The costs of these audits range from virtually free to $10,000 to $20,000, depending on the scope, the level of talent involved in performing the audit, deliverables – and sometimes the goals of the provider. Very low cost or free audits are often a form of marketing geared to generate business from the recommendations.
“I am of two minds on audits,” said Mark Fralick, an SCDigest Contributing Editor who has experience in dozens of WMS projects and customers. “First, I do think that it is a very good idea to do periodic wellness checks. Given frequent business changes and underlying technology changes, it is generally a good idea. But too many vendors turn the audit into a sales opportunity, and I feel like it sometimes can become a situation where the customer is just going to be looking at a sales pitch for new software or services.”
With that caveat, however, audits can deliver valuable third-party insight into how a system is performing. A consumer products distributor recently told SCDigest that they contract for regular audits from both their sortation system and WMS providers for a new DC system implemented five years ago.
“It’s nice to have another set of eyes looking at what we do,” the director of distribution told us. “Some years, they don’t identify much we can use, but some years they do, and all told we think there is a good ROI.”
Fralick says he breaks the audit process down into two components: operations and business.
“From an operations perspective, I like to think of a warehouse having three basic issues – getting product in, getting product to the docks and getting product off the docks,” Fralick added. As a result, he recommends organizing a WMS audit accordingly:
1. How the company is doing things into the building (receiving, location selection, putaway, etc.).
2. How the company is doing getting product to the docks (order downloads, allocation/waving, replenishment, and outbound movements).
3. How the company is doing at getting product off the docks and shipped (shipment prep, ship dock management, carrier selection/usage, trailer loading, trailer management, outbound ERP Integration, etc.).
“After the operations side, you should then would work with the business side of things, such as reviewing order profiles, customer service level agreement, enterprise issues, etc. After both reviews are finished, you make an attack list and get everyone to buy off on priorities,” Fralick added.
Before considering an audit, companies should look for providers from any of the three categories that have well-defined methodologies.
Gene Forte, president of distribution and material handling solution provider Forte Industries, says that while each material handling system and audit process is different based on the situation, in general, the audits use a process that includes the following steps:
- Data review (SKU’s, throughput volume, etc.)
- Operations examination (receiving, putaway, replenishment, picking, shipping)
- Information flow examination (software and IT analysis)
- Material handling systems inspection (conveyor performance, storage media application, automated picking efficiency, …)
- Labor usage/application (efficiency of labor, deployment of labor, etc.)
- Performance statistics analysis (inventory accuracy, on-time shipment, picking/shipping accuracy, etc.)
He adds that audits can be especially valuable not long after system implementation.
“Most of the time if a system is relatively new, such as within the first year, multiple operational and equipment audits prove quite useful in terms of identifying opportunities for continuous improvement, particularly if the customer is a first-time automation user,” Forte says.
Getting Audits in the Budget
While many companies understand the value of audits, getting even the relatively small levels of required funding can sometimes be a challenge – especially in the middle of the budget year. Many companies put budget dollars in for audits from system providers each year, or on some other schedule.
The consumer goods company cited above, for example, has an audit performed every year, but rotates between its WMS provider and conveyor system provider. Each of these vendors performs an audit every other year, on opposite schedules.
“We think that, in general, an every other year approach is frequent enough to give us a good return, because there have been enough operational changes within those two years, and this way we’re still getting one audit done every year from one of our two main system providers,” the director of distribution told us.
Guidelines for Making the Most of DC Audits
To maximize your return on system audits, SCDigest recommends using the following guidelines:
- Consider agreeing to audit services for the first year and some set schedule at the time of the original contract. This not only establishes the mindset that audits will become a regular operational process, but you may be able to negotiate more favorable pricing at the time, when the vendor wants the overall business, than you can at a later date.
- Determine, via your system complexity and scope, and your own internal resources, how often an audit from your current vendor for software or material handling system is likely to make sense. For highly complex and dynamic environments, for example, an annual audit may be smart, especially if you don’t have strong resources to monitor system performance internally. Others may get by with doing an audit only every 2-3 years.
- Be very clear about expectations with the vendor or consultant – how will the process work, and what are the deliverables? Ask for methodologies and example reports.
- Be aware that local managers may be reluctant to accept or recommend audits out of fear they will show a lack of competence on their part. Senior management has to make clear that the reason for doing the audit is not to scrutinize DC managers, but to bring to bear expertise unavailable inside the operation.
- Track recommendations, actions and results. This will help ensure good ideas coming from the audit reports are in fact addressed, and build an ROI from the audit expense that can justify subsequent audits – or not.
- Realize that audit recommendations often don’t include an ROI for a specific change. There may be recommendations that would be operationally beneficial, but can’t be justified based on required investment in software modifications, additional material handling hardware, etc.
- Remember, as always, you get what you pay for. Free audits are in general more likely to be glorified sales pitches than solid analysis.
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The consumer goods company cited above, for example, has an audit performed every year, but rotates between its WMS provider and conveyor system provider. Each of these vendors performs an audit every other year, on opposite schedules.
