Marc Levin is Senior VP of Business Development at Weber Logistics
The lingering economic downturn has triggered a concerning domino effect in the third party warehousing and distribution industry. Less inventory in the supply chain has led to greater competition for distribution business, which has eroded 3PL margins, particularly for warehouse space. Some 3PLs react to margin decline by foregoing the discipline (and overhead cost) of regular warehouse audits. This is a mistake.
As a user of 3PL services, you need to be wary of this potential and ensure your 3PLs maintains an active continuous improvement program. The pennies they, and you, may save from avoiding regular warehouse audits will be dwarfed by the savings from such audits. Operating cost savings up to 20% are possible, and these savings typically fall straight to the bottom line.
Weber Logistics’ 98-point warehouse audit checklist examines:
- Yard management
- Shipping and receiving
- Warehouse operations
- Parcel shipping
- Inventory control
- Administration and billing
If you are a shipper and want to receive a copy of this warehouse quality audit checklist, email firstname.lastname@example.org.
In addition to identifying opportunities to eliminate waste, there are three key questions logistics audits can address.
1) Do warehouse layout and procedures reflect current operating requirements?
Warehouse layouts are created based on an initial set of assumptions about product volumes by SKU. But business is dynamic and these volumes change regularly. The right warehouse management system will reflect these changes in standard reports, but your logistics partner must be diligent about monitoring changes and taking action. Are your current fast-movers in forward pick positions? Is the pick process that was once optimal now leading to bottlenecks and slower cycle times?
The right operating environment at the start can quickly become inefficient and costly if it does not adapt to changing order characteristics. Regular warehouse audits reveal these inefficiencies.
2) Are you doing more than what is required by the customer?
Typically, logistics audits address the question “Are we doing enough?” But, from a cost perspective, you also want to ask “Are we doing too much?” That means you need to revisit the requirements of your end customers, such as retailers. For instance, what is the service level requirement? If order-to-delivery times can be extended, perhaps there is an opportunity to hold shipments to enable cost-saving freight consolidation. What are the specific value- added services required? If labels are affixed to every unit, should you ask the customer if labeling can be done only on the overpack?
Hyper-efficiency can be as costly as poor efficiency.
3) Is the overall distribution solution still the right one?
Ongoing, facility-based audits are important. But it’s also critical to revisit the original strategy, and whether the overall distribution solution supports the company’s current situation and future plans.
A problem with shipper/3PL interactions is that they can become dominated by day-to-day operational issues to the exclusion of strategic, future-oriented discussions. Questions like “What do we want the distribution network to look like in two years?” get drowned out by the daily drone of operational issues. This is where some of the biggest saving opportunities are lost – when the business changes, but the logistics operation is slow to react.
To prevent this from happening, it’s important for shippers to meet periodically with 3PL partners to discuss only future strategies.
As margin pressures increase for 3PLs and as corporate logistics teams get leaner, continuous improvement initiatives can take a back seat. Activities like operational audits, strategy meetings, and detailed root cause analyses are de-prioritized because they are time-consuming tasks that aren’t necessarily accounted for in a 3PL’s pricing calculation. But both 3PLs and their customers must recognize that investments of time and money in regular warehouse audits is required to ensure a low-cost, high-performing, fast-to-market logistics operation.
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