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Warehouse Management System and Business Performance:
Case Study of a Regional Distribution Centre
Au Yong Hui Nee
ESH Department
Hoya Electronics Malaysia, 01000 Kulim, Kedah
Tel: 04-4033118, Fax: 04-4033108
E-mail: ayhn@yahoo.com
ABSTRACT
This paper examines Warehouse Management System (WMS)
practices and their effects on operations. This study analyses
the relationship between adoption of WMS to its impacts on
business performance and competitive advantage of a
regional distribution centre. In terms of business
performance, the focus is placed on various competitive
cores of distribution centre. WMS was found has a positive
impact on companies' performance on operations
management measures. To adopt the MIS, wireless barcode
embedded WMS in specific, it is necessary to have corporate
culture that supports complex operational activities. WMS
implementation is crucial in bringing cost reduction in
operational level, effective management in management
level, as well as improvement of the company's
competitiveness in strategic level. Companies that manage
warehousing of their products are expected to implement
WMS in order to maintain their competitive edge in the
global market place.
Keywords
Management Information System (MIS), Warehouse
Management System (WMS), Logistics Information System,
Barcode, Regional Distribution Centre
1.0 INTRODUCTION
Availability of information technology will enable
accessibility of more efficient communication and control,
which is essential to a competitive global logistics
capability. The impetus for strategic use of Management
Information System (MIS) has been highlighted as the
world transits into a global village. There is growing
research interest in the use of MIS as a strategic weapon by
organisations. Globalisation and competitive pressures
have heightened the impetus for strategic use of MIS. More
specifically, Warehouse Management System (WMS)
designed to introduce improvement into every aspect of a
company’s warehouse operations offers an organized
approach to manage efficiency. Bar code data collection
solutions for warehouse management system provides
powerful and flexible automatic identification system that
connects the shop floor to the enterprise software.
By integrating advanced radio frequency and bar coding
technologies with core warehousing functionality, WMS
provides comprehensive fulfilment centre and warehouse
management, including receiving, stocking, picking and
related warehouse tasks. The best-of-breed solution
leverages state-of-the-art technology to deliver all of the
functionality needed to maximise operational efficiency and
increase throughput, thus meet the primary focus of
warehouse in accuracy and timely fulfilment of customer
orders.
2.0 LITERATURE REVIEW
Literature review reveals that organisations must be capable
of fast, radical changes and those that aspire to be best must
lead in changes. According to Oxley (1990) efficient
management information system means (a) Quickly and fast
response to change, (b) Accurately, (c) Minimum clerical
effort, (d) Up-to-date, and (e) Available where and when
needed. Orlikowski and Robey (1991) study systems
development and the organisational consequences of using
IT based on Gidden’s theory of structuration. Powell and
Dent-Micallef (1997) investigate linkages between IT and
firm performance.
Benefits realised from information technology
communication are information availability, labour pricing
and material tracking (Peters, 1994). Boyson, et al (1999, p.
14) reported benefits from a more open information flow as
(a) Improve planning, (b) Develop active operations, (c)
Smooth product flows, (d) Time cost, and (e) Improve
service. Yaoa and Carlsonb (1999) concluded that better
inventory control reflected in increased inventory accuracy
and timeliness of real-time data permits the distribution
activities to be performed with confidence and improved
profitability. Barut, Faisst and Kanet (2002) measure the
magnitude and the effectiveness of logistics information to
firms in both directions of the supply chain. Ahmad and
Schroeder (2001) analyses on the benefits gained from
electronic data interchange (EDI) usage. Helo and Szekely
(2005) review software applications for their functionalities
and resulted benefits in relation to supply chain
management (SCM). Murphy and Simon (2002)
incorporate intangibles e.g. improved customer service into
traditional cost benefit analysis in an ERP project. Kuo and
Smits (2003) identify factors that improve the performance
of integrated supply chains performance, while Evans,
Towill and Naim (1995) concluded that SCM could be
enhanced through Business Process Re-engineering (BPR)
characteristic of not afraid to be radical with respect to
internal integration and continually search for step change
improvement ideas. Attaran (2004) examines relationships
between information technology (IT) and BPR, arguing that
those aspiring to do BPR must begin to apply the
capabilities of IT to reap benefits for successes.
3.0 METHODOLOGY
Single-case study approach is applied in this study to
understand the system being examined in the period of time
available. The primary aim of this paper is to analyse in-
depth to provide description and interpretation of business
performance improvement in multi-perspectives that is
induced by implementation of warehouse management
system. Evidence of data is collected from multiple sources
including documentation, archival records and direct
observation.
