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Warehouse Management System and Business Performance: Case Study of a

Regional Distribution Centre

Conference Paper · January 2009

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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: [email protected]

ABSTRACT powerful and flexible automatic identification system that

connects the shop floor to the enterprise software.
This paper examines Warehouse Management System (WMS)
practices and their effects on operations. This study analyses By integrating advanced radio frequency and bar coding
the relationship between adoption of WMS to its impacts on technologies with core warehousing functionality, WMS
business performance and competitive advantage of a provides comprehensive fulfilment centre and warehouse
regional distribution centre. In terms of business management, including receiving, stocking, picking and
performance, the focus is placed on various competitive related warehouse tasks. The best-of-breed solution
cores of distribution centre. WMS was found has a positive leverages state-of-the-art technology to deliver all of the
impact on companies' performance on operations functionality needed to maximise operational efficiency and
management measures. To adopt the MIS, wireless barcode increase throughput, thus meet the primary focus of
embedded WMS in specific, it is necessary to have corporate warehouse in accuracy and timely fulfilment of customer
culture that supports complex operational activities. WMS orders.
implementation is crucial in bringing cost reduction in
operational level, effective management in management 2.0 LITERATURE REVIEW
level, as well as improvement of the company's
competitiveness in strategic level. Companies that manage Literature review reveals that organisations must be capable
warehousing of their products are expected to implement of fast, radical changes and those that aspire to be best must
WMS in order to maintain their competitive edge in the lead in changes. According to Oxley (1990) efficient
global market place. management information system means (a) Quickly and fast
response to change, (b) Accurately, (c) Minimum clerical
Keywords effort, (d) Up-to-date, and (e) Available where and when
Management Information System (MIS), Warehouse needed. Orlikowski and Robey (1991) study systems
Management System (WMS), Logistics Information System, development and the organisational consequences of using
Barcode, Regional Distribution Centre IT based on Gidden’s theory of structuration. Powell and
Dent-Micallef (1997) investigate linkages between IT and
1.0 INTRODUCTION firm performance.
Benefits realised from information technology
Availability of information technology will enable communication are information availability, labour pricing
accessibility of more efficient communication and control, and material tracking (Peters, 1994). Boyson, et al (1999, p.
which is essential to a competitive global logistics 14) reported benefits from a more open information flow as
capability. The impetus for strategic use of Management (a) Improve planning, (b) Develop active operations, (c)
Information System (MIS) has been highlighted as the Smooth product flows, (d) Time cost, and (e) Improve
world transits into a global village. There is growing service. Yaoa and Carlsonb (1999) concluded that better
research interest in the use of MIS as a strategic weapon by inventory control reflected in increased inventory accuracy
organisations. Globalisation and competitive pressures and timeliness of real-time data permits the distribution
have heightened the impetus for strategic use of MIS. More activities to be performed with confidence and improved
specifically, Warehouse Management System (WMS) profitability. Barut, Faisst and Kanet (2002) measure the
designed to introduce improvement into every aspect of a magnitude and the effectiveness of logistics information to
company’s warehouse operations offers an organized firms in both directions of the supply chain. Ahmad and
approach to manage efficiency. Bar code data collection Schroeder (2001) analyses on the benefits gained from
solutions for warehouse management system provides 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) • At the right time: a distinction is generally made
incorporate intangibles e.g. improved customer service into between urgent deliveries and replenishment
traditional cost benefit analysis in an ERP project. Kuo and operations
Smits (2003) identify factors that improve the performance Logistics Management System, more fondly known as
of integrated supply chains performance, while Evans, Warehouse Management System (WMS) is a MIS
Towill and Naim (1995) concluded that SCM could be investment in a warehouse. SAP is the abbreviation of
enhanced through Business Process Re-engineering (BPR) System for Application and Products. The distribution
characteristic of not afraid to be radical with respect to centre’s Warehouse Management System (WMS)
internal integration and continually search for step change developed by a local software house. For information flow,
improvement ideas. Attaran (2004) examines relationships customers place sales orders via the linked SAP system
between information technology (IT) and BPR, arguing that which in turn are passed on as outbound delivery actions.
those aspiring to do BPR must begin to apply the This delivery information is then processed by WMS and
capabilities of IT to reap benefits for successes. made available on each user’s RF scanner. Orders are
picked, boxed and printed despatch labels and routes for
3.0 METHODOLOGY shipping. Completed delivery confirmation documents are
then transmitted to the SAP server and from SAP to notify
Single-case study approach is applied in this study to the customers.
understand the system being examined in the period of time
available. The primary aim of this paper is to analyse in- The distribution centre has replaced its older, host-based IT
depth to provide description and interpretation of business structure with a client / server architecture with
performance improvement in multi-perspectives that is implementation of SAP R/3 System, and development of
induced by implementation of warehouse management new stand-alone warehouse management system in a
system. Evidence of data is collected from multiple sources consolidated warehouse. Transactions can either be
including documentation, archival records and direct executed at local PC or via a portable RF terminal, thus
observation. making critical information immediately available. The
workers need wireless terminals with real-time radio
4.0 CASE DESCRIPTION communication to the Warehouse Management System. It
requires radio frequency (RF) network and a
communications server on the network. Operations
The distribution centre of study’s holding company, Sharp
functions can be performed from either a windows-based
Corporation, has been involving in TV manufacturing for
workstation, hand-held RF mobile computers or any
more than fifty years and pioneer in LCD technology for
combination of the two simultaneously.
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 4.1 Configurations
centre, is procurement and distribution of service parts for
both business and consumer electrical appliances. The SAP and WMS are linked by lease line from the distribution
distribution centre has been in business in operation of centre office in Shah Alam and warehouse in Port Klang.
distributing electronics parts worldwide since 1995. This The server that interfaces with WMS server is the
business focuses on product quality and customer Application Server known as of SAP R/3 system furnished
satisfaction. The business unit is among its counterparts. with modules Sales and Distribution (SD) and Financial
Value-added services of the distribution centre is to provide Management (FI). The WMS server hardware is HP server
‘pick and pack’, and individual packaging. Quality with Server / Client OS Windows NT server. The WMS is
management improvement programme is implemented to VB program with an MS SQL Database 2000 on a
aim for zero defect through 5S, QCC activities and Windows NT operation system platforms using client/server
ISO9001: 2000 Quality Management System. ABC network architecture that provides a standard suite of
Management is applied in Inventory Management. products. The Minimum hardware requirement is PC with
LAN card (NIC – 10/100 mbps). They are over 70 end-
The distribution of electronics service parts revolves around users are linked to the WMS application. The mobile
a certain number of physical (materials) and informational device is connected to the network using radio frequency
(communication) flows that enable actor to source: (RF) standard of 802.11b (11 mbs) and will communicate
• The right parts: service parts having increasingly using TCP/IP. The protocol used is TCP/IP. Through the
become an integral part of electrical modules adoption of these standards, the application has been made
• In the right place: physical service parts of from device independent, permitting the organisation use a wide
manufacturers to dealers usually transit via variety of mobile devices. The Bar code printer
distribution centre manufacture is Sato, and the data input devices
manufacturers are Denso (Batch Handy Terminal, BHT) WMS enables real-time tracking of receiving, storage and
and Fujitsu (Radio Frequency, RF terminals). immediate access to information on combined statistics of
weight and lines for a specified customer.
4.2 Host Interfaces

