How to choose a warehouse management system? Buy off-the-shelf or develop your own?

Saturs

Do we need a warehouse management system?

Employee: I can't find the part in the warehouse?
Manager: How?! Can't be! I ordered it recently?
Employee: I've been looking everywhere, it's not here.
Manager: Who took it then?!

If you are familiar with this situation, then it is time to consider implementing a warehouse management system. There are different definitions of a warehouse management system, but the common element is that it is software that helps to monitor and manage warehouse processes. But what processes and in what situations does a warehouse management system help to manage:

How to know if there is too little or too much stock? A warehouse management system can automatically update stock information by entering data on incoming and outgoing goods. This helps to ensure accurate and up-to-date stock information. Depending on the system, it can analyse past data and market trends to help predict future demand for goods or components.
How to avoid downtime due to parts shortages or orders that cannot be fulfilled? Warehouse management systems are usually equipped with automated alerts and notifications (SMS, email, etc.) for stock below minimum thresholds. Some systems can also automatically create restocking orders.
How do I know who has taken the last item? A warehouse management system offers the possibility to track each item (raw material, product, spare part, etc.) and to identify which employee put away or took away each item from the warehouse. This ensures accurate traceability and accountability of product movements and helps to identify any problems or discrepancies in warehouse processes.
How do I know which shelf contains the item I'm looking for? Warehouse systems provide a structured way to put and take items, so that you can clearly see not only which warehouse each item is in, but also on which shelf row and floor.
How do I know in which order to issue units? A warehouse management system can efficiently plan and graphically display the order in which items are picked, eliminating unnecessary time wastage and optimising staff performance. This is relevant for larger warehouses with several employees and many dispatch requests.

It would be valuable for any company (even service providers needing to keep track of office equipment) to have answers to these questions, but it is not always necessary to implement a dedicated warehouse system. Companies often start with simpler solutions, but there comes a point when they no longer work. How do you know when it is time to invest in purchasing or developing a warehouse management system?

Do we need a warehouse management system now?

I have described above the problems that warehouse management systems help to solve and how they can help every company.

However, not all companies need a dedicated system, especially at the start of a company's development, when there are few or few stock-keeping units or movements. In such cases, the use of simple software and tools to monitor and control warehouse activity, such as MS Excel or Google Sheets spreadsheets that track stock levels and demand forecasts, is sufficient. Other times, even the simplest paper records are sufficient, where the products and quantities in stock are recorded "by hand". However, as the size of the company and stock grows, these simple solutions can show limitations to the company's development, pointing to the need for a more efficient and automated warehouse management solution.

In our experience, companies have come to the answer to the question "do we need a warehouse management system now?" usually come to a painful conclusion:

A sudden shortage of a spare part results in a machine being out of action for a prolonged period of time, causing delays in order fulfilment or even loss of customers;
Company employees start blaming each other for who should have ordered or who did not mark the exact leftovers, leading to further problems in the production or supply cycle;
Employees start complaining that they cannot find anything in the warehouse, resulting in wasted time walking around the warehouse looking for items.
Unnecessarily high stock balances have led the company to cash flow difficulties.

In these situations, businesses realise that they cannot continue the old way and have to look for ways to streamline warehouse management now. But type 'warehouse management system' or 'warehouse accounting system' into a search engine and so many applications appear, each promising to solve all of a company's problems. And you can also develop your own system to suit your company's situation and requirements. How to choose between buying an off-the-shelf warehouse management system and developing one?

Why not just buy an off-the-shelf warehouse management system?

Once a company has a clear answer - yes, it is no longer enough to keep simple records in a spreadsheet or on a piece of paper. We need a more serious warehouse management system - businesses end up asking whether they should buy an off-the-shelf warehouse management system or develop their own.

When should I choose an off-the-shelf warehouse management system?

Off-the-shelf warehouse management and accounting systems come with their own vision of how processes should work in a company. This is an advantage if the company does not have very specific requirements or processes that require the development and customisation of a system. In such cases, choosing an off-the-shelf system allows the company to quickly and easily implement warehouse management functionality without lengthy preparation and development phases.

The most popular warehouse management and accounting systems in Latvia:

Tildes Jumis

Tildes Jumis is one of the most popular accounting software in Latvia. Therefore, those companies that use this software also try the added module "warehouse and goods movement".

Pros

Jumis Warehouses is an accountant-oriented system where goods are added or used through a register of delivery notes and invoices. This ensures that the bookkeeper can easily determine the book stock balances and values.

Cons

The Jumis warehouse is not linked to the physical warehouse, so it is not possible to identify each item on the shelf, track the movement of each item or identify which employee has added or used an item. Tildes Jumis is based on old technology, which makes it difficult to apply reporting, non-standardised product accounting and other customised solutions to the company's needs.

Price for 10 users: €102/month

Visma Horizon

Visma Horizon is a popular accounting software that also offers warehouse accounting.

