Cataloging in the United States has reached a level of maturity that places it on equal footing with other channels of communication and distribution. No longer dominated by entrepreneurs and small to medium-sized companies whose primary concern was just scrambling to get orders out the door in a timely fashion, catalogs – and catalog fulfillment – mean big business.
Catalog businesses are consolidating at an unprecedented rate. New players — manufacturers, department and specialty stores electronic retailers, multi-site distributors, and others — are entering the field, often bringing with them highly sophisticated logistics experience. At the same time, catalog customers are demanding—and getting from larger companies — same day pick and ship in business-to-business or, in some consumer catalogs, a 24-hour turnaround, with a high degree of probability that the items they order will be in stock.
With competition more fierce than ever, management is looking at fulfillment, to gain a marketing advantage in terms of increased efficiency and improved customer service..
Faced with these challenges, more and more catalog companies, particularly in the mid-sized range, are investigating warehouse management systems (WMS), both to improve operations and to provide a higher level of sophistication and control in fulfillment than catalog management software (CMS) typically provides.
This first in a series of articles looks at the benefits of warehouse management systems and examines their worth in terms of productivity and accuracy. In subsequent articles, we will review individual WMS vendors and their systems.
Are you a WMS candidate?
Annual sales, number of orders and returns processed, number of units shipped, type and value of product—all may impact whether or not the investment in a warehouse management system is right for your company. But, if you have ever asked yourself any of the following questions or faced any of the following situations, the degree of functionality or flexibility found in even the most basic WMS may be just what you need to bring your company into the 21st century:
- “Even with all of the care we take to check and double check work, too many mistakes in order picking are still happening. What’s the solution?”
- “We don’t seem to have enough space to operate efficiently anymore. But this doesn’t make sense because I know that this warehouse should hold more.”
- “Why can’t we find merchandise where it’s supposed to be”?
- “When volume goes up, you’d expect costs to come down. Now that we’re bigger, why aren’t we experiencing any economies of scale”?
WMS—a definition
Simply stated, a warehouse management system is a method of managing and tracking all activity of product and people through all warehouse functions using bar code and radio frequency (RF) technology to gather and communicate information. A WMS controls all activity in receiving, quality control, putaway, replenishment, pick/pack/ship, manifest, returns, physical inventory, and labor and productivity measurement reporting.
A wide range of companies are currently investing in WMS projects, including:
- A department store that has established a fast-growing direct-marketing catalog;
- A luxury goods retailer/direct marketer that has outgrown its homegrown warehousing system;
- A consumer products manufacturer that has entered direct marketing through the Internet with first year sales of $50 million going direct to the consumer;
- A home decor retailer/cataloger with multiple distribution centers, serving both channels;
- A business-to-business cataloger with multiple distribution centers;
- A traditional catalog company whose recent rapid growth has resulted in severe inventory shrinkage and also large inventory write-downs.
For these companies—looking for more timely and more accurate inventory control—current CMS systems no longer meet their needs.
Most catalog management systems are geared to meet the complex requirements of the front end of the business—customer service, order entry, in season forecasting, and marketing. And the greatest demand for improving these systems comes from the front-end-- marketing, merchandising, and inventory forecasting.
Although all of these systems have warehouse functionality, they do not provide the level of sophistication and depth found in most standard warehouse management systems. Conceptually, as enterprise software, catalog management systems typically coordinate an entire company’s business requirements and support the information-system needs across all departments, from marketing to accounting, merchandising to order taking. As such, they attempt to fully integrate information in that they share data among functions and share a common database, but they generally provide only elementary capabilities when it comes to complicated transportation and warehousing tasks for moderate to large catalogs.
Catalog management systems, for example, are not able to handle the complex logistics or optimization routines that are often involved, for example, in analyzing truck routings among several distribution sites or inventory handling in real time within a warehouse. WMS, in contrast, focus on specific logistics tasks and, therefore, provide the kind of depth that is needed to drive specific functions as well as realize real productivity gains in each function.
To illustrate the difference, there are some major sub-systems that catalog management systems cannot provide at all or as fully developed functional features. Some of these sub-systems have been created piecemeal as catalogers have demanded them. One CMS vendor, for example, has just added the ability to track multiple warehouses when its largest user has had four warehouses for many years.
In addition, most catalog management systems lack productivity measurement, reporting by department function, full integration of bar-code tracking from dock receiving through inventory movement, pick verification, inventory cycle counts, bulk-to-forward inventory replenishment, advanced kitting and de-kitting capabilities, as well as QC specification and reporting. They also are unable to generate bar-code pallet, license plate and carton labels.
