Operational Audit: Getting Ready for the Holiday Season


It seems never-ending, but yes, its time that you kick-off your operational audit in order to identify those Conduct Operational Auditproblem areas from this past Holiday season. This should give you enough time to implement any recommendations, plans and strategies developed to prepare for the upcoming Holiday season. What are the objectives you and your management team have set for improving operations?

Here are 8 steps for determining what changes will be most beneficial to your operations:

1. Critique your distribution processes for warehouse layout and product flow

Is the flow of inbound product receipts through product putaway efficient and without bottlenecks?  What is the “dock to stock” time from receipt of customer returns until you actually process them; 2 hours, 1 day or more?  If more than a couple of days you are sitting on inventory that if it’s a hot seller, you could restock and move vs. missing a sale because it is sitting on the floor. If you find that there were slowdowns/bottlenecks in any given area you need to resolve them before your next peak. Sometimes it’s helpful to develop flow diagrams of the processes to depict what is happening.

Reduction in the “number of touches” required to move product through the inbound and outbound processes reduces cost and improves throughput.  How much rework and cost is there on inbound receipts?

For warehouse layout and product flow, here are a few problems that we have seen at our client's distribution centers: layouts that worked when the business was smaller but don’t have scalability for a company experiencing good organic growth or growth through acquisition; dock doors and receiving areas planned too small; need for vendor compliance, ASNs and EDI that will benefit; inefficient use of floor space and overhead cube.

Now is the time to conduct an operational audit in order to identify any of these issues while they are still somewhat fresh in your mind (and your staffs' mind) so that you can recall what the congestion and issues were. Did anybody happen to take some photos or journal the issues?

2. Warehouse capacity and storage

If your shelves and floor space were overflowing, you may need to evaluate additional or different racking, re-layout of the facility or additional/new space.

Some of the issues we commonly see are the need to improve slotting concepts - strategic placement of “hot picks”; adjusting bin/slot size to item sales velocity rather than a "one size fits all" mentality for all products; too frequently replenished forward stock picking locations; warehouse back orders and floor congestion between picking and replenishment; storage configurations which don’t use cube and the warehouse footprint efficiently.
3. Use Key Performance Indicators (KPIs) to set your operation's goals

You can’t improve something you have not measured.  Do you have the KPIs in place to measure your processes, costs and customer service?  These should include cost per order; productivity across all warehousing functions; measures of turnaround such as dock to stock, customer order processing, returns processing; initial order fill rates on customer orders, etc.  Also include the measurement of errors (e.g. mis-picks, warehouse back orders, damaged in transit, etc.).  These should point to where improvements can be made. Once a program is established, benchmark your internal operating metrics against viable external metrics that you can trust; as a guide to future performance.

4. Involve key members of your team

Your staff knows where the pain points were last Holiday season as well as day to day.  By involving them to identify the problems and challenges, you start the buy-in process of what the solutions are and how they should be implemented.  Your staff may not always know what the solution is, but they sure know where the pain is.

5. Apply technology and material handling solutions

Consider how technology and automation can change your productivity, improve inventory accuracy and provide better customer service. Many fulfillment operations are highly manual processes.  What opportunities are there to improve efficiency?  One of the most productive technologies out there is to implement voice technology into receiving, inventory control, put away, replenishment, returns, etc. Voice technology that allows you to voice enable devices such as Smart Phones, tablets, RF, etc. are definitely lower cost options than in years past.

Another option you may consider is implementing material handling solutions in conjunction with the right warehouse layout to reduce bottlenecks and streamline processes. More than 50% of the labor in fulfillment is generally in picking and packing?  How can you reduce these costs further by deploying a material handling solution?

As new processes and technology are considered, get IT support for your selected options.

6. Seek out outside help to evaluate potential solutions to be considered

Consultants, material handling integrators, vendors and trade shows can provide a wide range of new possibilities and ideas you may not have considered. Make certain that they don't represent just one brand or type of solution, but will work for you and with you to identify the best options available for your operations.

7. Analysis of options and deciding the plan

Before you leap at a few great ideas, consider all aspects identified in your operational audit and fact finding.  Generally there are too many possibilities to be implemented before your next Holiday or peak season.  Develop viable options and scenarios and prioritize those options to be implemented immediately and then those that should be held off until after the peak season.  Which can bring the most benefit, at what cost and in the time frame you have before the next Holiday season?  Once again, get the buy-in and understanding of the staff and management.

8. Commit to continuous improvement agenda

Hopefully the operational audit and improvement process generates more ideas and potential than what you can do in one year.  Every year, after your Holiday or peak season, you should repeat the process again.  What do your historical benchmarks of performance show you about the present year’s changes?  What has changed and what should be considered for the next year?

A continuous improvement process is essential to improving productivity, containing costs and improving customer service in every company.

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