Interface Features:
• Interfaces easily with host-based systems 4.4 Outbound Logistics
• Real time and /or batch host integration
The outbound processes use Radio Frequency (RF)
• Inventory interfaces terminal. Outbound System Features are:
• Order interfaces • Orders accepted from any host systems
• System directed pick and real-time verification
Delivery data will update stock and the order data files. • Packing Lists
Receiving order receipts will update stock, and the order • Track and process customer orders
data files. The dispatch records will be used to update
• Supports prioritising orders
picking lists with the confirmed quantities. If there is a
discrepancy in the stock, the ‘amend dispatch quantities’ • Weight capture at picking
option can be used to reduce the picking list quantity. • Pick to Pack
Hence, these interface data enable the distribution centre to • Picks confirmed through shipping process
manage effectively the coordination of information • Interfaces to SAP to confirm the shipment orders
including demand, capacity, inventory and scheduling,
Customer orders are automatically allocated, and delivery
4.3 Inbound logistics order is also automated by linking the picking ticket to
terminals. The standard printed picking list will be used by
The inbound processes use Batch Handy Terminal (BHT). the warehouse for the dispatching of stock. The number will
Inbound System Features are: be entered into the scanner where bar code for each item on
the picking list will be scanned. A quantity will be entered
• Receipts immediately visible and tracked from arrival
via further bar codes scanned.
• Receipts referenced by PO
• Directed Put Away
4.5 Inventory Management
• Location verification to ensure correct placement
• Pre-receiving via manual entry or electronic data Inventory Management Features are (a) real-time storage
interchange (EDI) usage, and (b) security through user passwords and access
• On-line validation against PO information authority levels. Stock take will be performed for the entire
• Receiving Discrepancies Report warehouse. The scanner will allow entry of a location
• Cycle counting for partial inventory checking reference via the scanner. Bar codes would then be scanned
• Verification of physical counts and storage accuracy and either a quantity entered or further bar codes scanned.
• Cycle count post or reissue
• Adjusts warehouse and SAP inventories 4.6 Management Reporting

