Warehouse management systems (WMS), originally designed to streamline the basic tasks involved in storing and moving goods in a warehouse, are now evolving into systems capable of dealing with a wide range of activities, many outside the warehouse itself, including transport management, accounting and order handling.
WMS systems, attached to wireless data collection systems, have provided more accurate counting and identification of goods in warehouses and improved order-handling, layout and space utilisation. But increasingly, they are required to contribute to the velocity and visibility of items in the extended supply chain by exchanging data with supply chain management and execution systems, often using Internet Protocol (IP) standards.
One of the key questions for WMS buyers is whether these extra functions should be part of the warehouse system itself or whether they are best provided by systems supporting wider supply chain execution processes such as enterprise resource planning (ERP) systems or supply chain execution systems. Many observers argue that the warehouse can no longer operate as a separate silo but must be part of overall enterprise processes because what happens in the warehouse is intimately related to the rest of the supply chain.
In retail, for example, where up to 60 per cent of supply chain costs can be in transport, it may sometimes be more cost effective to sacrifice best use of warehouse space for slow moving goods in favour of a cross docking solution for faster items that reduce transport costs. Trade offs such as this can only be made in the context of reducing the overall cost per unit delivery.
Simon Shorthose, vice president of sales and marketing in Europe for WMS supplier Catalyst is in no doubt. ‘The future is supply chain execution,’ he says. ‘The warehouse is a key part of execution in terms of managing labour picking effectively and so on. But business processes are where there is a big bang for the buck for companies. The warehouse must fit within these processes: it can’t be an island.’
Clothing company Colombia Sportswear whose European distribution centre is in Cambrai, in northern France regards its WMS as a key resource. The company is clear about how its ERP system fits in with the warehouse. ‘It is a question of who owns the pick ticket,’ says information systems manager Jean-Christophe Koral. ‘The ERP is used by the sales people to check credit and place orders to be processed by the warehouse. It provides a pool of pick tickets to be brought through into the WMS. When the WMS has dealt with the orders it must send information back to the ERP system.’ (see case study feature in the March issue).
The two way nature of the warehouse is underlined by another development, the emergence of reverse logistics as a factor in warehouse operations. European Union regulations on the disposal of obsolete electronic goods and other items such as fridges means that what was once a dusty part of the warehouse is now coming under the spotlight of the regulators.
‘The costs of providing auditability can be horrendous,’ warns Simon Fahie, sales director of RedPrairie. ‘These new regulations mean that a full and complete audit trail will be mandatory. For best-of-breed WMS, returns modules are available to manage the sorting, checking, quality control and repacking.’
One process that is gaining increasing traction in the logistics business is radio frequency identification (RFID). Major players such as Wal-Mart, Tesco, Metro and Marks & Spencer are now actively pushing the technology for supply chain applications. ‘Wal-Mart has been studying RFID for 10 years and they have made it clear they want to see compliance. The company has been holding one-to-one meetings with suppliers to ensure this,’ says Jeff Baum, senior vice president of international operations for Manhattan Associates.
Three million tags
Marks & Spencer has already completed a programme that involved placing three million tags from Texas Instruments over three years. This initial phase has been followed up with orders for a further million tags for additional food trays, dollies, flower boxes and other containers. High frequency smart label tags featuring Texas Instruments Tag-it RFID inlays are permanently embedded in over four million trays and containers of fresh food produce and flowers, allowing the crates to be tracked from suppliers right through the supply chain to the supermarket.
Early roadblocks to RFID such as restrictions on the radio frequencies available to equipment suppliers and the cost of the technology are less of an issue. Increasing numbers of RFID solutions are now coming onto the market. Manhattan Associates, for example, has produced a number of specific RFID products including middleware and a software package called RFID in a Box. The middleware (linking software) integrates RFID with automated handling equipment, ERP systems and supply chain execution systems.
There is still work to be done in ensuring a good fit between the data collection aspect of RFID and existing back office systems. The amount of data that can be collected by RFID systems is massive in comparison with other data collection systems. Setting up systems so that supply chain software is not overwhelmed by readings from RFID equipment will be an important part of successfully implementing the new technology.
Of course many warehouses in Europe are still managed with the aid of paper printouts and clipboards. ‘There are a huge number of companies still using manual picking lists,’ says Teresa Jones, senior research analyst with research company the Butler Group. ‘In many cases, particularly in wholesaling, managers do not see a need for much more than semi-automated management. There are some examples where automation has actually slowed down warehouses. But that is the exception – mostly there are huge efficiencies to be gained from sensible automation.’
Experts argue that implementing a WMS along with automated data collection gives warehouse operators higher accuracy, a reduction in labour costs (provided the labour required to maintain the system is less than the labour saved on the warehouse floor), and a greater ability to service customers by reducing cycle times.
The drinks industry is a good example of a business that has benefited from better warehouse management. Scotch whisky distillers have been able to get between four and five per cent more barrels on average in their warehouses over the last 12 years by reducing the number of empty spaces in each storage area. Better tracking of whisky during the lengthy maturation period has also reduced expensive losses of whisky on which tax is payable. And it has reduced errors in whisky making by ensuring that the correct whiskies are used during the blending processes.
Standardisation has also proved an important money spinner. Allied Domecq, one of the giants in the drinks industry, saved $1.5m by the simple expedient of replacing the five different warehouse management systems that it used around the world in its distilleries and wineries with a single system.
Not everyone is so bullish, however. ‘Expectations of inventory reduction and increased storage capacity are less likely [with WMS],’ maintains Dave Piasecki, of Inventory Operations Consulting. ‘While increased accuracy and efficiencies in the receiving process may reduce the level of safety stock required, the impact of this reduction will likely be negligible in overall inventory levels. The predominant factors that control inventory levels are lot sizing, lead times, and demand variability. It is unlikely that a WMS will have a significant impact on any of these factors.’
