and logistics services, including rail service and cross-docking, in five mid-Atlantic states.

Some of Richmond Cold Storage's customers want to enter orders online via the Web, track orders, and generate reports. Others want case picking, cross-docking or a variety of fulfillment services. Whatever the customer wants, Richmond Cold Storage needs a WMS and logistics management system that can handle it.

"Every customer has unique requirements," said Joe Knausdorf, vice president for information technology at Richmond Cold Storage.

Even with established customers, Richmond Cold Storage often finds itself scrambling to meet their requirements. "A customer will make a change in its SAP system, so we have to change the system on our end," Knausdorf said.

WMS software customization poses challenges

In 2007, the company realized that the WMS software it had been running for more than a decade was no longer up to the task. "We needed something that would give us adaptability and control," Knausdorf said. The cold storage provider also needed a WMS that could easily adapt to all its customers' requirements without having to go through a slow and costly customization.

The need for customization has long posed a challenge to WMS users. "WMS has always needed to be customized and then integrated with back-office systems," noted Greg Aimi, director of supply chain research at AMR Research in Boston.

Richmond Cold Storage was at a turning point. "We could get involved in a costly upgrade of our old WMS or replace it," Knausdorf said.

Since the company had not looked at the WMS software market for years, it was not clear whether the best action was to upgrade the existing system or replace it.

Define WMS software requirements prior to upgrade

At this point, Richmond Cold Storage brought in a consulting firm to perform the initial review of its existing WMS environment and help define its WMS requirements. "We wanted the consulting firm to act as a buffer," Knausdorf said. "[The consultant] would take our requirements, contact WMS vendors and filter the sales calls."

We knew that doing nothing was not an option, and we were talking about hundreds of thousands of dollars no matter what.
Joe Knausdorf
vice president, ITRichmond Cold Storage

Knausdorf knew that his company was facing a major financial investment whether it performed a WMS software upgrade or brought in a new system. "We knew that doing nothing was not an option, and we were talking about hundreds of thousands of dollars no matter what," he said. With that kind of money involved, top management expected the WMS selection team to perform a formal ROI.

For this ROI analysis, Knausdorf again turned to the consulting team, who had experience in warehousing and WMS systems. The team had an existing ROI model, against which it applied Richmond Cold Storage's spending levels, industry benchmarks and likely productivity gains. The ROI analysis looked beyond the initial acquisition cost to include post-deployment costs, such as maintenance and customization.

More manufacturers deploying new WMS systems

The decision was made to go forward with a new WMS system, a decision that more and more companies are making. In general, "we see WMS generating a payback in less than one year," observed Steve Banker, service director for supply chain management at Dedham, Mass.-based research firm ARC Advisory Group.

The consultants scanned the WMS market and brought back an initial list of six vendors. Further analysis narrowed the six down to a shortlist of two.

We see WMS generating a payback in less than one year.
Steve Banker
service director for supply chain managementARC Advisory Group

In the end, Richmond opted for the HighJump Warehouse Advantage WMS from HighJump Software. "HighJump had a higher upfront acquisition cost, but it would save us much more in the long term by avoiding the need for customization," Knausdorf said.

Building WMS processes requires SQL skills

The HighJump Warehouse Advantage WMS allows users like Knausdorf to build a new process in the WMS. The customer can define the new process using the HighJump toolset, which in turn requires the user to have basic SQL skills.

"HighJump is the only vendor [that] has something like this that is affordable," Knausdorf said. He noted that Yantra Corp., a supply chain software vendor recently acquired by Sterling Commerce "has something similar, but it costs more and has nothing pre-built. With HighJump, you have a large base of pre-built parts. You take the pre-built part and start modifying it as needed using your coding and SQL skills."

At Richmond Cold Storage, this reconfiguration of the WMS, which HighJump refers to as adaptability, is done by Knausdorf's staff, though he said he thinks he could do it.

Since Richmond could change the HighJump WMS through configuration rather than customization, the company figured it could respond to the various customer requests more quickly and at a lower cost while avoiding the need to charge customers for customization.

It is too early for Richmond to have quantified its ROI, but early indications suggest it may not take long. Knausdorf recounts a prospective cold storage customer that had high case picking volumes. To accommodate the customer's requirements, some processes in the WMS needed to be modified. With the previous WMS, that adaption would have posed a problem. With the HighJump WMS, it was simple enough to do, and Richmond Cold Storage won the company's business.

About the author: Alan Radding researches, analyzes and writes about business and technology. His articles have appeared in The New York Times, BusinessWeek and numerous technology publications and on websites such as SearchManufacturingERP.com.

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