Another challenge is resource allocation. Without a centralized hub providing real-time visibility into resources, teams can easily misallocate resources, leading to bottlenecks and inefficiencies.
A modern warehouse management system (WMS) helps overcome these challenges. Unlike legacy systems, these cutting-edge software programs use artificial intelligence (AI) and robotics to automate repetitive tasks, boosting overall efficiency and productivity. They also provide real-time updates enhancing transparency and improving customer satisfaction.
By integrating a modern WMS into your technology stack, you’ll receive significant financial and operational benefits for high-volume fulfillment operations, including labor cost reduction, inventory accuracy, enhanced efficiency and productivity, and improved customer satisfaction.
Read on to learn how a modern WMS can help maximize return on investment (ROI) for high-volume fulfillment. Along the way, you’ll also find out how modern WMS work, the financial and operational benefits of upgrading to a modern WMS, and how to calculate the ROI.
Modern warehouse management systems (WMS) have evolved
Modern warehouse management systems (WMS) are software programs providing visibility into a company’s inventory. Teams can use these programs to optimize and manage a warehouse’s daily operations.
Over the last few decades, WMS have drastically evolved from entirely manual to AI-driven. Before the 70s, warehouse managers manually kept detailed inventory logs while employees picked and packed products from large pallets. These repetitive and tiring processes led to numerous inaccurate orders, order limits, and longer fulfillment times.
In the 70s and 80s, WMS started to go digital, and enterprise resource planning (ERP) software started to gain use. While ERP software encompassed a business’s entire operation and greatly improved companies’ recordkeeping, warehouse managers continued to manage their inventory mostly by hand.
After ERP came automated storage and retrieval systems (AS/RS), which use some machinery to pull inventory across a warehouse automatically. The earliest AS/RS tools were cranes attached to tracks on the ceiling to move items across the warehouse.
In the 90s and 2000s, computing power continued to evolve, leading to the development of modern WMS. Thanks to new software developments, modern WMS have evolved beyond being just inventory trackers and pickers. They are now comprehensive digital ecosystems that automate, optimize, and coordinate warehouse operations, including picking, packing, and dispatch.
Key functionalities of modern WMS
WMS functionalities depend on the vendor and program. However, core functionalities of modern WMS usually include:
- Data visibility: Modern WMS provide real-time visibility into warehouse operations, orders, inventory, and more. As such, you can spot potential errors and address them before they significantly affect customer experience or your bottom line.
- Inventory management: WMS use tracking technologies like RFID tags and barcodes to provide visibility into the exact quantity and location of every item in the warehouse.
- Order fulfillment: A WMS optimizes the fulfillment process by making the picking and packing process more efficient, safer, and more accurate.
- Resource management: WMS also cut costs by optimizing equipment investments, space, and labor utilization.
Why WMS is critical for modern supply chains
In recent years, the supply chain landscape has rapidly evolved. As of 2024, ecommerce makes up 70% of many 3PL business profiles despite slower economic growth and tough market conditions.
As ecommerce becomes more popular and labor shortages and shipping costs increase, 3PL providers must meet changing customer expectations and growing demands linked to online retail. Consumers now expect faster shipping, real-time tracking, and error-free order fulfillment, putting pressure on warehouses to optimize operations.
Many businesses have responded to these expectations by adopting modern WMS. These systems empower large brands and 3PL providers to scale efficiently, automate workflows, and enhance order accuracy to keep up with the rapid pace of the ecommerce industry.
Benefits of upgrading to a modern WMS
Financial impact of modern WMS
Upgrading to a modern WMS gives companies a range of financial benefits. These include:
- Labor cost reduction: Modern WMS automate manual processes like picking, packing, and reducing labor costs. For example, after adopting automation and robotics, Amazon’s Shreveport facility achieved a 25% cost reduction.
- Inventory accuracy and reduction in shrinkage: Modern WMS provides real-time inventory tracking, leading to fewer errors and losses. Due to improved stock management, your customers will have a much higher chance of getting high-velocity, error-free deliveries.
- Space utilization: The right modern WMS can also optimize storage using directed putaway or smart putaway algorithms. This means it can help you find ways to store inventory more efficiently so you can increase warehouse capacity without expansion or moving.
- Reduction in order fulfillment costs: Finally, a modern WMS leverages AI, robotics, and real-time data to optimize picking and packing, resulting in faster order processing and significant cost savings.
