WMS, SCM or ERP: Which Is Best for 3PLs?

by:
on July 17, 2015

Logistics companies in the market for warehouse management software face a bewildering array of options. There are three different kinds of software that offer functionality for managing warehouse operations:

Choosing between these three types of software can be difficult for 3PL providers, since they need specialized capabilities that aren’t found in all warehouse management solutions. Many buyers are stuck wondering which is best: WMS vs ERP vs SCM?

To help buyers, Software Advice reviewed the offerings of 40 major WMS, ERP and SCM software vendors. This article examines the functional breadth and depth of each software category to help you choose the one that’s best for your 3PL’s business model. Before breaking this down, we’ll first take a look at the different ways in which WMS software can be packaged.

Best-of-Breed WMS vs ERP vs SCM Suites

Warehouse management systems are intended, above all, to increase the efficiency of warehouse operations, thereby reducing costs throughout the supply chain. They are generally packaged in one of the following ways:

  • Best-of-breed WMS applications. Stand-alone solutions with functionality for controlling inventory (e.g., expiration date tracking and cycle counting) and streamlining warehouse operations (e.g., slotting, receiving, putaway, picking, packing and shipping). Typically, WMS software doesn’t cover other supply chain operations, though some systems offer a handful of transportation management capabilities, such as integration with the shipment tracking systems of major parcel carriers.
  • SCM suites. These include warehouse management applications as standard offerings alongside other supply chain planning and execution applications, such as demand planning and transportation management. An integrated SCM suite allows for the holistic management of an entire supply chain, whereas WMSs only cover warehousing.
  • ERP suites. “Mega-suites” that include the core software applications involved in processes across the enterprise (e.g., human resources, customer relationship management, SCM and accounting). ERP systems can enable greater visibility into business processes, tighter operational integration and freer information flow between disparate software applications as well as between research and development, marketing and logistics departments.

WMS isn’t a standard offering in ERP systems, as many only include inventory control. However, it can be found in some specialized ERP systems with robust supply chain execution functionality.

best-of-breed wms vs erp vs scm suites

Best-of-breed solutions for inventory management and systems that automate order fulfillment also offer some of the inventory control and order processing functionality 3PLs need. However, these solutions don’t offer robust functionality for automating warehousing operations, so we’ve omitted them here.

That said, you may want to explore best-of-breed order fulfillment and inventory management software if you’re content using manual methods for managing operations such as slotting, putaway, picking, packing and shipping.

3PL-Specific Functionality in WMS, SCM and ERP Software

Now that we’ve covered the basic differences between these software types, let’s discuss the factors that indicate which type is the best fit for your organization. We’ll start by examining some of the specialized functionality warehouse management vendors offer for 3PLs:

Prevalence of 3PL Functionality, by System Type

3PL-specific software is generally characterized by the presence of the following functionality and characteristics:

  • Value-added services. If your 3PL performs value-added services for clients (for example, kitting and light assembly), your software will need to include a module for tracking and billing this kind of work. These are most often found in best-of-breed WMS software specifically designed for 3PLs, but they can also be found in many SCM suites. Support for kitting is more common than support for light assembly across the three software categories.

These types of systems also differ in the kinds of labels they can print. Look for a best-of-breed WMS that can handle custom labeling, if this is a need for your clients.

  • Multi-client or multi-owner architecture. Look for a WMS that allows you to manage inventory and purchase order processing for multiple clients within the same warehouse (unless, of course, your warehouse only serves a single client).

It’s important to note that the term “multi-client” has a different meaning within the context of cloud-based software: There, it refers to multiple businesses using a system on a single server within a cloud data center.

Since many WMS solutions are cloud-based, make sure your vendor is referring to inventory control and purchase order processing—and not to the deployment model of the system—when it uses the term “multi-client.”

Most best-of-breed WMS solutions designed for 3PLs offer multi-client architecture. It can also be found in comprehensive ERP and SCM suites designed for large organizations (e.g., HighJump and Oracle E-Business Suite).

  • 3PL billing. WMSs need to be capable of certain forms of inventory tracking and service contract management in order for 3PLs to bill their clients periodically. (This functionality is separate from the support for value-added services previously discussed.) 3PL billing allows for tracking of receiving, putaway, storage and shipping operations to calculate client fees. Billing rules can then be customized according to terms-of-service contracts.

3PL billing is offered in many best-of-breed WMS and SCM solutions designed for logistics providers, but can also be found in a number of ERP suites.

  • Parcel carrier shipping. Many 3PLs rely heavily on parcel carriers, such as FedEx, UPS and the USPS. For these companies, parcel carrier shipping modules can automatically send and receive shipping data to and from the carriers. This functionality is generally offered through transportation management systems (TMSs), and thus is fairly common in SCM suites. However, many best-of-breed WMS solutions offer parcel carrier modules—which is a better option than a full-fledged TMS for 3PLs that primarily ship this way.
  • Client web portals. These are quite handy for 3PLs, as they allow clients with Internet connections to remotely view their inventory level, product history and inbound/outbound shipment history using a standard Web browser. Such portals are primarily found in best-of-breed WMS solutions.

