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The Ultimate Guide to Warehouse Management Systems

Everything you need to know about Warehouse Management Systems in one place.

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What is WMS?

A warehouse management system (“WMS”) is the software program a business uses to manage and track products as they are received, stored, and shipped from the warehouse. A WMS is a robust tool that aids in effective and efficient warehouse configuration.  It takes into account slow- and fast-moving items, products with expiry dates, kitted items, and other specific product considerations. Most notably, a WMS supports the processes of receiving, picking, packing, and shipping, with automated directions, specific locations, and preconfigured options. All WMS functionality contributes to eliminating human error

Some common keywords and features that you’ll see in a WMS include:

  • WMS - Warehouse Management System or Warehouse Management Software.
  • Receiving - The process of receiving inventory into the warehouse.
  • Putaway - The process of putting incoming inventory into a designated location.
  • Descriptors - Labels used to describe how a warehouse is organized and a product’s location (e.g. aisle, bin, shelf)
  • Pick List - A list of items warehouse employees need to pick from inventory (retrieve) to fulfill an order or multiple orders.
  • Wave - An automated pick list that groups orders with like characteristics, is generated at a set time, and is assigned to specific employees.
  • Cycle Counts - A physical count of inventory in a section of the warehouse or the entire warehouse to be completed at least once per quarter. 
  • Parcels - The type/size of packaging required to ship a product safely and in the most cost-effective manner.  
  • Shipping Class - A level of shipping service defined by particular characteristics (e.g. delivery method, delivery deadline, tracking, required signatures) that can encompass shipping methods across multiple carriers. 
  • Shipping Options - Automated decisions for shipping methods that can be configured for like products, orders, or customers. 

A WMS can be a manual in-house solution, which may include self-made warehouse maps, manually-developed putaways and pick lists, printed documentation, and spreadsheets to keep track of incoming, stored, and outgoing inventory. However, manual warehouse management has minimal capabilities, leaves room for human error, and limits access to only one or a few employees. 

A Warehouse Director or Director of Operations clearly needs access to a WMS to properly configure the warehouse layout, direct putaways, manage inventory locations, create picks, and establish control procedures (e.g. cycle counts). What may be less obvious are the additional employees in an organization that require access to a WMS:

  • The warehouse team needs electronic access to putaways, picks/waves, orders to be shipped or prepared for in-store pickup, and other tasks specifically assigned to its members each day. It also benefits from a WMS that uses the warehouse configuration to automate efficient putaway and smart pick lists, as well as identify areas for any potential inventory overflow. Access to barcode generation and scanning allows the team to maintain total control throughout warehouse operations. 
  • The purchasing manager needs authority to see historic sales data (in order to calculate inventory turnover), to access existing inventory levels (to determine when to replenish stock), to create and send purchase orders, and to communicate (incoming orders or new products) with the warehouse team. 
  • The finance department needs to reconcile incoming and outgoing inventory between the WMS and financial reporting software, and to generally monitor cost of goods sold ("COGS") to ensure business profitability. It needs access to purchase orders ("POs") (to pull the cost of goods from vendors), to new and completed orders (to forecast and record revenue), and to shipping option mappers (to minimize the cost of sending products to customers).

A standalone WMS can increase efficiency in completing everyday warehouse operations. However, inputting information is still a manual task, and sharing information between multiple warehouses is difficult. 

Having a comprehensive WMS ensures smooth operations without a second thought. A WMS that integrates with your e-commerce platform, other warehouses, and other enterprise management systems (e.g. order, inventory, and shipping) allows all systems to communicate with each other and gives you a birds-eye view of operations. 

  1. Integration with your e-commerce platform provides real-time inventory information to your customers, which makes backorders and stockouts problems of the past. Additionally, shipment tracking can be sent right to the customer as soon as their order is  scanned and loaded onto the truck, increasing customer satisfaction by giving them visibility of their order location. 
  2. Integration with other warehouses gives you visibility into all of your inventory at all times. If you’re out of an item in your New York warehouse, send it from Ohio. 
  3. Integration with other management systems allows for a complete view of backend operations. Data integrity is maintained, time is saved, and generally, costs are lower when systems are properly integrated with minimal manual intervention. 

