Breaking Down ERP & Warehouse Management Systems

4 min read

Tags: Blog, Industry news, Technology

Daniel Fritsch   February 22 2015


Lagerverwaltungssystem Arbeiter

Index

  1. Enterprise Resource Planning (ERP: Definition & Features
  2. Warehouse Management System (WMS: Definition & Features
  3. Why an ERP and WMS are not Enough to Optimize Inventory Levels

If you work in the supply chain management industry, it is important to understand the difference between Enterprise Resource Planning (ERP) systems and a Warehouse Management System (WMS).

Though many of today’s ERP systems have tightly integrated warehouse management systems, older legacy versions of ERP’s or homegrown systems have limited integration or access to a warehouse management system. Often times, having an ERP and a warehouse management system in place does not guarantee an optimized or efficient supply chain.

Many companies install a warehouse management system independent of their ERP to manage their warehouse activities. Unfortunately this practice leads to silos of data that create a great deal of complexity and confusion in the supply chain. Let’s take a deeper look into the differences between ERP’s and WMS’s to better understand what it is that each system does in the supply chain.

Enterprise Resource Planning (ERP): Definition & Features

ERP is business management software used by manufacturers and distributors. The term ERP has evolved over the last few decades and has become the parent description to other systems that fall under its banner such as Material Requirements Planning (MRP) or more commonly known as Manufacturing Resource Planning (MRP II). The concept of ERP has come to represent a larger whole that that extends beyond just managing manufactured goods.

Traditional ERP’s help companies focus on managing the following business activities:

  • Financials
  • Order processing, logistics
  • Sales, marketing, customer relationship management
  • Manufacturing processes & quality control
  • Service management
  • Budgeting & general forecasting
  • Human resources
  • Payroll

Specifically relating to the supply chain industry, most ERP’s are used to collect, store, manage and interpret data from the varying business units across the organization. ERP’s typically are on-premise solutions, which require a great deal of investment into hardware, software, IT system support and on-going maintenance costs to support system upgrades.

Even with the big price tags, ERP’s still lack critical functionality to support an optimized or lean inventory management process. Effectively managing lean inventory levels while maintaining high order fill rates is very difficult if not impossible with traditional ERP’s.

Warehouse Management System (WMS): Definition & Features

A warehouse management system is an inventory tracking software that aims to control the movement and storage of materials within a warehouse or multiple warehouse locations. A warehouse management system process the inbound/outbound transactions, including shipping, receiving, stock allocation, order picking and fulfillment.

A warehouse management system monitors the progress of products through the warehouse. Features of a warehouse management system includes:

  • Inventory location assignments
  • Order picking & fulfillment management
  • Warehouse capacity management
  • Radio Frequency (RF) capability for data management
  • Cross docking management
  • Put-away and picking optimization
  • ABC classification
  • Labor utilization

More precisely, warehouse management involves the receipt, storage and movement of goods, (normally finished goods), to intermediate storage locations within the warehouse. In the multi-echelon model for distribution, there may be multiple levels of warehouses where inventory is classified based on demand.

Worker scanning boxes in a warehouse management system

Even with all the advanced warehouse management capabilities listed above, a warehouse management system still lacks the ability to help inventory managers optimize the inventory levels of their warehouses. Excess stock and obsolete stock are still a very prevalent and expensive challenge for most warehouse managers. Similar to ERP’s, warehouse management systems are traditionally on-premise solutions that require a large up front cost to implement and require ongoing maintenance to the systems infrastructure.

Why an ERP and WMS are not Enough to Optimize Inventory Levels

Even with advanced ERP and WMS integration in place, most business that carry large quantities of inventory do not have optimized stock levels. For instance an ERP is great at reordering minimum and maximum order levels based on the preferred supplier in the system.

The big issue is that Min and Max reordering practices do not typically take into consideration dynamic customer demand for each individual SKU in the warehouse and order quantities typically result in over or under ordering situations.

Alternatively, seasonality of products and other variable inputs to demand are largely ignored which leads to poor demand forecasting methods for inventory planners.

Inventory managers are often stuck with large quantities of excess stock that costs the business money or they run into issues where the maximum reorder quantity didn’t have enough safety stock, which resulted in backorders and lost sales.

Inventory optimization solutions, like EazyStock, are cloud-based which means they do not require expensive infrastructures or maintenance costs. Additionally, optimization solutions can help inventory managers more intelligently manage inventory across their supply chain to systematically lower inventory levels and costs.

  • Easily identify and reduce excess stock levels
  • Locate obsolete inventory to remove from your warehouses
  • Automatically calculate dynamic demand forecasts
  • Automatically calculate optimized order levels for replenishment
  • Analyze historical demand for every SKU across your network of warehouses
  • Reduce carrying costs of unnecessary inventory by upwards of 30%

To get a deeper look into the ERP market in the US – including an overview of the most common ERPs, market analysis, and pros and cons of ERPs – click the link below to download your free copy of our white paper and become an ERP pro!

 


White Paper Guide to ERP Systems