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3PL Guide to Calculating ROI for Warehouse Management System Software

3PL Guide to Calculating Return on Investment for Warehouse Management System Software

Table of Contents Introduction 3 What is Return on Investment (ROI)? 4 The Four Categories to Calculate ROI 5 Picking 5 Orders and Shipping 7 Customer Support 9 Billing and Invoicing 11 Conclusion 13 Online ROI Calculator 14 Calculation Worksheets 15 About Extensiv 18 | 833.983.6748 2

Introduction Choosing the right technology for your warehouse is critical to thriving in today’s supply chain. Even if you have chosen to implement a warehouse management system (WMS), you may still be wondering how long it will take to pay for itself or what your return on investment will be. WMS software charted as the most implemented technology by third-party logistics (3PL) warehouses at 87%, an unsurprisingly high metric given the operational efficiencies the software creates. However, technology implementation and integration for new software ranked as the fourth largest obstacle for 3PLs this year at 41%. For many, the central challenge of technology adoption is the perceived cost; but many times, this ignores the return on investment (ROI) from implementing new technologies. Typically, implementing a new WMS will quickly recoup those costs and drive profits. In many cases, organizations experience ROI of greater than 300% in the first year. In fact, many warehouses are reluctant to implement a WMS because of the perceived cost, including the time required from key personnel. However, without building a business case and projecting potential savings, warehouses will miss out on increased profitability and efficiency. This guide will enable you to quantify how much time and money your 3PL warehouse can save each month by utilizing WMS software. More importantly, with this information you will learn how implementing a WMS will provide a significant return on your investment, improve customer service, and increase profitability. | 833.983.6748 3

What is ROI? Simply put, ROI is what you earn versus what you spend. Mathematically, return on investment (ROI) is your net profit divided by the total cost of the investment. The higher the ROI, the better! For warehouses, the core drivers of ROI include minimizing time, labor, and errors while maximizing output in warehouse processes to increase operational efficiency. For the sample calculations of savings, this guide uses the following data values: Current Labor / Time Costs: *This value is the average base salary for a warehouse worker according to Prior to starting your own calculations, make sure to collect the following information: • Hourly labor cost per warehouse employee • Number of hours spent billing and invoicing • Current total invoice amounts monthly • Time spent on support calls with customers • Time spent on manual orders and shipping entry • Number of hours spent picking orders By collecting your warehouse’s information, you can quickly substitute the sample numbers with your own calculations to create your projected ROI on your WMS investment. | 833.983.6748 4

The 4 Categories to Calculate ROI For simplification, we’ve broken key components into four parts, although there may be others you want to add: 1. Picking 2. Orders and Shipping 3. Customer Support 4. Billing and Invoicing Below, you’ll find each of these sections and calculate savings for each functionality that can be used to calculate overall ROI at the end of the process. 1. Picking One of the most critical aspects of order fulfillment for 3PL warehouses is inventory picking. However, many still rely on paper-based picking, which is both inefficient and can lead to increased errors. Mispicks happen and can never be eliminated, but reducing mispicks by utilizing a WMS could end up saving you more than the cost of the system. The average cost of a mispick is between $25-50, but depending on the facility and merchandise, a single mispick could exceed $100 per incident. These costs quickly add up with distribution centers losing an average of nearly $400,000 annually due to mispicks. That’s $33,333 a month. What causes mispicks to cost so much? Labor costs and customer impact. Mispicks waste time and effort of warehouse employees, but more than that, if a company has a habitual problem with mispicks, they may have to hire additional customer service personnel to deal with the issues that arise from shipping the wrong merchandise and restocking/returns. Furthermore, mispicks could cost your warehouse future business. Seventy-three percent (73%) of consumers are much less likely to repeat business with a brand that sent them the wrong order, thereby impacting the brands you serve and potentially jeopardizing your relationship with your customers as well. A WMS reduces the frequency of mispicks through simplifying the pre-picking process and with automated picking. The inventory management capabilities of WMS software aid the pre-picking process by storing location information for all inventory (and creating a more organized system for storing inventory, leading to a more effective use of warehouse space), so employees can easily see where all inventory is located at any time. The system also stores and manages inventory information like SKUs, and serial numbers, and automatically generates a pick slip with this information for warehouse workers and creates the most efficient pick route based on item locations. This reduces manual processes, including employees writing out information by hand, which can increase the propensity for errors. | 833.983.6748 5

