It’s safe to say that since retailer J.C. Penney created and deployed the first warehouse management system (WMS) software back in 1975 much has changed. With a foundation in managing and coordinating inventory — as well as the processes and locations said inventory passes through within a facility (or throughout multiple facilities) — WMS solutions have evolved considerably in the past 45-plus years.
WMS has also been increasingly leveraged by operations of all sizes. Companies can now choose from a multitude of software packages offering different degrees of features and functions that address a variety of business needs, including support of:
- Faster and more accurate data capture.
- Greater order management efficiency.
- Improved decision making through real-time insights.
- More accurate demand forecasting.
- Better precision in labor management.
Perhaps it’s no surprise, then, that in 2020 the global WMS market size was valued at $2.64 billion and is predicted to increase at a compound annual growth rate (CAGR) of 15.3% between now and 2028, according to Grand View Research. The report attributes those projections to the increased need for operations to increase efficiency and throughput as they strive to meet increasingly demanding customer expectations. It also points to the growth in e-commerce — a result of COVID-19 — which, in turn, has prompted significant expansion in warehousing to meet that demand.
In the face of highly variable product demands and fluctuating shipping schedules, companies with a WMS can “reduce lead time, increase product delivery speed, and minimize distribution costs. The software is designed to cater to complex, sophisticated warehouse operations as well as to tackle less complex resource-constrained operations,” notes the Grand View report.
There’s a WMS package with features and functions that addresses nearly every degree of operational complexity. Broadly speaking, WMS are classified across three categories: Tier 1, Tier 2, and Tier 3 — with Tier 1 systems being the most sophisticated and designed with the multiple functionalities and connectivity points to support highly intricate, complicated operations; Tier 3 for the least complex facilities with the most basic inventory management needs; and Tier 2 falling in between.
Comparing The Three Tiers of WMS
How can you tell which type of WMS is best suited for your company’s needs? Consider the following comparison, starting from the simplest (Tier 3) to the fullest featured (Tier 1). (One caveat: the distinction between the three can be somewhat blurred, depending on the vendor and the functionality their software offers. Therefore, not every WMS falls neatly into one Tier or another.)
Tier 3 WMS – These systems can be either a standalone package or a bundled part of a larger enterprise resource planning (ERP) business system. Tier 3 WMS focus solely on product management and typically only include the ability to manage inventory from receiving through putaway, storage, picking, packing, and shipping processes. When part of an ERP, their primary function is to collect inventory data and route it back to the overall business system to support finance.
As a standalone package, Tier 3 WMS also generally do not support multi-warehouse operations (the ability to monitor and manage inventory across different facilities and locations); as part of an ERP bundle that functionality is frequently supported through other business systems.
When implementing any WMS, it’s important to consider how doing so will impact existing business practices. For operations that only need the functionality of a Tier 3 WMS to enhance inventory management, it often makes the most sense to modify operational processes and workflows to match those of the WMS. Otherwise, the system may need significant programming to customize it to accommodate the current processes. This can be extremely costly, as well as make standard software upgrades more complicated, time consuming, and expensive.
Speaking of cost and installation time, Tier 3 WMS software generally requires the lowest capital investment in comparison to Tier 2 and Tier 1. Tier 3 WMS software is usually the fastest and easiest to install of the three categories — typically within two months.
It is possible to expand the capabilities of a standalone Tier 3 WMS by purchasing separate, add-on software packages, usually from other vendors. These might include slotting, labor management, yard management, or transportation management software. The addition of separate software packages adds to the overall cost, increases complexity through additional programming, and will require more time for integration. These factors might lead a company to consider a Tier 2 WMS package instead.
Tier 2 WMS – Offering more capabilities and sophistication than a Tier 3 WMS, Tier 2 packages are more robust. They more easily integrate with warehouse control systems (WCS) that direct automated and mechanical material handling equipment and machinery, such as automated storage and retrieval systems (ASRS), conveyors, and autonomous mobile robots (AMRs). They are also frequently programmed to handle multi-warehouse environments. And they probably include more functionality within their programming packages than Tier 3, with the option for add-on slotting, labor management, and transportation management modules to be used as needed.
There may be more inherent configurability of business rules embedded within Tier 2 WMS packages. This would allow an operation to customize and modify the software to match current operations — as opposed to changing existing processes and workflows to match the WMS.
With its added integration capabilities, functionality, and customization options, Tier 2 WMS software requires a larger capital investment than Tier 3 systems. It also usually necessitates a more complicated and longer timeframe for implementation. The installation team may be employed directly by the vendor, but more often is an authorized third-party partner who also may provide troubleshooting and support services.
Tier 1 WMS – The most robust and comprehensive of the three WMS categories, Tier 1 systems include the highest degree of functionality and interconnectivity. In addition to managing inventory across multiple facilities, they can do so globally and incorporate features such as automatic currency and measurement conversions (from U.S. dollars to Euros or Yen, for example, as well between English and metric units of measure).
Slotting, labor management, transportation management, yard management and other functions are fully integrated and included in these packages. Tier 1 WMS also typically offers in-system configurability of business rules. The software supports customization without requiring additional, specialized programming. In turn, this allows for smoother upgrades.
As you might expect, with all of this comes the highest capital investment and the longest installation time — up to 24 months. This also requires the largest implementation team and potentially the highest degree of disruption to existing operations. The majority of Tier 1 WMS suppliers now offer professional services, such installation, training, and technical support, through their own people as opposed to through partners, ensuring that their customers get the most hands-on, direct service.
The Other WMS
There is one other category of WMS that I want to briefly touch on in this post: software provided by original equipment manufacturers (OEMS) of material handling systems and technologies (think SSI Schaefer, Dematic, Intelligrated, and so on).
For greenfield facilities whose owners are investing in a complete, end-to-end automated material handling system from one of these major suppliers, it may make sense to utilize their WMS. That’s because many of these software packages are programmed and configured specifically to interface with, and contribute to, streamlining the entire operation and its efficiency end-to-end. Indeed, they’re frequently a part of the overall warehouse execution system (WES), which blends WMS and WCS.
It is extremely rare, however, for these manufacturers to sell the WMS software standalone. Rather, their software is often bundled into a new system design (or a significant upgrade to an existing system that is leveraging mostly new equipment from the OEM). For operations seeking a one-stop-shop for overall integrated system and support, if the material handling system manufacturer’s WMS offers the functionality that meets its needs, it’s likely the optimal choice.
Need additional guidance to figure out which WMS is the best fit for your operation? Connect with us; we’re happy to help.
Mike Prince, Project Director + Consulting Services, firstname.lastname@example.org
With over 30 years of experience in the supply chain industry, Mike has expertise across many disciplines – ranging from Distribution Network Strategy to Material Handling design and implementation. Mike’s primary role at DCS is to lead solutions designs with an operations focus to ensure successful outcomes. Outside of the office, Mike is an avid cyclist and loves to travel and spend time with his family.