Illustration by Jennifer Tapias Derch
People have come to expect a lot from ecommerce businesses today. We’re used to two-day shipping at a minimum, thanks to Amazon. Even mom and pop shops need to improve their approach to ecommerce logistics and fulfillment to keep up.
The problem: warehouses are growing not just in popularity, but in size. The height of distribution centers increased by more than two feet in the past years. The total square footage of warehouses increased from 240,410 square feet in 2016 to 305,000 in 2018. How do you keep track of stock scattered across a mega-warehouse like that?
A warehouse management system (WMS) helps any size ecommerce business scale its fulfillment operations and helps them take on more orders, faster—all without compromising on delivery speed or order accuracy.
This guide shares the benefits of using a WMS, guidance on choosing the right one, and four potential options to choose from.
Table of Contents
- What is a warehouse management system?
- Benefits of warehouse management systems
- Types of warehouse management systems
- How to choose a warehouse management system
- What are the best warehouse management systems?
What is a warehouse management system?
A warehouse management system (WMS) is software built to support and optimize warehouse and distribution operations. Retailers use this automated technology to make planning, organizing, staffing, and controlling available resources across the supply chain easier.
A WMS has several key features, including:
- Integration with radio-frequency and bar-coding technologies
- Back-office integration with order entry, inventory control, and purchase order modules
- Scales with ERP system
- Real-time inventory tracking
- Advanced reporting capabilities
- Support for multiple picking methods
- Compliance labeling and ASNs
- Automated inventory receipt and assisted put-away
Every merchant from ecommerce-only to brick-and-mortar hybrid needs a warehouse management system. It helps you keep track of fulfillment operations. With one, you’ll be able to handle:
- Returns. Turn what’s often referred to as a logistical nightmare into a streamlined, mostly automated process. Determine which items are damaged, need relabelling, or are ready to go back on the shelf. That data will be visible inside your WMS.
- Warehouse logistics. Instead of written processes that warehouse staff need to remember, they can follow predetermined workflows inside your WMS to improve consistency.
- Integrations. Most WMS platforms integrate with other tools you’re already using, such as shipping solutions and your ecommerce site. With this functionality, there’s no manual back-and-forth data feeding (which will likely cause inaccuracies).
- Reporting and forecasting. When will stock pass its sell-by date? Which bestsellers do you need a constant flow of inventory for? See all of that inside your WMS so you never have out-of-stock messages turning away potential customers.
To summarize: WMS software acts as a central place for your operational processes in a warehouse or distribution center. It provides full visibility into your inventory levels and storage, staff productivity, demand forecasting, and retail fulfillment to improve ROI.
Benefits of warehouse management systems
Improve inventory accuracy
Managing inventory is one of the trickiest things about running a retail operation. Too much stock could pass its sell-by date; too little stock and “product unavailable” messages drive potential customers away.
Inventory shrinkage happens when you have less physical stock than your accounting sheets show. It costs businesses around $61.7 billion per year.
WMS software can tell you exactly how much inventory is stored, in real time. You’ll scan bar codes of new inventory and the retrieval of each unit picked in an order. This helps prevent inventory shrinkage.
Warehouse management systems also provide advanced order analytics so you can:
- Understand which states you ship to most
- See which orders haven’t been delivered
- See inventory on hand
- Check historical stock levels at any time
- See how many days left until a SKU is out of stock
- Handle order replenishment based on stock availability
- Manage order allocation to international warehouses or distributors
- Understand average cart values and shipping costs
- Determine where you can save on shipping
Long gone is the era of five-day shipping. The rise of Amazon means customers expect to get their orders fast.
So, what does fast look like? The vast majority (97%) of consumers consider same-day shipping fast, while 95% consider next day fast. Either way, one thing is clear: items need to turn up at your customers’ doorsteps within 24 hours to be considered gold standard.
Want to offer two-day shipping or less? A WMS can determine shipping times with precision. Customers see accurate shipping estimates for their home address, with no awkward, “Hey, your order is running late because you’re further away than usual” emails necessary.
Plus, most providers have relationships with third-party logistics providers. You can lean on their high order volumes to promise customers fast, free delivery anywhere.
Improve order efficiency
A warehouse management system integrates directly with your ecommerce platform, so you can keep stock updated. No worrying about customers placing an order or out-of-stock items. Fewer errors around inventory equals faster fulfillment times and more accuracy.
This has a domino effect on inventory costs, too. Reducing stock outs and overstocks can lower inventory costs by as much as 10%.
