WMS by the Numbers

When it comes to warehouse management systems, the stats are both shocking and thought provoking. Here are the numbers you need to know


Believe it or not, consultants provide an unbiased evaluation of your processes and potential vendors. They have no emotional ties to the current way you process your transactions. Many companies that automate their inefficient processes and procedures on their own only end up doing do things wrong faster.

Trying to transform your warehouse to an efficient distribution center is really not something you want to do alone. Think about your warehouse for a second. Your warehouse provides the fuel your organization needs to run. You may complain about high gas prices for your car, but the fuel that runs your distribution center or your supply chain is so costly that its value ranges between 6 percent and 20 percent of your organization's annual revenue. In layman's terms, a $100-million organization will have somewhere between $6 million and $20 million of fuel in its warehouses.

Think about the type of fuel your organization and supply chain runs on: inventory. Other than your people, nothing is more valuable to your company's success. Let's look at the real value of that inventory fuel.

Let's assume your organization makes 4 cents on every dollar, which means for every $100 of lost inventory, the company must to generate $2,500 in new sales to replace that $100 of lost inventory. Think about the effort your highest-paid people must exert to generate $2,500 worth of sales. It's no secret that the highest-paid people within your organization are salespeople. Think about why they are the highest paid in the company — mainly because it takes a minimum of five visits to make a sale, and it costs three times as much to get a customer back than it does to keep an existing customer.

As an operations person, you may think salespeople are worthless and cause you all kinds of headaches, but in actuality, nothing happens until somebody sells something. And salespeople cannot efficiently or effectively perform their jobs if they do not know what's in inventory. That's why it's crucial to involve a consultant to help select a system based on your current needs and your future requirements.

The next three number regarding WMS systems are pretty startling, too.

30, 42 and 56

More than 30 percent of all WMS implementations fail. Only 42 percent are implemented within budget. And, 56 percent of the implementations are delayed.

When you add the fact that it takes nine to 12 months to implement and 24 to 36 months to realize a return on your investment, you begin to wonder if a WMS system is really worth it.

When you work the numbers, on a potential $1 million investment you won't see that money back for at minimum three years time — and that is if everything goes perfect. If everything does goes as planned, your return on investment could take four years or longer. By then, your business model might have changed so much it will be time to invest in the next new thing, if your organization is still around.

You may be wondering where that last statement came from: A WMS is the one piece of technology that can shut your business down if not implemented correctly. Why? Because most organizations make dumb decisions. Why do they make dumb decisions? Because without the assistance of an outsider, "You don't know what you don't know!"

Another example of a bad decision that most senior executives make when investing in a WMS system is implementing it at their corporate location's distribution center first. Typically located at the company's headquarters, executives often want to implement where they can see the progress. And because the headquarters' warehouse is usually the largest, executives think a return will be realized much faster because of the volume. But when satellite locations are dependent on that corporate location, what happens when the hub has the sniffles? It becomes the flu at the locations downstream.

Look at FoxMeyer, WebVan, Adidas, Nike, Builders Plumbing Supply, Toy's R Us and many others. Three of those companies are no longer around, two saw their stock price plummet as much 20 percent, and one gave up and turned its fulfillment process over to a third-party logistics provider. All because of a WMS system.

Some of you are probably wondering what the value of a WMS system is. The following numbers show the justification.

300 vs. one

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