Determine Warehouse Operational Complexity to

Maximize Operational and Warehouse Management

System Efficiency
Published 13 July 2018 - ID G00364081 - 15 min read
ARCHIVED This research is provided for historical perspective; portions may not reflect current
conditions.
By Analysts Simon Tunstall
Initiatives:Technology and Solutions for Supply Chain and Operations

Warehouse complexity, not business size or similar factors, is the primary determinant of
warehouse management scale and scope. This research provides a framework to help supply
chain leaders manage complexity drivers, and measure the fitness and scalability of
warehouse management systems.

Overview
Key Challenges
■ External factors outside operational control, such as shorter order-to-delivery cycles and greater
product range and service offerings, are increasing the complexity of many warehouse
operations. This often leads to increased costs.

■ Numerous factors within an operation can combine to increase complexity, stifle efficiency and
increase costs.

■ Many companies lack the ability to understand, measure and manage key complexity drivers
due to the disjointed evolution of warehouse processes and warehouse management systems
(WMSs). This can result in inefficiently managed warehouse and distribution center operations,
and constraints on sales and customer expansion for the business.

Recommendations
Supply chain leaders responsible for technology and solutions for supply chain and operations
should use the Gartner Warehouse Operational Complexity Model to:

■ Gauge the impact of relevant external factors, such as the growth of e-commerce and product
range, in order to cushion your warehouse from costly disruptions to operations and service.

■ Examine each of the operational activity segments in detail (Operational Processes [Inbound,
Cross-Docking and Outbound], Oversight and Operational Support) to determine their
importance and complexity levels.

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■ Assess the robustness and complexity of existing interfaces with business and third-party
systems to ensure that data feeds are reliable and consistent.

■ Review the subsequent key complexity drivers against the functions of the existing or proposed
WMS, and engage with the WMS vendor to rightsize the package to the operation, or begin the
process of selecting an alternative.

Introduction
Supply chain complexity is on the rise both within and outside the four walls of distribution centers
and warehouses. More than 20% of surveyed supply chain leaders identified "supply chain
complexity" as one of the top three obstacles to achieving their organization's supply chain goals
and objectives (see Figure 1). Indeed, for all supply chain obstacles, supply chain complexity was
in the top three. Gartner's 2017 Supply Chain Management User Wants and Needs Study 1
identified that close to 80% of surveyed supply chain decision makers believed that supply chain
complexity was increasing.

Figure 1. Top Three Obstacles to Achieving the Organization's Supply Chain Goals and Objectives

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Extract From Gartner's 2017 Supply Chain Management User Wants and Needs Study
SC = supply chain; SCM = supply chain management

Source: Gartner (July 2018)

Many factors contribute to growing supply chain management (SCM) complexity, including
numerous external factors such as:

■ Growing customer expectations

■ Product/SKU proliferation and variance

■ Expanding networks

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■ The pace of new product introduction and growing volume

■ Variability and velocity of data

■ Increased expectations of order turnaround speed

The majority of these factors also have a direct impact on warehouse operations, increasing the
levels of complexity throughout networks for many operations.

Warehouse operations must first recognize and then adapt to these external factors, understanding
how they affect operational processes and enablers. Supply chain leaders are responsible for
mitigating these impacts and reviewing the most effective use of an existing warehouse
management system (WMS) — or, alternatively, considering management of key impacts as a
requirement for a new WMS. A WMS should be the primary operational tool in the challenge to
manage complexity for warehouses as well as distribution and fulfillment centers.

Supply chain leaders must identify and prioritize the characteristics of warehouse complexity
using the Gartner Warehouse Operational Complexity Model. This model can help warehouse
operations personnel assess the impact of complexity on their operational requirements.

These impacts include scenarios when:

■ Key operational processes occur outside the WMS.

■ A WMS or ERP change is being considered.

■ A WMS has recently been selected.

■ A WMS has been in place for more than five years.

The model should also be used to build understanding between supply chain, logistics and IT
leaders, business units, and finance directors before deciding on any changes.

Assessment teams should use the model in conjunction with the "Supply Chain Guide to Assessing
Complexity and Stratifying Warehouse Operations for Effective WMS Deployment" and the "Toolkit:
Stratify Your Warehouse Operations by Grading the Complexity of Each Distribution Center" to
demonstrate where the WMS functionality does and does not aid the management of requirements
driven by key drivers of complexity. Unused or additional WMS functionality can then be exploited
to replace or enhance manual activities. Conversely, assessment teams could find that current or
proposed WMSs may incorporate higher levels of functionality than required, thereby offering the
opportunity to select or negotiate a lower-cost portfolio of services.

