A Detailed Overview of Warehouse Management Systems and How They Work

by Bizom

May 19 | 09 min read


Every day, a warehouse receives shipments of supplies for processing, and there are several orders from customers of varying sizes that require fulfillment. With eCommerce demands on an all time high, having a strong warehouse management system (WMS) aids in the maintenance of stringent inventory controls. When structured effectively, warehouse management systems improve business efficiency, increases revenue, and enhances customer satisfaction.

The warehouse management system market is estimated to be worth USD 10.5 billion by 2030, with a CAGR of 16% between the years 2022 and 2030. In this article, we’re covering everything you need to know about a warehouse management system for small business and enterprises, including their key characteristics and benefits.

What is a warehouse management system?

A warehouse management system (WMS) is a software or platform designed to facilitate the smooth management of warehouse operations. A robust WMS drives every vital function of the manufacturing business such as:

  • Inventory management
  • Order fulfilment
  • Shipping
  • Receiving
  • Overall warehouse optimization

Crafted to provide real-time visibility of inventory, WMS solutions aid in minimizing errors and maximizing productivity.

What does a warehouse management system do?

The best warehouse management system is responsible for streamlining various aspects of warehouse management, including receiving, put-away, pick, pack, and shipping processes, as well as inventory tracking and replenishment. The best part about using a WMS: All of these activities can be organized from a single interface with the help of a WMS.

Additionally, a warehouse management system for small business integrates with other tools such as barcode scanning, short frequency identification (RFID) labelling, advanced robotics and augmented reality (AR) wearables, and other critical solutions like transportation management systems (TMS), Enterprise Resource Planning (ERP), and logistics software.

Amazon is a prime example of a company that has successfully implemented a Warehouse Management System (WMS) to improve revenue and customer experience. With a massive inventory and millions of orders to fulfil daily, Amazon has invested heavily in developing and optimizing its WMS to ensure speedy and accurate order fulfilment. Amazon’s WMS optimizes warehouse operations by using automation and robotics, which also helps save operational costs and up the ante on customer experience.

Where does WMS fit in the supply chain?

Warehouse management is a crucial component of the supply chain that ensures everything runs smoothly. Typically, the WMS software fits between the ERP or Order Management System (OMS) and the Warehouse Control System (WCS), bridging the gap between order management and warehouse operations.

The ERP or OMS manages orders, inventory, and customer information, while the WMS focuses on optimizing warehouse operations like receiving, put-away, picking, packing, and shipping. The WCS controls the movement of materials and inventory within the warehouse or distribution center. By working together, these systems help organizations streamline their supply chain operations and distribution systems to further reduce costs, and cater to the needs of their customers with ease and efficacy.

Components of warehouse management systems

There are 6 different components of a WMS, each with its own unique set of features and capabilities. Understanding these key elements of WMS can help businesses select a solution that best fits their specific needs and requirements.

1. Order functionality: WMS order management consists of three functions: order entry, inquiry, and execution. Order entry is used for adding or uploading orders, inquiry for checking order status and audit trail, and execution for processing orders by assigning them to waves, picking tasks, and sorting tasks.

2. Inventory tracking: Inventory management is a vital component of WMS that assists in tracking inventory levels, monitoring stock movements, and managing product expiration dates. It also provides visibility to businesses to prevent stock-outs. By minimizing the need for manual data entry and tracking, WMS inventory management improves stock accuracy in the warehouse and increases sales efficiency.

3. Real-time inventory management: Real-time inventory tracking is a crucial component of WMS. Warehouses commonly use a “push” or “pull” system to manage inventory, but many now use a “push-pull” system for efficiency. Real-time inventory tracking plays a vital role in this system by constantly monitoring stock levels to ensure timely availability while preventing overstocking and associated costs.

