POA - Case Study HLF - v2

Case Study:
Home Living
Factors (HLF)
Operational Auditing: Influencing Positive Change Case Study: Home Living Factors (HLF)
CASE STUDY: Home Living Factors (HLF)
Organization Background
Home Living Factors, founded in 1985, is a furniture retailer currently operating six retail
outlets in out-of-town locations. The organization sells self-assembly flat-pack kitchen and
bedroom furniture, and smaller accessory items such as lamps, bedding, rugs, and cookware.
Its product offering is mainly targeted to value-oriented customers. Each store occupies
around 10,000 square feet, much of which is taken up by warehousing.
Behind the public face of the retail stores, is a network of two direct suppliers of the Home
Living Factors fitted kitchen and bedroom brand, and about forty direct suppliers of other
furniture and accessory items. Home Living Factors relies on close partnerships with its
suppliers to achieve both ongoing supply efficiency and new product development
representing the organization’s brand.
Mission
Home Living Factors’ mission is ‘to help more people live better lives in their homes.’
Strategic Objectives
• Improve our customers overall shopping experience: by enhancing the quality of our
service to customers and listening to their needs and expectations.
• Achieve operational excellence: by continually improving the efficiency and
performance of our operations and practices across the organization.
• Enable our employees to excel in their role and contribute to the company’s success:
through better job design and training
• Foster sustainable, collaborative relationships: with our people, supplier network and
customers.
Key Financial Data:
• Sales: $12.1m
• Average Sales per Store: $1.2m
• Operating Margin: 13.6%
Copyright © 2022 by The Institute of Internal Auditors, Inc. All rights reserved. (V2.0)
Corporate Office
Home Living Factors’ corporate office is located in downtown Westborough, MA –

approximately two miles from the flagship store. The management structure below defines
the core functions based at the corporate office:
• Vice President, Store Development.

• Vice President, Store Operations.
o Director, Warehouse Operations.
o Director, Sales and Marketing.
• Director, Human Resources.
• Corporate Controller, Finance and Treasury.
• Director, Internal Audit.
• Vice President, Supply Chain Services.
• Director, Technology and Communications.
How Customers View Home Living Factors
For the past year HLF has experienced an increasing level of customer complaints and
decided to carry out detailed research with a representative sample of their customer base.
The HLF surveyed their customers to determine ‘how well’ they were performing in a number
of areas. Customers were asked to rate performance on the basis of a sliding scale, the
aggregate results are as follows:
• Store Locations - 84% of customers said the stores were well located.
• Customer Service - 52% of customers felt customer service levels were good, while
48% said customer service was poor due to:
o Increasingly long wait times at the Pick-up Point.
o Order inaccuracies - therefore having to return and exchange incorrect items.
o Inadequate product knowledge by staff.
• Availability of Stock – 42% of customers experienced out-of-stock situations.
Seemingly 17.8% of items are consistently out-of-stock.
• Product Quality: 81% of the customers conveyed the products to be of good quality.
However, of the 81%, over 30% of the customers said they had needed to return and
exchange damaged products.
• Price – 75% of customers believe products are price competitive.
• Range of Products - 79% of customers said the product range was good. Of the 79%
over 50% of customers said they would not consider going anywhere else to buy
kitchen cabinets.
In response to these results the:
• V.P. Store Operations recently met with the Director, Internal Audit to discuss the
need for several operational audits.
• Director, Warehouse Operations established performance indicators for store
warehousing activities.
HLF WESTBOROUGH STORE
Store Location
The store is located approx. two miles outside of Westborough, in the ‘warehousing’ area of a
retail park. In front of the store is a large flat, open, car parking area with clearly marked
spaces. Painted directional arrows navigate customers to the Pick-up Point loading area. The
retail park is accessible directly from R160, a state highway, and is also served by public
transit.
HLF Store Concept
The Home Living Factors – Westborough store is designed to facilitate the smooth flow of
customers from parking, moving through the showroom, to ordering and picking up goods.
Clearly marked in-store signs provide customers a short cut to the various showroom display
areas so customers can visit just one area, instead of having to go through all preceding
areas. Kitchen and bedroom display areas allow the customer to inspect the design and build
quality of the products and examine samples of different finishes and colors.
The HLF store concept allows customers to ‘make up their mind in their own time’ however,
sales personnel are available at ‘information desks’ to provide advice about the product
range, and design customer’s kitchens or wardrobes using computerized planner tools.
All furniture items, kitchen / bedroom cabinets, and smaller accessory items carry a price
ticket with a sales item code. For furniture and kitchen / bedroom cabinets the customer
completes a manual sales requisition with the item codes and quantities they want to
purchase. When sales personnel design a kitchen or bedroom for a customer, the plan / quote
replaces use of the manual sales requisition.
Accessory items are displayed in a separate area within the showroom for self-picking by the
customer. Customers order and pay for goods at the checkouts and then pass through the
showroom to the Pick-up Point area of the adjoining warehouse. The warehouse Pick-up
Point exit has service points and a loading area that allows customers to bring their vehicles
from the car park and load their purchases.
Technology
The ‘HLF Integrated Store System’ software system was developed in-house and
implemented in 2012. The system comprises of three key modules: Point of Sale; Warehouse
Management; and Inventory. Functionality wise these serve as HLF’s automated transaction
processing, recording, and information systems.
Materials handling processes are not fully technology enabled – instead they are manually
intensive processes.
In-Store Team
• General Manager - responsible for the store's profit and loss account, hiring, and
management of staff, and all aspects of warehouse performance including accurate
reordering and forward planning of inventory items, storage utilization and
organization, and warehouse productivity.
• 4 Sales Staff - provide customer assistance and advice about the product range, and
design kitchens and bedrooms for customers on request.
• 1 Office Supervisor - responsible for back-office activities including, cash