4.0 CASE DESCRIPTION
The distribution centre of study’s holding company, Sharp
Corporation, has been involving in TV manufacturing for
more than fifty years and pioneer in LCD technology for
over thirty years. The key products of the company are
LCD TV and solar cells. The primary business operation of
the company in this study, a business unit level distribution
centre, is procurement and distribution of service parts for
both business and consumer electrical appliances. The
distribution centre has been in business in operation of
distributing electronics parts worldwide since 1995. This
business focuses on product quality and customer
satisfaction. The business unit is among its counterparts.
Value-added services of the distribution centre is to provide
‘pick and pack’, and individual packaging. Quality
management improvement programme is implemented to
aim for zero defect through 5S, QCC activities and
ISO9001: 2000 Quality Management System. ABC
Management is applied in Inventory Management.
The distribution of electronics service parts revolves around
a certain number of physical (materials) and informational
(communication) flows that enable actor to source:
•The right parts: service parts having increasingly
become an integral part of electrical modules
•In the right place: physical service parts of from
manufacturers to dealers usually transit via
distribution centre
•At the right time: a distinction is generally made
between urgent deliveries and replenishment
operations
Logistics Management System, more fondly known as
Warehouse Management System (WMS) is a MIS
investment in a warehouse. SAP is the abbreviation of
System for Application and Products. The distribution
centre’s Warehouse Management System (WMS)
developed by a local software house. For information flow,
customers place sales orders via the linked SAP system
which in turn are passed on as outbound delivery actions.
This delivery information is then processed by WMS and
made available on each user’s RF scanner. Orders are
picked, boxed and printed despatch labels and routes for
shipping. Completed delivery confirmation documents are
then transmitted to the SAP server and from SAP to notify
the customers.
The distribution centre has replaced its older, host-based IT
structure with a client / server architecture with
implementation of SAP R/3 System, and development of
new stand-alone warehouse management system in a
consolidated warehouse. Transactions can either be
executed at local PC or via a portable RF terminal, thus
making critical information immediately available. The
workers need wireless terminals with real-time radio
communication to the Warehouse Management System. It
requires radio frequency (RF) network and a
communications server on the network. Operations
functions can be performed from either a windows-based
workstation, hand-held RF mobile computers or any
combination of the two simultaneously.
4.1 Configurations
SAP and WMS are linked by lease line from the distribution
centre office in Shah Alam and warehouse in Port Klang.
The server that interfaces with WMS server is the
Application Server known as of SAP R/3 system furnished
with modules Sales and Distribution (SD) and Financial
Management (FI). The WMS server hardware is HP server
with Server / Client OS Windows NT server. The WMS is
VB program with an MS SQL Database 2000 on a
Windows NT operation system platforms using client/server
network architecture that provides a standard suite of
products. The Minimum hardware requirement is PC with
LAN card (NIC – 10/100 mbps). They are over 70 end-
users are linked to the WMS application. The mobile
device is connected to the network using radio frequency
(RF) standard of 802.11b (11 mbs) and will communicate
using TCP/IP. The protocol used is TCP/IP. Through the
adoption of these standards, the application has been made
device independent, permitting the organisation use a wide
variety of mobile devices. The Bar code printer
manufacture is Sato, and the data input devices
manufacturers are Denso (Batch Handy Terminal, BHT)
and Fujitsu (Radio Frequency, RF terminals).
4.2 Host Interfaces
Interface Features:
•Interfaces easily with host-based systems
•Real time and /or batch host integration
•Inventory interfaces
•Order interfaces
Delivery data will update stock and the order data files.
Receiving order receipts will update stock, and the order
data files. The dispatch records will be used to update
picking lists with the confirmed quantities. If there is a
discrepancy in the stock, the ‘amend dispatch quantities’
option can be used to reduce the picking list quantity.
Hence, these interface data enable the distribution centre to
manage effectively the coordination of information
including demand, capacity, inventory and scheduling,
4.3 Inbound logistics
The inbound processes use Batch Handy Terminal (BHT).
Inbound System Features are:
•Receipts immediately visible and tracked from arrival
•Receipts referenced by PO
•Directed Put Away
•Location verification to ensure correct placement
•Pre-receiving via manual entry or electronic data
interchange (EDI)
•On-line validation against PO information
•Receiving Discrepancies Report
•Cycle counting for partial inventory checking
•Verification of physical counts and storage accuracy
•Cycle count post or reissue
•Adjusts warehouse and SAP inventories
When checking in items, WMS notifies warehouse staff if a
received good is needed to fulfil a customer backorder. In
this event, instead of moving the item to storage location, it
is prepared for shipping directly to the awaiting customer.