With the right WMS, backend operations can be optimized to eliminate human error, identify cost-saving opportunities, and provide real-time information to ecommerce platforms and your employees. 

What are the benefits of WMS?

A WMS that automates processes has many benefits:

  1. Accurate inventory information
  2. Order accuracy and customer satisfaction
  3. Order throughput 
  4. Cost efficiencies 

Accurate inventory information
Accurate inventory information is critical to staying on top of your warehouse operations. A 2020 survey by Kenco found that 47% of companies rank visibility of inventory levels and availability as their top priority. Why does inventory visibility rank higher than other facets of backend operations? Simple; significant cost savings can be found within inventory accuracy. 
Greater inventory accuracy drives:

  • More precise demand planning. With accurate numbers, a business can easily calculate inventory momentum and set reorder points when they must replenish stock from vendors. More precise demand planning will eliminate excess or slow-moving inventory and keep warehousing overheads low. Let’s face it: costs for physical warehouse space are only increasing. It’s critical to get return on investment ("ROI").
  • Early identification of obsolete inventory. Similar to overordering, if an item is not selling/being well-received by your customers, decisions can be made on whether or not to keep the item in stock.
  • Improvement to controls around damaged and stolen inventory. Documenting reasons for theft/damage, calculating an incidence rate, and separating the affected inventory are all possible with a sophisticated WMS. 

Inventory must be tracked during each step of the fulfillment process. From the moment product enters the warehouse until it is shipped out to the customer. Real-time inventory information is possible with certain WMSs and allows your eCommerce website to stay up-to-date to avoid backorders and stockouts. Notifications can even be set to alert the purchasing team that a certain product needs to be reordered before it sells out. 

Order accuracy and customer satisfaction
Order accuracy and customer satisfaction go hand-in-hand. Let’s start with how you measure order accuracy. Take your total orders fulfilled accurately divided by total orders filled, then multiply that number by 100. With better backend operations, you will attain a higher order accuracy rate and spend less money on returns. The result is a better customer experience and a higher rate of customer satisfaction. 

59% of customers that had a bad experience with a retail company decreased or completely stopped purchasing from them. As a retailer in a competitive environment, it’s critical to retain customers through order accuracy, preserving revenue, and minimizing new customer acquisition costs. 

Order throughput
Order throughput is just as important as order accuracy. As the saying goes, “time is money”. Poor inventory organization, team members waiting for directives, lack of sufficient packing space, or several other factors can all lead to time wasted fulfilling orders. There are a number of KPIs that can be calculated to measure order throughput, including internal order cycle time, order picking accuracy, and dock-to-stock time.

Tracking these KPIs over time can assist in finding where/how the fulfillment process can be improved.
Having a WMS that can optimize your inventory organization with customizable criteria, uses barcode scanning, creates automated putaways and pick lists, and has unlimited users and roles can greatly maximize your order throughput. 

Cost efficiencies
Every business wants to keep costs as low as possible. With a homegrown warehouse management solution, it can be hard to identify areas that can be better optimized in order to lower your costs. 

Cost savings in warehouse management start at the beginning with warehouse layout and organization. Some questions to ask yourself are:

  1. Are my fast-moving products in an optimal spot for my employees to access on a regular basis?
  2. Are my perishable items stored properly and in a first-in-first-out ("FIFO") method? 
  3. Are kitted items and like items stored close to each other?
  4. Are my aisles, bins, and shelves clearly labeled? Can I implement a barcode scanning system?
  5. Is my space optimized equally-well for small and bulky items?
  6. Do I have space for product overflow?
  7. Are my packing and shipping areas in a convenient location that makes sense in the warehouse flow?

The faster your employees can find the items they need, the less time they will waste in the fulfillment process. This in turn moves products faster, leading to less storage time and overhead costs. The end result - saving your company money.