reconciliation and banking, dealing with customer enquiries, and day-to-day
supervision of the cashiers and office admin.
• 2 Cashiers – process customer’s sales orders and payment method via the electronic-
point-of-sale module.
• 1 Office Admin- performs back-office activities, including issuing Pick Notes to

warehouse personnel, processing picked order confirmations and in-bound receiving,
updating inventory records, and other tasks as directed by the office supervisor.
• 1 Housekeeping Staff – responsible for in-store housekeeping.
• Manager, Store Warehousing - is responsible for the day-to-day management of

warehouse staff, storage and handling equipment, overall organization, appearance
and warehouse safety, and sequencing of warehouse activities.
• 5 Warehouse Staff – work on a cross-functional basis between receiving, put-away,

picking, and housekeeping
WESTBOROUGH STORE WAREHOUSE OPERATIONS
Key Activities
The key warehousing activities at HLF Westborough store include:
• Warehouse management.
• Receiving.
• Put-away.
• Picking.
• Shipping.
Warehouse Operations Objectives
• Maximize the effective use of warehouse resources while satisfying customer
requirements.
• Increase efficiency in picking, put-away, and replenishment of primary stock.
Measures of Warehouse Performance
Receiving
• Utilization – Receiving dock door utilization %.
• Quality – Accurate receipts %.
• Cycle Time – Time taken from delivery to put-away.
Put-away
• Utilization – Utilization % of labor and equipment.
• Quality – Perfect put-away %.
• Cycle Time – Time taken for each put-away.
Storage
• Cost – Storage cost per item.
• Productivity – Inventory per sq. foot.
• Utilization – % Location and cube occupied.
• Cycle Time – Inventory days on hand.
Picking
• Cost – Cost of picking per order.

• Productivity – Order items picked per hour.
• Cycle Time – Time taken for each order picked.
Warehouse Management
Warehouse management is concerned with managing:

• Through-put of physical products.
• Use, and maintenance of warehouse equipment.
• Housekeeping and safety in the warehouse.
• Storage utilization and organization.
• Inventory classification.
• Warehouse staff productivity.
All warehouse practices are documented in an operating manual.
Warehouse Equipment
Home Living Factors primary warehouse equipment comprises of the following:
• Swing Mast Trucks – used to unload trailers, move pallets, and for primary stock put-
away.
• Rolling Warehouse Ladders – used to pick orders from pallet racks above floor level.
For safety purposes, the ladder automatically locks in place when the Picker steps on
the first step.
• Dock Levelers - The two receiving docks are equipped with dock levelers which are
used to bridge the gap between the dock and the trailer during unloading. The dock
levelers move up or down to meet the trailer bed so that the mask trucks can make a
smooth, safe transition into and out of the trailer.
Preventive maintenance plans are in place for the swing mast trucks and dock levelers.
Maintenance of pallet racking is on an as needed basis and damaged racking is repaired or
replaced accordingly.
Housekeeping and Safety

