Order in the chaos

Warehouse Management Systems for your organisation?


Many organisations are still working with a maze of technology silos to support their business processes. We also call these silos islands of automation & information.

And, whilst the supply chain management function has been reasonably well served by more traditional Enterprise Resource Planning (ERP) systems, and/or Finance Systems enhanced with Microsoft® Excel or other types of spreadsheet applications, the supply chain execution function has required companies to acquire additional technologies such as Warehouse Management Systems (WMS) that do not easily interoperate with the ERP backbone systems.

The continuous struggle for higher throughput and shorter time-to-market now compels companies to look for integrated solutions as a replacement for these fragmented silo systems to achieve both their supply chain management and supply chain execution objectives.

Companies increasingly recognise that their replacement strategy must include integrated solutions not only for the corporate functions traditionally supported by ERP systems but also for execution processes such as the shop floor and the warehouse. However, whilst integrated shop floor control systems are a standard feature of most integrated ERP packages today, integrated warehouse planning & execution systems are not.

Experience in the field has shown that the supply chain managers find it difficult to articulate the added value of WMS as a component of a wholly integrated ERP solution.

This blog article with these challenges in an attempt to provide business decision makers within supply chain organisations further insight into this domain.


The origin of WMS
Some twenty years ago, WMS were only used by companies that had warehousing as one of their core-activities. These systems were monolithic, with excessive implementation duration and costs. However, as technologies improved, costs also came down and WMS saw adoption by medium sized companies who concluded that such systems would improve their overall performance & efficiency with an acceptable return on investment (ROI).

Over time, these systems have been further enhanced and now include planning algorithms, Radio Frequency (RF) facilities and functions to support cross docking, order picking, ABC analysis, as well as inbound, outbound, replenishment and removal processes.

Unfortunately, many of the early WMS systems either had limited or no integration to mainstream ERP systems. Enabling the integration proved a very cumbersome, time consuming and expensive process. Moreover, it was not in real-time...


IT Business Solution (ERP)-Providers
By the end of the nineties, ERP software providers began including WMS as an integral part of their offerings. Originally, these systems were only meant for the high-end enterprise market, as the costs to implement were substantial. However, more recently these solutions have become more accessible to Small and Medium Enterprises (SME), as mainstream ERP vendors embed WMS functionality into their ERP packaged solutions.

Market Structure
Most organisations who begin the evaluation process to replace their aging and fragmented systems increasingly understand that they need an integrated solution for their core planning & execution processes. In many cases, WMS is a key component of the evaluation.

However, the WMS is not something that should be considered as simply a minor component of the broader SCM system replacement strategy. In almost all cases, the sheer volume of processes that have to be supported by the WMS will have a deep impact on the organisation and will ultimately force companies to rethink and re-engineer many of the supply chain processes. That is why careful evaluation of requirements and selection is vital to have the right balance between likely change management impacts versus tangible benefits achieved by implementing a WMS.

In order to determine whether a WMS can generate the amount of added value to justify its acquisition and implementation, it is useful to keep the following five segmentations of the WMS market in mind:


Private and Public Warehouses
The market for WMS can generally be divided into two major categories: private warehouses and public warehouses.

Public warehouses store goods and products that are not their property. These Third or Fourth Party Logistic Providers (3 PL or 4 PL) provide warehousing and related functions as services to other companies.

This type of company provides storage, distribution and transport as basic services while related services like distribution, billing, re-packaging/ kitting, order picking, etc. are often included in its offerings.

This kind of business has its own set of specific requirements that are hardly or not at all applicable to private warehouses. For this category of company, the need for a sophisticated WMS is self-evident because it will have different interactions with the multiple companies that use its services and the large variety of goods and processes that such a public warehouse needs to provide and manage. The complexity of this type of warehousing arises from the fact that these warehouses (in the physical sense) are divided into a number of separate warehouses, each related to one of their customers. Simultaneously, special storage areas (like those that require cooling) are shared by the stored goods of all their customers.

Private warehouses are an integral part of the specific enterprise and the goods and products inside are thus the property of that enterprise.

Not every company requires a WMS as the achievable added value correlates closely with the complexity of the warehouse processes. Generally, the added value of a WMS increases as the complexity increases. This complexity follows from such factors as; seize of the warehouse(s), number of items, number of units (bulk, pallet, box, and single item), storability, transfer time, temperature sensitive, track and trace, etceteras.

A good approach to judge whether a manufacturing company can potentially benefit from a WMS is based on an analysis of the manufacturing policy of the pertaining company.

- Engineer-to-Order (ETO), Make-to-Order (MTO)
Companies that fall in these categories cannot realise much benefit from a WMS the majority of the time. Such companies have typically low stock levels as raw materials or parts are delivered on a JIT (Just in Time) basis. Moreover, deliveries of raw materials or parts are already allocated to a specific contract/ project and for that same reason; such industries do not maintain a stock from which they supply their customers.

- Configure-to-Order (CTO), Assemble-to-Order (ATO),

These manufacturing policies are a grey area. The more parts and raw materials that need to be in stock, the more half finished and completed products that need to be kept in the warehouse. Consequently, the increased variety of labels that need to be serviced means a higher complexity of the warehouse processes, and thus a higher achievable added value through application of a WMS.