Another area where companies can realize significant savings is in shipping. Researching information on countless shipping carriers for various products is time-consuming. Plus, how do you really know if you’re getting the best rate? Having a WMS that instantly rate-shops across multiple shipping carriers can save you time, money, and sanity. Having shipping functions further integrated with your eCommerce platform, allows your customers to receive tracking information on their package, increasing customer satisfaction even further. 70% of consumers said that the ability to track orders was one of their top three considerations when purchasing online. Who can blame them? We all want to see when our orders will arrive!

Breaking Down the Cost of Warehouse Management Software

Knowing the countless benefits of a WMS and the tools it provides, the next step in the decision-making process is asking yourself how much you are willing to spend to improve warehouse operations and if the ROI is acceptable to your company.
Warehouse management systems have various pricing structures, as each system is unique. 

Open Source vs SaaS 
One of the first things to consider when choosing a warehouse management system is the needs of your company in the short- and long-term. 

Software-as-a-Service (“SaaS”) is defined as a licensing software model, where access is provided on a subscription basis. SaaS systems generally have lower recurring monthly charges, are faster to implement, and offer community-based tools and training (given all customers are using the same functionality). However, SaaS software tends to have severe limitations for unique workflows, difficulty integrating with new software, and capacity issues when a company continues to grow. Many SaaS WMSs may have robust functionality in narrowly defined areas or workflows, such as tracking stock, but lack customization or the ability to go deeper in a functional area (e.g. tracking stock by batch, lot, or expiration date).  Finding the right SaaS WMS provider that meets your needs in the short-term is possible. However, if you have a business that has unique workflows, disruptive characteristics, or a general long-term perspective, this may require customization of a WMS. In this case, you should research WMSs that offer access to the source code

An open source solution is defined as a software that is distributed with its source code, making it available for use, modification, and distribution with its original rights. Purchasing an open source software will allow a development team to go in and make customizations to the program's modules, integrations, and capabilities if needed. Typically, open source software is a one-time charge, unless any additional work needs to be completed by the provider’s development team. Open source software is much more flexible than SaaS and better suited to unique companies with a long-term roadmap on how to build out the software or those with high growth ambitions. 

For companies with short-term time and resource constraints, but long-term ambitions, SkuNexus is the perfect blend of SaaS and open source. SkuNexus customers can get up and running immediately on a SaaS plan, but then switch to open source whenever they need. The SkuNexus team serves as a constant advisor on solution design and development, no matter which plan you choose.  

Now, let’s take a look at other cost factors associated with SaaS warehouse management systems.

When looking at the pricing structures of potential WMSs, pay attention to whether or not each software has a separate fee for implementation. Some providers charge an additional implementation fee, which is variable depending on your company's requirements for configuration, integrations, and training. This is important to understand upfront, as effectively all eCommerce companies will require integration with other systems, including one or multiple eCommerce platforms and other backend management systems. Other providers, like SkuNexus, absorb the cost of implementation into their overheads and create the necessary integrations and configuration without an additional fee, so long as no custom development is involved.

Licensing fees may be charged monthly, quarterly, semi-annually, annually, or in other increments. Some companies may break down the licensing cost by user but allow for unlimited warehouse locations. Others may charge by the number of warehouses but allow for unlimited users. If you need unlimited warehouses and users, SkuNexus has a solution for that, too.
Aside from the number of warehouses and the number of users, other factors that can determine licensing fees are:

  • The number of SKUs that need to be tracked. If your company only requires the capability to track and store a handful of SKUs, a WMS that has a lower licensing fee dependent on the number of SKUs can save money in the short term, but limits your business growth in the long run. If there’s a chance you’ll sell additional products in the future, consider going with a WMS that allows for an unlimited amount of products within its licensing fee. 
  • Integrations with other systems, such as eCommerce platforms, other management systems, and shipping carriers. Make sure you understand which software integrates with a potential WMS upfront and what additional licensing fees, if any, are charged for using those integrations. Where integration with your existing software is unavailable, be sure to evaluate any costs for custom development before deciding upon the WMS and related integration.
  • Additional modules. In addition to the implementation and licensing fees, WMSs may increase licensing fees for the inclusion of additional functionality and modules. No two WMSs are identical. Each system comes with its own set of capabilities. For example, one WMS may require a separate module to accommodate products with expiration dates that need to be stored and picked in a FIFO method. Meanwhile, certain systems, like SkuNexus may offer the ability to track products by expiration date, and send accurate picking directions to the warehouse team within its baseline subscription, but may offer additional functionality only as a customized build.