Operational benefits of a modern WMS
You can also experience operational improvements with new WMS implementation. These include:
- Enhanced efficiency and productivity: WMS uses AI and robotics to improve operations and reduce order processing times.
- Improved customer satisfaction: Modern WMS provides real-time updates, making it easier for teams to locate and address errors as they happen. This, along with the integration of AI and robotics, provides faster and more accurate order fulfillment and improved customer satisfaction.
- Scalability and flexibility: Last but not least, modern WMS can adapt to changing business needs. If you need to scale up quickly, a modern WMS solution can help you achieve that while maintaining high accuracy and efficiency. Modern WMS are also flexible — besides providing support for multi-channel fulfillment strategies, they allow you to add features and modules for limitless configurability.
Calculating the return on investment (ROI) of a modern WMS
After implementing a modern WMS, you must determine whether it’s worth further investment or whether you should pivot to a more suitable program. You can do this by calculating ROI for warehouse management system upgrades. Follow these steps to get started:
Identify the cost of investment
First, identify how much you’ve invested in WMS software and hardware. You also need to factor in implementation and training expenses.
Quantifying benefits
The next step is determining the net profit or total benefits of implementing your WMS. Compare the fees you spent on labor, inventory, and space optimization before and after WMS implementation. You should also compare revenue growth from customer satisfaction before and after WMS implementation.
Using the ROI calculation formula
The formula is ROI = (Benefits – Cost of Investment)/Cost of Investment x 100. For example, if you invest $15,000 and your benefits or net profit is $20,000, the ROI would be (20,000-15,000)/15,000 x 100 = 33.3%.
Use our WMS ROI calculator Excel sheet to calculate your ROI. A good ROI depends on the investment type, financial goals, and risk tolerance. Around 5-7% is reasonable, and percentages above 10% are strong.
Enhancing ROI with the right WMS solution
Adopting a modern WMS is one of the best ways to make your business more profitable. There are many operational and financial advantages of modern warehouse management systems, including labor cost reduction and enhanced efficiency and productivity. Long-term advantages include flexibility and scalability, improved customer retention rates, and a higher bottom line.
With its operational and financial benefits and long-term advantages, a modern WMS like Logiwa IO can streamline operations and ROI. Schedule a live demo of Logiwa IO to experience how it helps drive greater efficiency and profitability.
FAQs about warehouse management systems ROI
What is the typical ROI for implementing a modern WMS?
How much does warehouse management software cost?
- Cloud-based WMS: Typically ranges from $100 to $500 per user per month.
- On-premises WMS: One-time license fees range from $2,500 to $200,000 per facility, with additional annual maintenance cost.
- Implementation and training: Costs can vary between $3,500 and $40,000, depending on complexity and customization needs. Smaller operations might spend under $1,500 monthly, while enterprise-level systems could exceed $100,000 in the first year.
What are the key factors influencing WMS ROI
- Labor cost savings: Automation reduces manual tasks, leading to decreased labor expenses.
- Inventory accuracy: Real-time tracking minimizes errors and shrinkage.
- Order fulfillment speed: Optimized processes enhance throughput and customer satisfaction.
- Scalability: Modern WMS solutions adapt to growing business needs without significant additional investments.
- Integration capabilities: Seamless integration with existing systems maximizes efficiency and data accuracy.
Considering these factors holistically ensures a comprehensive assessment of WMS ROI.
How is WMS ROI calculated?
ROI (%) = [(Net Benefits – Total Costs) / Total Costs] × 100
Where:
- Net Benefits: Annual savings from labor, inventory management, and operational efficiencies.
- Total Costs: Includes software licensing, hardware, implementation, training, and ongoing maintenance.
For example, if a WMS implementation costs $150,000 and yields $200,000 in annual benefits, the ROI is [(200,000 – 150,000) / 150,000] × 100 = 333%.
How long does it take to see ROI from a WMS implementation?
What hidden costs should be considered when investing in a WMS?
- Customization: Tailoring the WMS to specific workflows can incur additional fees.
- Training: Ongoing staff training, especially during system updates, adds to the total cost.
- Maintenance and support: On-premises systems may require separate maintenance contacts.
- Integration: Connecting the WMS with existing systems (e.g., ERP, CRM) might involve extra cost.
Identifying and budgeting for these additional costs ensures a more accurate ROI calculation.
