WMS ROI: Guide to Calculating the ROI of Implementing WMS

When evaluating the cost of a WMS, start by looking at both implementation and ongoing costs and fees.

On-premise WMS solutions pose higher initial costs as businesses will have to invest in hardware such as servers, storage, and networking infrastructure to make it work. The software you need for on-premise platforms also comes with heftier upfront licensing fees based on the number of users or locations. Customisation, integration with existing systems, data migration, maintenance, and training employees add to the costs. Not to mention all this can take several months to a year to properly work.

Let’s compare this with the lower initial costs cloud-based WMS solutions come with when you don’t need physical hardware. Such systems operate on a subscription model. You pay monthly or annually and get software maintenance, updates, and support at that subscription cost. Implementing these tools is also faster (even instant) and can be easier to scale when the needs of your business change. 

But there’s room for every tool.

Ultimately, the choice between an on-premise and cloud-based WMS depends on your company’s size, budget, and specific requirements (like recent challenges or use cases you’ve had). On-premise WMS might be better suited for large enterprises with complex requirements. Cloud-based WMS is a popular choice smaller to mid-sized companies go for to ensure the tool can adapt to their needs, comes with lower upfront costs, and is easier to support.

You need to first understand the benefits of a WMS to calculate its return on investment. 

• Common benefits you can expect after implementing a WMS includes
• Automating processes (including data tracking) to reduce human errors in order picking.
• The above results also mean you’ll deal with fewer returns and improve customer satisfaction.
• Faster workflows give you better visibility into your inventory so you can speed up order fulfilment to respond to customer demands faster.
• Real-time inventory visibility also keeps problems like stock discrepancies and overstocking at bay so you can work with accurate stock levels.
• With faster order fulfilment, you’ll improve on-time delivery and reduce the number of order errors.
• Once you’ve perfected your picking strategies you’ll maximise available space and save on costs associated with warehousing.
• A WMS allows businesses to scale their operations more easily, accommodating more order volume or extra warehouse locations without having to increase labour expenditure
• Looking at labour costs, a WMS reduces these by making picking, packing, and shipping easier processes.

When you choose a warehouse management system, consider both tangible and intangible forms of return on investment. 

Tangible ROI refers to measurable financial benefits, such as reduced labour costs and increased efficiency. In other words, you’re looking at straightforward metrics that help calculate the direct impact of the WMS on the bottom line. 

In contrast, intangible ROI relates to factors that are harder to quantify but still critical, such as enhanced customer satisfaction and business scalability. Support ROI includes the value you get from the services and resources you need to implement, train, and maintain the system.

Let’s take a deeper look at each type.

Tangible ROI

Tangible ROI refers to the measurable, financial returns you get out of implementing a WMS. These are easily quantifiable and can save you money or increase earnings.

Examples:

●     A WMS means you’ll no longer need to enter data manually. With fewer human errors and smoother workflows, you’ll need fewer employees for order picking, packing, and inventory management.

●     WMS platforms give you access to real-time data so you can track stocks and prevent inventory discrepancies that would impose extra costs.

●     By finding better storage strategies, your WMS will give you more warehouse space in one place so you won’t even have to consider warehouse expansion.

●     Warehouse key performance indicators such as On-Time In-Full deliveries, fulfilment speed, and cost per order help measure the effectiveness of a WMS.

Intangible ROI

Intangible ROI is more difficult to quantify but largely impacts customer satisfaction, business growth, and risk reduction.

Examples:

●        A WMS improves order accuracy and speed, directly influencing customer satisfaction and loyalty through customer service.

●        As your business grows, your WMS will accommodate increased orders, complex operations, and additional warehouses, without a proportional increase in resources.

●        When you automate inventory management and tracking, your WMS reduces the risks associated with stockouts, overstocking, and misplacements, so your business doesn’t experience financial loss.

Support ROI

Support ROI is the value that services and assistance associated with implementing and maintaining the WMS provide.

Examples:

●        Professional assistance during the WMS implementation process ensures that the system is set up properly, so you’ll avoid costly mistakes and downtime.