Having a WMS that satisfies your current needs and allows your business to grow is imperative to the overall success of your company. Given that it’s an area for substantial cost savings and optimization, warehouse management is not the place to cut corners. 

The Return on Investment
How do you calculate the ROI for a WMS? The return on investment is seen over time in terms of increased revenue and order throughput due to:

  • Faster picking and packing, through optimal warehouse configuration
  • Identification and elimination of slow-moving or obsolete inventory
  • More efficient employee involvement due to clear directives, organization, and routes
  • Less returns management and rework due to increased order accuracy
  • Shipping automation and rate savings

Calculating the net benefit of all of these factors divided by the amount spent for your WMS will give you the WMS’ return on investment. Beyond the ROI, a good WMS can give you peace of mind that your backend operations are running not only efficiently, but also consistently, guaranteeing continued benefit.

Is a WMS industry-specific?

Any and every company that has products in a warehouse or smaller space (such as an office, garage, or spare room) can benefit from a warehouse management system. No matter which industry you may be in, a WMS can provide accurate inventory information, increase order accuracy and customer satisfaction, decrease order throughput time, and identify where to cut costs and save money. 

Take a look at just a few of the industries that benefit greatly from having a robust WMS:

  1. Apparel
  2. Food and Beverage
  3. Pharmaceuticals and Medical Supplies
  4. Electronics

With the apparel industry booming, and global revenue increasing 10.59% over 2021, staying competitive in the market is imperative to having a successful business. Having an eye-catching storefront and to-die-for products is only a portion of what it takes to keep your customers coming back.
A WMS provides a multitude of benefits for companies in the apparel industry including, but not limited to:

  • Optimization of warehouse layout. This saves your company space by taking into account product descriptors including height, width, and weight to ensure each valuable square foot of the warehouse is used to the best of its ability. Fast- and slow-moving products are also taken into consideration within the warehouse layout to put the most popular products in a prime location for picking. 
  • Multi-fulfillment capabilities. 50% of consumers abandon purchases due to inadequate delivery options. Multi-fulfillment capabilities allow you to ship products from a warehouse, dropship, or take advantage of buy online pick up in-store ("BOPIS"). Having flexible shipping options allows your customers to shop online and pick up their order however they please. 

Food and Beverage
According to a Research and Markets report, the global food and beverage market is expected to grow at a compound annual growth rate ("CAGR") of 6.1% and will reach $7.5B in 2023 and $11.9B by 2030. With the industry and revenue growing at this rapid rate, the costs of acquiring, storing, and shipping food and beverage items will continue to increase accordingly. This makes it critical to leverage a warehouse management system to save money wherever possible.
Many factors need to be considered when warehousing perishable items, including:

  • When incoming inventory will be received 
  • Physical storage of the inventory
  • Predicting demand for products
  • Sending products out in the FIFO method
  • Ensuring that expiring products never go out the door to a customer
  • Choosing which packaging to use for temperature-sensitive products

A comprehensive WMS, such as SkuNexus, gives you the ability to manage these factors and provide value to your business through: 

  • Warehouse configuration that determines the fastest way to move through the warehouse for picks with multiple items. Warehouse configuration automatically leads the warehouse team to pick the first items in to be the first items out (FIFO), which saves on waste, the warehouse team’s time, and in return saves you money.
  • Custom notifications that alert you when products are about to expire. Having these custom notifications allows you to make quick decisions on moving inventory before having to waste the products.

