Phone
Email

Information at mwpvl.com

Linkedin

How to Buy a Warehouse Management System (WMS)

How to Buy a Warehouse Management System WMS

Background Information

The warehouse management system (WMS) market is now roughly 30 years old and approximately $US 1.6 Billion in total revenue.  Much has changed since the 1980’s when the early pioneers were developing the first software systems to automate distribution operations.  Highly customized WMS projects have more or less become a thing of the past as the market has matured.  Today, WMS solutions are functionally sophisticated, productized, and architected with amazing technology platforms to maximize flexibility.

Having said all of the above, the software industry is and likely always will be a “buyer beware” shopping environment.  While the era of snake oil salesman has given way to a more “consultative sales approach”, the imperative to shop wisely is always the responsibility of the buyer.  This article walks the reader through some key points that we have exercised over the years when helping clients select WMS and other mission critical supply chain software applications

How to Evaluate, Select, Negotiate and Acquire a WMS Solution

  1. The Business Case
  2. The most important first step in the process is the development of a compelling business case which identifies the economics associated with acquiring or replacing a WMS solution for the business. Why?

    • This process will force you to provide an expectation of investment requirements, new ongoing expenses and financial benefits associated with the acquisition and deployment of a WMS.
    • The process is often difficult to perform with internal resources because (a) you don’t know what you don’t know; (b) obtaining meaningful and accurate cost and benefit data can be challenged by tunnel vision and a lack of experience; (c) a professional expert may be able to uncover efficiency and accuracy improvements that are independent of a WMS so that the cost justification of a WMS is not artificially padded; and (d) the right external resource will provide an unbiased and politically independent perspective that is in the best interests of the firm.
    • If you do use an external expert to develop the business case, avoid using any type of free service provided by a WMS supplier, or even a paid service offering from a WMS provider.  The WMS vendor has one goal - to get you to buy their software.  Therefore their perspective is biased. As such, the vendor will likely overstate the expected financial benefits versus an independent and unbiased expert with no bias tied to the outcome of the recommendation.
    • This process will require that you identify all standard material flows and information flows that will need to be supported by the WMS including the integration requirements to other applications which are inherent with a WMS solution.  At a minimum, WMS must talk to a host system which manages order processing, purchasing, accounting, inventory management, production and planning.  Also, there may be integration requirements to a transportation system, scheduling system, yard management system, supply chain visibility system, etc. The degree of complexity associated with the integration effort will depend on the operating complexities that need to be managed by the technology solutions in place to support your logistical requirements.
    • The business case will set management’s financial expectation for the WMS solution.  If the cost justification is longer term, then it is important to understand this in advance because many businesses acquire WMS solutions for reasons that are not strictly financial. The acquisition of a WMS often can quite simply be the cost of doing business, or it may be a requirement to provide world class customer service, quality, and accuracy.  In fact, more often than not, the business case for a new/replacement WMS for a well-run warehouse will depict a low ROI - but this is rarely a show stopper.  A good business case will be approved every time if it is the right thing to do for the business and the appropriate level of due diligence has been performed.
    • The conclusion of this first step is an approval from the executive management team for the proposed budgetary requirements for a turnkey WMS solution.  Once executive commitment has been achieved, the process of shopping for a WMS can begin.  Many companies go too far down the path of shopping for a WMS only to receive the “kiss of death” at the eleventh hour because the company does not approve the capital expenditure request.  The key point is to have funds approved in full before you spend your time and money and the time and money of the vendor community.  If everyone followed this protocol then software systems would be much less expensive to buy because vendors would spend less money on their sales and marketing efforts.
    • See below for an example of a WMS Business Case Financial Summary.
Go Back to White Papers
Sample WMS Business Case Financial Summary
  1. Preparation and Reengineering
    1. Insufficient preparation is the reason why most companies purchase the wrong software. Companies often acquire WMS software with the assumption that the software must be flexible and functionally rich enough to handle their business requirements.  The world of distribution is so diverse that it is very difficult for any one packaged application to cover the functional requirements for all industries and countries.  There have been countless instances where companies have purchased the wrong logistics software because they failed to perform the proper due diligence when purchasing a WMS application. In short, make no assumptions about the solution or vendors that you are working with - regardless of how big they may be.  Your unique business requirements must be explored and defined well in advance of approaching the vendor community.
    2. An important aspect of planning is assembling the right project team up front whereby this team may include both internal and external resources.  At a minimum, you should have representatives from warehouse operations, transportation operations, customer service (i.e. voice of the customer), purchasing, production, accounting, information systems, and human resources on the team.  For unionized environments, it may help to have a labor relations representative on the team as well.  Ideally, the distribution representatives that are assigned to the project are (a) change agents who have authority to make decisions; (b) forward thinking people who are hungry for change because they recognize the deficiencies of the current operation; (c) individuals who are committed to working hard throughout the duration of the project; and (d) people who are respected by their peers because they will be carrying the torch into the warehouse to deal with the warehouse associates who will have anxieties (real or imagined) about the new system eliminating their job.
