While logistics had remained the same for decades, the rise of modern civilization has transformed the industry. Small shipping companies have grown into larger third-party logistics providers, and warehouse management has become more focused on efficiency and accuracy instead of quantity of shipments.
Transportation costs make up 60 percent of overall logistics expenses for all shippers and 3PLs. For these companies, the use of a dedicated transportation management system, such as Cerasis™ Rater, can be deployed to lower transportation costs across the entire supply chain. However, costs can be further reduced through the use of a warehouse management system (WMS).
Recently we read from Software Advice their recent report, the 3PL budgeting guide, which listed how much should a 3PL budget and how to compare a Warehouse Management System. This post inspired us to take a look at what a Warehouse Management System provides for an organization, how its ROI directly correlates to its benefits, and 5 key considerations to take into account when thinking about the type of WMS to use.
Understanding Warehouse Management Systems
A WMS is the general term for the software that governs, monitors, and controls all processes within a warehouse. This includes tracking the storage and movements of all items within the warehouse, processing each transaction, which includes picking and replenishment of slots, and gathering information about how these processes relate to one another.
The rise of the Internet of Things (IoT) has also led to another improvement for many WMS solutions. Automated tracking and data capture of information, such as through stationary or wrist-mounted scanners and radio frequency identification (RFID) sensors, allows an organization to review and adjust warehouse processes. As a result, efficiency and accuracy in order arrival, picking, packaging, and shipping is increased. Ultimately, the return on investment (ROI) is the chief indicator for why an organization would want to use a Warehouse Management System. However, the ROI is achieved through several other measures as well.
ROI: Driving Force Behind Warehouse Management System’s Investments
All businesses have a common goal: to have a positive profit margin and reap a return on investment in all business activities. In a Warehouse Management System, the specific benefits of the system provide a return on investment through five primary means. This includes improving processes in inventory management and saving space.
For example, reducing excessive safety stock allows a warehouse to minimize number of reorders, reduce wasted space, and avoid issues in shipping errors. A WMS gives the warehouse the ability to define specific storage locations, which helps pickers, which may be automated or human, select and gather shipment items efficiently.
Similarly, the cost of labor is another force behind the use of a WMS. A WMS improve worker productivity by enhancing training procedures, reducing human-errors, and eliminating lengthy, manual inventories of product.
Since a warehouse’s goal is to make money, the end-user or the customer needs to feel satisfied with the service. Service-level agreements (SLAs) may contain clauses that would result in lost costs if a shipment is delayed, arrives damaged, is incorrect, or fails to meet certain labeling and packaging recommendations.
Additionally, reducing the physical wear and tear on warehouse machinery is another aspect of increasing the ROI through a WMS. The WMS allows a warehouse to allocate specific resources and machinery to unique paths, zones, and loading areas. Therefore, the amount of time each item is actively used is reduced, which helps prevent premature failure of the equipment.
Although not necessarily an individual reason, the ease-of-integration of a WMS with an existing enterprise resource planning system is another factor to consider. If a warehouse or organization has an existing system in place, new WMS solutions may need to seamlessly mesh with the existing system. Alternatively, data migration from one system to the new system may be an option.
5 Key Considerations For Choosing Warehouse Managment System Type: Cloud-Based Versus On-Premises WMS
As the cost of a given WMS is the chief concern of most companies, the remaining force behind the use of a Warehouse Management System is a decision to implement cloud-based or on-premises systems. Each of these systems have different benefits and features; however, the implementation costs and other factors influence which type of system will provide the greatest benefit to companies.
In a Software Advice survey, respondents were asked to identify how the implementation costs of a WMS affected their decision. For 40 percent of implementation budgets of 3PLs, the implementation budget was preferred to be below $5,000. However, 99 percent of all respondents expressed the need to keep implementation budgets below $40,000. Yet, 82 percent were only willing to spend $20,000 for implementation of a WMS.
This information affects whether an organization wants to spend excess capital up-front to purchase a perpetual license. For most purchasers of perpetual licenses (28 percent), the up-front cost was between $60,000 and $100,000, which exceeds the expectations of the implementation budgets. As a result, most companies would be more likely to choose a cloud-based, subscription WMS.
Number of Warehouses and User Requirements
As the name suggests, on-premises Warehouse Management System solutions tend to focus on individual warehouses, which may have a limited number of users. Alternatively, a cloud-based solution tends to focus on total number of users or a definitive number of warehouses with an unlimited number of users.
While considering the size of an organization, scalability becomes another factor in using a Warehouse Management System. A subscription-based WMS allows an organization to achieve scalability without the traditional “growing-pains.” For example, an organization may use a subscription-based solution to expand into additional warehouses. A perpetual license would require the extensive investment into another license. If the organization grows rapidly, perpetual licenses may be an unrealistic option.
Type of Industry
Some industries, such as the automotive, food service, medical, and electronic industries, may have to meet specific, government-mandated requirements in storage, order processing, and shipping capabilities. Failure to meet these requirements can result in severe fines, penalties, incarceration, restitution, and permanent harm to public-image. For these industries, compliance concerns remains a top priority and driving force in the decision to use a WMS.
The annual revenue of an organization is one of the chief factors in the decision to implement a WMS. Furthermore, the type of Warehouse Management System (cloud-based or on-premises) tends to focus on the overall cost of using the system and the organization’s budget. Most respondents in the survey reported implementation costs below $13,000 for web-based options, and on-premises fees of less than $90,000. Basically, smaller organizations were more likely to use a subscription, cloud-based service than an on-premises solution.
Putting Everything Together
Modern shippers and 3PLs alike need a viable, cost-effective solution to improving warehouse efficiency and management. However, the implementation costs and needs of the organization directly affect what type of WMS should be used. As a rule of thumb, subscription-based Warehouse Management System solutions tend to be preferred over perpetual licenses, especially considering the need to grow a business to survive in today’s world and maintain inventory optimization. Inventory Optimization is a vital part of the supply chain, and if not maintained, then transportation is adversely affected. The best-laid transportation management strategies are completely undone with improper inventory management. Only as strong as your weakest link, as they say!