What Is a Warehouse Management System (WMS)?

What Is a Warehouse Management System (WMS)?

WMS System


In today’s retail environment, it’s all about providing a great customer experience. 

Taking care of customers can make or break businesses. Customers are demanding faster fulfillment and have less tolerance for errors or late shipments. When there’s a problem, they aren’t shy about sharing it in review sites, on social media, or even on your website. 81% of customers say they read reviews and take them into consideration when making buying decisions.

Make too many mistakes and it can hurt your reputation. It might also cause you to get displaced from Amazon or other eCommerce marketplaces that are tightly managing their reputations.

A great customer experience doesn’t happen without a well-run warehouse. Creating an efficient warehouse takes planning, persistence, and constant attention. To maximize efficiency, optimize staffing costs, and keep things running smoothly, it also takes a robust warehouse management system (WMS).

Not only will warehouse management software help you improve the customer experience, but it can also save you time and money.

What Is a Warehouse Management System (WMS)?

A warehouse management system (WMS) is a type of software used to manage operations in a warehouse including inventory management, picking processes, reporting, and auditing. Your WMS is an instrumental part of your warehouse supply chain.

The supply chain starts when you order items from your suppliers. Your warehouse management system works with your inventory management system (IMS) to track each item’s journey through your ecosystem as it is received, stored, picked, packed, and shipped.

When items arrive, they are entered into your system. Your warehouse management system will track items as they are stored. When it’s time to ship, it can use real-time inventory data to create paperless and optimized routes for pickers to retrieve items.

The best WMS will account for SKUs and can also manage kits and bundles. Every step of the kitting process will be automated, including streamlined manufacturer print-to-order features.

If you have multiple warehouses, your WMS can manage different locations. It can track items regardless of where they are and facilitate the movement of items between warehouses for proper order fulfillment. A typical warehouse network might include:

  • A central warehouse
  • A regional warehouse
  • Retail warehouses

The Central warehouse might receive goods and transfer them to the appropriate Regional warehouses where they are held until needed by the Retail warehouse. With the right WMS, one system can track items across all locations.

Why Is a Warehouse Management System (WMS) Important?

The objective of a warehouse management system is to provide a set of computerized and automated procedures to improve your efficiency and minimize costs.

Core Components of a Warehouse Management System

The core components of a warehouse management system will handle receiving and returns, warehouse logistics, third-party software integrations, and provide robust forecasting and reporting tools.

Receiving and Returns

A WMS will record the receipt of stock and returns into a warehouse facility. An efficient WMS helps companies cut expenses by minimizing the number of unnecessary products in storage. Similarly, a WMS assists in preventing out of stocks and oversells by maintaining accurate real-time quantities.

One of the warehouse management software’s primary purposes is to maintain the proper balance of inventory.

Warehouse Logistics

Modeling and managing the logical representation of the physical storage facilities and racking will also be handled by your warehouse inventory system. 

This is typically a place where a WMS can significantly improve efficiency. It’s easy to see how any efficiency can significantly provide cost savings.

Labor costs account for 65% of most warehouse operating budgets. If you can make your warehouse employees more efficient, it reduces your operating costs. Travel time to retrieve goods can make up as much as half of the time spent in the picking process.

If you can reduce the amount of time your pickers spend walking rather than picking, you can improve your productivity by saving time and money. With hourly wages for warehouse workers rising steadily, even small efficiencies by your WMS can result in big savings.

For example, optimizing your warehouse might include processes, such as grouping products that sell together physically close to each other or placing your most popular items near the delivery area to speed up the process of picking, packing, and shipping to customers.


You will need to enable a seamless link to order processing and logistics management in order to pick, pack, and ship product out of the facility efficiently.

You will want warehouse inventory software that integrates with channel management software to track sales across various online marketplaces. It should also integrate with a wide variety of industry-standard software you need to manage your business, like online marketplaces, shipping solutions, and online store platforms. 