    3. Reengineering may or may not yield any major changes in your processes and information flow.  The probability is that if this is the company’s first WMS solution then indeed there will be some fairly major changes to the current operation that must be understood during the preparation phase.  An experienced WMS professional will understand these issues and will help to cut to the chase quickly, particularly if that individual has experience with multiple industries, applications and vendors.  The key to success is to develop a document that charts all process and information flows for current and projected operations.  The main reason for documenting current operations is to ensure that nothing is forgotten about.  You will need to document all of the main warehousing work processes including peripheral activities such as work orders, kitting, transfers, returns processing, etc.  The development of proposed process flows may require external help to ensure that the most efficient and effective practices are deployed.
      • Reengineering is one part art and one part science.  Often the warehouse solutions that generate the most return on investment are the ones that involve multiple components such as changes to the physical facility layout, changes to material handling equipment, changes to process flows, and changes to how product is organized or stored within the facility.
      • A new WMS will only be able to help productivity to a limited extent if these other changes are not implemented as part of the reengineering effort.  Otherwise the WMS could just be a system that enables you to do bad things faster.
    4. When developing proposed process flows, be sure to avoid the urge to develop the Holy Grail wish list, but rather create business requirements that reflect your realistic business needs.   There are a number of “boilerplate” WMS RFP templates available which some companies use to get started.  Keep in mind that all of the vendors have seen these off the shelf “WMS RFP templates many times in the past. This is usually a dead giveaway to the vendors that you have likely invested little time in developing your business-specific requirements and suffice to say that this situation benefits the vendor.
    5. If you rush headlong into the process of purchasing WMS software because of some self-imposed time constraint then just remember that poorly defined business requirements are the number one reason that companies over-modify the software being purchased.  Also, well defined business requirements help to minimize the common issue of scope creep whereby every decision maker wants every minor issue to be resolved by the new system.  Many existing issues go away with a WMS because of the disciplined operations methodology that these systems impose on the warehouse; therefore it does not pay to develop custom enhancements for many issues currently in place.
    6. The conclusion of this second step is a well-defined document of current and proposed process flows combined with proposed transaction volumes.  These documents are provided to select vendors to ensure that they have solutions that can support the specifics of your operation.  It is important to keep in mind that a certain degree of flexibility is required when defining your proposed process flows because vendors may have solutions that differ in approach and these solutions may in fact be more effective than your proposed approach.  This is a judgment call that needs to be made where gaps in functionality occur.
  2. Taking Control of the Software Evaluation Process
    • As mentioned earlier, once you develop an RFP for your proposed WMS solution, it will be sent to select vendors that have appropriate qualifications for your industry, technology platform requirements and geographical location.  At most, companies typically send out the RFP to about a dozen firms give or take.  The vendors should be allowed between 3 - 4 weeks to respond to the RFP.  Vendor questions should be allowed during this time period and the questions & answers should be shared with all suppliers.  If a site visit is requested by the vendors then this would be a good time to allow vendors to visit a representative site.  This will enable the vendors to better understand your requirements so that they in turn can focus on solution selling.
    • The standard RFP document needs to provide the WMS supplier with sufficient information to develop a good bid response.  Typical sections of the RFP may include:
      • Background information on your company
      • Variety and type of products being distributed
      • Distribution facilities - locations, sizes
      • Direct and indirect employees working within each facility - by job function and shift
      • Transaction volumes for average and peak days (e.g. outbound order lines)
      • Current technology platform and software applications used to run the business including a description of any existing warehouse software in use. Document all software and hardware standards in use today and provide diagrams to illustrate your existing IT infrastructure.
      • Clear guidelines as to exactly how the RFP’s system functional requirements questions should be responded to.
      • System functional requirements checklist that details out your questions pertaining to your specific functionality requirements.  This will be the meat of the document.
      • Vendor service requirements that you expect to receive for support, implementation, etc.
      • Flow diagrams for main operational processes such as receiving, putaway, replenishment, order planning, order picking, packing, loading, shipping and inventory control.  Keep in mind that these processes need to be defined not only for the main warehouse transactions such as purchase orders and sales orders;  you will also need to define process flows for the handling or warehouse transfers, sales returns processing, vendor return processing, value added services in the warehouse (e.g. work orders, kitting, recalls, etc.).
      • Specifications for any peripheral technologies being included within the scope of the WMS project such as radio frequency devices, pick to light, voice directed picking, etc.
      • Specifications for any subsystems that need to be interfaced to the WMS such as warehouse control systems to manage material handling equipment.
      • Specifications for any transportation software to be interfaced to the WMS including outbound load planning/routing software, shipment manifesting systems, outbound load optimization software,  etc.
      • A detailed description of the main files / data elements to be interfaced to the WMS including  purchase orders, customer sales orders, customer and vendor return orders, inter-warehouse transfers and inventory adjustments.
      • A request for at least several vendor customer references from similar industries and/or distribution environments.
      • A request for the vendor’s financial statements for the past 3 years.
      • A proposed project schedule / timeline for the WMS purchase and implementation.
      • Legal verbiage, warranty terms, etc.
    • Ultimately you will want to reduce the prospective vendor list to no more than 3 - 4 vendors and I firmly believe that the vendors should be told who they are competing with because they will likely find out through the grape vine in any case.  The vendor RFP responses will only tell one part of the story since most vendors are likely to overstate or exaggerate their capabilities when responding to your questions.   The quality of the RFP responses and the vendor’s financial statements tell an equally important story.  Any vendor that is showing consecutive financial losses may need to be scrutinized for stability since they may be a candidate for acquisition or for bankruptcy; and neither of these scenarios is appealing to a technology buyer.