Analysis
Gartner's Warehouse Operational Complexity Model

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Gartner research finds that companies are often competent at understanding specific, isolated,
functional capabilities that can be observed on the floor of the warehouse. Users can clearly
visualize basic tasks such as receiving goods, putting them away and picking them periodically
because users can observe how these tasks are performed.

However, our research also finds that these same organizations frequently underestimate the
complexity and implications of other factors that influence warehouse operations. These factors
include the impact of events occurring outside the warehouse, and how cross-functional systems,
processes and teams can affect warehouse operations. To be successful with WMS initiatives,
companies must understand and address all factors that influence warehouse operational
complexity.

Gartner has developed the Warehouse Operational Complexity Model (see Figure 2) to illustrate the
myriad factors that influence warehouse complexity. The model is metaphorically represented by
the structure of a house and the elements interacting with it.

Operational activity segments are the foundation and core structure of warehouse operations, and
are represented in Figure 2 by the house itself:

■ The gray section (the foundations) represents enablers to support running the warehouse
operation, such as equipment, inventory control and location management.

■ The main body of the building (the blue Operational Processes section) represents all inbound,
cross-docking and outbound high-level process segments carried out in the facility.

■ The green section (the roof) represents the management oversight and organization of such
things as the labor pool, product flow and site structure.

External Factors represent conditions occurring outside the warehouse that have a direct or
indirect impact on warehouse operations, such as customer expectations and workforce
demographics:

■ The gold section represents these external factors, which drive complexity into warehouses.

Interfaces address the existing and required movement of data between the warehouse and other
entities:

■ The orange section represents interfaces between warehouses and other entities.

Figure 2 briefly examines each of these segments.

Figure 2. Warehouse Operational Complexity Model

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WIP = work in progress

Source: Gartner (July 2018)

Identify External Factors That Drive Complexity

Refer to the yellow External Factors section of the Warehouse Operational Complexity Model to
consider the range of external drivers that is likely to lead to operational complexity within your
business. Use the model to help identify specific external factors driving complexity in your
operation.

It is important to recognize that external pressures generating complexity are likely to increase. For
example, a steady increase in the market share of e-commerce compared with traditional brick-and-
mortar retail sales has been apparent in recent years, and this trend is expected to continue. 2 This
means growth of at least 40% for mail order and via-internet sales for EU-28 countries between the
start of 2015 and the end of 2017. It also means 14.4% year-over-year growth for the U.S. e-
commerce retail sector from 2015 through 2016, with significant e-commerce growth shown in
most other industries.

To expand on this example, e-commerce — by its nature — necessitates an increase in single-item

picks compared with picking in greater bulk for retail stores. E-commerce also offers a wider range
of product. The effects of e-commerce growth are rippling through the supply chain. This places
greater pressures on store and customer-facing warehouse operations, and supplier warehouse
operations, to deliver greater choice, in shorter lead times and in smaller quantities per SKU,
coupled with an increase in customer expectations relating to returns. This naturally builds more
effort and complexity into the average order.
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This is happening at a time when the logistics sector in these regions is facing an acknowledged
shortfall in youth recruitment, coupled with an increasingly aging workforce. 3 Regulatory and trade
changes are additional external drivers of complexity. For example, the full impacts of Brexit, while
still unknown, are likely to increase supply chain complexity for companies trading within the U.K.
and the EU. This may drive additional processes and complexity into warehouse operations and
systems that interact with WMSs.

Warehouse operations cannot influence the majority of external factors, but it is important to be
aware of them and to understand that volatility may be the new normal. Acceptance of this,
together with effective management of internal factors through the best use of a WMS, will assist
in the management and mitigation of complexity.

Sample questions to consider:

■ How do the customer/supplier and cross-functional business cultures interact with your
operation?

■ What are the seasonal spikes and patterns of demand in the operation?

■ What aspects of customer expectations drive the most complexity?

■ Has there been or is there expected to be growth in product/SKU range?

■ Has the impact of potential regulatory change been assessed for your warehouse operations?

