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A warehouse management system (WMS) is a software solution that can stand alone or be integrated with an enterprise resource planning (ERP) or other business system to provide management of inventory and warehouse operations within a distribution center or manufacturing environment.
Some warehouse management solutions are bolt-on packages to the ERP or business system however they rely heavily on the underlying ERP architecture and therefore typically offer less robust functionality for operations and do not yield the same productivity and operational accuracy improvements as a standalone, integrated WMS.
A WMS is required when the current ERP, accounting system, or legacy business system cannot adequately manage inventory and operations. Perhaps the business has outgrown the capabilities of these systems. Maybe the SKU/product base has become overly complex or fulfillment volumes have increased so substantially that the business does not have the functionality necessary in the warehouse, distribution center, or shop floor to optimize and achieve the operational accuracies and efficiencies needed to maintain labor costs. Being able to operate in a productive and accurate fashion in manufacturing and distribution is mission critical to most businesses.
Warehouses can benefit from a WMS system when they see a disproportionate increase in labor costs relative to volume increases. Many distribution businesses are growing dramatically, but so are their labor costs, as healthcare costs and state-mandated wage increases continue to climb and drive overall labor costs up. Another key identifier for an enhanced WMS is operational accuracies, as inventory accuracy and/or order picking accuracy can be fairly significant issues not only for customer satisfaction, but also with regard to carrying costs and overall labor needs. Distribution and manufacturing become very difficult when a company’s business is growing but their labor is increasing disproportionately—and not being able to maintain inventory accuracy or order accuracy efficiently only adds to this labor cost challenge.
Enterprise Resource Planning (ERP) systems often struggle with warehouse management
Enterprise resource planning (ERP) systems typically do not have the capabilities to manage the complexities of modern warehouses. For example, many ERPs and ERP WMS modules struggle with managing inventory by location and tracking all the necessary operations that occur between forward locations and overstock locations i.e. replenishments, transfers, etc.). Modern warehouses often require many location types and the ability to manage inventory in all different location types as well as movements between them. Fixed pick face locations, dynamic overstock locations, dynamic/random picking locations, and more are common along with the ability to track and manage attributes like lot number, expiration date and more by LPN and location. By contrast, a good best of breed warehouse management system (WMS) can track and manage replenishment between forward pick, and overstock locations. As well as manage a number of different types of locations including overstock, dynamic, and random locations in real time where ERP WMS modules struggle
Many ERP and ERP WMS modules also have trouble handling multiple units of measure and associated conversion factors. Being able to track inventory by both the base unit of measure, (UOM) such as an each (i.e., EA, single unit, etc.), pack, case, and pallet, while efficiently and seamlessly managing operations is fundamental. In a manufacturing environment, the base units of measure may be in inches or feet, with conversion to roll, or base units of measure in pounds or gallons, with conversion to barrel, and more!
Lastly, ERP systems and ERP WMS modules tend to rely more heavily on manual data entry, as opposed to the directed operations that characterize WMS systems. With ERP systems, operators generally have to perform many manual and redundant steps, even if the ERP is automated with a mobile device. Plus, these steps are typically not real-time, not directed, and not as efficient or accurate as those performed by a best of breed standalone WMS.
There are two key performance indicators that signal the need for a warehouse management system (WMS): 1) Operational accuracies and/or the labor costs required to maintain excellent operational accuracy. More specifically, a business can benefit from a WMS if its inventory accuracy is below 99.5% (as measured by absolute variance, not dollar value). A business in the 99% range for inventory accuracy can also benefit from a WMS if the labor cost associated with maintaining that accuracy are too high. The same goes for order fill rate and order accuracy and the associated labor cost to support it. Similar to inventory accuracy, if your order accuracy is not 99.5%+ then you need the right WMS to get you there while also lowering labor costs. 2) Labor costs are growing disproportionately with revenue and volume growth. Government mandated wage increases as well as the ever growing cost of health insurance drive overall labor costs up – only the right WMS system can level the playing field on labor costs.
The primary benefit of a WMS is that it can improve operational accuracies and order fill rate while at the same time lowering overall labor costs. The impacts of those improvements can be quite substantial, particularly in e-commerce where customers have a very low tolerance for errors. Picking accuracy can also be extremely important in manufacturing and have large impacts in product quality, rework, manufacturing set up time/production switch over, and customer satisfaction.
To develop a business case for a best of breed standalone WMS, it is critical to define the current business challenges and also review future possible trends. For instance, in e-commerce B2C distribution environments where order profiles are typically 1.x lines per order, a WMS must have the capabilities to manage a large number of small orders that are constantly introduced into the warehouse distribution center throughout the day. These environments need a WMS that can be configured for order profiling, order management and release, auto batch/ cluster picking, zone picking, pick and pass or parallel picking, etc.
Manufacturing poses a different set of challenges, typically ones involving workflow, automation, and associated accuracy to support it. Whether operators are picking raw materials, components, work in process (WIP), finished product, or repairs parts, the workflows need to be customized so that all the necessary component parts are in the right place at the right time. Furthermore, in the manufacturing environment, it is not just the parts on the shelves that must be accurate; the inventory throughout the entire facility must be accurate, as well. When inventory accuracy is off, then too much of the wrong product or not enough of the right product might be manufactured. Poor inventory accuracy could also cause increases to setup and switchover costs. This is why tracking inventory by absolute variance is preferred over tracking inventory by dollar value. If a manufacturer is setting up for a certain run and the business is short on parts to be able to produce that particular line of product, having good inventory tracking by dollar value will not help. That’s because if the inventory is short by even one item, the manufacturing run will be delayed and there will have to be a new set up and switch over to run a different product. All of this leads to increased cost and reduced competitiveness—and underscores why managing inventory at 99.5% or above by absolute variance in a labor efficient manner is so crucial to business success.
Choose a WMS that can meet your needs today and scale over time
A warehouse management system (WMS) needs to be able to address the challenges of the business today and also be scalable for its future needs. It must have the capabilities to meet the the operational challenges in both distribution and manufacturing while satisfying the enterprise resource planning (ERP) integration requirements. Many WMS systems can reflect ERP functionality but come up short creating true measurable impacts at the warehouse operational level. Identifying a best of breed standalone WMS that can do both well is essential, as is identifying demonstrated success for both the software and the company delivering the solution. Since our solutions deliver comprehensive WMS/warehouse control system (WCS) and warehouse execution system (WES) capabilities for distribution and manufacturing respectively, there is no reason to pick and choose. We are vendor partners that can deliver what businesses need today, and they can scale over time for all your future requirements.
