Any business that stores items in a warehouse knows that effective management is the difference between fulfilling customer orders quickly and accurately while keeping costs down versus hearing complaints about delayed or inaccurate shipments and higher operating costs.
What is Warehouse Management?
Warehouse management encompasses the principles and processes involved in running the day-to-day operations of a warehouse. At a high level, this includes receiving and organizing warehouse space, scheduling labor, managing inventory and fulfilling orders. Zoom in closer and you’ll see that effective warehouse management involves optimizing and integrating each of those processes to ensure all aspects of a warehouse operation work together to increase productivity and keep costs low.
Benefits of Warehouse Management
Warehouse operations are generally invisible to customers, but they play a vital behind-the-scenes role in ensuring on-time delivery. To achieve this goal, good warehouse management ensures all warehouse processes run as efficiently and accurately as possible. For example, warehouse management involves optimizing the use of warehouse space to maximize inventory storage; making inventory easy for staff to find; ensuring adequate staffing; efficiently fulfilling orders; and coordinating communication with suppliers and transportation companies so materials arrive and orders ship on time.
The benefits of good warehouse management—namely fast, high-quality service at low cost—can ripple out to the entire supply chain, strengthening relationships with suppliers as well as customers.
But given the many elements involved, optimizing warehouse management can be a complex task. That’s why many organizations are turning to warehouse management systems for help.
What is a Warehouse Management System?
A warehouse management system (WMS) is a software solution that aims to simplify the complexity of managing a warehouse. Often provided as part of an integrated enterprise resource planning (ERP) suite of business applications, a WMS can support and help to optimize every aspect of warehouse management. For example, a WMS can:
- Leverage data and automation to conduct demand analyses, forecast sales and create efficient daily operating plans.
- Provide real-time insight into inventory location and quantity.
- Share data with other ERP modules or standalone software products, such as accounting software and transportation management solutions, to increase the efficiency of business operations.
- Monitor and report productivity to offer a deeper understanding of how efficiently your warehouse is operating and where you can make improvements to warehouse geography and optimize space.
- Create step by step directions to guide users through daily processes—such as receiving, picking and packing orders—using predefined rules.
Inventory Management vs Warehouse Management
Before getting into the details of warehouse management, it may help to understand a few common terms. For example, the terms inventory management and warehouse management are often used interchangeably, but there are key differences:
Inventory Management is centered on efficiently and effectively ordering, storing, moving, and picking the materials needed to make products or fulfill orders.
Warehouse Management is a broader term that includes other aspects of warehouse operations, such as warehouse organization and design, labor, order fulfillment, warehouse monitoring and reporting.
Stock management is often used as another term for inventory management, but it’s important to recognize the difference between “stock” and “inventory,” particularly for companies involved in manufacturing products. Stock generally refers to finished product ready for sale or distribution. Inventory, however, includes everything in the warehouse: raw materials, materials that are in the process of being built into products and finished products (stock).
Stock management is therefore a subset of inventory management that focuses specifically on holding as little stock as possible—to save space and costs—while still being able to meet customer demand.
Principles of Warehouse Management
Understanding the general principles of warehouse management can help you focus your efforts to optimize the way your warehouse operates. These principles include:
Know your purpose. A warehouse operation must first and foremost know its objectives. For example, do your customers have specific delivery requirements? Does your inventory need specialized storage? Additionally, all warehouse operations aim to use warehouse space, labor and equipment as efficiently as possible.
Comprehensive control. Warehouse management involves coordinating complex processes involving many moving parts: people, equipment, orders and inventory. Warehouse managers need to be able to track each process in order to ensure it’s running smoothly and solve the problems that inevitably occur. Quality control is critical to ensure orders are fulfilled accurately.
Flexibility and resilience. Warehouse managers have to be able to change plans on the fly, whether it’s because materials have arrived damaged or because inclement weather is delaying shipments. It’s also important to be able to adjust workflows to maximize efficiency, whether that involves rearranging warehouse space or reimagining picking processes.
Customer focus. On-time delivery, with the correct product, is one of the most important metrics when it comes to customer service and satisfaction. To deliver on time, you need to be able to fulfill orders quickly and accurately.
Data-driven decision making. Even if every warehouse process appears to be running without a hitch, it doesn’t mean processes are operating as efficiently as possible. A WMS can help you pinpoint and analyze areas that need improvement.
Warehouse Management Processes
Warehouse management includes six core processes. Each process influences the efficiency of the next, so every step must be optimized for the warehouse operation to run like a well-oiled machine:
- Receiving. Check in and log incoming items. Verify that you’re receiving the right quantity, in the right condition, at the right time.
- Put-away. Move items from the receiving dock to their correct storage locations.
- Storage. Safely store and logically arrange inventory to enable fast and accurate picking.
- Picking. Collect the items needed to fulfill sales orders.
- Packing. Prepare the picked items for shipment. They must be safely packed into the correct packaging with an accurate packing slip.
