A better way to calculate equipment ROI

Too many companies buy warehouse equipment and technology based on a "best case" scenario. Using an "engineered" approach to evaluating the return on investment will provide a more accurate picture of cost and productivity benefits.

Too many companies buy warehouse equipment and technology based on a "best case" scenario. Using an "engineered" approach to evaluating the return on investment will provide a more accurate picture of cost and productivity benefits.

Technologies for the warehousing and distribution center environment have progressed more in the past 10 years than they did in the previous 30 years, and new options are emerging virtually every day. Today companies that operate warehouses and distribution centers can choose from a vast array of advanced technologies and equipment solutions that promise to deliver attractive productivity benefits. These new technologies—from automatic pallet-wrapping machines to remotely controlled material handling equipment, and everything in between—can deliver tangible benefits, but most require substantial financial investments.

Few organizations have any margin for error when making decisions about new technology and equipment; competitively, one wrong investment decision can erase an operational advantage. Yet many investments in technology and equipment eventually fail to deliver the promised gains. One reason why this happens is that vendors' initial estimates of cost and productivity benefits often are based on a "best case" scenario. Those estimates often prove to be inaccurate, because each facility has unique physical, process, and data constraints, and it can be difficult to determine beforehand what a technology or piece of equipment could accomplish in a particular environment.

Moreover, the "cool factor" of new technology and the complexity of operations can distract decision makers from taking all the steps necessary to understand exactly what an investment will mean to the balance sheet. Most continue to take a high-level approach to evaluating the potential impact, using broad assumptions to estimate future performance and often failing to factor in support and maintenance requirements. Further complicating matters is the fact that vendors often do not have the opportunity to dig into the details of individual operations—an exercise that is necessary if they are to accurately quantify the benefit for a prospective customer. As a result, they use best-case examples, developed under ideal conditions, to promote their products.

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