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Who Needs Warehousing Management and How Much Thereof?

Written By: Predrag Jakovljevic
Published On: August 30 2005

Who Needs Warehousing and How Much Thereof?

The warehouse is no longer merely a static storage facility. It now has to use virtually real-time data to closely match supply to demand, eliminate the need to hold excess inventory, and increase the flow of goods throughout the supply chain. Therefore, because broader supply chain execution (SCE) software (with warehouse management at its core) can handle these complex requirements, postponing many light manufacturing operations (e.g., final assembly, customized packing, labeling, engraving, etc.) from shop floors to warehouses and distribution centers (DC) has become a trend. Having a warehouse management system (WMS) package plays a key role in a company's postponement strategy to delay the customization of products until after the products, or a set of common components, have left the manufacturing plant. The strategy starts with the introduction an advanced kitting capability to a WMS product. Related to this is the order penetration point as the key variable in a logistics configuration.

Introducing an advanced kitting capability is the apt answer from some best-of-breed WMS providers to help customers reduce the costs associated with their supply chains, where one of the most significant facilitators is manufacturing postponement. Kitting helps because it allows enterprises to keep their products in a more generic state as late in the process as possible. Accordingly, an advanced kitting capability allows users to have generic products assembled ahead of time with the option to assemble and configure them "to order," based on last minute customer requests, which should keep inventory levels lower and increase material velocity. In turn, this overall reduction in inventory reduces costs within the supply chain, and the better service provides a higher level of customer satisfaction.

During these days of careful cash flow and asset management, more and more manufacturers are attempting to get rid of unnecessary inventory, and the best place to start is with finished goods inventory. Indeed, postponement allows manufacturers to limit their finished goods inventory by postponing production of the final product as long as possible, ideally until the order is in hand, and then it is shipped out immediately.

Namely, if one can build sub-components generically and harness a WMS that can take an order and explode it into a bill of materials (BOM), with the components being the generic stock-keeping units (SKU), pick the components of the exploded BOM, deliver it to a kitting station, and then have it assembled for final distribution, a very effective method of mass customization and inventory reduction for the manufacturer results.

Consequently, the need for these light manufacturing activities in warehouses rather than on the shop floor has forced WMS vendors to include more functions in their packages. Previously these functions would have been considered manufacturing functionality, such as BOMs creation for kits, assembly work plan and instructions, kit assembly user dialogs, kit-to-stock, kit-to-order, de-kitting, special packaging/labeling, accessories (non-stock items) processing, and reporting of completions against manufacturing steps, so that the enterprises can postpone the production of their finished goods and decrease their own costs.

Products such as cans or bags of food, boxes of cigarettes or candies, bottles of pills or drinks, or luxury watches and giftware usually have multiple packaging configurations or labeling requirements. From an inventory management point of view, each of those different packaging configurations or labels is a separate SKU and a separate unit of finished goods inventory. But if the underlying basic product is the same for all those configurations, a manufacturer could postpone the customization by producing the generic product, and performing the final packaging and labeling as orders are taken and shipped.

By doing this, they also avoid the need to forecast what the individual demands will be for each SKU, but rather to forecast the aggregate demand for all the unfinished generic products (i.e., product families or sub-assemblies), where the margin of forecast error is usually much lower. As a result, there are fewer deviations from forecasts and the manufacturer does not run the risk of accumulating excess or obsolete inventory of any of those packaging configurations.

Related to this is the order penetration point as the key variable in a logistics configuration, which is the point (in time) at which a product becomes earmarked for a particular customer. Downstream from this point, the system is driven by customer orders; upstream processes are driven by forecasts and plans.

The benefits of using manufacturing postponement to achieve mass customization vary by industry, manufacturer, and the product nature, but in general, any business that has an inverted (V-shape) BOM (a small number of raw materials, a slightly larger number of semi-finished products, and a very large number of finished product configurations based on customers' preferences) will probably achieve worthwhile benefits. Industries such as consumer packaged goods (CPG), retail, and high-tech/electronics would be good postponement candidates.

This is Part One of a two-part note.

Part Two will discuss the extension to yard management, present a competitive analysis, and challenges.

Typical WMS Solution

WMS applications traditionally automate activities falling within the four walls of a warehouse, such as receiving, put-away, serialization, picking, packing, and shipping. The software market for WMS has consequently become more and more competitive as the technology has evolved to address the lion's share of customer requirements, such as more intricate advanced shipping notice (ASN)/radio frequency (RF) receiving, lot/expiration control, location/carton selection, wave building, labor planning, advanced kitting, wave templates, material selection, compliance labeling, picking/packing, cluster/batch picking, serial number capture, catch-weight capture, cycle counting, task management, replenishment, container tracking, cross docking, report generation, shipping paperwork, automated rule checking, carton selection, etc. Like any software technology that has been reaching a plateau in the maturation curve, WMS products have evolved to a point where there is little differentiation among them.

