Warehouse Management Systems are necessary components of supply chain infrastructure in the 21st century. Whether you are in the market for the first time or looking to replace an older system that failed to keep pace with technology, deciding what system to purchase is a big, mission critical decision.
Too often, companies overly focus on the price tag of the software when making a decision between competing WMS. But that estimate of the warehouse management system’s price doesn’t include all the costs incurred when implementing a WMS.
Let’s look at the main costing components to understand why this is so.
SOFTWARE LICENSES
There are different types of licensing arrangements but generally license costs are clear and straightforward based on the number of concurrent or total users of the WMS. Typical costs range from $2,000 to $3,500 per user.
HARDWARE
Like software licenses, these costs are clear and straightforward based on the type of equipment being purchased such as RF scanners, printers, voice terminals, etc. You can purchase hardware through the WMS provider or use their specifications to shop for the equipment directly. Hardware costs are rarely more than 10-20% of the overall solution cost.
WAREHOUSE PREPARATIONS
The warehouse requires a host of things to be ready for the WMS, such as:
• WiFi network with coverage throughout the warehouse
• Labels with barcodes and check-digits for every location inventory may sit (reserve, pick, staging)
• Wiring for charging stations (RF Guns and/or voice headsets, printers)
• Up-to-date layout with sufficient information to properly characterize each location (e.g., slot dimensions)
While small expenses relative to the entire WMS project, these are critical expenses that need to be in the budget.
CONFIGURATION
Configuration and professional services by the software company selling a WMS can take up 50% of a WMS budget. WMS suppliers will deliver a project team whose hourly rates can range from $150 - $250, and travel will be an additional cost.
Typically, professional services are not only the largest portion of the budget but the most variable as well. WMS projects routinely end up with 30% more hours spent on the project than initially projected. This isn’t simply a matter of WMS vendors being bad at estimating hours: the client will play a major role in creating more hours. Configuring a WMS becomes an iterative process where some of those iterations are due to a client’s lack of clarity and attention in the early configuration sessions.
INTEGRATION
Integrating the WMS to other core systems, such as the ERP and/or TMS, will come with at a price – even when the WMS is a module of an existing ERP system (for example, SAP’s EWM). From the WMS end, integration will be included within the envelope of professional services that come with the configuration.
However, you should expect additional costs to engage your ERP vendor to work their end of the integration. While the ability to transfer data across systems has become relatively straight-forward, these costs are generated by hourly billings and can quickly add up if not tightly managed.
IMPLEMENTATION GUIDED OUTSIDE CONSULTANTS
Very few companies should attempt to implement a WMS without expert guidance. That guidance will not come from the WMS vendor who is, at best, indifferent to many operational decisions. Outside consultants who have proven experience in implementing WMS bring a wealth of knowledge about the operational, informational and project management decisions that have significant, lasting impact post-implementation. They play a critical role in controlling time & budget and arbitrating among different parties on the team.
Like the professional services of the WMS vendor, this cost will be highly variable and generated by hourly billings. These costs can become quickly uncontrolled if a project team falls into a dangerous rhythm where it overly relies on the outside consultant to move the project forward.
INTERNAL RESOURCES
You must allocate internal resources to the project. You will need dedicated resources from operations and IT who will, post-go live, inherit the system.
Furthermore, you will need to draw on resources at various times in the project across various departments such as:
• Operations for configuration, testing and training
• IT for configuration, integration, hardware set up, testing and training
• Finance for inventory control issues
• Purchasing, customer service and sales for orientation and communications
FINAL THOUGHTS
This blog introduces the major elements of a warehouse management system’s cost. There are a hundred different ways a WMS budget gets blown – some of them legitimate and worthy – others wasteful and downright frustrating. In future posts, I’ll focus on how you can control major cost elements so you avoid unnecessary expenses.
For now, I’ll end with one bit of advice: it starts with selecting the right system.
