What really bothered Mike Dubbs wasn't so much the cost or even the time his company wasted by installing a warehouse management system (WMS) that turned out to be infested with bugs. What really got to Dubbs, who's chief executive officer of Storage Equipment Inc., was losing face with his workers. "I had put a lot of my personal integrity on the line, assuring my employees that this was going to work," Dubbs says. "So when it became evident that the system wasn't working, I lost a lot of credibility."
Salvaging that credibility required drastic measures, but Dubbs didn't flinch. After wrestling for 18 months with a software system that couldn't keep track of inventory and following a string of broken promises from an increasingly uncommunicative vendor, Dubbs pulled the plug and switched to another vendor.
Today, Dubbs speaks like a man who's been through a life-changing experience, and he's admirably candid about what went wrong. He admits the fiasco with the first software company, which we'll call Company X at his request, occurred because Storage Equipment, based in Minneapolis, didn't "follow a sound selection process."
What happened was this: Back in early 2002, Dubbs got a call from a friend working at Company X, who asked him to put in a good word for his company's system with a potential client. Dubbs dutifully called the potential client, and during their conversation, Dubbs realized that the prospect's warehousing problems were remarkably similar to his own. That led him to wonder whether he, too, might not benefit from buying a WMS system from Company X. Ironically enough, although Storage Equipment's primary business is selling storage, racking and conveyor systems for warehouses—around $15 million worth a year—its own warehousing was in need of a fix. "We were like the cobbler whose children had bad shoes," says Dubbs.
Once he decided to go forward, Dubbs threw himself into the preparations. He oversaw an extensive reconfiguring of the warehouse infrastructure and inventory flow, in order to take full advantage of a WMS system. At first, it appeared that the effort had paid off. Although the two companies missed the initial "go live" date, Storage Equipment reported an immediate 25-percent improvement in productivity when the system was switched on in September 2002. But it also quickly became apparent that as with any big new computer system, there were wrinkles to be ironed out, ghosts in the machine. And, as Company X struggled to sort these out, the wrinkles became gaping tears and the ghosts became ravening monsters.
It eventually emerged that Company X didn't have much experience in warehouse management. A small company, it had been selling package tracking and labeling software for 12 years and had decided to get into the WMS business. That's a bit like a piano tuner deciding to conduct a symphony orchestra—possible, but the background doesn't inspire confidence. The ensuing discord rose to a crescendo at the end of 2002, when managers realized their inventory-level estimates were way off, causing Storage Equipment to pull the plug for the first time and resort to its original paper-based system. Company X promised them that a new software package, written in a different language, would be ready by February 2003, but the system wasn't installed until July. When it finally went live, the new package turned out to be even worse than the last system—it was missing major items such as reporting and picking control.
To add insult to injury, Company X sent a stream of potential customers to visit Storage Equipment's facility so they could see the WMS at work. But, ironically, this was the saving grace for Dubbs. He kept in touch with the people Company X sent him, and in his follow-up conversations with them, he discovered that all of them had chosen a different system, a package from HighJump Software of Eden Prairie, Minn. So when in desperation he jumped ship, he'd already made up his mind to go with HighJump.
The new software was installed in October 2003 and Dubbs says it started paying for itself as soon as it was turned on. He predicts a 25-percent increase in productivity, this time one that continues to happen. "I couldn't be happier,"Dubbs says. "As a company, we're trying to imitate some of the processes that HighJump uses. If they say they're going to do something, they do it; if they've given us a time frame, they've met the deadlines."
Dubbs was impressed that HighJump didn't promise the moon. "They were very smart and sent in an analyst before they even sent us their proposal. He did some research with regard to our business and what our expectations were, and only after HighJump had determined that it could meet our expectations did it give us a proposal," says Dubbs. "It was very careful not to put itself in a position where it would under-deliver. HighJump wanted to make sure that our requirements didn't exceed the software's capabilities."
So it seems the story has a happy ending—though the lesson learned was a costly one. Dubbs estimates the mistake set the company back $500,000 in "soft costs," on top of the $100,000 in hard cash he paid upfront to Company X before they'd finished so much as a line of code.
Don't skimp on the research
How do you avoid a similar fiasco? We asked a range of vendors and customers of WMS systems for their tips and advice. At the absolute top of everyone's list was the advice that, if you're going to buy your first WMS or make a substantial upgrade (say from a homegrown system to one bought from an established software vendor), you need to do your homework.
First, as obvious as it sounds, you need to decide what it is you actually want. That means looking at your business and identifying which processes you want to improve, and how. Chances are good that you'll have to reorganize the business in order to make the most of warehouse management automation. Avnet Electronics Marketing, an electronic components firm based in Phoenix, Ariz., decided to buy a new WMS system when it doubled the size of its warehouse facility in Chandler, Ariz. Early on, it discovered it needed help and hired a consultant from Andersen Consulting to look at both material handling and WMS changes. "Much of the work they did was gathering information from Avnet employees and reviewing our flows and processes," says Ida Beal, vice president of logistics systems at Avnet. While some companies like Avnet hire a consultant, others seek advice from their material handling equipment suppliers or some other related party.
Remember, however, that outside consultants aren't the be-all-and-end-all, because they don't know your business as well as you do. "I think we relied a little bit more on our outside consultants than we should have," says a manufacturer of large water piping systems in Pennsylvania that did not want to be mentioned by name. "They were leading us toward certain vendors and it should have been our decision, not the consultants' decision." In the end, the Pennsylvania manufacturer overrode its consultants' recommendations and chose a system made by Intrepa, which has since been acquired by Manhattan.
Whether you're using an outside consultant or not, it's crucial at this stage that you ask not only the right questions, but ask them of the right people. That includes the guy on the warehouse floor who is actually going to use the software daily. But it doesn't stop there.
