It’s no secret that the logistics industry is in despair. In Q4 of 2022, the availability of warehouse space was just 4.8%. That’s an all-time low and dramatic fall from the 7.4% reported at the start of 2016.
As a result, retailers are being pushed to squeeze as much value out of each square foot as possible.
From the way they store inventory to the method of picking orders, strong warehouse management processes help retailers run their warehouses like a well-oiled machine. This guide shares how.
Table of contents
- What is warehouse management?
- Benefits of having warehouse management technology
- What is a warehouse management system?
- Inventory management and warehouse management: How do they work together?
- Essentials of warehouse management
- Warehouse management processes
- Warehouse management best practices
- Advantages of working with a 3PL for warehouse management
- Choosing a warehouse management system
- Warehouse management FAQ
What is warehouse management?
Warehouse management is the set of operational processes that help a warehouse run efficiently. An effective warehouse management solution includes tracking inventory levels, locating goods, managing staff schedules, fulfilling orders, and optimizing warehouse space.
Benefits of having warehouse management technology
The global supply chain is making a slow recovery. Manufacturing and shipping times are much longer than they once were—an issue not set to resolve itself anytime soon.
A warehouse management system (WMS) that syncs with your inventory management system helps you stay one step ahead.
Inside your WMS, you’ll see dropping inventory levels to prioritize replenishment. If you know that one bestselling SKU sells 500 units per week, but it takes three weeks to receive shipments from a supplier, for example, set an alert to notify you once stock levels drop below 2,000 (leaving extra leeway in case a wrench is thrown into the works.)
Combine those alerts with historical data for accurate inventory forecasting, using your WMS. Every item in your warehouse is costing you money, both in storage fees and opportunity costs. Poorly performing inventory is taking space that should be given to higher volume, faster moving, and, ultimately, more profitable stock.
Ben Clarke, head of brand marketing for Williams Commerce, says, “By ensuring that products are always shelved in the most efficient way possible, and by providing real-time visibility of stock levels, a warehouse management system can help avoid overstocking or running out of popular items. This can save significant amounts of money on inventory carrying costs.”
What is a warehouse management system?
Warehouse management systems are software applications that facilitate warehouse operation and distribution center management. Management uses these systems to move, store, organize, staff, direct, and control materials into, through, and out of a warehouse. They also provide tools to monitor warehouse operations like order fulfillment and shipping.
You can use a warehouse management system for the following:
- Inventory tracking: It manages and tracks inventory levels, locations, and statuses in real-time for accurate inventory control and replenishment.
- Picking and packing: It optimizes picking and packing processes, ensuring efficient and accurate order fulfillment.
- Shipping and receiving: It streamlines the shipping and receiving process, coordinating with carriers and providing shipment tracking.
- Labor management: It monitors employee performance and assists in workload planning and distribution to improve productivity.
- Reporting and forecasting: It generates detailed reports and helps in forecasting demand and inventory levels, so you can make smarter decisions.
- Integration capabilities: It integrates with other systems (like ERP or CRM systems) to ensure real-time data exchange and consistent information across the business.
Inventory management and warehouse management: How do they work together?
The key to success in global ecommerce is to sell in the channels where your customers are. From social media storefronts to mobile commerce, this multichannel retail strategy is notoriously hard for retailers to get a grasp on. You never want to promote a product on one channel, only for the customer to fall at the last hurdle: the product being unavailable.
Unlike warehouse management software, which manages the entire operation of running a warehouse, inventory management software (IMS) is responsible only for managing inventory within it. Retailers can use this technology to:
- Record receiving inventory
- Monitor stock levels across various warehouses
- Show order fulfillment rates
An IMS is a subsection of the warehouse management process, hence why it should be integrated with your WMS. Use the inventory software to track data and forecast demand. The WMS will pull this data and streamline how warehouse staff source inventory, like displaying the location of a single SKU within a 10,000 square foot warehouse.
Essentials of warehouse management
A smooth warehouse process is important for operation efficiency and customer satisfaction. If you can’t deliver products on time and in good conditions, it’s going to be hard to stay competitive.
Before we get into the processes and best practices, let’s look at some essential components of an effective warehouse management system.
- Organization: Storage needs to be systematic, taking into account the frequency of item retrieval and the item’s size and weight. Proper signage, labeling, and the use of consistent organizational systems are key.
- Space utilization: The layout and use of vertical space in a warehouse should be optimized for efficient travel and storage, and the space allocation should be reevaluated constantly based on inventory and demand.
- Technology: Automated data collection, radio frequency identification (RFID), and an IoT network can streamline operations, improve accuracy, and increase productivity.
- Safety: Safety standards are non-negotiable. This includes proper training, clear safety protocols, available safety equipment, and regular audits.
