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SCPD03 Warehouse Management Question: We audit a warehouse and its operations to obtain an early signal of trouble in this area of a company. Unlike human illness which more commonly strikes suddenly, troubles in a warehouse typically are slower to onset (and equally slower to recover from).    Write a journal article identify ‘why audit a warehouse?’, ‘what key aspects you would measure and monitor?’ and summarise with ‘the importance of auditing’. Answer: Introduction: Every company shall have the system of regular Auditing of not only the financial statements of the company but also the matters in which the finance is not involved. It includes areas such as human resource, information technology, stock management, warehouse management and other related areas. To achieve better efficiency and effectiveness in each of the operations of the company, the company incorporates either the internal audit in house or appoints some external agencies having specialization in the same. In this report, the audit of the warehouse has been considered and has been discussed with relevance to the garment industry. The report has been started with the meaning and the objective of the audit and the warehouse and then the importance has been cited as to why the auditing is important in the field of the warehousing. Then the aspect of audit has been covered as to how the audit will be conducted and what key aspects shall be monitored and measured. Accordingly, the ten key areas has been identified and listed and has been discussed in detailed. These are – ABC cycle analysis, safety measures, assets of the warehouse, activity efficiency – picking, dispatching and loading and unloading, labor efficiency, Warehouse Information Technology systems, equipments, contingency planning and the control of stock. All these key areas cover the financial as well non financial aspects and the data for financial aspect has been assumed. Each of these aspects has been described along with the graphs. After discussing each of the aspect the results thereon has been inferred from the analysis and then the report has been ended up with the appropriate conclusion and the recommendation thereon. With these considerations and the aims the report has been prepared into different headings and sub headings and the data has been obtained from reliable sources. Warehouse is defined as the place where the goods are kept for some period till the time it is distributed for sale. The goods include raw materials as well as the manufactured or the finished goods. The warehouses can be privately held as well it can be held by the government (Atieh, 2016). The companies are required to make their own choice as whether they want to keep their goods in the private warehouses or the government warehouses.     Audit is defined as the examination of the books of accounts or any other base material either statutorily or at the discretion of the management of the company so as to give the opinion on the authenticity and true and fair view of the financial performance and the financial position of the company. The examination shall be independent and shall not be influenced by any form of personal bias or interest rather the results drawn and interpreted shall be fairly done and that too without any influence and pressure. The audit can be performed by the in house internal audit staff of the company or by appointing the external agencies of chartered accountants firm who are specialized in the said fields.    Warehouses are the subjects which are easily prone to the trouble in any manner. It may be because of the sudden change in the customer relationships or because of the increase in cost of operating the warehouse and etc. Management of the companies always keep themselves in setting the benchmarks and the performance standards for each of the function of the company (Choy, 2017). They generally don’t get time to keep the consideration of warehousing the stock of the company as an essential part for the running of the company and rather focus on how to have the more and more profits in the company. First major reason as to why the audit is necessary of the warehouse activity is that it acts as a means to provide the early warning to the company that the warehousing function is in trouble which further helps the company to have the appropriate and necessary action in time (Chen, 2017). Another major reason is to reduce the gap if developed between the customer relationships and the company. It generally develops when the warehousing of goods is not kept as per the needs and the customer may switch to other companies. It will affect the long term relationship of the company that it developed over the years with the customers. Apart from its importance of the auditing in the Warehouse, in this part, the audit of warehouse has been discussed with reference to the key areas which shall be considered while conducting the audit. The total of ten key areas has been considered and the same has been discussed in detail. Cycle counting is one of the best methods of counting of the inventory. As per this method, one item of the inventory located in the particular area is verified physically or counted on the particular day which in turn does not hamper the regular working of the operations of the company. It is unlike to the physical counting of inventory which is done traditionally which includes the physical checking of whole of the quantity of the goods. It does not hamper the daily operations in any manner. It is the form of sampling technique under which if item is verified then it represents the whole of the class of that items (Lee, 2018). There are three forms of cycle