How to Determine If Your

Operations are Fat, Lean

or Dysfunctional
Dale Barbee

Copyright © 2002 Fortna, Inc.

What is an Operations Audit?

“The systematic and planned

review of daily operating
processes, procedures and
systems activities in search of
improvement.”

Anonymous
After Optimizing Results

“Please show all as this physical

examination will not last for long,
but you will be better off for the
experience when you implement
the results.”

Recently Promoted
Logistics Director
 An Operations Focus

Operating-To-A-Profit Concept

Process Improvements

Cost Reduction
Presentation Outline

Planning for an Operations Review

Executing the Review

Analyzing the Findings

Optimizing the Results

Summary

Questions
Organizing an Operations Review

A proven, results oriented, approach to

analyzing the findings and optimizing the
results with a focus on implementation

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results
 Planning the Study

Senior Management involvement at the start

of the review leads to the best results

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results

We Are Here
 The Planning Steps

Goals of the audit

Timing of the audit

Functional areas to include

Participants

Duration

Key operational measurements

Advance data collection
 What are the Specific Goals?

Improve - order throughput
operator efficiency
inventory accuracy
space utilization

Reduce - shipping costs

replenishment activity
missed shipments
equipment investment
systems down-time
 When Should the Audit Occur?

Annually or Quarterly?

Peak or Holiday season?

Across all shifts or specific shifts?

Across all days of the week or specific days?

 Specific Areas Can Include

Receiving and Putaway

Order, Wave and Transportation Planning

Replenishment

Pick Document and Label Printing

Picking and Packing

Order Consolidation and Loading

Shipping and Manifesting
 Specific Areas Can Include

Cycle Counting and Inventory Control

Returns and Quality Control

Systems Support

Maintenance

Mechanical and Equipment

Other areas as appropriate
 The Participants Should Include

Executive Management

Operations and Transportation Management

Warehouse Supervisors and Associates

Administration and Clerical Team

Information Systems Team

Accounting and Finance Team

Other groups as appropriate
 Time Requirements

The timing for each study will vary based on
the goals and objectives of the study and the
level of detailed analysis required to evaluate
the findings and implement the results

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results

1-2 1-2 1-2 1 - 52+

Weeks
 Key Operational Metrics

Typical measurements include
 % On-Time Shipments

 % Line and Order Fill Rate

 Number of Orders and Lines Shipped/Day

 Number of Cartons Shipped/Man-hour

 Cost per Carton Shipped

 Number of Cartons Picked/Day and Packed/Day

 Number of Replenishment Tasks/Day

 Lines picked per man-hour

 Lines processed per man-hour (all direct labor)

 Cost per line item picked and shipped

 Preliminary Data Collection

Typical information includes
 Current staffing by job by shift

 Current orders and lines per day

 Current operating hours by functional area

 Current picking and shipping requirements

 Current financials and budgets (if available)

 Facility layout and floor plan

 Facility organization matrix

 Lines by zone

 Quantity of skus by zone/type

 Executing the Review

Hourly Associates and Supervisor
involvement at this point in the review
provides deep insight into the day-to-day
operational issues

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results

We Are Here
Five Key Areas for Improvement

Space
- How space is allocated to the job

Equipment & Tools
- How tools are utilized in the job

Facilities Layout / Material Flow
- How to accomplish the job

Information Systems / Procedures
- How to report job activity

Management
- How people perform the job
Five Key Areas for Improvement

Space
 Define the current square footage and cube
utilization by functional area

 Develop Base Line For Present Inventory Levels

– Inventory Value vs. Cubic Space
– Value Added Operations
– General Function Areas (Returns, Receiving,Etc.)

 Calculate Future Space Needs (3-5 years)

– Forecast Inventory Value
– Consider Value Added Operations
– Business Requirements and Changes
 Rule of Thumb

1.SPACE: Square footage of the storage media is

typically 25-30% of the available footprint.

