ERP Warehouse Module vs. Best-of-Breed WMS: The Cost Factor
All other considerations aside, there is one reason why the Enterprise Resource Planning System (ERP) warehouse module seems like a more appealing option than a best-of-breed warehouse management system: it’s presumably free (more on that later). On the surface, when your ERP provider bundles the warehouse module for zero extra dollars, it seems like an incredible deal.
But when analyzing the cost of a warehousing solution, you must think about maximizing business results. In other words, weighing the benefits your company receives from opting for one solution and the costs required to generate those positive results. Maximizing business results is why the “free” option is not always the best option. Let’s explore this idea in greater detail.
First of all, even if the software license is free, getting it up and running will still carry a significant price tag. The implementation can get surprisingly more expensive if you need a number of source code customizations to make the system fit your operational needs. What works for one business will not be an exact fit for your own organization. On top of that, there is typically a recurring, annual maintenance and services (M&S) fee that often equates to 20 percent of the cost of those customizations.
This is why it’s so critical to consider the total cost of business opportunity, or TCBO. The TBCO accounts for costs associated with functional fit, operational effectiveness, order fulfillment, customer satisfaction, integration with existing modules and applications, labor, inventory and productivity. All of these factors have a lasting impact on your total software. For example, if your processes do not support the fast shipping timelines necessary to keep customers satisfied, you will have to hand over more money to the vendor to change those workflows. Or maybe the warehouse management system (WMS) has a more efficient way to execute a certain task, cutting down labor and order fulfillment costs. If the ERP warehouse module cannot support that same process, you’re losing money every day.
Businesses also assume that the warehouse module will seamlessly integrate with their other solutions since it is part of the same suite. That leads them to believe the implementation will be simpler, and therefore cheaper, than it would be with a WMS provider. However, this is often a false assumption, and many customers don’t realize that until it’s too late. Keep in mind that a best-of-breed WMS is designed to integrate with a wide variety of enterprise software.
As you can see, the initial costs of buying a solution is just one small piece of the puzzle. It’s possible the issues presented above will wipe out any early savings from the “free” warehouse module. In the moment, it may be tough to look five years into the future – or convince your CFO that the more expensive system today is the cheaper solution down the road – but stating your case with specific context will make quite the difference.
When searching for a WMS, make sure you have answers to these questions:
- What are the costs involved that go beyond license fees?
- What specific ROI is each function going to generate, and therefore:
- What is the overall impact on total ROI as a result of missing functions, or what are the ongoing costs of workarounds to compensate for functional gaps?
- What are the hidden integration costs associated with the solution’s supported
The total cost of business opportunity is just one important factor to consider when comparing an ERP warehouse module and best-of-breed WMS. Learn more about the distinct differences between these two solutions in this white paper, The ERP Warehouse Module vs. Best-of-Breed WMS.