count which are used: Control group Sample ABC Analysis For the purpose of this report, the ABC analysis will be considered. The ABC analysis is based on the principle of Pareto which states that the eighty percent of the results are due to the twenty percent of the causes. On the similar line in the field of inventory, eighty percent of the sales are due to the twenty percent of items. On this basis the items are divided into three categories namely: ‘A’ Category – Twenty percent of the items which counts for the eighty percent revenue ‘B’ Category – Fifty percent of the items which counts for the fifteen percent revenue ‘C’ Category – Thirty percent of the items which counts for the five percent revenue. It states that the A Category items shall be checked and verified on the regular basis. While auditing, it is required to be checked whether the bifurcation into different categories have been done in the correct and fair manner. It is because many companies fail due to incorrect bifurcation of the inventory items. Counting of items of the regular basis is difficult because the companies might not have enough resources for stock verification (Nettsträter, 2015). Auditor shall measure the effectiveness of the ABC cycle counting through the counting of the high value items defined as the ‘A’ category items and monitors through the application of the inventory software application as to whether the company has been applying the counting effectively and efficiently or not (Malik, 2017). This application provides the auditor with the idea as to whether the counting has been done properly and the stock has been correctly divided and is as per the books of accounts. Another thing of measuring the effectiveness is the timely counting of the ‘B’ and ‘C’ category items.  Warehouse assets are defined as the assets which are kept in the warehouse for the purpose of storing the goods of the company. For the purpose of the report, it is assumed that the company is having pallets, outers and totes which are essential for storing the goods. Assets shall be correctly and fairly verified because it’s only the asset which helps in storing the goods and if it is not managed and maintained properly then the company will be losing its customer in short term as well as long term. It shall be properly coded so as to ensure that the particular item of stock is stored in the particular asset (Richards, 2017). The audit is basically of the procedure and if the procedure is not there then the efficient development of procedures will be the audit observation. In this manner the warehouse assets are the other key area for which auditing is required in the total aspect.      Safety measure plays a very important role in the effective functioning of the warehouse. It is because if there has not been the safety measures then there will be the chances of happening of the uncertain event which may cause many forms of dangers to the company. It is monitored and measured using different ways. At first the auditor shall verify the safety policy of the company which has been documented and made available for the inspection (Stoll, 2015). On that basis the further investigation is carried out as to whether the company has maintained any accident book and if yes whether is updated or is pending to be updated for the last few months, whether the company has obtained the certificate stating the employers liability and the public liability, whether the company has the documented form of the health and safety policy and whether the same is being followed and so on.   Both the activities – picking and dispatching plays a very important role in the overall functioning of the warehouse activities. It is because if the goods are kept without the facility of having it timely pick up and dispatching thereon then the customer relationship so developed will be futile and will incur the losses to the company. For checking the efficiency, following areas are covered: The next pick area shall be close to the area where the goods are required to be dispatched. If its yes it will be said as measured excellent. The stock held at each of the point shall be sufficient enough so as to allow the stock movement to be held in the next shift. If its yes it will be said as measured excellent. The items which are heavier shall be picked first (Yan, 2018). The instructions for picking shall be clear and so as the dispatch so as to remove any sort of deficiencies. While dispatching the goods, the time for the delivery of the relevant goods shall be preplanned. Loading and unloading area is another activity which is very useful and shall be considered in the planning of the warehouse audit. It is because it is directly related with the labor hours and machines for the loading and the unloading of goods. As per the figure so stated, time taken to unload the goods is 60 hours. Its efficiency will be identified in relation to the number of hours actually taken and the number of hours budgeted or standardized (Lyon, 2017). Thus, it will be monitored against the policy document and measured with reference to the sales.   Labor efficiency is the other area which shall be considered. It is because of the fact that warehouse management totally depends upon the labors. If they are working properly and efficiently then only the company can stock the goods in the defined manner otherwise it ends up with the nil results (Fichtinger, 2015). Labor efficiency is measured by considering the number of hours taken under each activity and monitored against the benchmark if any set for the same. More efficient the labor is more profits the company will generate.     