Using WMS Technology to Decrease Costs, Increase Profits

Warehouses no longer operate in isolation, but serve as a primary function across the supply chain. Warehouse and distribution operations have evolved from simple storage boxes for inventory that serve primarily as internal resources into critical links in the supply chain. And, they stretch from the suppliers of gases and the suppliers of welding equipment to a distributor’s facility or a distributor’s multiple facilities to the customers.

The evolution of warehouses in the chain of adding value to products can be linked to — and compared to — the evolution of MRP, MRP II, and ERP.

MRP is the acronym for “material requirements planning,” the business school way of saying “just tell us what (materials) you need.

Similarly, MRPII is business-school talk for “tell us what you need” and “you’d better schedule that and plan your production capacity.” And ERP is the acronym for “enterprise resource planning,” and translates to: “Tell us how what you need impacts your entire organization — from the front door to the shipping dock — and we’ll help you achieve your goals.”

To get to the enterprise resource planning level in warehouse/distribution operations, many distributors are moving to Warehouse Management Systems (WMS) solutions.

Dave Piasecki, owner Inventory Operations Consulting LLC (www.inventoryops.com), said the primary purpose of a warehouse management system is to control the movement and storage of materials within an operation and to process the associated transactions. Piasecki holds a certification in production and inventory management and is an inventory and operations analyst.

“Directed picking, directed replenishment, and directed put-away are the key to Warehouse Management Systems. The detailed setup and processing within a Warehouse Management Systems can vary significantly from one software vendor to another, however, the basic logic will use a combination of item, location, quantity, unit of measure, and order information to determine where to pick, and in what sequence to perform these operations,” he said.

The Problems
Warehouse and distribution operations face several problems, including productivity, inventory control accuracy and customer service in terms of order turn.

In a study produced by the research firm Aberdeen Group (www.aberdeengroup.com) a majority of respondents said they see their problems primarily as lowering costs and reducing customer order cycle times.

“However, a segment of companies have been able to reduce both costs and cycle times. These top performers are leveraging more technology, have better data visibility, and work harder at cross-training their staffs,” the report on the study said.

Aberdeen’s analysis on warehouse operations identifies the factors that compel warehouse logistics professionals to investigate productivity solutions. The primary pressure — and biggest challenge — to warehouse and distribution operations is to reduce logistics costs and remain competitive. Nearly with 80 percent of the respondents to Aberdeen’s survey cited logistics costs and competitiveness as challenges they face.

Another challenge that warehouse operations personnel and distributors cited was finding ways to compel management to seek solutions to problems, Aberdeen’s analysis said, indicating that the operations personnel may recognize a problem to which management is blind. In addition, the operations personnel also cited “dynamic” fuel costs, the ever-rising expenses measured on a per-squarefoot bases that force warehouse and distribution operations to think critically about maximizing productivity within their current distribution footprint rather than establishing another facility, and the related fact that large enterprises continue to seek to reduce their number of stocking locations while driving more productivity from their remaining distribution centers.

Many warehouse and distribution operations, especially those that are smaller and serve smaller, more local areas tend to use home-grown management software such as simple spreadsheets.

Access to these smaller Warehouse Management Systems might be limited to one or two people in the company, and that limits visibility and reduces productivity.

“Benchmark findings reveal that companies of all sizes are looking toward enhanced warehousing technology and automation equipment to take them to the next level of productivity,” the Aberdeen Group’s report said.

The report said that nearly 60 percent of the personnel who responded to the study plan to update or to replace their warehouse management systems within the next 18 months. Regardless of company revenue or facility square footage, the report said found that “warehouse management systems automation is a primary key in helping warehousing operations to turn the corner in Best in Class productivity.”

Because warehouse and distribution operations are such an integral part of the supply chain in today’s business-to-business operations, it’s critical that more people within the operations are given visibility, not just those in the warehouses that do the picking.

“Companies are expecting more from their warehouse and distribution center operations,” the Aberdeen report said. “They demand greater visibility into order, inventory, and task statuses inside the warehouse. And they expect improved productivity to support sales growth, channel expansion, and increasingly tailored fulfillment services for customers.”

That’s the reason that companies of all sizes report that they are planning to install warehouse management systems and to automate those operations to improve productivity and customer order cycle time while reducing costs. Aberdeen found that the top cost performers – the 25 percent of companies that have been able to reduce their warehouse operations costs by more than 10 percent since 2004 – are taking distinct actions to accomplish those goals, whereas their peers are not.

Cost and space pressures outweigh the pressures to improve operations because of rising customer demands for faster and more tailored fulfillment. However, the best performing companies are focused on winning in both these dimensions by creating faster throughput and more workflow agility in their warehouses, according to the research. With greater agility and faster throughput, those operations are able to satisfy customer demands while lowering logistics costs.

Small, Medium and Large challenges

While some problems are common to warehousing productivity among companies of all sizes, the actions that companies need to take to improve their operations are very different, the analysis of the study said.

Smaller companies that have less than $50 million in annual revenues, tend to maintain low order cycle times, and do well in delivering products to their customers. More than half of the companies of this size fulfill orders within two days of the order being placed. However, visibility within their warehouse is inadequate.

In addition, the information technology infrastructure and warehouse management system functionality also lags in many of these smaller enterprises when they are compared to larger counterparts.