Pharmaceuticals and Medical Supplies
Pharmaceuticals and medical supplies will always be in demand, and are more important now than ever, as we have seen in the last couple of years. Similar to food and beverage retailers, medical suppliers need to be mindful of items with expiration dates to ensure on-time delivery of quality products. Though not all medical supplies have an expiration date, moving inventory in an efficient manner through your warehouse increases profitability and can be achieved through:   

  • Real-time inventory information sync with your e-commerce platform, ensuring no backorders or stockouts. This feature is especially important to have for fast-moving items that tend to sell out before supplies can be replenished. 
  • Fulfillment waves (automated pick lists) based on any factor you choose, assigned to specific team members, and generated at a set time. This feature of SkuNexus allows the warehouse team to get orders out the door exactly on time. 

To build a PC, you need a minimum of seven main components, and that’s just for the basics. The electronics industry is one of the most innovative and deserves robust backend software to fulfill its specific complexities. To keep track of all of the high-value inventory circulating through the warehouse, a WMS needs to have these capabilities:

  • Barcode scanning to ensure a tidy and error-free putaway that updates your inventory levels in real-time. Within SkuNexus, you have total visibility of inventory location as soon as it’s counted and out of the box, whether it’s waiting to be put away, in its stock location, or has been picked to be packed and shipped.
  • Shipping option mappers that build preset rules for packing orders to ensure the safety of fragile items and reliable on-time delivery.

What are some common features of WMS software programs?

No two WMSs have the same functionality, user interface (“UI”), integrations, and customizability. However, as you research potential WMSs for your business, there are baseline features that you should confirm are included. 

Warehouse Configuration and Layout
Successful backend operations start with warehouse configuration and a warehouse layout that makes sense. If the warehouse is disorganized, with a layout that’s not optimal for picking and packing, time and money are wasted during the fulfillment process.
Make sure your WMS can allow for warehouse configuration through the use of:

  • Custom attributes tied to SKUs
  • Minimal manual information input and employee decision-making (directed putaways)
  • Product dimensions and weight, which are factored into cart capacities, pick lists, and shipping costs

Once a warehouse is properly configured, you can optimize warehouse layout by putting like items and kitted items close together, fast-moving inventory in an efficient location for picking, and bulky items in areas with easy access. 

  • Within the warehouse layout, make sure you’re able to designate specific locations for overflow products, so the warehouse team continues with their tasks without interruption or confusion.

The process of receiving inventory is made significantly easier with a warehouse management system like SkuNexus, as opposed to a manual solution of tracking incoming inventory via spreadsheets. With a WMS, processes can be automated and eliminate human error.
At a minimum, a WMS should:

  • Control inventory throughout the receiving process using multiple checkpoints and carts/totes.
  • Report goods in onhand inventory as soon as the receiving process has begun.
  • Allow for receiving against a PO.
  • Offer barcode scanning and generation, which eliminates time and error in data transfer.

Inventory Management
As inventory is a large portion of business costs, having accurate inventory information is paramount to business success. When businesses upgrade to an inventory system from a homegrown solution, they see an average of a 25% increase in overall productivity, a 10-20% gain in space use, and 15-30% more efficient use of stock.
Robust inventory management features within a warehouse management system include:

  • Real-time information transfer to e-commerce platforms, which increases customer satisfaction and retention by eliminating backorders. When a customer attempts to purchase an item from your store but is unable to due to backorders or stockouts, they’re going to go to another merchant to purchase the product. This is a major problem considering acquiring a new customer costs five times more than keeping an existing customer. 
  • Demand prediction to assist with purchasing decisions. If an item you carry has seasonality in sales, you’ll want access to sales data that shows how much inventory will be necessary for the upcoming season and by when the POs should be placed.

Customizable inventory attributes, such as expiration dates, which dictate fulfillment workflows (e.g.first in, first out (FIFO) method). When dealing with pharmaceuticals or perishable items, warehouse configuration can be set so the warehouse team picks those items nearing expiration first. Additionally, in some systems custom notifications can be set so you’re alerted to inventory that needs to be disposed of and added to inventory waste.

