Why is an ERP system alone not enough for warehouse management?

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Piotr Susz

Piotr Susz

Why is an ERP system alone not enough for warehouse management?

It is hard to imagine today a modern warehouse that would not be equipped with a number of tools to support its management. Companies face the dilemma of whether it is necessary to use software dedicated to managing particular logistics processes or whether an ERP system alone is sufficient.

Because an ERP system is usually the first system implemented in an enterprise, it is seen as an all-purpose system. It carries out both financial and accounting operations as well as warehouse operations. In addition, it is often the only database. At an early stage of the company’s development, this is justified, mainly for economic reasons. Regardless of the sector, if the customer and/or product base grows, there is a need to manage individual activities in a more complex way.

As far as warehouse management is concerned, the first choice program is the WMS system. This software is entirely dedicated to warehouse management and can take logistics to a completely different level.

Main differences between ERP and WMS

State of indices with total quantity, sometimes assigned to storage sectors Full knowledge of the quantity of a given index. Total, per location, in transit, in warehouse
Products with prices and their history No price support
History of sales History of physical movements of goods
History of purchases History of receipts
ABC analysis (analysis aimed at selecting the most profitable indices) XYZ analysis (analysis aimed at selecting the most rotating indexes)
Full data on company assets Full data on products and consumables
Forecasting of purchases Estimation of occupancy of individual locations
Unlimited size and quantity of products Input of real available areas for use
Full database of suppliers, co-workers and customers Data only for deliveries and orders in progress
Possible inventory of company assets Possible inventory of goods and other recorded material


Example of a poorly selected solution for managing warehouse processes (e-commerce).

The company obtained additional capital from an external entity and therefore decided to take action in the following order:

– Relocated the existing warehouse to a new, much larger facility

– Intensified the purchase from existing suppliers and significantly expanded the offer of the online store

– A new ERP system was launched in which both financial and accounting activities as well as warehouse operations were performed

– An advertising campaign has been launched on the Internet

– The implementation of the WMS class system is planned for  next year, after the seasonal peak, which for this industry lasts about three months, at the turn of spring and summer

– The analysis of logistic processes in terms of cost optimisation and WMS implementation has been started

During the analysis conducted for the company by an external entity, a number of risks associated with the organisation of logistic processes using an ERP system were identified. Key limitations have been identified:

– No history of warehouse movements in one database

– Lack of functionalities dedicated strictly to warehousing in the selected ERP system

– Lack of support for scanners

– Lack of dynamic management of goods rotation (the original arrangement according to sales history is becoming more irrelevant every day and ceases to serve as a process optimiser

– MOP cannot be used both in the variant of picking the sum of indices and their deconsolidation for orders in the packaging zone and in the variant of picking several orders at once

– Lack of automatic stock replenishment functionality

– No suggestions concerning the methods of picking and packing based on the dimensions of the products (suggestion of the number of carriers per order, size of packing cartons, automatic calculation of the required number of waybills)

Final conclusion of the study

Handling the upcoming sales peak with the use of ERP is very risky, it may generate significant costs related to the need to employ additional 10 20 FTEs (increase from 50% to 100%), as well as image losses among customers (unfulfilled orders, errors). In order to avoid these risks, and in view of the short period of time (approaching peak season), the following was recommended:

– Changing the order of activities and minimising losses in the upcoming season

– Change consisting in focusing first of all on the currently implemented processes and WMS implementation

– Minimising losses by employing 20% more FTEs, blocking all advertising and maintaining a 100% fulfillment rate for orders placed

The company did not decide to change the order of planned activities, whereas the advertising expenditures were reduced just before the beginning of the season (previously they had significantly increased the number of visits and orders). The result was a 55% increase in employment during the season and a 40% fulfillment rate for same day orders. The consequences were as follows:

– extended delivery time to the customer from 24 hours to 5 working days

– loss of part of orders not delivered on time

– increase in the number of returns and failed deliveries

– significant reduction in YOY profitability

Why the company did not succeed in handling the peak time?

In the above example, the company should change the order of activities related to business development. First of all, it should focus on the analysis of the processes necessary to achieve the assumed objectives. Then implement the WMS system and optimise the warehouse processes listed as key constraints after analysis. Particular attention should be paid to MOP and full support for all warehouse processes. And finally, at the very end, launch an advertising campaign and expand the warehouse offer.

It is rare for a company starting its business activity, which involves the storage of products, semi-finished products or raw materials, to be able to predict the level of development of its own logistics within the next few years. On the other hand, in logistics practice we often encounter companies which did not have the knowledge, experience or are focused only on economic factors when choosing a WMS system or WMS module within an ERP system. In such cases, when developing their own logistics (e.g. cost optimisation, automation, flow analysis), they are forced to search for more complex systems. The change of a key system for a warehouse, such as WMS, is associated primarily with:

– High cost of purchasing new software

– Time-consuming analysis before implementation

– Determining and removing critical connections between the ERP system and the old WMS system/module and their migration to the new solution

– Most often implementation in stages during weekends or during breaks in commercial activities

– Review and change of the physical structure of the warehouse (markings, arrangement of racks/shelves/storage areas, replacement of scanners, printers, networks, etc.)

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