Value-Chain Report -- Warehouse Management Systems Add Value

Dec. 21, 2004
A WMS can streamline operations, increase responsiveness, and reduce costs.

A key characteristic of companies that have been successful during the last decade is a relentless search for solutions that help to reduce costs, increase effectiveness, and meet customer needs. This drive to improve has often resulted in significant competitive advantage, as the success stories of Dell Computer Corp., Harley-Davidson Inc., and similar companies illustrate. Improvement initiatives underlying these successes have typically focused on improving various aspects of planning, sourcing, and/or manufacturing processes. Increasingly, however, leading firms also are focusing attention and resources on warehouse management as a means to streamline operations, increase responsiveness, and reduce costs. These companies are identifying and eliminating labor inefficiencies, space-usage inefficiencies, etc., in order to further improve performance. Defining Warehouse Management Systems Warehouse management systems (WMS) are best described as the advanced technology and operating processes that optimize all warehousing functions. These functions typically begin with receipts from suppliers and end with shipments to customers, and include all inventory movements and information flows in between. Warehouse management systems have typically been associated with larger, more complex distribution operations. Small, non-complex distribution facilities have historically not been viewed as candidates to significantly streamline operations and reduce costs. However, even smaller and midsized companies are increasingly recognizing the significance of warehouse management systems in today's environment of integrated logistics, just-in-time delivery, and e-commerce fulfillment. In practice, successful WMS solutions are generally designed to merge computer hardware, software, and peripheral equipment with improved operating practices for managing inventory, space, labor, and capital equipment in warehouses and distribution centers. Implementation of a WMS allows a company to increase its competitive advantage by reducing labor costs, improving customer service, increasing inventory accuracy, and improving flexibility and responsiveness. A WMS enables a company to manage inventory in real time, with information as current as the most recent order, shipment, or receipt -- and any movement in between. Benefits of Warehouse Management Systems

  • Faster inventory turns. A WMS can reduce lead times by limiting inventory movement and improving the accuracy of inventory records, thereby supporting a JIT environment. As a result, the need for safety stock is reduced, which increases inventory turnover and working capital utilization.
  • More efficient use of available warehouse space. In addition to reducing safety-stock requirements, a WMS can often increase available warehouse space by more efficiently locating items in relation to receiving, assembly, packing, and shipping points. This increased efficiency can both improve productivity and lower inventory holding costs significantly.
  • Reduction in inventory paperwork. Implementation of a real time WMS can significantly reduce the paperwork traditionally associated with warehouse operations, as well as ensure timely and accurate flow of inventory and information. Receiving reports, pick tickets, move tickets, packing lists, etc., which are typically maintained as hard copies, can all be maintained electronically.
  • Improved cycle counting. Companies can use WMS to capture relevant data (e.g., frequency of movement, specific locations, etc.) to systematically schedule personnel for cycle counts. Such cycle counts not only can improve the accuracy of inventory records for planning purposes, but also can eliminate or reduce the need for complete, costly physical inventories.
  • Reduced dependency on warehouse personnel. Implementing a comprehensive WMS facilitates standardization of inventory movements, picking methods, and inventory locations. This standardization helps to minimize reliance on informal practices, resulting in reduced training costs and lower error rates.
  • Enhanced customer service. By streamlining processes from order to delivery, companies can more accurately determine product availability and realistic delivery dates. A WMS can automatically identify and release back-ordered inventory and also can reduce returns as a result of increased shipment accuracy.
  • Improved labor productivity. A WMS helps optimize material flow, typically by incorporating several inventory picks into one or by "cross docking". Cross docking is a process that routes incoming shipments to the location closest to the outbound shipping dock, thereby reducing warehouse handling.
Obstacles To Consider Prior to implementing a WMS, the following items should be addressed:
  • Cost. Implementation of a WMS is typically a significant expenditure. Hardware, software, retraining, and other costs should be compared with anticipated benefits to determine the economic viability of the project.
  • Organization impact. Warehouse personnel need to be able to adjust to a real-time system and other WMS features. Some personnel may resist the process changes and technology associated with a WMS. Companies also should consider the potential for union labor issues associated with workforce reductions.
  • Stockouts. Lower inventory levels could potentially lead to stockouts. Companies should review replenishment practices and supplier relationships to assess the ability to have an effective just-in-time relationship, thereby limiting costs associated with stockouts.
Who Should Consider A WMS Your firm should consider implementing a WMS if many of these characteristics are present:
  • Little or no computer-based, real-time operations management. Your warehouse may need to reduce paper flow and maintain accurate records on a system.
  • Size of 5,000 sq ft or more. A considerable amount of time and expense may be incurred in receiving, shipping, and moving inventory from one location to another, indicating potential to more efficiently use space.
  • A conventional material-handling system with at least seven lift trucks. Potential to spend considerable time and expense picking and putting inventory away, indicating possibility to group picks, limit time searching for inventory, etc.
  • High volume and/or high unit value. Potential to reduce lead times and safety stock inventory levels.
  • Mechanized material handling (e.g., conveyers and automated storage). Significant inventory movement may justify productivity improvements supported by a WMS.
Key Features Of A WMS
  • Random slotting. Random slotting allows for assignment of a large number of small locations throughout the warehouse, with no specific items assigned a permanent location. Random slotting allows for more efficient usage of space and increased flexibility to deal with changes in product mix and customer demand to name a few. For example, the electronics industry typically experiences high rates of obsolescence, thus manufacturers in this industry would benefit from random slotting. This approach supersedes the traditional approach of permanently assigning locations to specific items, often resulting in underutilized space.
  • Receiving intelligence. An effective WMS should analyze products received; determine available locations based on further processing, shipping requirements, etc; and automatically assign locations. Warehouse personnel should no longer need to search for available locations, locations of similar items, special storage considerations, etc. A WMS also should recognize incoming products and cross-docking opportunities.
  • Optimization of order fulfillment. An effective WMS also should be capable of analyzing customer orders to immediately determine if and where the products are available, the proper pick method (based on size of items, additional items to be picked, available personnel, etc.) and best available pick route. The system should be capable of maintaining FIFO (first in, first out) integrity and automatically determine the best picking location based on quantity. For example, the system may generate summarized pick lists that combine several individual pick lists, thereby minimizing the number of trips made in retrieving items.
  • Managing inventory. A WMS should determine movement of items from one location to another based on quantities on-hand and fluctuations in demand. The system can facilitate cycle counts by providing counters with analysis of prior counts, including problems identified, variances by item, etc. An effective cycle count process can eliminate the need for frequent physical inventories, which are both time consuming and costly.

Kevin P. O'Brien is a Cap Gemini Ernst & Young practice leader for supply-chain consulting with high-growth and middle-market companies.

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