A specific warehouse cleaning schedule has been established to ensure a clean, safe working
environment, whereby high-traffic areas are swept once a day and areas that don’t receive
much activity are swept once a week. When high traffic aisles are congested cleaning is not
possible in accordance with the schedule.
Excess pallets, totes and creates are neatly stacked and stored at the rear of the warehouse.
Pallets are recorded on inventory as a non-saleable stock item, with a baseline cost.
Storage Utilization and Organization
Home Living Factors operates a ‘fixed locations’ storage system and utilizes pallet rack and
wide span shelving as storage media.
Organization
Available storage space is organized into three zones: primary stock, forward pick, and a
staging area for customer orders.
The primary stock zone includes various types of inventory - good stock, damaged stock,
reserve stock, and customer returns. Inventory types have not been designated separate
areas within the zone.
The forward pick area allows faster moving items to be picked from a much smaller, more
compact area and helps to reduce picking travel time.
Location System
Fixed locations are manually designated during ‘Store Development’ based on product type,
weight, size, space requirements, and quantity to be held on-hand. Locations are catalogued
alphabetically by aisle and numerically by shelf / pallet.
The Warehouse Management Module assigns the location for put-away items based on the
item-code and available capacity of the designated locations. The locations catalogue is
updated / maintained by the Manager, Store Warehousing.
For identification purposes, aisle locations are ‘hand painted’ on the warehouse floor at the
end of each aisle, and small handwritten labels are used to mark shelves and pallet rack
positions.
Storage Media
Racking allows for stacking of product up to five levels high to maximize storage capacity.
• Selective Pallet Racking is used for storage of primary stock items on pallets. The
single depth pallet racking is placed back-to-back, with narrow aisles [approx. 6 feet]
between rows for put-away and retrieval. See picture below.
• Wide Span Shelving – is used for smaller primary stock items that are hand-stacked,
and loose pick items that are stored in bins. Sometimes, bins hold more than one
product type.
• Single Deep Pallet Racking – is also used for the forward pick-face area, but
configured as two single rows to provide immediate access to fast moving items.
All flat-pack stock items are secured inside recyclable, branded cardboard packaging.
Scheduled Replenishment
Scheduled replenishment of primary stock utilizes minimum – maximum demand

replenishment concepts. Replenishment of forward pick-face items from primary stock
locations is performed daily, and driven by sales activity.
Inventory Classification
For fitted kitchen / bedroom cabinets, the inventory system breaks-down the ‘sales-level item
code’, into a series of stock codes representing the components and parts of the cabinet. For
all other furniture products and accessory items, the sales code and items code are the same.
Stock accuracy is monitored on the basis of perpetual inventory, in that all stock locations
are subject to an inventory count on a quarterly cycle.
Receiving
All shipments from suppliers are scheduled in advance. A receiving log is prepared each
evening indicating dock activity for each shipment the next day. Warehouse staff are
generally scheduled as ‘receiver’s’ based on amount of in-bound activity except on the
store’s busiest sales days when priority is placed on order picking.
Before unloading a truck, receiver checks the carrier’s delivery note to ensure shipment is at
the right store location and uses dock levelers to bridge gap between dock and carrier’s
trailer. A mast swing truck is used to off load the shipment from the trailer and into the
receiving dock area. The number of physical pallets / items is compared to the delivery note,
and the cardboard packaging of items is checked for damage.
Shipments unloaded on Thursday’s and Friday’s tend to remain in the docking area until
after the weekend.
Put-away
Once receiving activity is physically completed Put-away documents are generated, which
includes the storage location for the items. A swing mast truck is used for put-away of pallets.
The mast swings 90 degrees to accommodate the very narrow aisles. Inventory is not
updated until the merchandise is put-away and confirmed.
Picking
The picking process employs a paper-based pick note, which is automatically printed at the
central terminal in the warehouse and a discrete order picking method - whereby one order-
picker picks one customer order, one line-item at a time.
A pick note is automatically submitted for printing via the warehouse printer on completion
of a customer sales order. The next available Picker receives the paper-based pick note –
which includes the picking location of individual primary stock items listed – from the Office
Admin. Each picker has their own preferred path to perform picking duties, although the
basic picking process is the same:
1. Picker walks to a picking location, and manually picks item – one at a time - from the
primary stock or forward pick face location.
2. Rolling Warehouse Ladders are used to retrieve items on pallet racks above floor level.
3. Picker carries item to staging area, and places it on a flat-bed cart.
4. Picker transverses the picking tour, repeating steps one and two, until order is fully
picked.
5. Picker check marks items on pick note as they are picked, or marks item as out-of-
stock.
6. Picker pushes loaded flat-bed cart to Pick-up Point area, and calls out the customer’s
name. The Picker confirms total number of items with customer against their order.
7. Picking Cycle Time is the time lag between the sales order being processed in the
showroom and the customer’s order being retrieved.
Shipping
Home deliveries account for less than 5% of the retail stores sales.
Management Concerns
• High-turnover of warehouse staff.

