XeBUSINESS WAREHOUSE MANAGEMENT SYSTEM (Xe-WMS)

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BUSINESS BENEFITS AND RETURN ON INVESTMENT (ROI)

 

Introduction

 

Below are detailed some of the benefits of installing the XeBusiness Warehouse Management System (Xe-WMS) together with examples of typical cost savings/ROI that can be expected to accrue from these benefits.

 

The main areas of cost saving can be summarised as follows:

 
 
 
 
 
 
 
 
 
 
 

The actual cost savings will obviously vary depending on the size of factory, its location (in terms of the cost of space), the current size of the labour force, their efficiency and wages and the values of the products stored.

 
 
 

Management ROI Summary

 

Warehouse Profile Model

 

The cost savings are those which can typically be expected based on a UK company with a turnover of £15m per year and a warehouse employing 15 operatives each earning £260 for a 40 hour week, working 45 weeks per year. In the example the company operates two seasons with the bulk of the garments supplied on a quick turnaround basis and the remainder used as customer replenishment stock

 

Xe-WMS Investment

 

The typical investment in deploying the XeBusiness Warehouse Management System (Applications Software and Implementation Services) is circa £35,000 plus recurring annual software support and maintenance costs of £6,000 per year.

 

Return on Investment Summary (ROI) Per Year based on above parameters

 
Improvements in Productivity 17,550
Overtime Working Savings 13,162
Reduction of Time Spent Taking Inventory 11,700
Reduction of Incorrect Despatches 7,500
Reduction of Incorrect Receipts 3,750
Reduction of Stock Holding / Quicker Stock Turnaround 15,000
Identification of Product Age Concerns / Stock Shortages 7,500
Reduction of Lost Customer Orders 7,500
Total Estimated Annual Quantified Savings 83,662

















 
 

Return on Investment (ROI) Derivation from Benefits

 

Improvements in Productivity

 

The chief cost justification in installing a Warehouse Management System comes from overall improvements in the productivity of the warehouse. This comes from better management control and increased motivation of operators. Warehouse operatives perform more effectively when an easy to use and specialist WMS is available. Xe-WMS is such a system.

 

The benefits associated with the system in the productivity area are many:

 

Successful management of a warehouse requires that you have timely, accurate, useful information about the goods in the warehouse and their location. The use of the XeBusiness Warehouse Management System provides the method of acquiring this. This can be up to the minute information if scanners are used (as is normal) for automatic data capture purposes.

 

Employees will benefit from less paperwork and more accurate information. Operators no longer spend costly time looking for goods which are not there or are in a different location. Time is not spent accumulating goods against an order only to find the order cannot be despatched since there are not sufficient goods in stock to allow it to be picked to the required percentage. Users of the XeBusiness Warehouse Management System have assessed that the productivity of their labour force has increased by around 10%.

 

Assuming that the average weekly wage within a warehouse employing say 15 operatives is £260 for 40 hours. The introduction of Xe-WMS should result in a cost saving of at least £17,550 per year.

 

Overtime Working

 

Having the correct information to hand regarding the location and quantity of goods within the warehouse will improve the productivity and efficiency of the warehouse. This will also reduce the need for costly overtime working resulting from the necessity to get orders out of the door at short notice or meet deadlines in terms of deliveries which would otherwise be missed.

 

If we assume that the average warehouse in an effort to meet customer deadlines works 10% of its contracted time as overtime experience shows that the deployment of Xe-WMS will reduce this by up to 50%. This is estimated at £13,162 per year.

 
 
 

Reduction of Time Spent Taking Inventory

 

Accurate stock holding brought about by the introduction of bar codes, scanning and tracking from entry to exit throughout the warehouse will reduce the need for costly stock takes which are usually performed at weekends and outside normal working hours resulting in costly payment to staff at overtime rates.

 

Many companies, which do not have warehouse management systems in place need to take stock on a monthly basis to ensure a degree of accuracy when picking for despatch. Companies deploying Xe-WMS should at the most need to do half yearly and yearly stock takes for audit purposes.

 

The number of stock take days can be reduced from twelve per year to two.

 

If we assume that a stock take employs fifteen staff for one weekend day each month the cost of that one day is £1,170, if ten of these are saved by the deployment of Xe-WMS, the saving per year is estimated at £11,700 per year.

 

Reduction of Incorrect Despatches

 

In many situations customers do not declare to the supplier the over receipt of garments that they feel they can sell, the sales value of these garments is lost to the supplier.

 

If the company turnover is £15m annually and we assume that only 0.5% of orders are over despatched and that only 10% of these are not declared, the value of these garments saved by deploying Xe-WMS is £7,500 per year.

 

Reduction of Incorrect Receipts

 

By a similar token in a manual system many orders are received which are short but which are booked in as the correct amount. If garments are overbooked they will be paid for when invoiced.

 

Assume the value of the garments received annually is £7.5m and that only 0.5% of these orders are received short and hence over invoiced. If only 10% of these are not detected and are paid in full, the deployment of Xe-WMS to prevent this should save £3,750 per year

 
 

Reduction of Stock Holding / Quicker Stock Turnaround

 

Warehouse managers hold less stock if they have better, quicker and more reliable information about what is in stock at any given time. Most warehouses without a warehouse management system hold a safety stock of say 10%. Assume the value of the stock holding per season is £7.5m (two seasons per year) of which 80% is quickly turned round and 20% is used to replenish orders or is sent out over the remaining six months of the season. Then, a stock holding of £1.5m at any given point is realistic.

 

The deployment of Xe-WMS should reduce this by 10% or £150,000. Based on a financing cost of 10%, the value the saving would be £15,000 per year.

 

Identification of Product Age Concerns / Identification of Stock Shortages

 

At the end of every trading year every company will be left with an amount of redundant stock which they can not sell at full value as a result of missing despatch or delivery dates or having despatched goods returned through not delivering in ratio, etc. A warehouse management system will not only reduce the occurrence of the above by identifying the need to react to stock shortages it will also highlight any ageing issues with stock allowing the sales force to pursue the sale of these items.

 

If the yearly holding of redundant stock is 2%, the value of this stock is £300,000 and the write down value on this stock is 50%, then, if by deploying Xe-WMS, 5% of this can be prevented, this will result in a saving of £7,500 per year.

 

Reduction of Lost Customer Orders

 

Many orders are lost to businesses through not being able to meet delivery dates, either through stock shortages, stock not being available in ratio or orders being returned through incorrect deliveries.

 

If 1% of business is lost on a turnover of £15m and only 5% of these orders can be saved by deployment of Xe-WMS, this will result in a saving of £7,500 per year.

 

Saving on Warehouse Space

 

Installation of the Xe-WMS generally leads to a reduction in the amount of warehouse space required. This is brought about through better utilisation of existing space, more efficient storage and ‘put-aways’, etc.

 

Whilst the physical existing warehouse space must still be paid for via purchase or rent, the installation of such a system gives a growing business the opportunity to expand without the purchase of costly additional space. It will also mean a reduction in over all costs in terms of facilities such as light, heat, power, investment in shelving and racking etc. It has been possible to reduce warehouse space by up to 20% on some sites. This is hard to quantify, as the saving will vary from company to company due to location, etc.

 

Conclusion

 

It can be seen from the above figures that a payback figure of in excess of £83,000 for the first year is feasible.

 

Less Quantifiable Benefits Due to Improved Warehouse Control and Information Flow

 

Improved Customer Order Delivery performance leading to:

 
 
 
 
 


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