The IT systems stands for the Information Technology Systems that each of the company has in the normal routine functions. In terms of the warehouse, it is referred to as the Warehouse management system (Davarzani, 2015). Before monitoring the IT systems, the first step to check is that whether the company has the warehouse management system and if yes next step is to check whether the same commensurate the nature of the business of the company and then whether the company is having the regular back of data and etc. These are those assets of the company which helps in handling the materials of the company. At first it is required to be checked whether the staff members have the correct type of the license which is required to operate these material handling equipments like refer trucks, refrigerated trucks, etc. Second step is to check whether the same is sufficient as per the needs of the business (Laosirihonthong, 2018). Third step to monitor and measure the performance is to whether the handling equipments like forklifts maintain the level of the safe speeds or it is required to be controlled. In the case of every business, there should be the contingency planning. It shall be properly planned, prepared and documented. There are several factors for which the contingency planning is required (Hertog, 2014). For instance in case of the sudden breaks down of the machines, the time for which the system does not work for number of hours in a day, the issues which may arise among the labors which further will lead to non operation of the warehouses, the list of emergency contact numbers shall be updated and so on.   It is the most important area and which is monitored along with the application of the ABC technique of stock counting. It states that the stock as stored in the warehouse shall be properly controlled. It consists of the following measures: Whether the method of FIFO has been followed Whether the non moving items of stock has been dealt correctly Whether the stock items which are stored has been kept at correct temperature (Hufschmid, 2017) Whether the goods which are having the high value has been stored properly and so on. The warehouse and its key areas have been dealt properly and it is now clear that the warehouse is in itself a very big area which requires the close monitoring and measurement activity on the regular basis. The above analysis has detailed that the audit is very important in the warehouse and it has shown that the chosen company has all the documents in place and is working efficiently and effectively whether it is related to ABC cycle counting or is related to the contingency planning. The result therefore for the company is positive and is following all the processes which is required. .        Conclusion Auditing in warehousing has been revolved around the ten key areas and which have been flowed throughout the report. In order to conclude the report, the report has been the detailed and exhaustive one and has laid down the reasons as to why the warehouse function shall also be managed properly. It is therefore interpreted that the company is having the robust practices and technologies in relation to warehouse which is according to the current needs of the market. References Atieh, A.M.,  2016. Performance improvement of inventory management system processes by an automated warehouse management system. Procedia Cirp, 41, pp.568-572. Chen, Z., 2017, October. Research on warehouse management system based on association rules. In Computer Science and Network Technology (ICCSNT), 2017 6th International Conference on(pp. 208-212). Choy, K.L., Ho, G.T. and Lee, C.K.H., 2017. A RFID-based storage assignment system for enhancing the efficiency of order picking. Journal of intelligent manufacturing, 28(1), pp.111-129. Davarzani, H., 2015. Toward a relevant agenda for warehousing research: literature review and practitioners’ input. Logistics Research, 8(1), p.1. Fichtinger, J., 2015. Assessing the environmental impact of integrated inventory and warehouse management. International Journal of Production Economics, 170, pp.717-729. Hertog, M.L., 2014. Shelf life modelling for first-expired-first-out warehouse management. Philosophical Transactions of the Royal Society of London A: Mathematical, Physical and Engineering Sciences, 372(2017), p.20130306. Hufschmid, D., 2017. Integrated warehouse management, shipping, and inventory control system. U.S. Patent Application 15/394,149. Laosirihonthong, T., 2018. Prioritizing warehouse performance measures in contemporary supply chains. International Journal of Productivity and Performance Management. Lee, J.W., 2018. Antecedents of adopting corporate environmental responsibility and green practices. Journal of Business Ethics, 148(2), pp.397-409. Lyon, R.G., 2017. Warehouse management system,  Journal of Accounting, 201(1), pp.44-62 Malik, A.K., 2017. Inventory Model with Quadratic Demand under the Two Warehouse Management System. International Journal of Engineering and Technology (IJET) Vol, 3(3), pp.2299-2303. Nettsträter, A., 2015. Logistics software systems and functions: an overview of ERP, WMS, TMS and SCM systems. In Cloud Computing for Logistics (pp. 1-11). Springer, Cham. Richards, G., 2017. Warehouse management: a complete guide to improving efficiency and minimizing costs in the modern warehouse. Kogan Page Publishers. Stoll, J., 2015. Criticality analysis of spare parts management: a multi-criteria classification regarding a cross-plant central warehouse strategy. Production Engineering, 9(2), pp.225-235. Yan, B., 2018. Multi-objective optimization of electronic product goods location assignment in stereoscopic warehouse based on adaptive genetic algorithm. Journal of Intelligent Manufacturing, 29(6), pp.1273-1285.

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