• High percentage of picking errors.
BENCHMARKING DATA /INFORMATION
Home Living Factors

Industry Standard / Best Practice
Current Practice / Performance
Warehousing Cost Distribution – Industry
Averages
● Shipping: 15% ● Shipping: 5%

● Receiving: 15% ● Receiving: 15%
● Storage: 20% ● Storage: 15%
● Picking: 50% ● Picking: 65%
Cost
Cost of Picking per Order
● Highly efficient:$2.25 - $3.9 per order. Cost of picking per order = $5
● Good level of efficiency: $4 – $5.5per order.
● Low level of efficiency: +$5.6 per order.
Productivity
Picking Averages per Man-hour Current picking average per man-hour =
● High productivity: 175 – 150 units. 135 units.
● Good productivity: 149 – 115 units.
● Low productivity: - 114 units.
Utilization
Use of Picking Labor % Picking labor utilization = 95%
● High : 85- 100%
● Good : 60 – 84%
● Low: below 59%
Utilization
Use of Equipment % Utilization of Equipment = 50%
● High: 75 – 90%
● Good : 50 – 74%
● Low : - 49%
I.T. Capability
● Leading Practice: Use of radio frequency Current practice is the issuance of a
communication. picking docket to next available picker.
● Good Practice: Bar code technology. The document includes the picking
● Standard Practice: Picking docket with SKU location and SKU number / description.
and location information.
Home Living Factors

Industry Standard / Best Practice
Current Practice / Performance
Order Picking Mode
● Leading Practice: Batch order pick by zone
with sortation / accumulation. Current practice is single order pick by
zone and location.
● Good Practice: Single order pick by zone
with sortation / accumulation.
● Standard Practice: Single order pick.
Product Picking
● Leading Practice: Direct Loading – where
products are conveyed directly to the Current practice – the picker palletizes
loading dock for direct loading into the the customer’s order at the pick-face as
he/she traverses the picking tour.
customer’s vehicle.
● Good Practice: Downstream palletizing -

products are picked onto conveyers and
sorted at the staging area.
● Standard Practice: Pick-face palletizing –

picker palletizes at the pick-face as he/she
traverses the picking tour.

POA - Case Study HLF - v2

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Case Study:

CASE STUDY: Home Living Factors (HLF)

Key Financial Data:

Home Living Factors’ corporate office is located in downtown Westborough, MA –

• Vice President, Store Development.

How Customers View Home Living Factors

HLF WESTBOROUGH STORE

HLF Store Concept

• 1 Office Supervisor - responsible for back-office activities including, cash

• 1 Office Admin- performs back-office activities, including issuing Pick Notes to

• 1 Housekeeping Staff – responsible for in-store housekeeping.

• Manager, Store Warehousing - is responsible for the day-to-day management of

• 5 Warehouse Staff – work on a cross-functional basis between receiving, put-away,

WESTBOROUGH STORE WAREHOUSE OPERATIONS

Measures of Warehouse Performance

• Cost – Cost of picking per order.

Warehouse management is concerned with managing:

Housekeeping and Safety

Storage Utilization and Organization

Scheduled replenishment of primary stock utilizes minimum – maximum demand

• High-turnover of warehouse staff.

BENCHMARKING DATA /INFORMATION

Home Living Factors

● Shipping: 15% ● Shipping: 5%

● Low: below 59%

Home Living Factors

● Standard Practice: Single order pick.

● Good Practice: Downstream palletizing -

● Standard Practice: Pick-face palletizing –

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