How to Measure the ROI Of Warehouse Management System

Measuring the ROI of a warehouse management system (WMS) is an important step in determining the system’s overall effectiveness. ROI is a metric that compares the benefits of an investment to its costs, and it can be used to assess the value of a WMS in terms of cost savings, improved efficiency, and increased revenue.

There are two categories of measuring WMS ROI: tangible ROI and intangible ROI. It’s important to understand both of these types and their subsets before we talk about how to measure the ROI of a warehouse management system:

Tangible ROI

Measurement of tangible ROI is quite simple. You just have to compare your pre-WMS data with your post-WMS numbers by looking at warehouse KPIs. These include:

  • Cost per item
  • Volume per employee
  • Products selected by each employee (average number)

Intangible ROI

The gains that you observe after implementation but that are difficult to quantify are referred to as intangible ROI. This category includes employee happiness as well as things like more transparency, simpler access to data and insights, and enhanced teamwork.

It’s not hard to quantify the advantages in this category, but it will require some careful consideration. You may quantify this type of WMS ROI indirectly, for example, using the staff retention and absence rates indicated above as examples of how to gauge employee happiness.

Support ROI

Although considerable, support ROI is challenging to quantify due to its fluctuating nature. A new or enhanced WMS is one example of how it might qualify you for new chances. For instance, certain clients can demand EDI capabilities from their supply chain partners. If your new WMS has this, you may be able to bid on more chances.  This will sometimes be referred to as capability and, as explained before, be a pass/fail check on being able to attract certain customers or to provide services such as same-day picking.

Ways to Measure ROI of Your WMS

Now that you know the types of ROI, it’s time to know how to measure it. Here’s how you can do this:

Track the Impact on Warehouse Operations

These metrics will generally match the ones you used prior to the implementation.  You want to track your productivity before and demonstrate the delta between before and after.  This includes monitoring metrics such as inventory accuracy, picking and packing times, and shipping and receiving times.  Best practice is to track them before, during, and after the implementation to demonstrate that the WMS had a direct impact on success rather than a placebo effect.

Monitor Labor Cost

The ROI of a WMS can also be measured by monitoring its impact on labor costs. This can include monitoring metrics such as the number of employees needed to perform warehouse operations, the number of hours worked, and the cost of overtime. By comparing these metrics before and after the implementation of a WMS, it is possible to determine the system’s impact on labor costs and overall employee productivity.

Analyze Inventory Management

In addition to these operational metrics, you can track the system’s impact on inventory management to measure the ROI. It works by monitoring key metrics, such as inventory accuracy, stock-outs, shrink and swell, and the number of products that are overstocked.

Track the Impact on Customer Satisfaction

There are many factors of warehouse management that impact customer satisfaction. These include on-time delivery, order accuracy, and returns. You can infer the impact of a WMS by comparing these factors before and after its implementation.

Considering Indirect Benefits

Implementation of WMS offers numerous indirect benefits. These include improved data visibility and better reporting capabilities.

You can consider these indirect benefits by tracking the number of data-driven decisions made by the warehouse managers, the effectiveness of the decisions, and the impact on the bottom line.

Establish Clear Goals and Objectives

To measure the ROI of a WMS, it is important to establish clear goals and objectives before the system is implemented, and then to track the relevant metrics both before and after the system is in place. By comparing these metrics, it is possible to determine the system’s impact on warehouse operations, labor costs, inventory management, customer satisfaction, and overall business performance.

Wrap Up

Overall, measuring the ROI of a WMS is an important step in determining the system’s overall effectiveness. By tracking key metrics both before and after the system is in place, it is possible to determine the system’s impact on warehouse efficiency, labor costs, inventory management, customer satisfaction, and overall business performance. By understanding the ROI of a WMS, warehouse managers can make informed decisions about the system’s continued use and make adjustments as necessary to maximize the system’s benefits.

The key, however, is the selection of the right tool. This is why you should only choose one after thorough deliberation and research.

Learn about the industry’s most modern, effective, economic, flexible, and rapidly growing warehouse management system tools on the market. These solutions streamline crucial warehouse management tasks including paperless picking, packing, shipping and customer service workflows.

Through automation and real-time inventory visibility, best-of-breed warehouse management systems help businesses achieve +99% order accuracy, fulfillment in under 24 hours, and value in a very rapid timeframe.

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