The Reporting Features are:

When checking in items, WMS notifies warehouse staff if a
received good is needed to fulfil a customer backorder. In • View storage utilisation in real-time
this event, instead of moving the item to storage location, it • Ad hoc query function
is prepared for shipping directly to the awaiting customer. • Export to text, Excel and CSV text files
• Detailed Item (SKU) Report
Receipt from supplier occurs when the goods deliver to the • Detailed Locations Report
warehouse, and the bar codes should be attached to the • Receiving order status
items that will then be scanned into the warehouse. The • Shipping order status
incoming instruction number and the quantity will be
entered into the scanner, and the bar code will be scanned.
Distribution systems in globalised competitive environment
Inbound part is matched against expected receipts according
cannot tolerate delays in data capture and reporting of
to receiving tolerances (date, quantity, and ship-to-location).
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 satisfaction, a more efficient order handling process, and
analyse logistics management. Therefore, availability of keeping warehouse management costs to a minimum.
these management reports and analysis enables quick and WMS allows capturing important information on the items
better decision-making and prioritisation. such as weight, expiration date and more.

Other benefits obtained are that real time radio

communication enables real time stock updating. This in
5.0 CASE ANALYSES AND DISCUSSION turn prevents re-picks or waiting time due to empty picking
faces. Cycle counting can built in to the replenishment task,
Radio Frequency WMS that utilises bar code technology improving the efficiency of the stock checking process. The
have many advantages. The following is a list of the most improved accuracy of stock recording leads to improved
common benefits that directly result from implementing a service level and less time spent investigation stock
WMS. discrepancies.

