Retailers, both traditional and eCommerce, use inventory management or warehouse management tools as integral parts of their workflow.
However, both systems have distinct similarities and differences.
Here’s the long and short of it:
An Inventory Management System (IMS) has one core set of features that focuses on tracking inventory levels.
A Warehouse Management System (WMS) must not only track the flow of inventory but also calculate real-time available quantities, automate purchasing and receiving, and track employee accountability.
It’s understandable to use the terms interchangeably, but it’s important to have a clear understanding of the differences between the two.
In this comprehensive post, we’ll explore:
- The differences and similarities between an IMS and a WMS
- How to choose the right tool to accomplish your goals
- The specific feature sets you’ll need in your tool of choice to accomplish your goals
Why is it Important to Understand the Difference?
The majority of cost in a new system is the implementation, not the cost of the software. This is why it’s critical that you have a firm grasp on your goals and how a digital tool can help you reach them.
You’ve got to train your people, tweak (or potentially overhaul) your processes, and sometimes coordinate with several departments. The ROI on these costs can be huge, though.
Increased customer satisfaction, lowered labor costs, and reduced waste will be just a few of the fruits of your labor.
Choosing a growth-friendly system
Many systems have lots of process flow options that can help you through multiple stages of growth, whereas other systems are built only for one company size.
This can be fine if you’re not a fast-growing company, but if you are, don’t fall into this trap.
On the flip side, too much system for your needs can be overkill. If you only need an IMS now but intend to need more in the future, many companies will offer a limited feature set version at a lower cost.
As a general rule of thumb, you’ll want to base your purchasing decision on your growth goals anywhere from three to five years in the future.
Excel Sheets Won’t Work Anymore
Excel is a powerful tool and an enduring staple of businesses in every sector. The problem arises when you try to use it to manage complex processes and people.
The lack of control and inter-departmental workflows simply does not scale. With growth comes complexity and the need for automation.
And while Excel admittedly allows for some powerful automation features, its limitations are quickly felt when companies want to scale.
The operation will inevitably outgrow the homemade Excel system, and things start falling through the cracks. Not to mention the fact that with a custom system, you’re the IT support. There’s no support staff to submit tickets to; you must keep it running.
Couple this with the lack of transparency, formatted data, and accountability, and it’s a recipe for all kinds of confusion.
Bottom line: if you want to succeed in scaling, it’s imperative to automate and streamline manual processes with software.
With that said, let’s start by examining the benefits of implementing an Inventory Management System.
The Basics of an Inventory Management System
The goal of any good IMS is to simply and efficiently track an operation’s inventory flow. The user interface should be so intuitive so as not to necessitate training.
Specifically, an effective IMS communicates two key metrics:
- All items in the warehouse
- Where to find them
This may seem simple, but just being able to say that you know exactly what you have and where you have it puts you ahead of many eCommerce businesses.
In fact, when we work with eCommerce leaders, the most consistent pain point we hear from them is, “I have no idea what’s in my warehouse or where to find it.”
Achieving the necessary buy-in
Any new system will require buy-in and time investment from you and your end-users (usually warehouse employees).
The best way to win buy-in from your team is to convey the value an IMS will afford them in their daily workflow. The benefits don’t just rise to the top. Employees will also enjoy a more streamlined and less stressful work environment in their day-to-day responsibilities.
This, coupled with the backing of management, should make for a smooth implementation with huge benefits to morale and the bottom line.
The Benefits of an Inventory Management System
As mentioned above, there is significant value in knowing exactly what products you have on hand and where to find them.
Consider this example:
A few years back, we worked with a large manufacturing operation that had 87% late orders, mostly due to not having the required raw materials when they needed them.
Eight months after implementing a simple IMS, their late orders were consistently under 10%.
Knowing what you have is a must if you want to do any type of planning, forecasting, or purchasing.
It’s also crucial for your fulfillment times. This is a core function of any warehouse and is a perfect first step coming from no system or Excel.
Other essential features of a good IMS include the following:
- Quantity Tracking
- Inventory Level Reporting
- Simple Picklist Routing
Utilizing an IMS for product locations and routing
Routing and locations are especially powerful features of an IMS that significantly reduce warehouse waste.
Simply put, when the IMS is keeping track of everything, products can go anywhere. Gone are the days of making sure all of one brand and product type are grouped together.
When stock arrives, just place it anywhere. You no longer need to worry about grouping similar items when you have an IMS that tracks all this data for you. This saves tons of wasted time on physical inventory reallocation.