Here are some other WMS software-use cases to improve order efficiency and accuracy:
- Assign pickers optimized routes
- Open additional fulfillment centers to cut down on shipping times
- Improve packing processes
Lower labor costs
A WMS may seem expensive, but it makes up for it with productivity gains. The cost of labor for recounting inventory or repackaging products is less with a WMS. You have a (mostly automated) system to handle it for you, freeing up time for staff to complete other tasks.
Plus, the warehouse operates more efficiently when order counts are accurate and orders are packed and shipped effectively. There’s less chance of returns eating into revenue. Plus, since order accuracy is higher, you’ll improve customer satisfaction. That makes a WMS system more cost effective than labor management.
Types of warehouse management software
Standalone WMS are usually on-premise systems deployed on an organization’s native network. They’re used only for warehouse management features. It’s the most affordable type of WMS but lacks many of the features from an integrated software solution.
They can be combined with existing solutions, but they’re sold as a one-off product without any other supply chain functions.
Standard features include:
- Bar code scanning
- Cycle counting
- Expiration date tracking
The biggest benefit of using a standalone WMS is that you’re in complete control of inventory.
However, a standalone WMS doesn’t cover other types of supply chain operations. Other systems will offer transportation management functions, such as integration with shipment tracking systems with major carriers.
It’s the most basic type of warehouse management system. It’s a good solution for small businesses or those who don’t have much software budget. They can also be used as inventory management systems for SMBs.
Integrated with ERP
One of the most powerful ways to improve ecommerce logistics is by combining your WMS with other tools. It’s a good option for businesses looking to upgrade their software to a larger scale. It can help organizations gain a competitive edge and improve ROI.
Enterprise resource planning is a software used to manage an organization's resources. It gives you a view of all software applications, such as human resources, sales and marketing, finance and accounting, and CRM.
Some ERP vendors, like SAP and Oracle, offer WMS modules built into their systems.
It’s more expensive, but an ERP can replace all existing softwares and centralize logistics into one interface. If you don’t like your existing software and want to bring them into one system, you can do so with ERP software.
This type of WMS is different from standalone because it provides warehouse management along with more broad capabilities. So, decide whether you want to invest in a special WMS or if you’d benefit from an ERP system. It depends on your business’s needs, size, goals, and existing toolstack.
Supply chain management modules
Supply chain management (SCM) software is much broader than integrated or standalone. It typically comes in the form of a supply chain management system, with a subset for warehouse management. It’s used to manage various aspects of the supply chain in one place.
Similar to a standalone WMS, you’ll get an overview of how your warehouse functions. However, the main difference with SCM is that you can manage your entire supply chain in one tool.
The goal is to automate inventory management, product cycles, sourcing of materials, and other common warehousing tasks. It can also assess risks and manage vendor relationships.
With its extra features and scalability, it’ll come as no surprise to hear that this type of WMS can be expensive. You’ll need to consider the costs of installation and maintenance. And, if you’re using a SaaS solution, you’ll also need to consider how the software integrates with your existing system.
To use an SCM as a WMS system, your business will have to invest and integrate new software.
How to choose a warehouse management system
If you are finding your warehouse isn’t as productive as you’d like it to be, here’s how to choose a WMS solution.
1. Evaluate your current system
Adding a new technology to your warehouse processes won’t solve all your problems.
Instead, look at what changes need to be made in your current system. What’s working? What’s not? How are inaccuracies negatively affecting your organization? You’ll use this information to decide on a WMS.
Ask team members what they find frustrating about the job. Zero in on redundancies and inefficiencies to see where you need to improve.
For example, is your picking being done effectively? If not, you are wasting time and money. A WMS can help by adding automated retrieval and picking solutions, like optimized pick routes and automated inventory management.
Similarly, manually entering product information for returned products—such as customer, SKU, and purchase price—is a time suck. With a WMS, you can use RFID tags to scan a bar code of a product, update stock levels, and process the refund within seconds.
2. Collect team needs
Once you’ve audited your system and see what you need, create a list of required functions.
Have each team member create a list of components they feel the warehouse management solution needs. This could be a back-office integration with order entry and inventory control modules, or automations for compliance labeling and ASNs.
Encourage team members to prioritize by need-to-haves and nice-to-haves. Prioritize the need-to-haves. This will help you quickly eliminate any WMS that doesn’t meet your team's or business’ needs.
Get started with these questions:
- What do you need to accurately pick, pack, and ship orders?
- What workflows do teams currently use which could be automated?
- What does your current ERP system look like?
- What information do you need to make strategic warehousing decisions?