The increased demands being made of WMS make it imperative that systems can be readily integrated with one another. Not only does ease of integration keep costs down, but it is vital to a best of breed strategy in which customers select the most appropriate software for each application rather than buying all their software from a single supplier such as market leaders Oracle or SAP.
However, ERP has a greater and greater penetration in the market, according to Shorthose of Catalyst. ‘If an infrastructure is 80 per cent of an organisation’s business, and growing, then it is going to be difficult to fight.’
Catalyst is among the first WMS suppliers to comply with the Open Applications Group standard which is intended to improve interfaces between applications. ‘If at the end of the day you look at Oracle, for example, and, say, it doesn’t have slotting then with these standards we can plug in those elements.’
For RedPrairie’s Fahie best-of-breed still remains ahead of an ERP system. ‘At four o’clock in the morning you want to know you’ve got the experience and benefits of a battle hardened system. ERP may be alright when you are pushing cases around, but when it comes to value added systems there is still blue water between best-of-breed and ERP.’
Integration involving the production of customised interfaces can be an expensive element in supply chain software. WMS systems must be capable of interfacing with many different systems including data collection devices, EDI networks, other WMS products, supply chain systems and ERP packages. Despite the fact that most suppliers provide application programming interfaces, hooking a system up often calls for bespoke programming work.
‘State-of-the-art warehouse automation increasingly offers integration possibilities with other enterprise software, most notably ERP systems,’ says Clyde Bennett, supply chain specialist at Microsoft Business Solutions. ‘If viewed in isolation, opportunities for streamlining and integrating business processes throughout the enterprise may be missed. Indeed a further scenario for SMEs to consider in this area is the possibility of outsourcing all or some of their warehousing requirements.’
Although WMS tend to be used mostly by larger organisations, prices are coming down, broadening the potential market for warehouse automation. Suppliers are developing more affordable systems pitched at small and medium sized enterprises. Microsoft, for example, is promoting its .NET Web services software and XML as a cheap way of building warehouse applications. Wider use of WMS is also being promoted by key players in the supply chain looking for closer collaboration with business partners.
The price of buying a system is often less significant than the cost of running the software. Total cost of ownership is an increasingly important issue for value conscious logistics companies. Systems that require a large amount of consultancy time to integrate and maintain, or are difficult to master because they are complicated, add to ongoing costs.
Training and maintenance can be expensive when there is a high staff turnover and frequent changes in the way a warehouse is organised.
‘The biggest focus is on total cost of ownership,’ agrees Baum of Manhattan. ‘Users are looking for ease of use, ease of upgrades and ease of integration. Customers are moving to new ERP systems and adopting enterprise integration systems (EIS). We have set up an independent software vendor programme where people can integrate and develop their solutions with ours.’
Return on investment
The emphasis on return on investment has had a big affect on WMS software suppliers. Last year Logistics Europe predicted a period of consolidation in what is an extremely fragmented business. The very different warehousing requirements of individual industries combined with the natural conservatism of the logistics business have resulted in the development of a large number of niche WMS solutions.
Buffeted by rigorous trading conditions and demand from customers for more integrated software, many WMS suppliers have been struggling to maintain market share. Life for them has not been made any easier by the fact that many specialised features and functions can easily be accommodated in more sophisticated general purpose WMS packages. Rationalisation is now underway.
RedPrairie Corporation, for example, took over LIS in February. The company was quick to launch a new version of LIS’ main product – Dispatcher-WMS – with added functions such as product substitution, container replenishment and staging of pallets. The revamped system also included a beam management module that takes into account the widths of pallets and the available space on a beam.
The WMS company has also incorporated a customs system into Dispatcher after taking over Online Duty & Logistics, a specialist provider of solutions for customs and excise warehousing. Future releases of Dispatcher, says RedPrairie, will sport integration with the company’s existing modules, such as labour management and RFID applications.
Manhattan Associates has also been on the takeover trail, acquiring distributed order management software developer Avere, earlier this year. The company has also launched a joint venture with printing firm Printronix and Alien Technology, a supplier of RFID products, to develop a combined RFID application.
As supply chain automation evolves to provide higher levels of control and visibility WMS are rapidly becoming just one element in supply chain execution – part of a collaborative business process. Although there will undoubtedly be improvements in basic functions such as order picking, increasingly a WMS will be judged on its ability to support objectives shaped outside the walls of the warehouse.
Is this the future?
The WMS says there should be thirty items in the rack, but the order picker can only see twenty nine. It is the kind of problem that is difficult to resolve with today’s hardwired systems.
The design of most WMS systems revolves around a set of highly structured rules that dictate how the system should react in specific situations. Now a British company called Magenta has applied a new type of agent technology to warehouse systems that it claims makes them much more flexible and able to cope with changing circumstances.
Magenta has recently released The Network Designer and Scheduler products which attach very small programs called agents to individual parts of the logistics chain. The agents, which represent elements in the supply chain and their behaviour, interact with one another in real-time, to find the optimal solution to a logistical problem.
‘At the moment logistics operations are using software that is rigid and unable to deal with many constraints, which forces planners to perform elaborate work-arounds and increase the safety time for each delivery,’ says Magenta chief executive officer Jon Himoff.
‘Companies need a solution that not only simulates and plans for real world events, but also enables schedules to be adapted in real-time and automatically determines the optimal course of action in seconds rather than minutes or hours. Current batch-based, linear systems do not permit companies to do this.’
Developed by George Rzevski of Brunel University, Magenta’s agent technology has yet to be widely used, but Himoff is confident that it will be able to make the leap from the laboratory to the supply chain. This could be something worth looking out for.