How to Budget for a New Warehouse Management System

   
One of the biggest challenges companies face in acquiring new warehouse management systems is how much to budget. In our experience, 50% of major systems projects are not completed within proposed budget or time frame. Companies must understand the potential costs early on to prevent finding out they can’t afford the system after spending significant time in the system selection phase.  

To make matters worse, warehouse management system (WMS) vendors may paint an incomplete picture when companies ask the cost. Some vendors will only focus on the user license, but not the software services or annual maintenance costs. Companies should focus on the following nine cost categories when developing an accurate budget for replacing a software solution:

Software License Fee 

The software license fee is typically driven by either the total number of concurrent users or named users. Some WMS vendors use other metrics such as annual orders. Companies need to ensure that they are providing the most accurate information when discussing pricing with the vendor.

Another important consideration is what options vendors have for handling seasonal licensing. For instance, what if you only need a license for a two-month period? Keep in mind how your growth will impact the license needs over the next two to three years.

Many warehouse management system vendors give you different options for acquiring the software - you can either purchase it as a perpetual licensed model or a SaaS model. Typically, the implementation and conversion costs will be the same regardless of the pricing model you choose.

Optional Modules

Companies may not know whether a vendor’s optional modules are required during the early planning stages. Some of these optional modules may be functions you will want to grow into after you installed and utilized the base system. These could include transportation management, labor management, and complex slotting programs. These can be added in the future, even if you do not purchase them initially.

If there is a likelihood that you may need these modules, err on the side of caution and budget these dollars until you have a better understanding of your company’s needs.

Server Hardware or Hosting

Some WMS vendors offer on-premise solutions as well as cloud-based hosting, while other vendors only offer a single solution. For either option, companies must make decisions on a wide range of challenges that all have an impact on the costs:

  • What level of redundancy will your company require?
  • How will the vendor manage backups and support both on-site and off-site?
  • For on-premise solutions, is the proposed server going to offer enough capacity when factoring growth in?
  • For hosting, will you require a dedicated server?
Be sure that you provide each vendor with accurate transactional data to properly size the server environment. Many SaaS vendors bundle the hosting in with the software license cost.

Maintenance and Support

Often, this is one item that is not budgeted for with a new solution. For many vendors, maintenance and support is due at the time of go-live or at the six-month mark. The cost is commonly calculated as a percent of the list software license fee – not a percent of what you paid for the license. Maintenance and support is often bundled in the software licensee fee with SaaS options.

Services

The implementation of any warehouse management system will incur one-time start-up costs for the vendor’s project management (PM) and travel to your facility to perform the Discovery/Gap Analysis. There will also be ongoing site visits by the vendor for follow up items, training, conference room pilots, and go-live assistance. It is not uncommon for many vendors to under bid these dollars to keep the dollars within a company’s budget.

However, this is one area that companies should never try to reduce the vendors hours unnecessarily. In many cases, a company should budget a services contingency budget – especially if there are complex integrations or modifications. Company’s cannot neglect the travel costs for vendors through each phase of the install, which could be 10-12% of the services cost.

Modifications

If you are unaware at the time of budgeting whether there will be a need for modifications, you should plan some contingency dollars. A fair number to set aside is ~15-25% of the base software license costs. If not needed, these budget dollars provide flexibility for allocation to other areas that may have been under budgeted.

Internal Costs

All budgeted dollars so far are focused on the WMS vendor’s costs and have not addressed planning for internal expenses. To determine these costs, companies need to answer the following:

  • How much travel to the software vendor and client install site is necessary during the due diligence phase?
  • Will you require new end user workstations, or upgrades to the operating system or networks?
  • Do you have all the resources to support file conversions or will you need to hire external resources?
  • With integrations, will you need to budget dollars for other vendors involved in the planning phases?
  • Do you have multiple sites that require additional travel with the project?
  • Will this project require overtime for various departments?
  • Will you need to hire an internal project manager?

Wireless & Handheld Devices

While you could certainly install a new warehouse management system and remain paper-based, you would miss out on the core strengths of utilizing wireless devices. Appropriate scanning technology and wireless access points to collect all data online, in real time throughout the warehouse is one of the  four foundational prerequisites that make the WMS fully operational.

If you intend to utilize pre-existing wireless devices, don’t assume they are compatible with your preferred WMS vendor. You may find that the device operating system is not compatible or that you need different software on the devices.

If you are purchasing new devices, consider which devices are best suited for each task. Most companies choose to utilize truck mounted devices for tasks like putaway while stock pickers typically want a wrist mounted device for hands free operations. Either way, you need to budget for sufficient charging docks, additional batteries to cover multiple or extended shifts, and rugged cases. It is also a good idea to ensure that you have enough spare units for accidents or malfunctions, and a warranty plan that allows for faster replacement service.

Contingency

You can never budget for every cost that will occur, so you will want to build in a 20% to 25%+ contingency for the overall project. It is better to be under budget at the end than underestimate and risk an ask of management for additional dollars.

In Conclusion

Considering all of these costs for a system project will greatly assist in creating a more accurate budget for planning your new warehouse management system. In doing so, you will budget realistically and have a better chance of installing within budget.
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