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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.

February 7, 2018

Sorting It Out: Guidelines for Achieving a Successful Audit


When Considering an Audit Clearly Define the Deliverables

 

In an expanding market it’s reasonable to assume that shippers may be looking to improve operational performance and reduce costs. Therefore, getting an audit performed may be tempting. In a recent article, SCDigest provided an overview of the different types of distribution center audits, some of the challenges to making them work, and where they can deliver the greatest value - see (Distribution Center Audits – Real Value, or Marketing Exercise?) The benefits received from the various types of audits can be greatly enhanced by following a number of important guidelines as listed below:

Holste Says...

A comprehensive audit will get you on the right track and is a great place to start from when you are setting out to maximize performance.

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Audit Guidelines

  • Remember, as Always, you get what you Pay for: Free and very low-cost audits are in general more likely to be glorified sales pitches than solid or actionable analysis. Align your objectives and expectations accordingly.
  • Take Control: Don’t allow, as many shippers do, the audit agenda to be set by the service provider. Audits are most likely to be effective when the shipper provides clear guidance to the service provider about what they want the focus and scope to be.

For example: Are you looking to receive a broad assessment of current operations and opportunities; focus on a specific issue/problem; get a feel for a potential vendor, or something else? Even for a general operations audit, overall parameters should be set for the scope of the audit and the recommendations.

 

It is also important that the service provide understands that the operations team inclusion in the process is key to acceptance of the recommendations going forward.

  • Ask for “Resumes:” You need to be sure a service provider has the expertise you are seeking to achieve the desired result. Too often, shippers seem to consider that one logistics consultant or firm is much like all the others. Instead, you need to do the homework and reference checks to ensure the service provider has the expertise to address the goals you have set.

For example: If the goal is specific (such as identifying ways to increase storage capacity), ensure the firm or individual you engage really has that expertise. That can be accomplished by asking about similar engagements, checking references, and interviewing the service provider in detail about their expertise and experience. It is usually also smart to ask to see some example audit reports the service provider has done for other shippers, so you can get a feel for the quality of the work they provide.

  • Keep the Focus Positive, not Critical: It should go without saying, but this point is especially important if the audit is driven by a higher level executive for a local operation. Some managers get worried, as most of us would, when some outsider is poking at our operation. The key is to make the point that the audit is of the shipper’s operation, not the people running the operation. For example, how can we fault a manager for declining productivity when the aisles are full of pallets? How can we fault the manager for inventory errors when we cut cycle counting from the operating budget?

Upper level business managers contracting for the audit need to clearly communicate the goals, in a positive way, to operations managers, and emphasize the objective to identify barriers to improving performance. Operations managers, in turn, must do the same with their functional line managers and supervisors, who may be equally concerned they are being “graded”.

  • Clearly Define Deliverables: This will largely be driven by the scope and cost of the audit, but perhaps the greatest source of friction after an audit has been performed can be the different expectations about the level of detail in the final report/meeting. Free and low-cost audits will generally be light on specifics and certainly on how to solve issues raised. Frankly, the goal (of the service provider) in that scenario is primarily to establish a relationship or identify opportunities that can lead to subsequent work. Shippers should not expect much detail on solutions for the low-cost audit.

Note: As audits increase in scope, cost and duration, the level of detail should scale proportionately. An audit that does not provide recommendations for fixing or mitigating problems is incomplete. There should be a recommendation for each problem identified. A written report is needed in addition to PowerPoint type presentations. The PowerPoint mantra is Six Bullets per Page and Six Words per Bullet. However, a few days later, most people will not remember key points the service provider said explaining the bullets.

  • Track Recommendations, Actions and Results: Far too often, even those ideas for improvement that make sense are quickly lost or forgotten. Keeping the recommendations visible and taking actions on those that offer the most promise not only is key to actually achieving benefits from a specific audit, it is also critical for showing ROI for that audit that can be used to get approval for audit expense in subsequent years.
  • Consider Contracting for Audits for Several Years at the Time of a New System Implementation: There is a certain institutional resistance to audits, as we have discussed. The best time to solidify future audits of new systems/facilities is generally at the time of the original project. Doing so with the appropriate materials handling vendor, WMS provider, or consultant involved in the system 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.
  • Understand the Difference between Opportunity and ROI: While audits are designed to highlight areas of opportunity, almost by definition they cannot provide a full ROI analysis for a specific change. There may be recommendations that would be operationally beneficial, but in the end can’t be justified based on required investment in software modifications, additional material handling hardware, etc.

Final Thoughts

 

When the above guideline are followed, a comprehensive audit will get you on the right track and is a great place to start from when you are setting out to maximize performance.

 

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