Averting warehouse disasters

Warehouse technology problems can be disastrous. Often reported vaguely as ‘IT cock-ups’, the knock-on effects when systems flounder include stock shortages in stores, a hit to sales, profits and share price, and severe customer dissatisfaction.

Sainsbury’s and Waterstones, among others, have faced challenges when switching to more automated, integrated processes in their distribution centres and warehouses, and last November fashion retailer Supergroup became a high-profile victim of warehouse woes. Teething problems with a new warehouse management system (WMS) led to an estimated £9m being wiped off its profits. Meanwhile, in December, Ocado’s shares plummeted after the retailer issued a profit warning, blaming capacity constraints with its hi-tech warehouse.

What typically goes wrong? Nakedwines.co.uk founder Rowan Gormley says warehouse problems are most likely to occur when retailers change software providers. “No software package ever works first time,” he says.

But major software changes often require operational and organisational change and that’s what poses the biggest stumbling block, say supply chain experts.

One retail logistics director, who asked not to be named, says: “There have been cases where automated picking and distribution projects are simply too ambitious. The cultural change required can be underestimated, there’s not enough work with suppliers around compliance for a new system, and too often technical people design new systems in isolation, not fully understanding how people processes will be affected.”

The switch

Historically, warehouse problems have occurred where retailers switch from task-driven manual operations to process-driven automation.

In the latter, the activities are designed and cannot easily be interrupted and adapted once the system is up and running, says Chris Webster, vice-president, head of retail and technology at consultancy Capgemini. “Not only is the warehouse run completely differently – becoming more like a manufacturing operation – but you also have to complete a complex IT integration project to support it,” he explains.

The WMS needs to be integrated with the movement-of-goods system, such as conveyoring or picking equipment, and there are back office inventory systems to factor in.

Often the root of the problem is the retailer’s adopted deployment model. Manhattan Associates UK and Ireland managing director Craig Sears-Black says retailers should never underestimate the complexity of a warehouse IT upgrade. “Like any major IT project,  this needs to be done highly professionally in an organised, safe and structured manner to be successful,” he says.

That means investing time and resources in the design and planning, installation and testing stages, bearing in mind that this is more complex than a typical business IT upgrade.

“When you’re working towards more warehouse automation and efficiency you’re often bringing together many software and hardware components from different suppliers, integrating everything together in a narrow timeframe, while keeping product flowing without disruption,” adds Sears-Black.

For the retailer it’s a steep learning curve, with warehouse and head office teams often never having had experience of such big projects. Often several different project teams are trying to work together towards successful implementation, including software suppliers, engineering companies, a warehouse operations team and inventory management team at head office.

So what can be done to mitigate problems? Some key areas need consideration. Gormley thinks it’s important for software providers to be upfront about what their system will actually do. “It might be better if the technical people are more involved in the selling of these systems,” he suggests.

Tobias Hartmann, chief executive of global operations for multichannel solutions provider GSI Commerce, thinks the key is to have a partnership with a vendor that understands individual business needs and has the right operational expertise. “Choosing a service provider with financial stability to make the necessary continual investments in software, automation and processes will ensure a secure environment now and in the future,” he says.

Importance of data quality

Then there are practical issues once the purchase decision is made. Warehouse management technology is designed to optimise the use of space and manpower, and that requires starting with clean, accurate data, says Sears-Black. “Product data – such as size and dimensions of packaging – must be high quality. So it should be standard practice, as part of an implementation, to thoroughly assess and test the quality of data long before the go live date.”

Training is also a high-risk area, particularly around operational procedures. Time must be spent constructing training plans and testing whether training is being received and understood. “If people aren’t adequately trained and are not picking in the right way or recording goods in or out correctly, problems will very quickly start to resonate throughout the business, and it could take weeks to resolve,” says Sears-Black.

It sounds obvious but extensive testing can eradicate problems before they happen. “Plan for disaster and always parallel run,” suggests Gormley. End-to-end testing on a testing platform, from enterprise resource planning (ERP) back-office systems to the materials handling equipment in the warehouse, should reveal any potential glitches long before going live.

Webster says it’s vital to look at the volume metrics − ensuring the system can cope with the flow of goods being dealt with, and to build a computer simulation of how the system will be run. He also advises not ramping up the system too fast after going live. “It’s far safer to start at slow volumes and over a period of a month or so, push up volumes. That might mean running two systems simultaneously to begin with, so that you have a fall-back if problems crop up,” he says.

Do retailers take risks by trying to do too much, too quickly? Sears-Black says vendors such as Manhattan Associates regularly walk away from potential WMS projects for this very reason.

Webster thinks automation doesn’t necessarily work for all elements of a warehouse operation, and warns retailers to think carefully about where they are upgrading. “If you put in automation where it’s not really needed, you’re taking a major business risk,” he warns.

Warehouse automation can help take growing retail businesses to the next level – coping with new store openings and overseas expansion – but without the right cautionary measures, new warehouse systems can do more damage than good.