●        Well-trained employees are more efficient, make fewer errors, and can take advantage of all WMS capabilities.

●        Access to ongoing technical support helps resolve issues quickly, minimising disruptions so the system runs smoothly post-implementation.

While you can opt for different methods for calculating ROI, there are two commonly used approaches that provide valuable insights into the long-term financial impact of implementing a WMS.

NPV - Net Present Value

Net Present Value is a financial metric that calculates the present value of all expected future cash flows generated by the WMS, minus what you initially invested. Use this metric to decide whether the benefits of the WMS outweigh its costs.

How to calculate NPV:

●     Estimate the future cash inflows that the WMS will generate and the costs associated with the WMS (including initial setup, licensing, training, and ongoing operational costs).

●     Add in your preferred discount rate (like your company’s cost of capital).

●     Subtract the initial investment from the present value of future cash inflows, adjusted for the discount rate.

IRR – Internal Rate of Return

The Internal Rate of Return is the rate at which a company expects the WMS to break even when it comes to its cash flow.

How to calculate IRR:

●     Identify the cash flows needed across the entire project lifecycle starting with the initial investment, adding in annual cash inflows.

●     Apply the NPV formula by trial and error or using financial tools to find the discount rate that sets the NPV to zero. 

●     Since the equation can't typically be solved algebraically for IRR, you need to use a trial-and-error method, financial calculators, or tools like Excel or Python.

Below are three important steps to achieve a positive ROI:

1. Decide on what you want to achieve

By automating processes like inventory tracking, order picking, and shipment management, you can reduce the time spent on manual tasks. This could help with goals such as reducing labour costs and speeding up operations.

Other objectives to keep in mind are minimising inventory discrepancies or reducing stockouts and overstocking. Note that all of these targets are closely related. These ones, for instance, will also lead to better supply chain management and cost savings.

You’ll also want to look for a WMS that can optimise picking and packing processes. When order fulfilment is fast and correct, your customers will be more satisfied and make repeat purchases.

Need better visibility into warehouse operations and inventory data? The right WMS improves forecasting with a better management process for your stock, reducing waste and inefficiencies.

2. Sticking to your budget (Not over-spending)

Before you pick your next WMS, determine how much you can afford to spend. That budget should be in line with the features and scale of the system that best fit your needs. Ensure that the investment in a WMS will pay off by comparing the expected benefits with the costs (upfront and ongoing).

Choose a WMS that fits your current needs but can scale as your business grows. This helps prevent overspending on unnecessary features that you might not need immediately and reduces the risk of having to upgrade prematurely.

While it can be tempting to customise the system to suit every little detail, excessive customisation can quickly increase the cost and complexity of implementation. Focus on the essential functionalities that drive efficiency.

3. Choosing the right WMS system

Every warehouse comes with a set of specific needs. You store different products, your order volume can vary, and some operations are just too complex to handle with a simple tool or process.

That’s why you need to also take into consideration what advanced features like real-time tracking, automation, or integration with other systems you need.

Don’t settle for the first WMS you come across. Research different systems, compare their features, and check reviews from other users. Look for a system that best matches your needs, industry requirements, and budget.

Your WMS should be flexible enough to adapt to your changing business needs, no matter how unexpected. The requirements you’re most likely to bump into include handling more orders, expanding to multiple warehouses, or offering additional functionalities.

A WMS like Mintsoft can help you achieve a positive ROI through a customizable and scalable approach to warehouse management. The platform is also cost-effective as it grows with your business and provides extensive features such as:

●     Real-time inventory tracking

●     Multi-channel integration

●     Improved order processing

●     Automated workflows

●     And much more!

Mintsoft costs vary depending on your specific needs with pricing starting from £325 per month for smaller operations and scaling up with features and order volume. 

What to expect after using Mintsoft?

●     Saving time through automated processes

●     Reducing costly errors

●     More accurate reporting thanks to extensive ecommerce integrations

●     Better decision making

●     Greater flexibility through a user-friendly interface and scalable infrastructure

For a deeper dive into how to select the right WMS for your business, check out Mintsoft's helpful guide on choosing a warehouse management system.