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How to Determine Your Warehouse's TCO

In our experience, businesses that control their warehouse's Total Cost of Ownership (TCO) are more likely to prosper, be more efficient, and, ultimately, have happier customers. TCO is a straightforward calculation of the costs associated with purchasing, deploying, using, and retiring a product or piece of equipment. To calculate the total cost of ownership, all investments and expenses must be considered. Let's look at it from a WMS perspective below.

 

Include this in your TCO calculations

What you need to include in your TCO calculations may vary depending on the type of system you are planning to buy. Let's discover what you need to estimate and be aware of when buying a WMS system:

  1. Hardware. On-premises requires server hardware, whereas cloud-based systems only require client hardware and printers.

  2. License fees. Licenses can be purchased and then accompanied by a separate service agreement; this is the most common configuration in on-premises environments. In the case of SaaS, you often pay a monthly fee that includes all licenses, maintenance, and support.

  3. Maintenance agreement. This is a tricky one if you run on-premises. First, you have a maintenance (and probably support) agreement for your WMS software, and then there are hidden costs such as server maintenance and backup.

  4. Support agreement. If you have problems with your WMS, you need support. Don’t simply add the support fee. Instead, think about the quality of support you receive as part of the TCO. For example, poor support that does not understand your business and cannot effectively assist you with your problems. Add costs because you will need to contact your consultant for assistance or hire additional internal resources.

  5. Upgrades. The "elephant" in the room. Does your current WMS system support upgrades? Otherwise, this is a significant hidden cost that your WMS provider is unlikely to discuss openly. If you have a truly modern WMS, upgrades should happen automatically - even if you have a large company! When calculating TCO, it is critical to include upgrades. When calculating upgrade costs, it is not only about the consultant’s time; a lot of internal testing, uncertainty, and sometimes new hardware are required to get a successful upgrade project into place.'

  6. Additional services. Services are required to get new features up and running, or when your business requirements change and you need to adapt your WMS. The ease of use and configuration of your WMS system can have a significant impact on the demand for services. If you have a custom solution or a system that lacks functionality, meeting new business demands can be extremely costly. On the other hand, if you have a user-friendly cloud-based WMS that is simple to configure, the need for services will be significantly reduced.

 

TCO-with-text

TCO examples for WMS

In this section, we will take a closer look and compare the differences in TCO depending on whether you are looking for a cloud-based, on-premises or develop your own custom WMS. We have chosen to compare the three different systems with the same criteria of 50 concurrent users over a 5-year timeframe.

1. Standard, cloud-based WMS

When selecting a standard, cloud-based system (like Bitlog WMS) the system is installed once and supported according to the agreement. The responsibility for further development of enhanced functionality and security lies with the system provider. All upgrades to your WMS are done automatically. Ongoing improvements and customizations are made in agreement with the system provider, who develops standard functionality that becomes available to all users.

  One-time fee Yearly fee Total cost over five years
Implementation € 50 000   € 50 000
License fee   € 0 € 0
Saas fee incl. support   € 45 000 € 225 000
Maintenance and upgrades   € 5 000 € 25 000
TOTAL COST     € 300 000


2. On-premises (installed) WMS

When opting to install an on-premises WMS system, you will incur a one-time installation fee, similar to that of a cloud-based system. Additionally, you will most likely also need to account for a license fee and a support fee. Unlike automatic upgrades in cloud systems, each necessary update for an on-premises system becomes a new project. It's important to be aware of the accumulating costs over time.

  One-time fee Yearly fee Total cost over five years
Implementation € 100 000   € 100 000
License fee € 100 000   € 100 000
Saas fee incl. support   € 20 000 € 100 000
Maintenance and upgrades   € 30 000 € 150 000
TOTAL COST     € 500 000

3. Custom-built WMS

If you choose to develop an custom WMS system, you will have a solution that seamlessly aligns with your processes. It's important to note that all further development, support, and maintenance will be handled by your team. Investing time and resources is crucial to ensuring that your system continues to meet your internal processes effectively. In our experience, support and maintenance tend to cost companies much more than they first estimate - so make sure you exaggerate when you budget for this project.

  One-time fee Yearly fee Total cost over five years
Implementation/coding € 500 000   € 500 000
License fee € 0   € 0
Internal support (staff)   € 80 000 € 400 000
Maintenance   € 80 000 € 400 000
TOTAL COST     € 1 300 000

 

Need help?

Only you know which option aligns best with your internal processes and resources. However, if you ever need someone to bounce ideas off of, our team brings hundreds of years of combined industry experience that we're more than happy to share. Feel free to reach out to us or download our guide for a successful WMS investment to further explore the process of acquiring a new WMS. Good luck on your journey!

 

 

 

The Bitlog Team
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The Bitlog Team

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