To put this in a greater context, a typical WMS solution integrates work performed within warehouses and DCs with a transactional-type enterprise system. The simple storage and retrieval of inventory is superseded by strategies to increase throughput and productivity by managing a full range of warehouse resources to effectively manage common warehouse business processes and direct warehouse activities. These would entail the following:

  • receiving the function encompassing the physical receipt of material, the inspection of the shipment for conformance with the purchase order [i.e., quantity and damage], the identification and delivery to destination, and the preparation of receiving reports

  • put-away which means removing the material from the dock (or other location of receipt), transporting the material to a storage area, placing that material in a staging area and then moving it to a specific location, and recording the movement and identification of the location where the material has been placed

  • order picking selecting or "picking" the required quantity of specific products for movement to a packaging area (usually in response to one or more shipping orders) and documenting that the material was moved from one location to shipping

  • staging and consolidated shipping physically moving material from the packing area to a staging area, based on a prescribed set of instructions related to a particular outbound vehicle or delivery route, often for shipment consolidation purposes

  • inventory cycle counting an inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. A cycle inventory count is usually taken on a regular, defined basis (often more frequently for high-value or fast-moving items and less frequently for low-value or slow-moving items). Most effective cycle counting systems require the counting of a certain number of items every workday with each item counted at a prescribed frequency. The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors.

Most WMS systems also support radio frequency (RF) communications, allowing near real-time data transfer between the system and warehouse personnel. These systems aim at maximizing space and minimizing material handling by automating put-away processes. It also uses enhanced picking strategies aimed at speeding product movement by determining the most efficient route. Sophisticated techniques such as cross-docking or flow-through distribution further allow products with short life cycles to move immediately to shipping. For instance, cross-docking or direct loading is the concept of packing products on the incoming shipments so that they can be easily sorted at intermediate warehouses or for outgoing shipments based on the final destination. In other words, parts are sent from receiving directly to shipping to be placed in outgoing orders, whereby the items are carried from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in inventory at the warehouse. Cross-docking reduces inventory investment and storage space requirements, as it allows orders to be filled quickly and precludes parts from staying in a warehouse long enough to be counted as inventory.

Wave picking is a method of selecting and sequencing picking lists to minimize the waiting time of the delivered material. Shipping orders may be picked in waves combined by common carrier or destination, and manufacturing orders picked in waves related to work centers. An analogous, efficient process (in reverse) can be seen for goods' reception, whereby the interleaving principle optimizes the use of forklifts (a forklift with a new pallet from production will go to a put-away place, to be then instructed to pick the new pallet for dispatch). Each originating production unit typically enters its upcoming shipments into the system, and generates the label with a bar code, so that the warehouse can automatically receive the item. This information is processed to generate a work list for a truck to take the goods to the storage area. Fast-moving items are automatically assigned to more accessible lower levels to allow faster picking, while slower-moving products are assigned to higher levels. To oversee and manage this involved warehousing operation, warehousing staff should be able to extract daily, weekly, and monthly reports as needed.

Ease of Configuration and Control

Users should also be able to configure these systems using set-up screens that prompt for descriptions of the factory or warehouse floor and the rules they want to govern material movement and worker activity. The systems can determine what job each worker should do next and detail the best way to do it. For example, the system can be configured to direct a worker to the oldest product first, or the system can be directed to the location with the least quantity remaining and clean it out before picking from other locations.

To that end, zone picking or batch order picking is a method of subdividing a picking list by areas within a storeroom for more efficient and rapid order picking. A zone-picked order must be grouped to a single location before delivery or must be delivered to different locations, such as work centers. Packing and marking would entail the activities of packing for safe shipping and unitizing one or more items of an order, placing them into an appropriate container, and marking and labeling the container with customer shipping destination data, as well as other information that may be required.

Rationing is the allocation of product among many conflicting consumers' orders. When, for example, price is used to allocate product, it is allocated to those willing to pay the most.

Other differentiating capabilities within WMS-related functionality include dynamic re-slotting, i.e., determining the optimal slot size and place for any SKU based on data such as demand, (whether it is a fast or slow-moving item), product groupings and physical characteristics, to also keep picking operations running smoothly despite frequent promotions and changes to the product mix. Doing this manually is almost impossible in environments where hundreds of SKUs get added or deleted every week. Thus, a solid WMS solution should be able to review a few weeks history of shipping and outbound orders, and then accordingly set up forward picks for faster moving products and vice versa for slower-moving products.

In other words, a dynamic slotting-enabled product continually evaluates the popularity of items in a DC or warehouse, by looking at its history, the number of orders, forecasts etc. It then makes sure that the items picked the most often are rotated to positions closer to the dock doors. As items lose favor due to seasonality or other reason, they are placed continually farther from the dock doors. Zone and location configuration are thereby automatically configured by product line.

The automated re-slotting execution can be run daily, weekly, or monthly, while users might have a rich graphical slotting representation on the screen. Having faster moving items closer to the dock doors reduces the travel time required to pick those items and increases the productivity of the labor force. Thus, automating the re-slotting process should allow for continual optimization, rather than relying on staff to notice that an item is not moving as quickly.

WMS applications traditionally automate activities that fall within the four walls of a warehouse, such as receiving, put-away, serialization, picking, packing, and shipping. These systems might occasionally have to work in conjunction with an automated guided vehicle system (AGVS), which is a transportation network that automatically routes one or more material handling devices, such as carts or pallet trucks, and positions them at predetermined destinations without operator intervention. Consequently, some best-of-breed SCE providers differentiate themselves based on their knowledge of material handling and, to that end, also sell WMS that control material handling equipment as a complement to a much bigger material handling consulting or equipment sale—Provia Software and its parent Viastore Systems are good examples (see Provia Tackles RFID in a Twofold Manner; Part Three: Provia and Viastore Systems Alignment) .

This concludes Part One of a two-part note.

Part Two will discuss the extension to yard management, present a competitive analysis, and challenges.

 
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