- Sustainability: Modern warehouse management also involves a focus on sustainability. The goal is to use less energy, reduce waste, recycle, and use sustainable materials.
At the end of the day, a warehouse needs to serve its customers effectively. This means ensuring quick, accurate, and efficient picking, packing, and shipping, and having effective channels of communication for customer service.
Warehouse management processes
Inventory entering your warehouse needs to be vetted and approved prior to being placed on the shelves, ready to be sold. Suppliers can send the wrong quantities or the wrong product entirely—problems that often are exasperated by manual processes and human error.
A WMS alleviates this problem with putaway management. Using bar code scanners to track incoming shipments, your WMS compares the shipment against your purchase order from that supplier. Any discrepancies will be flagged before inventory is put away in the warehouse.
At its core, the primary job of a warehouse is to store inventory. It’s a safe place for you to hold merchandise until it’s sold and shipped to a customer.
An effective warehouse management system displays inventory location data on one simple interface. See the location of each SKU and how many units are available for sale, with many WMSs offering demand forecasting features to prevent stockouts.
“Knowing how your inventory looks can also aid in inventory optimization,” says Lily Wili, CEO of Ever Wallpaper. “You can not only restock things as needed, but you can also spot problems like overstocking. This may enable you to take corrective action, such as lowering the volume of your next order or shifting inventory between sites to maintain ideal levels.”
Modern consumers have a long list of demands they need brands to meet. For many, speed of delivery is the most important.
Fast and free shipping is the new standard for customers. A WMS streamlines this order fulfillment process and helps warehouse staff pick, pack, and ship orders within as little time as possible. The technology will:
- Print a packing slip containing details of a customer’s order
- Show the location in which the item is being stored
- Print a shipping label with the customer’s address
This speedy order processing gets products to your customers as soon as possible, meeting cutoff dates for one- or same-day shipping and giving your warehouse staff more time to process orders that follow.
Shipping and order tracking
Your warehouse processes aren’t over once a product leaves it. A good WMS has order tracking capabilities to show:
- When a parcel was shipped
- Its current location
- The shipping carrier used
- An estimated delivery date for its final location
Parcel transparency is important to consumers. Use a self-serve portal, such as the one found in the Shop app, that shows the location of their order at any time. It’s your WMS that will pull this data once an order has been marked as fulfilled in a distribution center.
It’s inevitable that some products shipped from your warehouse will make their way back. Research puts the return rate for items at 16%. Use warehouse management software to process returns, approve them for refunds, relabel inventory, and get them back on the shelf.
The best part? Data from your WMS can be used to preempt returns from plaguing your warehouse.
As Kurt Ellis, president of GLF E-Commerce Fulfillment, explains, “Data-driven insights from warehouse and inventory management software can also be used to identify customer behavior patterns and help make policy adjustments, like limiting the number of items a customer can buy in different sizes or colors to reduce the rate of returns, and help avoid the need to discount unwanted items.”
For warehouses in particular, logistics managers say their inability to attract and retain a qualified workforce is their biggest problem.
Keep hold of the employees already inside your warehouse. With a WMS system, merchants can plan resources to keep inventory in the warehouse constantly moving, and keep employees in their roles. Look for one with workforce management features that help to:
- Plan staff rotas and shift times (that don’t breach regulations)
- Assess whether warehouse staff have had the adequate training—be that health and safety training or qualifications in operating machinery—to complete their job
- Establish KPIs and monitor progress toward them
Warehouse management software BlueYonder reports that its clients see a 25% increase in employee engagement using its labor management features. Labor expenses also decreased by 35%.
Warehouse management best practices
Warehouse management technology has clear advantages for busy warehouses. To maximize efficiency in yours, follow these best practices.
Optimize warehouse layout
Between 22% and 27% of your warehouse’s total square footage should be reserved as inventory storage space. The rest can be allocated to machinery storage, packing areas, and overstocked goods.
Despite this, the layout of your warehouse bears a major impact on how fast you can fulfill customer orders. Optimize your warehouse space by:
- Placing bestselling items within close proximity to picking areas
- Leaving enough space between aisles for forklifts and machinery to pick inventory
- Putting the receiving area near loading bays so pallets of inbound inventory can easily be transported in, with minimal disruption to workers
Choose an order picking system
Continuing with the speed theme, help warehouse employees fulfill customer orders faster with an order picking system. It’s a strategy used to determine which items are sourced from the warehouse first, reducing step counts and collecting sold inventory most efficiently.
- Batch picking. The WMS prints a packing list for each order, grouping together customer orders with similar or closeby SKUs. A picker collects inventory from several packing slips simultaneously.