Some drawbacks
As a specialized or best-of-breed system, warehouse management software augments a company’s current catalog management system. The result is that, instead of dealing with one vendor and a single set of numbers, catalogers installing WMS now must deal with two different vendors, two different support staffs, as well as the integration of the system with other systems in the company (interfaces to retail, registry, accounting, as well as the CMS). That, in turn, means increased costs, which need to be justified against the long-term gains in productivity and accuracy.
The most critical interface, without question, is the interface to the catalog management system. The information required to operate the WMS must be transferred back and forth between the WMS and the CMS. Crucial to successful integration is the design phase of the overall system so that both systems operate effectively. Also, there are additional costs for some customization or other modifications to the WMS system in order to perform special consumer, small order, pick/pack/ship because not all catalog, retail, or manufacturing companies have the same characteristics or need the same special services (for example, gift wrap, personalization, and so forth).
In spite of these drawbacks, a warehouse management system provides a compelling solution for catalogers who are trying to increase customer service and reduce costs by:
- Reducing the labor cost per unit handled,
- Reducing the amount of space needed to store each unit,
- Reducing the frequency of errors, and
- Improving measurement and overall performance.
These improvements are the result of the enormous impact a WMS can have on each function in a warehouse operation. The following list, though not all inclusive, outlines WMS functions by operational area:
Receiving
A WMS provides management with quicker access to updated information about product status. At receiving, a WMS may initiate the paperless warehouse through the scanning of purchase orders and products. The receiving process starts at the dock, logging in the carrier, the number of cartons or pallets received, any visible damage, the purchase order number on the side of the carton, the vendor identification. From the minute, merchandise hits the dock, warehouse management systems generates license plates and carton labels. Typically, purchase order writing remains in the CMS application.
Future possible applications will include the use of advance shipping notices (ASN) to generate an updated receiving document (not based on outdated, original PO information). Applications with EDI are also currently being created.
Inspection/QC
The specifications and standards that your company inspects against can be included. Reports indicating the results of the inspection can also be generated. After merchandise is opened and inspected, WMS can direct merchandise to appropriate bin/slot locations, reserve storage, cross docking, or to further holding for disposition. Bar codes are used to track merchandise throughout this process.
Putaway
License plate or case bar-code labels and bar-coded warehouse locations may be used to confirm that the correct merchandise is in the proper location. This results in a positive record of location for future use and tracking, which may also be used for increased cube utilization in the warehouse as well as reduced travel time through directed putaway. Although both operator-directed and system-directed putaway are available in most warehouse management systems, the most common used is operator-directed.
Replenishment
The ability to have product in the primary pick slot when it is needed is one of the keys to successful fulfillment. With WMS, quicker and more accurate restocking of primary pick slots result. Finding and verifying the correct location and product can be accomplished with reduced searching time and increased accuracy. Replenishment can be directed by the WMS system or manually driven. All applications can use portable, hand-held scanning units or fixed work stations.
Because of the increased ability to find merchandise, it may be possible to reduce your inventory level to some extent by lowering the amount of safety stock you normally keep on hand, although this is not necessarily true for all operations.
Picking
With the use of bar-code and RF systems, catalogers are able to verify 100% of the picks that take place, if desired. With real-time verification of the proper locations of merchandise, immediate corrections, if necessary can be completed, thus reducing errors. The lower the level of barcoding that is done in the warehouse, the higher the percentage of accuracy. With WMS, having bar codes attached at the unit level, rather than the case level, results in improved accuracy. Because each business has different requirements, it is imperative that a cost analysis be undertaken, to determine the incremental savings to be realized versus the added time and expense required to detail information at the unit level.
WMS provides the flexibility to match the picking methods with order profile and warehouse layout as your business changes. Multiple methods of generating pick tickets may also be created or paperless picking employed, if desired. Multiple methods of generating pick tickets also maximize operating efficiency in that they can be made to match the actual orders received--for example, someone with a high percentage of single line orders would probably use a batch picking method, whereas someone with a number of multi-line orders might consider cart/bin picking. The more sophisticated or automated warehouses usually employ wave picking.
Packing
Picking accuracy may be checked or re-checking by scanning orders and actual units selected at the packing station. Scanning for diverting and sortation to pack stations and shipping lanes is also possible in more automated warehouses. If the picker picks into the final shipping container using bar-coded verification, subsequent checking may be eliminated and packing expedited. “Clean” packing documents--or documents that reflect actual products shipped--and invoices may also be produced.
