Are you planning on upgrading to a new Warehouse Management System (WMS) in one or more of your Distribution Centers (DCs)? If so, you may have already considered the cost of purchasing the software license and the project budget to cover billable time and expenses for design, configuration, testing, and implementation support. However, you may not have accounted for disruption to your site(s). Here’s a primer on calculating disruption costs for your next WMS implementation.
What is disruption?
Whenever implementing change to an environment, some amount of disruption is expected. Employees used to doing their jobs in certain ways now have to learn how to do them differently, which requires time to adjust before they can reach the same level of productivity as before. It’s important to consider how much you are affecting a site by upgrading its WMS.
Factors to consider in disruption cost estimation
Change Management
Your employees need to know what’s coming. Helping them gain proper awareness can come in many forms. Sending out emails, posting flyers, and hosting town-hall and team meetings are all part of the process. You want to establish a level of awareness and desire so that all employees are willingly and enthusiastically cooperating with the change, rather than it begrudgingly being forced upon them. Estimate the cost of printing flyers and the hours involved in additional meetings.
Training
Your employees need to be trained on the new system. Estimate the hours each employee is expected to undergo training.
Site Preparation
If you need new hardware to support wi-fi requirements, RF devices, or printers, you will likely have accounted for that in your capital expenditure budget already. However, the type of preparation that relates to disruption will affect the site.
Will you need to perform a physical inventory and/or cycle count all locations prior to go-live, to ensure that the inventory being converted is accurate? How about re-labeling your racking or pallets/LPNs? Calculate labor hours for any exercises out of the ordinary.
If you will be re-organizing the layout of your facility or even consolidating inventory into different areas, don’t forget to account for the costs due to additional handling of product and the potential damages that might occur as a result.
Lost Productivity
Lost productivity can come in many forms. The labor hours that employees are in training could cause a dip in productivity on the floor, unless you staff up during those times. Similarly, any downtime that you expect to see, especially if you’ll be closed for a cut-over period prior to go-live, is something you want to capture. You may also plan to send less work to the distribution center during the first week(s), to make it easier for the site to ramp up on the new system. For example, you may expect the site to be at 80% of its regular capacity on week 1 of go-live.
In your environment, does lost productivity translate into additional overtime or expedited shipping? However it manifests, take a baseline of that measure from the past few months prior to any disruption to the site, and possibly the average from the same time period the previous year to account for seasonality. Once you have a proper baseline from which to measure productivity, estimate how you expect cost/revenue to be affected as a percentage.
Even if you plan to offset lost productivity by shifting work to other distribution centers, you still want to capture this amount to have a realistic view of how much you’re disrupting the site that’s getting the upgraded WMS. If you expect an adverse effect due to additional load on the sites helping during the implementation, you may also need to capture disruption to these sites as part of the overall disruption calculation for the project.
Calculating Actual Disruption Cost
After you’ve estimated disruption costs, you want to have a clear picture of actual disruption as the project is underway. While it’s impossible for the actual disruption cost to remain zero, one measure of project success is minimizing disruption to your DC(s) as much as possible.
If you would like further insight in how you can minimize operational disruptions in your next supply chain system implementation, contact Bricz to speak to our experts directly. We look forward to sharing our expertise in helping you transform your supply chain!
Contributor: Ahmed Salim, Supply Chain Manager at Bricz