Across industries, efficient warehouse management is more critical than ever. Gone are the days of relying on reams of paper to keep records and manage workflows. Technology has transformed warehouse operations, automating every step from receiving and storage to picking, packing, and shipping. This makes processes faster, more accurate, and cost-effective. And at the heart of it all is the warehouse management system.
What is a Warehouse Management System?
SAP defines a warehouse management system (WMS) as a software-driven solution that helps companies control and optimize daily warehouse operations, from the moment goods arrive at a distribution or fulfillment center until they leave. More than just an inventory management system, a WMS enhances picking and packing processes, resource allocation, analytics, and overall operational efficiency, making it an essential tool for effective supply chain management.
More than just an inventory management system, a WMS enhances picking and packing processes, resource allocation, analytics, and overall operational efficiency.
The modern WMS interfaces with multiple software programs, all from within a single platform and with a single sign-on. It quickly and efficiently runs inventory reports, sets up shipping labels, and automates monthly customer billing charges. People no longer need to do these tasks one at a time—a process that is slow, arduous, and prone to error.
The History of the Warehouse Management System
The first warehouse management system was created thousands of years ago, when the rise of agriculture led to a need for storage facilities. The Romans took the concept to another level by building large warehouses near ports to store products brought in from their far-flung empire. Since paper hadn’t been invented yet, merchants likely used papyrus scrolls or wax tablets to keep track of their stores of olive oil, wine, food, clothing, and other commodities.
In the early 1900s, as the second industrial revolution brought exponential increases in production, new technologies like forklifts and motorized carts came along to aid workers. A hint of today’s technologies was launched in the 1950s when the first automated guided vehicle—essentially a tow truck that followed a track of wires embedded in the floor—entered service. But inventory was still controlled on paper.
That began to change when the automated storage and retrieval system, or AS/RS, was developed in the 1950s to manage and optimize warehouse storage efficiently. The first fully automated warehouse using this technology was built in 1962 to manage nearly seven million books in a 65-foot-high facility in Germany. Soon after, in 1975, the first true warehouse management system was developed for department store chain J.C. Penney. The software-driven system was able to update stock inventory in real time, which greatly streamlined operations.
Since then, technology has grown by leaps and bounds. Today’s warehouse management system is an online hub connecting inventory to all areas of the supply chain. It stores warehouse information in a central location, easily accessed by people from terminals spread throughout a company’s operational sites. This eliminates multiple manual paper processes, reducing the time lag for recording interactions with and within a warehouse by ten-fold, and saving companies thousands of labor hours each year.
5 Key Warehouse Management System Benefits
Warehouse management systems are becoming essential for large and mid-sized companies because they deliver five key benefits:
- Improved operational efficiency: A WMS automates workflows, reducing inefficiencies, minimizing picking and shipping errors, and eliminating redundant tasks. This allows businesses to handle more orders with greater speed and accuracy.
- Reduced waste and costs: For businesses handling perishable or time-sensitive goods, a WMS ensures that products are picked based on expiration dates or sales priorities, reducing waste. It also optimizes warehouse space by strategically placing inventory and by mapping the most efficient travel paths for workers.
- Real-time inventory visibility: With barcoding, RFID tagging, sensors, and tracking tools, a WMS provides real-time inventory insights as goods move through the warehouse and beyond. This enables more accurate demand forecasting, supports just-in-time inventory strategies, and improves traceability—critical for recalls and compliance.
- Optimized labor management: A WMS helps forecast labor needs, streamline scheduling, and assign tasks based on employee skill sets, location, and workload. This creates a more organized and less stressful work environment, improving employee morale and productivity.
- Stronger customer and supplier relationships: Customers benefit from faster order fulfillment, fewer errors, and more reliable deliveries, leading to higher satisfaction and stronger brand loyalty.
Types of Warehouse Management Systems
There are three main types of warehouse management systems. The kind that suits your operations best will depend on your company’s size and the types of products you offer.