Pros

The main advantages of Visma Horizon warehouse accounting include operational information on stock and sales data, customisable item management and complex reporting. In addition, it provides integration with other systems and traceability of user activities

Cons

Requires the purchase of additional modules or the connection of third-party solutions to facilitate goods receipt, inventory and other goods management operations via scanners or mobile solutions. Implementation and customisation of the system will take time and resources and can be costly, especially for smaller companies.

Price for 2 users: €70/month.

Ankravs

Ankravs are experienced software developers who have created standardised software solutions for business process management.

Pros

The software enables data exchange with scales, cash registers, POS systems, banks, online stores, inventory machines and scanners. Ankravs also offers its own scanner (Winskener) that offers wireless data logging with barcode.

Cons

The disadvantages of the Ankravs warehouse system are the complexity of data integration with other applications such as accounting software. Reports often lack visual interpretation or a user-friendly interface, which can make data analysis more complex. Specialised knowledge may be required to customise the reports, which can create additional challenges for users, especially those without technical or programming skills.

Price starting from €36/month.

When is it better to develop your own warehousing system?

Developing your own warehouse management system is useful when off-the-shelf systems cannot meet your specific needs or when you need more control over processes.

Specific requirements - If the company's warehouse operations are non-standard or complex, a customised system will better meet the company's needs. Common needs are to separate different departments, to display data in a way that is familiar to the company, to translate the interface into different languages.
Long-term costs - Although initial costs are higher, in the long term it may be cheaper to control and maintain your own system than to pay for third-party solutions.
Integration - A self-developed system can connect more easily to a company's existing internal systems such as accounting, CRM solutions or even Excel sheets.
Flexibility - The ability to adapt and extend the system as the business grows or new requirements arise.
User access control - when designing your system, you can provide different access control tools - split roles, departments, sign-in types. In some projects we have integrated user profiles with the HR software, so that when an employee is hired or fired, a system account is created or closed automatically.
Data security - In a self-designed system, you can control your data by controlling where it is stored and how it can be accessed. Many times a company does not want their data and business performance stored on someone else's system.

The choice in favour of self-processing is beneficial for companies with specific needs and a requirement for more flexibility and security.

Will developing a warehouse management system pay off?

A warehouse accounting and management system costs companies several thousands of euros, whether they buy off-the-shelf software or develop their own system. In the case of off-the-shelf software, these costs are spread over a monthly fee, which adds up to several thousand EUR over the lifetime of the software. When developing their own system, developers take into account the company's needs and specifications, draw up an estimate, calculate the cost of programming hours and invoice the company. To facilitate the company's cash flow, instalments can also be negotiated with the developers. However, before asking how to finance the software, it is necessary to answer the question of how to know whether the software will pay for itself.

To determine whether a system will pay for itself, it is necessary to be aware of the shortcomings of the existing system (if any) and the costs involved. To illustrate this, I will consider a real case of a tyre changing company. The company's hottest times are in autumn, when the first snow falls, and in spring, when the first spring sun shines. During these days of the tyre changing season, the phone is ringing off the hook and customers want to book in for a tyre change as soon as possible. The company also offers tyre storage in its warehouses. The company has therefore introduced a simple Excel spreadsheet with a list of car numbers and opposite the number of the warehouse (8 sea containers) where its tyres are located. When the unseasonal tyres are removed, the administrator prepares 4 sheets of paper which are stuck on the tyres and taken to the warehouse. As the company representative admitted, sometimes mistakes are made that the tyres are not put in the correct storage, or they are moved to an adjacent container when the containers are cleaned and not put aside.

The system could save the administrator time spent preparing a printout to stick on the tyres, but the biggest cost is the time the employee spends searching all the other containers when tyres are misplaced, which is also the time the customer spends waiting for his car tyres to be found, and which is also time that could have been spent serving another customer. So, incorrectly positioned tyres affect the productivity of the business, but the most costly cost is that the customer may become so frustrated waiting for his car tyres to be found that he will change his tyres at another garage next time.

It is important to realise that human error when items are placed on the wrong shelves will occur with any system, no matter how complex or expensive. However, warehousing systems offer the possibility to track who has moved the last item, so it is possible to better train staff, which reduces these errors.

To determine whether developing a warehouse management system will pay off, an ROI (return on investment) calculation can be used. This helps to assess whether the benefits of the system will outweigh the costs.

ROI is calculated by dividing the benefits (time saved, errors reduced, revenue increased, etc.) by the initial investment. For example, if a system saves €300 per month in improved efficiency and reduced errors and costs €200 per month to develop or subscribe to, the ROI is positive: (300 / 200 = 1.5). This means that the investment will pay off as the benefits outweigh the costs. This calculation can also be adjusted for other factors, such as the consequences of errors from lost customers or other resources (cost of risk), how income would increase if staff time was freed up to perform other duties (productivity gains).

In practice, a warehouse management system can most often be financed in different ways:

Full payment - the company pays for the whole system upfront. This approach can be advantageous if capital is available and there is no need for long term staggered payments.
An instalment - payments are spread over several periods. This helps the company to reduce one-off costs and better manage cash flow.
Subscription - a regular, often monthly fee that provides software maintenance and updates. This is a common option when a company needs flexibility and does not want to make a large initial investment.