Receipt from supplier occurs when the goods deliver to the
warehouse, and the bar codes should be attached to the
items that will then be scanned into the warehouse. The
incoming instruction number and the quantity will be
entered into the scanner, and the bar code will be scanned.
Inbound part is matched against expected receipts according
to receiving tolerances (date, quantity, and ship-to-location).
WMS enables real-time tracking of receiving, storage and
immediate access to information on combined statistics of
weight and lines for a specified customer.
4.4 Outbound Logistics
The outbound processes use Radio Frequency (RF)
terminal. Outbound System Features are:
•Orders accepted from any host systems
•System directed pick and real-time verification
•Packing Lists
•Track and process customer orders
•Supports prioritising orders
•Weight capture at picking
•Pick to Pack
•Picks confirmed through shipping process
•Interfaces to SAP to confirm the shipment orders
Customer orders are automatically allocated, and delivery
order is also automated by linking the picking ticket to
terminals. The standard printed picking list will be used by
the warehouse for the dispatching of stock. The number will
be entered into the scanner where bar code for each item on
the picking list will be scanned. A quantity will be entered
via further bar codes scanned.
4.5 Inventory Management
Inventory Management Features are (a) real-time storage
usage, and (b) security through user passwords and access
authority levels. Stock take will be performed for the entire
warehouse. The scanner will allow entry of a location
reference via the scanner. Bar codes would then be scanned
and either a quantity entered or further bar codes scanned.
4.6 Management Reporting
The Reporting Features are:
•View storage utilisation in real-time
•Ad hoc query function
•Export to text, Excel and CSV text files
•Detailed Item (SKU) Report
•Detailed Locations Report
•Receiving order status
•Shipping order status
Distribution systems in globalised competitive environment
cannot tolerate delays in data capture and reporting of
inventory detail such as their locations and movement. A
network-based decision support system (DSS) via Business
Objects (BO) was
developed to provide a systematic and consistent way to
analyse logistics management. Therefore, availability of
these management reports and analysis enables quick and
better decision-making and prioritisation.
5.0 CASE ANALYSES AND DISCUSSION
Radio Frequency WMS that utilises bar code technology
have many advantages. The following is a list of the most
common benefits that directly result from implementing a
WMS.
Leveraging RF-based bar coding technologies and seamless
integrating with order entry, WMS tightly orchestrates these
activities. WMS provided better workload control for view
of completed and upcoming activities. While checking in
received good, it is prepared for shipping directly to the
awaiting customer if the item is needed to fulfil a customer
backorder, while eliminating the introduction of
transcription errors. It reduces labour costs and increases
productivity. In average incoming cycle has been reduced
from average 3.71 days to 1.02 days. It was observed that
the lead-time has been reduced by 73% in the period.
The final phase of receipt and put-away processing is the
automated update of purchase orders and inventory
information into SAP that eliminates manual intervention
and errors, while providing accurate and up-to-date
inventory control. It reduces safety stock, stock shrinkage
and spoilage. Administrative is improved because the work
of printing and distributing picking lists or labels is
contained, as is the task of keying in picking confirmations
and picking amendments. WMS offers a streamlined
shipping solution that produces shipping labels, picking
slips, carton content labels and advanced shipping notices
eliminating errors in transcription from customer order.
The Outbound lead-time for air freight (AF) for subsidiaries
has been reduced from 9.94 days to 4.29 days, which is a
reduction of 57%. The WMS provides a fast order handling
process to keep distribution costs to a minimum.
WMS reducing human errors inherent in manual and paper
based systems. Inventory Accuracy improved from 98.34%
to 99.52%. This occurs by allow access all departments
within company to the same set of accurate inventory data.
The WMS offered physical scanning of items, locations and
boxes so that the contents of any order or storage location
can be viewed in real-time. Floor workers connect to the
WMS data using wireless RF terminals, which customer
services users and business analysts access through a GUI
interface to check delivery status. Transparent and accurate
inventory data allows employees in distribution,
procurement and warehouse departments to work from the
same information, thereby ensuring greater customer
satisfaction, a more efficient order handling process, and
keeping warehouse management costs to a minimum.
WMS allows capturing important information on the items
such as weight, expiration date and more.
