How to build a WMS business case your CFO can’t argue with

Building a WMS business case usually means proving the ROI of a system that you haven’t bought yet. Which, as it turns out, is a problem most of us first met at the age of eighteen.

There’s a rite of passage that many of us go through around the age of eighteen, when we apply for our first credit card and get politely, but firmly told ‘no’.

We haven’t done anything wrong. We just haven’t done anything at all. They won’t lend us anything, because ‘You have no credit history!’, says the bank. But we can’t build a credit history, because nobody will lend us anything.

It’s a perfectly sealed loop of logic, and one that leaves us with nowhere to go.

Fast forward a couple of decades, and instead of talking to the bank, you find yourself standing in front of your CFO with a proposal for a nice new warehouse management system. And their first question is an entirely reasonable: ‘What’s the return on investment (ROI)?’

Flashback time – there you are, back in the credit card loop of doom.

And that is because you’re being asked to prove the ROI of a system that you haven’t bought, that you’ll use to run processes that you haven’t designed yet, which you’ll measure against a baseline that nobody in the building has really even thought about yet. So, you do what everyone does, and estimate.

And that is (typically) where the real trouble starts.

The incredible shrinking number

If you’ve never had to do this before (or even if you have and want to feel somewhat vindicated that you’re not alone in your pain), the following is what often happens to an ROI projection in a WMS business case during its journey from the warehouse floor to the board presentation.

It’s a sad little tale of woe, and it’s fairly universal.

The number sets off quite cheerfully, whistling a happy tune, and with its metaphorical knapsack on its back. Ops has worked out, absolutely plausibly, that a proper WMS would cut picking labour costs and time, sharpen up inventory accuracy and free up storage space. The number they have come up with looks strong.

Then it reaches Finance, who shave a chunk off it – just to be practical, you understand.

Then Procurement takes their slice, because vendor projections are always optimistic (which, fair enough, sometimes some of them are).

Then somebody adds a bit of contingency to the cost side of the paper (good plan), while adding nothing back to the benefits side (top tip: you really should be realistic in both directions, if you’re going to be realistic at all).

Which means that by the time your number arrives in front of the board, it has been argued down to something so feeble that nobody in their right mind would fund it, because it looks like a whole lot of cost and disruption for not a lot of reward.

And the frustrating part of this is that every individual slice off the original ROI number was perfectly reasonable.

But the problem is that a projection, by its very nature, has nothing to push back with. It’s a guess wrapped up in a spiffy looking spreadsheet, and in their heart, everyone (including you) knows that.

How to show your workings in a WMS business case

The way out of this loop is the same as it was at the bank: you need to change what you’re asking them to believe.

A decent CFO should be able to argue with a projection all day long.

However, arguing with a measurement is much more difficult. So, before you put a single future benefit into your WMS business case, you need to point out exactly what it’s costing you today. Skip the “we’ll save X” bit entirely and instead, open up your conversation with what the current operation is costing, line by line, and preferably with the relevant industry benchmark sitting right next to it.

We’d recommend three places into which you could start to shine your light of brutal awareness:

Labour

Industry benchmarks currently put order picking at around 55% of warehouse operating costs, and as much as half of your pickers’ time can be spent walking between locations instead of actually picking inventory from them. We covered this in our blog about warehouse efficiency benchmarking, so, please feel free to use the information therein. You’ll need a stopwatch, a week to observe what’s going on, and a stomach that’s strong enough to write down (and report) what you find. Good Luck.

Accuracy

Miscounts are not just a pain. Each one of them also has a verifiable, tangible price tag. The recount, the re-pick, the credit note, the customer who orders from someone else next time. Our Dispatcher WMS users report that they achieve near-100% inventory accuracy, and the gap between that and wherever you are today is measurable in actual money. If you’re not totally sure where you are today… well, that’s kind of the point I’m making. And if you want to find out more about this, we’ve got a blog you can read on warehouse inventory accuracy  that gets right down into the nitty-gritty of it.

Space

This is the racking you can’t use because the putaway logic that is being used to populate it is… erratic. It’s the overflow trailer in the yard that was designated a ‘temporary measure’ in 2023. It’s that unit next door that you keep eyeing up because you “need more space”, when what you may actually need is just to be able to use the space you’ve already got – but properly. Space utilisation is a number that your board should be able to understand. Mostly, because the alternative typically involves signing another lease.

If you can take the time (I know, I know, I’m hilarious, WHAT time?!) to do this in intricate detail, something interesting starts to happen during these ROI meetings – people begin to pay attention. And that’s because you’re no longer asking your board to believe in a theoretical prediction that you’ve pulled out of the air. But rather, you’re showing them documented costs that the business is paying right now, this quarter, whether they approve your WMS project or not.

When you do this, the burden of proof switches to the other side. Which means that doing nothing stops being the safe option and instead, it starts being the more expensive one. Which, in all honesty, it usually is.

A quick full disclosure before we go on: we can’t hand you a pre-baked WMS ROI figure either. Nobody can give you an accurate number without looking at your operation, because your number will depend entirely on your baseline.

Trying not to miss the budget bus with your WMS business case

Then there’s the other half of the problem with your shiny new WMS proposal, which is an absolute pain, because it only ever kicks in after you’ve got the board to agree that you need a new WMS.

Budget windows tend to open quite briefly, usually on a schedule, and whether your argument is ready to put forward or not.

You can make your ROI point in June, and then still have to watch the capex window close before the paperwork for it clears. Then there’s a spending freeze. Then there’s a reorganisation. And then… by the time the window opens up once more, you’re making the same case again – to a slightly different audience, at least one of whom wasn’t there last time and who would like to start again from first principles. If that’s alright with everyone else?

You can’t change the timetable. But what you can do is to be ready with your WMS business case already built when the budget bus eventually does turn up. And with a case that you’ve built on actual measurements, which doesn’t tend to age the way that a projection does. A projection that was made in June will most probably look a bit stale by February.

Whereas a measured baseline can just be updated, and if anything, any delay will just strengthen it, because your operation has kindly spent six more months generating the evidence you need, while you waited for the next budget meeting.

How to get your WMS business case out of that closed logic loop

We all know that you can’t prove the future. And anyone with any sense would stop you talking about that the moment you started to try. So, prove the present instead. It’s cheaper, it’s quicker, nobody can argue with it, and your operation is generating the evidence for you every single day whether you’re collecting it or not.

Seems a shame to waste it.

Book an obligation-free discovery call and we’ll help you work out which numbers to gather for your WMS business case. Bring whatever measurements you’ve already got, however patchy. Honestly, we’ve seen far worse, we promise.