2.MATERIAL FLOW: Use existing conditions

drawing and map out the product flow; the goal is
to eliminate crossing/reverse flows.
 What to look for -
Space

Low cube utilization

Dead or obsolete inventory

Areas which can be placed on mezzanines

Amount of space occupied by aisles

Excessive product staging areas

Multiple skus per location

Less than full pallets in reserve

Use of off site storage or trailers on yard
Five Key Areas for Improvement

Equipment & Tools
 Storage Concepts and Equipment
– Static vs. Flow
– Prime Pick vs. Reserve
 Conveyors and Sortation Equipment
 Workstation Layout and Configuration
 Scanners and Printers
 Carts and Pallet Jacks
 Forklifts
 Tapers
 Print and Apply Equipment
 Supplies and Delivery of Supplies
 What to look for -
Equipment & Tools

Storage equipment utilization

Replenishment requirements

Shared scanning equipment or tools

Available power equipment

Workstation layout requirements

Conveyor system utilization

Sortation equipment errors and no reads

Supplies accessibility
Five Key Areas for Improvement

Facilities Layout
 Material Flow
 Material Handing Steps
 Shipping and Receiving Size & Location
 Value Add Operations
Material Flow Diagram
 What to look for -
Facilities Layout

Material flow logical and sequential

Proper stocking and staging aisles

Are value added areas part of the flow

How may handling steps are required to

receive and ship each type of product

Equipment obstacles to material flow

Logical facility expansion capability

Five Key Areas for Improvement

Information Systems / Procedures

 Warehouse Management Systems (WMS)
 Warehouse Control Systems (WCS)

 Networking and Communications

 External System Interfaces - Host, WEB, etc.

 What to look for -
Information Systems

WMS and WCS system performance

Network performance and response time

Availability of equipment for peak

Spare equipment and data backup

Inventory and order balancing between

the Host System and the WMS
 Home Fashions Manufacturer
Issue

Brand new WMS and facility expansion

People required to share RF Equipment

CPU to small for processing orders/waves

Results

Customers not receiving shipments

Corporate finances impacted

Action

Purchase equipment and new CPU

Four weeks required for improvements
 What to look for -
Procedures

Are documented procedures available for
each job in the distribution center

Are engineered labor standards available

to accurately measure job performance

Ask to see the training plan for new

employees
Five Key Areas for Improvement

Management
 Company Vision
 Metrics
 Training Programs
 Skill Sets
 Good Communications
 What to look for -
Management

What are the metrics tracked today

What metrics should be tracked in the

future to improve financial performance

How often are daily and month metrics

shared with employees

What is the employee turnover rate

 Creating the On-site Plan

Outline a day-by-day plan

Break the plan into 2 hour intervals

Identify participants for each session

Define purpose of each session

Identify specific time for lunch and attendees

Identify a time each day to review plan for
next days activities and recap
Outline of 5 Day On-Site Agenda

