Warehouse Management vs Inventory Management System – Which one is better for you
Many people use the terms Warehouse Management System and Inventory Management System indistinctly and, although they have a lot in common, they are different in nature. In this article, I will explain the differences between them and which one is more convenient for your operation.
Before going into the discussion of the differences between Warehouse Management and Inventory Management let’s understand the general flow of materials in a warehouse. According to the Oxford dictionary, a WAREHOUSE is a facility where raw materials or manufactured goods may be stored before production and their export or distribution for sale. So, any company that deals with the purchase of products, product assembly or production, storage, and delivery, needs a warehouse and a way to control its operation. The definition of the processes and flow of material associated with a warehouse depend on the nature of the operation, the volume handled, and its complexity.
For a manufacturer, wholesaler, distributor, or direct store delivery company we can identify 8 major processes associated with warehousing. There is a simplified flowchart and a brief description of the processes below.
- Purchase: a process that determines the placement of orders to the suppliers based on stock quantity, sales history, and vendors’ terms.
- Receiving: the process of receiving purchased goods. It can be single products, boxes or pallets, and containers. Also, the units of measure can be pieces or weighted goods.
- Check-in: the process of storing the products received in specific or generic spaces in the warehouse.
- Adding value: a process where products are produced, kitted, assembled, relabeled, or subject to some other value-adding process to make the final product ready for sale.
- Picking: the process where the products associated with the orders received are picked from their storage space.
- Packing: a process that packs all the products of an order or consolidates different orders already packed to be sent to the same destination.
- Delivery: the process where the orders packed are sent to their destination.
- Returns: a process of receiving and handling products returned by the user.
What is an Inventory Management System (IMS)
An Inventory Management System is a software system for tracking inventory levels, orders, sales, and deliveries. It can also be used in the manufacturing industry to create a work order, bill of materials, and other production-related documents. So, the focus of Inventory Management software is to efficiently control inventory flow.
Companies use Inventory Management software to avoid product overstock and outages. It is a tool for organizing inventory data that was previously and generally stored in hard-copy form or spreadsheets.
What is a Warehouse Management System
A Warehouse Management System is a software solution that enhances visibility into the entire inventory and manages supply chain fulfillment operations from the suppliers to the store. Companies use a WMS to get detailed data on stock levels, define or standardize storage, picking, packing, shipping activities, track goods from the warehouse through customer delivery, and handling returns.
A WMS records products’ specifics as size, properties, serial number, lot, expiration, etc. It also stores details on all stock locations, giving managers the capacity to pinpoint the location of the items in the warehouse and the best picking sequence.
Similarities and differences between an IMS and a WMS
As you might see, both systems manage inventory but there is a basic conceptual difference between them: while an IMS focuses on handling inventory, a WMS focuses on handling the warehouse workflows. Referring to the flowchart used to illustrate the warehouse processes, we could say that an IMS manages the upper processes and, to a lesser degree, the bottom ones, whereas a WMS manages all processes. The color grading in the charts below illustrates the depth in which each system manages the warehouse processes.
For this reason, both systems have some aspects in common related to purchasing, receiving, and check-in, like forecasting, barcode reading, and allocation of items. But in general terms, the tools of an IMS for forecasting and calculating replenishment of goods are better than those of a WMS while the tracking of products along the inventory in WMS is more complex than the average IMS. The same applies to pick and pack.
What system is best for your operation?
The decision on whether to buy an Inventory Management System or a Warehouse Management one depends mainly on the size and complexity of your operation, the number of SKUs, the current sales volume, and the projected growth. In order to make a sound decision, you must consider the overall costs of the product during its life cycle (cost of the product, implementation, maintenance, upgrades and phase out) and compare it with the savings, increase of profit, and the Return on investment (ROI) that it will bring.
Inventory Management systems are simpler in nature. Warehouse Management systems, on the other hand, tend to be complex. An Inventory Management System can be implemented in 1 to 4 weeks and the monthly costs are low. In the case of a WMS the costliest part is not the cost of the product or SaaS monthly payments, but the implementation cost. The implementation time of a WMS can take between 2 and 8 months and costs can range from $50,000 up to $500,000.
If you are a small operation with less than 1,000 SKUs, an average invoicing of less than $10 million per year, and are mainly concerned with knowing the quantities of each item you have and when to reorder efficiently, you are perfect for an IMS. But if you have many SKUs and handle hundreds of orders per day, you probably should look into a WMS. Many companies start with an IMS and then scale to a WMS when the growth of the operation justifies it.
I hope this article has been helpful. We will continue to publish information related to Warehouse Management and distribution practices. If you are interested in this article or want to learn more about Laceup Solutions, register to keep you updated on future articles.
If you want to know more about how a WMS works, take a look at this video.