Automating Inventory Data Collection for One-Deep Full Pallets in Rack Storage
Inventory kept in warehouses, distribution centers, air cargo facilities, and similar logistics sites is a key business asset that gets reflected on the beneficial owner’s balance sheet. This inventory needs to be audited every so often, to match the physical count of goods with the corresponding records in the inventory management system.
Why Audit Warehouse Inventory?
The common perception of audits – tedious, time-consuming, expensive, unproductive, necessary evil – applies to warehouse inventory too, more so given the tens of thousands of pallets to be counted in a typical DC. Nevertheless, internal audits continue to be used to help track inventory accuracy, minimize stockouts, avoid spoilage, improve utilization, prevent fraud, stop pilferage, etc. – while external audits must be regularly conducted to comply with securities laws and customer contracts.
A variety of stakeholders are thus involved, including:
- Regulators of publicly traded companies
- Customers of 3PL service providers
- Internal auditors & accountants
- Audit committees, CXOs, Board of Directors
- External auditors
- Lenders, banks, etc.
Inventory auditors must confirm not only the existence of goods but also the rights to ownership – and the value – of such inventory. Audits can be in the form of daily cycle counts of specified locations to quarterly, wall-to-wall counts done by large (often external) teams that verify and record every single item in the warehouse. Various analytical procedures have been developed by auditors to randomly/statistically sample inventory data – instead of counting each item – and yet gain a reasonably accurate view of the entire warehouse inventory.
External audits are usually contracted out to third-party auditors to ensure independent scrutiny – these include not only the ‘Big 5’ firms but also a multitude of small, regional, industry-focused auditors. These auditors have to ensure that the audit processes and reports comply with regulations laid down by governmental authorities – while adopting industry best practices, and ensuring an ethical environment.
Technology-driven Inventory Audits
The resource-intensive nature of audits – combined with the central role of data – makes then well suited to automation using technology – software in particular. The ability to automatically filter, process and analyze large amounts of data – with the intent to quickly and comprehensively identify discrepancies – makes intelligent automation software ideally suited for audits. Internet/cloud-centric solutions make it easy for stakeholders from across the world to participate in audits, while cyber-security technologies ensure that data rights are enforced, and sensitive data is kept confidential. Graphical user interfaces, browsers, smartphones and the like further improve the user experience in audit processes – as do data visualization, content management, and instant-messaging tools.
Drone-based Data Collection for Audits
Data collection though has remained a challenge for audits – especially in the industrial sectors, where auditors have to certify the existence and value of assets such as large agricultural farms, coal stockpiles, mining aggregates, etc. Manual data collection has remained at the core of such audits, until recently when some of the top 5 firms have piloted the use of unmanned aerial vehicles (i.e. drones) for data collection. Most of such ‘proof-of-concept’ automation of inventory audits has so far been centered on outdoor use cases such as:
- Deploying drones to collect images/videos of coal stockpiles and using photogrammetry, 3D surface modeling and volumetric analysis to estimate the fuel volume,
- Deploying drones to collect images/videos of large farms and using image analysis & deep learning to estimate the crop yield and quality, and
- Deploying drones to collect images/videos of manufacturing lots and using computer vision & object recognition to estimate vehicle types & counts.
Drones for Warehouse Audits
Internal and external inventory audits at warehouses and DCs are turning out to be a compelling use-case for automation using drones. However, only recently has there been an attempt to collect barcode data using drones – the main hurdle being the ability to fly drones indoors autonomously – without access to GPS data. Drone automation companies have now figured out how to use AR codes, SLAM and related methods to navigate precisely in an indoor environment – without having to build bulky, expensive and unstable custom hardware. The combination of intelligent automation software with off-the-shelf drone hardware will thus lead to rapid adoption of drones for warehouse inventory management, including barcode scans for audits.
While a wall-to-wall count for a quarterly or annual inventory audit will require scanning pallets and cases in rack storage as well as bulk storage, substantial time, labor and equipment usage can be saved by deploying fully autonomous drones to scan rack storage alone. The human resources thus freed up can instead address inventory discrepancies, conduct root cause analysis, resolve auditor concerns, and improve inventory management SOPs for future benefit.
Autonomous aerial inventory scans are being adopted not only by warehouse inventory managers but also external auditors. For the latter, drones offer an automation alternative to hiring large teams (including part-time and over-time staff) across hundreds and thousands of logistics sites – generally at the same time given regulatory filing deadlines!
Software-driven drone solutions for warehouses offer many additional benefits from the auditors’ perspective, such as:
- Live video feeds during drone flights that enable the auditor(s) to fully observe the inventory counts, even remotely over the cloud,
- Location-wise image data that enable the auditor(s) to confirm the correct scanning and localisation of pallet barcodes,
- Detailed audit trails that enable the auditor(s) to check inventory data collected by the drone on a date-wise basis, and
- Secure, role-based access to inventory data that enable the auditor(s) to ensure that critical business information remains confidential.
Inventory audits at distribution centers and third-party logistics (3PL) facilities now face a new challenge – e-commerce! This distribution channel has accelerated the global supply chain and built up consumer expectations in the form of same-day delivery, free product returns and mass customization – making real-time inventory management a necessity instead of a luxury. As the inventory turnover increases at warehouses, the pace of audits must keep up – simply doing quarterly/annual wall-to-wall counts is woefully inadequate.
- Why Audit Warehouses, http://www.warehousingforum.com/news/2003_08.pdf
- Public Company Accounting Oversight Board AS 2510: Auditing Inventories, https://pcaobus.org/Standards/Auditing/Pages/AS2510.aspx
- Intelligent Process Automation in Audits, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3448091
- Eye in the sky: How drones are assisting with audits, https://www.cpacanada.ca/en/news/innovation/2019-02-12-audit-drones
- Prepare for Takeoff: Improving Asset Measurement and Audit Quality with Drone-Enabled Inventory Audit Procedures, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3335204
- PwC completes its first stock count audit using drone technology, https://www.pwc.co.uk/press-room/press-releases/pwc-first-stock-count-audit-drones.html
- EY scaling the use of drones in the audit process, https://www.ey.com/Publication/vwLUAssets/EY_scaling_the_use_of_drones_in_the_audit_process_en/$FILE/News%20release_Drones_Aug17_ENv3.pdf
- Can drones & AI-enabled document analysis support audits in the future?, https://ec.europa.eu/info/sites/info/files/tobias_albrecht_-_showcase_ey.pdf
- AI in the Accounting Big Four – Comparing Deloitte, PwC, KPMG, and EY, https://emerj.com/ai-sector-overviews/ai-in-the-accounting-big-four-comparing-deloitte-pwc-kpmg-and-ey/
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