How to Manage Your Warehouse (2024)

Any business that stores items in a warehouse knows that effective management is thedifference between fulfilling customer orders quickly and accurately while keeping costsdown versus hearing complaints about delayed or inaccurate shipments and higher operatingcosts.

Video: What Is a Warehouse Management System?

What Is Warehouse Management?

Warehouse management encompasses the principles and processes involved in running theday-to-day operations of a warehouse. At a high level, this includes receiving andorganizing warehouse space, scheduling labor, managing inventory and fulfilling orders. Zoomin closer and you’ll see that effective warehouse management involves optimizing andintegrating each of those processes to ensure all aspects of a warehouse operation worktogether to increase productivity and keep costs low.

Benefits of Warehouse Management

Warehouse operationsare generally invisible to customers, but they play a vitalbehind-the-scenes role in ensuring on-time delivery. To achieve this goal, good warehousemanagement ensures all warehouse processes run as efficiently and accurately as possible.For example, warehouse management involves optimizing the use of warehouse space to maximizeinventory storage; making inventory easy for staff to find; ensuring adequate staffing;efficiently fulfilling orders; and coordinating communication with suppliers andtransportation companies so materials arrive and orders ship on time.

The benefits of good warehouse management—namely fast, high-quality service at lowcost—canripple out to the entire supply chain, strengthening relationships with suppliers as well ascustomers.

But given the many elements involved, optimizing warehouse management can be a complex task.That’s why many organizations are turning to warehouse management systems for help.

What Is a Warehouse Management System?

A warehouse management system (WMS) is a software solution that aims to simplify thecomplexity of managing a warehouse. Often provided as part of an integrated enterpriseresource planning (ERP) suite of business applications, a WMS can support and help tooptimize every aspect of warehouse management. For example, a WMS can:

• Leverage data and automation to conduct demand analyses, forecast sales and createefficient daily operating plans.
• Provide real-time insight into inventory location and quantity.
• Share data with other ERP modules or standalone software products, such as accountingsoftware and transportation management solutions, to increase the efficiency of businessoperations.
• Monitor and report productivity to offer a deeper understanding of how efficiently yourwarehouse is operating and where you can make improvements to warehouse geography andoptimize space.
• Create step by step directions to guide users through daily processes—such asreceiving,picking and packing orders—using predefined rules.

Inventory Management vs Warehouse Management

Before getting into the details of warehouse management, it may help to understand a fewcommon terms. For example, the terms inventory management and warehouse management are oftenused interchangeably, but there are key differences:

Inventory management

Inventory Managementis centered on efficiently and effectively ordering, storing, moving, and picking thematerials needed to make products or fulfill orders.

Warehouse management

Warehouse Management is a broader term thatincludes other aspects of warehouse operations, such as warehouse organization and design,labor, order fulfillment, warehouse monitoring and reporting.

Stock Management

Stock management is often used as another term for inventory management, but it’simportantto recognize the difference between “stock” and “inventory,”particularly for companiesinvolved in manufacturing products. Stock generally refers to finished product ready forsale or distribution. Inventory, however, includes everything in the warehouse: rawmaterials, materials that are in the process of being built into products and finishedproducts (stock).

Stock management is therefore a subset of inventory management that focuses specifically onholding as little stock as possible—to save space and costs—while still beingable to meetcustomer demand.

Principles of Warehouse Management

Understanding the general principles of warehouse management can help you focus your effortsto optimize the way your warehouse operates. These principles include:

Know your purpose. A warehouse operation must first and foremost know itsobjectives. For example, do your customers have specific delivery requirements? Does yourinventory need specialized storage? Additionally, all warehouse operations aim to usewarehouse space, labor and equipment as efficiently as possible.

Comprehensive control. Warehouse management involves coordinating complexprocesses involving many moving parts: people, equipment, orders and inventory. Warehousemanagers need to be able to track each process in order to ensure it’s runningsmoothly andsolve the problems that inevitably occur. Quality control is critical to ensure orders arefulfilled accurately.

Flexibility and resilience. Warehouse managers have to be able to changeplans on the fly, whether it’s because materials have arrived damaged or becauseinclementweather is delaying shipments. It’s also important to be able to adjust workflows tomaximize efficiency, whether that involves rearranging warehouse space or reimaginingpicking processes.

Customer focus. On-time delivery, with the correct product, is one of themost important metrics when it comes to customer service and satisfaction. To deliver ontime, you need to be able to fulfill orders quickly and accurately.

Data-driven decision making. Even if every warehouse process appears to berunning without a hitch, it doesn’t mean processes are operating as efficiently aspossible.A WMS can help you pinpoint and analyze areas that need improvement.

Warehouse Management Processes

Warehouse management includes six core processes. Each process influences the efficiency ofthe next, so every step must be optimized for the warehouse operation to run like awell-oiled machine:

• Receiving. Check in and log incoming items. Verify that you’rereceiving the right quantity, in the right condition, at the right time.
• Put-away. Move items from the receiving dock to their correct storagelocations.
• Storage. Safely store and logically arrange inventory to enable fastand accurate picking.
• Picking. Collect the items needed to fulfill sales orders.
• Packing. Prepare the picked items for shipment. They must be safelypacked into the correct packaging with an accurate packing slip.
• Shipping. Send out the finalized sales orders, ensuring that they areon the right vehicle, at the right time, with the correct documentation, so customersreceive their orders on time.

