• Earning an A Grade for Your Distribution Center The Importance of the Audit

    April 1, 2007
    Distribution center operations from the smallest stock rooms to the largest multimillion-square-foot facilities all share common characteristics. Every

    Distribution center operations — from the smallest stock rooms to the largest multimillion-square-foot facilities — all share common characteristics. Every operation has staff executing the required daily tasks with tools, systems, equipment and other aids provided by their management, and managers overseeing and guiding the operation, using standard operating procedures, planning forecasts and metrics, all of which are either actively developed or passively understood over time. Every distribution center is similar in these respects to every other center, but no two operations are exactly alike — just like people. And just like people, the health and robustness of a distribution center operation often depends upon regular checkups to ensure the facility and operations are consistently performing at the peak of their potential, even as the facility ages, process demands placed upon it change, and staff and management grow, shrink or turn over time. The best way to ensure the operation is performing as well as possible is to give it a checkup. In short, a pre-emptive audit of sorts — not necessarily to address an identified issue but to evaluate what the operation could be doing better, where it is falling short of customer requirements and where it may be in danger of being outperformed by the competition's operation.

    Once you decide to perform an audit or assessment of your operation (pick whichever term you believe will evoke the least amount of adversity within your organization's staff), you can execute the audit in several ways. The detail level of the audit, particularly an initial diagnostic audit, is very important. There are pitfalls associated with some “higher-level” approaches as well as risks with an approach focused only on individual operating department details. Operational audits cannot focus only on the discrete tasks within the operation and attempt to evaluate or optimize them. Such an approach without a keenly developed awareness of the interdependencies of each task within the distribution operation often leads to overall suboptimization. Likewise, simply evaluating the overall facility output in terms of cost per unit handled or order fulfilled will provide information regarding where you stand compared to benchmarked competition or operations, but may do little to inform where to specifically focus on how performance might be improved or costs reduced. Alternately, a preferred approach is to evaluate each functional department, including operations management approaches and the tools available to facilitate those approaches, and optimize the entire operation by formulating solutions for each functional area requiring them. That will also contribute synergistically toward the entire operation's performance.

    The first step in the process is to identify the audit team to execute the evaluation. Ideally these need to be individuals representing both direct labor and management. Team members should be open-minded and willing to objectively assess the observations, findings and discoveries of the team. Participants should be from all areas of your organization affected by your operation and the areas of your business you are concerned with. If order cycle time through your facility is one of the areas you plan on examining, then including some appropriate representation from your customer service group or its equivalent, in addition to your distribution and logistics personnel, is advisable. If you cannot comfortably identify internal personnel who you believe can be objective and focused enough to add the appropriate value to the audit project, then it may be in your best interest to utilize outside assistance from an industrial engineering or business consulting organization with proven experience in your area of business and proven capability in facility operations and design. Remember, you are looking to find assistance in evaluating your operation, not teaching the particulars of your line of business to a generalist consultant. Even a former retired professional in your line of business may be able to offer objective insights that could enhance the effort.

    Once you have the team assembled, the next step is to have the entire team follow your process through your entire operation — from pre-receipt information visibility and planning against projected business to physical receiving, put away, pick line replenishment (if applicable), order-picking, packing, assembly, shipping and loading. This operational observation allows the team to perform many assessments and evaluations of the operation. These observations should facilitate:

    1. Comparison of actual operations to previously established standard operating procedures

      Are employees following standard operating procedures? If not, is it to the operation's benefit (order demands may have changed since SOPs were developed) or detriment?

    2. Education of nondistribution personnel on the realities of distribution performance ?

      (i.e., customer service, procurement personnel). Sometimes a more robust understanding of what is required in the physical handling of product and assembly of orders aids in nondistribution personnel understanding what they might be able to do differently to lower costs or allow the operation to be more effective.

    3. An immediate breeding ground for ideas regarding improvements

      that employees could make in the operation at the departmental level at the very least. This is the proverbial “low-hanging fruit” that could be easy to harvest.