The subtle inefficiency of physical inventory reallocation
Physical inventory reallocation is the act of moving goods around in a warehouse (or between warehouses).
While some of this is necessary and adds to productivity and reducing ship times, the majority of that happens when a good system is not in place and is a complete waste of time and resources.
It’s the warehouse equivalent of moving the trashcan to the other side of the driveway. Paying someone to move products around within the same warehouse to keep things “in order” does not help the bottom line.
How to Choose an Inventory Management System
Now that we’ve discussed some of the benefits of implementing an IMS, it’s time to talk through how to choose the right one.
The astute reader may be scratching their head in confusion as to why they’d want an IMS over a WMS. After all, in my definition listed above, didn’t I just write that a WMS is a more full-featured version of an IMS?
This is true. But smaller companies can get a ton of benefit from an IMS without the complexity (or cost) of a full WMS.
It can accomplish and hone the basic skills of running an inventory operation and should not require much overhead or training. It’s a logical first step for smaller operations to get a handle on their inventory.
Larger businesses can also be ideal IMS candidates if they’re coming from no system, extremely outdated processes/systems, or have reduced complexity environments.
If you enjoy a low SKU count but high volume per SKU and don’t need to worry about stock-outs or re-ordering, then an IMS should be more than suitable to accomplish your goals.
It’s also worthwhile to explore if any WMS can provide the IMS features you need now at a low cost so when you grow, you can expand the usage of your system into WMS territory.
There are a few companies out there with a low-cost version that gives you IMS features first, and then you can upgrade to full WMS later.
Bottom line: a system that can grow with you is always advantageous in the long run.
The Basics of a Warehouse Management System
As your warehousing operation grows, you’ll face increasing complexity in product movement and personnel concerns.
Growth also brings with it the necessity to pivot to other business models and sales channels. Scaling any business is enticing because of the exponential increase in profits. But with it comes an exponential increase in complexity.
At this stage of growth, a warehouse management system is critical for organizing processes and providing team members with a framework to get their work done.
The Benefits of a Warehouse Management System
A helpful way to conceptualize how a WMS helps is this: an IMS handles inventory, whereas a WMS handles workflows relating to inventory.
A WMS handles all the processes of your warehouse, whereas an IMS only handles one segment of those processes.
Beyond just tracking inventory flows, a WMS gives you a scalable platform that can be utilized to ensure capital is spent wisely and that metrics are hit for goals and performance standards.
Consider all the processes that happen in your average warehouse:
- Managers create a PO
- The warehouse receives the item(s)
- Employees stock the item
- A customer purchases the item
- Employees pick the item and send it through quality control
- Finally, it’s packed and shipped
Closely tracking these workflows and processes is crucial to succeeding and competing.
The right system can help you to accomplish your goals and focus on what is important to grow the business instead of constantly putting out fires.
In addition to the aforementioned benefits, here are some additional features of a robust WMS (such as SkuVault):
- Real-time Reflection of Available Quantities
- Advanced Pick Routing
- Quality Control
- Purchasing and Forecasting
- Advanced Reporting
- User Accountability
- Integrations to Sales Channels
- Kits, Bundle, and Case Pack capabilities
- Multi-DC capabilities
As you can see, a WMS encompasses everything an inventory system has, plus a lot more. For example, a WMS — traditionally an in-house system — has to know in real-time what is available to sell at any given moment.
Keep in mind that while some of these features may seem superfluous, your needs will change as your company grows. I’ve said it a few times in this post, but it’s worth repeating: make sure to invest in a system that can grow with you.
With that said, let’s dive into the most important features in the above list and how they can directly benefit your organization.
Efficiency through Pick Routing
If barcoding is the key to speed and accuracy, pick routing is the key to efficiency. The concept is simple: generate a pick list that eliminates as much motion waste as possible. That means no backtracking through the warehouse to find items and accommodating certain picking philosophies such as batch picking or wave picking.
For example, in SkuVault, pick routing is dynamic. It changes based on the following factors:
- Your warehouse size and number of active pickers
- What percentage of orders are multi-item versus single-item
- Your SKU velocity
Making this small, but powerful change will decrease human error and labor costs, as well as increase fulfillment speed and accuracy.
Customer Satisfaction through Quality Control
Quality control is such a critical step in every warehouse process. QC is truly the last line of defense to ensure customers receive the proper items and thus have a positive experience with your brand.
