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Warehouse Management System Cost
It is a generally accepted notion that installing a Warehouse Management System is a good way to control, or even cut, costs while improving efficiency in a warehouse operation. After all, the anecdotal accounts are prolific and convincing. Even conservative estimates place the cost savings to be generated from implementing a Warehouse Management System at between 10 and 35 percent. However, when a particular warehouse business is considering installing a WMS and seeking a way to measure whether or not the system would generate a concrete return for the company, there are some ways to analyze the costs and benefits that can provide reasonably solid figures from which to make a final decision.

The key ingredient for conducting an effective cost-benefit analysis is a very clear understanding of the current procedures and processes that are already in place. Two major areas must be thoroughly analyzed: identification of current costs and potential cost savings on labor, and identification of current productivity levels along with a realistic estimate of how those productivity levels could be increased. It is important when performing the analysis to assign concrete numbers based on industry standards to each category.

For example, it is no secret that labor is a major cost in any warehouse operation. Therefore, when preparing a cost-benefit analysis the cost of each area of labor must be thoroughly documented. How many forklift operators are currently employed, for instance, and at what gross rates of pay? If some of those positions could be eliminated, how much would the company realize in saved wages? If two picker/packer positions can potentially be eliminated at a cost of approximately $25,000 each per year, then a total of $50,000 can be assigned to that category.

While labor is the biggest expense involved in most warehouse operations, the smaller ones cannot be disregarded when preparing an appropriate cost benefit analysis. For example, it must be determined how many paper documents per year could be saved by the WMSís ability to gather data and generate reports electronically. The cost of each sheet of saved paper (25,000 x $.10@ = $2,500) should be factored into the analysis.

While that sounds simplistic, performing a complete, detailed analysis of every labor area complete with current and projected costs to the company, is not likely to be trivial. Furthermore, it is vitally important to have that information available in order to understand exactly how much a WMS system could generate in savings throughout the operation. Neither is it sufficient to take a one-time glance at a particular area of labor operations and take that snapshot as the overall picture. Each function, with its associated costs, must be mapped out over a specified period of time (say, a month or six weeks) in order to gain a clear perspective of how those costs function day in and day out.

Potential areas of savings lie in reduced inventory, quicker turnaround times, availability of real-time inventory data, reduced returns, and much more. The anecdotal evidence indicates that a WMS system can generate inventory accuracy that is as near to perfect as possible. That means that inventory can be reduced and less safety stock kept on hand.

The areas of potential cost cutting are myriad and they vary from operation to operation. Therefore, it is critical that a cost-benefit analysis be performed for each individual business, taking into account each of the many warehouse operations that could be impacted by the WMS.
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