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Cliff Holste

Supply Chain Digest
Material Handling Editor

Logistics News - Sorting It Out

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

January 31, 2018

Sorting It Out: Understanding the “Value” of the Distribution Center Audit


DC Audit –The First Step toward Improving Operations

 

Chances are high, if you are managing an order fulfillment distribution operation that you have been approached by someone offering an audit or evaluation of your operation. Are these audits a good idea? And do many companies really take up the offers, which range from “freebies” to fairly substantial engagements?

 

The answer to the first question is “It depends”. The answer to the second question is “Yes, but not as many as service providers wish they did”.

 

The possibility of a distribution center audit can arise from either perceived user need or consultant/vendor side "push". Business managers may be seeing a decline in efficiency or overall performance with their picking and shipping operation, but are unable to pinpoint exactly what is wrong. Outside help may be needed to determine what changes have led to the performance decline or what barriers exist to improved performance.


Holste Says...

The value of an assessment is generally directly related to the cost you pay for it and who conducts it.

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Other times, the need for an audit or evaluation may be even more focused. A business manager, for example, may seek an independent expert’s opinion on to optimize storage space.

 

On the other side, consultants and some vendors use audits as an important marketing tool. They may offer to do a free or low-cost audit as a way of establishing an initial relationship, and hopefully, find some areas where the operation can benefit from services and/or equipment they offer.

 

Barriers to Audits

 

The percentage of “takers” for the low-cost or free audits, which typically last for just a day with a short written report is very low, especially where there is not an existing relationship. In fact, a number of barriers exist to companies agreeing to audits, including the following:

  • The term "audit" can have a negative connotation: After all, who looks forward to being “audited” over anything, whether it is your tax return or job performance? Some service providers use the term “assessment” or “evaluation” instead, which may have slightly less negative connotations, but perhaps not a whole lot better.

  • Fear of looking bad: Managers are naturally reluctant to hire someone to come in and audit their performance, even if that isn’t really the intent. If the audit expense has to be approved at a higher level, questions may be asked about what the issues are within the DC, and why the staff cannot solve it themselves.

Another set of related issues is raised if the audit comes down from a more senior executive, who hires someone to come in and take a look around. Operations managers may question whether the audit is really needed, and fear that the report might imply they haven’t been doing their jobs. These dynamics are probably even amplified if the firm doing the audit doesn’t have a long standing relationship with the company. In such cases, the interaction can be very “cold.”

 

The problem with many audits is they are not about improvement, but about grading performance from the top down. When this is the case, issues arise, egos are hurt, and the value is diminished. The focus must be on identifying improvements that support the business and operations managers should be part of the process, not just part of the evaluation.

 

Types of Audits

 

After discussions these issues with a number of service providers, SCDigest developed the following framework for the types of audit services available, as shown in the table below.

Types of DC Audits

Duration

Cost Range

Scope and Benefits

1 – 2 Day

Freebie

In general, is primarily used as a sales vehicle by the service provider and, as a result, the value can be all over the map. Because of the set-up, there are disconnects in expectations between the company and the service provider in terms of the insight provided. Therefore, it may be better to have a short “assessment” focused on specific issues instead. Mostly used by local service providers (though that could be the local consultant of a larger firm) who can perform the assessment without incurring travel expenses.

 

1 – 2 Day

$3 - $5K

 

+ travel expenses

Can provide value if scope is narrow and performed by industry experts that have demonstrated specific expertise. Can be both general assessments, as well as assessments focused on a single issue. Output will include a written report, but will tend to be more directional than solution oriented. Usually there is a bit of a “game” between experts trying to deliver value for the small fee, but without giving away too much of their expertise.

 

1 – 2 Weeks

$5 - $8K

 

+ travel expenses

Often used when there is a specific, but challenging, issue in a distribution center that needs to be addressed. Allows for a review of operations including high-level performance measures based upon limited data and in-depth discussion/understanding of exceptions and challenges. This can establish the basis for prioritizing projects and efforts to achieve improvement goals.

 

3 – 6 Weeks

$12 - #25K

 

+ travel expenses

Generally is focused around larger network and supply chain issues, rather than opportunities at a specific facility. As such, almost always sponsored by a senior supply chain/logistics executive. The focus is generally on identifying, defining, evaluating, and prioritizing initiatives and opportunities across the network. The result should be a series of priorities that help establish strategies, sequence projects, and develop investment plans.

 

 

Of course, there are several types of service providers that offer these audits, including traditional distribution-oriented consultants, materials handling companies/systems integrators, and system software companies.

 

Do Audits Offer Real Value?

 

Its unclear how many businesses respond to the “unsolicited” offers for free or low-cost audits, but many certainly do engage service providers for occasional check-ups.

Most experts agree that the audits/assessments that offer the best value for the client are those that look at how a major initiative (new DC, new Warehouse Management system, new automation system, etc.) is playing out over time of which there are two types:

 

Annual Audit of Original Study Analysis: This effort re-examines the original data points to determine how the business is tracking, compared to what was expected. This type of audit can provide great feedback on whether assumptions still hold true and if forecasted equipment/facility needs are still on-track.

 

Post Project Audit: Generally performed 6-12 months after a new system goes live, these audits are designed to look for common areas of problems or improvement actions that a company should consider. Common areas include: “brain drain” from the original project team, changes that may have been made that may be impacting performance, functionality (such as in a WMS/WCS) that isn’t being used and could help improve performance, improved system/equipment applications, and other areas.

 

Final Thoughts

 

The value of an assessment is generally directly related to the cost you pay for it and who conducts it. A good analogy might be, if you have your car assessed by a tire dealer, they will likely tell you to buy new tires, which may be only marginally beneficial. Likewise, if you have your operations assessed by a conveyor company, you will likely be told that you need more conveyors as part of the solution. If done by a software company, you will discover you have a need for more software. This is not to say that they are only focused on what they offer and not what you need, but that their solution/tool box contains mainly what they sell.

 

Editor’s Note: Next week, we’ll explore keys to success in making audits work for you.

 

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