4. Picking productivity: Efficiency is at the center of a successful warehouse management, reducing errors and maximizing space utilization. Key components of an efficient system include pick efficiency, order accuracy, and space utilization. Pick efficiency measures items picked per hour, order accuracy ensures correct order fulfillment, and space utilization optimizes inventory storage. The benefits of an efficient warehouse management system are improved productivity and cost reduction.

5. Shipping efficiency: The shipping and receiving module is a critical component of WMS, tracking incoming and outgoing shipments for accurate and timely order fulfillment. Another key component is inventory management, allowing businesses to adapt to changes in demand quickly. By effectively managing these and other components, businesses can ensure efficient and error-free order fulfillment.

6. Labor optimization: Labor management software in a WMS offers real-time productivity data and optimizes staffing levels, improving accuracy and efficiency in the warehouse. It also identifies issues such as excessive overtime, absenteeism, and turnover, allowing managers to improve employee morale and retention.

Unveiling the top benefits of using a WMS software

If you’re still wondering why you need a WMS software for your business, here are some benefits that may work for you in the long-run:

1. Eliminate human errors: An automated WMS system can reduce human errors in warehouse operations. By automating inventory management, picking, packing, and shipping, the chances of errors caused by human mistakes are reduced, saving time, money, and frustration in the long run.

2. Optimize warehouse space: WMS software utilizes space and floor plan analysis to optimize space usage, reduce waste, and minimize potential costs from excessive material movement and time-consuming placement and retrieval.

3. Streamline labour efficiency: A warehouse management system can effectively assign tasks to workers based on their skill level, location, available equipment, and the tasks that need to be accomplished.

4. Improve inventory turnover: A WMS provides real-time visibility of accurate inventory levels, allowing companies to estimate supply more securely and prevent backorders, leading to increased customer satisfaction.

5. Ramp up customer satisfaction: WMS software offers efficient picking and packing options that reduce delays caused by traffic or ineffective employee locations. This results in faster customer order cycle time and improved customer relations.

Characteristics of a warehouse management system

With so many options to choose from, picking the best warehouse management system for your business can be tricky to say the least. Here are some features to consider when selecting a WMS for your business:

1. Optimizing of storage space utilization: A WMS should have a receiving goods option to reduce errors between purchase orders and actual deliveries and should integrate with your ERP system to provide real-time inventory visibility.

2. Tracking and managing inventory data: It should automate inventory data using barcode readers and RFID tags in real-time and make up-to-date information available to everyone with access.

3. Picking, packing and shipping optimization: It should easily sort and print lists based on various criteria, such as bin location, order date, or SKU. It should determine the appropriate packaging type and quantity for each order and automatically generates shipping labels, price tags, logos, and other documents.

4. Optimizing the order and fulfillment processes: A WMS can help streamline them by regulating product flow. Picking robots can locate and deliver materials, reducing the need for manual labor. Conveyor systems can transfer items across the warehouse and directly to shipping

5. Real-time tracking of inventory data: Helps provide instant visibility into inventory levels to prevent stock outs or overstocking.

6. Deploying labor management systems: With easy clock-in and out systems, employees can track their hours and PTO. Managers can identify areas of improvement and allocate tasks efficiently using a simple warehouse management system.

7. Tracking and reporting business performance: WMS must provide customizable metrics, automatic revenue calculation, and integration with accounting platforms, to make informed data-driven decisions about their operations.

8. Understand and predict future demand: A modern WMS must help analyze operational data and make projections while considering potential disruptions. It prevents overstocking, product waste, and stockouts, prioritizing seasonal or high-volume products.

Quick tip: Keep a WMS functionality checklist handy to ensure you don’t overlook any critical functionalities.

The takeaway

A warehouse management system (WMS) is a game-changer for businesses dealing with inventory, storage, and distribution of goods.

With features like labor management, task assignment, and workflow optimization, a simple warehouse management system helps businesses achieve operational efficiency. Investing in a WMS not only improves customer satisfaction, but also gives businesses a competitive edge in the market to streamline their warehouse operations and thrive in a cutthroat market.

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