HOW TO CREATE A BUSINESS CASE FOR A FOOD & BEVERAGE WAREHOUSE MANAGEMENT SYSTEMeBook

becomes

TABLE OF CONTENTSBOTTOM LINE.........................................................................................................................................................................3

BENCHMARKING A FOOD & BEVERAGE WMS TO GET A BASELINE LEVEL OF PERFORMANCE DEFINED...4

KEEPING A FOOD & BEVERAGE WMS CURRENT IS A CONTINUAL CHALLENGE.......................................4

10 SIGNS IT’S TIME TO REPLACE A FOOD & BEVERAGE WAREHOUSE MANAGEMENT SYSTEM......5

BUILDING A BUSINESS CASE FOR A FOOD & BEVERAGE WAREHOUSE MANAGEMENT SYSTEM.....6

CONCLUSION....................................................................................................................................................7

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BOTTOM LINESupply chains are the fuel that drive the growth of every food & beverage manufacturer today. An integrated, scalable, secure Warehouse Management System (WMS) can assist in transforming supply chain efficiency into internal process performance gains while ensuring greater order accuracy, compliance, and cost control.

All food & beverage manufacturers prioritize their supply chains to ensure the greatest levels of efficiency and quality are achieved.

The gains made throughout a food & beverage supplier network are, at times, marginalized by inefficient distribution, storage, and warehouse locations that don’t have a WMS in place.

In high-performance food & beverage supply chains, the WMS orchestrates every aspect of optimizing multiple warehouse locations, from receiving and storage to inventory management, order processing, shipping, and Material Handling Device Control.

In many ways, the WMS is the core of any food & beverage supply chain and supplier network.

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BENCHMARKING A FOOD & BEVERAGE WMS TO GET A BASELINE LEVEL OF PERFORMANCE DEFINED As inventory, space, time-to-market, material handling labor and transportation requirements all shift as a result of business models changing quickly, any WMS will face the challenge of flexing for the unique customer and market needs. It’s best to regularly benchmark a WMS to make sure it is still aligned with the needs of the broader supply chain and supplier networks while still providing valuable information back to customers. The four core areas to rely on for completing a WMS benchmark include order fulfillment, inventory management, warehouse productivity, and transportation performance. These four areas provide an accurate glimpse into how an existing WMS functions, especially in the areas of providing real-time data to customers, buyers and suppliers. These four areas also provide insights into how well an existing food & beverage WMS is scaling against more challenging requirements that are supplier, customer and internally based.

KEEPING A FOOD & BEVERAGE WMS CURRENT IS A CONTINUAL CHALLENGEThe most common reason a food & beverage WMS will be replaced is that it’s built for a different business model and series of products that aren’t delivering the revenue and margins they once were. A traditional WMS is often highly customized by a 3rd party and is a challenge to keep current. It often requires a programming team to keep the system operating. When a food & beverage manufacturer’s legacy WMS is only producing a fraction of its data potential, these manufacturers tend to need richer functionality and better compliance reporting to stay competitive. There’s also the customer-driven requirement of change, including closing the competitive gap of how quickly data can be provided, over which platforms, and using which interface and application technologies. Due to the nature of rapidly evolving technology, legacy food & beverage WMS oftentimes cannot provide HTML5 or responsive web interfaces.

The proliferation of new food and beverage products has also created a challenging environment for manufacturers who have grown too reliant on legacy WMS applications. The majority of legacy WMS systems were designed for far less complex products and often didn’t require product customization spanning the scope of today’s broader base of food & beverage product lines. The proliferation of products is also leading to the need for greater real-time data integration across the entire supply chain. There is a wide variety of integration technologies available for integrating legacy WMS and ERP systems, yet the foundational data structures of these systems aren’t designed for flexible manufacturing. More often, they are created for high volume standardized manufacturing with little variation.

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10 SIGNS IT’S TIME TO REPLACE A FOOD & BEVERAGE WAREHOUSE MANAGEMENT SYSTEMThe following are the top ten signs to look for regarding food & beverage WMS not keeping up with the pace and scale of the broader manufacturing operation. Key problem areas include Order Fulfillment, Inventory Management, Warehouse Productivity, and Transportation Performance. The finance department will most likely have the majority of data required for quantifying just how much gross margin, sales, and yield is being lost due to an ineffective WMS process. The following ten symptoms are essential for building a strong business case to replace a WMS, or acquire a new one:

1. Supply chain planning is breaking down, leading to more allocations, out-of-stocks, and fluctuations in on-time delivery

2. Increasing product quality problems from suppliers that slip through the initial screening systems in the warehouse

3. Getting into the habit of expediting orders for production and paying rush charges to get finished products to customers on-time

4. Yard Management is breaking down and inventory is building-up, waiting for use during production

5. Resorting to more manually-based methods to get warehouse inventory levels to balance and have enough raw materials on-hand to complete production runs

6. Overtime and high operating costs are starting to increase per-distribution location

7. Production scheduling is starting to be impacted by the lack of materials in warehouse storage locations

8. Taxonomies that worked in the past for managing warehouses are starting to break down and lead to confused direction and misplaced internal orders

9. High per unit costs dominate financial statements with inventory, warehouse management, and logistics costs being the primary sources of cost overruns

10.Production yields are decreasing with more errors and unusable materials, leading to further reductions in gross margin

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BUILDING A BUSINESS CASE FOR A FOOD & BEVERAGE WAREHOUSE MANAGEMENT SYSTEMIn building a business case for replacing a WMS, it’s important to consider the sales, margin, cost avoidance, and cost reduction components of the business case itself. An excellent first step is to create a strong cross-functional team that can scale the many information, analysis, and reporting requirements inherent in the steps required to build a business case.