Pick, Pack, Ship
Getting orders out the door in a timely manner with 100% accuracy is key to keeping your customers satisfied with their complete and correct orders for each delivery. The average picking error rate is about 1-3%, which doesn’t seem too intimidating, but when you factor in the cost of each error, you’ll realize this is one area of improvement that can significantly impact profits. When choosing a WMS, make sure the system optimizes picking, packing, and shipping with:

  • Optimized pick routes based on warehouse descriptors (aisle, bin, shelf, etc.), which save time going back and forth between different sections of the warehouse. 
  • Automated packaging decisions by SKU, which show the employee in charge of packing exactly which box and packing materials are needed.
  • Shipping option mappers, that automatically dictate the shipping carrier and method.
  • Integrated shipping carriers, which allow for global fulfillment and tracking throughout the delivery process.

Cycle Counts
Cycle counts are a way to confirm that the inventory in stock matches the inventory level in the WMS. These are important to run at least once per quarter, to ensure stock is up-to-date and allows for reporting of any stolen or damaged goods. WMSs should not only include cycle count functionality, but also:

  • Break cycle counts into waves and assign portions of the warehouse to specific employees, allowing for less disruption for prolonged periods of time.
  • Alert managers to discrepancies. For example, If an issue in the physical count is found, the warehouse manager or director will be alerted via the manager review tab in SkuNexus, where they can then count the inventory themselves and verify if there is an update needed to the inventory count.

Three tips for getting the most out of your WMS.

If you’re deciding on a new warehouse management system, or evaluating the use of your current WMS, you’re going to want to make sure you’re getting the most bang for your buck. Follow these three tips to get the most out of your WMS:

1. Let the automation take care of business
Each WMS is different and can automate different facets of warehouse management. Automation improves operations by eliminating human error. Having decisions made for employees automatically streamlines processes, which saves you time and money by lowering overhead and error costs.

Having automatic order decision rules in place is a must, especially if you have multiple warehouses. This allows you to automatically route incoming orders to the nearest warehouse, the warehouse with the highest stock, the warehouse with the closest expiry dates, etc. This eliminates the need to manually select the warehouse for each order and closely aligns fulfillment methods with business limitations and goals.

If your WMS has waves functionality, creating these automated pick lists can up your fulfillment game. Waves allow you to assign particular team members to pick a set of orders that include products with similar attributes, such as those including the same SKU, being sent to the same destination, or being shipped via the same method. Waves can be set to be created on any day of the week, at any time of day, and for any length of time, to guarantee orders are picked and packed to be sent out exactly when they need to be. Truly a set-it-and-forget-it functionality.

Relying on your WMS to take some of the load off your plate not only saves you time and sanity, but also streamlines and leads to error-free operations. Kick your feet up, set up the automations, and watch the positive impact happen.

2. Identify areas for improvement and cost savings
There’s a wealth of information that you can learn from a WMS like SkuNexus, including areas that need improvement and areas where you can be saving overhead costs. Knowing the following pieces of information can greatly increase your warehouse's success:

  • Slow-moving products. Identifying these items early with a WMS can dictate warehouse layout decisions or help flag them to management for discontinuation.
  • Order status within the picking, packing, and shipping processes. Tracking an order through each step of fulfillment can help reveal any bottlenecks in the warehouse, whether it be insufficient methods of transportation including carts or totes, or the need for a larger area for packing orders.
  • Order throughput and reporting. Understanding the amount of inventory moved within a certain timeframe, whether it be within the past month or year, allows for more precise decision-making surrounding inventory ordering. Ordering the appropriate amount of inventory, in the correct increments and at the proper times saves warehouse space (overhead costs) and improves cash flow throughout procurement.

3. Take advantage of customer service
This one may seem like a no-brainer, but take advantage of the customer service that your provider offers! You’ll never know the answer until you ask. Some common questions to ask a WMS provider revolve around:

  1. Existing functionality. If you’re unsure of whether or not you’re using the WMS to the best of its ability, your provider should be happy to help you out and get you on the right track. After all, WMSs are in-depth tools and using each feature will help your operations tremendously. 
  2. Scalability. If the addition of another warehouse is in your near future, check with your representative to make sure the new warehouse will be integrated seamlessly into your existing system. If not, find out how you can move to the next subscription level, or otherwise bolt on the new warehouse. 
  3. Additional integrations or custom functionality. Explain what you need to your representative so that they can assist in solution design and organize a quote from the development team if there’s a need for custom work.