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If you grew up in New England in the 1950s – 1970s, you might remember that Wednesday is"Prince Spaghetti Day," as the long-running iconic TV advertisement reminds us. (Read about the story behind it.)
There is a problem in the distribution and logistics profession, much broader than just supply chain. We have observed that people assume they understand business jargon when in fact, they are unclear. People hate to admit that they don’t understand terminology, either because they fear sounding ignorant, or they think that they do understand it. Sadly, when we question people to make sure they understand the terms we use, we find confusion and ignorance.
The trouble begins with assumptions.
A while back, we got a call from a client who wanted help figuring out how to make sense out of the various warehouse management systems (WMS) on the market. This small distributor knew that they needed to improve operations to grow their business. The owners thought that a WMS upgrade would improve tactical operations execution. So the COO started to look at different WMS software companies, researching the systems and taking sales meetings with software account representatives. The waves of sales contacts from companies offering warehouse management solutions swamped this small distributor with many options and much jargon.
In our first contact with the client, we listened to his descriptions of his operations and systems. The client described a basic management system that integrated purchasing, basic inventory management, customer orders, inventory control, and warehouse functions. The client called this system an “ERP,” and expressed the desire to integrate a new WMS into the existing ERP.
As we listened to the list of companies the client had talked to in his search (Retalix, Manhattan, Red Prairie, and Highjump), we imagined a sizable distribution center, at least 75,000 to 100,000 square feet. Imagine our surprise to learn that this client was operating in less than 20,000 square feet. It surprised us that these companies could be interested this small, $10 million revenue distributor. We suspected that the costs of the systems offered must be too high to justify the expenditure. When we heard the prices some of these companies offered, our jaws dropped.
Remember, trouble begins with assumptions.
We visited the distributor to assess their operation. From our initial phone conversations with the client, we surmised that they were not ready for an invasive and tight execution WMS package. Maintaining an open mind and clean slate in our first visit, we saw what we expected—a client not ready for a major WMS upgrade. The operation did not use a locater system, no facility locations labeled. The pickers, as we observed them, picked by memory. You could not walk through or drive into some aisles with equipment because of the inventory stacked in the aisles. The operational discipline in this facility was insufficient to support clean operation of a WMS.
The client intended to drive higher operational practice with the introduction of a WMS. Looking into the future, when they would become a $50 million revenue distributor, the client saw the WMS implementation as a way to move to the next tier. The burning platform approach is one way to achieve the goal or improve operations, but it is a risky one.
We reviewed the proposals and sales materials that the various vendors had presented to the client. Some of the material was nothing more than sales brochures, bold with assertions of ROI but vague on ways the system created the ROI. There was a full proposal, with a cost quote, implementation outline, ROI analysis, and lease payment plan. The software license was one of the smallest cost components, where the software was only 10 percent of the total cost of the $250,000 WMS package.
We could not see a reasonable ROI in this scenario. With $10 million revenue, and knowing the financial performance of the company, the WMS price tag is greater than the current one-year post-tax profit rate. We could not understand how the vendor could support their claim of a two-and-a-half-month payback, which required the distributor to improve their financial performance by a factor of 400 percent.
We wanted to see what miracle systems functions the vendor included in the system that could create a 400 percent improvement. Missing from pages of materials was a clear listing of the functions included in the proposed system. The vendor did not provide any documentation about the proposed functionality. The materials talked about an integrated function, and how the vendor had broad experience in this business market, but provided nothing that really defined what systems functions the client would get for $250,000.
In fact, as we looked at the rest of the materials from all of the vendors, they all lacked a defined list of operational functions. The client said that some provided demonstrations of the systems, showing functions in screen shots or in web-based systems demonstrations. As we talked, the client admitted that he was fuzzy on the details, and what functions which vendor demonstrated.
Remember, trouble begins with assumptions.
It sometimes looks like there are hundreds of different warehouse management systems in the marketplace. A question quickly arises as one looks at what each of these systems offers: What is a WMS? That should be simple question to answer, but it isn’t. This market continues to change as larger players grow by acquiring smaller companies, consolidating into even larger companies. New WMS companies spring to life every month. In the competitive world of all of these systems, the marketing and sales machines work to sell the benefits of their WMS, asserting what makes their systems different and better than the competition’s. The marketing machines increase the difficulty of learning about the functionality that creates the savings of the system.
All of the marketing noise obscures a fundamental question: What is the role of a warehouse management system? Is WMS a tool management uses to plan and lead operations, or is it an execution process control system, guiding floor employees to follow a consistent process? Is it both?
Do the people buying these systems understand the question?
I am a member of the Association of Professional Material Handling Consultants (APMHC). As a professional association, we focus on education and support for the members of the association and our clients. Our members include serious graybeards, as we all have 20 years’ industry experience or more.
This issue of intention, and the meaning of WMS, is the focus of an ongoing dialogue in our meetings, which began when we questioned the notion that a warehouse operation can implement a WMS in under 90 days, or in less than 45 days as some WMS vendors advertised. We could smell failures brewing in these claims. The smell was not from outright failure, but more from unfulfilled expectations. We wondered how many WMS installations today fail to meet customers’ expectations.
What is a failure? Sure, a distribution center that stops shipping when installing a new WMS is a failure. We knew of these kinds of failures from our work. These cases get fixed, and the company survives and ships another day. What about the unfulfilled expectations—the systems that do not deliver the personnel reductions, that do not deliver the inventory accuracy, or that do not deliver the increase in order-fulfillment velocity? Those are failures too.
The Idea of the Distribution Center