Inbound, Outbound & Inventory Control Functionality

Going further, you also need to consider your business model and the operational complexity of your warehouse when evaluating solutions. The following chart shows some of the WMS functionality for managing inbound and outbound warehouse operations that are especially important for 3PLs:

Prevalence of Receiving, Shipping and Inventory Control Features, by System Type
receiving, shipping and inventory control features by shipping type

  • Vendor-managed inventory (VMI). This term refers to a supply chain tactic in which 3PLs handle replenishments for their customers; the vendor, rather than the customer, is charged with maintaining appropriate inventory levels.

This is especially common in manufacturing settings: The 3PL receives materials from a supplier, and replenishes the bins in which components are stored for the production process within the client’s manufacturing site.

If you offer this service for your clients, consider a system that can receive and process VMI orders via EDI (electronic data interchange; a standard for transmitting information between the software systems of multiple organizations).

This functionality allows customers to build replenishment orders without having to speak to a salesperson or log in to a website. It is found primarily in SCM and ERP suites.

  • Inbound quality-control auditing. 3PLs that offer quality inspection of inbound shipments as a service to clients will need a system that can capture and track this information. This functionality is somewhat rare in SCM suites; it’s found more commonly in ERP systems and best-of-breed WMSs.
  • Reverse logistics. This refers to the ability to process product returns, which some 3PLs handle for clients. It is also confined mainly to best-of-breed WMS solutions and ERP systems.
  • Yard management. This allows for the tracking of vehicles within warehouse yards. It includes such functionality as gate check-in and check-out and dock-door scheduling. These modules are rare in ERP suites; buyers who need it should seek a best-of-breed WMS or an SCM suite.
  • Specialized attribute tracking. 3PLs that handle stock for the apparel or food and beverage industries will need specialized inventory control functionality—for example, direct order picking based on expiration dates. This picking rule, known as FEFO (First Expired, First Out), helps prevent stock from losing its value due to spoilage or being outdated.

Most WMS systems offer inventory control at the item and lot levels as well as tracking by serial number. For 3PLs that handle products tracked according to other attributes (for instance, color and size), dynamic attribute tracking is a must, as this allows warehouse managers to define which attributes will be tracked in the system.

  • Freight rating. Finally, those who need freight-rating functionality (which allows you to compare carriers to find the most cost-effective option) but don’t need a full-blown TMS should look for a best-of-breed WMS or distribution-focused ERP suite that offers this. Such systems can meet the freight-rating needs of most non-asset-based 3PLs.

When Should You Consider a Suite?

Many 3PLs can get by with a best-of-breed solution for warehouse management. However, if you own an extensive fleet, you’ll probably need to explore SCM solutions that include a TMS.

3PLs that source materials for their clients will also need some kind of procurement software. Investing in an SCM or ERP suite ensures out-of-the-box integration between warehouse management, procurement, transportation management and order fulfillment applications.

Alternatively, an ERP system may be the way to go if you’re looking to improve accounting and reporting on key performance indicators (KPIs) on a company-wide level.

Many best-of-breed WMSs offer reporting for KPIs related to warehouse performance and integrate with common accounting solutions, such as QuickBooks. However, if you need to improve reporting across your overall supply chain, you should explore ERP systems that include warehouse management functionality, such as Sage ERP X3 or Oracle E-Business Suite.

A number of ERP vendors have certified specific WMS solutions based on their ease of integration. If you already have an ERP system in place, check to see if your vendor has a shortlist of WMSs.

Conclusions

Our analysis of the functionality of WMS, SCM and ERP solutions has led us to the following principles for selecting software. Consider the following types of system in the following scenarios:

Best-of-Breed WMS If you offer value-added services, such as kitting and assembly. You’ll need a specialized module for tracking this kind of work.

If your clients are demanding greater visibility into inventory levels. Web portals that allow clients to view their inventory levels using a standard browser are still the province of best-of-breed solutions.

SCM suite If you need to optimize supply chain operations beyond warehousing. SCM systems provide more extensive procurement and transportation management functionality than the others do.
ERP suite If you need to improve reporting and accounting along with warehousing operations. ERP suites offer an enterprise-wide perspective on warehousing and supply chain operations.
SCM suite or
Best-of-Breed WMS
If you need 3PL billing. These systems often include 3PL-specific billing functionality: a must-have for logistics providers.

• If your warehouse holds inventory from multiple owners. Unless your warehouse is dedicated to a single client, you’ll need a system with a multi-client architecture.

If you rely on parcel carriers, such as FedEx and UPS. Parcel carrier shipping modules integrate with the software systems of major carriers to update shipment information automatically.

If you have comments or would like to obtain access to any of the charts above, please contact lisa@softwareadvice.com.


Methodology
To collect the data in this report, we reviewed 40 WMS products. Twenty of the products in our sample are best-of-breed WMS solutions, 10 are applications in SCM suites and 10 are applications in ERP suites. We examined product data sheets, brochures, instruction manuals, vendor websites and product demo videos to gather data about functionality. Software Advice performed and funded this research independently.

Results are representative of our survey sample, not necessarily the population as a whole. Sources attributed and products referenced in this article may or may not represent client vendors of Software Advice, but vendor status is never used as a basis for selection. Expert commentary solely represents the views of the individual. Chart values are rounded to the nearest whole number.

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