Midsize business

What are warehouse management systems and how do they work?

Warehouse management systems (WMS) help businesses monitor, optimize, and scale their warehouse or distribution center’s day-to-day functions. This technology provides real-time visibility into inventory status from when it arrives at the warehouse to when it’s shipped and delivered.

As businesses today manage more SKUs, longer shipping distances, and more extensive warehouses, warehouse management systems are becoming an increasingly attractive (and cost-effective) resource to improve their supply chain management—and there’s data to back it up.

According to Westernacher Consulting, most companies that switch from a paper-based system to an automated WMS software see a 25% gain in productivity, a 10-20% improvement in space utilization, and a 15-30% reduction in safety stock.

Considering the potential of WMS systems to improve warehouse operations, it’s crucial to understand how this software works and what you can expect if you decide to implement it.

What is a warehouse management system?

A warehouse management system is a software application that puts  inventory management  tasks and warehouse processes on autopilot. Organizations typically implement a WMS to keep up with consumer demands or improve performance when their workload can no longer be handled manually with paper or spreadsheets.

In the past, warehouse management systems only offered essential functions such as storage location information. Today, however, WMS functionality has expanded to include everything from pick and pack functionality to advanced integrations with advanced tracking systems, like radio-frequency identification (RFID) and barcode scanners.

The main advantage of a WMS solution is that it reduces human errors anywhere along the supply chain. By automating inventory management tasks like order fulfillment, WMS software can increase scalability and create a competitive advantage.

Ultimately, the purpose of a WMS is to create a system that minimizes errors and supports sales growth.

Features of warehouse management systems

Warehouse management systems come with a suite of features to streamline  order management . Here are six primary features and what they enable organizations to do.

  • Inventory management: Track goods and materials by bin location, serial number, or lot number to locate inventory items quickly.
  • Warehouse design:  Optimize the layout of your warehouse to maximize storage space and customize picking logic. This can include pallet configurations, bin slotting, and wave picking.
  • Receiving and putaway:  Ensure a quick, frictionless inventory transfer to the most convenient spot possible in the warehouse for future retrieval and replenishment.
  • Shipping: Send bills-of-lading ahead of shipment, automatically generate shipping invoices, and send shipping notifications to retailers or customers.
  • Labor management: Help warehouse managers assess employees’ productivity by tracking  key performance indicators  (KPIs).
  • Reporting: Spot inefficiencies and track  inventory analysis  metrics in real-time rather than wait for a cumbersome spreadsheet’s manual status reports.

A WMS puts all the tools that organizations need in one intuitive dashboard. This customization and automation level lets managers spend more time growing their business and micromanaging warehouse workflows less.

Types of warehouse management systems

There are three primary types of warehouse management software systems on the market:

Let’s take a closer look at the nuances of each type of WMS and what you can expect upon implementation.

Standalone WMS

A standalone WMS is a third-party program typically deployed on an organization’s native hardware. It can be integrated with other systems, including accounting software, CRM, ERP, ecommerce, and POS.

The main benefit of a standalone WMS is that it’s usually the cheapest option. However, it can create headaches since it requires staff members to log into multiple systems to complete simple functions.

For example, when a returned product arrives at a warehouse, the team must first update the WMS, followed by the CRM and accounting software. These many steps create a high risk for error.

ERP Systems

Enterprise resource planning (ERP) software gathers all of an organization’s business tools in one place to facilitate workflow. Some ERP vendors offer a WMS that’s built into the existing software.

Unlike a standalone system, an integrated WMS shares the same database as the organization’s accounting, inventory, CRM, and reporting software. This centralization enables business-wide traceability, real-time accuracy, and simplified workflows.

Although the upfront cost of  ERP software  is much higher than a standalone WMS, the long-term technology spend can be lower if the organization uses all the tools in the ERP system.

Cloud based warehouse management software

A cloud based warehouse management system is a SaaS model that gives organizations the tools to connect and optimize every aspect of their supply chain execution via the internet.

Today, many third-party logistics providers and ecommerce websites run warehousing operations via the cloud.

A cloud based WMS can be implemented quickly with minimal training. The software’s administration, backups, and upgrades are all hosted on the server and handled by the software provider.

Since a cloud-based WMS is hosted remotely, staff can manage inventory from a central dashboard anywhere in the world on mobile devices. This enables organizations to reduce errors and increase efficiencies in real-time.

Many cloud-based WMS vendors offer dedicated technical support to ensure a smooth transition and answer questions quickly.

The type of WMS an organization chooses typically depends on the size, complexity, and budget. A team of just a few people may manage with a simple spreadsheet, but larger businesses stand to benefit from a more robust warehouse management solution.

Warehouse management software benefits

Many organizations turn to software solutions to manage their warehousing operations to balance security, efficiency, and profitability. Here are some of the benefits of adding warehouse management functionality to your technology stack.

Keep costs in check

Whether an organization has 5 or 50,000 SKUs or warehouse management software can help lower inventory costs through real-time inventory visibility, decreased order fulfillment times, and less inventory surplus.

Improved inventory accuracy

WMS software offers real-time inventory insights through barcoding, serial numbers, and RFID tagging. Each item can be tracked from when it enters the warehouse to when a distributor delivers the item to a recipient.

This level of inventory control is vital to create demand forecasts and assist managers in making evidence-based decisions.

Inbound and outbound optimization

Just as warehouse managers can optimize the location of  inventory types , the software can optimize how it’s moved around the warehouse.

For example, WMS software provides inbound planning tools such as putaway management and schedules that suit your specific needs. This allows organizations to pinpoint the best time to receive shipments based on existing inventory.

Enhanced security

Most warehouse management software requires users to use individual accounts when making transactions. This improves accountability, reduces the risk of theft, and allows managers to identify new training opportunities and optimize workflows.

Additionally, role-based access control prevents unauthorized access to sensitive information and ensures that users only see as much information as necessary to do their job.

Final thoughts

A warehouse management system goes beyond taking control of your day-to-day warehouse operations—it’s a vital part of staying competitive in a rapidly-evolving marketplace. As consumers become more connected than ever, organizations should consider integrated order fulfillment solutions that let them adapt now and scale into the future.

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