You are running a warehouse, and Josh, your warehouse manager, comes to you with the same issues every week including manual errors, delays in order fulfillment, and the constant struggle to keep inventory in check.
You’ve heard about warehouse management systems and how they can fix these problems, but the big question is, what’s the warehouse management system Return On Investment (ROI)?
It’s not just about adopting new technology; you want to make sure it’s actually worth the investment.
One thing to keep in mind is that around 80% of companies in warehousing, logistics, and retail are already planning to invest in new technology to stay ahead in the warehousing industry.
Should you invest in a WMS? Let’s find out!
Why You Should Assess 3PL WMS ROI Before Investing
When you’re running a third-party logistics operation, investing in the right tools is key to staying competitive.
One of the most important investments is your 3PL warehouse management software.
But before deciding, it’s crucial to see why it’s important to assess the 3PL warehouse management software ROI.
1. Reveal Hidden Operational Inefficiencies
When you dig into the 3PL warehouse management software ROI, you’re not just looking at cost savings, you’re uncovering areas of inefficiency that might be going unnoticed.
A detailed ROI assessment can help highlight bottlenecks or outdated processes that a WMS could streamline, leading to improvements you hadn’t even considered.
2. Identify Growth Opportunities You’re Overlooking
A WMS can open doors to new revenue streams, such as offering value-added services or handling more complex customer requirements.
By evaluating ROI upfront, you can gauge how the software could support scaling your operations, expanding services, or entering new markets, giving you more room to grow than just improving day-to-day tasks.
3. Prevent Unnecessary Overhead Costs
Not all WMS solutions are created equal, and some might come with features you don’t even need.
Assessing ROI helps you figure out exactly which tools will deliver value for your unique business model, preventing you from overpaying for bells and whistles that don’t directly benefit your operations.
Warehouse Management System ROI: What’s the Real Return?
When businesses invest in technology, they want to know it’s worth every penny. That’s where understanding warehouse management system ROI comes in.
By looking at the true value a WMS brings, you can see exactly how it impacts your bottom line.
1. Labor Cost Savings
Business professor Raymond R. Panko highlighted in his research paper that human errors in manual data entry, particularly in simple spreadsheets and documents, range between 18% and 40%.
Before implementing a Warehouse Management System (WMS), many warehouses face significant time loss in these areas, resulting in higher labor costs.
These expenses are typically categorized under operational costs.
This means that by reducing errors and inefficiencies, a WMS can significantly lower the money spent on day-to-day operations, streamlining processes and improving the bottom line.
Pre-WMS Implementation Labor Time
Typically, without a WMS, you might expect manual processing to consume about 6 hours per day due to inefficiencies.
Post-WMS Implementation Time Savings
Automation reduces the daily manual time required from 6 hours to around 2.36 hours, generating considerable labor cost savings.
Pre-WMS Implementation Labor Costs
- Hourly Labor Cost: $18
- Daily Hours Lost to Inefficiencies: 6 hours
- Daily Labor Cost Before WMS: $18/hour × 6 hours/day = $108/day
- Monthly Labor Cost Before WMS: $108/day × 22 days = $2,376/month
- Annual Labor Cost Before WMS: $2,376/month × 12 = $28,512
Post-WMS Implementation Labor Costs
- Hours per Day Post-WMS Implementation: 2.36 hours
- Daily Labor Cost Post-WMS: $18/hour × 2.36 hours/day = $42.48/day
- Monthly Labor Cost Post-WMS: $42.48/day × 22 days = $934.56
- Annual Labor Cost Post-WMS: $934.56/month × 12 = $11,214.72
Annual Savings
- Annual Savings: Annual Labor Cost Before WMS – Annual Labor Cost Post WMS
- Annual Savings: $28,512 – $11,214.72 = $17,297.28
Implementing a WMS not only streamlines your operations but also offers a solid return on investment through substantial labor savings annually.
2. Reduced Mispicks
Order picking accounts for 55% of a warehouse worker’s labor time.
In any warehouse, mispicks are more than just minor mistakes; they represent major expenses and can disrupt the entire supply chain.
Pre WMS-Implementation Mispicks
On average, a warehouse might see a 2% mispick rate.
For a facility processing 5,000 orders each month with $100,000 revenue, that’s 100 errors that could have been avoided.
Each error incurs costs related to customer service issues, restocking, and reshipping.
- Mispicks per month: 2% error rate = 100 mispicks/month
- Cost of mispicks per month: $2,000
- Cost of mispicks per year: $24,000
Post WMS- Implementation Accuracy
Implementing Teamship Warehouse Management System (WMS) can reduce these mispicks by automating and enhancing accuracy in the picking process.
It can cut the mispick rate to 0.5%, reducing the number of mispick errors per month.
