January 2006 | Commentary | IT Matters

The Million-Dollar Question: ERP or WMS?

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Few supply chain decisions impact your company's day-to-day business, financial health, and customer relations more than selecting and implementing a warehouse management system (WMS). The million-dollar question is whether to choose your enterprise resource planning (ERP) system's warehouse module, or a specialized WMS.

Today, the lines between traditional ERP and WMS vendors are blurring. ERP providers are expanding the capabilities of their "within the four walls" functionality, and WMS providers are adding supply chain visibility and order management functionalities.

Making the Choice

If CFOs are debating whether to invest millions in a new WMS or stick with existing ERP functionality, you can bet they'll pick the latter. COOs, however, look for systems that are adaptable, risk-averse, and multifunctional—which often means a best-of-breed WMS. And when CIOs are in the driver's seat, they are most concerned with their IT staff's skill set and current workload, as well as existing hardware investments.

But the ERP/WMS decision is not as simple as who runs the show—it is a collaborative effort to balance the goals of finance, operations, and IT. The selection process must focus on delivering key performance goals and enhancing business value.

Two considerations are key: clearly and completely defining your long-term business objectives and functional requirements; and calculating implementation and integration costs.

Many companies falsely assume that implementing an existing warehousing module in their ERP is inexpensive. Not true. You also can't assume the warehouse module will integrate securely with the rest of your ERP, let alone other touchpoints such as materials handling equipment.

Consider these reality checks: What is the cost of workarounds to compensate for missing functionality? What is the potential impact on customer satisfaction? You may discover that the "free" warehousing module you received with your ERP isn't really free after all.

If you invest in a WMS, however, you may have a tough time selling your CFO on the initial license and modification fees, which can be substantial. And, as with ERP implementations, do not assume a WMS will integrate seamlessly with other systems—you may find hidden costs there. Also, consider the up-front costs of supporting hardware and technology, as well as ongoing maintenance and support fees.

So, what's the best way to answer the ERP vs. WMS question? Evaluate:

Functionality. ERP warehouse modules traditionally force significant operational compromises in large, complex operations. Some ERPs are also light on in-depth product tracking capability. If your operation is less complex, you may not need the enhanced functionality a best-of-breed WMS offers.

Flexibility. ERPs are founded in transaction-based logic, such as in financial and order management systems. A linear environment with sequential activities and limited exceptions is best suited for ERP. If your business is prone to frequent priority changes, you may lean toward a WMS, which is focused on real-time operations.

Technology. What can your IT group support? What hardware investment is required? Can you use existing RF hardware or do you need to upgrade? Try to get an honest answer from other clients who have been through an upgrade: How painful? How frequent?

Financing. Ultimately, budget needs may swing the final decision. By sticking with your ERP module, you may protect current investments. In your ROI analysis, however, consider a difficult question: How much do you gain or lose by investing or not investing in a best-of-breed solution as a competitive differentiator?

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