Before jumping in to define the financial calculations and ROI metrics, choose a senior management team member to champion the program. It’s not enough to have a Senior Director, Vice President, or C-level executive on the team to define the business case. Instead, it’s best to have a member of the senior management team to create a coalition or base of support across multiple members of the senior management team. Accomplishing this level of cohesion and collaboration at the C-level improves the probability a WMS business case will succeed and get funding. Also, having a group of C-level or senior management team members supporting the project will fuel greater change management support as well.

The following are the steps to building a business case for a food & beverage WMS:

1. Create and fine-tune change management plan that includes a coalition of C-level partners who can support the business case and remove obstacles to the WMS implementation succeeding across all sites. The single most expensive part of any WMS business case is change management, getting people trained on the system that will be using it daily. There’s also the challenge of having supervisors, managers, and leaders in production and warehouse locations buy in to the system and use it when it comes online. It’s good to estimate that for every dollar spent on software, nine dollars will need to be spent on change management, training, and reinforcing the value of the new WMS to the company.

2. Define a cross-functional team to help create a business case that includes IT, facilities management, finance, human resources, legal, procurement, logistics, and sales. Each of these departments is essential for creating a strong business case. Of these, finance will be invaluable in creating pro forma financial statements, modeling various scenarios and coordinating with procurement and operations to gain insights into costs.

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3. Define the scope and scale of the business case before the first cross-functional meeting and rely on the first meetings to get feedback and fine-tune the structure. It’s important to get the structure of the business case done before the cross-functional meetings begin, so there is a roadmap to work from. At a minimum, the structure of the business case needs to include the following:a. Goals and objectives of the business case

i. Using the list of ten symptoms listed earlier in this document, define the most urgent problem areas that can be financially measured.

ii. Start benchmarking the financial performance and losses from these problem areas.

b. Define the scope and scale of the proposedWMS

i. What business requirements will the proposed WMS focus on?

ii. Are there any cross-functional aspects of the WMS that need to be improved?

c. Summarize the business requirements anddefine costs and benefits

i. Working with finance, capture what the anticipated costs of a new WMS, based on vendor quotes and the reduction in costs and benefits of having the new system.

ii. Finance and the cross-functional team must define assumptions, constraints, and potential risks impacting the overall WMS business case.

d. Define a proposed project plani. Prepare a Gantt chart with dependencies,

resources, and potential conflicts all defined. ii. Meet with the C-level change management

team and ask for assistance gaining resources and commitments from other teams to get the WMS project done.

4. Summarize the investment benefits and use them to promote the WMSa. Quantify and share the project benefit slides and create additional materials highlighting new WMS solutions.

Use these materials to support the proposed project plan. b. Using production data, show potential scenarios of how the WMS will reduce costs, improve customer

response times, and improve revenue growth and sales. c. Create a pro-forma financial analysis showing cost reduction, operating cost avoidance, net gross margin,

and net sales improvement over the next twelve quarters. This data will be invaluable for building the business case for going forward with the WMS; it’s the financial contributions of getting the new system.

d. Build a cost model that can quickly be updated for program and project management costs, process redesigncosts, and costs of disrupting production while a new WMS is being implemented. These include additional labor and overtime, data cleaning, and customized WMS development. Be sure to invest heavily in User Acceptance Testing (UAT) as well across all geographies in which the WMS will be used.

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5. Make the WMS business case support the most urgent corporate initiatives. This will increase the probability of successa. For many manufacturers, cost reduction is one of the most urgent strategic priorities they are challenged with

today. Define the WMS business case first from a cost reduction standpoint based on the data captured in step 4. b. For the top line growth component, forecast the percentage increase in perfect order

performance in addition to new revenues based on additional yields. A successfully deployed WMS can significantly reduce overall operating costs and drive yield rates up.

c. Summarize the key benefits of the WMS from a cost and revenue standpoint, showing theeffects of improving supply chain and warehouse processes when a new WMS is up and running.

6. Have the C-level leaders championing the WMS business case meet with the CEO and board to get approval a. It is invaluable having a coalition of C-level executives present the business case and defend it in front of senior

management. Delegating this task to that team increases the probability of success to over 60% when compared to previous experiences in which others presented the case.

b. Showing the impact on top-line revenue growth also increases the probability of success for the initiative as well.

7. Gain The Funds Requested In The Business Case And Begin Implementationa. Assign a Project Management Office (PMO) leader as the project manager on the WMS implementation. It’s

best if the PMO leader has a PMP certification and experience in leading enterprise software implementations.

CONCLUSION The business case for a new or replacement food & beverage WMS system needs to balance top-line revenue growth requirements with the need for cost reduction. The best business cases are predicated on a balance of cost avoidance, cost containment, margin, and sales contribution. Aligning the WMS business case with the most urgent strategic priorities a company has increased the probability of success. Having a C-level coalition of project champions also increases the probability of success. When the financial data is so compelling from a revenue uplift standpoint, objections to getting a new system evaporates. There will always be objections, and the best way to overcome is to show how a strong WMS is an investment in winning new customers and keeping existing ones. Having a scalable, agile WMS is essential to fueling new revenue growth.

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