- How fast does warehouse data need to sync across the enterprise?
3. Find and evaluate vendors
Understanding the need-to-haves of a new WMS system gives you a checklist to use when vetting potential vendors.
But regardless of the individual features the new software needs, an important part of choosing a warehouse management system is the amount of time and effort you’ll need to put into implementing it. So you’ll want to scope out vendors with 360-degree knowledge.
Each vendor should have knowledge of supply chain operations. That includes warehouse management, inventory management, order management, accounting, and integration with EDI.
Once you’ve made a shortlist of potential vendors who check those boxes, look for a solution that improves inventory control and staff productivity. So check whether your warehouse staff can integrate the new system with the tools and equipment at their disposal, such as radio frequency identification (RFID), communications equipment, shipping systems, pallets, lift trucks, and forklifts.
Next, all the information gathered by using this equipment should be made available to your entire enterprise—especially the accounting and inventory management data.
The vendor you choose should be dedicated to serving the changing needs of the warehousing and logistics industry and be committed to upgrading and improving the product.
Finally, think about costs. There isn’t much sense in investing in a new WMS software if you’re not making a return on that investment. Get a full understanding of the costs with each option by asking questions like:
- What are the estimated license costs for your implementation?
- What are the estimated build-out costs to adapt the system to your requirements?
- What’s the timeframe and cost for implementation?
- How much should I budget for annual support and maintenance costs?
- How much should I budget for staff training costs?
It’s also worth asking whether the WMS vendor has case studies of how other companies of a similar size/industry successfully used the software. Look for data such as:
- Time saved per hour
- Improvements in order accuracy
- Percentage reduction in errors
- Dollars saved or recovered
- Increase in order processing speed or throughput
By this point, you’ve got a shortlist of WMS vendors to choose from. Now comes the fun part: choosing which one you’ll use in your warehouse.
There is no best practice here. To summarize, the right WMS for you fits within your budget and has proven case studies to show how it’s solved problems for other companies. It should also integrate with the tools and technologies you’re already using.
The ideal WMS also has the need-to-have features your team listed (and a few nice-to-haves, too). The final cherry on top is a WMS vendor that has the training materials you need to train warehouse staff on how to use the software.
Once you’ve chosen, start integrating the WMS with your existing setup. Elliott Davidson, an ecommerce consultant at Parcel Master, advises the following:
- Run a logical labeling system for your bin locations, like zone, row, rack, shelf, and totoe.
- Don't put all one brand’s product in one location. The odds of picking the wrong color or size, even a slightly different product, are a lot higher.
- Your bestselling items should be on the closest racks to the packing benches to reduce how far the pickers have to walk to process orders.
- Run a bar code scanner so you can have multiple quality assurance checks to make sure you are picking and packing the correct products to reduce errors.
What are the best warehouse management systems?
Easyship is a shipping vendor with warehouse management tools baked into its software. Merchants get discounted shipping rates from 50+ global carriers, including DHL and UPS, giving customers real-time and accurate shipping pricing in the checkout page (and reducing cart abandonment).
Easyship also has a global network of warehouses and distribution centers. Store your inventory in their warehouses and view inventory stock levels through your Shopify dashboard.
ShipBob is another WMS vendor to consider, especially if you’re operating a DTC brand.
It’s a 3PL company that allows merchants to store stock in their warehouses. As soon as you receive an order through your ecommerce site, it’ll automatically go through to one of ShipBob’s fulfilment centers. ShipBob will ship items to the customer within two days (if using express shipping).
Do you have a multichannel retail strategy? If you’re selling products in pop-up shops, on your ecommerce site, or in a permanent brick-and-mortar store, ShipHero can track warehouse inventory across all selling channels.
Incoming orders are validated before being shipped from a ShipHero distribution center. You can also configure automations to save even more time and money, such as priority shipment for international orders.
Veeqo is an order fulfillment platform that combines inventory across multiple platforms, including your Shopify ecommerce site and marketplaces like Amazon and Etsy.
Giving a single source of truth for the question “How much stock do we have of this SKU left?,” Veeqo can also handle incoming returns and update stock levels accordingly. You’ll also be able to automate tasks like warehouse stock routing, shipping rules, and order status.
Find (or upgrade) your warehouse management system
There’s no doubt that a WMS has its benefits. With the right software, you’ll improve order and inventory accuracy, streamline logistics, and lower manual labor costs. That’s bound to have an impact on your bottom line.
Whether your goal is to automate your warehouse operations for the first time or upgrade your existing system, the above guide will help you find one that suits your business needs.