    • Once you have shortlisted your WMS vendor list down to 3 or 4 prospective companies, you will want to organize the vendor demonstrations.  A WMS software demo typically takes a full day and 2 days if you need to explore peripheral solutions such as labor standards, slotting, etc..  Your next homework task is to control the vendor demos through the development of software demonstration scripts. These scripts define precisely which process flows you want to see unfold within the demo and often they provide sample data to the vendor so that you can better relate to the on screen information being presented.  For example, you may have a script that requests the vendor to show how a picked order can be audited at the time of checking.  Time limits should be established for each process flow and limitations should be placed on the amount of time that the vendor can spend in PowerPoint presentation mode.
      • A software salesman once said to me that the best software demos are the ones where the vendor doesn’t show a single screen! I found this to be an odd statement but this statement pretty well sums up the way that many software sales people think.  The sales representative perceives that there is risk to showing too many screens to the buyer because they will likely uncover some sensitive functional shortfall or other issue that creates discomfort.  The sales representative can minimize risk by maximizing the time spent outside of the application by showing things that provide maximum sex appeal such as business intelligence reporting or pretty PowerPoint slides.
      • If you don’t take total control over the agenda then the vendor will set the strategy in terms of how time will be spent when you are together in the room.  Clearly, the vendor’s strategy is to deflect time away from areas or topics where they are at risk.  Therefore, all aspects of the software acquisition process must be controlled by the buyer to ensure that you maintain a disciplined focus on the issues that matter most to your business.
    • During the vendor demo process, you will undoubtedly be hearing the vendors talk about certain features that will be in the next future release of the software.  In short, regardless of what is said during the vendor demo, don’t believe everything you’re told and don’t bank on future releases.  A future version release will always be subject to change based on pressures that the software developer faces from both existing and prospective customer accounts.  There is only a limited amount of money that a software company can spend on R&D (typically around 15% of net sales revenue) and if a larger customer signs a contract and insists on certain features going into the generic application then they will have more clout causing other features to get bumped to a future release.  The best way to approach this is to assume that any promises for future enhancements should not be depended upon.
    • During the vendor demos, all of your team members should be provided with the standard vendor demonstration scripts that you have developed.  A section is made available for them to score the vendors for each process flow.
      • This is show-and-tell time. You and your team need to be paying full attention when the vendor is in the room presenting the software.  Have plenty of coffee and tea on hand, keep the room a little cooler than normal, and avoid heavy lunches.
      • Make sure that each member of your team has a place to record open thoughts on each process flow being reviewed so that they can indicate if there are concerns about functionality, responses provided, etc. In other words, give people a chance to express themselves.
      • Watch for the body language of the vendor’s team members.  The software presenter is typically the most conversant on the vendor’s software capabilities and if he or she deflects questions too many times (e.g. I need to get back to you on that one) then this is not a good sign.  This is called an avoidance technique and is a common vendor tactic to sidestep sensitive software deficiencies.  Record every one of these on an issues list so they are not forgotten.  Also, if the sales representative curbs the vendor’s software presenter too many times then this is also not a good sign since the sales representative’s role is to control the audience and the presenter to keep things on track.  The over-controlling sales representative is a dead giveaway that there may be something to hide.
      • I have seen some companies videotape the demonstrations but usually the vendors don’t like this because of the fear that the recordings may end up in the hands of their competitors.  At a minimum, they will seek a signed document to protect themselves against this sort of thing and who can blame the vendors?  I have seen a few companies openly share competitor tapes with their selected WMS software partner and this is simply unethical.
      • Be sure to leave time for a post-audit of the vendor demonstrations with the entire team on hand.  This session is intended to share thoughts and concerns in an open forum environment that excludes the vendor.  Typically, the majority of the team will be leaning towards a common vendor/solution at this time because of the freshness of the demonstrations.  Now is the time to pull concerns from people because the collective audience will have far more insight than any one individual.
    • Following the demonstrations, it is time to short list the one or two selected vendors with whom you will proceed through the remaining process of contract negotiation and closure.  Some companies like to keep 2 vendors in the negotiation process just to keep the preferred vendor honest, knowing full well which vendor will be eliminated.  My opinion is that the vendors have worked hard to win your business and there is no sense in having a vendor spend more time and money on your account if they are definitely not a candidate for your business.  They may not like being disqualified following the demo, but they need to move on to accounts where they can win new business.
    • An important and often overlooked process in the software purchase cycle is “The Conference Room Pilot” which is critical in any environment that has a high degree of project cost and/or risk.  The CRP is expensive for the vendor because they will need to spend money to send representatives on your site usually for a 3 - 5 day time period.  Your company should expect to reimburse the vendor for their time and expenses to conduct the CRP at your site. 
      • Though the CRP costs money, they remain the most cost-effective way to avoid a costly WMS failure. The CRP is where the rubber hits the road because the vendor is now test driving the software based on your specific operating requirements.
      • Now is the time that the promised system features are demonstrated in front of the audience using your business scripts. The vendor’s most skilled representatives should be in the room because they recognize the risk associated with losing the deal at the eleventh hour.  The software expert(s) who are vendor power users will be vital sources of information and you will want to maximize the amount of information that you can obtain from them.  Be sure to let them do the talking and avoid the pitfall where you articulate thoughts on how the system performs a given function or process.  If you happen to say something that is false, then you said it - not the vendor.  In a dispute, the vendor can rightfully state that they never made such a claim and they would be correct in saying so. The best way to avoid this common mistake is to always ask questions rather than making statements.
