How to Enhance Asset Management Functions for Warehousing Operations
May 21, 2018 - By: SC&H Group
Take a Step Back and Evaluate Your Process
In the world of warehousing, the most well-run organizations possess the ability to balance timeliness and cost effectiveness to obtain and manage assets – balancing reactive and proactive is a critical success factor.
Asset management procedures are often developed as a response to growing organizational demands, resource limitations, geographic constraints, and other reactive measures. The reactive nature of these procedures can differ from the proactive, structured strategies for the development of efficient, well-controlled procedures. This can result in an impaired ability to ensure warehousing operations contain effective processes and controls to help manages products and prevent misappropriation of assets.
Here are three common challenges within asset management functions, along with the risks each presents to organizations, and recommendations for practical solutions:
(1) Independent Operations: Organizations often operate multiple warehouse locations, each operating independently. Over time, each location may develop procedures that work best for them, and function without the benefit of centralized, macro-level control and decision-making.
Risk: Beyond the added complexity of multiple processes for similar tasks, unstructured independent operations can have financial repercussions. These include:
- Duplicative Purchases: Locations order parts that another location may have in stock.
- Unrealized Preferred Pricing: Using vendors other than those with whom the organization has negotiated pricing/invoicing.
- Missed Bulk Discounts: Failing to take advantage of discounts for larger, combined purchases.
Recommendation: While remaining cognizant of the differences between warehouse locations, ensure functions (e.g. ordering of parts and supplies) are coordinated – if not centralized – as a means of controlling the process. This will help ensure the procurement of optimal pricing from preferred vendors, and establish consistent inventory levels and re-order points to prevent overstocking.
(2) Process Documentation and Responsibilities: It’s universally recognized as a common challenge but developing and maintaining formally established centralized policies and procedures is a vital element of effective and consistent operations. Warehouse locations may operate based on their own environment, versus operating by standardized processes to build organizational efficiency and establish adequate controls.
Risk: The lack of clear guidance as a reference point for how activities should be consistently performed can result in inconsistent, unstructured, and ineffectively established procedures. This can impact efficiencies and necessary controls.
Recommendation: Each department within an organization – including asset management – needs to assess processes on a recurring basis. This evaluation should include a review of all duties and responsibilities assigned to each business unit and individual. Benefits include:
- Ensuring departmental activities/responsibilities are identified and documented
- Confirming employee workload is properly balanced and aligned with job duties
- Evaluating procedures to ensure they’re relevant and consistently performed
- Modifying documentation to remain accurate and reflective of processes and controls
(3) Obsolete Inventory: A primary responsibility of warehousing operations is to maintain an inventory of goods needed to meet the goals of the organization. Significant time and effort is spent ensuring that correct items are available to the end users within the timeframe needed. However, necessary focus should also be placed on process development and metrics to determine when stocked items are no longer needed, and what to do with those items.
Risk: The absence of a strict, obsolete inventory and disposal plan can result in:
- Warehouse locations carrying and reporting large dollar values of inventory that will never be issued
- Obsolete items consuming warehouse real estate that could be used to store more frequently used items
Recommendation: Controlling obsolete inventory is a necessary component of asset management. An effective method for the identification and removal of obsolete inventory can reduce excess ordering costs and reveal inefficiencies in the ordering process. The following elements should be considered to ensure effective obsolete inventory operations:
- Protocols for identifying slow-moving and non-moving inventory items
- Reporting functions to identify inventory that hasn’t been used for a specific period
- Requirements for assessing the continued need for inventory items
- Documented procedures to remove items from the inventory, and sell/dispose of them
Creating and implementing a plan to document and update critical processes throughout the asset management function on a recurring basis can help ensure appropriate oversight and control. The consistent use of current, comprehensive process documents across locations increases confidence that each warehouse is aligned with the goals and priorities for management, efficiency, and service. It’s this repetition that will foster an organizational culture of proactive thinking and reactive preparedness.
If you are interested in speaking to one of our BPI specialists about your asset management operations, or other areas of your organization that may benefit from a BPI action plan, please contact us today.