Sergei Leonov, the head of Axmor’s development department, explains which companies stand to benefit from developing their own warehouse management system.
In my professional experience, I have often come across the following situation: a company is utilizing a popular ERP system yet refuses to use the built-in WMS (warehouse management system) module. How can we account for this? WMS modules are both inexpensive and convenient: vendor consultants are already on board and the system has all the necessary functions to help simplify dozens of warehouse business processes. Typically, the companies that I have described have similar extensive experience working with standard solutions.
An out-of-the-box WMS is a guiding thread for fledgling businesses
Ready-made solutions for warehouse management have a significant number of advantages. As a rule, companies are willing to use them because such systems are an intrinsic part of an ERP system, i.e. they have a ready-made infrastructure platform, resulting in a relatively low implementation cost. In addition, boxed WMSs have debugged and ready-to-use warehouse business processes; thus, you can bypass the trial and error stage when using them as a template from which to build your own. Lastly, turnkey solutions are attractive because of the vast and detailed documentation that exists in the public domain. Furthermore, during the solution’s implementation stage, the company can benefit from the support of highly qualified business consultants: a crucial factor for fledgling organizations.
Typically, problems emerge as the company gains awareness of the limitations that a standard solution imposes on unique operations or their sequence. As the company grows, it requires an agile system, capable of adapting to non-standard ‘outside-of-the-box’ business processes, and the company is presented with a dilemma: shoehorning business processes into the limitations of the current boxed system or customizing the boxed WMS to fit the more demanding requirements. The latter option will result in the system having an increased cost of ownership: the cost of changing the core configuration of the system and modifying business processes is added to the price of licenses and implementation. Improvement costs increase the total cost of ownership by 5 times on average. Another point that increases the overall price of the system is the unused functionality of the box, which is now rendered a ‘dead weight’ and does not contribute anything to return on investment.
It should therefore be noted that at the outset of a company’s operations an out-of-the-box WMS can provide a decent springboard; however, as the company matures, it can also hamstring the growth of warehousing efficiency (reducing time of operations, etc.), when the company’s warehouse operation technology becomes more complex, or when there is a desire to continuously optimize warehouse processes.
A custom WMS is not the opposite of ready-made software
In contrast to an out-of-the-box solution, a custom WMS does not have any restrictions when it comes to further developing its functionality, nor on the speed of development. On the other hand, a custom WMS does not have a ready-made infrastructure, and its development necessarily begins with the creation of an expensive set of basic functions: the ability to work with directories, viewing and editing documents, reports, etc. This infrastructure needs to be created from scratch and integrated within the broader IT system.
The disadvantages, however, are outweighed by the increased freedom of development and the ability to test alterations to business processes both quickly and at low cost. Especially in light of the fact that as the system develops, the cost of developing it will decrease.
As a rule, incurring high initial costs and capitalizing on limitless possibilities for positive innovation, is possible for mature or highly flexible companies; thus, I believe it is fallacious to contrast a “boxed” WMS with a custom system. It ultimately boils down to two fundamentally different approaches to business. For some companies, one approach is preferable due to the increased level of influence over various processes, whereas for another company the ability to generate cost-benefits from experiments and innovations is an intrinsic part of their business model.
Two kinds of companies for which the development of a custom WMS solution makes sense
Business Process Experimenters
Such companies typically operate in highly competitive or dynamic markets. It is reasonable to assert that they make a considerable profit thanks to constant experimentation and optimization with their WMS, since the search for non-standard solutions leads to faster, more flexible, and cheaper operations, or allows them to implement unique, highly sought-after unique services.
For example, a company is constantly refining the process of goods intake in order to make it faster and to avoid additional recounts. For this purpose, several options are considered in order to eventually arrive at the optimal one: storekeepers can simultaneously manually input data into the desktop system, they can use a mobile application, or they can use a barcode scanner. If a company wants to test all of the possibilities listed above and include them in a standard solution, it would be more expensive, time-consuming, and would meet with resistance from the vendor. In short, it would, in the vast majority of cases, be completely unfeasible.
It should be noted that companies need to be ahead of the competition in case they fall foul of new government initiatives concerning industry regulations. Increasingly, goods from all sectors find themselves subjected to new requirements, often entailing the capital restructuring of warehouse and logistical processes. Companies working with boxed WMS are left at the mercy of both the developer and the vendor as necessary alterations are developed and implemented. For a company that prides itself on agility and flexibility, this loss of valuable time is potentially catastrophic.
Companies that have analyzed the cost-effectiveness of their limitations
These companies have significant experience working with various standard solutions, which at the initial stage of their history helped them to build business processes in accordance with internationally recognized best practices and contributed towards the company’s growth. In time, however, the limitations of the system began to negatively affect the company as a whole and the cost of WMS and the lack of flexibility started to obstruct optimization. The characteristics of the warehouse evolve, new loading and robotic equipment appear on the market, bringing with it the need to increase automation. The necessary changes cannot be quickly implemented using an out-of-the-box warehouse accounting system. When one small inconvenience of the system is scaled to a hundred employees, each subsequently performing 50 unnecessary operations, the efficiency of the warehouse decreases.
With this comes awareness of the cost of limitations. The real price that the company pays for tolerating the inconveniences caused by the “box” is estimated. At this point, it is already possible to assess how justified/expensive/risky/profitable/cheap it would be to create a custom-made system, and in addition, it is possible to understand what features the custom system should contain.
The experience of such companies shows that it is not always correct to contrast the boxed and custom WMS, because the second is often impractical without the first, and without having lived through the limitations of the standard solution, it is unlikely a company would invest time and money to remove these restrictions.
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Sergei Leonov is the Head of Development at Axmor with 19 years of experience in software engineering. He enjoys Arduino and is building a smart home in his spare time.
