Don’t Customize that Warehouse Management System!

I attended RedPrairie’s RedShift user conference last week in Hollywood, Florida (RedPrairie is an ARC client). There were over 1,000 attendees, the company’s largest event ever. Several high-profile customers were prominent in this year’s proceedings, including Walmart that uses RedPrairie’s store execution products; Kraft that spoke on its implementation of RedPrairie’s flowcasting (demand sensing) and traceability solutions; and Procter & Gamble on how it approaches RedPrairie WMS upgrades.

The advantages of using standard product without customization was a theme that ran throughout conference — in keynote presentations, customer panels, industry sessions that included users, and even a track session devoted to WMS upgrades.

Here are some of my thoughts on WMS customizations, their impact on upgrades, and other advice associated with upgrades.

1. Avoiding customizations not only helps to speed the initial implementation, it also helps to make upgrades much less costly. If you have too many customizations and extensions, an upgrade rivals a brand new implementation in cost and time. Top-tier WMS solutions are incredibly mature products. When companies upgrade they often take another look at the customizations “they just had to have” during the initial implementation and decide that many of the them are not really necessary, so they don’t carry those customizations forward.

2. Customization is expensive. The cost is not only what you pay the software vendor for the customization, which in some cases can rival the cost of the software license, it is also the extra fees you pay for maintaining the customized code.

Just like companies pay maintenance fees for standard product that range between 15-22 percent of software license costs, companies also pay a similar maintenance fee for customized code. If it costs $1 million to customize the code and the maintenance fee is 20 percent, then you are paying $200,000 per year to maintain the product extensions. For one company I know, its business case for the “upgrade” – which was really a brand new implementation because the software had been so heavily customized – was based on eliminating the maintenance costs associated with the extensions.

3. Assuming a WMS has not been too heavily customized, the costs associated with upgrading a top-tier WMS will be about 15-20 percent of the original implementation cost. The upgrade will often take several months, although far fewer people are involved than in the initial implementation. Few companies factor these costs into the initial business case to invest in a WMS.

The cost of a WMS upgrade is expensive enough that many companies require a business case for it. The business case should include the costs associated with not upgrading. At some point, for example, the software vendor will stop supporting the old version of the software and the company will be forced into a brand new implementation that will probably be much more expensive than the upgrades.

Oftentimes, the business case can include the implementation of new modules. Labor management solutions built on granular labor standards have a great ROI, much higher than the ROI of a WMS. Slotting and Voice picking also have good payback. But these solutions really should be layered on top of an existing WMS.

4. The process companies use to buy software often results in customization. If a company asks for scripted demos where it says, “I want to see how this process is done and I expect it to be done precisely this way,” then it is setting itself up for customization. It is far better for a company to change its warehouse processes to fit the software.

5. Many software vendors speak of major releases and minor releases. Many users of WMS have decided it is better to upgrade on a minor release, and perhaps even wait a year or so after the minor release has been out before upgrading; the software has fewer bugs by then.

I can see the argument for customizing other supply chain products, like transportation management systems, that are not as far down the maturity curve as WMS. But when someone tells me they are adding “extensions” to a top-tier WMS, I always ask why and I’m rarely satisfied with the answer.

Comments

  1. Great commentary Steve – everyone that is a system business owner or responsible for implementation should take this to heart.

    Arguments will always be made for customization but even with a TMS it should be the option of last resort; it may have been true a few years ago but I believe significant strides have been made and today’s TMS choices are much further along the maturity curve. Any organization needs to think long and hard about any customization to any enterprise system, TMS included. I fully agree with your first 3 items – the full cost to customize is often misunderstood and underestimated.

    Thanks for starting the conversation!

  2. Steve,

    I couldn’t agree more with your perspective on Warehouse Management Systems customization – but I think more consideration should be given to your fourth point: “The process companies use to buy software often results in customization… It is far better for a company to change its warehouse processes to fit the software.”

    Although that statement is true in the majority of cases, it is not too uncommon for best in class companies to actually be out in front of software solution providers’ ability to support their clients’ demonstrated best practices.

    Any potential software enhancement must be assessed on its own merit(s) to determine if the efficiencies gained (or the value of a competitive differentiator) are (is) greater than the total cost of ownership for that specific modification…as always, the buyer must beware.
    Regards,

    David Meyers, Principal
    Tompkins International

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