Industry TalkRegular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.
Price Too High? What Are You Comparing It With, & Why?
The justification for buying computer software for your business generally comes down to one or two factors. In previous years, though less so now, it was brought in to innovate and provide new ways of working in your business, to deliver new product functionality or enhancements to service. It was about replacing manual processes or enabling new ones which, without specific software programs, would be manual and inefficient. For some businesses these are still key motivators.
But with most businesses now IT-enabled to a certain level, it is a reasonably accepted view that computer software is bought mostly with the expectation of driving efficiency and squeezing out costs. So whatever purpose you use it for, its cost is hopefully outweighed easily by the potential savings. Those savings could be modest or considerable depending on the application and the purpose. But if there were no efficiency savings to be gained, what would be the point of buying it?
This is an interesting question when considering people’s expectations of cost for using cloud hosted WMS systems. We sometimes wonder if there is something about the WMS which – unlike other applications – prevents people seeing how benefits can be gained and costs reduced? Is it easier to recognize potential savings with other types of application? Is the sphere of warehouse operation so complex that people have difficulty seeing what changes would make them more efficient?
Perhaps this is understandable for certain businesses. For example, a business that has a warehouse to support its other activities is not the same as one that operates a warehouse as a business. The former may sometimes see the facility as a “black box” where things happen, but are not overly concerned how, as long as it works. That could lead to the warehouse having a relatively low status, and hence low investment priority compared with areas seen as more vital.
Some people could argue that “It doesn’t matter what it costs – only what it saves”, which might sound like dubious advice to a smaller business. Everything is relative of course, but as a general principal it works. Compare the cost of a cloud hosted WMS application to things in your business, for example staffing costs. What is it actually costing you if an employee is only 75% productive? For a year? Or if your employees spend 30% of their time doing things that do not need to be done?
Bearing in mind the cost of an employee is likely to be in excess of £1,800 a month when taking into account salary, pensions, NI contributions and other associated costs, working to reduce that 30% inefficiency soon starts to save a few hundred pounds. And that really only scratches the surface in terms of the ways a WMS could benefit your business. There is much more to say about accuracy and error reduction, things that can lead to loss of custom, poor reputation and so on.
But it is possible for people to search the Internet and see ‘products’ available for literally tens of pounds (or dollars) per month. This may sometimes give them the impression that a product with a monthly cost in the hundreds, or greater, must therefore automatically be ‘expensive’.
And this can often be against a background of maintaining inefficiencies in their operation which if removed would save them many thousands. So what does it mean when people say, “your product seems expensive?” Are they truly aware of the real costs of the operation and how much could be gained by making it more efficient? Or are they simply comparing prices with others they have seen? Can they even be certain that the products they are comparing offer the same things?
The problem can sometimes be that the buyer is not from the logistics side of an organisation. Perhaps they lack the relevant experience and insight to understand the real issues involved. Maybe they do not fully understand where or why something is inefficient or necessarily how to make it better. So they may only see ‘solutions’ with differing costs. And without the ability to recognize a solution that can really create greater efficiency, how do they make a decision?
This is excusable in some ways. In the Internet commerce age, software applications which become the mainstay of many a business are often available for a couple of hundred pounds (or less) a month. Unfortunately this is not a relevant criterion to decide whether it is worth paying more for others. Not all products that can add value to your business can be developed and sold at low cost. Not everything has the ‘mass market’ audience potential of a well-known word processing tool.
And that is before you compare the capabilities of the products. Low-cost solutions are often that because they offer the basic functions, but will they offer all the features required by even the simplest warehouse? Are they actually an effective solution? Will they be developed to keep pace with the changing market? Do they have a proper support system in place to help their customers? Because as we know not everything is simple enough to be resolved by a chatbot!
Before software as-a-service products were popular, when outright purchase was the ‘norm’, justifying the purchase of systems like WMS often needed an extensive return on investment (ROI) exercise. Though in the longer term a software rental model may have a similar cost, the generally low monthly outgoing for SaaS products does make it easier to assess potential return. Rather than looking at a five-year payback, it is possible to ask “how does this compare to things I pay for on a weekly basis, and what could this save me next month?”
To return to our earlier point, we do believe that the overriding concern should therefore be “what can it save me?” If the product you are considering can potentially save you money, and the monthly charge is broadly measurable against identifiable costs in your business, then whether it costs more or less than other products really does not matter. One of the most useful yardsticks in our view is comparing it to the cost of your employees. You may then be better able to see how the improved efficiency you will gain actually comes quite cheap.