You do not have to be an industry analyst to know that the recession has taken a huge bite out of warehouse management system (WMS) initiatives. In the distribution world, WMS packages are generally considered big ticket items. And as companies retrench, they may choose to postpone or drop major IT initiatives from their capital expenditure plans.
This cost avoidance tactic has not been restricted to any industry segment, operation size, or project type, and the food industry is not immune. In some instances, organizations that desperately need to implement a new WMS have deferred plans to an unspecified future date. A number of operations that need to upgrade their current WMS versions to meet technology and customer demands have also elected to wait.
Given the capital involved, this hesitancy is not surprising. However, one can argue that it makes a lot of sense to invest in certain types of technology during a recession since the potential cost savings and benefits matter as much, if not more, during a downturn than in a period of growth. But it has been the rare CFO and board that have bought into this argument in the past 18 months.
Like all prior recessions, the current downturn is giving way to a recovery, or “Great Comeback.” Understandably, questions linger in the minds of those involved in this process on the timing, strength and nature of the recovery. If you have been sitting on your WMS initiatives, it is time to question the risks involved in heading into a recovery with older warehousing solutions that may put you at a competitive disadvantage. Also, contemplate what the recovery means to your ability to successfully execute a WMS initiative.
Consider Post-Recession Demand
The recession has created a lot of pent-up demand for WMS solutions and services. As the recovery evolves, this demand will break to the surface. Companies tend to look at this purely from a price perspective. While now may be the time to buy, many organizations may elect to pay a premium in order to hold on to their cash, as they believe it is still not prudent to make this type of investment. This ignores two key challenges: time and resources.
The amount of time needed to select a WMS varies depending on the operation and complexity involved. It generally takes anywhere from nine to 15 months for a mid-to-large, single-site distribution operation to select and implement a WMS. At first glance, this period should be independent of economic cycles. It is natural to assume that it should take just as long to select and implement a WMS regardless of whether the economy is in expansion or contraction.
However, the severity of this recession can easily distort the WMS timeline for any operation. Even as the economy recovers, the need to replace legacy systems and infrastructure can be masked behind demand that has not reached pre-recession levels. Poor business performance has made many enterprises overly hesitant to pull the trigger on major capital expenditures. Uncertainty on the timing and strength of the recovery can cause distribution operations to postpone launching a WMS project, making it even more difficult to sync any initiative with peak season blackout windows.
Time is further complicated by the availability of resources to successfully execute any WMS project. Responding to slumping sales, a number of WMS vendors have cut implementation personnel, and companies have reduced internal staff, impacting their ability to support a WMS rollout.
Consequently, anyone looking to launch a WMS project will have to compete for a somewhat shrunken resource pool. While WMS specialists have not evaporated with the recession, it will take time for both vendors and prospective clients to staff up. This will cause further delays for some companies. Others may settle for moving ahead with an unqualified ‘C-team’ for their WMS implementation, which is definitely a recipe for disaster.
While it may have been the only available course of action as the economy was spiraling downward, continuing to postpone a WMS initiative in the face of recovery is not a safe bet. As positive growth returns for an operation, the need to do this critical infrastructure work only intensifies.
Waiting too long can put an enterprise at a competitive disadvantage. Furthermore, many operations have to schedule WMS initiatives around peak season blackout windows. Delaying the start of a WMS project may mean pushing back plans yet another year.
Postponing the project also magnifies the impact of time and resource challenges. You will not only get a better price by acting now; you will also have better leverage with software vendors and integrators in scheduling and getting the ‘A-team’ assigned to your project. Wait too long and you may find the competition for attention and resources further delaying your project.
Get Ahead Of The Curve
If the need exists, you have to try to be ahead of the curve. Some folks may believe that is a risky course.
For many, it still is not a comfortable climate to even suggest a major capital project. But waiting runs the distinct risk of being called to account for inaction a couple of years down the road. If your distribution operation is hurting in 2011 or 2012 because of sub-performing warehousing systems, saying that you tried to play it safe in 2010 is not going to cut it.
With 2010 here and recovery looming on the planning horizon, it is time for distribution operations to give careful consideration to WMS needs. If you have been sitting on a WMS selection, implementation, or upgrade, now is the time for action. There are certainly limits on what some companies can do at this point in time, but do not let that keep you from at least moving ahead with the planning process.
Take a look at your needs and invest some effort in refining your business case. If a solid case exists, push it the best you can. Do it in a manner that educates the key financial decision makers on the potential risks and penalties of delaying action. Even if your initiative gets shot down, you will have an easier time moving ahead as conditions improve. You will be making the safe bet for you and your company by keeping WMS high on your priority list.
Singer is a principal with Tompkins Associates Inc., Raleigh, NC.