Review Operational Activity Segments (Operational Processes, Oversight and Operational

Support) to Determine Contributors to Complexity
Typical warehouse management responsibilities include reducing and managing complexity
through multiple decisions that impact resource assignment, work prioritization, productivity,
satisfying demand, budget, quality, accuracy and space constraints, while minimizing shrinkage
and accidents. Modern complexity in distribution centers and warehouses goes beyond these
typical challenges and is often caused by factors within the operations themselves.

To best manage the operation as a whole, it is important to consider relative complexity within
each warehouse operation as well as the holistic flow and scope of work in order to identify
pressure points.

The Operational Processes (Inbound, Cross-Docking and Outbound), Oversight and Operational
Support Enablers segments (that is, the main house [blue section], roof [green section] and
foundations [gray section]) in Gartner's Warehouse Operational Complexity Model (see Figure 2)
illustrate internal operations, management oversight/direction and enablers to support the
operation. Each has subsegments that should be further broken down into activities and subtasks.
All have the capacity to increase or decrease complexity as stand-alone processes, or in
combination with other factors.

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To assist you in commencing the review process for these segments, below we detail examples of
activities solely within one subsegment of the Inbound section, and offer a number of questions to
consider.

Ensure that the relevant warehouse teams break down each Inbound, Cross-Docking, Outbound,
Oversight and Operational Support Enablers segment as per the following small sample
subsegment from the Inbound section.

Inbound Segment Process Review — Sample Details

This section is a small sample of the detailed review process from the Inbound segment. It covers
only the Goods In/Receiving subsegment in order to demonstrate the types of activities to consider
in detail for all segments. Teams should review every subsegment in all Inbound, Cross-Docking,
Outbound, Oversight and Operational Support Enablers segments in the manner of the single
subsegment example below.

Goods In/Receiving activities include: Seal verification, driver recognition, intersite receipt,
manufacturer receipt, distributor receipt, parcel receipt, shipping container receipt, pallet receipt,
dolly/cage receipt, tote receipt, master pack receipt, consumables receipt, cross-dock receiving,
supplier system receiving and fast-track receiving.

Special goods in activities include: Product quarantine, catalog alert, country of origin capture,
serial number capture, exception triggers, "strangers" capture and rerouting, "license plate" creation
and confirmation, weighing and measuring (by item, by pack and by consignment), and product
temperature recording.

Goods In/Receiving questions to consider:

■ Is there prereceiving functionality (acknowledgment of receipt before detailed checking)?

■ What are the receiving methods (for example, blind receiving, batch receiving and decremental
receiving)?

■ Is dock door scheduling incorporated as a Goods In/Receiving activity?

■ Are supplier and customer booking requirements captured?

■ Does the WMS support random checks on the accuracy of Goods In/Receiving?

■ Are alerts or triggers in place to prompt weighing and measuring product on receipt wherever
this information is missing (thereby reducing complexity further along in the process)?

■ Are there multiple customer and supplier requirements for receipt management?

■ Is the WMS configured to route product to specific detailed receiving areas or trusted receiving
areas? Or are those decisions made after physically viewing the product, thus causing

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 congestion and added complexity?

■ Is the WMS cross-dock functionality configurable (by supplier, product type, range, style or
individual SKU)? How many different types of cross-dock functionality are used?

■ Would it aid the receiving process to trigger packing/storage information (for example, proposed
layering and quantity on a pallet)?

Review the Robustness and Complexity of Interfaces

Review the Warehouse Operational Complexity Model's Interfaces section to select appropriate
current and planned interfaces for deeper analysis.

Consider the robustness and ease of interfaces with business systems such as ERP, order
management, retail and transport management, as well as integrations and collaborations with
trading partners, couriers, customers, suppliers and third-party logistics (3PL) providers. There may
be significant opportunities to reduce duplicated activities and gain time for planning warehouse
layouts and processes through effective data capture. Data feeds that can assist in understanding
the quantity and frequency of orders and product combinations can also aid in the mitigation of
operational complexity. Combine the review of interfaces with open communications with all
external parties that contribute to, or can provide early warnings of, volatility.

Vendors are increasingly offering deeper and broader levels of functionality along with tantalizing
visions of the future. Carefully consider the maturity of certain technologies, and how these may
positively and negatively impact complexity in warehouse operations (see "Hype Cycle for Supply
Chain Execution Technologies, 2018").

