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Calculating ROI

Can anyone help with the most efficient and effective way of calculating ROI on implementing a warehouse management system. I am currently finalising project proposal for the implementation of warehouse management system and that is now my main issue. The aspect of increase in efficiency and control have allready been listed in the proposal but i would like to add proper financial figures which will prove the benefits for the cost of implementation.
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Timothy -

you will need to translate the impacts of low efficiency and poor control into costs. If you are working with the operations folks who have to deal with the current system and processes, they might be able to give you some data to calculate your cost of poor quality which can be used to offset the one time and ongoing costs of implementing a new system.


ROI = (Gain from Investment - Cost of Investment) / Cost of Investment


Just to add a little bit on what Kiron already said, you should try and make a fair reasoning of the benefits of the implementation of the system. Are you going to reduce losses? Are you having faster operations? Are you improving maintenance? These are some of the questions. Maybe you can find some yardstick or benchmark to use, or some research conducted on the benefits of implementing such system. Then you compare with your actual costs today, and there you go. You have a ROI estimation.



When we talk about Benefit, it could be tangible or intangible benefit. To calculate ROI, we can only use tangible benefit and you may consider as follow:
1) Inventory Accuracy Improvement
2) Putaway Efficiency Improvement
3) Picking Efficiency Improvement
4) Manpower Reduction if any (cost saving)
5) Process Streamlining & Improvement (time saving)
6) new WMS System vs. old system (time saving)

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"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man."

- George Bernard Shaw