WMS: To ERP or Not to ERP - Part 3 (The Seamless vs. Unseemly Decision)

The emergence of reasonable enterprise resource planning (ERP) warehouse management systems (WMSs) provides companies with additional alternatives to consider, but availability must not be confused with applicability. Although a company's ERP provider might offer a sufficient WMS, this fact alone should not automatically impose it as the WMS of choice.
Written by Dwight Klappich, Contributor

The emergence of reasonable enterprise resource planning (ERP) warehouse management systems (WMSs) provides companies with additional alternatives to consider, but availability must not be confused with applicability. Although a company's ERP provider might offer a sufficient WMS, this fact alone should not automatically impose it as the WMS of choice.

META Trend: Through 2003/04, Global 2000 companies will augment their current application portfolios with narrowly focused, high-ROI supply chain components. During 2005/06, emphasis will center on improved decision making and visibility, with increasing interest in SCM planning solutions. By 2006/07, increased intelligence delivered in supply chain execution systems will shift importance from infrastructure repair to process optimization.

Companies considering a new WMS are now faced with having to weight integration (e.g., seamless [single vendor], unseemly [multiple vendors/products]) against other evaluation criteria. As indicated in previous research, we believe Tier 1 ERP vendors now offer WMS products that can functionally support up to Level 3 and sometimes Level 4 warehouse environments. This fact might be construed to mean that ERP vendors (i.e., the “seamless choice”) should always be the first choice for companies fully committed to a single ERP platform. However, while integration and a single-vendor solution are indeed important evaluation considerations, companies must not overemphasize them against other equally important criteria when evaluating both ERP/WMS and best-in-class solutions (i.e., the “unseemly solution”). Without question, a common ERP/WMS solution has advantages, but companies must develop a selection methodology that places them in the proper context with numerous other important evaluation criteria (see Figure 1). We believe companies with Level 3 or greater warehouse management requirements should also evaluate best-of-breed (BOB) WMS vendors.

The desire for an integrated fulfillment process flow will certainly favor ERP/WMS solutions. That being said, even with the unseemly integration requirements of BOB WMS solutions, they have other advantages (e.g., product functional depth/breadth, vendor domain expertise, vendor focus on/commitment to the WMS market) that, in many cases, outweigh the pain of integration. In addition, while tier 1 ERP vendors are typically bigger and have fewer viability concerns and larger resource budgets (i.e., R&D, marketing, staffing), they do not directly correlate to investments in tangential areas such as WMS. WMS must compete for resources and funds with all other application areas, so although the budget might be larger, the overall breadth of ERP currently dilutes the allocation of this to any one area. On the other hand, BOB WMS vendors have the advantage of focus. BOB WMS vendors primarily target the warehousing and related fulfillment (e.g., transportation) areas, so their investments can be more directly correlated to WMS. Consequently, although their total budgets are smaller, we find that top WMS vendors lead in innovation (e.g., incorporating new value-add capabilities, evolving to adaptive architectures, extending functional depth, enhancing user experience) and offer more value-added services to customers (e.g., objective-driven implementations, training/education, support, user-driven R&D).

Starting in 2003/04, companies biased toward integration and single-vendor ERP/WMS will favor ERP vendors and will drive increased focus on ERP/WMS solutions. However, through 2005-07, we also believe functional and environmental conditions, combined with many companies’ need and desire for innovation and vendor expertise, will sustain a handful of BOB WMS vendors (e.g., Manhattan Associates, Red Prairie, High Jump, Provia).

