Critical Considerations and Questions Before Signing a WMS Contract


True story. A client’s system selection team had arrived at the three best Warehouse Management Systems (WMS) for their e-commerce company. There were still open questions from the demos. The company did not have a total budget yet as costs for modifications and interfaces were not yet identified. No project planning had been discussed. The contractual agreements had not been reviewed by an attorney.

Unbeknownst to the team, the salesperson went around the team to the CFO and proposed a significant discount to sign with his company within the next few days. It also meant paying a non-refundable discount in excess of 25%. After briefly reviewing the potential discount with several senior managers, he signed the agreement and announced the decision.

A year later the implementation proved to be a disaster because the fit was not as good as the CFO had hoped it would turn out to be. After initial Go Live and the new WMS’ failure, the legacy system had to be reinstalled.

As the year end approaches, software and technology vendors will offer significant discounts in order to secure your business and book it in the current year. This is also true with many vendors at the end of each quarter. But don’t let the last-minute vendor discounts distract your company from prudent due diligence in selecting the right WMS for your business.

 Read "13 Steps to Successfully Select Your Next Warehouse Management System (WMS)"

Below, you’ll find several critical considerations and decisions you need to make before signing with a software vendor:

Understand the deposits are sizable and not refundable

We often see managers, especially in small to midsize companies, trying to lower the deposit amount or make them conditionally refundable if they later complete the due diligence and decide it is not the best system for their business.

To make financial statements more uniform, the accounting rules for recognizing revenue for software and technology companies is governed by GAAP (General Accepted Accounting Principles) and other accounting and securities government entities. Just like your business, an order is not a sale until revenue is received and processed.

Understand the shipping and acceptance period is short

Part of GAAP is the customer must take delivery and pay for the system or technology. The acceptance period is a short period of time 7 to 10 days. In the case of hardware, it means that you have taken delivery in your place of business. Software is transmitted. Acceptance periods do not allow your team time to install, train and even test the test. In the case of month to month SaaS and cloud services these rules will vary. Software and service warranties cover systems errors and program bugs which you uncover in the implementation.

Agree on selection steps throughout the organization

Nothing is more devastating to morale than what the team in the example above experienced. Together with management agree on the critical steps to reach a decision. In our experience helping businesses select a warehouse management system, here are 8 questions to answer before signing:

1. Is this the right WMS system for our business?

Is this the WMS you would select if this discount wasn’t offered? Companies keep systems often 10 years or longer. Does this system have the functions and scalability that your company needs?

2. Does accepting the discount end the evaluation process?

Does the discount offer require you to abandon the selection process and any negotiation with another vendor? Typically, that is a condition and you have a short period of time to accept the offer.

3. Have you gotten acceptable answers to open questions?

Have you gotten the answers you need to the Request for Proposal, questions arising from the demos and your remaining follow-up? Will the vendor complete this or is your acceptance going to be based on what you have seen?

4. What are the programming costs and responsibilities?

Have you had the vendor develop the cost estimates for mandatory modifications, interfaces and timeframe? Many times there are limited program changes required, however the interface programming can be expensive.

5. Who will manage the implementation?

Have you identified the task schedule and the milestones for the implementation? Who will manage the implementation? What are all parties’ responsibilities?

6. What is the total cost of ownership?

Have you fully developed your total budget and gained management approval? Remember the deposit is only part of the total cost of ownership. Consider equipment and handhelds, licenses, implementation and training costs, support and maintenance costs.

7. Are reference checks and site visits complete?

Have you talked to companies that use the system you’re considering? Have you gone to see it in operation in a fulfillment center similar to your e-commerce business? Don’t short circuit these steps.

8. Is a legal review complete?

Has your lawyer reviewed the software license, maintenance license and professional services agreements? Does your legal counsel have experience with these agreements? This process can take weeks in our experience.

If you have completed the system selection process, then jump on that signing discount. Companies hold on to systems for 10 to 15 years. The attractiveness of those discounts will fade if you end up implementing a WMS that isn’t right for your business, or if you don’t have a total plan, budget and management sign-off.

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