      • Similar to the vendor demonstration, at the conference room pilot, make certain you control the agenda. Videotape the CRP (if possible) and take diligent notes, as this may be evidence if litigation is pursued in the future. Always err on the side of asking too many questions and take nothing for granted. Take the time to observe the behavior of the presenters and watch for telltale signs of multiple software versions being active simultaneously. The vendor should only be showing the version of the software that you are buying.
      • Other tips: (1)  Use your data during the CRP and avoid using canned vendor data; (2) Provide the vendor in advance with a series of test scripts that you need to see during the CRP; (3) Document all bugs that arise and put these issues in writing into your contract to ensure that the vendor is responsible for fixing the issues at their expense; (4) Lastly, your team should man the keyboard during the CRP because this is the only true way to experience if the software is designed for ease of use.  Treat this as a training environment.
  3. Due Diligence - Evaluate the WMS Supplier Company
    • Some companies focus too much on the software solution and not on the importance of the partnership to be built with the vendor. A visit to the vendor’s offices can be of great benefit.  There you can take the time to study how new software versions are developed and released. Take the time to talk to the support staff and look into the support desk logs to understand the frequency of software versions and bug fixes that ultimately reflect how your support services will be provided.  Are there many mission critical bug fixes that take long amounts of time to fix?
      • On one visit to a smaller WMS supplier, while walking around the offices in search of the restrooms, it was easy to notice dozens of unmanned work cubicles with dusty computer terminals which was a visual cue that the company had recently laid off a fairly large percentage of its staff.  This suspicion was confirmed several months later when the firm shut down and declared chapter 11.  The moral of this story is that the visit to head office helped prevent a significant loss of money for the software buyer.
    • Be aware of software implementations performed by value-added resellers rather than by the vendor itself. The use of a vendor partner to assist in the implementation process is not uncommon in the WMS industry, especially for larger WMS firms who partner with integrators to help balance their workload and staffing requirements.  Specialized system integration firms may have a wonderful talent pool to tap into but it is important to meet these people up front during the sales cycle because they will likely be important contributors to a successful implementation.  Be sure to study their approach to implementation because this should be standardized based on their experience in the field.  Needless to say, you will want to perform reference checks on any implementation partners you bring to the table.
    • Check to see if the company has a user’s group and a user conference. All of these factors impact the long term partnership that you will be building with your vendor.
    • Request information about open litigation against your prospective vendor and request detailed company financial statements for the last 3 years. Study the vendor’s services revenue as a percentage of total revenue because this will likely reflect your experience in terms of total cost of ownership for the solution.
    • Client references are the most important due diligence item on your agenda and as such you should prepare for these with a disciplined approach.  It is important to have a written set of questions to ask the reference to discern meaningful information as to the success of their project.  Keep in mind that some vendors provide incentives to customers who are willing to provide positive references so try to use common sense if a review appears to be overly glowing.  I strongly recommend on site visits to representative warehouse operations that are live on a recent version of the software so that you get a better understand the level of support that the client received during the implementation cycle.  It is preferable to visit fresh installations because the company will have good advice on what they learned and WMS pitfalls to avoid.
    • Under-budgeting is a common pitfall that many companies make.  There is no way that a formal budget for the WMS can be developed without first developing a roadmap for the project.  This is because the cost of professional services is one of the most expensive components of any WMS project.  The vendor will propose their suggested services requirements in hours and costs during the sales cycle but this figure only represents a small portion of the total cost of manpower resources required to deploy a WMS.  At the end of the day, at least two-thirds of the work will need to be done by your internal and external resources because the vendor will not be not responsible or even capable of getting down into the trenches to make sure the thousands of detailed tasks actually get performed according to the structured project plan.  This is why companies rent hired guns to deploy logistics execution software applications.  There is tremendous value in having a resource at the table that has already been through a dozen WMS implementations in the past.  These resources should be able to bring multiple standard tools and sufficient experience to the project to ensure that the right amount of time and resources have been assigned to the project.  It can be invaluable to have such an individual be involved in the WMS software acquisition process up front.
    • Many companies overspend on WMS projects not realizing that everything is negotiable. This means that license fees, services hourly rates, the cost of any proposed custom enhancements, support and maintenance costs, warranty terms, payment timing requirements, etc. are all subject to negotiation. It helps to know when the vendor’s quarter-end or year-end milestones are happening because you can increase your negotiation power if you are negotiating at the eleventh hour leading up to a milestone date.  Services rates and support/maintenance costs are the most important items to negotiate because these will yield savings on an ongoing basis.  Be aware that you may be in a position to negotiate the hourly rates of service support by as much as 15%.
    • Also, keep your down payment to a minimum and tie your payments to performance leading up to watershed project events to maintain your negotiating power throughout the implementation cycle.  Unfortunately, your power is reduced significantly the moment that you sign the contract. There’s nothing like withholding cash to ensure that a vendor keeps their promises and delivers on time and on budget.
    • Lastly, legal council should review the terms of the warranty and the contract to ensure that your company is protected against verbiage that is not in your best interests.  Though these contracts are standardized, they may be negotiable if certain verbiage creates issues for your company.  Take note that contracts may be tied up in legal for at least 30+ days if these types of issues arise.

