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A company investing in a WMS application expects that the performance of the system will create a return. If management does not expect a return on investment, the purchase of a WMS application is just an exercise in asset pimping. No management team in its right mind goes through the effort to invest in a WMS application for any other reason. Management teams invest in WMS applications to deliver a return on investment.
While many think that is an obvious statement, there are companies that do not define an ROI for the investment. You might think that this is crazy. There are companies that expect an ROI, but they do not define the expected ROI. To those managers, the exact ROI number is not worth the effort to calculate.
If you think it is crazy, join the club. I think it’s crazy too; not that you should have a return on investment, but that in so many cases when companies define an expected ROI, they measure the wrong activities and grossly underestimate the actual ROI. It is crazy because many of the expected savings used in the ROI never materialize. It is crazy because the companies could have gotten the same ROI without the investment in the system. It is crazy because some of the savings come in spite of the WMS investment.
We hear about this secret when senior managers of companies share with us their disappointment in the systems. They tell us how they failed to understand the labor required to manage the process and the training issues. They lament the lack of reporting and data access from their systems. These senior managers complain about not getting the expected return.
We hear about this secret from managers at companies looking at replacement WMS applications. These managers share their misgivings about the old systems, but they compare the low costs of the existing systems to the higher cost of the new systems. These managers are confused about the functions of the new systems—the function names are the same from system to system, but no two systems operate the same way. Fear, uncertainty, and doubt (FUD) sets in as the managers become weary of the different systems.
We hear about this secret from the WMS vendors who tell us that their customers are unable to get the expected benefit of the system. We hear about unhappy implementations with unexpected scope changes. We also hear cynical comments about how the project always grows as the customer starts to learn in implementation what they should have known in the selection process.
If you are in the process of looking for a new WMS, if you are working with a new WMS, or if you are helping a customer after the implementation of a new WMS, you probably have heard the same comments. Perhaps you ask yourself these questions: Why did these companies fail to get the expected benefit? Who made the mistakes? When did they realize that they were not getting the expected benefit?
Those are the wrong questions to ask.
Why did they fail? Who made the mistake? When did they realize it? Those are the obvious questions, and they have obvious answers.
Part of the art of getting a WMS application to create magic, is in asking the right questions. These are better questions to ask:
Define your expectation and you define your outcome. Is the outcome something that you desire? Think about Newton’s law—every action creates a reaction. Think about the action first without knowing the potential reaction, and you have an unintended (and undesired) outcome. But if you first define the outcome as something you desire, and then think about the actions that create the desired outcome, you get what you expect.
The obvious end that managers launch for is creating savings. By stating that they want to reduce costs, they believe they are working toward a desired outcome. They want the system, but know that the system must create sufficient savings to justify the investment. That is how many companies approach a new WMS, purely as a savings question. To feed this need, WMS vendors create spreadsheet models for ROI analysis. The vendor collects payroll (and sometimes productivity data) from the prospect, and then applies estimated labor cost reductions based on the vendor's experience working with other like customers. The phrase “our customers typically experience a 15 – 20 percent improvement in picking productivity,” shows up in many of the models that our clients share with us.
A 15 percent improvement in productivity is impressive. Frankly, we don’t care about impressive, we care about sufficiency. Is a 15 percent increase in productivity sufficient? For some clients a 50 percent increase is woefully insufficient; for others a one percent improvement is sufficient. The problem is that many companies don’t know how much improvement is sufficient to cover the cost of the WMS. The costs related to these systems can be huge, double-comma price-tag huge (millions), when you consider the total cost of the license, consulting, development, hardware, training, and the downtime of the implementation. A million dollar system is not that far out of line for a large multi-DC implementation.
Many WMS projects fail to generate a sufficient ROI because both the vendors and the users focus on just productivity gains. They miss the mark by failing to ask the right question: “What is possible?”
Do you remember the comment at the top of this article? Let’s review.
There are companies that do not define a ROI for the investment in a WMS. They expect an ROI, but they do not define the expected ROI. To those managers the exact ROI number is not worth the effort to calculate.
These few, brave managers justify the system with the idea that the ROI on the system is, in theory, limitless. They argue that the only limit is their will to change the process and their imagination to define the possible.
Crazy? Perhaps not.
These managers argue that the constant search for waste in their operations is worth pursuing. They discover in their pursuit that much of the waste is in a process dictated by their systems. These same managers find that by using their imaginations, they eliminate so much waste in the process that the real challenge is not having enough features in the WMS, and the problem is all the inflexible features in the WMS.
These managers frame their desired outcome by asking questions that start with what, where and how. What does the customer value? What can they do to “wow” the customer? How can they deliver that value? Where can they inject the benefit customers desire? Where is the muda (無駄) in the process? How can they remove (無駄)?
To these managers, if these questions are answered, an ROI that dwarfs what a WMS vendor projects is sure to follow.
That is a heck of a desired outcome. I don’t think it is crazy. Do you agree?