Building a business case for a new warehouse management system (WMS) can be a difficult process. The operational benefits of a modern warehouse management system are clear to supply chain leaders, but it can be difficult to quantify these benefits to other business leaders in the organization. Business cases often incur high capital expenditure costs and usually have a long ROI period, resulting in a lack of clarity for key decision makers. So what are the key questions supply chain leaders need to ask to develop a compelling business case for a new warehouse management system.
1. Does our existing system lack modern functionality?
What is the right approach for you – a basic upgrade from an inefficient, manual, paper-based operation or a higher investment in an advanced warehouse management system with more capabilities?
Even upgrading to a basic warehouse management system brings near-term improvements and benefits through inventory accuracy, control and validation. It also brings improved task organization and reduced manual administrative activities. However, longer-term incremental benefits will slow after the initial rapid gains. It can be achieved with relatively low investment and is often the least difficult to sell to your stakeholders. However, resistance to change is still common from those accustomed to the existing processes.
The second approach requires investment in an advanced warehouse management system. It enables long-term improvements but if the business already has a warehouse management system in place, it is a more difficult approach. You need to articulate the benefits of improved management control and oversight as well as factors such as adaptability, supporting technologies and materials handling integration. Resistance to change often comes from the operational teams that use the existing warehouse management system.
2. Is our aging system becoming unreliable?
An aging system can become unreliable and technically obsolete. The system may be an older warehouse management system, a system developed in-house, or a packaged application that is heavily customized. The architecture and high level of tailoring required for such systems can make the system difficult to maintain and nearly impossible to upgrade. In such cases, the business is usually forced to rely on a few high-cost specialists, making it difficult to scale or keep up with changing demands. The hardware involved may have reached end of life and it can be increasingly difficult and expensive to repair or replace.
Support for replacing the aging system with a new warehouse management system can come from the IT support teams or operations teams if they face repeated system or hardware failure issues. There might be resistance due to familiarity with the legacy system but it is crucial to understand the risks and costs of doing nothing in this scenario, and develop risk mitigation plans for the risks associated with the change.
3. Are we keeping up with the competition?
You must consider where your warehouse capability and adaptability are compared with those of your competitors. Your competitors could be using more advanced warehouse management systems internally or via third-party logistics providers that use these advanced systems. They are outperforming your company in order completion and customer satisfaction scores. You can gain support for WMS modernization by working with your sales and marketing executives. Obtain an understanding of their performance measures and metrics, and how a new WMS could enhance their performance. You might face some resistance from finance teams with short-term cost-cutting goals, creating obstacles to further investment. But highlighting the opportunities to gain further market share and revenue from your competition can help you make the right decision.
4. Are we struggling to maintain compliance?
Companies constantly face the risk of failing to comply with government and industry regulatory requirements on inventory audit, quality, security, traceability and safety due to the limitations of their warehouse management systems. Some industries like healthcare, defence, medical devices etc. are already familiar with strict compliance requirements, but it can be cumbersome for other industries. Compliance teams can help you ensure better alignment by offering support for compliance-related requirements. Avoidance of non-compliance fines and bad publicity can be useful levers with the finance, legal, and sales and marketing teams.
5. Are our 3PL warehouse operations effective?
Are your warehouse operations outsourced and are they likely to be brought in-house? It is possible that although logistics activities were outsourced in the past, specialized logistics capabilities are becoming core to your organization’s competitiveness. If you decide to move your operations in-house, a robust warehouse management system is critical to support all warehouse activities in an efficient manner. You need to choose the right solution based on the complexity of your existing operation as the level of complexity will impact the type of solution, total cost, resources and implementation effort required.
Sometimes, it might make sense to deploy your own WMS even while partnering with a 3PL, such as situations where you are happy with the 3PL’s service and pricing, but its systems are immature. You could have a presence in some regions where the choice of 3PL support is limited, but you wish to collaborate and standardize your systems across your network or in scenarios where the relationship is short-term, where you are using your own facilities and might decide to switch logistics service providers in the future. Determine whether you should use a 3PL’s WMS or your own to manage your warehouse or distribution center operations.
6. Can we meet growing customer expectations?
Are you at risk of failing to meet growing customer needs, resulting in lost revenue? Or is your business taking on new types of customers or business activities it has not dealt with before? Customers are progressively more demanding and fickle, and they expect their trading partners to rapidly adapt to and accommodate their needs. This is especially true with multichannel and e-commerce, where customers now demand instant fulfillment of high volumes of small and often-customized orders. Changing customer requirements and increasing volumes can also fuel the need for new capacity. A new, functionally rich warehouse management system can help manage that increased capacity and reduce operational costs.
Building a Business Case for a WMS
It is important to gain buy-in for your business case with relevant arguments. Clearly articulate all the benefits, even if it is difficult to quantify, and explain all the risks. Changes in priority, management restructuring and politics often derail upgrade projects. Therefore, you must highlight how even small benefits can help achieve the company’s goals. However, you must be transparent about the downsides of making the change, and risks to the project and business units. Stakeholders will appreciate early indication of where they may need to change their approach and are more likely to be supportive if they are involved in the process.