What is a Warehouse Management System? [video]

A key element in the effective management of the warehouse is the Warehouse Management System. Another variant is the Inventory Management System. But, before I answer the question “What is a Warehouse Management System?”, let me first explain the role of the warehouse in the supply chain and what Lean Inventory Management is all about.

Why Have a Warehouse?

A warehouse is expensive, requires labor, capital, equipment, systems – all expensive. Moreover, we know that one of the 7 Wastes of Lean is inventory which is the primary occupant of the warehouse. Given all of this, why have a warehouse?

Here are a few main reasons why warehouses exist:

Match Supply with Customer Demand: Because demand can change quickly, having the appropriate level of merchandise ready to ship to the customer is a key ingredient in a good customer experience. In this case, the warehouse allows for quick and rapid response and acts as a buffer to the changing customer demand.
To Consolidate Product: In warehousing, the debate isn’t about one-piece flow versus batch, it’s really about what level of batch is appropriate. There is a fixed cost any time product is transported. To lessen the cost burden on the supplier, it often makes sense to fill the carrier to capacity. Because of this dynamic, consolidation of inventory has come into play and is a major strategy to reducing overall supply chain landed costs.
Provide Value Added Processing: In some situations, to differentiate in the market required adding some value added processing prior to selling merchandise to the customer. This might mean strategies such as creating kits of various pieces of inventory to create a sale-able product (known as kitting). An example of this is with bicycles: bicycles come in parts and are consolidated at a warehouse for assembly. The company then sells the bicycle whole, not in parts.

Types of Warehouses

I’ve spent a large portion of my career in fulfillment and distribution, primarily with online retail but also some in healthcare and consumer packaged goods. In general, here are the types of warehouses

Retail Distribution Center: This type of warehouse typically supplies product to retail stores, such as Wal-Mart or Target. The customer for this type of warehouse is the retail store.
Service Parts Distribution Center: This type of warehouse holds spare parts for expensive capital equipment, such as planes or other types of manufacturing. Toyota has a network of supply parts distribution centers where they supply automotive parts to the manufacturing plants.
Online Retail or eCommerce: This type of distribution center receives orders online, then those orders enter the pick, pack, ship process to the end customer.
3PL Warehouse: This type of warehouse is where a brick-and-mortar retailer of an online retailer outsource their warehouse operations. For example, Amazon.com often acts as a 3PL to large retailers, such as Target. In other words, if you purchase an item from Target.com, that inventory is actually housed in Amazon.com’s fullment centers and will be shipped from there. In this example, Amazon.com acts as a 3PL to Target.
Perishables Warehouse: Similar to the examples above, this type of warehouse holds food items or pharmaceutical items that have a short shelf life. This type of warehouse usually is part of a “cold chain” where temperature and other conditions that can impact the merchandise is closely monitored and controlled.