Other benefits obtained are that real time radio
communication enables real time stock updating. This in
turn prevents re-picks or waiting time due to empty picking
faces. Cycle counting can built in to the replenishment task,
improving the efficiency of the stock checking process. The
improved accuracy of stock recording leads to improved
service level and less time spent investigation stock
discrepancies.
The provision of information at the website is a good
channel for the distribution centre (DC) to fulfil the needs of
their customers and hence improve customer relationship.
Real-time information eliminates waste and redundancy.
Fill Ratio has been improved from 82.3% to 86.3%. It
increased customer satisfaction resulting from fewer
fulfilment errors. EDI requirements support through WMS
automatically providing detailed shipping information. It
allows for real-time communication and complete visibility
for supply chain collaboration
It was reported that 43% of the customer complaints was
due to warehouse operation mistakes before. Nevertheless,
the operation accuracy has been improved to just 11% of
complaints after implementation.
Efficient planning and utilisation of space delivers
improved warehouse inventory visibility. Making optimal
use of warehouse space is essential to having an efficient
and effective warehouse management system. To
effectively manage the warehouse space, WMS provides the
ability to individually determine for each bin whether it is
fixed or floating. Improved space utilisation was achieved
by logical stocking in different sized products.
WMS also provides detailed audit trail that measures
performance levels objectively, ensures employee
accountability and allows material flow to be easily traced.
It was found that the operations procedures at the
warehouse have been overhauled to adapt to new warehouse
management system. Business Process Reengineering
(BPR) has taken place. Maintenance department was
established for independent cycle counting process. The
WMS promotes knowledge sharing. It is clear the usage of
the logistics system have been embraced at all stages of
operations. The system has fundamentally improved the
warehouse’s services, internal and external relationships
reflected in the performance measures to help the
warehouse gain a competitive advantage. They are able to
alter the way in which the firm conducts its business or the
very business of the firm itself. These flexibility and
enterprise-wide approach has brought real agility to the
business, supporting strong business growth. The bottom
line of a WMS is the ROI it provides. By improving on
warehouse procedures, WMS makes the distribution centre
more competitive and profitable.
There are constraints faced by the distribution centre. For
the demand forecasting, poor demand forecasting processes
can result in excess inventory, stock-out and back orders,
and unable to forecast early-lifecycle and end-lifecycle parts
accurately. In term of inventory management, the
distribution centre experienced limited collaboration into
demand lead to poor inventory deployment, as the result of
lack of integration into sales data. At the lower stream flow
of operation in distribution and logistics, there is challenge
of inefficient distribution flow, logistics and warehouse
management processes that can result in long lead-time
from suppliers to customers and expensive total cost of
distribution. There is also bottleneck created by sub-optimal
processes and lack of end-to-end integration within.
In order to encourage the staff to further embrace to new
warehouse management system, long-term on-going
training is essential, the system must be designed with
regular programme enhancement to create awareness of the
gains of using technologies.
6.0 CONCLUSIONS
To maintain competitiveness, customer requirements are
met consistently, which are achieved by, among others,
enabling of more flexible processes with deployment of
radio-frequency technology, improved scope of delivery
with provision of same day delivery services, shorter
delivery lead time especially airfreight mode, increased
customer satisfaction with less complaints, inventory
visibility with higher inventory accuracy and cost
efficiencies with higher labour productivity while
minimising inventory investment which includes inventory
handling. Procedures have been established to monitor and
measure WMS activities.
It is concluded that WMS has a positive impact on
operations measures. Investments in WMS enable the
distribution centre to compete successfully against other
rivals in the market. To adopt the MIS, wireless barcode
embedded WMS in specific, it is necessary to have
corporate culture that supports complex operational
activities. BPR has to be enacted as such that the WMS and
associated physical operations are well integrated. WMS
implementation was crucial in bringing about reduction of
cost in operational level, and effective management in
management level, as well as improvement of the
company's competitiveness in strategic level. Companies
that manage warehousing of their products are expected to
implement WMS in order to maintain their competitive
edge in the global market place.
The case study is limited to a selected electronics parts
regional distribution centre. The flows analysed are the
physical (stock management and movements) and
informational flows that are associated with the service
parts distribution activities. Future studies may explore on
variety of industries to capture distinction in experience, by
focusing on consumer market based electrical appliances or
perishable fast movement consumer goods (FMCG).
Comparative studies can be conducted across industries, and
then the similarities and differences observed. Alternately,
measurement of intangible benefit can also be tested in
Malaysian industries.
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