The 4 Categories to Calculate ROI Pairing a WMS with mobile barcode scanning technology further increases operational efficiency and accuracy by automating data entry. Another cause of mispicks is inaccurate receipts, putaways, and failure to record moves in the warehouse, all of which can be improved with mobile in the warehouse. With a mobile barcode scanning workflow, pickers must scan the barcode of the item they are picking to ensure that they found the correct item without having to read or input long SKUs and/or serial numbers themselves. Mobile barcode scanning drastically reduces picking time, including putaways, and failure to record moves in the warehouse, in addition to creating more accurate receipts faster. Questions to ask: • How many hours a day per employee are spent on picking? • How many mispicks get reported monthly? • How much time does it take to address any mispicks? • What is your average cost of a mispick? • How many hours will picking orders take once implementing a WMS? Picking Savings = Hours Saved Monthly x Average Hourly Warehouse Worker Wage In the example calculation below, we estimate that picking with a WMS – especially a WMS with mobile barcode scanning – reduces the amount of time spent picking from 8 hours a day per worker to 6 for a total savings of 2 hours. We also estimate that using a WMS will reduce your monthly mispicks by half, though the actual savings on mispicks could be much higher. This figure is added as additional mispicks savings in the tables below: | 833.983.6748 6

The 4 Categories to Calculate ROI 2. Orders and Shipping Orders Orders and shipping serve as a core component of 3PL warehousing services, with many brands choosing to use 3PL warehouses specifically for their shipping acumen. However, without a WMS, the need to manually enter order details, shipping addresses, and tracking numbers reduces efficiency and increases costs. Manual order entry represents a costly expense for many paper-based 3PL warehouses. In most cases, a WMS removes manual order entry with electronic order entry through integrations like electronic data interchange (EDI), application programming interface (API), and online shopping carts and marketplaces. With ecommerce expected to reach $502.5 billion in 2022, automating ecommerce fulfillment with integrations—especially REST API and shopping cart integrations—is essential to staying abreast of the competition by ensuring accurate and fast order entry. Without these integrations, manual order entry becomes a full-time job for warehouse employees, taking up valuable time that they could spend picking and packing orders for shipment. Shipping Shipping costs and rate shopping comprise a material portion of time and expense for 3PL warehouses. By utilizing WMS software with shipping carrier integrations, warehouses can eliminate manual ship-to re-entry and rate shopping. With an integrated system, the software automatically populates lowest cost and/or fastest shipping information from the orders already in the system. With automated shipping carrier integrations, warehouse workers eliminate wasted time researching the best shipping rates and can save with pre- negotiated rates at the press of a button. Questions to ask: • How many hours a day/month are spent on order entry or manual data entry? • How many order and shipping errors get reported monthly? • How much time does it cost to address order and shipping entry errors? • What is the average cost of order and shipping entry errors? • How many hours will order and shipping entry take once implementing a WMS? | 833.983.6748 7

The 4 Categories to Calculate ROI Order Entry Savings = Hours Saved Monthly x Average Hourly Warehouse Worker Wage Instead of spending an entire day on order and shipping entry, a WMS saves warehouse workers up to 8 hours a day on data entry, though for the sample calculations below we have them saving 7 hours a day for a total of 1 hour a day spent managing order and shipping info. | 833.983.6748 8

The 4 Categories to Calculate ROI 3. Customer Support One of the main advantages of WMS software is the visibility it provides to all users of the system—including customers. Customers want to know inventory levels, information about orders and shipments, and confirmation of receipts with the push of a button. However, many warehouses have multiple employees reacting to requests and spending hours per day drafting emails or responding by phone. With 73% of 3PLs viewing new customer acquisition as the largest opportunity for business growth, chances are you are constantly striving to add more customers, so the amount of time spent on customer communications without a WMS will only continue to grow. Implementing a WMS platform is a crucial way to stay on top of customer support and communications; one company saw 50% increased productivity and saved time by streamlining customer communications through a WMS. When researching WMS solutions, you need to ask a few questions: What tools does the WMS offer to save time for customer support? Do they offer a support portal? Would your customers use a support portal or other self-service resources instead of directly communicating with your employees? Some WMS platforms offer customer portals where customers can view all the activity pertaining to their inventory with the click of a button. With customer portals, customers can also run their own reports, see orders and receipts, and perform basic system functions without consuming your employees’ time. WMS platforms often also include automated customer notifications, so the system will automatically send emails to customers when certain actions occur, including advance shipping notices (ASNs), confirming receipts into inventory, creating or updating items, shipping orders, and much more. Questions to ask: • How many hours a day/month are spent on customer communications? • How much time will the WMS tools realistically save you on customer support? • How many hours will customer communications take once implementing a WMS? | 833.983.6748 9

The 4 Categories to Calculate ROI Customer Support Savings = Hours Saved Monthly x Average Hourly Warehouse Worker Wage If you are using a WMS, like 3PL Warehouse Manager, with customer portals and automated customer notifications, warehouse employees no longer spend time communicating with customers outside of special circumstances. For the example calculations below, we show implementing a WMS to save 2 hours daily in customer support, bringing the total time spent on customer communications to 1 hour each day instead of 3. | 833.983.6748 10