Warehouse Optimization

Optimizing your warehouse operation involves fine-tuning each of these warehouse managementprocesses. For example, when receiving goods, an organization can label items with mobilebarcodes or attach RFID tags to make them easier to find when picking. During put-away, awell-managed warehouse operation stores items in the minimum amount of space to maximize thecapacity of the warehouse. Other best practices for warehouse optimization include storingpopular items in easily accessible areas and separating items that can easily be mistakenfor one another.

Warehouse Management Fulfillment Strategies

Selecting fulfillment strategies that match the business’s size and the volume and typeoforders it receives can help the organization ship products faster, minimize waste andimprove customer satisfaction. Applying picking strategies that match the type of ordersthat you receive can help maintain the most effective workflow. For example:

• Batch picking is a technique that can help you quickly fulfill multiple orders for thesame product without wasting time by continually revisiting the same inventory location.
• Zone picking assigns pickers to different zones of SKUs. For each order, pickers areresonpsible for picking all SKUs from their designated zone.
• First expired, first out (FEFO) picking ensures perishable products and items make it tocustomers before specified expiration or sell-by dates. With FEFO, the products set toexpire first are shipped first.
• First in, first out (FIFO) picking ensures the first products to come into the warehouseare the first to be distributed, which can help make sure older items are shipped beforethey can become obsolete.

Technology is also an important part of any warehouse management fulfillment strategy.Handheld mobile devices that display packing lists with item locations, serial numbers andlot numbers can help increase picking speed and accuracy. Software can recommend safe andcost-effective packing based on product dimensions to ensure each item gets shippedsecurely, with as little waste—and wasted space—as possible.

Warehouse Monitoring & Reporting

Measuring and tracking key performance indicators (KPIs)—operational statistics thatindicatehow well the warehouse is operating—can help pinpoint problems and highlightopportunitiesto improve efficiency and fulfill customer orders more quickly and accurately. For example,you can set a target for improved picking and packing accuracy, then make changes to yourpicking processes and measure whether those changes are effective in helping you achieveyour goal.

Warehouse KPIs

Warehouse managers often track the following KPIs, among others:

• Receiving efficiency or productivity: The volume of goods received perwarehouse operator, per hour. Higher scores indicate greater receiving efficiency, whilelower scores indicate that there may be problems that should be investigated.
• Picking accuracy: The number of orders accurately picked divided by thetotal number of orders picked (including incorrect or short orders). The closer to 100%accuracy, the better.
• Order lead time: The average time it takes for an order to reach acustomer once the order has been placed. For the highest customer satisfaction, theshorter the lead time, the better.
• Rate of product return: The rate at which sold goods are returned bycustomers, calculated by dividing the number of items returned by the number of itemssold. To get a full picture of this KPI, it’s important to consider why productsarebeing returned—a customer accidentally ordering the wrong product might notsignifywarehouse operation issues, but there is room for improvement if customers often receiveincorrect products or damaged goods.
• Inventory turnover: How much inventory is sold and replaced in a givenperiod of time. It’s calculated by dividing the total cost of goods sold duringtheperiod by the average cost of inventory during that period. This KPI reflects howefficiently a warehouse manages inventory to meet demand. In general, higher inventoryturnover is better. If a warehouse overestimates demand, inventory turnover may be low.Too much slow-selling inventory can be costly—especially for businesses dealingwithgoods that have a predetermined shelf life.

Warehouse Management Statistics

Global ecommerce has grown rapidly in recent years, and is expected to top $29trillion by 2023—accelerating a need for more warehouse space to match growingconsumer demands. Ecommerce growth is expected to increase demands for U.S. warehouse spaceby 1 billion square feet by 2025. It’s not surprising that onesurvey,by trade publication Logistics Management, found 79% of warehouse operations were planning some type of expansionplan.

Given this growth, a top challenge faced by warehouse operations is the inability toattract and retain a qualified hourly workforce. To improve productivity, reduce operatingcosts and keep up with customer demand—all while combatting tight space and a tightlabormarket—warehouse operations are increasingly using technology to automate processes,with 85% using WMS according to the Logistics Management survey.

Choosing a Warehouse Management System (WMS)

Choosing the right WMS will depend on the specifics of your warehousing operation and whatyou want to achieve. Above all, the right WMS should help your organization achieve greaterefficiency and fulfill orders more accurately so you can do more at a lower cost. Since aprimary goal is to save money, ROI is key.

Additionally, a WMS should act as a guide to help all warehouse staff become more efficientin the workplace. To do so, the right WMS will provide real-time actionable insights intoeach aspect of your warehousing operation to help staff be more efficient and programmatic,including receiving, shipping, inventory, order fulfillment, and labor—while providingeasy-to-understand statistics and reports that managers and workers can easily understandand then use to improve daily and long-term processes. A WMS should also be scalable so itcan help your business grow and adapt to changing market conditions.

The right WMS can take your warehouseoperations to a higher level of efficiency, speed and order accuracy, helping to improveyour company’s competitiveness and increase customer satisfaction while keepingoperatingcosts down.