    4. Develop an understanding of current performance standards

      — in terms of productivity, accuracy, storage density effectiveness, overall facility throughput, safety and ergonomics — that can allow you to compare your operation to other operations or industry benchmarks.

    5. Evaluation to determine if there are practices themselves that may need further study

      The operational walkthrough, which should require anywhere from a full day to a week depending upon the size and complexity of the operation, should allow the assessment team to diagnose what might be improved. This could include updating slotting in pick areas to move product that has passed its prime in terms of customer demand to a more remote area of the facility to aid in picking productivity. It could lay bare the fact that picking or put away rates in the facility are below the known industry benchmarks for like operations, or it might show an unacceptable delay in problem resolution, be it in receiving, picking, equipment reliability or any other area where unresolved operational issues slow down throughput and productivity at the very least.

    The understanding garnered from the operational observations should drive a candidate list of changes at the functional department level, up to and including identifying the need for further study of areas where a large amount of the operation's resources — both human resources and equipment — are devoted. Areas such as order picking or order assembly and packing tend to require more of both than many other functional departments. Further study could point to researching the benefits of developing work standards, enhancing or implementing a slotting tool for storage areas or forward pick lines, or adjusting storage aids and devices to best service the operation's inventory storage requirements.

    Once the results of the operational evaluation begin to coalesce into potential action items, you should assess the management approach to overseeing the operation for several possible areas of improvement. Are the methods of day-to-day management still viable and supporting the operation in the best way possible? Communicating with fork operators by talking to them when they pick up their work in a paper-based 100,000- square-foot operation may no longer be as effective if the operation has grown to 500,000 square feet. Radios for each lift operator and management may be advisable at a minimum. Are there enough management or supervisory personnel (span of control) on the floor, given the volume and complexities of the operation, to both address issues as they will inevitably arise and drive consistent execution? Does management have a formal daily planner to evaluate staffing needs by department based on the complexion of each day's workload? If management does utilize a formal daily planner, is the tool robust enough and updated frequently enough to be effective in the operation? If electronic Advance Shipping Notification (ASN) information is not currently being used, distribution management may need access to any available ASN information in order to properly staff receiving functions by using such forward-looking information to identify workload before it even arrives at the facility. Finally, are there set metrics that management is working toward achieving on a consistent basis? Do those metrics effectively delineate all important components of the facility's operation? If there are key metrics that the operation either tracks on a regular basis or that you can identify through the operational evaluation portion of the assessment, there is another means to assess where attention may need to be directed within the operation — benchmarking.

    It is invaluable to compare known or desired metrics with like operations (in size, order complexity and business type). A comparison of an operation's achievement in productivity by department or process type (case-picking, piece-picking, pallet movement, etc.) order cycle time, accuracy achievement, product damage and/or employee injury will reveal areas that are lagging behind achievable targets. The benchmark comparison is yet another way to identify where you should direct further attention toward process improvement with the audited operation.

    Finally, the assessment should review all areas that appear to require attention and ensure that change in any one area of the operation will not be at the expense of another area. For example, if the storage density of the facility appears to require improvement, you should take care that storage density increases will not negatively impact productivity. In short, you should develop a synthesized list of improvements with attention directed at improving the entire operation, rather than one area at the expense of other areas with the operation. Once you've identified the improvements needed, plan to address those needs that require development — from operational changes to equipment and layout changes and additions to management practices and tool development.

    This, of course, assumes the audit reveals multiple areas in need of improvement. As with any checkup, the patient might need little change in lifestyle or habits, or critical action might be in order. Whichever is necessary, the only way to identify the path to improving the operation is to thoroughly, completely and openly assess the operation from the receiving dock to the shipping doors and every process in between.

    Bryan Jensen is a vice president and partner with York, PA-based St. Onge Co., an internationally recognized material handling and logistics engineering firm. St. Onge Co. routinely performs operational audit, facility engineering and logistics improvement projects for clients seeking to build world-class distribution facilities and logistics supply chains. Contact Jensen at 717/840-8181 or [email protected].