- An ERP module-based system features a WMS module within a broader ERP software system which integrates and manages core processes such as finance, HR, and procurement. This system integrates easily with other systems and likely will allow support, updates, and maintenance to be performed by a single vendor. If your company already has an ERP system, this could be a cost-effective choice for you. However, ERP-based systems can lack the inventory control and labor management tools that benefit large distribution center operations.
- A supply chain module-based WMS includes a WMS module within a broader supply chain management (SCM) system that comprehensively manages the flow of goods, information, and finances as they move through the supply chain. It integrates neatly with the broader SCM system but could lack advanced inventory control and labor management tools.
- A standalone system focuses solely on managing warehouse operations. These systems are typically highly specialized and include advanced features not found on the two more common systems. High-volume operations and those spread across multiple locations can often benefit from this customized solution. The downside is that the system could have difficulties integrating with existing enterprise resource planning (ERP), customer relationship management (CRM), or e-commerce platforms. It will likely cost more as well.
Regardless of the platform, warehouse managers must also decide whether to use an on-premises or cloud-based WMS application. A cloud-based system is usually more accessible offsite and from mobile devices, generally has reduced upfront costs (since it likely operates on a subscription model), and reduces a company’s IT burden. An on-premises system may make it easier to comply with strict regulatory compliance requirements in industries such as healthcare, finance, energy, defense, and others where sensitive data is stored and accessed. Companies doing business in the European Union may also face stringent compliance requirements.
When to Upgrade Your WMS
Given that the modern warehouse management system has existed since the 1970s, many companies have at least a rudimentary WMS. Or maybe your company acquired a system within the last few years. In either case, because warehousing technology is evolving rapidly, at some point your WMS will need to be upgraded. But when? A 2024 survey of third-party logistics providers (3PLs) found several factors that indicate it’s time for an upgrade:
- Too much reliance on manual processes. If too many functions still rely on manual processes, it may be time to consider an upgrade.
- Need for more real-time inventory visibility. Real-time tracking provides clear insights into incoming orders and current inventory levels and includes predictive analytics tools to forecast customer demand and avoid stockouts or oversupply issues.
- Few integrations with e-commerce platforms. Online sellers and retailers rely on third-party logistics providers. A WMS that doesn’t integrate with popular platforms makes it nearly impossible to keep up with a retailer’s demands.
- Poor scalability and flexibility. Predicting market changes and customer demand is tricky. In the worst cases, managers may rely on manual processes and spreadsheets to make predictions. The latest WMS systems include AI fulfillment management tools to help spot early trends.
- Too many order fulfillment and shipment mistakes. Too many errors can damage relationships with customers and supply chain partners. Newer WMS systems utilize operational data to manage packing procedures and reduce manual mistakes.
- Inadequate reporting and analytics. Older WMS systems have outdated dashboards with limited functions. Newer systems with powerful data management features can streamline processes and make accessing data easier.
- High operational costs. Over time, older WMS systems can become costly to maintain, and with an in-house system, managers may struggle to find software technicians with the skill set to maintain it. While investing in a new system may require a sizable up-front cost, the return on investment can be significant.
The Future of Warehouse Management Systems
As warehousing technology continues to evolve and expand, what will tomorrow’s WMS systems look like? While it’s impossible to predict the future, the same changes that are sweeping through other areas of manufacturing and logistics will affect the warehouse management system as well.
Expect greater integration with physical tools like drones and collaborative robots (cobots). Cloud-based systems will continue to gain popularity due to their scalability, flexibility, and cost-effectiveness. Artificial intelligence will be applied to more and more aspects of the WMS, improving predictive analytics, demand forecasting, and process optimization. And all of these developments will require greater attention to cybersecurity.
These and other changes will continue to drive efficiencies in warehouse operations, lowering costs for companies of all sizes. The days of hand picking and taking notes on paper are coming to an end, and the warehouse management system is making that possible.