Both ERP and BOB WMS have advantages, making the buying decision complex. Companies should consider the following:

  • Product: Obviously, product issues are critical in all software selection methodologies. With WMS, we find that companies often develop their functional criteria based on current functional requirements and do not place enough emphasis on product architecture and overall product breadth/depth. Indeed, we feel there is a delicate balance between overselecting (i.e., considering too many features) and underbuying for the long haul. We do believe adaptability is critically important given the accelerated pace of business change, and most companies need to weight adaptability much higher in their evaluations. First, when evaluating core functionality, companies should look beyond the specific capabilities they currently need but consider other product capabilities and how easily the system could be adapted (e.g., rule-based architecture) if the business changes. Second, we find that many companies have not been exposed to some of the innovations in WMS (e.g., task management, slotting, yard management, RFID); thus, they are not included in evaluations. Before beginning an evaluation, companies should educate themselves about new offerings, and during the evaluation provide some weight to the availability of these features even if they are not currently mandatory. Companies must look beyond their current needs, placing higher emphasis on product breadth, depth, and adaptability.
  • Operations: Firms need to decide whether it is better to integrate or separate WMS from ERP. Although on the surface it seems that integration is always the right answer, companies must consider the type and nature of work that takes place in the warehouse and determine if this type of low-level process/task control is really warranted at the enterprise (i.e., ERP) level. Does the ERP system need instantaneous awareness of every activity that occurs in the warehouse? Of course, the ERP should receive regular updates (which can be handled through middleware as well as batch data transfers) on some activities (e.g., receipt, shipment notifications), but is there a real need to know every step that occurred in one of these processes? We find that some processes (e.g., complete order fulfillment transaction) can have 10x or more individual warehouse tasks/actions, which could have processing implications on WMS applications in even marginally high-volume facilities (e.g., several hundred orders per day). Companies must realistically assess the need for task-level visibility versus the added value of managing a given level of task volume remotely on ERP or on a separate instance of WMS. Companies with medium to high transaction volumes and multiple processing steps/tasks should pay particular attention to operational considerations. They should not fall prey to “integrated is always better” and realistically look at how much data latency is reasonable, and from this determine whether a single platform is right for them.
  • Vendor: ERP vendors score high on viability (but WMS is not a core competency for them), while focus and commitment favor BOB WMS vendors. Vendor domain expertise must be a key evaluation criterion when considering WMS alternatives, since this is what enables a company to fully exploit a new WMS and provides added value over the life of the system. Companies must evaluate the overall breadth and depth of domain expertise, with keen emphasis on vendor services (e.g., training, education, consulting, support). Companies should consider the skill and experience levels of people, their breadth of WMS knowledge, and the vendor’s service capacity. While ERP vendors now have reasonable products, they lack the depth and capacity of services to satisfy all their customers. Companies should address this before making a selection to ensure there is no delay or impact on the schedule once the project begins and, most importantly, whether the vendor will add value to the implementation.
  • Value-add: WMS life cycles can run 10+ years, so companies should consider not only initial value-add (i.e., short-term business benefit, ROI), but also the value-add over the life of the relationship. With long life cycles, vendor and product viability should be concerns, but companies must not overlook the importance of issues such as product adaptability, vendor innovation, bolt-on components, and vendor/product responsiveness to emerging business trends. In their selection methodology, firms should pay particular attention to rating product innovation and vendor services against both current offerings and capabilities - but, as importantly, relative to which vendor(s) they feel will most effectively stay ahead on market evolutions and trends. SAP’s SCM group has shown some leadership in RFID, but we typically find BOB vendors offering to help companies fully exploit their solutions over time. Although we believe some WMS market consolidation is inevitable, the one key area where surviving BOB WMS vendors will compete is in innovation, benefiting companies with continuous transformation and adding life to their WMS over time.
Business Impact: With WMS life cycles reaching 10+ years, adaptability will maximize paybacks over the life of the system.

Bottom Line: Although the emergence of reasonable ERP WMS offers companies additional options and the value of an integrated, single-vendor solution has merit, companies with Level 3 or greater warehousing needs should evaluate multiple solutions, including BOB and their ERP solution. Firms must avoid the temptation to overweight integration, instead viewing this as just one of many evaluation criteria and making the final selection based on the totality of the value proposition.

META Group originally published this article on 24 November 2003.

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