Manifesting, Shipping/Tracking
Although the first use of bar codes in most catalog operations occurred in the manifest area, future enhancements in WMS are expected to come in the form of data integration with your catalog management system. Now, with WMS and CMS, carrier tracking systems are accessible for customer service inquiries, as well as to the existing tracking systems.
Returns
Bar codes on returns and their paperwork speed processing, increase accuracy, return merchandise to stock as available inventory more quickly, and channel product for other disposition more efficiently. Coding of return reasons and product condition is possible, as is faster crediting of customer accounts. De-picking functions speed the return to stock, thus making it more readily available for future picking. The precise detailing of information, in addition to being accessed immediately, results in better customer service.
Inventory Control
Another major benefit of WMS is the ability to know exactly where stock is and how much stock is available at all times. It also allows you to identify available empty bins and slots. All of this results in increased space utilization because stock can be re-located and consolidated quickly. Tracking of product by move and operator helps measure productivity and accountability while reducing inventory mistakes and shrinkage. Stock rotation and the ability to react to date-sensitive stock and other special storage requirements are also accommodated.
Physical Inventory/Cycle Counting
With bar codes, it is possible to interleave counting with such other functions as putaway, replenishment, or picking. Physical cycle counts, when required, are expedited by having less paperwork and accurate locations. Studies have shown that inventory accuracy with WMS can approach 100%. Eliminating annual or semi-annual physical counting is possible. Counting critical items--fast sellers or high-value products--on a cyclical basis is achievable because locations and counts per location are available. That means one product located in many different areas can be counted accurately. Without the real-time tracking of WMS, you may know the total amount of product you have, but you may not know how much product is in each location at any given time. Inventory shrinkage of 0.5% or lower is commonplace.
Productivity Tracking and Reporting
The tracking of work performed by individual and the time required to complete each task generally lead to productivity increases. With WMS, catalogers are able to measure time spent on indirect activites--waiting, cleaning and maintainence, or other functions, for example--as well as on direct functions--picking/packing, receiving, putaway, and shipping. The true measurement of labor costs by function also improves the quality of future decisions about proposed changes in operations. As a general rule, overall productivity gains far exceed the extra time required to use the RF bar-coded equipment that measures each work task.
Specialized Functions
Catalogs with special product requirements--product personalization and/or customization, special sizing, assembly, or production considerations--find it difficult to track, monitor, locate, and report the status of these products. WMS gives catalogers improved accuracy and control.
Kitting/De-Kitting
Many operations require the ability to instruct and track both kitting and de-kitting activities, which is probably one of the most difficult tasks to perform in a warehouse. As a complex function involving everything from order entry through shipping, kitting/de-kitting is not handled well in most catalog management systems. WMS, on the other hand, provides a means to do this efficiently.
Justification of investment
At present, the above operational functions may be found in almost every basic warehouse management system, without special modifications or programming. The kind of expanded functionality being asked for by many of today’s catalog companies, however, is being driven by consumer demand, competition, and the increasing complexities of the catalog business itself. But even with these pressures, the investment in a new system that, additionally, must be integrated into the existing catalog management system requires cost-justification.
There are two main areas for savings—accuracy and productivity. Common to both is the generation and management of information in a timely manner.
Critical to warehouse improvement is the use data to understand your operation—its inefficiencies and waste—in order to support decisions for change and increased efficiency. Another advantage of having data available company-wide is that, when information is shared—rather than isolated in the heads of a few key individuals—there is greater accountability. In addition, it ensures that the organization will operate routinely even if these individuals, for whatever reason, are no longer a part of your organization.
Because studies we have conducted show that the typical backorder costs between $7 and $12 to process, inventory accuracy to help reduce backorders is also critical.
Accuracy is particularly important since an error in the warehouse that results in a mis-shipment can cost between $20 and $50. To determine the true cost of an error, the following cost factors need to be evaluated:
- Customer service call
- Average of one follow-up call
- Picking, packing and shipping the correct item
- Processing the returned item, including restocking where possible.
- Reshipping charge for the correct item
- Overhead charge @ 20%
- Customer dissatisfaction in the long term
- Cancellation of the order rather than an exchange.
Improved productivity is another major selling point of a WMS. Of course, the percentage productivity increases you can realize depends on your present operations and systems, as well as on the extent to which you are already using bar codes.