- Make-to Stock (MTS)
Again, depending on the overall complexity for this category of manufacturing companies a WMS offers the largest window for the realisation of added value by proper application of a WMS. Generally, we see a large amount of different products in various stages of completeness, a large variety of packaging, a wide range of storage requirements regarding time and other conditions. All these factors increase the complexity of the warehouse processes. The nature of these MTS industries follows from the fact that they do not manufacture based on specific orders but deliver out of stock. The manufacturing is based on statistical analysis, demand forecasts and the data provided by the WMS.

Application and organisational disciplines.
A properly implemented WMS offers numerous advantages to the customer’s organisation.

Firstly, the WMS provides detailed stock control. It not only shows how much of a certain item is in stock, but also its location, its packaging, by whom that item was delivered, when it was delivered or manufactured and on the basis of what purchase or manufacturing order.

Secondly, if the WMS is properly integrated as a standard module with the ERP system, organisations use the WMS data for a great variety of applications. For instance, integration between the WMS and financial administration systems will not only save time, but also will also dramatically reduce error levels because the data does not need to be entered twice.

Additional benefits also flow from optimised manufacturing control and warehouse usage by having real-time visibility of stock levels. Minimum stock levels can also be reduced, resulting in savings of applied capital and space.


Even when problems occur in the manufacturing process, the WMS can provide data to identify, by location, the products to be isolated, removed from store & quarantined. The downstream impact on sales can then be assessed and recovery plans developed.

Equally, the WMS will prove invaluable in supporting product recalls from the field because it can provide fast & reliable information about product shipments thus reducing companies’ exposure to consequential damages.

All these advantages combined result in more efficient processes and better customer service levels.

Integration
Companies have become cautious regarding ERP-implementations. Most enterprises have experienced that system integration and mapping their specific business requirements to packaged applications is not always a simple process.

Moreover, best practice evaluation and selection processes today focus very heavily on technological aspects like system integration, extensibility and interfacing, rather than limiting the assessment solely to application functionality.

Customers can generally be more confident of the technical stability of their WMS choice if it is either a functional module offered by their ERP system provider or, in the case of 3rd party WMS, if it has an interface to the customers’ ERP system that is certified by the ERP system provider.

For some companies, deploying a WMS could be overkill in terms of controlling your inventory. Warehouse and inventory management strategies can vary depending upon the complexity of specific organisations. Therefore, it is critical that the software selection matches not only the management strategy but also the complexity of the given environment. For most companies it is a choice between 3 basic strategies:

Core Inventory Management (IM): The system stores the number of items and in which location they are stored. Stock Keeping Units is an option here already in order to optimise your stock levels per location depending on lead-time, supply and demand.

Warehouse Management (WM): the main warehouse processes, receive, put-away, pick and ship are supported by documents now. Your inventory can be managed through these documents and so the physical operations are managed separately from the purchase and sales processes.

Warehouse Management Systems (WMS): Within the locations, zones and bins are defined now. Strategies for Put-away, replenishment and pick can be performed now in order to reduce the operation costs and increase the customer service.

In all cases, it is recommended that customer organisations and solution providers satisfy themselves and each other that data exchange between the ERP system and the WMS operates as required, since a substantial part of the achievable benefits, and overall ROI are dependant upon those exchanges.

RFID

Radio Frequency Identification (RFID) is a great example of a leading technology enabler that can significantly improve the planning and execution of supply chain operations both within and between organisations.


The main difference for companies working with RFID is that they move from task oriented to object oriented operations. So, what does that mean?

With RFID, update of the movements of inventory into the ERP application will happen when the physical inventory is moved (which is not the case with Radio Frequency (RF) and manual registration of inventory movements). The major benefits of this are:

• Decrease inventory handling and operational costs.
• Increase inventory visibility and accuracy.
• Real-time availability of inventory information across the supply chain.

Summary and conclusions

Over the past two decades, Warehouse Management Systems (WMS) have matured from specialised systems strictly related to specific types of warehouses to powerful, general-purpose system modules provided by ERP-vendors.

WMS can provide significant added value to an organisation. This is true, for so-called Third or Fourth Party Logistics Providers, and especially manufacturing companies in the Manufacture-to-Stock category because of the relatively high degree of complexity of their warehousing operations. These companies have realised substantial benefits from the application of a WMS.

For some companies a WMS may be overkill in terms of controlling inventory. Warehouse management is a combination of business strategy and applications software that can support that strategy. For this reason, validate if the software vendor you have on your list provides different levels of warehouse and inventory management & control systems to enable your business to match the application software to their particular needs, complexity and budget.

RFID (Radio Frequency Identification) is a great example of a leading technology enabler that can significantly improve the planning and execution of supply chain operations both within and between organisations.


In order to capitalise on the inherent potential of WMS, it is fundamental that the WMS be seamlessly integrated with the other modules of the ERP system. This allows for both horizontal and vertical integration of business processes within an organisation, thus enabling speed, no errors, the highest customer service levels and optimally reduced costs of operations.