Many, if not most, of the firms today operate warehouse facilities due to the growing need to maintain a consistent flow of products from their suppliers to the end-users. Besides merely running the warehouses, organizations have also continuously been forced to adopt improved ways of warehouse management. This improvement mainly aims to ensure that organizations remain competitive in their respective markets by promptly meeting customer needs and demands. One way in which companies achieve effective warehouse management and create a seamless supply chain is by adopting Enterprise Resource Planning (ERP), a tool that enables the entities to plan and control their inventory more accurately and efficiently.
Therefore, this paper aims to investigate the concept of warehouse management and to analyze its importance in supply chain management. The research also explores the integration of ERP in warehouse management and discusses the benefits that the tool offers in supply chain management.
Warehouse management is a highly researched concept in the field of logistics and supply chain management. Although there still lacks cohesion on the standard definition of the term, some scholars broadly define it as “a combination of the planning and control systems and the decision rules used for inbound, storage, and outbound flows” (Faber et al., 2012, p.1232). Most notably, warehouse management entails the control of shipments into a warehouse, stock-taking and storage, and the final distribution of the stored goods to consumers.
It is argued that warehouse management accounts for a significant fraction of a firm’s expenditure. According to the growing literature, between 2% and 5% of the cost of sales is spent on warehousing (Ramaa et al., 2012). Most notably, these costs are spent on salaries paid to warehouse personnel and equipment required in the handling and storage of stock. Nonetheless, the ongoing research in the field of supply chain also reveals that improved technological tools are slowly being integrated into warehousing management to reduce the costs of warehousing, as is the case of ERP.
Despite the associated costs, warehouse management is not only very critical but also beneficial to corporations. Most notably, warehouse management enables firms to remain productive and efficient in a highly competitive environment by facilitating effective maintenance and distribution of accurate inventory (Ramaa et al., 2012). For example, by organizing the inventory that enters a warehouse, the firm can locate goods that need prompt distribution to end-users and estimate the stage at which product replenishment is required. Furthermore, warehouse management creates efficiency by helping warehouse managers to accurately assess the required stock and eliminate the holding costs of excess inventory.
However, warehouse management can be practically challenging and costly than it theoretically appears, especially where there lack proper tools to facilitate the decisions on inbound and outbound stock flows. For this reason, firms are learning to cope with some of the challenges by adopting new and improved technologies. Among these tools is the ERP, which has received a great reception in the supply chain management over the past few years.
In a broader view, an ERP is an information system that integrates all the activities of a given corporation. Scholars view the tool as a user-interface designed to “provide information useful to support strategy, operations, management analysis and decision-making functions in an organization” (Matende & Ogao, 2013, p.519). The information system practically stores data on various activities of a firm and automatically provides real-time information on the status of the functions to enable users to make informed decisions about whether or not changes are required.
When integrated into warehouse management, ERP plays an essential role in creating business efficiency. This goal is achieved through the automation of processes within the warehouse, thus reducing the chances of human error. For example, using an ERP, warehouse personnel can create databases of various processes in a firm’s warehouse and effectively navigate through them. Consequently, the real-time data gathered from the created database can be used to determine activities within the warehouse that require immediate improvement.
Several studies that explore ERP have affirmed that indeed the information system is advantageous when used in warehouse management, although it can sometimes be challenging to implement the system in a large enterprise. This issue may especially arise in instances where employees are not adequately acquainted with the system, or when the workforce resists its use in the organization. However, such challenges can be overcome through proper training of warehouse personnel on the appropriate use of the system.
Among the significant pros of integrating ERP in warehouse management is the achievement of reduced lead time in global logistics. Prior studies conducted among entrepreneurs reveal that the system helps shorten the time required in the completion of the distribution process (Ociepa-Kubicka, 2017). Notably, with an ERP in place, warehouse personnel can keep track of the exact customer demand and the required inventory. With this data in hand, it becomes easier for firms to match demand with supply and avoid over and understocking. Consequently, firms can minimize the amount of time that consumers have to wait for the goods to be transported from the supplier as the demand is automatically predicted before it occurs. The benefits of ERP in this context not only accrue to the customers but also corporations, as they can remain competitive by responding to customer demand promptly.
Furthermore, the literature suggests that adopting an ERP system in warehouse management can offer tangible benefits such as cost reduction. According to scholars, ERP integrates information across departments, thus helping eliminate costs and improve schedules (Nawaz & Channakeshavalu, 2013). For example, there are several activities conducted in warehouse management, including stock-taking, storing, and releasing products for distribution to end-users or use as raw materials during production. With an ERP in place, all the activities in the warehouse can be integrated such that personnel in the stock-taking department can have full access to the stock that leaves the warehouse. Furthermore, suppliers can also monitor the amount of inventory available in the warehouse and the rate at which the products are consumed. With all this information in a single system, and fully accessible to all parties involved in warehouse management, firms can easily cut back on their inventory holding costs as only the required volume of inventory is stocked in the facility, and suppliers have knowledge of the appropriate time to conduct product replenishment.
Despite the highlighted benefits, it is worth noting that the implementation of an ERP system in warehouse management also has a downside. Most notably, it is argued that the information system is susceptible to data security issues (Ali et al., 2017). Previous studies reveal that approximately 3% to 6% of business losses arise from security failures in ERP systems (Gupta et al., 2017). Some of these security issues may arise from internal or external manipulation of data. Since several parties have access to the system, it can be easy for individuals to manipulate data on various warehouse activities for personal interest without immediate detection. For example, a single party who manipulates or enters incorrect data on the available stock in the warehouse can create substantial business losses, as a firm may end up experiencing excess or lower inventory levels. Therefore, during its implementation, warehouse managers should ensure that essential security measures, such as data encryption, are put in place to prevent malicious manipulation of data that may adversely affect efficient inventory management in the warehouse. Also, firms should ensure that information entered in the system is double-checked to avoid errors that lead to increased lead time and high inventory holding costs.
To sum it up, the integration of the ERP system in warehouse management has proven to be highly beneficial in the effective planning and controlling of inventory among firms. Most notably, findings from the research show that the information system plays a significant role in reducing lead times in the distribution of goods from suppliers to end-users, thus increasing the competitiveness of firms in their respective markets. Furthermore, the research findings show that the system plays a significant role in reducing warehouse costs by facilitating proper inventory management. However, the study also reveals that the system can have detrimental effects on business efficiency due to its susceptibility to security issues. As such, proper security measures should be adopted to complement the integration of the system in warehouse management.
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Ramaa, A., Subramanya, K.N., & Rangaswamy, T.M. (2012). Impact of warehouse management system in a supply chain. International Journal of Computer Applications, 54(1), 14-20. https://pdfs.semanticscholar.org/faff/485f479ec9f8fa0c280a4c1f977697f23ebe.pdf