Warehouse Management Systems: Pie in the Sky or Floating Bakery?Part Two: The Pareto Principle, Processes, and People: Assessing Your Warehouse Management System Needs

  • Written By: Rene Jones
  • Published: October 1 2004


After understanding the myths behind the claims of "huge staff reductions", "quick and easy implementation", and the "fast and big" return on investment, you need to know what type of features and functionality you should look for in a warehouse management system. The "bells and whistles" of a system might look enticing, but what you ultimately need to do is determine your own needs. Using the Pareto Principle, where a minority of inputs yields the majority results, evaluating processes and personnel, and testing can help you assess what your needs are in a warehouse management system.

This is Part Two of a two-part series.

Part one described the popular myths of warehouse management systems.

Part Two will describe how to assess your current warehouse processes to find the best system that meets your needs.

Applying the Pareto Principle to WMS

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country. He observed that 20 percent of the people owned 80 percent of the wealth. While gardening, he observed that 20 percent of his peapods yielded 80 percent of the peas that were harvested. We now know that a minority of input produces the majority of the results. Twenty percent of your customers produce 80 percent of your revenue and 20 percent of your vendors are responsible for 80 percent of your receipts. Twenty percent of your product is shipped on 80 percent of your orders, and 20 percent of your software will run 80 percent of the company!

To determine what 20 percent you need to get the biggest return the fastest, take a blank sheet of paper and write down the top 20 percent of your customers who produce 80 percent of your revenue. Look back at their accounts five years ago and see what they were doing then that they aren't doing now. Or, what they weren't doing then that they are doing now. Next, talk to those customers and see what their requirements will be five years from now. Obviously no one has a crystal ball, but your customers have to plan for the future just like you do. Get these customers intimately involved from the beginning of the process because your future is determined by how well you manage their accounts. Any disruption of service will warrant an unhappy buyer to "jump ship" when you are early in your project. If too many do, then you will feel the system is causing the company to lose money and you will think about scrapping the system. You have to have buy-in from your biggest customers because ultimately you are trying to service those customers better than the competition.

Evaluate Your Processes and Personnel

In addition to uncovering your top twenty percent, you should also evaluate your processes and personnel.

  1. Get some more blank sheets of paper, write the name of each of your processes on top and document how they work. Include all processes such as receiving, picking, putaway, inventory control, will call, order entry, purchasing, and even processes that seem remotely connected to the warehouse, such as accounts payable. Most people wonder what accounts payable has to do with a warehouse management system until I tell them this story.

    I remember implementing a system for a customer who was upset that his inventory was inaccurate. He could not understand why things were being received in the morning and lost in the afternoon. After further investigation, we found that the warehouse was not completing a day's-work-in-a-day. Simply put, "What comes in today is completely processed today" was not being done. So, a delivery company would drop merchandise off on Tuesday; the merchandise was inspected on Wednesday, then it was entered into the system on Thursday—that was if things were going well! This meant that sometimes the invoice would arrive from the vendor prior to the product being received.

    Well, accounts payable (AP) knew how poorly the warehouse was operating, so instead of having the warehouse personnel look for the product, they would simply ask the vendor for proof-of-delivery (POD). Once they got the POD from the vendor, AP would receive the product themselves. You know all of the problems this caused: inaccurate inventory, orders not being filled properly, backorders being generated but the product not be found, etc. However AP was really upset that they were losing percentage points on their invoices because the warehouse took so long to receive merchandise. By implementing a day's-work-in-a-day strategy, we received all vendor discounts and eliminated the AP department from performing tasks that should be performed by warehouse personnel.

    Once you document how these processes work, ask your people to come to the conference room and explain all of the reasons why they don't follow the processes the way they are documented. You are going to find out some interesting things about your processes, your customers, your vendors, and your people.

  2. Take your new processes with all of the variables and reduce them down to their simplest form—do this with the help of your people "in the trenches," of course—then show this and let your people tell you why these new processes won't work. Once you have modified the processes again, let your people know there is now only one way to perform these processes. Understand that with an automated system there is the right way and the wrong way. There is no longer ten different ways to pick an order because you have ten order pickers.

  3. Train all of your people on the right way and hold them accountable. Yes, I am saying to retrain your people on the new manual processes prior to selecting a system. Many people think this is a waste of time since the processes will be changing, again but the reason for this step is twofold:

    It instills discipline and allows you to evaluate your people's ability to change and follow new instructions.