Although the primary focus of WMSs remains on process execution, logistics leaders are
increasingly directing their efforts toward enhancing their use of the information created by WMSs.
Users are increasingly demanding visibility and analytics to help improve operational performance,
such as by building end-to-end performance reporting and by supporting cost-to-serve models.
Greater use of technology and increased demand for visibility expand the potential quantity and
complexity of interfaces to and from warehouses and distribution centers.

Ease of analysis and reporting within the WMS should be a priority. This can assist the modeling
of demand from incoming feeds, direct an improvement in data transference, and satisfy complex
and changing customer reporting requirements.

Sample questions to consider:

■ Are the interfaces confined to a single megasuite vendor?

■ How frequent are the feeds from each interface, and how does this impact operational
workflow?

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■ What is the expectation on responsiveness to the new interface setup?

Determine Whether the WMS Can Support the Level of Complexity

Once an activity within a segment is captured and the level of complexity understood, it should be
mapped to the WMS to understand the level of functional support for complexity that the WMS
provides. Use the "Supply Chain Guide to Assessing Complexity and Stratifying Warehouse
Operations for Effective WMS Deployment" to assist this process.

Complexity is a double-edged sword. Underestimating the level of complexity can result in

companies having underperforming WMS applications that force a significant amount of manual
workaround, resulting in increased costs and, in worst-case scenarios, complete project failures.
However, overestimating complexity, while not necessarily as dire, can also be problematic.
Companies can overbuy systems with too much functionality and too many configuration options
for simple tasks that make projects more strenuous than they need to be. These projects are just
as likely to fail because users find the systems too difficult to work with, and often revert to manual
systems.

Following review and analysis of their levels of complexity, logistics leaders should decide which
of the following three statements is true after assessing current operations and any future changes
envisaged:

■ The WMS package is inadequate to deal with the high level of essential complexity within my
operation, and necessitates costly and time-consuming manual processes and workarounds.

■ The WMS package incorporates excessive functionality and options that are unnecessary for
the complexity levels of my current and future operation.

■ The WMS package is a good fit for the necessary level of complexity in my current and future
operation, although I have found areas to reduce unnecessary complexity.

Following requirements prioritization, engage the WMS vendor to review next steps. Apply the
methodology in Figure 3.

Figure 3. Methodology to Determine Process Complexity and Align the WMS Package to
Requirements

Source: Gartner (July 2018)

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Evidence
1
Gartner's 2017 Supply Chain Management User Wants and Needs Study: This is an annual
survey of global supply chain decision makers, conducted in conjunction with Supply Chain Digest,
The Chartered Institute of Logistics and Transport (CILT) in the UK and Supply Chain Media. The
survey was administered in November and December 2017. The 303 respondents who completed
the survey were qualified according to industry as well as their personal involvement in decisions
regarding SCM processes, strategies and supporting technologies. The sample mix includes
representation from the following regions: North America = 39% responses; EMEA = 43%
responses; Asia/Pacific = 14% responses; and Latin America = 3% responses.

2
See  "File:EU-28 Retail Trade Product Groups Sales Type M SA 01-2005-12-2017.png," Eurostat
Statistics Explained; and  "E-Stats 2016: Measuring the Electronic Economy — Economy-Wide
Statistics Briefs," U.S. Census Bureau.

3
See  "UK Labour Market Projections: 2012 to 2022," UK Commission for Employment and Skills;
and  "Driver Welfare Report," CILT in the UK.

Document Revision History

Determine Warehouse Operational Complexity to Maximize Operational and Warehouse
Management System Efficiency - 19 August 2016

Recommended by the Author

Supply Chain Guide to Assessing Complexity and Stratifying Warehouse Operations for Effective
WMS Deployment
Toolkit: Stratify Your Warehouse Operations by Grading the Complexity of Each Distribution Center
Assess Cross-Docking Opportunities to Explicitly Codify Warehouse Management System
Complexity
Toolkit: Build a Warehouse Management System Business Case and Gain Approval
The Warehouse Management System Business Case: The 13 Signs of the Need for a New or
Replacement WMS
The Warehouse Management System Business Case: Select the Key Arguments for a New WMS

Supply Chain Brief: Uncertainty Remains Over How Brexit Will Impact Supply Chains
Hype Cycle for Supply Chain Execution Technologies, 2018
Recent Acquisitions Align WMS Vendors' Strategies With Emerging Trends in Supply Chain
Execution, Part 2: Oracle, WiseTech Global, LogFire, NetSuite and Microlistics

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