- Wave picking. With this strategy, warehouse employees also fulfill several orders simultaneously. Packing slips are grouped by inventory zone, shipping date, or SKU similarity. The employee then sources these items in “waves” throughout their shift—like once every half an hour.
- Zone picking. Used by larger warehouses, this picking strategy works by dividing your warehouse into zones, each housing a particular suite of products. An order picker in each zone sources products from within it. The parcel is then passed to another zone, similar to an assembly line, for another zone pick.
“Our receiving team checks in newly arrived inventory at the beginning of their shift so that we have a clearer picture of what items are available to restock,” says Shaunak Amin, co-founder and CEO of Snackmagic.
“But because there is a great deal of activity in the warehouse, with people filling and packaging orders, the receivers wait to replenish inventory levels at the end of their shift. By topping off inventory at specific points in the day, we can maintain higher inventory levels for the order pickers.”
Localize inventory in different warehouses
Any ecommerce brand with a vision of going global needs international warehouses. By stocking inventory in locations that are sales hotspots and global trade hubs, such as Houston or London, you’ll expand your geographical footprint.
Orders are sent from their closest warehouse, already cleared from customs—a tactic with the potential to reduce shipping costs by 25%. Customers also have products in their hands within as little time as possible.
Take it from Jason Wong, CEO and founder of Doe Lashes: “The way we respond is to place our inventory near those cities to reduce the overall miles traveled by those packages. We’re now stocking inventory outside of the country for our international customers, just to reach them faster. We have a warehouse in China and that helps us reach Australia and the whole Southeast Asia region.”
Not only does this localized inventory strategy result in faster orders with fewer carbon emissions, but Doe Lashes’ formula to minimize the distance between products and customers helps it build a supply chain that’s resilient against disruptions.
Automate where possible
The warehouse robotics market is set to reach $9.5 billion by 2025. The surge in valuation derives from the benefits of ecommerce automation—a strategy that takes repetitive tasks off your warehouse employees’ plates.
A mad dash to store, pick, pack, and ship orders leaves room for mistakes. Those mistakes, like adding the wrong product to a parcel, wreak havoc with customer experiences.
Automations and workflows rule out the chance of human error, while also leaving staff more time to focus on higher-impact tasks. For example, if your warehouse management system shows that 500 units are ready for sale but 400 of them are still in the receiving area, use Shopify Flow to automatically display a low stock message for that SKU on your ecommerce store.
Nick Malinowski, co-founder of OTW Shipping, also advises, “If you have the budget, utilize bar code scanners. Not only will this make inventory management quicker, but it will also make your pick and pack more accurate. Higher pick accuracy means fewer returns and corrective orders that need to be compensated by you. The result is happier customers and more five-star reviews.”
Measure warehouse performance
Your warehouse is a machine with many moving parts. Periodically check whether yours is working at its optimal level by paying close attention to these performance metrics:
- Order fulfillment rate: The percentage of undelivered orders marked as shipped.
- Orders shipped on time: The percentage of orders shipped within the cutoff date for delivery time you’ve promised a customer.
- Order accuracy: The percentage of parcels packed with the correct items from the packing slip.
- Orders fulfilled per hour: Benchmark this against order accuracy. It’s great if you increase output from 40 to 75 parcels per hour, but not so much if order accuracy decreases.
- Hours without reportable accidents: A successful warehouse has minimal safety breaches. The longer you go without an incident, the better.
Advantages of working with a 3PL for warehouse management
A third-party logistics provider (3PL) is an external company that handles your logistics and supply chain management process.
You’ll deliver inventory to the 3PL’s warehouse, offloading all warehouse management operations to your partner. They’ll receive order details as soon as they’re processed through your ecommerce store. It’s their job to pick, pack, and ship inventory to your customers—no intervention required.
Many scaling ecommerce brands choose to outsource warehouse management to a 3PL once they have the budget to do so. Here’s why.
Faster, accurate order fulfillment
Warehouse technology has clear impacts on how efficient a distribution center is. Yet investing in your own technology stack is a big commitment. From forklift trucks to picking robots that deliver inventory from a storage shelf to an order picker, you don’t need to purchase machinery outright to benefit from faster order fulfillment times.
A 3PL’s entire business revolves around warehouse management. They’ll absorb the cost of warehouse technology that helps them pick, pack, and ship orders faster and more accurately, such as:
- RFID scanners
- Bar code scanners
- Collaborative robots like Chuck
After all, the sooner they can fulfill one order, the sooner they can move onto the next and get paid by their customer—you.
Reduce shipping and operational costs
Third-party logistics providers send large volumes of parcels each month. As a result, many shipping carriers provide them with discounted shipping rates—often to persuade the 3PL to continue using their services. Many 3PLs pass on these discounted rates to their customers, making shipping costs cheaper than they would be if parcels were shipped from your own warehouse.