Day One
Project kick off and goals

Facility tour and layout

Receiving and putaway
operations review

Order and wave process
management review

Day Two
Picking & packing review

Replenishment process

Order consolidation/loading

Shipping and manifesting
Outline of 5 Day On-Site Agenda

Day Three
Returns and quality control

Cycle counting & inventory
control

Equipment & automation

Information systems review

Day Four
Status discussion with

project sponsor

Metrics and staffing plan

Review of training program

Review current space use
Outline of 5 Day On-Site Agenda

Day Five
Follow up meetings to
review specific operations

Review operating budgets

On-site wrap up meeting

and next steps of study

Collection of any missing

information or data
 Following the Plan

Review the project plan daily and track status

Time is essential and people are more open

with information at the beginning of the study

Plan the meetings and interviews early -

schedule with key people at start of study

Keep project sponsor informed about

progress of study
 Interviewing for Results

Schedule the interviews in advance

Know the goals for the interview

Plan the questions prior to the meeting

Obtain information by asking open-ended

questions about the key topic

Speak less often and listen more

 Making the Most of Meetings

Plan the goals to align with the participants

Always prepare an agenda and distribute in

advance

Start on time and end on time

Items off the agenda should be addressed in

a separate follow up meeting
 Data Collection Techniques

Observation of the processes

Identify and collect data early for analysis

Assign specific people to provide data

Data may be found in paper or soft copy

reports, documents, drawings and
miscellaneous files

Always note source of data and time received

 Typical Information to Collect

Daily and Monthly Reports

Operating Procedures

Pick Documents and Labels

Receiving and Shipping Documents

Training Documents and Plans

Daily Staffing Plan

Current Issues Lists

Current and Future Project Plans
 Analyzing the Findings

Detailed analysis can provide multiple views

of how the operations are performing

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results

We Are Here
 Improvement Opportunities

Receiving and Putaway

Order, Wave and Transportation Planning

Replenishment

Pick Document and Label Printing

Picking and Packing

Order Consolidation and Loading

Shipping and Manifesting

Cycle Counting and Inventory Control

Returns and Quality Control
 Improvement Opportunities

Receiving and Putaway
 Review vendor labeling to identify opportunities to
better label product to facilitate scanning or manually
recording information at receiving

 Container receiving may require sortation equipment

to facilitate palletizing by sku

 Verify directed putaway activities are accurately

placing the product in the closest location to where
product will be picked
 Improvement Opportunities

Order, Wave and Transportation Planning
 Is the facility shipping every order available to
ship every day -- the typical answer is NO!

 How many waves are being run daily and if the

number is greater that 8-12 then opportunity
exists to better control the release of work

 Is routing of orders creating a bottleneck to the

shipment process - then route prior to release of
work to picking
 Improvement Opportunities

Replenishment
 Primary pick locations should typically be
replenished no more often than every other day

 Verify replenishment tasks are completed in a

timely manner to support picking requirements

 This is the time to look at slotting and verify the

correct space is available to minimize
replenishment requirements.
 Improvement Opportunities

Pick Document and Label Printing
 Verify the operation has the printing capability to
meet peak demands

 Verify the printers are well maintained and labels

printed with quality bar codes to avoid scanner
read rate problems later in the process

 Verify all documents are actually required - can

some of the documents be eliminate by adding
information to an existing label
 Improvement Opportunities

Picking and Packing
 Picking tasks performed in a best pick sequence

 Pickers waiting for picking documents/labels

 Packing operations balanced with picking

 Packing workstations configured for efficiency

 Efficient pick/pack strategies in use

- Pick to shipper
- Pick to label to shippable box
- Zone routing
 Improvement Opportunities

Order Consolidation and Loading
 Are orders audited and consistently missing a
package

 Use of scanning equipment to verify product is

loaded on correct trailer

 Utilization of fluid loading for parcel carriers

 Are expeditors utilized to find missing cartons

 Improvement Opportunities

Shipping and Manifesting

 How long does is take to close the nightly parcel
manifest

 What shipping errors are reported from

customers or carriers

 Rate shopping in advance or at shipment

 Improvement Opportunities

Cycle Counting and Inventory Control

 How often are cycle counts performed and is the
warehouse required to be shut down during
cycle counting activities

 Are inventory balances synchronized with the

Host systems on a daily basis
 Improvement Opportunities

Returns and Quality Control
 What percentage of returns are the result of
picking and shipping errors

 Use of in-line scales to verify outbound shipment

 What percentage of shipment actually have a

quality verification process performed

 Are receipts held on dock during quality control

checks
 Analysis

All identified opportunities for improvement
deserve to be analyzed for impact to the
operation

Spend time collecting cost and savings

information to build a cost/benefit analysis

Don’t short change this step in the process

as putting a value on all recommendations is
important to find the high impact changes
 Prioritizing the Findings

Prioritizing the findings is key to defining
what improvements have the greatest impact

Look at improvements based on

Ease to implement

Speed to implement

Cost vs. savings of improvement

Give all team members the opportunity for

input to priority of recommendations
 Specific Analysis

Staffing Analysis

How many people are required

Product Slotting Analysis

Are the fastest movers in the most
convenient and easiest to pick locations

Warehouse Within a Warehouse (WWAW)