A good WMS will have thorough quality control features that help avoid mis-picks and damaged items. This is one of those steps that you don’t want to leave up to chance, but must depend on a reliable, digital system.
The hidden costs of messing this up eliminate any argument about the time saved by skipping this step.
Better Decisions through Data-Driven Reporting
Purchasing and forecasting utilize large data sets and reporting to assist in making good decisions. The reports are based on what you have on hand and sales history.
This can become a tedious process if you don’t have the proper data or system to enable this to happen consistently while scaling.
SkuVault, for example, offers reports on almost every metric you could want. This includes on-hand quantities, eCommerce sales volume on a per-channel basis, and FBA interactions.
Save Money with Powerful Receiving Features
Receiving is the act of unloading incoming inventory and tracking it against the packing list to ensure what was ordered and sent was received.
This information usually travels to the accounting or billing department and, in some cases, the purchasing department. This makes it another critical step for ensuring the accuracy of accounting ledgers and balance sheets.
Digital receiving prompts in SkuVault speed up this process and help employees quickly detect discrepancies. The next step in this process flow usually includes taking samples down one path and receiving the rest of the quantities into inventory locations.
Seamless Data Flow with Integrations
Integrations are crucial to ensure the correct data flow between your warehouse and the rest of your ecosystem. Your sales channels, shipping, accounting, ERP, CRM, etc., all need to talk together if you want to be competitive.
Make sure the WMS company you choose has the integrations you need and that they maintain them well. Updates, optimizations, and support of integrations must happen in a timely manner.
The last thing you want is to build out your WMS just to find out that integration with one of your key POS systems or storefronts is unsupported.
Stay Organized with Kits and Assembled Products
Kits and bundles let you group items together available for sale. The pick routing and quality control make sure you pick them efficiently and ship them accurately.
Case packs let you order and sell in common units or combinations of SKUs and quantities. Assembled products are groups of products pre-assembled in anticipation of sales as product groups.
Avoid Delays with Quantity Buffers
If your WMS manages your omni-channel quantities and multi-channel quantities for eCommerce, then quantity buffers are a non-negotiable feature. A buffer is an adjustment to the quantity that’s shown as available for sale and pushed out to your sales channels.
This concept is best illustrated with an example.
Let’s say Amazon, eBay, and your website is sharing quantities, and you get low, perhaps down to a quantity of one.
You may not want to share that last quantity on all of your online marketplaces.
If multiple buyers purchase the same item that has a quantity of one left on two different marketplaces, you will have an oversell. No one likes oversells.
A quantity buffer on that product SKU communicates the following logic to the system: “If you get down to quantity X (“one” in the above example), then push that quantity to marketplace Y (whichever you choose),” thus preventing an oversell on other storefronts.
Oversells can forever damage your reputation to customers, making this feature essential for maintaining and growing your eCommerce success.
How to Choose a Warehouse Management System
If you find yourself struggling with any of these workflows, then you’re likely ready for a WMS upgrade. Mid-sized and growth businesses will see huge ROI with a successful WMS rollout.
In fact, you’ll likely kick yourself for not implementing it sooner.
To put a finer point on it: if you’re tracking quantities but find yourself wondering why you must spend so much time chasing fires in your warehouse operations, then you know you are past due.
Some Considerations for Multiple Warehouses
Multiple distribution center (multi-DC) handling sounds simple, but doing it right can become a chore without automation and processes.
Companies that have or utilize multiple warehouses across the world have more complex needs to keep things organized and flowing properly.
Product may need to be stocked at all locations to reduce ship times to end-consumers. Orders need to be routed to the closest geographic warehouse in relation to the final destination. Purchasing should help automate decisions for determining quantities to send to each warehouse.
All of these features and more are required to run efficient multiple warehouses to build, assemble, pick, pack, and ship operations. And they can all be accomplished with a WMS like SkuVault.
Selecting the Right System for Your Goals
As I’ve mentioned in this post, the first step is understanding your pain points and your goals. Make a list of all the inefficiencies in your warehouse. Then, on the same piece of paper or document, make a list of all your growth goals.
Where do you want your business to be in a year? Five years? Ten years?
Do your research, and most importantly, pick a company you can trust and will treat you as a partner as you both grow.
To summarize, a startup can get by with an IMS, but as they grow, they will need to transition to a WMS. Choose a WMS that can relay your inventory information accurately and on time to users and across integration platforms.
And don’t forget – your biggest ally in a WMS is their support team. Take advantage of their expertise and let them guide you to a bigger and better operation down the line.