- Mispicks per month: 0.5% error rate = 25 mispicks/month
- Cost of mispicks per month: $500
- Cost of mispicks per year: $6,000
Annual Savings
- Monthly savings from reducing mispicks: $2,000 – $500 = $1,500
- Annual savings: $1,500 x 12 = $18,000/year
3. Increased Revenue
Before implementing a Warehouse Management System (WMS), many warehouses find that manual processes and errors lead to billing/accounting oversights, which can significantly impact annual revenue.
Typically, a warehouse handling a large volume of transactions might not capture about 3% of potential revenue due to these inefficiencies.
With the introduction of Teamship WMS, you can automate the capture of all chargeable events.
The revenue we are recovering falls into the category of transactional costs, which are expenses lost through inefficiencies that we can now save and reinvest in the business.
Pre WMS-Implementation Monthly Revenue
- Total monthly revenue= $100,000.
- The uncaptured revenue due to errors is 3% of this amount.
- Monthly revenue loss before WMS: Uncaptured Charges = $100,000 x 3% = $3,000
Post WMS-Implementation Monthly Revenue
- With Teamship WMS, these previously uncaptured charges are now fully realized, adding $3,000 to the monthly revenue.
- Additional annual revenue from reduced uncaptured charges: $3,000 per month x 12 months = $36,000
Annual ROI with a Regular WMS
On average, the cost of implementing a WMS is $22,000 annually.
- ROI = [(Total Annual Savings – Cost of WMS) / Cost of WMS] x 100
- ROI = [($17,297 + $18,000 + $36,000 – $22,000) / $22,000] x 100
- ROI = 224%
Teamship delivers 20x the ROI of a standard WMS, all while offering the same feature functionality. It’s the smarter choice for maximizing value and efficiency.
Annual ROI with Teamship WMS
With Integration
- Annual Cost: $6,200
- ROI = [($17,297 + $18,000 + $36,000 – $6,200) / $6,200] x 100
- ROI = 1,049%
Without Integration
- Annual Subscription Cost: $1,200
- ROI = [($17,297 + $18,000 + $36,000 – $1,200) / $1,200] x 100
- ROI = 5,841%
Here’s a quick look at how much return you can get from investing in WMS.
| Problem Area | Pre WMS-Implementation | Post WMS- Implementation |
|---|---|---|
| Manual Tasks | Daily inefficiencies resulted in annual labor costs of $28,512. | WMS automation reduced labor costs, saving $17,297.28 annually. |
| Mispicks | 2% mispick rate with an annual cost of $24,000. | Reduced mispick rate to 0.5%, saving $18,000 annually. |
| Low Revenue | 3% uncaptured charges, losing $3,000 monthly. | All charges captured, adding $36,000 annually in recovered charges. |
Table 1: This table highlights the key business impacts and estimated annual savings of implementing Teamship WMS.
See the Payoff: Why Teamship WMS is Worth the Investment
Your warehouse team is scrambling to keep up with growing orders, errors are piling up, and costs are rising.
You know things could run more smoothly, but how do you make that shift?
That’s where Teamship WMS comes in to not only streamline your operations but also deliver a solid return on investment (ROI).
Features
Here are three key features that drive high ROI:
- Automated Inventory Tracking: Eliminate manual errors and get real-time visibility into your stock, ensuring you always have accurate inventory data.
- Optimized Order Picking: Reduce order picking time and boost productivity with automated picking routes that save valuable time on every order.
- Real-Time Reporting: Make smarter business decisions with up-to-date reports that give you insights into your warehouse performance at any moment.
Schedule a demo with Teamship today for a high-ROI solution that drives real results at just $79 per month.
Final Thoughts
Choosing a warehouse management system like Teamship WMS isn’t just a tech upgrade, it’s a smart move to save money, increase efficiency, and get real results.
Whether it’s cutting down on labor costs, reducing errors, or speeding up order processing, the ROI is clear.
If you want to improve your operations and boost profits, Teamship WMS is your best bet.
Frequently Asked Questions
1. How do you calculate ROI per unit?
To calculate ROI per unit, you subtract the initial investment cost from the final value, divide that difference by the initial cost, and then multiply by 100 to get the percentage.
2. What are the three different types of ROI?
- Gross ROI: (Revenue – Investment) / Investment
- Net ROI: (Profit from Investment – Cost of Investment) / Cost of Investment
- Cash ROI: (Cash Inflows – Cash Outflows) / Cash Outflows
3. What is a weakness of ROI?
A limitation of ROI is that it focuses on short-term results, which can make it less useful for evaluating long-term strategies like brand building or content marketing.
These efforts often take time to show measurable results, and ROI may not fully capture the long-term value they bring.