Avectous > Private: News/Blog > Technology > ERP Versus Warehouse Management System(WMS)

ERP Versus Warehouse Management System(WMS)

4 years ago
Rita K

I’ve got Enterprise Resource Planning (ERP) software, why do I need Warehouse Management Software (WMS)?

An ERP either offers a suite of functions (accounting, order management, human resources, customer maintenance, sales tracking, etc.) that are integrated into a single package, or acts as a “coordinator” to integrate modules that are not internal to the ERP.  An ERP typically uses a single data base to support all of these functional activities, which means (hopefully …) that everybody in the organization is using the same, real-time data when conducting business and making decisions.  A good ERP also helps to generate reports and dashboards, so that employees and executives can see trends developing and make planning decisions confidently.  An ERP should also ensure that data flows seamlessly and automatically between functions, such as sales and accounting, without duplicate data entry.

Clearly, an ERP is an excellent tool to help a business operate efficiently, knowledgeably and predictably.

But, it is not enough.

Screen Shot 2016-02-01 at 11.29.00 AM

Most ERP systems evolved from accounting software and suffer from a functional bias towards financial systems.  One common problem results from the greatest strength of an ERP – specifically that using a single data repository results in too much data being manipulated between functions (e.g., accounting to sales) causing the system to bog down.  Another problem with many ERPs is that they are written in somewhat antiquated software coding language, making it hard to integrate with peripheral software that is written in newer coding language.  Where the ERP does not offer certain desired functionality, the cost to integrate the ERP to a new platform can be prohibitive and the time delay significant.

Screen Shot 2016-02-01 at 11.43.24 AM

Another example of potential problems caused by using a single data repository for multiple functions is the integration of a complex and robust WMS with the ERP.  Inventory transactions reflect a host of activities and information, including order (incoming and outgoing) lines, picking and shipping activities, location information (actual and virtual), quantities, equipment requirements, space planning, receiving planning, QC segregation, release-to-sales authorizations, etc.  Most ERPs are designed to have complete access to all of the data in the data repository, while an excellent WMS is designed to move data in and out of the data repository only as required to a particular function.  This speeds data access and prevents the system from bogging down.

The structural advantages of the data architecture of an excellent WMS are only a small part of the broader benefit of a separate WMS.

Many ERPs offer an inventory, or warehouse module.  These are typically “warehouse-light” applications.  An ERP that developed from an accounting perspective often manages the quantity and value of inventory, but fails to adequately manage receiving anticipation, dock processes, QC segregation, “release-to-sales” functions, virtual and actual inventory locations, putaway, inventory storage, FIFO / LIFO considerations, lot tracking, regulatory requirements (e.g., FDA controls), picking, packing, packaging configuration, shipping integration and tracking information, customer notifications and integration of critical status updates to customer service personnel.

A small, unsophisticated business can probably get by with the warehouse functionality of an ERP.  But, if your business is a bit larger, or wants to become larger, the acquisition of a superior WMS is critical to your success.

It’s interesting to track the software acquisition decisions based on who made the decision.  CFOs tend to be satisfied with the functionality of an ERP-based inventory function.  Conversely, company owners and CEOs tend to prefer stand-alone WMS systems.  This is not surprising.  Most company owners and CEO’s came through the ranks (either by growing the company from its inception, or working their way up through positions of increasing responsibility in the organization) and understand the critical importance of accurate and timely inventory information.

It’s a bit surprising that CFOs aren’t more frequently advocates for stand-alone WMS systems.  It is critical for inventory financing to have inventory accuracy sufficient to give lenders confidence in annual inventory audits.  Advance rates and inventory valuations are typically improved when the borrower can demonstrate superior accuracy of information for lender’s auditors.

Moreover, it cannot be overemphasized how important this is in the case of a sale of the business.  Any merger and acquisition attorney will tell you that the most common post-acquisition litigation relates to the accuracy of inventory information provided to the buyer.  It is no exaggeration to state that a best-of-breed WMS can pay for itself in avoiding inventory-based litigation after the sale of a business.

Of course, where a company has a Chief Information Officer (CIO) that person will be in the mix and will be looking at the technical sophistication of the solutions considered.  A truly excellent CIO will either learn about the business challenges, or involve personnel with that knowledge before making a decision.  It is obvious that a decision based on technology without a deep and intuitive understanding of the processes being controlled by any software solution is a recipe for disaster.  Nothing against CIOs, but it is imperative to have several warehouse and fulfillment disciplines participating in the decision of whether to go with the WMS module of an ERP, or implement a stand-alone WMS.  Along with the CIO and the CFO, personnel with warehouse experience, as well as shipping, receiving purchasing planning, customer service and sales should all weigh in on this important decision.  This multi-disciplinary team must create clearly defined long term business and performance goals and consider the cost of implementation and integration of the new WMS.  A comprehensive evaluation of current processes, future process improvement and the business justification for these must be created.  The questions are simple – what are we trying to improve, what improvements do we believe we need and what will the positive and negative consequences of these changes be?  The questions are simple.  The answers are devilishly difficult.

When answering these very challenging questions, it is impossible to come to good decisions without understanding the capacity and limitations of the solutions under consideration.  For example, an ERP that has evolved from financial-based software will be “transaction based,” and will assume a regularity of process.  That is a severe limitation in a business with more flexible processes and frequent changes in priorities and objectives.  Internet retailers, for example, are in a constant state of flux, responding to market opportunities and demands.  For companies like these, a stand-alone WMS is almost always a preferable alternative to an inventory module in the ERP.

Additionally, the ERP inventory modules are almost always “calculators,” maintaining inventory quantities, without a flexible and effective way to track locations, requirements and volume metrics.  A superior stand-alone WMS will perform these tasks far more effectively.

Where do you find a robust, fully functional WMS solution?