When choosing any financing model, it is important to calculate the ROI (return on investment) to assess whether the system will be profitable in the long term. For example, if the system saves €200 per month but the subscription costs €150 per month, the ROI is positive, indicating that the investment will pay off (200 / 150 = 1.33).

What other costs need to be taken into account when designing and implementing a warehouse management system?

When designing and implementing a warehouse management system, it is important to consider not only the development costs of the software itself, but also other factors that can have a significant impact on the overall costs.

Employee time for project management - The process of developing and implementing the system requires coordination between different parts of the company. There is a need for an employee or team that will be responsible for project management, monitoring and communication with the developers. This means that these staff will need to spend considerable time attending meetings, checking progress and providing feedback, which will require additional working time.
Hardware - scanners, printers and other devices - To fully exploit the functionality of a warehouse system, additional hardware such as work phones, handheld scanners or tablets are often required to enable warehouse staff to scan goods, take inventory and track the movement of goods. You will also need printers to print codes. And sometimes even investments in warehouse refurbishment (shelving, access control devices, gates) are needed.
Employee training - Even if the system is intuitive and user-friendly, employees will need to be trained to use all functionalities effectively. Training can take time and this in turn affects both employee productivity. Often companies face even initial resistance from employees during the implementation of a new system.
System implementation and customisation - Additional customisations may be required during implementation, which will only become apparent after user involvement.
System maintenance and support - Once the system is in place, future maintenance costs need to be planned. An IT system, like any infrastructure, requires regular updates and technical support. This can range from bug fixes to the introduction of new functionality, as well as periodic maintenance of servers or databases if they are part of the solution.

These additional costs should also be taken into account when calculating ROI.

How is the development of a warehouse management system done?

The development of a warehouse management system is a structured process involving a number of steps to ensure that the system meets the needs of the business and delivers maximum value.

Defining the problem - The first step is to clearly define the problems and gaps in the warehouse processes. This includes analysing existing business processes and systems, or the lack of a system at all, as well as identifying specific challenges such as difficulties in tracking goods or errors in inventory management.
Specification preparation - Based on the defined challenges, system requirements are prepared. This includes a list of functionalities such as item tracking, inventory management, user access control, integration with other systems, etc.
Different solutions identified - Different possible solutions are considered, ranging from off-the-shelf warehouse management systems to the development of customised systems. At this stage it is important to compare costs, functionality and speed of implementation.
Payback analysis - Before choosing a system, an ROI (Return on Investment) analysis is carried out to see if the investment will pay off. Benefits such as time savings, error reduction and productivity improvements are calculated compared to the cost of developing or purchasing the system.
Implementation risk analysis - Before development starts, the risks that might arise during the implementation of the system are assessed. This includes potential difficulties with staff training, integration of the system with existing processes, and potential technical problems. It also identifies the prerequisites that need to be in place for the successful implementation of the system.
System Development - Once the needs and solutions have been confirmed, full system development is initiated. This involves creating software that meets the specifications and integrating with the company's existing technology. Most often, the software is developed in phases, allowing it to be introduced into the company in stages.
System implementation and development of support materials - The system is implemented in the warehouse while user training materials and support documentation are developed. This ensures that staff are able to fully use the new system and perform their tasks effectively.
Adaptation and maintenance of the system - After implementation, the system is regularly maintained to ensure its stable operation. Adjustments are made where necessary to reflect the evolution of the business and new needs.

Why might the development or implementation of a warehousing system fail?

Sometimes a warehousing system can fail on the first try. Most often it is a combination of several variable, unpredictable factors.

Employee commitment is an important aspect. If employees are not involved in the development and implementation of the system, they may have little incentive to use the new solution. Lack of engagement can lead to resistance to change and inefficient use of the system.

It is also important to allow time for staff training. If staff are not sufficiently trained to use the new system, this can lead to inefficient use and errors. This in turn can lead to frustration and reduced productivity. In addition, employees used to previous systems or processes may show resistance to new solutions. Such resistance can make the system more difficult to adopt and reduce its effectiveness.

Sometimes a rush to plan can lead to unclear requirements. If the requirements are not clearly defined at the initial stage, the resulting system may not meet the needs of the business. Poor communication between developers and users often leads to incorrect functionality choices.

In summary, to ensure the successful development and implementation of a warehouse management system, it is essential to have a clear plan that covers all phases of the project, from problem definition to system customisation and maintenance. The plan should be flexible to accommodate unforeseen situations and changes in requirements that may arise during the process.

Summary

A warehouse management system is an essential business resource that can both reduce costs and increase revenue. To ensure the successful development and implementation of a system, it is important to take the time to assess the company's needs and identify solutions that meet the company's specifications. Off-the-shelf warehouse management systems may be suitable for companies with standard requirements, but if a company has specific needs, it may be more beneficial to develop a customised system. To ensure a successful implementation, it is important to involve staff in the process, provide sufficient training and develop a clear plan that covers all stages of the project.

Mārtiņš Bērziņš

[email protected]