The 4 Categories to Calculate ROI 4. Billing and Invoicing Tracking each task related to each order and transaction is how your 3PL makes money, so ensuring your billing process is smooth and error-free is essential for your profitability. Billing automation saves time as well as increases revenues based on automating capture of billable activities. Billing automation not only reduces errors and shortens billing cycles, and it can be enhanced by using mobile scanning to capture all billable events as they occur, leaving no money on the table. One customer captured $15,000 in previously missed recurring revenue with WMS billing automation in the first couple months of using the system. Furthermore, some WMS solutions integrate with accounting platforms like QuickBooks, which make invoice generation a quick and effortless process. Once you set up charge amounts for different actions and recurring storage charges like picking, packing, shipping, storage, etc., the software automatically tallies all charges for each customer during the billing period. This means that no charges fly under the radar as often happens with manual processes, so you receive the maximum amount of income from each of your customers. At the end of the billing period, the software aggregates all the charges into an easy-to-read invoice, which you can then export to QuickBooks or other system at the click of a button to consolidate into a monthly statement to deliver to your customers. Without a WMS, adding up all the charges for a billing period can take days—even a week or more—which lengthens the billing cycle and extends the amount of time before the cash hits your bank. With a WMS with automated billing, you get paid quicker and improve profitability because of reduced errors or missed billable events. Questions to ask: • How many hours a day/month are spent on billing and invoicing? • How many hours will billing and invoicing take once implementing a WMS? • What is your monthly billing total before implementing a WMS? • What percentage of billable activities do you estimate are missed using manual tracking? Billing Savings = Hours Saved Monthly x Average Hourly Warehouse Worker Wage | 833.983.6748 11

The 4 Categories to Calculate ROI Automated billing finds you income that manual processes miss. For our calculations, we assume that monthly billing is $50,000 and that missed billable events and errors account for 3% of that total. So, the total cost of under-billing errors is $1,500 per month. This figure is added as additional billable activities to the savings calculated in the tables. For the example calculations below, we show implementing a WMS to save 6 hours daily in billing, bringing the total time spent on customer communications to 2 hours each day instead of 6. | 833.983.6748 12

Conclusion And that’s it! You are now ready to calculate ROI for your WMS investment by following the steps outlined in this guide. If you want to know your overall ROI per month, you simply must add all the savings together and divide by the monthly subscription cost of a WMS. Please note that this calculation only includes labor savings and does not include the additional mispicks savings nor the additional billable activities, which would bring your ROI even higher. Total Labor Savings = Pick Savings + Order Entry Savings + Customer Support Savings + Billing Savings Monthly ROI = Total Labor Savings / Subscription Cost Additional Monthly Savings = Mispicks Savings + Missed Billable Activities Using our sample calculations and an estimated subscription cost of $1,500 per month, we get an ROI of over 400% Total Labor Savings = $775.72 + $2,715.02 + $775.72 + $2,327.16 = $6,593.62 Monthly ROI = 6,593.62 / 1,500 = 440% Additional Monthly Savings = $16,667 + $1,500 = $18,167 Adopting a WMS can be a daunting task, especially when considering the initial and recurring subscription costs as well as the cost of training your employees on the new system. This will add to the front-end cost to adopt a WMS, but it will reduce the time to implement and increase the chance of the implementation being successful, boosting the efficacy of your workflows with the WMS. But, if you follow the steps in this guide, you will see that the ROI for adopting a WMS is well worth the investment after the initial hurdles. | 833.983.6748 13

Online ROI Calculator v Paper forms not your thing? Use our interactive online tool for quick calculations! | 833.983.6748 14

Calculation Worksheets To calculate your exact ROI for a WMS investment, utilize our online calculator, or use the following worksheets. Current Labor/Time Costs: All values needed for the final ROI calculation are highlighted in gold. | 833.983.6748 15

Calculation Worksheets | 833.983.6748 16

Calculation Worksheets Total Labor Savings = Pick Savings + Order Entry Savings + Customer Support Savings + Billing Savings ROI = Total Labor Savings / Subscription Cost Additional Monthly Savings = Mispicks Savings + Missed Billable Activities | 833.983.6748 17

About Extensiv Extensiv 3PL Warehouse Manager Extensiv 3PL Warehouse Manager, is the cloud-based warehouse management system (WMS) solutions built to meet the unique needs of the 3PL warehousing community. Serving as the backbone of our customer’s operations, our platform quickly transforms paper-based, error-prone businesses into service leaders who can focus on customer satisfaction, operate more efficiently, and grow faster. Offering a comprehensive warehouse management platform, we make it easy for 3PLs to manage inventory, automate routine tasks, and deliver complete visibility to their customers. To learn more, click here. Extensiv In May 2022, 3PL Central, Skubana, Scout Software, and CartRover combined to become Extensiv. Extensiv is a visionary technology leader focused on creating the future of omnichannel fulfillment. Through our unrivaled network of more than 1,500 connected 3PLs and a suite of integrated, cloud-native warehouse, order, and inventory management platforms we enable modern merchants and brands to fulfill demand anywhere with superior flexibility and scale without painful platform migrations. To learn more, please visit Interested in learning how Extensiv 3PL Warehouse Manager can help your warehouse implement a comprehensive WMS platform and share our expertise in building best practices across your warehouse? REQUEST A DEMO HERE For more information, please call us at 888.983.6748 or visit us online at FOLLOW US © 2022 Extensiv I All rights reserved. | 833.983.6748 18