April 2009: A Note from Jeff Mack
Converting Inventory to Orders to Cash...Is WMS in Your Future?

Do you know that your warehouse should run more efficiently, but feel that there are just too many bottlenecks and barriers to overcome? Do you feel frustrated sifting and sorting through piles of sales and purchasing data to gain vital nuggets of gold about your inventory? Do you know that you really need to be more just-in-time and less just-in-case, if someone would simply point the way?

How can you make a change for the better? An analysis of the best-in-class companies points to a combination of technology, organizational capabilities, process change, and visibility of knowledge and performance as being the central components of improved warehouse operations. By reducing the cost of managing on-hand inventory, decreasing repeated movements and handling of orders, and streamlining the fulfillment process, customer value can be achieved at much lower costs. The goal ultimately is to minimize the amount of time inventory stays in your warehouse so that product inventory converts to orders which convert to cash as quickly as possible.

The Aberdeen Group has just released a white paper in which they analyze several steps involved in implementing and optimizing a warehouse management system (WMS) to achieve the desired results outlined above. There are several key takeaways illustrated below that are identified in the report.

With the almost universal pressure to do more with less, and even in spite of the current economic environment, a majority of companies (58% in the next 12 months, and 90% in the next 24 months) plan to invest in improved warehouse operations.

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Shown below is a snapshot of the results achieved by those that have already invested in improved warehouse operations via WMS. Note that there is approximately a 3 – 5% difference in the first three metrics between best-in-class companies and average companies, and approximately a 10% difference when compared to the laggards. A couple of important questions to ask yourself might be where you rank in these groups and how much a 5% improvement in these areas would be worth to your company.

Table 1: Top Performers Earn in Best-in-Class Status

Definition of Maturity Class	Mean Class Performance
Best-in-Class: Top 20% of aggregate performance scorers	99.7% of orders picked accurately 98.6% of orders arrive at customer on-time 98.5% of lines across all orders which can be filled complete -1.7% order turn-around time, trend +0.2% warehouse labor cost, trend
Industry Average: Middle 50% of aggregate performance scorers	96% of orders picked accurately 93.5% of orders arrive at customer on-time 93.8% of lines across all orders which can be filled complete +0.5% order turn-around time, trend +1.3% warehouse labor cost, trend
Laggard: Bottom 30% of aggregate performance scorers	88.1% of orders picked accurately 88.5% of orders arrive at customer on-time 86.2% of lines across all orders which can be filled complete +4.9% order turn-around time, trend +5.2% warehouse labor cost, trend

Source: Aberdeen Group, February 2009

So what are the go-forward strategies in terms of implementing WMS? This is where the interview survey responses are quite revealing. Notice that even though a company has already achieved best-in-class status, and already made considerable investment in improved warehouse operations, and most likely implemented WMS, 65% of them are still committed to identify further efficiencies while 31% are committed to making greater use of automation.

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Specific deliverables and business drivers have been identified to guide the project and determine ROI as illustrated in the two charts below. Out of the 14 metrics shown below, how many of them would be shaded blue for you? How many bright yellow and how many pale yellow? Are any of these difference makers for you?

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With such compelling evidence of improvement, coupled with a track record of previous investors going back for more, why have some distributors still not invested in WMS? Respondents typically indicate that having a lack of knowledge about available solutions, a feeling that solutions could not solve their existing issues, and that solutions were too complex seem to be the predominant answers. It might be time to invest in some current research as the landscape is changing quickly with regard to available functionality, platform delivery model, pricing methods and price point.

If you are interested, you can download the complete white paper (PDF) from Aberdeen now.

At the very least, you might consider implementing a real-time dashboard to track key metrics across your warehouse. Measuring and posting performance data is one way to increase the flexibility to respond to changing business conditions more rapidly. And doing so can have a positive impact on your bottom line. And as they say, that’s the bottom line!