    It allows your people to begin accepting that the organization is going through a process of improvement. You'll be able to slowly step through the idea of change before you try to implement radical change.

  4. Put dollar values on what each process is currently costing the organization. If a picker can pick 50 orders an hour, and the hourly rate is $15.00, then each order costs $0.30 cents to pick. That does not include the cost to have it packed or the cost of the packaging material, nor does it include the customer service personnel who process the order over the phone. Perform this process with every function in your building, and especially in your warehouse. Now benchmark your findings with other company's in your industry. Should your pickers be picking 75 orders per hour and should they be making $17.00 per hour? Or, are your pickers the highest paid and the fastest in the industry? Do you currently have too many people in your warehouse to process the amount of transactions you have? You have to know these things in order to talk intelligently about true ROI. If you are about to invest several thousands of dollars in a system, you have to know at which point it is going to be worth it.

  5. Certify your vendors. Make sure you compare apples to apples. Don't just purchase a system because it has the most bells and whistles or because of the price. You have to purchase the system that will meet your current needs and future requirements. The only way to do this is by completing the first four steps. Your potential vendors will bombard you with all kinds of data about their product and how it is perfect for your company. You have to sift through the minutiae and determine what is best for you and your company. It is not a race to get the system purchased fast! Remember you are purchasing a relationship that will last for many years and you have to make sure that relationship is based on a solid foundation and not on the company with the best sales representative and marketing material.

  6. Evaluate your personnel. This is crucial. If you find your people are underpaid, why is that? Is it because you don't think they are capable of being cross-trained and are therefore paying them accordingly? Or is it because you have not taken a good, hard look at the salaries in your warehouse in a long time? Whatever the reason, understand these are the people that will be running this more complex automated warehouse. If they do not have the skill sets that are required in the future and are not capable of learning your new system, will it be the vendor's fault or the company's fault when you experience problems? I have seen many examples where people were perfect on a manual system but as soon as an RF device was placed in their hands, it was too much for them to handle. Someone that is a receiver in your manual warehouse may end up being a picker in your automated warehouse. Now if they were getting paid receiver money what do you do?

    In a lot of cases, people who have worked with a company for several years could tell you everything you would ever want to know about the current placement of the product, the current pick ticket, the customer demands, the vendors, etc. But when the new system took over and instructed them to put the product in a place that did not make sense to them, they put it where they thought it should go. Now they are overriding millions of dollars in brain power, not just a new system they don't like. You have to evaluate the current skill level in your warehouse personnel and begin cross-training them in several different positions. Also determine your warehouse personnel needs, such as multilingual systems. This way you can make the skills of the warehouse personnel and the brainpower of the system work together for an efficient warehouse.

  7. Evaluate your warehouse supervisor. Speak with companies that have implemented a similar system and see what duties changed with the warehouse supervisor. I have yet to go to a company, which is in the process of implementing a WMS system, that is happy with its warehouse supervisor. Companies assume the system is going to handle a lot of the duties that are not being handled by the supervisor. This is not the case! Your warehouse supervisor has to be ready for all of the issues that arise from this new software. Issues such as customers not being happy that their orders that are stuck "in the gun" (RF device); people not following the system, and creating workarounds; customer service personnel leaving their seats to pick orders themselves because the productivity in the warehouse is now at an all time low; and people leaving because they think the new system is really bad. You have to make sure your warehouse supervisor is up to speed and with the company as it changes.

  8. Organize your warehouse! The foundation of a WMS system is organization. Everything has a place and everything must be in its place for the system to work properly. If you are having problems keeping your warehouse clean now, don't think a million dollar WMS system is going to clean it for you. You warehouse supervisor is the catalyst for a successful implementation and that begins with a clean and organized warehouse. Your people must understand the magnitude of this or you will fall flat on your face. Everything you do after the implementation will be based on the locations of the product. If product is put away to wrong locations, you will have problems with picking. If product is not put away properly, the efficiencies you were expecting will not be recognized because your pickers will not be utilizing the designated pick path. How well you perform this step will determine how fast your ROI is received.