By neglecting warehouse technology, smaller operations typically hit a wall in productivity gains, and find it difficult to squeeze more productivity from their manual-intensive systems.

In addition, many of these companies fear that simplistic automation solutions that they might adopt will not be adequate to support their operations as their company grows. That fear becomes a self-fulfilling prophecy as it serves to limit growth, then affects services delivered to customers.

The challenges for mid-sized companies are different.

To compete effectively against larger competitors, many mid-size companies try to find ways to make their warehouse operations more agile so that they can capitalize on their customers' increasing requirements for tailored order fulfillment.

The ability to be more agile and responsive than larger competitors helps them to win and keep business, the Aberdeen analysis said.

Large operations, those with more than $1 billion in annual revenues, continually seek to find ways to do more with less. That means that their challenges often focus on consolidating multiple sites.

While this might be more cost-effective from a square-footage standpoint, the analysis Aberdeen provided said this puts pressures on these companies’ operations in other areas, such as filling orders that are placed through multiple channels, including direct order placement, Internet orders, catalog orders and orders through associated distributors. These large companies also find challenges in addressing high inventory and replenishing rates, and a constant need for robust labor management.

Evaluating the Need for WMS
Piasecki said that not every warehouse needs a warehouse management system.

“Certainly any warehouse could benefit from some of the functionality (of such a system) but is the benefit great enough to justify the initial and ongoing costs associated with a warehouse management systems?” he said, adding that warehouse management systems are big, complex, data intensive applications.

“They tend to require a lot of initial setup, a lot of system resources to run, and a lot of ongoing data management to continue to run.”

In other words you need to “manage” your warehouse “management” system.

While the creators of warehouse management systems make many claims that often include reduced inventory and labor costs, increased storage capacity, and customer service and inventory accuracy, Piasecki said the reality often does not meet the promise.

“The implementation of a warehouse management system along with automated data collection likely will give you increases in accuracy, reduction in labor costs — provided that the labor required to maintain the system is less than the labor saved on the warehouse floor — and a greater ability to service the customer by reducing cycle times,” he said.

“Expectations of inventory reduction and increased storage capacity are less likely,” he added.

While increased accuracy and efficiencies in the receiving process may reduce the level of safety stock required, the impact of this reduction will likely be negligible in comparison to overall inventory levels, Piasecki said.

The predominant factors that affect inventory levels are lot sizes, lead times, and demand variability, and it is unlikely that warehouse management systems will have a significant impact on any of these factors.

“And while warehouse management systems certainly provide the tools for more organized storage that may result in increased storage capacity, this improvement will be relative to just how sloppy your pre-warehouse management systems processes were,” he stated bluntly.

What Companies Want in WMS
Aberdeen’s research indicated that most companies want a flexible warehouse management system.

Wanting to explore more real time process throughput and fewer manual workarounds, 76 percent of companies that said they are searching for a new warehouse management systems also indicated that they want a system with configurable workflows that automatically trigger and assign tasks based on customer and order attributes.

Warehouse flexibility is needed to be able to date seasonal inventory waves, labor fluctuations, multi-channel ordering requirements, and customer demands for specialized packing and labeling and value-added services.

“Operations that can react in an agile manner to push through hot orders, bypassing traditional material handling steps, can also help improve productivity,” Aberdeen said in its analysis.

“With an inflexible warehouse management system, manual workarounds have to be established, draining productivity, or the systems have to be modified to meet business requirements, which raises project risk and increases maintenance and upgrade costs and IT resource requirements.

One of the newest warehouse management systems to come to the market to get high ratings for flexibility is HighJump Software, a 3M Company that just received Forrester Research Inc.’s recognition as a leader in the warehouse management systems industry. Forrester Research evaluated leading warehouse management systems vendors across 50 criteria.

“HighJump leads in strategy and offers the most flexible architecture” Patrick Connaughton, a research analyst for Forrester Research.

“Its strengths include a well-architected and configurable workflow engine, a laser-focused product strategy, rapid implementation methodology, excellent versatility, and good support for value-added services,” he added.

Bottom Line
“Most people who want warehouse management systems really want inventory control,” .Paul Schweet, senior vice president for Tom Zosel Associates Ltd. (www.tzaconsulting.com). The firm specializes in supply chain optimization.

“They want to know where their inventory is, how often it turns and how to schedule their pick, pack, and ship their products,” Schweet said. That’s the bottom line, the primary result that warehouse operators and distributors are seeking, he said.

Schweet added that when deciding on some type of warehouse management systems, the operations’ managers needs to ask themselves what they are trying to accomplish.

“Then you can figure out what you need. For a large operation, some take an ERP package and tie a Labor Management System to it. That is great, if that’s what you need. For smaller companies, they don’t need full warehouse management systems package,” Schweet said.

In fact, he recommended that the implementation of a bar code system can be the best solution for warehouse and distribution operations that handle large inventories of small items.

Factors that drive improvements in warehouse and distribution operations • The creation of an agile environment to support customer-specific demands. • The capture of metrics and activities and share them in real time. • Updating warehouse management systems to take advantage of new technology. • The integration or reconfiguration of technology to make it more service oriented. • The implementation of analytic technology and dashboards to monitor and improve operations. •Cross-training associates on a variety of jobs and equipment. • Investments in automation.