Recently in a discussion with a client, the topic of Order Allocation came up. The question was asked “should we do the order allocation upstream (within the ERP) or downstream (within the WMS)”. It was an interesting question and topic in which their ERP team wanted to allocate inventory upstream, and the WMS team was suggesting downstream. There is no right or wrong way of doing order allocation, but there are some benefits and challenges with both approaches depending on the client’s distribution operation. If the business has multiple warehouses and inventory is located in a specific warehouse or at all warehouses, then the topic can be a Distributed Order Management (DOM), which I will discuss in future articles. In this article, I have decided to analyze Order Allocation at the ERP level and at the WMS level.
Order allocation can be done at both the ERP (Enterprise Resource Planning) level and the WMS (Warehouse Management System) level, but the best practice usually depends on the specific business needs and the complexity of the operation.
Let’s take a look at considerations for each approach:
Order Allocation at the ERP Level
Best for: Companies with simpler warehouse operations, single-location inventory, or basic fulfillment processes.
Benefits:
- Centralized Control: ERP systems offer an overarching view of the entire enterprise, which is helpful for companies that manage multiple functions (like purchasing, manufacturing, and finance) and want to keep decision-making centralized.
- High-level Visibility: ERPs have comprehensive data on inventory levels across multiple warehouses and channels, making them well-suited for high-level allocation decisions.
- Efficiency for Simple Processes: For companies with straightforward allocation rules, such as FIFO (first in, first out), an ERP can manage the process without needing the granularity a WMS provides.
Challenges:
- Less Granularity: ERP systems typically don’t offer the level of detail needed for nuanced warehouse operations, such as bin locations, specific picking rules, or real-time stock adjustments.
- Slower Response Time :ERPs can be less responsive to real-time changes, which could impact allocations when inventory fluctuates rapidly, as they may lack real-time inventory visibility compared to WMS.
Order Allocation at the WMS Level
Best for: Companies with complex warehouse operations, multi-location or multi-channel inventory, and high order volumes.
Benefits:
- Detailed Warehouse Control: WMS systems have a high level of granularity, which allows for allocations based on real-time inventory data, specific bin locations, stock rotation rules (e.g., FIFO, LIFO), and picking strategies (e.g., wave, zone, batch picking).
- Real-time Inventory Visibility: WMS updates inventory data in real-time, which helps avoid stockouts and misallocations and provides a clearer picture of actual inventory at any given moment.
- Optimized Order Fulfillment :By handling allocations at the WMS level, orders can be dynamically prioritized and routed based on factors like proximity, order type, and warehouse workload, leading to more efficient fulfillment.
Challenges:
- Data Synchronization : Order allocations at the WMS level require constant communication with the ERP to ensure data consistency across systems.
- Cost and Complexity: If the ERP and WMS are not integrated effectively, maintaining accurate data flow between systems can be complex and resource intensive.
My suggestion and opinion are that, for most businesses with complex or high-volume operations, allocating orders at the WMS level is considered best practice due to the WMS’s real-time data and granular warehouse control. However, in simpler setups, especially where ERP functionality meets the business’s needs, the ERP can be sufficient.
If a business decides to use both systems for order allocation, a well-integrated ERP-WMS solution that allows seamless data flow is essential for effective coordination. And as mentioned, I’ll be following up with another article very soon to take a closer look at DOM – Distributed Order Management and the functional role it can play in bridging the gap between ERP order allocation and WMS order allocation.