Although catalogers tend to justify spending money on bar codes through increased productivity, most savings actually come from improvements in accuracy and material control. However, even if the accuracy and productivity savings prove to be relatively minor, they should be investigated further to determine if the WMS will result in basic alteration of operational methods, which may create a previously unanticipated return on investment.
Reduction in walk time (often 70% to 80% of pickers’ time), checking, paperwork, search time, error correction and physical inventories can easily occur with the information and control bar coding provides. These opportunistic savings should also be factored into your calculations.
In addition to measurable cost-savings potential, there are indirect benefits that also may be attributed to improved accuracy and productivity. Among the savings are the following:
- Reduced stock outs
- Reduced backorders
- Lower inventory, possibly reduced safety stock
- Increased space utilization; increased inventory turns
- Ability to measure you entire operation
- Increases in the life-time value of a satisfied customer, and
- Enhanced corporate image and marketing potential.
The selection process
After the decision is made to proceed with the implementation of a WMS, the difficult task of vendor evaluation begins. The first step is to narrow down the potential list of vendors. This can be a daunting task in itself because there are several hundred vendors who claim to sell some WMS functionality in their products. (The chart that accompanies this article represents a sampling of WMS vendors from small to large companies with systems that work on different types of platforms. These vendors are provided as a starting point for vendor evaluation. No endorsement of them is implied).
After speaking to a wide variety of vendors about your basic needs, your initial sort should result in a list of about ten vendors.
Next, you need to prepare a request for proposal (RFP). It should include a prioritized list of functional requirements, expected transaction volumes, and any other special conditions that you need. Try to frame as many of the questions you have so that you can delineate your requirements in terms that will result in quantifiable information in the returned RFP. This effort will facilitate comparisons among vendors’ RFP’s later. A weighting of each factor will aid this process. Each requirement is weighted both by the user’s priority for it and the vendor’s ability to provide it. Also, detailed information from those vendor’s who will receive your RFP should be requested and added to their files. This information should include number of installations, number of employees, type of platforms their system runs on, and so forth.
Crucial to the entire requirements or needs assessment process is the involvement of all levels of the warehouse, not just top management. Be sure to ask for input of the people who really understand how things work in the warehouse and seek out the comments of the front-line warehouse employees who are picking and packing every day.
The actual selection should take into account the following: response to the requirements in the RFP, the cost of the system, answers to questions about the vendor organization, site visits, software demonstrations, and reference checks. Finding a vendor who has experience with your type of business is, obviously a real plus.
In all likelihood, there will be some degree of modifications or customization required with the system. This fine-tuning needs to be considered when evaluating cost, as well as when implementing a schedule and time line.
Systems costs range from $100,000 to several million dollars. The total investment should be in the area of $200,000 to $500,000 for a basic system in a warehouse of 100,000 square feet. When approached by us to find a way to reduce this outlay for the smaller cataloger and still provide basic, off-the-shelf functionality, a number of vendors we contacted indicated interest.
As a general rule, it is important not to over design the system or develop a wish list of requirements that add only marginal benefits to your operations. It is far better to stick to fulfillment basics and to use WMS as a tool to help you to achieve those basics.
If your operation is currently operating with a high degree of sophistication, then you are ready to use WMS to move you and your company to the next level. If, on the other hand, you are, for example, not using slot numbers in your operation, then do not try to make the leap in technology to provide that kind of capability. It can cause your program to fail. It is better to take improvements in steps, to ensure a successful implementation, even though it may on the surface seem like a good time to re-engineer the entire warehouse. Such an aggressive undertaking should be approached carefully.
A final word
Although catalogers are beginning to express interest in WMS, there are only a few vendors who have installed their systems in catalog companies and those installations are in some of the largest catalogs. Given growth in the catalog business, however, it’s only a matter of time until systems will be developed to meet the cataloger’s special interests.
Moreover, there is also an opportunity for CMS software vendors to team up with WMS vendors and fine tune their programs. An alliance such as this would reduce the high level of investment CMS vendors would need to make in program development, as well as make their products more attractive to larger prospective catalog companies that may now view current catalog management systems as inadequate to meet their needs.
[Note: Mr. Barry does not endorse any direct marketing software packages, and he urges readers to use these reviews only as a starting point for acquiring or rejecting a warehouse management system].
Curt Barry is president of F. Curtis Barry & Company, a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.
He can be reached at 1897 Billingsgate Circle, Suite 102, Richmond, VA 23238, phone: 804-740-8743; email: cbarry@fcbco.com; website: http://www.fcbco.com.