"We view the warehouse solution as part of a wider supply chain solution," says Dale Jeffries, president of Radio Beacon, a supply chain management software vendor based in Toronto, Ont. "So you ask the guy who has the pain, but you also check with the salespeople, because a new system will have an impact on them. You should also check with customer service and find out what people are complaining about—it's never just price. Then, talk to finance. They'll ask: Why do we have so much inventory? How do we lower our investment in stock? These are the sorts of questions someone from the warehouse floor is not going to raise."
Getting input from a wide range of people in the company can have its problems, warns Rodney Winger, sales director of distribution products at Epicor, a software vendor based in Irvine, Calif. "In some cases you're running the gamut from blue-collar workers all the way through to the C-level executives. Their opinions can be as different as day and night."
It's surprising how few companies looking to buy expensive WMS systems take the time to anticipate the potential impact of installing a new system. WMS vendors complain that the requests-for-proposal (RFPs) they get are often ill-researched and badly thought-out.
"What we focus on when we look at solutions is how we can support best practices. But when I look at RFPs, it's very rare that I find a description of best practices today or for the future," complains Lars-Goran Olsson, director of business development at Swedish software vendor IMI. Often, potential clients don't know what they really want, or they get hung up on functionality rather than the broader changes they want to make.
"One thing we've noticed is that RFPs often become checklists of feature functionality and I think that's not the way to approach it," says Mary Haigis, chief marketing officer at Optum, a vendor based in White Plains, N.Y. "Clients need to look beyond fixing their immediate business problems and cutting costs. Instead, they should be thinking about ways to leverage that solution to gain competitive advantage, optimize their revenue, things like that."
Many vendors, Epicor included, recommend that clients take advantage of the software companies' expertise in solving business problems. "We do this every day. A customer does it only once every six or seven years and, for any one person, maybe only once in his or her career," says Winger. "So you should lean on the vendor from the implementation and analysis side of things."
Meanwhile, most recommend that, while you involve the information technology department in the process, you shouldn't let them dominate. "One of the key things is that a good RFP is written by someone who is not necessarily technical —so don't let somebody from the IT group write it," says Winger. "It should be written from the business perspective."
By stepping back and allowing the commercial sector to take the lead in technology development, the Defense Department may have lost some cache but saved some money. "[The military] has lost its cutting-edge status. Now, especially in information technology, the marketplace, not the DOD, dictates the winner. That wasn't the case even four years ago," says Leonard Gliatta, senior programs manager for Symbol's government group. "They reap the benefit of what's commercially available, and because of the competitive nature of all this, they're able to obtain stuff at a very good price and rely on the infrastructure that the corporation —in the case of Symbol—has built up internationally, to support that equipment across the globe."
Why has the shift happened now? Gliatta points to the rise of the personal computer. As computing power migrated from the mainframe into the hands of anyone with a PC, he says, "big organizations like the DOD had less to say about things. The marketplace, with all its players, now decides the technological winner." Another reason is that logistics technology in the commercial sector simply got a lot better. A shipper can now book and track cargo electronically with more than 90 percent of the world's ocean liner capacity using only three Web-based "pOréal" services. General Motors can deliver a car within days, instead of weeks, of receiving an order.
Choose your partners
The next phase of the process is drawing up a short list of vendors. The companies we talked to called in varying numbers of vendors for demonstrations, but it was rarely more than five.All recommended making site visits to existing customers of any vendors you're seriously considering. "I would visit with the people who are using the software and have them, not the vendor, give a demo if at all possible," says Dubbs. "That way you'll get to see first hand whether the stuff works and what the limitations are."
Narrowing it all down to one vendor can be a laborious business, but it's worth taking the time to share information and make sure you know what you're getting into. The selection process typically takes three to six months. Though it's easy to do, the experts warn against getting hung up on price. Even a few weeks' delay in implementing a WMS system can easily burn through a 15-percent price difference.
Another tip from both vendors and customers is to make sure, once installation begins, that there's a back-up plan in case things go wrong. "Something's going to come out differently from the way it was before," warns Epicor's Winger. Most customers choose to run the old system and the new in tandem for at least a couple of weeks, just to be sure.
Winger also recommends you take the opportunity to warn your customers and suppliers that changes are coming and notifying them of the expected timeline. This means both are more likely to cut you some slack in the event of a problem; and it also lets them know that, as a result of automation, you will have new requirements for the information or orders they're sending to you.
Another aspect to consider is the resistance to the new system that will come from inside the company. You can't expect all your staff to be happy with the choices made, especially when there are big changes in working practices for them to digest. "A mentality change has been a big challenge, since our warehouse staff has had to adjust from manual operations to an automated system," says Maxim Cheznov, financial director at Trade House Dekart, a Russian paint and varnish distribution company based in Moscow, which recently installed a WMS system from Radio Beacon. There was resistance, Cheznov says, because workers suddenly found themselves more accountable for their actions.
Another non-technical aspect is making sure you've kept your expectations—and your staff members' expectations —reasonable. A WMS can transform a company's operations and raise efficiency substantially. But it's not a magic cure for a badly run company. And it has to integrate with other existing systems, such as enterprise resource management (ERP) and material handling. "Any floor-level supervisory package is only as good as its ability to integrate with legacy systems," says Tim Justice, chief operating officer at Florence, Ky.-based IoSystems, which sells material handling software.
One last tip from Dubbs: Never agree to pay the whole fee up front. With HighJump, he negotiated different payment terms from the ones he worked out with Company X. Dubbs has held back more than half of HighJump's fee until he's 100 percent satisfied that the WMS works. Happily, he says, that day is nearing.