2020 has brought many changes this year and forced many organizations to review how they manage their business. The third-party logistics (3PL) space has not been immune to these changes and has seen a major increase in demand for ecommerce and essential household orders. These increases push warehouses to look for new ways to increase efficiency and accuracy in their business processes and fulfillment strategies.
Any time warehouses look to make a change in how they manage their operations, it is important to measure and evaluate performance metrics. To accomplish this, 3PLs should consider a return on investment (ROI) analysis. This is especially true when looking to change workflows and invest in a warehouse management software (WMS). There are three key types of ROI factors to consider when conducting an analysis for a WMS. These are the tangible, the intangible, and support/implementation aspects of your logistics business.
Tangible ROI is the traditional way to calculate ROI and is easily quantifiable. Areas 3PLs can quickly look at reducing costs are overhead, recurring storage fees, integrations, or maintaining a homegrown system. Examples of overhead to review include administrative expenses, the cost of paper and packing materials, and other daily business expenses. Recurring storage fees, the costs associated with storing product in a warehouse, could also potentially be passed warehouse customers and marked up for profit on a monthly basis. In addition, having metrics or visibility inventory turnover by SKU could help a warehouse make informed decisions about which vendors to do business with to maximize tangible ROI. Another factor to consider is order accuracy. With razor thin margins, warehouse operators can’t afford to lose profits from mispicks, so order accuracy is paramount to high ROI and business success.
Intangible ROI refers to benefits that are subjective and not always quantifiable. After implementing a WMS, workers may “feel” improvements, but they may be hard to measure. For example, automating time intensive processes may improve employee morale and allow them to enjoy their workday more. Customers may appreciate automated updates on order and inventory statuses, improving customer satisfaction and retention levels. When using warehouse automation, such as 3PL Warehouse Manager, warehouses can see happier and more productive employees justifying an investment in new technology.
Support & Implementation ROI
Not every warehouse has the inhouse technical expertise to implement a WMS or spend time to troubleshoot the system if something happens to go wrong. Partnering with a WMS provider that offers comprehensive implementation and support services can save warehouses time and money. While many 3PLs are now hiring IT managers to maintain WMS software and integrations, there is a lot to be said for the convenience of having access to free technical support. Since warehouse customers heavily rely on their 3PLs, having a WMS partner that will be a long-term advocate will set a warehouse up for success.
Items to Consider When Calculating ROI
Outbound process error rates
Manual 3PL operations often have higher error rates for outbound orders than those that implement automated and paperless processes. Errors can negatively impact warehouse customer seller ratings causing consumers to leave negative online reviews, which can jeopardize entire customer relationships.
Using automated outbound core WMS features is a must have for warehouses planning to meet increased customer demand—especially as warehouse customers expect more from their 3PL partners. When conducting an ROI analysis, look to see what kind of error rates customers have with a certain WMS software and compare them to your current rate.
Inbound Processing and inventory accuracy
Automating inbound processing is another area a WMS can help with. Knowing what inventory the warehouse received, where that inventory is located, and decreasing the time it takes to pick said inventory are the keys to keep things running smoothly.
Automating inbound processing and maintaining accurate inventory records within the warehouse pay dividends on the back end by reducing the time inventory sits on the shelf and eliminates loss or even theft by having accurate records. Complete visibility of warehouse inventory and order information through a WMS can help a 3PL provide their customers with greater transparency and help them make more informed business decisions about which products to invest more in, boosting profitability.
Warehouses who use WMS automation to support new business opportunities is a key factor when reviewing ROI. Often 3PLs will be able to expand new revenue streams by simply having technology that supports shopping carts integrations, EDI, automated workflow functionality, or other value-added services., Logistics businesses not utilizing proper warehouse automation via a WMS can be disqualified by a potential customer during initial sales talks. These new business opportunities can be calculated by reviewing any new revenue streams that were not available to the organization before implementing a WMS.
As changes in the 3PL industry increase competition, it is important that every 3PL organization start to review their business practices to ensure they are the best they can be. To request a demo of 3PL Warehouse Manager and learn how you can partner with 3PL Central to generate greater ROI, click here.
Written by Seth Zellner
Seth Zellner is a Solutions Engineer with a specialty in SaaS technology within the EDI and ecommerce industries. He enjoys helping organizations learn about new technology and finding modern solutions to modern business problems.