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How to Conduct a Warehouse Audit

A guide to do-it-yourself assessments for warehouse and operations managers

Warehousing Inquiry

warehouse being audited by a manager
Warehouse managers are always interested in ways to optimize and measure their success. Usually these discussions revolve around measuring outcomes–pick rates, errors, ship rates, damage, etc. In any walk of life, it’s good to take some time to reflect on the overall state of your work, and that’s what a warehouse audit should do.

Let’s dive into some things you should measure and how you should get started.

Why audit your warehouse?

Audits are done to evaluate your current condition, but also to prepare you for future conditions. They help you identify problems early and address them quickly, rather than waiting for them to fester into major issues.

You may want to audit yourself as a way to mitigate risks and understand where you are relative to your competitors and the needs of your customer base. It’s a good exercise in risk prevention. Understanding your operation more thoroughly helps you understand where improvements are needed and where you are at risk of either falling behind or having critical failures.

You may want to do so to understand your pain points–where there are chances to improve–but more importantly, to understand the root causes of these issues. For instance, a failure in the shipping department may be caused by processes in packing or putaway.

A deep dive into your operation will help you understand what’s wrong, what’s going well–and most importantly–why. It will help you identify problems earlier and root causes more accurately.

You may want to document your performance and clarify KPIs (key performance indicators). In many companies, where warehousing is unfortunately considered a cost factor and not value-add, documenting performance is a great move for managers and the warehousing operation itself. If you can demonstrate performance, you may have an easier time obtaining a budget or moving forward in your career.

What audits should consist of?

Warehouse audits should consist of the following broad elements:

  1. A rating of your current performance on the relevant metrics. Those metrics will not be the same for every operation and should include your most critical numbers.
  2. What comes next? What changes in the industry, the economy or your company may affect your operation in the coming years? This should involve a SWOT (strengths, weaknesses, opportunities, threats) analysis. (Keep reading: we get into SWOT in a bit more detail below.)
  3. What are the pain points? This simple focus should be on the things your employees and floor managers tell you. What causes the most issues and frustrations?
  4. What are the best opportunities for improvement? Once you understand your current condition, your future concerns, your strengths and weaknesses, you can create specific targets for future improvement.

The basic assessment always relies on information. Some of it you can gather from software platforms like ERP systems or WMS, if you have those in place. One critical source is to walk the facility and look for specific issues. Interview your order pickers, packers and other relevant staff. They have critical information you won’t find in any software.

Current condition

warehouse order picking cartons off a conveyor systemThe first thing to understand is where you are today. You probably have a pretty good understanding of this, but adding specifics will expand your understanding and provide a picture in its entirety. Some elements of the current condition include the following:

  • Processes: What processes are used, and where? How does your WMS factor in? How is inventory inducted, by who, and in what order? How is it put away or replenished? How is it picked? Break down your major processes into steps.
  • Data: What are your data sources? How can you improve them?
  • Order metrics: What is the turnaround time from receipt to shipment? How many orders can you ship in a critical time frame? If there are various order types (ship to customer, ship to store) how do they differ in standards and customer-driven needs?
  • Labor: Almost always the primary cost driver, using labor efficiently is critical for all warehouse operations. What’s driving your labor costs? Are you retaining key talent? What are the labor dollars per order? Where are you understaffed? How effective are your workers? Critically, how are you nurturing a culture where productivity is enhanced?
  • Organization: What is the slotting strategy? How is the facility laid out, and how does that affect operations? What issues are causing excessive walking and travel times? Where are people complaining about supplies or various inventory issues?
  • KPIs: If you don’t have a suite of key performance indicators, you should. This process is a good place to establish them, and continue tracking them over time. KPIs include all your critical numbers (ship times, damage, quality control, returns, etc). What matters to your company and customer base? All of those should be measurable KPIs.

More information: Creating warehouse benchmarks

Future expectations

If your audit reveals that the operation is humming along at peak efficiency, and all indicators are strong (or that there are many problems, but hopefully not!), the next step is to insert “what-if” scenarios. Every year, Cisco-Eagle conducts a deep environmental analysis of our company, markets and client base. We’re trying to understand trends before they form and create a major impact on our business. Your warehouse should do the same.

A SWOT analysis should be conducted during your audit. Good SWOTs blend hard facts and educated opinions. They tend to involve multiple departments and groups.

Strengths and weaknesses are typically evaluated as internal. These tend to be opinions supported by facts. A strength such as “we ship on time” should be supported by data. A weakness such as “we lack the space to grow” should have information on the available space and inventory slots.

Opportunities and threats are external in nature. A threat such as “increased fuel prices will increase our shipping costs and threaten our margins” are threats and should be accounted for. Threats (as well as other factors) should be supported by data whenever possible. Opportunities should be focused externally, then turned internal for solutions.

Problems and pain points

From your SWOT analysis and interviews with employees, you should be able to discern pain points, where specific issues are causing under-performance. These can be almost anything in the analysis, ranging from inventory levels to cramped conditions to equipment breakdowns to interpersonal problems between groups and individuals.

List them out and rate them for severity and impact on the business. Something that’s severe but relatively trivial is still important enough to address.

Opportunities for improvement

After all the analysis, you can now start to build out solutions. If you have a long list of documented pain points, opportunities and weaknesses to address, you will need to prioritize them. Some solutions are easy, while others are very difficult to implement. You should be able to hone in on the critical areas that impact customers and the health of the business to move ahead.

Remember to always include safety factors in your analysis. A Step-by-Step Safety Process for Forklifts and Pedestrians

Track your progress

Once you have done the hard work of identifying your critical issues, strengths, weaknesses, opportunities and threats and created a plan to address them, continue to audit regularly and track your progress. This helps you move forward. When we do these operational audits at my company, we always include notes on progress each year. Many of the issues will not be solved quickly. Sustained progress is key.

More resources

Scott Stone is Cisco-Eagle's Vice President of Marketing with more than thirty years of experience in material handling, warehousing and industrial operations. His work is published in multiple industry journals an websites on a variety of warehousing topics. He writes about automation, warehousing, safety, manufacturing and other areas of concern for industrial operations and those who operate them.

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