- Shipping. Send out the finalized sales orders, ensuring that they are on the right vehicle, at the right time, with the correct documentation, so customers receive their orders on time.
Optimizing your warehouse operation involves fine-tuning each of these warehouse management processes. For example, when receiving goods, an organization can label items with mobile barcodes or attach RFID tags to make them easier to find when picking. During put-away, a well-managed warehouse operation stores items in the minimum amount of space to maximize the capacity of the warehouse. Other best practices for warehouse optimization include storing popular items in easily accessible areas and separating items that can easily be mistaken for one another.
Warehouse Management Fulfillment Strategies
Selecting fulfillment strategies that match the business’s size and the volume and type of orders it receives can help the organization ship products faster, minimize waste and improve customer satisfaction. Applying picking strategies that match the type of orders that you receive can help maintain the most effective workflow. For example:
- Batch picking is a technique that can help you quickly fulfill multiple orders for the same product without wasting time by continually revisiting the same inventory location.
- Zone picking assigns pickers to different zones of SKUs. For each order, pickers are resonpsible for picking all SKUs from their designated zone.
- First expired, first out (FEFO) picking ensures perishable products and items make it to customers before specified expiration or sell-by dates. With FEFO, the products set to expire first are shipped first.
- First in, first out (FIFO) picking ensures the first products to come into the warehouse are the first to be distributed, which can help make sure older items are shipped before they can become obsolete.
Technology is also an important part of any warehouse management fulfillment strategy. Handheld mobile devices that display packing lists with item locations, serial numbers and lot numbers can help increase picking speed and accuracy. Software can recommend safe and cost-effective packing based on product dimensions to ensure each item gets shipped securely, with as little waste—and wasted space—as possible.
Warehouse Monitoring & Reporting
Measuring and tracking key performance indicators (KPIs)—operational statistics that indicate how well the warehouse is operating—can help pinpoint problems and highlight opportunities to improve efficiency and fulfill customer orders more quickly and accurately. For example, you can set a target for improved picking and packing accuracy, then make changes to your picking processes and measure whether those changes are effective in helping you achieve your goal.
Warehouse managers often track the following KPIs, among others:
- Receiving efficiency or productivity: The volume of goods received per warehouse operator, per hour. Higher scores indicate greater receiving efficiency, while lower scores indicate that there may be problems that should be investigated.
- Picking accuracy: The number of orders accurately picked divided by the total number of orders picked (including incorrect or short orders). The closer to 100% accuracy, the better.
- Order lead time: The average time it takes for an order to reach a customer once the order has been placed. For the highest customer satisfaction, the shorter the lead time, the better.
- Rate of product return: The rate at which sold goods are returned by customers, calculated by dividing the number of items returned by the number of items sold. To get a full picture of this KPI, it’s important to consider why products are being returned—a customer accidentally ordering the wrong product might not signify warehouse operation issues, but there is room for improvement if customers often receive incorrect products or damaged goods.
- Inventory turnover: How much inventory is sold and replaced in a given period of time. It’s calculated by dividing the total cost of goods sold during the period by the average cost of inventory during that period. This KPI reflects how efficiently a warehouse manages inventory to meet demand. In general, higher inventory turnover is better. If a warehouse overestimates demand, inventory turnover may be low. Too much slow-selling inventory can be costly—especially for businesses dealing with goods that have a predetermined shelf life.
Warehouse Management Statistics
Global ecommerce has grown rapidly in recent years, and is expected to top $29 trillion by 2023—accelerating a need for more warehouse space to match growing consumer demands. Ecommerce growth is expected to increase demands for U.S. warehouse space by 1 billion square feet by 2025. It’s not surprising that one survey, by trade publication Logistics Management, found 79% of warehouse operations were planning some type of expansion plan.
Given this growth, a top challenge faced by warehouse operations is the inability to attract and retain a qualified hourly workforce. To improve productivity, reduce operating costs and keep up with customer demand—all while combatting tight space and a tight labor market—warehouse operations are increasingly using technology to automate processes, with 85% using WMS according to the Logistics Management survey.
Choosing a Warehouse Management System (WMS)
Choosing the right WMS will depend on the specifics of your warehousing operation and what you want to achieve. Above all, the right WMS should help your organization achieve greater efficiency and fulfill orders more accurately so you can do more at a lower cost. Since a primary goal is to save money, ROI is key.
Additionally, a WMS should act as a guide to help all warehouse staff become more efficient in the workplace. To do so, the right WMS will provide real-time actionable insights into each aspect of your warehousing operation to help staff be more efficient and programmatic, including receiving, shipping, inventory, order fulfillment, and labor—while providing easy-to-understand statistics and reports that managers and workers can easily understand and then use to improve daily and long-term processes. A WMS should also be scalable so it can help your business grow and adapt to changing market conditions.
The right WMS can take your warehouse operations to a higher level of efficiency, speed and order accuracy, helping to improve your company’s competitiveness and increase customer satisfaction while keeping operating costs down.