Here’s a look at SkuVault’s network of integrations.

Reporting & Forecasting

Tracking product locations, supply chains, and storage is another important feature of warehouse management software. This allows you to optimize your inventory and maximize your warehouse space.

Reporting and forecasting tools let you make better business decisions based on data. The reports generated by the inventory management system shows which SKUs are selling best or fastest, optimal pricing and stock levels, historical data, and more.

The Benefits of a Warehouse Management System (WMS)

Warehouse management software, working with an inventory management system, can provide a bounty of benefits.

1. Accurate Inventory Counts

When your inventory counts are off, it can cause chaos. Frustrated customers are unable to get their orders. This leads to lost sales and potentially lost customers. Just as important is avoiding overstocks. When you’ve got more inventory sitting on the shelf than what you need, you are tying up capital that could be put to use elsewhere. 

Barcode scanning for SKUs and locations means accurately accounting for each item and helps create optimal siting and picklists.

2. Reduces Human Error

Across the industry, human error is regularly cited as the most prevalent root cause of inventory fulfillment issues. Whether it’s misplaced or lost stock, inaccurate inventory counts, or mispicks, human error costs time and money.

A WMS reduces human error by automating many of the routine tasks that would otherwise have to be done manually. Also, if warehouse team members accidentally pick and scan the wrong item, your warehouse inventory software will flag it to be corrected.

When you consider that the average cost of a fulfillment error is between $35 and $50 per item, mistakes add up quickly.

3. Sync Across Platforms and Software

To be efficient, your inventory needs to be reflected accurately in every system. It sounds simple, but it can get complicated quickly – especially for multi-channel sellers. Your WMS and IMS will be able to sync inventory across channels, platforms, 3PLs, and third-party software from the time it enters the warehouse to the time an order is shipped.

Most warehouse management systems will let you scan items but a fully-integrated WMS will also link to the other tools you need to run your business efficiently.

4. Faster Ship Times

Amazon has set a high standard for retailers. They offer a wide variety of products at different price points and fast shipping. They’ve set the standard by which all retailers are now being judged. 

To be competitive in today’s retail environment, you need to be able to ship accurately and swiftly. Consumers now expect the same or better service from any retailer that they get from Amazon. 90% of consumers want the option for same day delivery. 65% of retailers say they plan to offer it within the year.

Your WMS integration can help keep products shipping smoothly and on time. How important is that?  13% of consumers report that all it takes is one late shipment and they will never do business with you again.

5. Improved Customer Experience

An integrated WMS lets you manage your entire supply chain to ensure you’ve got the products you need in the right places when your customers place an order. With data synced across marketplaces and platforms, you can build a more customer-centric business. You will be able to track any order at any stage in real-time to provide an improved customer experience.

6. Improved Accountability

Deploying a warehouse inventory system, each warehouse employee will have individual logins. This allows you to create audit trails that link to each user. If there’s lost inventory, you will be able to track the team member that handled it.

7. Continuous Improvement

In software development, there’s an agile practice that strives for Continuous Improvement (CI). The theory is that incremental improvements in code over time improve performance and user experience. The same goes for managing your warehouse.

A WMS lets you optimize your warehouse layout to maximize efficiency. Robust reporting tools will help you set benchmarks for productivity and track improvements over time.

Best Practices for Implementing a Warehouse Management System (WMS)

While the benefits of a comprehensive warehouse inventory system are many, the implementation process itself can be complex. Project planning is crucial to a successful deployment.

Before you can launch your warehouse management system, you will need to research your physical warehouse(s), inventory, materials, and processes. You will need to define how you want your warehouse to run. And, you will need to implement the WMS while keeping your warehouse running day-to-day.

Keep an open mind when you’re in the middle of this process. There will likely be changes to your physical layout, storage, and/or racking to optimize operations. Now is not the time to fall back on doing things the way they’ve always been done. Deploying a warehouse inventory system should not seek to replicate current processes but to streamline workflow for the most efficient operations.

