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MDM

Weighing the Cost of a WMS

Distributor: Take hard look at how system can address issues

Lorenz & Jones, a marine supplies distributor, implemented a Warehouse Management System at its single warehouse, significantly cutting shipping errors and improving data collection and sales trend analysis.

View orginal article "Weighing the Cost of a WMS" in Modern Distribution Management

By Lindsay Young

Lorenz & Jones Marine Distributors Inc., Ankeny, IA, believes in its Warehouse Management System so much that it uses it as a tool to bring in new customers.

The distributor invites prospective customers to the 50,000-square-foot warehouse, places a Radio Frequency terminal in their hands, and lets them pick orders. The demonstration illustrates how easy it is to be directed to the right products.

Potential customers are sometimes wary because they have had problems with suppliers that regularly shipped the wrong products or the wrong quantity. "But they leave here with a feeling that Lorenz & Jones has a very high likelihood of shipping them the right products," says Tom Lorenz, vice president.

The Company

Lorenz & Jones was founded in 1921 and remains a family-owned business. The company mixed retail boating sales with automotive service until 1954. Then it moved to wholesale boating accessory sales, including water skis, electronics, life jackets, rigging and other items from more than 180 marine manufacturers. The distributor sells to marine retailers.

Lorenz & Jones serves 13 states in the Upper Midwest. On a busy day, the distributor ships about 3,500 line items. It has 1,500 active marine dealer accounts and a traveling sales force of five plus 10 inside sales and customer service representatives.

The marine supply market is relatively small but it's a mature and highly competitive industry, Lorenz says.

The Move to Automate

Warehouse Management Systems are touted as an easy way to control the movement of inventory into, inside and on its way out of a warehouse. The heart of Lorenz & Jones' system is an RF platform that tracks the movements of every product.

Because inventory is one of a distributor's largest assets, automating inventory management can boost profitability by reducing dead stock and stock-outs. It also can improve customer service by reducing shipping errors. Employee productivity goes up by cutting back on the amount of time it takes to find items and process orders.

Warehouse Management Systems are gaining ground in recent years among distributors as they adopt the systems for the first time or extend the system to branch facilities. Pathguide Technologies, Lorenz & Jones' chosen system, reports that industry and customer shipping compliance issues have also been a factor in the growth of WMS among distributors.

Lorenz says he heard about Warehouse Management Systems at industry meetings and through user groups. "I thought at the time that, yes, that would be great, but that's probably more money than we could justify spending for a warehouse system," he says.

Over the next couple of years, Lorenz started to become more frustrated when the distributor would let down a customer by sending the wrong item or when its inventory records indicated an item was in stock but in reality was not. "You can build up a lot of goodwill with your customers, but you can burn through it in a hurry by not servicing them properly," he says. Lorenz was making a call to a customer at least once a week to apologize for sending the wrong item or the wrong quantity.

Weighing the Cost

So Lorenz changed his thinking on the cost of a warehouse system: "What would it be worth to our company if we were able to hire someone who would come in and improve our inventory and picking accuracy as well as our throughput in the warehouse? That would be a pretty valuable employee and we would be willing to pay for that."

The cost of a WMS suddenly became justified, he says. In 2001, after doing a cost-benefit analysis, the distributor implemented the Latitude Warehouse Management System from Pathguide Technologies. The choice was made easier, Lorenz says, because the distributor's ERP system provider Activant and Pathguide Technologies had already partnered and developed an interface between the two systems.

Distributors could pay between $75,000 and $350,000 for a Warehouse Management System, which includes software, services and hardware, according to Pathguide. Prices of course vary according to vendor.

Pricing can be affected by a number of factors, including the number of RF terminals needed, extent of services performed, choice and quantity of hardware, and whether branch locations are tapped into the system.

"Don't be scared off by the initial cost of a WMS system," Lorenz says. "You need to take some time and analyze what your goals and objectives are, as well as your current problems and issues. Take a hard look at what a WMS system can do to address those."

The Change

Implementation to go-live took about four months.

Lorenz & Jones made the transition to a WMS from a manual system. Its computers had kicked out shipping papers, and items were picked manually, sometimes missing items. "Now with the WMS, it won't let the order complete until all of the order line items are picked," Lorenz says.

As a result of the system, it's easier to train employees, he says. "It used to be an order-picker had to know something about the product to ensure they were picking the right item. But now they've just got to get a good bar-code scan on the product. If they go to an incorrect bin location and scan the product, they will be told it is incorrect."

Error rates have dropped very significantly, he says, but he could not provide specific numbers.

More Data

Sales and service employees have a WMS Web application on their desktop allowing full visibility into orders. While before Lorenz could only count on basic measures to determine how well the distributor was doing on a particularday - number of packages or dollar volume for the day, for example - now they are able to dive into details.

Available data: orders in, orders that are picked, orders that have shipped, orders that are in process, orders that remain, line item totals and other related data. Also, the company can filter the data. For example, by customer, shipping route or order.

"That historical data is kept in the system as long as you desire," Lorenz says. "We can go back and look at trends that help us to plan for the future."

In addition to historical data, customer service improved because of better visibility into order status. Reps can see the exact status of orders. In addition, they can see what is in each box sent to a customer and can track those boxes with tracking numbers provided by the system.

"There is just such a wealth of information that is invaluable to provide great customer service as well as problem solving," Lorenz says.

Acceptance

While distributors often report employee resistance to change when implementing a technology solution, distributors implementing Warehouse Management Systems typically see less.

"We've found the system to be very intuitive. It makes a lot of sense. We do have a training process - but we find people pick up on it much quicker than our manual system," Lorenz says. The distributor has 10 full-time warehouse employees and up to 25 part-time in its busy seasons - the spring and summer.

The distributor had a series of meetings at the warehouse at which executives talked about the new system with the employees - showing how it would solve common problems in the warehouse. "People got excited about the change," Lorenz says. "You will never find anyone at our warehouse that would consider going back to the paper world."

Reprinted with permission of Modern Distribution Management