In this article, we have provided a general outline on the steps to take when acquiring a WMS application from the software vendor community.  We have seen many successful WMS projects go live without a single incident and it all goes back to the level of preparation that the buyer takes throughout the acquisition and implementation project cycle.  The devil is in the detail and these projects tend to involve thousands of details that are easy to overlook.  Hiring a professional expert into your staff or as an external resource will help your firm to minimize its risk.

Marc Wulfraat is the President of MWPVL International Inc.  He can be reached at +(1) (514) 482-3572 Extension 100 or by clicking hereMWPVL International provides warehouse management system (WMS) consulting services. Our services include: distribution network strategy; distribution center design; material handling and automation design;  supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.
 

________________________________________________________________________________________________________________________________________

All Content Copyright © 2016 MWPVL International Inc. All Rights Reserved. | Supply Chain and Logistics Consultants | Site Map | Privacy Policy.

MWPVL International Inc. is a full-service global Supply Chain, Logistics and Distribution Consulting firm.  Our consulting services include Supply Chain Network Strategy, Product Sourcing Strategy, 3PL Outsourcing Strategy, Purchasing and Inventory Management, Distribution Center Design, Material Handling Systems, Supply Chain Technology Advisory Services (WMS, TMS, LMS, YMS, OMS, DMS, Purchasing, Forecasting, Slotting), Lean Distribution, Lean Manufacturing,Transportation Management, Distribution Operations Assessments, Warehouse Operations Consulting and much more.

________________________________________________________________________________________________________________________________________