  9. Market the new system. Your people do not fear change; they fear the "unknown." Most organizations make decisions in the conference room and assume the middle-level managers are communicating the information down the pipeline. Some do, but most don't. By the time it gets to the people, what is communicated is "automate and eliminate!" This means, you begin losing people you can't afford to lose and normally your better people will pick the system up the fastest. This risk can be eliminated by marketing the system just like you would a new product. Tell your people:

    a. Why the system will be purchased and implemented. Explain what problems you are expecting to eliminate.

    b. When you are planning on going live with the system. Don't be afraid of missing a highly published date. Your people will respect the fact that a date was set and communicated.

    c. Who will be involved and why. They need to know there are key points of contact for questions. They will filter all of their concerns through these people and myths can be dispelled by someone they respect, not just the person that is being paid to say the right things.

    d. How it will affect what they are currently doing. Remove the unknown! People assume some of the craziest things only because the mind is so remarkable. If you don't connect the dots for them, they will connect the dots themselves and who knows what picture is being formed in their minds?

    By purposefully making this information known, you will be putting minds at ease—minds that can better focus on the new task ahead of learning and maximizing the benefits of the new system.

  10. Train your people. Nothing you do will be more important than training your people. Select "super users." These aren't just the people who pick the system up the fastest, but the people who understand the system and can articulate it to other employees. Because they are the people everyone will go to when they have a problem, you want to make sure you designate someone based on these skills, not just the someone who thinks this is a cinch.

  11. Document your processes. This means your new processes! Your people need to see in writing what they are to do for every problem and in every scenario. This will prevent multiple versions of the same process. Your "super users" need guidance and the documentation will give it to them. Without adequate documentation, you will end up doing things wrong faster.

  12. "Test! Test! Test!" This is probably the second most laborious part behind the documentation process. Test your interface, processes, modifications, and your assumptions. The conference room pilot is good, but what assumptions have you made about the system that you now find are not true? I have seen WMS clients scream and yell at a software vendor about something that was assumed. It is the user's responsibility to identify the assumptions and remove them from the process. If you do not have a documented testing strategy, you will uncover issues after you go-live. I compare most software companies to the dentist! Just like a dentist, software companies know you don't want to see them because that implies there is a problem. You also know their solution is going to be painful, and the bad thing is their solution is not just a one time pain. A WMS implementation will cause you pain for months and even years to come. Testing will eliminate some of the pain. You have to provide your people, your company, and your vendor the best opportunity to succeed. If you do not thoroughly test your system, your processes, and your assumptions, you will suffer like you have never suffered before. Think about the car analogy again. Once you pick a vehicle you like, don't you take it on a test drive? Of course you do!

    Here are a few keys to testing your new system:

    a. Document all your processes and system enhancements.

    b. Document all the answers to your questions and issues. These are the issues you asked in the conference room that you were told worked a certain way.

    c. Have your vendor provide you with notes from all of your discussions about the system. This will give you the opportunity to see if they are keeping good records before you go live. It is a "red flag" if they do not have any.

    d. Keep accurate records of what you test. You want to make sure you don't miss something because it did not work correctly. If you test your system and it fails, it needs to be retested.

Getting Your Pie when Selecting and Implementing a WMS System

You and only you know all of the intricacies of your organization. However, bringing in a consultant to help answer some of the questions and separate fiction from fact is always a good idea. It can allow you to separate the fiction from the fact. Pay for the experiences you don't have and it will save you a lot of money in the end. Also, use the consultants you have within your organization: Use "your people." They are the ones that will either make your new system work or not work; therefore their brain power should be utilized from the beginning.

If you have a consultant, vendor, or customer telling you something you don't think is possible, get a second opinion. Just like major surgery, you would never go under the knife until several other doctors have told you it is absolutely necessary. Get as many opinions as you feel comfortable with, but in the end remember you are ultimately responsible for the decision you made, so make it work and don't look back!

This is Part Two of a two-part series.

Part one described the popular myths of warehouse management systems.

Part Two described how to assess your current warehouse processes to find the best system that meets your needs.

About the Author

Rene Jones was the founder of Total Logistics Solutions, Inc. (www.logisticsociety.com) a warehouse efficiency company. He is now the President and CEO of AHN Corporation (www.ahninc.com) a warehouse management solutions provider. With over eighteen years of experience in training, warehousing, and logistics he has used his knowledge to assist and turnaround small and large companies alike, making them more efficient and profitable. He has been published in several industry magazines and is the author of, This Place Sucks (What Your Warehouse Employees Think About Your Company and How to Change Their Perceptions!) and Warehouse 101 (A Complete Guide to Operating Your Warehouse). Jones can be reached by phone at (818) 353-2962 or by e-mail at rene.jones@ahninc.com.

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