For merchants like The Dad Hoodie, relying on Shopify Fulfillment Network for shipping and fulfillment has made a big difference to its bottom line. Average shipping costs have been cut by 40%, with founder Taylor Llewellyn saying, “As a business owner, fulfillment is only something you think about when it isn’t working well, and luckily, I never have to think about it.
"Knowing that we have a premium partner that gets orders out of the warehouse quickly and at a cost we could not achieve elsewhere [means] we’re able to focus on growing our business."
Plus, when you’re using a 3PL’s warehouse, you pay storage and fulfillment fees for its services. The same applies to labor management. Reduce overheads by leaning on warehouse employees already contracted by your 3PL.
Depending on sales volume, employee count, and inventory levels, this could be a much cheaper warehousing option than fronting an entire lease of your own.
Lean on a 3PL’s existing horde of international warehouses to reach global shoppers in less time, rather than opening up your own in popular warehousing locations with expensive leases.
Take it from Noelle Taylor, senior marketing manager at Taylor Logistics, who says, “Partnering with a 3PL to handle warehouse management allows brands to focus more on what’s important—growing their business and delivering the best possible customer experience.
“Committed 3PLs see their relationship with brands as a long-term partnership. As a result, they may be willing to invest in space, technology, and equipment to take your business to the next level.”
Access warehousing expertise
There’s nothing else for a 3PL provider to focus on other than running an effective warehouse. It’s safe to assume that they’ll have bounds of expertise on how to run one, with tried and tested processes to:
- Handle order-picking mistakes
- Maintain employees’ health and safety
- Package items and reduce damage in transit
- Manage resources and and provide staff training
As Elliott Davidson, ecommerce consultant at Parcel Master says, “Not having to think about and manage a process as complex as warehouse management, and knowing that someone who specializes in it is taking on the pressures and responsibilities, allows you to focus on other areas of growing your business.”
Reduce carbon footprint
Any business owner with a conscience knows that shipping parcels to the other side of the world has some negative consequences on the environment. Unfortunately, it’s an issue only set to worsen as the years go on.
Consumers are becoming increasingly aware of this, and they’re voting with their wallets—preferring brands they know are actively working on reducing their carbon footprint.
Look for a 3PL that has measures in place to reduce its carbon footprint. From using lightweight packaging made from sustainably sourced materials to LED lighting within the warehouse, customers are already looking for brands who support these climate-friendly options.
Choosing a warehouse management system
Despite the benefits a warehouse management system has to offer, not all systems are created equal. Find the right WMS software—one that grows as your ecommerce brand does—by asking these questions to potential vendors:
- What does their order fulfillment process look like? The most effective warehouses and distribution centers use technology to speed up the fulfillment process and maintain accuracy.
- Does it offer the core functions your business needs? Ask your warehousing team for need-to-haves in any new software—be that repetitive workflows they should be automating or immediate data syncing.
- How often is inventory counted? Inventory shrinkage cost retailers $112 billion in 2022. Ask your 3PL its process for physical inventory counts. The more frequently both recorded and actual inventory are compared, the quicker any discrepancies can be rectified.
- How much does it cost? Vendors often have monthly fees to use their WMS, though these can come under different categories. Get the full picture of your investment by asking for implementation, licensing, support, and training costs.
- Does the WMS integrate with your toolstack? Streamline your entire warehouse operations by choosing a tool that syncs with your ecommerce platform, 3PL company, ERP system, and inventory management software.
- What are its limitations? From warehouse square footage to inventory levels, choose a WMS that scales with your business. It’ll save the headache of moving to a new one once your sales volumes increase.
Take the stress out of warehouse management
Warehouse management is a tough thing to get right manually. By investing in a WMS, repetitive tasks will be taken off your warehousing team’s plate. You’ll improve order accuracy, ship parcels faster, and have the data you need to make the warehouse run at peak efficiency—even when you’re scaling internationally.
Illustration by Jennifer Tapias Derch
Warehouse management FAQ
What are the 5 essentials of warehouse management?
The five essentials of warehouse management are accurate inventory, efficient space utilization, optimized picking and packing, timely and accurate shipping, and continuous improvement.
What is SAP and WMS?
Enterprise software company SAP makes customer relations and business management software. Warehouse management system software helps warehouses and distribution centers manage inventory, pick processes, and audits.
What is the most important thing in warehouse management?
Keeping inventory levels accurate is the most important part of warehouse management. This ensures a quick delivery, which keeps customer satisfaction high, and that you don’t overstock or understock, which can hurt the bottom line.
What is warehouse management called?
In general, warehouse management is called “warehouse management system” (WMS) when referring to the specific software solutions used, or “warehouse operations” or “warehouse logistics” when referring to the broader aspect of warehouse management.