Leveraging RF-based bar coding technologies and seamless The provision of information at the website is a good
integrating with order entry, WMS tightly orchestrates these channel for the distribution centre (DC) to fulfil the needs of
activities. WMS provided better workload control for view their customers and hence improve customer relationship.
of completed and upcoming activities. While checking in Real-time information eliminates waste and redundancy.
received good, it is prepared for shipping directly to the Fill Ratio has been improved from 82.3% to 86.3%. It
awaiting customer if the item is needed to fulfil a customer increased customer satisfaction resulting from fewer
backorder, while eliminating the introduction of fulfilment errors. EDI requirements support through WMS
transcription errors. It reduces labour costs and increases automatically providing detailed shipping information. It
productivity. In average incoming cycle has been reduced allows for real-time communication and complete visibility
from average 3.71 days to 1.02 days. It was observed that for supply chain collaboration
the lead-time has been reduced by 73% in the period.
It was reported that 43% of the customer complaints was
The final phase of receipt and put-away processing is the due to warehouse operation mistakes before. Nevertheless,
automated update of purchase orders and inventory the operation accuracy has been improved to just 11% of
information into SAP that eliminates manual intervention complaints after implementation.
and errors, while providing accurate and up-to-date
inventory control. It reduces safety stock, stock shrinkage Efficient planning and utilisation of space delivers
and spoilage. Administrative is improved because the work improved warehouse inventory visibility. Making optimal
of printing and distributing picking lists or labels is use of warehouse space is essential to having an efficient
contained, as is the task of keying in picking confirmations and effective warehouse management system. To
and picking amendments. WMS offers a streamlined effectively manage the warehouse space, WMS provides the
shipping solution that produces shipping labels, picking ability to individually determine for each bin whether it is
slips, carton content labels and advanced shipping notices fixed or floating. Improved space utilisation was achieved
eliminating errors in transcription from customer order. by logical stocking in different sized products.
The Outbound lead-time for air freight (AF) for subsidiaries
has been reduced from 9.94 days to 4.29 days, which is a WMS also provides detailed audit trail that measures
reduction of 57%. The WMS provides a fast order handling performance levels objectively, ensures employee
process to keep distribution costs to a minimum. accountability and allows material flow to be easily traced.

WMS reducing human errors inherent in manual and paper It was found that the operations procedures at the
based systems. Inventory Accuracy improved from 98.34% warehouse have been overhauled to adapt to new warehouse
to 99.52%. This occurs by allow access all departments management system. Business Process Reengineering
within company to the same set of accurate inventory data. (BPR) has taken place. Maintenance department was
The WMS offered physical scanning of items, locations and established for independent cycle counting process. The
boxes so that the contents of any order or storage location WMS promotes knowledge sharing. It is clear the usage of
can be viewed in real-time. Floor workers connect to the the logistics system have been embraced at all stages of
WMS data using wireless RF terminals, which customer operations. The system has fundamentally improved the
services users and business analysts access through a GUI warehouse’s services, internal and external relationships
interface to check delivery status. Transparent and accurate reflected in the performance measures to help the
inventory data allows employees in distribution, warehouse gain a competitive advantage. They are able to
procurement and warehouse departments to work from the alter the way in which the firm conducts its business or the
same information, thereby ensuring greater customer very business of the firm itself. These flexibility and
enterprise-wide approach has brought real agility to the implement WMS in order to maintain their competitive
business, supporting strong business growth. The bottom edge in the global market place.
line of a WMS is the ROI it provides. By improving on
warehouse procedures, WMS makes the distribution centre The case study is limited to a selected electronics parts
more competitive and profitable. regional distribution centre. The flows analysed are the
physical (stock management and movements) and
There are constraints faced by the distribution centre. For informational flows that are associated with the service
the demand forecasting, poor demand forecasting processes parts distribution activities. Future studies may explore on
can result in excess inventory, stock-out and back orders, variety of industries to capture distinction in experience, by
and unable to forecast early-lifecycle and end-lifecycle parts focusing on consumer market based electrical appliances or
accurately. In term of inventory management, the perishable fast movement consumer goods (FMCG).
distribution centre experienced limited collaboration into Comparative studies can be conducted across industries, and
demand lead to poor inventory deployment, as the result of then the similarities and differences observed. Alternately,
lack of integration into sales data. At the lower stream flow measurement of intangible benefit can also be tested in
of operation in distribution and logistics, there is challenge Malaysian industries.
of inefficient distribution flow, logistics and warehouse
management processes that can result in long lead-time
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