 ORDER ANALYSIS
Daily Orders
1200

1000

800
Orders

600

400

200

0
99

0
99

99

99
/9

/9

/0

/0

/0

/0

/0

/0

/0
2/

5/

4/

7/
30

27

25

22

21

18

16

13

13
/2

/2

/2
8/

8/

9/

1/

2/

3/

4/

5/

6/

7/
10

11

12

Order Date

Average 400.06
Maximum 1,189.00
Minimum 8.00
Peak/Average 2.97
 ORDER ANALYSIS
Daily Lines
6000

5000

4000
Lines

3000

2000

1000

0
99

0
99

99

99
/9

/9

/0

/0

/0

/0

/0

/0

/0
2/

5/

4/

7/
30

27

25

22

21

18

16

13

13
/2

/2

/2
8/

8/

9/

1/

2/

3/

4/

5/

6/

7/
10

11

12

Date

Average 2,249.62
Maximum 5,786.00
Minimum 112.00
Peak/Average 2.57
 ABC ANALYSIS
Lines Shipped By Category
400K

350K

300K

250K
Lines

200K

150K

100K

50K

0K
A

E
C

F
Catagory
 ABC ANALYSIS
Full Orders by Category
45K 100

40K
80
35K
30K
60

Percentage
Full Orders

25K
20K
40
15K
10K 20
5K
0K 0
A

F
C

D
Catagory

fullorders fullordpct #Cumulative Order

Percertage
 Velocity Analysis
'A' Sku Velocity Dynamics
350

300
271
248
250 237
Number of skus

200
151
150 128

100 84
70
46 49
50 31 32

0
00

00

00

00

00

00

00

00

0
.0

.0

.0
2.

3.

4.

5.

6.

7.

8.

9.

10

11

12
Number of months overall sku velocity equals month velocity

2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00
 What level of SKU/Order
Profiling analysis do you use?
• None
• Basic SKU/Order Profiling
• Advanced Profiling Analysis
• Not Applicable

Polling Slide
 Optimizing the Results

The business case for improvements to the

operations must be presented to senior
management for approval to implement

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results

We Are Here
Develop An Integrated Solution

Integrated
Solution

Sum of the Pieces

 The Business Case to Improve

Prioritize the savings

Utilize actual facts and data

Develop a business case with costs included

Create the Return-On-Investment

Gain buy-in to the business case early

Be prepared to justify each individual

improvement as a stand alone project
 Case Study
Current Situation

School and Office Supply Industry

48,500 square foot facility with 14 pickers

Average 3,000 lines per day

Average DC wages = $14/hr with 30% fringe

Lines Processed per man-hour = 26

Processing costs per line = $.70

 Case Study
The Goal

Improve picking productivity

Reduce non-picking labor for receiving,

replenishment and shipping

Decrease processing cost per line by 15-20%

 Case Study
Operational Audit

Review of processes performed looking for

improvement opportunities

Interviews with key people and floor associates

Analysis of current metrics

Definition of improvement opportunities

 Case Study
Improvement Opportunities

Picking areas re-slotted to reduce travel time

Implemented fast pick area for skus fitting

Warehouse Within a Warehouse concept

Improved supplies delivery

Started picking directly to shipper for certain

products
 Case Study
Result of Changes

Picking productivity increased 22%

Stocking requirements reduced 10-12%

Less errors in picking

Less overtime
 Case Study
Savings Summary

Original processing costs = $.70 per line

New processing costs = $.58 per line

Net Savings = $.12 per line

Savings = $93,600 in first year

3000 lines/day X 260 working day = 780,000 lines/year

780,000 lines/year X $.12 line savings = $93,600 /year
 Case Study
Business Case

Savings = $93,600 in first year

No new equipment required

Process changes and slotting are only costs

Cost of inventory relocation / slotting = $50,000

Payback = $50000 / 93600 $/year = .53 years

 Summary

Always follow a plan and process

Understand the goals of the review

Always leave the operation with metrics to
track the day-to-day performance

Plan a follow up meeting in 3-6 months to
review progress on recommendations

Plan Execute Analyze Optimize

the the the the
Study Review Findings Results
Question & Answer
Time