Establishing KPIs

With your WMS in place, it’s important to establish the Key Performance Indicators (KPIs) to provide insight into your operations. While there is any number of KPIs you can track, here are a few examples of the metrics most warehouse operators find significant.

1. Accuracy

Obviously, inventory accuracy should be your top KPI. When inventory is inaccurate, bad things happen. Physical inventory counts, cycle counting, batch counting, and wave counting can all indicate your level of accuracy. Establishing KPIs for continuous improvement can monitor performance against goals.

This goes for accuracy in inventory as well as accuracy in fulfilling orders. Misplaced stock, lost stock, mis-picks, and mis-ships should all be tracked for accuracy. This helps you identify system issues and personnel issues that can be addressed.

2. Stockout Rate

When a customer wants a product and you don’t have it in stock, you’ve lost a sale. From your supplier to your warehouse to your customer, you need to track how often it happens and why.

  • Is it because you don’t have the right amount of safety stock on hand to fulfill orders while waiting on incoming stock? 
  • Is it because you didn’t account for seasonal variances or consumer trends? 
  • Is it because you failed to order replacement items on time or your supplier is unable to fulfill orders? 

Tracking this rate and diagnosing problems can help firm up your supply chain and avoid stockouts.

3. Aging Product

In a perfect world, we would have exactly the right amount of inventory to fulfill orders – not one item more than we need and not one item less. Of course, this isn’t realistic. However, the closer we can get to the magic number, the better our cash flow (and profits) will be.

Tracking your Weeks on Hand with your warehouse inventory software can help you better forecast and optimize inventory.

4. Carrying Costs

Every item on the shelf takes up space. Every moment it sits in your warehouse it is costing you money. There’s a cost for the storage space in your facility, the labor it takes to track it and move it, insurance, and more. These carrying costs can add up quickly if you’re sitting on excess stock.

Carrying costs impact your profitability, so tracking this KPI is important.

5. On-Time Shipments

On-time shipments make for happier customers. Tracking this KPI helps you judge the efficiency of your operations and set goals for improving performance in vital areas.

The KPIs you track will vary depending on specific warehouse operations and what you are trying to improve and provide a roadmap to continuous improvement. For example, if you are seeing a high number of returns, you’ll want to use the rate of return as a KPI to see whether changes in systems can positively impact return rates.

Common Questions about a Warehouse Management System (WMS)?

Here are some of the most commonly asked questions about using warehouse inventory software.

How Difficult Is It to Use a WMS?

Setting up your warehouse management system takes a fair amount of work on the front-end. Once it’s set up, however, the system will operate smoothly with minimal training. It’s a fairly intuitive process.

How Do I Calculate the Right Amount of Safety Stock?

Forecasting the exact right amount of stock can be one of the more challenging tasks for retailers. Keeping too little or too much extra inventory on hand between shipments creates problems. The good news is there’s a formula for that. Here is a good primer on how to calculate the right amount of safety stock.

What’s the Difference Between Batch Picking, Wave Picking, and Zone Picking?

These are all different approaches to picking inventory in the warehouse.

In batch picking, pickers collect items for multiple orders at the same time rather than handling orders individually. Zone picking strategies focus on pickers working specific sections to speed picking. Orders are passed to adjacent zones when completed. In wave picking, orders are grouped and picked in batches at specific intervals. Orders might be grouped for picking based on shipper deadlines or carrier ship times.

There’s also a process called Hyper Picking using bin location systems to create optimal routes utilizing bin capacity.


Optimizing your warehouse operations using the right WMS can be a difference-maker for your business – especially during a time when customer expectations continue to escalate.

67% of customers say their standards are higher than ever while more than half (51%) say most companies fall short of those standards. Improving your warehouse operations can help meet customer demands and grow your business.




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